Coca Cola Drinks In A Time Of Economic Difficulty Business Essay
“Always Coca-Cola!” This slogan was used in 2003 by the Coca-Cola Company, but years later it still resounds. Despite, the continuous changing of consumers’ needs, wants and lifestyles, economic down-turns and increasing competition in the marketplace, Coca-Cola has managed to ‘always’ take first place as the world’s most valuable brand, since 2001. (Interbrand Best Global Brand Surveys, 2001-2010)
This report is intended to explain and analyse why the sales of Trademark Coca-Cola drinks, namely Coca-Cola, Coca-Cola Zero and Coca-Cola Light/Diet Coke were all ‘immune’ to the economic recession. The analysis will be within a consumer behaviour scope. Inevitably, the relationship of consumer behaviour to other disciplines will be seen. First, there will be a brief history on Coca-Cola and a review of its performance over the last 4 years. Subsequently, the Consumer’s Buying Decision Making Process in relation to Coca-Cola drinks will be discussed. Then, there will be an examination of how input factors from the Buying Decision-Making Process Model such as, the company’s marketing mix and individual factors such as attitudes might have influenced consumers’ behaviour in the buying process and enabled Coca-Cola to be successful throughout the years, even during the recession. Additionally, the influence of reference groups would be discussed as it is purported to be another attribute to the brand’s success during the recession.
It is worthy to note that, according to the National Bureau of Economics Research the recession started in December 2007 in the US. However, countries could have experienced a recession at different times (imf.org). Therefore, the study is based on 2007-2010 time period.
2.1 Coca-Cola’s History and Performance Review
When carbonated water is added to a syrup made from Coca leaf extracts, Cola nut, sugar and citric acid, the refreshing Coca-Cola drink is produced. Its name was derived by combining its two main ingredients Coca and Cola. The Coca-Cola formula was concocted by a passionate physician and chemist named Dr. John Stith Pemberton in 1886. Dr. Pemberton’s goal was to invent the ultimate medicine and tasty drink all into one. (Business Heroes, 1998) Therefore, Coca-Cola was initially marketed as a “valuable brain tonic and a cure for all nervous affections such as headaches, neuralgia, hysteria as well as a delicious, refreshing and invigorating beverage”(curezone.com). Although, some ingredients have been added or removed to enhance the drink but not to change the taste too much, up to this day it is not certain if the Coca-Cola Company still includes Coca leaf extracts.
The Coca-Cola drink was sold for 5 cents a glass and only an average of 9 glasses of Coca-Cola were sold daily in the 1880’s. Many years later, the Coca-Cola Company produces gallons of syrup daily and “nearly 1.6 billion times a day, people around the world enjoy one of our beverages” (Coca-Cola Annual report, 2008). The concentrates and syrups that are manufactured are then sold to licensed Coca-Cola bottlers in more than 200 countries.
Coca-Cola has become a multi-million dollar profit-making company and has been able to continue that trend even during challenging economic times. Although according, Brian Morgan, Beverages Industry Analyst, global value sales had declined in the soft-drinks market (Euromonitor blog, 2010). Coca-Cola was affected insignificantly by the global decline and this was reflected in its financial reports.
The Coca-Cola Company’s consolidated Net Operating Income before Interest and Taxes (NIBIT) had increased from $7,252m in 2007 to $8, 446m in 2008. However, there was a 2.5% decline in (NIBIT) from 2008-2009. The impact of the decline was insignificant because of the company’s well balanced portfolio, well-known brand and innovative strategies. Another indicator that the company was doing well during the recession was the steady increase in cash dividends payments. The cash dividend payments to shareholders in 2007, 2008, and 2009 were $1.36, $1.52, $1.64 respectively (Coca-Cola Annual Review, 2009).
“The sales of Trademark Coca-Cola, which includes Coca-Cola, Coca-Cola Zero and Diet Coke/ Coca-Cola light, are what fuel our business” (Coca-Cola Annual report 2009, p.16). Trademark Coca-Cola has seen volume unit growth in 2009 for many of its markets around the world including Vietnam (27%), India (25%), Pakistan (18%) and Nigeria (11%) to name a few (Coca-Cola Annual report, 2009).
‘Solid performance’ has been reported for Coca-Cola in its 2010 third quarter and year-to-date company report. As at the ending of October, Operating Net Revenues had increased by 5%. Moreover, the worldwide unit case volume had increased 5%. This volume growth was led by the brand Coca-Cola (Coca-Cola Year-to-Date report, 2010). Please see Appendix 1 & 2 for more indicators of the Coca-Cola Company’s resilience to the 2007-2010 economic down-turn.
3.0 Discussion and Analysis
3.1 Routinised Response Behaviour
Researchers have identified three main levels of consumer decision making. They are extensive problem solving, limited problem solving and routinised response behaviour levels (Schiffman et al 2007, p.526).Consumers would have engaged in a routinised response behaviour level with regards to Coca-Cola drinks. This is because the trademark brand has been in the beverage market for years and so consumers would have had experience with it and other brands. Also, consumers would have established a set of criteria well enough to evaluate the Coca-Cola brand against other brands (Schiffman et al, 2007).
Additionally, due to the low-involvement of consumers in purchasing Coca-Cola drinks, consumers are able to make quick decisions and they would have then relied heavily on heuristics, its prices, packaging and their familiarity with the brand. This would then have led to people purchasing Coca-Cola out of habit and in some cases automatic purchases. Therefore, it can be argued that because of the difficulty in breaking their habitual purchases and the little thought that goes into buying Coca-Cola drinks, consumers continued to buy Coca-Cola during the recession which made Coca-Cola ‘immune’.
3.2 Effective Marketing Mix
Another reason why Coca-Cola was resilient to the recession could have been because of the company’s effective marketing mix. The Coca-Cola Company has been able to build its brand throughout the years by using the right blend of marketing mix for the Trademark Cola-Cola drinks. Coca-Cola’s marketing mix efforts will now be discussed.
Product
Some people argue that the taste of Coca-Cola makes it very popular and gives it a competitive advantage. Moreover, people have demonstrated their love for the taste in different ways. One well-known incident was when consumers rejected the new formula of Coca-Cola, the ‘New Coke’. The company was compelled to bring back the original taste of Coca-Cola (Fortune, 1985). Coca-Cola’s trademark is its product name ‘Coca-Cola’ in a unique white script against a bright red background. This assists customers to easily identify the brand in groceries, shops and advertisements. The Coca-Cola drink is packaged in aluminium cans, glass and plastic bottles in a range of sizes; 2L, 1.25L, 500ml and 330ml. Although variations have been made to the shape of the glass and plastic bottles, “The contour bottle remains the signature shape of Coca-Cola today and was chosen for its attractive appearance and original design…” (Coca-Cola Heritage Timeline, 1905-1918).
Price
Coca-Cola is priced slightly higher to the prices of non-popular cola brands such as store brands but the same to main competitor, Pepsi. For instance, in England the price for a 2L bottle of Coca-Cola and Pepsi is £1.66 while a 2L ASDA store brand cola is £0.47 (asda.com). During 2007-2010 the price of Coca-Cola was increased for some regions like North-America due to increase commodity costs for the bottlers and to other recessionary pressures. (Coca-Cola Company Annual Report, 2008 p.47)
Promotions & Advertising
Coca-Cola makes large investments in promotions and advertising. Advertising costs for 2006, 2007 and 2008 has been $2.6b, $2.8b and $3.0b respectively (Coca-Cola annual report, 2008). In 2007 there were promotions in Europe for Rugby World-cup and for the Christmas holidays (Coca-Cola Annual Review, 2007). There were many point-of-sale promotions world-wide in 2008. Loyalty programs that enable customers to receive free rewards and prizes by collecting points became very popular in 2009. For instance, the North-American market has the ‘my coke rewards’ and the European market has the ‘coke zone’ websites particularly set up for these promotional programmes (Coca-Cola Annual Review, 2009). Coca-Cola’s creative, colourful, animated and high imagery advertisements become many people’s favourite. Indeed, some of Coca-Cola advertisements have won several awards such as the Golden Award of Montreux, 2007 (Gold Medal) and CLIO Awards, 2007 (Gold) Animation (adforum.com).
Place/ Distribution Channels
Coca-Cola uses an intensive distribution strategy. Customers can easily access Coca-Cola drinks at their convenience through groceries, shops, malls, vendor machines, universities, work offices, bars and restaurants. Coca-Cola works closely with all constituents of the supply chain to ensure that the distribution process is efficient and effective (coca-cola.com). Additionally, Coca-Cola has even been endorsed by many restaurants including Mc Donald’s and other businesses, where a formal agreement is made between the two parties to only sell Coca-Cola drinks.
With the Consumer Decision Making Model that was produced by Schiffman et al (2007) in mind, consider this example. When consumers who drink Coca-Cola became thirsty or were out of stock of Coca-Cola at home, a need was recognised which is the first stage of the Process component of the model. The consumers would have then entered the information search stage and would have first drawn on past experiences they had with Coca-Cola drinks before using external sources of information from the Input component of the model, such as the company’s marketing communications and socio-cultural influences. Because of Coca-Cola’s effective marketing mix efforts in the past, the customer would have most likely had good memories and experiences with the drinks. Also, Coca-Cola’s marketing efforts during the time of the consumer’s decision making would have played a big role in influencing consumers’ decisions. As a result, when consumers entered the Output stage, their decision was to re-purchase Coca-Cola. Coca-Cola marketing mix was effective because of its strong impact on the consumer’s decision making process.
Another reason why Coca-Cola’s marketing mix was effective because it catered for the individual factors of consumers and this made the marketing mix more influential on individual decision making processes of consumers. For instance, Coca-Cola’s loyalty reward promotions would have appealed to those customers who like to be rewarded for their commitment or the sales promotions for those who were always seeking bargains. The changing of shapes of the bottles and the creative and high imagery advertisements, especially the one ones with the polar bears drinking Coca-Cola, would have appealed to those emotional and impulsive consumers. Also, by getting many businesses to only sell Coca-Cola drinks would have trapped those consumers who do not normally purchase Coca-Cola. The fact that most people would have had less disposable income might have made these marketing tactics more influential on their actual Decision Making Process because people’s need for rewards and stimulation to buy Coca-Cola and not switch to a cheaper brand would have been greater.
3.3 Commitment to Attitudes
It is believed that people’s high level of commitment to their favourable Attitudes towards Coca-Cola drinks was another reason that caused people to continue to purchase Coca-Cola drinks during the recession. “Attitude is a person’s learned predisposition, tendency to respond to an object in a consistently favourable or unfavourable way” (Allport 1935, cited in Professor Jiang 2010 Lecture 5 slides). In relation to Coca-Cola drinks this means that, people were not born with the attitudes that they have towards Coca-Cola. Instead they learned about Coca-Cola from their direct experiences with the drinks, from other people’s opinions and from the company’s marketing mix. They used these factors to develop an overall evaluation of Coca-Cola and in so doing formed favourable attitudes towards the drinks. Consequently, people were then motivated by their attitudes to purchase Coca-Cola drinks (Schiffman et al 2007, p.238).
The psychologist, Daniel Katz, purported that “attitudes exist because they serve a function for the person” (Solomon et al 2010, p.275). The function could be a Utilitarian, Value-expressive, Ego-defensive or Knowledge function. For instance, people who like the taste of the Coca-Cola drinks and who derives pleasure from it would have an attitude that serves the Utilitarian function. Value-expressive attitudes would be seen in those people who drink Diet Coke because it may convey that they are ‘dieting and watching their figure’ to others (social identity) or because they personally believe it’s the healthier choice of drink (personal values). Coca-Cola’s efforts to provide more factual and meaningful nutritional information on their packaging would form attitudes that serve the knowledge function in those people who need such information in selecting products.
“Attitudes change when it “…no longer gives satisfaction to its related need state” (Katz, 1960 p.177). Coca-Cola’s marketing mix efforts has been consistently satisfying the needs of consumers and so consumers became committed to their attitudes towards Coca-Cola. For example, Coca-Cola’s total quality management systems ensure that every bottle on the production line tastes the same so that people’s Utilitarian function would always be satisfied.
There have been misperceptions and rumours of Coca-Cola drinks including ‘soft-drinks cause Kidney stones’ or ‘Coca-Cola can be used as household cleaners’. In order to provide clarity and consistency for individuals with knowledge function needs, Coca-Cola posted responses on its website to these rumours. Moreover, the company had spent $9m to promote active healthy lifestyle programs in 2008 (coca-cola.com). This also illustrates Coca-Cola satisfying the needs of consumers which would then lead to consumers becoming highly committed to their attitudes.
According to Katz (1960) attitudes consist of affective or feelings and cognitive or belief components. Attitudes can be related to behaviour which makes it a third component. Another consequence of Coca-Cola’s efforts consistently satisfying consumers’ needs was that it strengthened the affective component of consumers’ attitudes and reinforced the beliefs they had towards Coca-Cola. The result was people holding onto to their favourable attitudes towards Coca-Cola which was then the driving force of their purchase behaviour.
It is worthy to note that the results of many studies have shown “a very low correlation between a person’s reported attitude towards something and their actual behaviour towards it” (Solomon et al 2010, p.290). Researchers found that events, circumstances or social pressure can interfere with a person’s planned or expected behaviour. For instance, people may like Coca-Cola but do not buy it because of persuasive campaigns from health organisations that say soft-drinks are unhealthy (social pressure). Therefore, it can then be debated that although people may have had favourable attitudes towards Coca-Cola this may not have caused them to purchase Coca-Cola drinks during the recession or any time. It is believed that this happened because people were not strongly committed to their attitudes. It can then be argued that Coca-Cola’s marketing strategies have been encouraging people to remain highly committed to their attitudes towards Coca-Cola. Once consumers are very committed to their attitudes, it would become very difficult for external influences to change their beliefs or feelings for the product and by extension change their behaviour.
3.4 Reinforcement of loyalty through Reference Groups
Coca-Cola has used the internet to create a virtual community where its fans from all over the world can meet other fans, chat about various topics and reminisce about Coca-Cola memories. Although Coca-Cola has an official website (coca-colaconverstaions.com) to facilitate this community, the website provides links to Twitter and Facebook so that fans can use those forums if they desired. Additionally, there is a Coca-Cola’s Collectors Club for people who are very nostalgic and who enjoy collecting Coca-Cola merchandise. The club has more than 5000 members from all over the world. Several conventions and meetings are held annually and monthly newsletters are published. There are also swap meets and other social events that enable members to share their interests with others (coca-cola.com).
Researchers find that people within brand communities “…feel more positive about the product” (Solomon et al, 2010 p.392) when they interact with other people who share similar interests in the same product and when they participate in social events held for them. Their brand loyalty is enhanced and the chance of them switching to competing brands that are as good or even better is very low. Moreover, these community members do not only become emotionally involved with the product, but genuinely concerned with the welfare of the company as well (Solomon et al, 2010, p.392).
Coca-Cola has been the main sponsor of big events for many years such as NASCAR racing, Youth Olympics Games, FIFA World cup and Special Olympics (coca-cola.com). These different events bring together people who share common interests and these people make up sub-cultural groups within society. Attitudes, beliefs and certain behaviours would be adopted faster by these groups because of their cohesiveness and group members’ desire to share one identity. By Coca-Cola sponsoring the events for these groups often, Coca-Cola would have become accepted and liked by these groups. Coca-Cola would have relied on the ‘social power’ of these groups to remind and reinforce the brand. As a result, members within these groups would have been motivated to purchase Coca-Cola as long as they were active members of these groups in order to fit in.
Therefore, the presence of Coca-Cola’s brand communities both virtual and those that meet face-to-face had strengthened people’s brand loyalty and this enabled Coca-Cola to maintain a high retention of consumers during the recession. Also, the influence of sub-cultural groups could have contributed to Coca-Cola’s continued success during the recession.
Conclusion/Recommendations
Coca-Cola’s has maintained a strong brand image and financial performance for many years, even during the recession. The reasons for this success could have been because of consumer’s habitual purchase behaviour, successful execution of marketing strategies by the company, consumers’ commitment to their favourable attitudes towards Coca-Cola drinks and the presence of reference groups. These factors simultaneously impacted consumers’ actual decision making process which then caused them to continue to purchase Coca-Cola.
It is becoming more difficult to predict consumer behaviour because sociological factors, circumstances and events interfere with consumers intended behaviour (Schiffman et al, 2007). Coca-Cola has built a secret research facility at its headquarters and this shows that the company is aware of the importance of understanding consumer behaviour. “We’re spending a lot of time trying to understand shopping and shopping psychology,” says Joe Tripodi, Coca-Cola’s chief Marketing Officer (CNBC 2009).
It is apparent that Coca-Cola has been able to build an extremely strong brand loyalty for its drinks. Therefore, the company should continue with its innovative strategies and continue its research into why and when people purchase their products. The company should also continue using their websites and people’s blogs to get feedback from consumers about beliefs and feelings towards the company’s products and strategies. One caveat for the company is that it should never become arrogant and think that consumers will always have that strong brand loyalty for Coca-Cola.
Appendix I
SELECTED FINANCIAL DATA
Year Ended December 31,
(in millions except per share data)
2009
2008
2007
2006
SUMMARY OF OPERATIONS
Net operating revenues
$30,990
$31,944
$28,857
$24,088
Net income attributable to shareowners of The Coca-Cola Company
$6,824
$5,807
$5,981
$5,080
PER SHARE DATA
Basic net income
$2.95
$2.51
$2.59
$2.16
Diluted net income
$2.93
$2.49
$2.57
$2.16
Cash dividends
$1.64
$1.52
$1.36
$1.24
BALANCE SHEET DATA
Total assets
$48,671
$40,519
$43,269
$29,963
Long-term debt
$5,059
$2,781
$3,277
$1,314