The Coca-Cola Company deals in the manufacturing and marketing of soft drinks. It is the leading producer of beverages in the food and beverages industry globally. Due to its stability in the market for more than 100 years, Coca-Cola has become a household name. The Coca-Cola Company has traded in NYSE since the 1990s with a serial production and marketing of its non-alcoholic drinks (Elmore 2013, 717). Most importantly, the Coca-Cola Company has achieved its lasting success due to various strategies in marketing, production, and promotion of its products. Therefore, it is quite beneficial to analyse the strategic situation within this company to determine potential strategies for its success.
Porter’s Five Forces Analysis
The Coca-Cola Company uses five forces to measure its competitiveness in the market and to increase its attractiveness for potential customers. Besides, Porter’s five forces analysis is a model used to examine competition in the market. Based on analysis of both internal and external factors within the company, most companies using this strategy are able to establish forces that would impact their operation in the business. Porter’s five forces used by the Coca-Cola Company include threats of new entrants, competitive rivalry, bargaining power of suppliers, bargaining power of buyers, and threats to new markets.
Threats of New Entrants
The global market of soft drinks is saturated with companies, though Coca-Cola makes entrants insignificant. Due to the position taken by the Coca-Cola Company in the market, new entrants will find it difficult to enjoy the economy of scales. Besides, the company has influenced the whole idea of developing soft drinks making it difficult for new entrants to establish a drink that would compete effectively with Coca-Cola products. Furthermore, Coca-Cola makes use of top-notch technology that would be expensive for the new entrants (Hartogh 2002.). Therefore, this strategy allows enjoying the already established monopoly.
Bargaining Power of Buyers
The Coca-Cola Company deals in several brands of soft drinks that fit every market segmentation. This aspect has enabled the company to retain their customers at all cost. The company does not switch cost of its products for customers making the price elasticity play a vital role in increasing the purchasing power of buyers. Coca-Cola products have been leaked to be addictive as the bargaining power of addicts from different segments is less significant.
Bargaining Power of Suppliers
The bargaining power of the company suppliers depends on the type. Most suppliers have low bargaining power, while a few have great bargaining power with Coca-Cola. The suppliers with great bargaining power include SinoSweet Co., LTD that supplies a non-nutritive sweetener to the Coca-Cola Company. However, Coca-Cola deploys some strategies that will help reduce bargaining level of the suppliers. Coca-Cola operates a supplier diversity program that works in to reduce the bargaining power and to promote diversity among suppliers.
Competitive Rivalry among Existing Firms
Over the years, Pepsi has been a major threat to Coca-Cola Company in the market. Pepsi is one of the competitors that manufacture non-alcoholic beverages just like Coca-Cola, but at a relatively lower price (Hartogh 2002). Pepsi competes with Coca-Cola in brand differentiation and interests. Most evidently, the two companies manufacture non-soda elements such as bottled water and orange juices. Another upcoming competitor is Dr. Pepper Snapple Group that deals in juice supplements of soda. However, the Coca-Cola Company has remained the leading company in the market due to quality services they offer to their customers.
Threats of Substitute Products
The beverage market is flooded with various drinks. People can use other drinks such as juice in place of Coca-Cola products. Besides, buyers may also resolve to drink coffee instead. However, the Coca-Cola Company has made it possible to differentiate its products to fit every segment of the market. The company produces many brands of juices and water to entice potential consumers away from substitutes.
Strategic Issues Facing Coca-Cola Company
The Coca-Cola Company operates in over 200 countries with more than 400 brands available in the market. Due to vast geographical coverage, the company faces different challenges in the market as a result of socioeconomic and regulatory changes. Analysis of the internal and external factors reveals most common strategic issues affecting the company. The main strategic issues facing the company include competition, water scarcity, globalization, and marketing. These issues may affect the strategic position of the organization, which can be costly to the management.
Competition
The Coca-Cola Company is facing competition from other organizations within the food and beverage industry. Numerous firms are engaged in manufacturing and marketing of non-alcoholic beverages such as juice and soda. Others manufacture water products both flavoured and enhanced, fruit drinks, and dilutables that also substitutes Cola products. These products are made available to consumers in both ready-to-drink as well as others forms. PepsiCo, Inc. is the major threat that Coca-Cola Company experiences in the market (Petty 2012, 224). Other significant competing companies are Nestle, Dr. Pepper Snapple Group, Inc., Unilever, and Cadbury Schweppes among others. Appendix 1 shows weighted score of the three major competitors in the food and beverage industry. Coca-Cola remains the most competing with the highest weighted score. Besides, beer companies also compete with Coca-Cola in some areas of entertainment and enjoyment.
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Competition aspect of the Coca-Cola Company is brought about by different aspects of pricing, advertisement, new packaging, sales promotion program, innovation, and increased techniques in production. The competitors may use these factors differently to make their products appealing in the market (Petty 2012, 230). Despite the marketing noises created by competitors, the Coca-Cola Company remains the best through differentiating products to cover all marketing segments and attracting more customers. This is done by designing and manufacturing of over 400 brands of soft drinks and water. Coca-Cola also deploys innovations in its operation to increase production. Therefore, competition remains an external strategic issue of the company that may infringe on its sales volume.
Competitors are a threat to the business especially when the business has a low competitive advantage. SWOT analysis demonstrates that the competition is a crucial strategic issue facing the Coca-Cola Company.
Globalization
Globalization is another one of external strategic issues facing the Coca-Cola Company. The essence of uniting global markets into one family with free interaction and trade has been confronted with several challenges (International Institute for Strategic Studies 2015, 40). Eliminating barriers and differences that may be present between various countries and economies makes trade easy. Over the past decades, globalization grew at a slower rate until recently, when it started accelerating due to the development lead by the Coca-Cola Company (Hassan, Amos & Abubakar 2014, 10). Most importantly, due to the emergence of various modes of transportation as well as the rise of the Internet era, globalization became cheap and affordable since the level of communication is improved. Globalization is useful in establishing more customers and increasing sales for more profit. Figure 2 in the appendix shows how globalization contributes to the Coca-Cola sales with North American having the highest sales, as Africa records the lowest.
However, globalization becomes a major strategic issue for the Coca-Cola Company. As much as Coca-Cola tries to globalize its production and marketing, most countries may thwart the fact that the company products contain life threatening elements that cause obesity (Hassan, Amos & Abubakar 2014, 9). Besides, several suits have been filled against the Coca-Cola Company in various counties with allegations of child labour sweatshops. As a matter of fact, other countries also sued Coca-Cola Company for being elective in providing healthcare services to its workers, Consequently, some countries choose to fully ban Coca-Cola operation within their boundaries.
Understanding the legal perspective of the business as defined in PESTEL analysis would make trading in other territories easy and effective. Since globalization attempts to merge these laws and regulations for better sales, it becomes a vital strategic issue facing the Coca-Cola Company.
Marketing
Marketing is an internal strategic issue that is crucial to the Coca-Cola Company. The primary objective of marketing is to increase the volume of production, to globalize the company, and to increase profit margins by maximizing cash flow. Marketing is enhanced by the company by deploying various strategies not restricted to advertisement and sales promotion. Though marketing requires large capital for success, it boosts sales of the product globally (J?rvinen & Taiminen 2015, 44). The most appropriate strategies of marketing should be those that enhance rejuvenation, health and nutrition, refreshment, replenishment, etc. Therefore, the Coca-Cola Company should initiate competitive personnel with well-defined strategies to reach both local and international markets. Market has been significant for the past 3 years as depicted in the marketing margin in appendix 3.
Coca-Cola Company has experienced difficulties in marketing of its products. Since 2005, the company increased annual marketing and innovation budget from 350 to 400 million USD (Wang 2015, 23). This demonstrates that marketing is an issue for the company. Without marketing, consumers may have less or no information about the existence of the product in the market and no one would purchase these products, reducing sales. Marketing is also an aspect that enhances competitive advantage. Consumers are content with the preferred type of brand in the market. It is vital to consider marketing aspect among the strategic issues to improve the internal operation of the business.
Analysing both the internal and external organization of the firm as defined in SWOT analysis is paramount as far as business success is concerned. Therefore, marketing, being an external factor to the company, becomes one of the most common strategic issues that should be monitored by an organization.
Water Shortage
Water forms ninety-nine per cent of Coca-Cola products with the remaining percentage occupied by the additives. Therefore, without water the Coca-Cola Company would not survive. Water is a vital raw material for the production of Coca-Cola products, making it a strategic issue to the company. Since Coca-Cola Company trades in several countries that may have water problems, the manufacturing process becomes a crisis. Human consumption may be considered to contradict the manufacturing of Coca-Cola products. Notably, the company uses three litres of water to manufacture one litre of Coca-Cola (Wang 2015, 45). A water shortage was experienced in India when Coca-Cola left the society dehydrated in order to produce its products. Therefore, water scarcity is an issue that can change the future state of the Coca-Cola Company.
Water is an internal resource that, when used appropriately, can enhance sustainable competitive advantage. According to VRIO analysis, a sustainable competitive advantage that can be strengthened by firm’s internal resources is crucial as long as organization performance in the market is concerned. Therefore, water issue is one of the common strategic aspects of the company worth analysing.
Options to Resolve
Based on the strategic problems that face the Coca-Cola Company, some solutions, suitable, feasible, and acceptable to the company and its stakeholders, can be developed. These can be presented in the following ways.
Competition
Competition is a common threat to any business. It takes a company with strong strategies to eliminate such market noises. Competition strategies start from understanding the weakness of the competitor and deploying counter advantages towards such shortcomings. Besides, a company can launch attack against weak policies of the competitor, so these aspects would enable such companies to gain competitive advantages. Coca-Cola Company uses differentiation, cost leadership, and cost focus to obtain competitive advantages in the market.
Based on competition strategies deployed by Coca-Cola Company towards its competitors, differentiation is the most effective, based on suitability, feasibility, and acceptability (Yuvaraju, Subramanyam & Rao 2014, 120). Coca-Cola produces a variety of distinct goods. It manufactures over 400 brands to compete with Pepsi Co. and other potential competitors. As much as brands are geared towards competition, they are sustainable and feasible when it comes to accompanying deliverability. Through differentiation Coca-Cola adds quality to its products and enhances acceptability among consumers creating a competitive advantage. Therefore, differentiation of product would establish an effective competitive advantage for Coca-Cola Company.
Marketing
Strategic marketing issues facing Coca-Cola Company should involve several options that would allow better promotion. Market segmentation tries to define an appropriate product relevant to specific customers, so the company can find customers for its product (Yuvaraju, Subramanyam & Rao 2014, 118). Besides, targeting and positioning in the market forms another option that is vital for effective promotion. Coca-Cola Company designs their products to target a specific segmentation within the market. Based on brand differentiation, specific brands are intended for the youths to enjoy at a party. On the other hand, positioning option makes the company compete effectively in the market. Other marketing strategies include market mix and SWOT analysis.
SWOT analysis is the most suitable of these options and more acceptable in the company’s operation. SWOT analysis involves analyzing both the internal and external factors to identify the strengths, weaknesses, opportunities, and threats, which the company may have in its operation, and to adopt effectively for better operation. Through using SWOT analysis, Coca-Cola Company will establish the most effective marketing strategy that will not only promote its product but also eliminate market noises created by the competitors. Therefore, Coca-Cola Company will position its marketing operation better, when it deploys SWOT analysis as a marketing option.
Water Scarcity
The Coca-Cola Company majorly relies on water for its operation. It uses numerous litres of water daily to manufacture its products. Most countries have limited sources of water that are not sufficient for all the activities within the manufacturing industry to deliberately produce soda. The problem of water shortage had been experienced in India, where the company was blamed for dehydrating society. This aspect not only led to low production for the company, but it also led to low sales and low profit, making water shortage an issue (Wang 2015, 24). Strategies that can be used to curb scarcity of water include water stewardship, recycling wastewater, and replenishing used water.
The most acceptable option is recycling wastewater. Recycling wastewater involves treating water that has been used and returning it to the environment for use. The wastewater is purifies according to the health standards. Coca-Cola Company should invest more funds in this project to save the stated 90% of wastewater. Recycling wastewater will not only help the company, but it is also an efficient way to preserve aquatic life. Therefore, recycling wastewater becomes a feasible option to resolve the issue of water scarcity for the Coca-Cola Company.
Globalization
Globalization is a matter worth considering as far as business success is concerned. Establishing new markets will improve sales and profits of a particular organization. However, there are barriers in various countries that will not allow other organization to trade with them, based on the norms and perceptions they have towards such businesses (Yuvaraju, Subramanyam & Rao 2014, 122). Specifically, most of the countries do not allow the Coca-Cola Company to trade, because they perceive the company’s products cause obesity upon continuous consumption (Wang 2015, 24). To curb this, different strategies are used including public awareness, use of technology, and Internet promotion.
Public awareness becomes the most feasible option in this case. Misinformation and lack of adequate knowledge can make someone create allegations about a company’s products. When the public is informed on the advantages that globalization can bring to a specific country the community is more prone to development. Therefore, Coca-Cola Company should invest in making countries understand how the company can benefit their economic statuses.
In conclusion, several strategic issues face Coca-Cola Company and may influence the organizational performance. Such issues are, but not restricted to globalization, marketing, completion, and water scarcity. These issues form the main strategic aspect, since a lack of focus on them may lead to unexpected and undesirable results. That being the case, several options should be considered to find the best strategy that will be most economical, feasible, and acceptable to the organization.