Business Strategic Concept: The Coca-Cola Company

Introduction

The Coca-Cola Company is a multinational company with headquarters in Atlanta, Georgia. It manufactures non-alcoholic beverages and syrups, which it distributes through its franchised distribution system to various bottlers around the world. The company’s stock is listed on the NYSE and is on the Russell 1000 Index. Asa Candler purchased the brand and the production formula in 1889. The company’s brands include the flagship Coca-Cola product, Dasani, Nestea, Ades, Powerade, and Minute Maid among other brands that it sells across 200 countries (The Coca-Cola Company, 2018). The global company’s organizational structure is highly decentralized with two operating groups – the bottling investments and the corporate. The company has competencies deriving from its strong brand name, which provides it with a higher bargaining power and ease in market penetration. The company’s creative marketing has always protected its brands and its portfolios in the market.

According to Porter (1996), the changing competitive environment has led companies from a static and stable positioning strategy into a search for productivity, quality, and speed.

Business strategies are courses of actions taken by entrepreneurs in decision making to achieve the business specific objectives. The plan gives the company a competitive advantage in the market and creates customer loyalty. The competitive moves help business managers in exploiting opportunities, capitalizing on its strengths, managing threats, pooling resources, and gaining command in the market (Rothaermel, 2015). Business strategies are developed at three levels, which include the functional levels, by line managers and supervisors, the functional level, by general managers, and the corporate level, by top management. Corporate level strategies help in decisions like expansion and growth, takeovers, diversification, integration, and divestments. Functional strategies aid in operational decisions such as marketing, finance, and production (Hill, Jones, & Schilling, 2014). This paper seeks to find out the various business strategies adopted by the Coca-Cola Company towards its growth and dominance in the beverage market. Every business should have strategies to map out its path towards its objectives and to show how it responds to various unforeseen developments in the industry.

Growth Strategies

Most corporations are in business for purposes of profits and growth. However, businesses suffer many impediments in the business environment that threaten their life and continuity; some that lead to company dissolutions and acquisitions. Businesses use growth strategies to dilute the effects of competition and threats in the external environment. Commonly used growth strategies include market penetration, market expansion, product expansion, diversification, and acquisition. A company’s brand includes the names of its products, logos, and a slogan. A brand helps customers to identify the product amongst competing brands. A brand name sets the products apart and there is a need to build on quality and price in order to enhance the brand lifespan. Branding has helped the Coca-Cola Company to position itself amidst competitors like Pepsi where consumers perceive the brand quality as superior (Truong et al., 2017).

Porter’s Strategies

 Cost Leadership

Porter notes that business leaders should apply this strategy by targeting a broad market and selling its products at the least price possible. Cost reduction increases market share according to the law of demand.

 Differentiation

This strategy involves targeting a broad market using unique product features. The products are made more attractive and to suit consumer needs than competitors’ products due to its uniqueness. Innovations, research, and developments are required for this strategy to succeed, implying that the company must be financially fit to sponsor intensive marketing to create consumer awareness.

Cost Focus

The strategy involves focusing on a market with little competition and then offering products with the lowest prices.

 Differentiation Focus

The strategy focuses on a niche market where competition is low and introduces its products with unique features. Brand loyalty is the selling feature in this strategy.
 Collis and Michael Rukstad

They use the strategic sweet spot of a company in their analysis, which shows where a business meets customers’ needs in a way that rivals cannot (Collis & Rukstad, 2008).
They claim that Porter’s definition of a strategy is incomplete. They feel that a strategy should have three elements of objective, scope, and a competitive advantage. The three elements are sufficient for use in any arena of life be it business or military. The objectives should be specific, measurable, attainable, realistic, and easy to accomplish in a given period. Companies tend to confuse value statements and mission statements with strategic objectives. Defining the firm’s competitive advantage is twofold. First is the value proposition statement for the customer. The strategy must explain why the customers buy their products for it to remain relevant (Hjelmbrekke & Klakegg, 2013).  Value proposition helps the company to distinguish itself from its rivals. The competitive advantage should define the uniqueness of the product. The Coca-Cola Company’s value proposition promises happiness, uniqueness, and refreshing moments.

Cost Leadership

Collis and Michael provide that a firm should apply this strategy by analyzing its scope of operations and then determine the activities that are more important in that boundary and concentrate on them. The scope of a firm identifies the firms’ customers, geographical location, and prospects of vertical integration.

Cost Focus

The strategy involves determining the scope of operations and the objectives of the organization then formulating ways to attain the objectives by being aggressive on efficiency and product prices, which are consistent with the value proposition statement.

Differentiation Focus

The strategy focuses on a niche market where the competition level is not the key feature. The firms attain its strategic objectives by differentiating the product features that appeal to a wider set of customers

Differentiation

The emphasis is making the product unique by including features that appeal to a wider customer base and making the firm’s strategy distinct in order to allow employees to execute it. The distinction and clarity are made possible by the use of a value proposition statement to persuade customers why they should buy the firm’s products.

Paul Choudary

The strategy model explains how shifts are made from resource control to resource orchestration. The platform avails necessary infrastructure and rules for producers and consumers. The producer controls tangible and intangible assets. More attention is laid on the customer and the ecosystem value. As explained byVan Alstyne, Parker, and Choudary (2016) the pipeline business shows boundaries separating consumers, suppliers, and competitors shift just like in the platform model due to forces in the ecosystem.

Cost Leadership

Paul’s model uses the power of network effects to identify a market and sell at reduced prices. The strategy involves deriving economies of scale from the supply side where massive production reduces marginal and fixed costs hence low unit cost, thus, enabling price reduction to lower levels than competitors do.

Differentiation

The strategy involves leveraging on platform communities with superior network effects to enter new markets.

Cost Focus

The strategy applied by pipeline managers focuses on sales and profits increase through lowering unit cost of production and product prices. Managers of pipeline businesses focus on growing sales

Differentiation Focus

The differentiation focus by platform managers focuses on interactions that exchanges value between producers and consumers. The strategy used by platform managers involves differentiating who should access the platform and what can be done on the platform.

The Coca-Cola Competitive Environment

Substitutes

The substitutability of a product affects the demand for price elastic products. The Coca-Cola Company’s major rival is Pepsi, which targets the young generation. Competition at this level demands investments in product promotion and aggressive advertisements. The Coca-Cola Company has also ensured that its brand products cannot be imitated by creating unique features in taste, as well as, engaging in diversification strategy where it has increased its brands to reduce effects of profitability emanating from high competition for some products.

Threats of Entry

Investors usually assess the return on investment in an industry before making investments. Higher returns than capital invested attract more investors to the industry and affect the profits made by earlier investors, due to increased competition. One of the ways existing firms can minimize the threats brought about by new entrants is by imposing barriers to entry. One of the barriers to entry is ensuring that the capital required to access the market is prohibitive enough and hence new entrants must be financially sound. The Coca-Cola and Pepsi Company are enjoying a duopoly market structure where small entrants seeking to enjoy a level of their dominance are discouraged by the capital required to match the multinationals (Bagchi & Sivadasan, 2017). Government and legal barriers play a major role in prohibiting competition in some industries through regulations like patents, trade secrets, and copyrights. The government may license state corporations in the delivery of sensitive services and hence limit the participation of private players, as they are unable to comply with expensive government regulations. Existing companies may choose to allow in the new entrants and minimize their threats by retaliation in form of aggressive advertisements, promotions, and price-cutting. New entrants may not match such techniques as it may mean working below the breakeven point, as they cannot enjoy equal economies of scale as large and established firms.

The Coca-Cola Company targets a wide market through advertisements, but sells its products fairly above its competitors, due to its strong brand that attracts emotional attachment based on superiority in quality and taste. The company has mainly been segmenting its markets based on volume and capacity of consumers. The company uses various cost methods in acquiring customers, nurturing them and retaining them in their segments for profits. The segments are classified as emerging, developing, and developed. The focus in emerging markets is creating sales volumes and not profits through selling beverages at economical rates. In the developing, markets the strategists strike a balance between volumes and prices while the economic market is profit driven, which involves selling small packages at premium prices.

The coca cola company has adopted an acquisition strategy to dilute competition in its industry. An acquisition involves an amicable purchase of more than 50% stocks of one company by another. The Coca-Cola Company has increased synergy, reduced costs, gained economies of scale, increased market share, and diluted competition through the acquisitions hence remained dominant and stable. An acquisition is a growth strategy that allows the parent company to grow in areas it does not want to start afresh. The Coca-Cola Company has acquired minute maid, PowerAde, Dasani, and recently Moxie. The Coca-Cola Company has succeeded in this strategy where its flagship product ‘Coca-Cola’ is known to be richer in taste, delivering what other products cannot deliver, thanks to its trade secrets. The Coca-Cola Company has also used this strategy to find new customers.

The company has differentiated its market into two and offered unique products for the two segments. Diet Coke has made successful sales among the female population as it is considered a girly beverage while Coke Zero is majorly targeted at the male population due to its features of great taste without calories. Fanta is associated with young children due to its orange and sweet taste, whereas Dasani mineral water is presumed to be of high quality and thus targeting the rich. The company is best known for its regular appearances in advertisements and its association with major tournaments in sports. The aggressive adverts make its products appear special and more refreshing to the sporting population both spectators and players, hence its vast acceptance across populations.

Conclusion

Business strategies fuel the growth of businesses in a volatile and dynamic market where forces of competition are unavoidable. Businesses need to grow and add value to the shareholders’ capital hence a strategy is important in providing the direction. A strategy will show what resources will be required and the duration for meeting the laid objectives, as well as, ways of dealing with uncertainties.

References

Bagchi, S., & Sivadasan, J. (2017). Barriers to entry and competitive behavior: Evidence from reforms of cable franchising regulations. The Journal of Industrial Economics, 65(3), 510-558.

Collis, D. J., & Rukstad, M. G. (2008). Can you say what your strategy is?. Harvard business review, 86(4), 82-90.

Hjelmbrekke, H., & Klakegg, O. J. (2013, June). The new common ground: understanding value. In 7th Nordic Conference on Construction Economics and Organization (pp. 269-281).

Hill, C. W., Jones, G. R., & Schilling, M. A. (2014). Strategic management: theory: an integrated approach. Cengage Learning.

The Coca-Cola Company (2018). About. Coca-Cola Company. Retrieved from http://www.coca-colacompany.com

Porter, M. E. (1996). What is strategy? Sage Publishers.

Rothaermel, F. T. (2015). Strategic management. McGraw-Hill Education.

Truong, Y., Klink, R. R., Simmons, G., Grinstein, A., & Palmer, M. (2017). Branding strategies for high-technology products: The effects of consumer and product innovativeness. Journal of Business Research, 70, 85-91.

Van Alstyne, M. W., Parker, G. G., & Choudary, S. P. (2016). Pipelines, platforms, and the new rules of strategy. Harvard business review, 94(4), 54-62.