The purpose of this report is to provide an environmental analysis of the Coca Cola Company. To do this, we shall create a SWOT analysis of the company, examine the competition which the company faces through using ‘Porter’s Generic Strategies’, and determine how it would be possible to improve the strategic fit of Coca Cola.
Firstly we analysed Coca Cola through the use of a SWOT analysis, in which we used both a LONGPEST analysis and a ‘Porter’s Five Forces’ analysis as part of the SWOT. We first analysed the strengths of Coca Cola, one strength being that of the exceedingly strong brand image that Coca Cola has built up since it began in 1886, which means it is now extremely well known worldwide, being sold in over 200 countries. A further strength of Coca Cola, is that the company can benefit from its huge economies of scale as suppliers don’t want to lose the custom of such a big company so offer discounts in order to maintain their custom (low bargaining power of suppliers). Another strength of Coca-Cola is that there is little threat of new entrants because although in the soft drinks industry the barriers to entry are reasonably low, it would be very hard for a new entrant to rival Coca Cola due to the high experiences levels needed and the high costs involved. There are however, weaknesses of Coca Cola, one weakness being that they have high advertising expenses as they continue to promote their well known brand. A further weakness is that when considering Coca Cola globally, in North America, the PepsiCo Company is more popular, which is something Coca Cola will want to improve.
There are numerous opportunities available for Coca Cola to capitalise on. One opportunity available to Coca Cola is there is potential to gain market share on PepsiCo in the North American soft drinks market. A further opportunity for the company is the potential to become more environmentally friendly, after reducing their carbon emissions by 5.5% between the years 2007 and 2010. Another opportunity available is as their employees globally are only 28% female workers, there is the opportunity to increase this to have more gender equality within the company. However, Coca Cola does face threats from other sources. For example, there is the threat of substitute products from companies such as Pepsi and Dr Pepper. Another threat is that coca cola is not part of a healthy lifestyle, as people are becoming more health conscious, they could begin to switch to healthier drinks. A further threat is when in a recession like Europe has been facing, people are more likely to be buying necessities rather than spending money on soft drinks.
The Coca-Cola Company: Basis of Competition
As of 2012, Coca-Cola was worth $77.8 billion. It is currently the world’s leading brand according the annual “Brand Value Ranking” from ‘Interbrand’, and now, with ‘3,500 different beverages sold worldwide’ (Interbrand, 2012), Coca-Cola is leading the many emerging markets too. In order to be this successful, Coca-Cola must have an exceedingly strong basis of competition, and that, it does:
For starters, Coca-Cola has achieved very high economies of scale since its beginning in 1886. High economies of scale allow businesses to produce more, at a much lower cost, because average costs fall when buying in bulk. This then allows the business to lower its prices, which will obviously instigate an increase in demand and potentially, profits. Then, with more profits, businesses can increase the barriers to entry within a market and deter other companies from entry.
Furthermore, within the Soft Drinks Industry, the bargaining power of buyers is extremely high due to low switching costs, and the general ease at which consumers can switch; but due to them amassing a large degree of customer loyalty over the years, Coca-Cola is an exception to the rule as its customers have become increasingly less price sensitive. This is another benefit of having a competitive advantage.
Coca-Cola’s competitive advantage comes mainly from its innovation and product differentiation techniques. Coca-Cola ‘spends roughly 20% of its advertising budget on maintaining its differentiation strategy’ – and with good reason. Through innovation comes more brand loyalty, inelastic demand (due to lack of substitute products), and the potential of the desirable ‘Monopoly Power’ which many businesses aim towards. An example of Coca-Cola’s innovation is its ‘Coke Zero’ brand, which is a dieting product aimed at young men. This kind of product had never been touched upon before in the soft drinks market and was a resounding success – ‘its sales have consistently increased as the overall market has shrunk’ (The Star – 2010).
By using Porter’s “Generic Competitive Strategies” (appendix) we can determine that Coca-Cola employs the ‘Overall Differentiation’ method of marketing. Coca-Cola doesn’t need to focus on low prices due to its brand loyalty, and due to is enormous size, it is able to market its products at a more broader market. As stated earlier (Coke Zero) Coca-Cola uses differentiation and innovation to fuel its success.
As for the strategic fit, we looked at how Coca Cola manage resources such as the physical, technological and human resources, as well as intellectual capital. Having analysed these of Coca Cola, we have suggestions as to how the strategic fit for Coca Cola could be improved. Starting with the physical resources, they currently have over 50 factories around the world, with many of these being based in America. An improvement that could be suggested for this is that they could diversify to more countries in order to benefit from possible cheaper wages, therefore saving on costs. A way in which Coca Cola could improve their strategic fit linked to technological resources would be to take to advantage in the future straight away of any advances in technology that could help benefit them in some way, such as becoming more efficient, therefore saving money. As for human resources, this is mainly the labour employed. One suggestion for improving the human resources would be to give all staff the best training available so they will be able to work to their maximum, therefore being more efficient members of the workforce. Regarding the intellectual capital, concerning the brand, this would be almost impossible to improve due to how popular the brand is, and regarding patents, Coca Cola uses many patents to protect themselves from competitors.
After examining the current soft drink market, we can ascertain that it is in a mature state, suggesting that there is not much room for growth. As we can see from the existing products, leading companies have exploited most ideas in order to boost sales, using Coca-Cola as an example, they have created products targeted at being healthier like Diet Coke and Coke Zero, as well as products experimenting with flavour; Vanilla Coke, Cherry Coke, Coke with Lime and Coke with Lemon.
Results from the SWOT analysis indicate that there is a gap in the market for environmentally friendly product. Coca-Cola could take advantage of this opportunity by introducing container deposit legislation, in order to help the environment. Now-a-days, glass bottles have become obsolete; Coca-Cola could bring them back, consequently reducing waste and improving their carbon footprint. In addition to this, there have been concerns over the amount of water being used in the production of Coca-Cola’s soft drinks. Depletion of the local ground water-table poses serious issues for local farmers and their livelihoods. In Plachimada, India, the Coca-Cola plant used about 900,000 litres; Indian environmental experts have stated that it takes seven to ten litres of water to produce a litre of Coke. Therefore to take full advantage of the opportunities, Coca-Cola should make their water usage more effective to produce their drinks.
Besides making their product more environmentally friendly, Coca-Cola could also target a new audience altogether. Healthier drinks are steadily on the increase in the United Kingdom. From 2008 to 2010, sales of ‘healthy’ drinks increased 21%, with value sales rising to over £1billion. The success of these drinks along with the brand loyalty and status that Coca-Cola has means that they could possibly enter the children’s soft drink industry. This industry is becoming more popular, “Fruit juice, juice drinks, bottled water and milk are now chosen twice as often as in 1993”. Parents are increasingly concerned about the wellbeing of their children, and focus on buying healthy products for them. To expand their audience, a still, fruity drink without any sugar would be popular with children and parents. Coca-Cola could invest in this market, manufacturing an upmarket children’s drink which they could sell because of their status and which parents would buy because of their interest in their children’s health, doing this means they can compete with Tropicana which is owned by PepsiCo.
In conclusion, by analysing Coca Cola through a SWOT analysis, looking at Porter’s competitive strategies and how Coca Cola could improve its strategic fit, it has enabled us to come up with suggestions for a new product and service for the Coca Company.
LoNGPEST of Coca Cola
We looked at the local, national and global issues that face coca cola regarding the Political, Economical, Social and Technological issues.
At a Coca Cola factory in Plachimada, Kerala, residents from the village are angry that Coke’s indiscriminate mining of groundwater has dried up many wells.
Have to add the VAT charge set by the government on to their products.
When Coca Cola export their goods outside of the UK, they must comply with export and international trade regulations.
It must comply with the Advertising Standards Authority and the Committee of Advertising Practice code – for example, one part of their code is that ‘Advertisements must not materially mislead or be like to do so’.
Coca cola have to do as much as they can in order to help the environment – E.g. recycling, reducing packaging and water management.
In the UK, they have reduced their carbon footprint. In 2010, they produced 476,000 tonnes of CO2 emissions, a 5.5% reduction from 2007.
Coca Cola has to comply with the minimum wage regulations within each country they operate in and keep up to date with any changes to the minimum wage within these countries.
Coca cola factories help to reduce local unemployment where their factories are based.
A rise in interest rates would affect Coca Cola as people will be spending less and saving more, so they could change to substitute products for coca cola e.g. supermarket own cola.
A decrease in interest rates could affect Coca Cola as it could mean they are more likely to invest in the business as borrowing money would be cheaper.
Unemployment in the UK was 2.51 million in 2012. As this figure is high, this leads to less consumer spending as households have lower disposable income.
If Inflation rates were to rise, this would mean Coca Cola would have to increase their profits in order to maintain their current profit levels.
Also as there is fairly high unemployment, this is an opportunity for Coca Cola because as there is a greater supply of labour, there is potential for lower wages as workers want to keep their jobs.
‘The Real Business Challenge’ set up by Coca Cola in 2006, is a competition tackling a business task for year 10 students to help them develop their business skills.
As more women are now in work, we can see this with an increase to 68% of female workers in the Coca Cola company in the UK in 2010.
28% of Coca Cola staff throughout the world are female workers which shows that globally, there isn’t as many opportunities given to women in other countries compared to the UK.
Part of the Coca Cola ‘Commitment 2020’ programme, is to make a positive contribution to the local communities it operates in.
Adverts have an effect on the UK population such as with the Christmas advert every year, how everyone knows it and enjoys it.
Coca Cola have a goal with their ‘Active Healthy Living’ programme, to raise standards of physical fitness globally through encouragement and grassroots programmes.
With there being a growing awareness of health in recent years, this could affect the sales of Coca Cola as people are beginning to opt for healthier choices.
The latest technology is more expensive so therefore in the short term, the expenditure on technology could slightly dent profits until the new technology becomes effective and starts to save Coca Cola money in the long term.
Advancements in technology allow Coca Cola to use better machinery which makes them a more efficient company so lowers their costs.
Technology has allowed Coca Cola to create ‘Planetbottles’ which also help the environment. This will appeal to people who are environmentally conscious and could be more like choose this product over competitors because of the environmental aspect.
Porter’s five forces
Porter’s five forces consists of competitive rivalry, the threat of substitute products, the threat of new entrants, the bargaining power of suppliers and the bargaining power of buyers.
The main competitors to The Coca Cola Company in the soft drinks industry are PepsiCo and Dr Pepper Snapple Group. All three benefit from huge economies of scale, and are able to invest a large amount of money into advertising.
The soft drinks business is an oligopolistic market, so the companies involved don’t engage in price wars as it would not benefit them (kinked demand curve). Instead, they have to be innovative – and this increases competition. They try to differentiate themselves from the competition, by for example creating a USP; (Coke is advertised as the ‘original’ or ‘the real thing’ and that its recipe is perceived as secret). PepsiCo advertises primarily to a younger generation and tries to increase brand loyalty by sponsoring events and/or working with charities to create an emotional appeal (Coca Cola partners with WWF and the Paralympics).
Threat of substitute products:
Coca Cola is available almost everywhere exclusively, and is seen as the original, which makes customers more loyal.
PepsiCo, Dr Pepper Snapple Group and of course Coca Cola have very similar products across the board e.g orange – Fanta – tango, lemon sprite – 7up, energy drinks etc. These products are cheap, and the switching costs are very low, which means that the threat of substitution would be quite high, was it not for the superior convenience and availability of Coca Cola’s products.
However, in a blind taste test, people couldn’t tell the difference between Coca-Cola coke and Pepsi coke – this suggests that there could be a high risk of substitution.
Threat of new entrants:
Entry barriers are low for the soft drink market, but to be as successful as Coca Cola or PepsiCo, the costs and experience levels are very high. With regards to costs, due to the low costs of producing soft drinks, entry barriers are relatively low.
In order to be as big as one of the three main competitors such as Coca Cola, a company would have to invest a considerable amount of money on R&D and advertising , so for this reason, the threat of new entry is low – to the bigger companies at least. New companies would also lack the experience of existing companies, and could be subject to the threat of retaliation, which could deter entry of new firms in the future. Brand loyalty also contributes to the low threat of new entry in the soft drinks industry. Coca Cola is not only a beverage, but a brand, and likewise with PepsiCo, it has had a very significant market share for a long time and loyal customers are not likely to swap brands if they are satisfied with their current choice of beverage.
Bargaining power of suppliers
The main ingredients for soft drink include carbonated water, phosphoric acid, sweetener, and caffeine. The suppliers are not concentrated or differentiated. No bargaining power on price as its basic merchandise and easily available to every producer. Any supplier would not want to lose a huge customer like Coca-Cola. Switching cost to the suppliers is very low; manufactures can easily shift towards the other suppliers.
Bargaining power of buyers
The individual buyer has little to no pressure on Coca-Cola. The main competitor, Pepsi is priced almost the same as Coca-Cola. Consumer could buy those new and less popular beverages with lower price but the flavour is different and the quality is not guaranteed.
Large retailers, like Wal-Mart, have bargaining power because of the large order quantity, but the bargaining power is lessened because of the end consumer brand loyalty. There are many kinds of energy drink and soda products in the market. Coca-cola doesn’t really have a special flavour. In a blind taste test, people couldn’t tell the difference between Coca-Cola coke and Pepsi coke. People are getting concerns of negative effects of carbonated beverages. Increasing number of consumers begin to drink fruit juice, lemonade and tea instead of soda products.