Corporate Strategy, Governance & Ethics

Critical Analysis of Coca-Cola

Coca-Cola is a leader in the manufacturing, distributing, and marketing of non-alcoholic drinks all across the world. 1944. The Company has been producing over 230 beverage brands and has been marketing the four soft drink brands which are among the top five brands of the world. These are Sprite, Fanta, diet Coke, and Coke. At present the main focus of the company is to have a sustainable community and proper economic development (Nagdaseva, 2012).

Product is basically everything that can be put on offer to customers who want to satisfy their needs. Products are of two types i.e. tangible and intangible. A product is a blend of psychological, physical, symbolic, and service attributes, not only the physical merchandise. A product is the same as goods. Goods are seen as physical objects available in the markets as per accounting. The term product is primarily used by those who want to examine the richness and details of a particular market offering (Colicchia, Melacini, and Perotti, 2011).

Goods are physical products that carry forward the brand name of a company. The product of Coca-Cola is carbonated beverages which come both canned and bottled. A company ought to take into consideration the products produced by it and the specific phase of the product life cycle to which the different products belong. The marketing strategies of the company vary as per the product type and its lifecycle stage. There are three levels that make up a complete product (Dhar and et.al., 2005). The core product carries the fundamental benefit. For Coca-Cola’s drinks, the benefit of quenching the thirst with taste is offered.

The second layer is the actual product which includes the brand name, packaging, styling, quality, and features. The beverages are packed in cans and bottles and all the different brands under the company have different yet attractive packaging (Doyle, 2011). They carry their distinctive brand names. For instance, Coke is packaged in a transparent bottle having red stickers and a red cap. These have become the signature style of Coke. This and the drink is the actual product. The augmented product of the company is the delivery of the product on time and as per the requirements of the customers. The company has an extensive distribution network which facilitates the ready delivery and availability of the company’s drinks (Esty and Winston, 2009).

The markets targeted by the company are defined in terms of psychographic, demographic, product usage and geo-demographic characteristics. The drinks offered by Coca Cola are mainly for all types of customers however, there are certain areas wherein the company targets specific customers (Goodman, Fandt and Michlitsch, 2007). For instance, the Diet Coke is targeting customers who belong to the age group thirty five to forty. The drink PowerAde is targeted towards the people who are extremely health conscious and are involved in sports activities. The target market of the company is growing mainly due its worldwide presence and easy availability. The company enjoys a stable market segment because it sells its drinks in big nations such as USA and China and these countries have diverse demographics that like the drinks (Griffin, 2010).

Critical Analysis of Coca-Cola’s environment

For analyzing the environment of the company both internal and external environments will be studied. The internal analysis included SWOT analysis and the external analysis includes PESTLE and Porter’s Five Force model.

Under the PESTLE analysis, only the political and economic environment will be studied as the factors are explained under other headings.

PESTLE

Political Factors:

As the Coca-Cola concentrated drinks belong to the non-alcoholic sector, therefore they fall under the Food and Drug Administration which is a United States agency. The FDA checks and certifies that whether or not constituents used in the preparation of the soft drinks of Coca-Cola in a specific nation is as per the standards or not. The company therefore takes all the required steps to evaluate meticulously prior to the introduction of any constituent in its beverages and attain an approval of the FDA. Coca-Cola also takes into account the regulations forced by the FDA on plastic bottled things (Idowu and Filho, 2009).

In addition to this, other political aspects include accounting standards and tax policies. The accounting standards that the company uses are changed with time which has a substantial role in the reported outcomes. The organization also comes under the purview of income tax policies as per the jurisdiction of the countries in which it is operating. The import and excise duties are also levied on the distribution of the soft drinks in the nations where the company does not have any outsourcing entity (Jain and Kedia, 2011). Furthermore, if there is turbulence or dethroning of the existing government or some sort of political unrest in the country then the demand for the products evidently goes down. Countries such as Iraq where the terrorist activities are high, pose a challenge for Coca-Cola to penetrate the market.

Economic Factors:

The economic facets assess the potential areas wherein the company can develop and grow. These entail the interest rates, economic growth of the nation, inflation rates, exchange rates, unemployment rates and wage rates. The organization first evaluates the economic situation of the nation prior to entering into it. When the nation is in the phase of economic growth, the purchasing power in the hands of the people is high. Coca-Cola has in the yesteryears correctly identified this and aptly embarked upon its distribution across the different nations. Weakness and strength of the currency also influence the export of the products (James, 2011).

Interest rates also keep on fluctuating and this may deter the organization from making additional investments as the borrowing costs is very much high. Coca-Cola makes use of the derivative financial instruments to deal with turbulent interest rates. This acts as an extra cost to the firm which cannot be shown in the prices of the final product as the risk as well as competition in this segment is very high (Justo and Cruz, 2008).

Porter’s Five Forces

Rivalry among existing companies:

The biggest competition faced by Coca-Cola is from Cadbury Schweppes and Pepsi Co. All these three companies have high global presence and established in their own sense. In addition to these big players, small organizations like National Beverage Company and Cott Corporation make up the rest of the market share. Though among the top five brands, four are owned by Coca-Cola, still it had lower sales than Pepsi Co in some years. Pepsi Co is touted to be the biggest competitor of Coke and the two companies have been contending for power for decades (Kant, Jacks and Aantjes, 2008).

New Entrants:

At present and for many years to come, the soft drink industry all over the world will continue to be dominated by Coca-Cola and Pepsi. Therefore, potential new entries in this sector are not a very big threat to the position of Coca-Cola. The marketing and distribution channels of these two companies are very robust which makes it difficult for any aspiring company to enter and thrive in their market. High fixed cost relating to labor, trucks and warehouses is yet another hurdle in the path of new entrants. The capital requirement of manufacturing, marketing and launching a new concentrated beverage being very high acts as a deterrent for the potential new entries (Koekemoer, 2004).

Substitutes:

A number of substitute drinks are available for soft drinks. There are fresh fruit juices, concentrated fruit drinks, energy drinks, tea, coffee, sports drinks, bottled water and numerous other options. Sports drinks, fruit juices and bottled water are increasingly being preferred by health conscious people. Moreover, with the opening of various coffee shops such as Barista, Starbucks etc. coffee has also become a high ranking preference for the consumers. Hence, it can be said that the soft drinks of Coca-Cola face major threat from its substitutes (Wright, 2006).

Bargaining Power Of Buyers:

Though the ultimate buyers of concentrated beverages are individual consumers, yet, their real buyers are the local bottling companies who are either owned or have been franchised. The company distributes its bottled drinks by via a web of bottling companies. The individual customers have a reasonable bargaining power because the competing entities are not many. On the other hand, the bottlers do not enjoy much bargain power (Lambert and Schwieterman, 2012).

Bargaining power of suppliers:

The main ingredient used in concentrated beverages in USA is high fructose corn syrup. This is available with a number of local suppliers. The main ingredient used in soft drinks out of USA is sucrose. There are many suppliers of this raw material as well. Coca-Cola has for years exercised control over its suppliers (Lambert and Schwieterman, 2012).

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Critical Evaluation Of How Coca-cola Relates Its Competencies To The Environment Via Its Strategy

Coca cola has been world’s favorite brand for last 20 years. It is a market leader with a strong hold of 51% of the soft drink industry in India. Not only in numbers but its popularity is acceptable all over the globe. The coca cola family has 7000 distributors and 1.7 million retailers in the Indian subcontinent alone. The product line of coca- cola include sprite, Fanta, Limca, Maaza, thumps up, etc. The trade mark of coca cola is widely known all over the world. Its marketing strategy is full of innovation and creativity (Kent, 2013). It made consistent efforts to align its products with the cultures and traditions of the different nations in which it operates. It made several efforts towards its advertising journey. Its ad campaigns showed the positioning of the brand as a relaxing drink which fights off the hot weather and humidity.

The biggest rival and competitor of coca cola is PepsiCo, which established itself because of the first mover advantage. Then coca cola adopted the dual strategy of Celebrity endorsements and Jingles (Rangan, Chase and Karim, 2012). Some of the popular coke Jingles in first decade of its existence were ‘always the Real Thing’, ‘Coca-Cola Enjoy.’ Then moving ahead it used iconic stars and celebrities and made some really popular ad campaigns which attracted a large segment of the world’s population. In total it used 15 celebrities to endorse its brand. It divided the market into segments like demographic, psychographic and geographic (Werther and Chandler, 2005). It used target markets like Diet coke for weight conscious people, Maaza for kids and juice loving people, Sprite for young people, Thumps- up for confident, mature and masculine people and Fanta for girls and ladies. The functional positioning strategy of coca-cola emphasizes on price, quality and product feature.

Its Marketing- mix consists of 4ps i.e. Product, Price, Place and Promotion. Its product has various brand packs and flavors. It promotes all the brands in its brand packs and introduces the product in new flavor (Sicilia and Palazón, 2008). The price of the product has been kept somewhat similar to that of its major competitor in the market. Its price also covers the production and endorsement costs. The distribution channel of coca cola includes supply chain, C & F agents, distributor, retailer and the final consumer. It has two types of promotional activities – top line promotion like T.V ads, banners, celebrity and bottom line promotion like schemes and publicity material.

Coca cola also initiates a strategy of corporate social responsibility. It contributes to the society and the community through its products. The company was aware of the various impacts caused by the business of its scale so it decided to improve the quality of its customers, society, and workforce by implementing wide range of initiatives. It spends million dollars to project a green and environmental friendly image of its brand. It stood firmly against all the criticisms and continued its growth all over the world. In this way coca cola relates to its environment through its various strategies (Rugman, 2003).

Critical Appraisal Of The Impact Of Social, Environmental, Ethical And Legal Issues On Coca-cola:

Social factors:

The cultural beliefs and attitudes, health consciousness, preferences, age distribution etc. are covered in the social environmental factors. These factors cannot be altered by the company and it has to adjust its products as per the demands of the society. Coca-Cola is mainly a B2C firm and is in direct touch with its consumers; therefore, social changes are very critical to be considered. All the nations have a distinctive culture of their own. The soft drinks corporation has over 3300 products in its portfolio and when it decides to enter a particular nation it does not offer all these products. Only a particular number of products are offered that too in accordance with the culture and attitude of the natives (Raman and Ravi, 2007).

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Government and customers have become highly aware of the health implications, in particular with obesity which is a main social factor in the concentrated beverages sector. This has inspired the organization to introduce products such as zero calorie drinks and Diet coke. The issue of obesity is taken very seriously by the youth who like maintaining a good physique. Therefore, dietary products were introduced by Coca-Cola for young people who can enjoy a soft drink with no calories (Doyle, 2011).

Population growth rate and distribution of age is yet another factor in this realm which needs to be considered. It is very crucial as the majority of the customers in the non-alcoholic drinks segment are children and young adults. Therefore, the age distribution factor of the nation is a significant factor for the success of the products.

Environmental factors:

These aspects entail the environment like weather conditions and the time of the year in which people like buying and drinking cool drinks. These climatic conditions differ from place to place and from country to country. For instance, the summers in India are for a very prolonged period and therefore all through the summers demand for Coca-Cola is very high. On the other hand, in the arid regions of Russia and the former USSR where there is snow most of the time, there is no or little demand (Nilsson, Sund and Floren, 2011).

In addition to this, the company’s products should also be in accordance with the environmental issues pertaining to the manufacturing, designing, packaging and distribution of the product in different countries. It ought to abide by the environmental norms. The company strictly promotes the use of renewable plastic in its bottles (Piercy and Nikala, 2009).

Legal factors:

The legal and governmental aspects cover customer law, discrimination law, employment law, anti-trust law and health and safety law. Coca-Cola Company is also subject to a number of rules and regulation in the different nations in which it operates. These laws cover the completion law, advertising and labeling, environment protection, product safety, labor practices and container deposits (Piercy and Nikala, 2009).

In United States, the soft drinks of the company are subject to a number of acts such as Drug and Cosmetic Act, Federal Food, Occupational safety and Health Act, the Federal Trade Commission’s Act and a number of other environment related regulations. In addition to this, the manufacturing, distribution and sale of the drinks are also subject to various regulations. Amendments in such laws can lead to higher capital expenditure and costs, which impact the profitability of the organization together with the manufacturing and distribution of the products (Riposo, 2008).

Ethical compliance:

Ethical conduct is of utmost importance. In light of the corporate scams and scandals, engaging in ethical practices is of dire importance. If Coca-Cola is found guilty of any unethical practice, its market share will witness an immediate decline. People will no longer trust the company for its products. To comply with all the ethical codes and conduct, the soft drink manufacturer has introduced a compliance program i.e. Code of Business Conduct (Werther and Chandler, 2005). Every associate and director needs to read and fully comprehend the Code and thereby espouse its percepts in the office and larger society. The organization has made it mandatory to deliver training related to a variety of ethical compliance courses. An unswerving set of best practices and benchmarks is also maintained. The Code is always revised in order to further augment its effectiveness. Hence, the negating impact of the ethical compliances in case of Coca-Cola is not grave as the firm ensures a consistent commitment towards the understanding and practice of its Code of Business Conduct (Governance and Ethics, 2012).

How Coca-cola Frames The Above Issues In Its Strategy And Operations

The company takes proper consideration of the above issues and tries to incorporate them in its operations. The strategies of the firm are formulated as per the social, ethical, environmental and legal aspects. The following diagram depicts the strategic framework of Coca-Cola ().

As per this framework, the responsibility of the environment, community and the workplace are given equal importance as the product responsibility. Under the product responsibility section, the social factor i.e. tastes, preferences, geography, culture etc. is given due consideration and the production is done accordingly (Kent, 2013). The company is engaged in sustainable packaging, water management and energy management and climate protection. As per its operations related to the community, Coca-Cola makes sure that it facilitates both social and economic development. Last but not the least; it pays adequate attention to employee rights, occupational health and safety and employee participation plus good internal communication (Snider, Hill and Martin, 2003).

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Extent To Which Coca-cola Is Managing Tensions Between CSR And Maximizing Shareholder Value

Efficient corporate social responsibility creates and augments shareholders’ value. Coke is the leading concentrated drinks retailer in the world. The company has faced several allegations regarding the violation of human rights as well as anti-environmental stewardship. As a consequence of this, the NYC University executed a ban all the products of Coke which was enforceable from 9th December 2005. Post this ban, almost ten other colleges also joined the league and stopped providing coca-cola in their cafeterias (Sicilia and Palazón, 2008). These boycotts were a consequence of Coca-Cola supposedly being complacent in the demise of 8 union leaders and in consistent persecution of unionized workers in Columbia. Furthermore, the company was as alleged polluting the ground and soil near its bottling plants which drastically decreased the groundwater levels. The shareholder value took a toll because of organization’s poor social responsibility (Piercy and Nikala, 2009).

Learning from its mistakes, the company recouped and turned its attention towards ethical practices and discharging corporate social responsibility. This is managed by the Public Policy and Corporate Reputation Council which is a team of senior executives of Coca-Cola and its bottling partners. The responsibilities that the business has towards the society need to fulfilled if continued success is required (Kent, 2013). If the practices of the company are against the public safety and security and the business might have to face serious implications. This Council generally determines the opportunities and risks that Coca-Cola faces and the society and then suggests strategies. The company gets a lot from the society and a reputable company will always fulfill its obligations towards the community (Esty and Winston, 2009).

The company is now implementing every variable of CSR. Though the organization is against the application of unethical practices, but it does seek the maximization of its profits. The shareholders also invest in firms only after taking into consideration the ethical and moral values of firms. Coca-Cola chose those CSR activities which were aligned with their corporate objectives and thus maximizing the shareholder value (Barkay, 2012).

Conclusion

Thus, the above fable can be concluded by saying that Coca-Cola will remain the leader of its industry if it pays adequate attention to the alignment between its corporate strategy, ethics and governance. The company should not repeat the mistakes it made in the past and take corporate social responsibility as its top most priority along with maintaining the shareholders value.

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References

Books, Journals and Articles

• Barkay, T., 2012. Employee volunteering: soul, body and CSR. Social Responsibility Journal. 8(1). pp.48 – 62.
• Colicchia, C., Melacini, M. and Perotti, S., 2011. Benchmarking supply chain sustainability: insights from a field study. Benchmarking: An International Journal. 18(5). pp.705 – 732.
• Dhar, T. and et.al., 2005. An Econometric Analysis of Brand-Level Strategic Pricing Between Coca-Cola Company and PepsiCo. Journal of Economics & Management Strategy. 14(4). pp.905-931.
• Doyle, P., 2011. Value-based marketing. Journal of Strategic Marketing. 8(4). pp.299-311.
• Esty, D. and Winston, A., 2009. Green to Gold: How Smart Companies Use Environmental Strategy to Innovate, Create Value, and Build Competitive Advantage. John Wiley & Sons.

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