Strategic Choices

Strategic Choices

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Strategic Choices

Executive Summary

The report undertakes a strategic analysis of the Coca-Cola Company “Coca-Cola” which focuses on the assessment of the approach utilized by the company to achieve market dominance. In addition, the report provides an understanding of the factors that have influenced the strategic direction utilized by the company, resulting in a strong brand identity and significant market share in the soft drinks market. The report undertakes an assessment of the Generic strategy utilized by the company as well as an assessment of strengths, weaknesses, opportunities, and threats posed to the business. The assessment of external and internal factors is critical towards understanding the future direction of the business.

Introduction

The Coca-Cola Company also referred to as Coca-cola is one of the leading brands operating in the global soft drinks market. The entity operates in more than 200 countries around the globe. The entity has a portfolio of more than 400 brands, which includes energy drinks, soft drinks, and bottled water. The success of the entity has been associated with its primary product Coke and its strategic marketing approach. The entity is renowned for the use of diverse and extensive advertisements as a platform for consolidation and growth of its market share, making it one of the most successful multinational corporations around the world.

As at the year 2013, the company had an estimated 42.2% market share of the non-alcoholic beverage market (Bartlett & Beamish, 2011). Over the past two decades, the company has been experiencing a reduction in sales because of growing consciousness amongst consumers over health problems such as obesity. Such conditions have influenced Coca-Cola to utilize long-term objectives focused on increasing its revenue twofold by the year 2020 and acquiring innovative and scalable premium products and brands.

Over the past few years, the company has experienced a significant reduction in its revenue, with financial reports indicating that the company had a net income of revenue of 18.3% in the year 2013, which reduced to 15.4% (Bartlett & Beamish, 2011). It is critical to take note that the reduction in revenues does not infer poor performance; rather the figures are accrued from the decline in the demand for carbonated products in the soft drinks market. Currently, coca-cola is faced with challenges of acquisition and diversification into the healthy drinks market. The mission and vision highlighted by the company are consistent with market trends taking place in the external environment. It is critical for the organization to undertake an examination of its external environment and develop appropriate strategies for survival and growth in the global market.

Discussion

External Analysis

Coca-cola has a number of remote environmental factors, which influence the success of the company. The beverage industry that Coca-Cola operates is influenced by political, social, technological, and ecological environmental factors. Remote environmental factors influence companies to develop strategies with respect to external factors, which present the firm with threats, opportunities, threats and weakness or constraints (Bartlett & Beamish, 2011).

1. Social

The growing incidence of consciousness amongst consumers has elicited concerns over the health effects of consuming carbonated drinks. The need to remain healthy has become an issue of concern for the entire soft drinks market due to its implications on sales. Consumers have become increasingly concerned about the nature and health implications of products that they consumer. The remote factor has influenced players in the beverage industry to develop healthy alternatives. In addition, companies are influenced to utilize healthy raw materials into their products. A large segment of Generation X, Y, and Baby Boomers has become focused on achieving optimal health (Bartlett & Beamish, 2011).

The social trend has influence companies across the global beverage industry to undertake the use of vegetable and fruits into their commodities, which is indicative of the power possessed by consumers. A recent Wall Street Journal noted that an estimated 10.5 million individuals aged 55 years, and above were members at selected health clubs. In addition, the figure is indicative of a fivefold increase since the year 1990, which can be attributed to the high incidence of obesity, hypertension, and other health concerns arising from poor diets and sedentary lifestyles (Bartlett & Beamish, 2011). The emergent trends in health and fitness amongst consumers present new opportunities for Coca-Cola to develop healthy alternative products that will attract such a market, thus increasing its revenue and market share.

1. Economic

A majority of business are usually influenced by prevailing economic conditions. The loss or growth experienced in an economy usually has a proportional effect on the status of a company. The World Bank notes that the levels of global growth are anticipated to be moderate at 3.0-3.3% from the year 2015 to 2017 (World Bank, 2015). High-income states will likely experience growth levels of 2.2% between the year 201 and 2017. Such anticipated forecast provides a basis for expected increases in sales of beverage products given that increased incomes will likely translate to disposable incomes. In the United States, disposable incomes are expected to increase by an estimated 2.5% between the year 2014 and 2019 (World Bank, 2015).

On the other hand, issues such as economic recession, high levels of unemployment and influence rates will influence the beverage industry. The World Bank notes that the inflation rate in the world reduced from 3.6 in the year 2012 to 2.6 in 2013, whereas unemployment in the global market was at 6% in the year 2013  (World Bank, 2015). Factors such as high unemployment rates will likely result in the reduction of the anticipated performance levels of the entire beverage industry. Thus, companies will likely make low sales leading to a decline in revenues and profit margins. In addition, unemployment and inflation rates decline will provide a positive environment for beverage industry players such as Coca-Cola to continue their business with anticipation of income increases (Deresky, 2011).

1. Technology

Technology has become a critical factor in the success of modern businesses (Bartlett & Beamish, 2011). It provides organizations with the capacity for enhancing profitability and performance. Companies operating in the beverage industry are focused on the integration of technology into various functions and operation levels such as product systems and marketing. Companies in the industry are also able to utilize new technologies such as customer relationship models as a means of enhancing interactions and relationships with consumers. Such provides a company with the enhanced capacity to respond to customer needs, preferences, and market trends for optimized performance.

1. Ecological Environment

From the literature, it is evident that a majority of consumers are evaluating company involvement in ecologically sustainable practices. The growing sustainability trend has emerged as a critical decision-making factor amongst consumers. Sustainability trends have prompted companies to integrate ecologically sustainable practices in their operations. On the other hand, it is critical to note that the sustainability trend has also been influenced by government regulatory policies. However, a number of companies are undertaking sustainability initiatives that contribute towards reduction of pollution.

Industry Analysis

Industry level factors in the beverage industry such as market size, competition, and market trends influence Coca Cola’s strategic decision-making (Bartlett & Beamish, 2011). In the global market, coca-cola is described as a dominant player with a majority market share of the beverage industry. Despite the steady growth of the beverage, industry in terms of geographic, economic trends and size, such growth levels and market sizes will likely influence the profitability of players within the industry. In addition, continued economic uncertainty depicted by volatile energy prices and weakening foreign currencies will likely influence the involvement of companies such as Coca-Cola in foreign markets.

Porter’s Forces

1. Threat of new Entrants

The threat of new entrants into the beverages industry is noted to be relatively low. For instance, entry into the beverage market demands intensive labor, marketing, and high fixed costs, which serve as barriers of entry. In addition, new entrants are faced with limited or lack of access to distribution channels such as stores being utilized by existing players in the beverage industry. The presence of a small number of bottling plants demands that new entrants undertake construction of their facilities, which is capital intensive (Deresky, 2011). The presence of some valued brands such as Dr. Pepper Snapple Group, Coca-Cola, and PepsiCo, new entrants will have to contend with capital-intensive investments in advertising, marketing, and development of distribution channels.

1. Power of Suppliers

The power of suppliers in the beverage industry has been described as relatively low (Goodman, 2009). Ingredients used in the manufacturing of soft drinks are relatively common and accessible from a large number of suppliers who provide basic commodities such as food coloring and fructose corn syrup. Thus, low supplier power results in reduced levels of competition.

1. Power of Customers

Across the beverage industry, the primary buyers are independent stores, grocery stores and restaurants, which are indicative of the high power possessed by consumers. Consumers in the beverage market have a high power in the selection of their preferred brands and more so those that they wish to sell in stores based consumption preferences. Coca-Cola engages in the distribution of its products to major retailers for subsequent resale, with such products being purchased in large quantities (Bartlett & Beamish, 2011). Consumers have extensive power given that they may select other brands at any given time. In addition, the presence of a large number of alternative products in the market is a challenge for Coca-Cola, which renders the industry as highly competitive.

1. Threat of Substitutes

There is a low threat from substitute products in the industry. Despite the presence of several substitutes in the soft drinks market such as milk, water, and beer, such products do not serve as replacements for products provided by Coca-Cola. Players in the soft drinks market undertake regular expenditures on advertising and the establishment of efficient logistical and distribution systems, which contributes towards responsiveness to customer needs, and development of brand loyalty (Bartlett & Beamish, 2011). The low threat from substitutes means that the level of competition is relatively low.

• Competitive Rivalry

Competition across the beverage industry can be characterized as overly hostile. Coca Cola’s primary rival PepsiCo has been able to gain a significant market share of the beverage industry, which poses a threat to Coca Cola’s profitability. Brand identity across the soft drinks market is an important factor for success, which is exhibited by premium expenditures made by companies such as Coca-Cola (Deresky, 2011). The high level of competition within the industry has prompted the need for differentiation given that companies provide similar products and services. The high level of competitive rivalry amongst industry players such as Coca-Cola and PepsiCo renders the entire industry as competitive. In addition, marketing and advertising expenditures in the industry are likely to intensify in the fight for a reducing market given emergent health concerns shared by an increasing number of consumers.

SWOT Analysis

Strengths

1. Brand equity
2. Large market share
3. Strong marketing and advertising strategies

Weaknesses

1. Negative publicity
2. Minimal products that focus on healthy living

Opportunities

1. Global presence and expansion into emerging markets
2. Growth in health trend
3. Low-calorie products

Threats

1. Depletion of preferred raw materials
2. Shift in consumer tastes
3. High competition levels

In the assessment of the strengths, weaknesses, opportunities and threats at Coca-Cola, it is evident that Coca-Cola has a strong brand identity due to its strengths and opportunities. It is critical that the business focuses on a strong and aggressive strategy that is growth oriented.

Conclusion

From the analysis, it is evident that an aggressive is critical for Coca-Cola to win the price and product wars in the soft drinks market. A differentiation strategy remains critical towards the success of the company as it can be utilized in the creation of value to the consumers (Deresky, 2011). The emphasis on value to consumers through the delivery of high-quality products remains critical towards the development of customer loyalty. Differentiation may contribute towards enhanced brand image and product quality, which contribute towards customer satisfaction and subsequent levels of brand loyalty. Coca-Cola has been consistent in new product development and growth through expansion into foreign markets, which has been because of an extensive resource base. Concentrated growth has enabled the entity to achieve market dominance in the beverage industry.

References

Bartlett, C. A., & Beamish, P. W. (2011). Transnational management: Text, cases, and readings in cross-border management. New York: McGraw-Hill/Irwin.

Deresky, H. (2011). International management: Managing across borders and cultures: text and cases. Upper Saddle River, N.J: Prentice Hall.

Goodman, J. A. (2009). Strategic customer service: Managing the customer experience to increase positive word of mouth, build loyalty, and maximize profits. New York: AMACOM.

Harvey, C. P., & Allard, M. J. (2009). Understanding and managing diversity: Readings, cases, and exercises. Upper Saddle River, N.J: Pearson Prentice Hall.

Henry, A. (2008). Understanding strategic management. Oxford: Oxford University Press.

Jagpal, S., & Jagpal, S. (2008). Fusion for profit: How marketing and finance can work together to create value. New York: Oxford University Press.

World Bank. (2015). Global Economic Prospects, January 2015: Having Fiscal Space and Using It. Washington, DC: World Bank.