Table of Contents
- Company Background
- PESTEL Analysis
- Political Factors
- Economic Factors
- Social Factors
- Technological Factors
- Environmental Factors
- Legal Factors
- The 5-Forces industry analysis for Coca cola
- Substitute Products
- Buyer Bargaining Power
- Supplier Bargaining Power
- New Entrants
- Critical Success Factors
- The Strategic Capabilities
- Valuable Resources
- Rare Resources
- Imperfectly Imitable
- Non-Substitutable Resources
- Benchmarking Analysis of the Coca-Cola Company
- Value Chain and Value Network Analysis
- Strengths and Weakness of Coca-Cola Company
- Related Economics essays
The global business environment is facing drastic changes every day. Changes in operation costs, customer preferences, technology, political settings and competition are posing major threats to various operators. To stay in and possibly expand their businesses, companies are finding it necessary to re-structure their organizational and marketing strategies. This paper will critically analyze the success factors of Coca-Cola Company, both in the domestic and international markets.
The Coca Cola Company is a US based beverages company, which was founded in 1886 by George Pemberton in Atlanta, Georgia. Majoring in soft drinks, the initial recipe consisted of soda water, lime, certain shrub weeds and cinnamon. Today, Coca Cola has footprints in more than 200 countries worldwide and sells more than 400 brands. It is the global leader in its products category with an estimated market dominance of 45% market share as at end of the year 2010. The company has also shown a dedication to philanthropic projects like constructing wildlife reserves in Ossabow Island, the Amsterdam Olympic Games 1928, South Africa 2010 FIFA world cup, building more than 100 primary schools in China’s district of Chongqing (Reuters 2011, p. 1)
Coca Cola has enjoyed little political instability effects for many years in its history. Until recently, there were few major political inhibitions, an example being the Arab League Boycotts in Israel (Rothacher 2004, p. 25). In 2003, an addition into the soft beverages category in the Arab countries, Mecca Cola, was introduced in the Arab markets with the aim of competing with the coca cola products.
In the recent past, the effected of the global financial crises has affected the economical stability of Coca-Cola Company in areas, such as Africa and Latin America. This is due to reduced buying power of the customers as well as higher taxation rates that leads to increased operational costs of the firm.
The currently advancing trend of more preference for health drinks in most markets is affecting negatively of many soft drink companies. Coca cola has not been left out. According to the Children’s Defense Fund, more people are finding it necessary to use bottled water and diet cokes, as opposed to the conventionally carbonated and alcoholic beverages. It is therefore important for the company to invest more in diet drinks and healthier beverages as a product strategy.
Coca cola needs to create new products in line with advancing technology and adopt new marketing strategies to full use upcoming technologies. Already, its products are being advertised online, with heavy presence in such social sites as Twitter, MySpace, e-buddy and many more. In addition, the introduction of plastic cans was a good way of cost cutting and product portability enhancement as consumers can now easily carry the drinks.
The company adheres to all set government environmental regulations in its markets. The company also adopts community water partnership initiatives, such as the watershed stewardship initiative 2011, the coca cola Europe water footprint 2011 among others .However, there has been a challenge about the company’s environmental aggravation practices in India in which it was being accused of ground water depletion (Rothacher 2004, p. 20).
All the products of Coca Cola are patented, according to standard procedures. In the global market perspective and the company’s legal standing is not threatened.
The 5-Forces industry analysis for Coca cola
The 5-forces analysis include the following five parameters; new competitors, substitute products, buyer bargaining power, supplier bargaining power and competition rivalry.
There are new and existing entrants, such as PepsiCo has affected the profitability of the firm in some notable regions, such as the Latin America and African continent (Sherwood & Stevens 1993, p. 23).
Products that focus more on health are being emphasized, but the company is already in the front line in formulating new health products like diet coke. For instance, firms, such as Macdonald, Starbucks among others have come up with products, which substitute those of Coca-Cola Company.
Buyer Bargaining Power
As the global economy weakens, bargaining power may be expected to become weaker in some markets. By the relatively low priced Coca-cola, products coupled with the inertia of product trust may maintain the company is standing at present levels. The risk assessment for this force is medium
Supplier Bargaining Power
This is probably the most sensitive force. Globally, the cost of oil is rising, therefore affecting the price of certain areas, such as cost of production, among other notable areas. Further, the bargaining power of customers has increased in terms of selling price, hence affecting the profitability of the firm.
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As a result of reduced barriers of entry, the number of firms selling beverages products has drastically increased. These firms sell similar products as those sold by Coca-Cola Company. Consequently, these firms reduce the sales turnover of Coca-Cola Company, hence reduced profitability levels in some notable markets (Rothacher 2004, p. 78).
The global soft beverages industry is an oligopoly industry, dominated by just a few companies mainly coca cola, Pepsi and small upcoming brands like minute-maid. Entry into this industry is hard, and product prices are easily controlled by the key competitors
In the industry cycle, an industry can either be in the market introduction, growth or mature stage. The soft beverages industry can currently be seen to be in the growth stage, mainly due to introduction of new products with focus to health. Some have also estimated it to be in the mature stage, given the stagnation of stock prices for the industry’s main shares (Reuters 2011, p. 1)
Critical Success Factors
The critical success factors of Coca-Cola Company include proper strategic planning, customer knowledge, good industry evaluation and formulation of steady goals.
The Strategic Capabilities
Rothacher (2004, p. 28) indicates that strategic capability is the ability of a firm to survive, flourish as well as deliver future values.
For Coca-Cola Company, some of the distinctive strategic capabilities include that ability of the firm to maximize profitability and growth, in order to create value for the shareholders. To achieve this, the firm has made substantial efforts aimed at transforming the commercial models to focus more on customer value potentials, implementation of multi-segmentation strategies in the major markets driving innovation on products and services among other notable aspects.
There are some threshold strategic capabilities, which have proved useful to Coca-Cola Company, both in the short and long run. From the initial stages, the firm has been able to plant its brand name in its field and built images with a lot of integrity and dignity. This has enabled Coca-Cola Company to make business partnerships with major firms, especially those operating in the Latin America, Asia and Asia-Pacific regions. Consequently, the firm has been able to expand rapidly, thus more profitability in the non-traditional markets. Other threshold strategic capabilities are full operating potential, go-to-market approaches, managerial expertise among others (Reuters 2011, p. 1).
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One of the valuable resources owned by Coca-Cola Company is its high quality marketing strategies employed in various parts of the world. For instances, in 2010, the firm was able to allocate more than 15% of its resources for marketing purposes, hence higher profitability in 2011 .
One of the rare resources possessed by Coca-Cola Company, in comparison with close competitors, such as PepsiCo is its brand name. Globally, it is estimated that the Coca-Cola Company enjoys over 90% of customer’s loyalty because of this brand name, hence more sales turnover (Sherwood & Stevens 1993, p. 101)
Imperfectly imitable resources are those that cannot be copied to look as personal belongings of the other firms. It is estimated that Coca-Cola Company owns more than 400 brands and operates in more than 210 countries globally. This expensive venture is hard for competitors to duplicate, hence making it imperfectly imitable resources for Coca-Cola Company (Sherwood & Stevens 1993, p. 89)
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These are resources, which cannot be substituted from available resources. For Coca-Coal Company, one of the non-substitutable resources is the firms’ employees. The employees, who are located in various parts of the world, are extremely dedicated to improve the performance of the firm.
Benchmarking Analysis of the Coca-Cola Company
One of the benchmarking methods, which have been used to evaluate the performance of Coca-Cola Company, is through the high level of performances exhibited by the firm. The table below briefly indicates the performance of the firm for the last five years.
|Year||Sales revenues in million US$||Gross profit in million US$||Operating income in million US$||Net income in million US$||Dividend per share||Debt to equity ratios|
Rothacher (2004, p. 25) argues that Coca-Cola Company has substantially invested in various cost reduction dynamics, to survive this hard economic times. Some of them include production of high quality products at a reduced cost, thus increasing sales turnovers in some notable markets.
Value Chain and Value Network Analysis
The suppliers are partners of the firm, which supplies the systems with materials that include the ingredients, packaging, services and goods and the machineries. All of authorized and direct suppliers require complying with respected laws and regulations that include child labor, forced labor, freedom of association, as well as collective bargaining power. The customers of Coca-coal Company include large international chains of retailers and restaurants.
Strengths and Weakness of Coca-Cola Company
As indicated above, Coca-Cola Company is one of the successive companies in the 21st century. The success of the firm, both in the domestic and international markets can be attributed to high quality customer service as well as production of quality products at reduced prices. For instance, during this hard economic time, the company has been able to produce quality products like Fanta, Sprite among others, at reduced cots across the globe. One of the weaknesses of Coca-Cola Company is the general failure to invest in organic beverages, which are becoming more popular in some markets, such as North America and Latin America. Consequently, Coca-Cola Company has significantly lost a substantial number of customers in some of these areas, hence reduced profitability levels.
From the above information, it is clear that Coca-Cola Company is one of the most successful firms in the 21st century. This is due to the various critical success factors, which has been adopted over the last ten years. For instance, the firm has come-up with the vision 2020, where it hope to double its sales revenues in most major markets like the Asia, Latin America, among other areas. In conclusion, through the VRIN Analysis, it is evident that Coca-Cola will continue to be competitive in both the short and long run, if the adopted policies generate positive effects (Reuters 2011,p. 1).
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