COCA-COLA’S USE OF STRATEGIC CHOICES

Strategic choices are concerned with decisions about an organisation’s future and the way in which it has to respond to the myriad of pressures and influences as a result of its immediate and macro environment. To this end there are three basic choices to be made as shown below.

Methods for pursuing strategies

The choices about how strategies are to be pursued

Strategy directions

The choices of products and markets available to an organisation

Bases of competitive Strategy

The choices as to how an organisation positions itself in relation to competitors

Bases of competitive Strategy directions Methods for pursuing

Strategy strategies

Source: Adapted from Johnson, Scholes and Whittington; exploring corporate strategy 2008: pp217.

Bases of competitive strategy

This area has to do with how Coca-Cola has positioned itself in relation to its competitors. The Coca-Cola Company competes in the non-alcoholic beverages segment of the commercial beverages industry. The non-alcoholic beverages segment of the commercial beverages industry is highly competitive, consisting of numerous firms. These include firms that, like Coca-Cola, compete in multiple geographic areas, as well as firms that are primarily regional or local in operation. Competitive products include numerous non-alcoholic sparkling beverages; various water products, including packaged, flavoured and enhanced waters; juices and nectars; fruit drinks and dilutables (including syrups and powdered drinks); coffees and teas; energy and sports and other performance-enhancing drinks; dairy-based drinks; functional beverages; and various other non-alcoholic beverages. These competitive beverages are sold to consumers in both ready-to-drink and other than ready-to-drink form. In many of the countries in which Coca-Cola does business, including the United States, PepsiCo. Inc. is one of its primary competitors. Other significant competitors include, Nestl´e, Dr Pepper Snapple Group, Inc., Groupe Danone, Kraft Foods Inc, and Unilever etc. In certain markets, its competition includes beer companies. Coca-Cola also competes against numerous regional and local firms and, in some markets, against retailers that have developed their own store or private label beverage brands.

The strategy clock: competitive strategy options

High

Differentiation

2

4

Hybrid

5

Focussed differentiation

3

Perceived Product/ Service

2

Low price

6

7

1

No frills

Strategies destined for failure

8

Low

High

Low

Price

Source: Adapted from Johnson, Scholes and Wittington; exploring corporate strategy. 2008; pp 225

The ‘strategy clock’ above represents different positions in a market where customers or potential customers have different ‘requirement’ in terms of value for money. Coca-Cola has therefore taken the strategy option of hybrid, in which case it maintains its price but tries to differentiate itself from competitors. The Company has had a mix of pricing, advertising, sales promotion programs, product innovation, increased efficiency in production techniques, the introduction of new packaging, new vending and dispensing equipment, and brand and trademark development and protection. In this regard Coca-Cola has increased its annual marketing budget substantially, launched many new products, and developed a model to help its retail customers maximize their sales while it continue to plan for the future. The risk of this choice is that one could lose market share due to its low prices but then it can be tackled through economies of scale where the company produces in large quantities to cover cost and tries to penetrate different geographies as is the case of Coca-Cola. This choice has actually proved beneficial to Coca-Cola even though its market share has not grown tremendously as one would think over the last ten years but it definitely has a much higher market share than its competitors, especially Pepsi Co. This has been possible for Coca-Cola due to its recognised brand name and strong presence in so many geographies including Africa, Asia, Europe, Latin America, North America and the Pacific spanning across 200 countries.

Strategy direction

This has to do with the scope of a company in terms of its products. Over the last few years Coca-Cola has introduced a lot of products to its portfolio, including the recent Coca-Cola zero, which sold more than 600 million cases globally. Today Coca-Cola does not only deal in non-alcoholic soft drinks, but it also makes a lot of juices and juice drinks, still and carbonated products. As a matter of fact Coca-Cola has more than 3,300 products in more than 200 countries. In general one can rightly say that Coca-Cola has gone into diversification since it has not only shifted from soft drink to juices and even energy drinks but has also ventured and penetrated larger market over the years. Diversification is simply a strategy that takes the organisation away from both its existing market and its existing products. We have therefore used the Ansoff matrix below to identify the strategy direction which Coca-Cola is taking Box D, which is diversification. The Ansoff matrix provides a simplified way of generating four basic alternative directions for strategic development.

Strategic directions (Ansoff matrix)

Products

Existing New

A B

Market penetration Product development

Consolidation

C D

Market development Diversification

Existing

Markets

New

Source: Adapted from Johnson, Scholes and Wittington; exploring corporate strategy. 2008; pp258

Diversification happened to be a good strategic option for Coca-Cola as it helped the Company to break new grounds in business. For instance a new product like the Coca-Cola zero did so well in terms of sales. This therefore impacted positively on the company’s market share. Again shifting from soft drinks to energy and sports drinks also gave Coca-Cola an opportunity of a larger market share.

However diversification can be capital intensive as not all organisations will be able to cope with the finances involved since a lot of finances will be needed to go into research and development for the new product. For instance Pepsi-cola once came up with a new product called Meca cola but it wasn’successful and the product was withdrawn later on. Surely there will be a lot of laboratory works and feasibility studies to go with a new product and this will equally require skilled people getting involved and consequently hiring more employees so if the organisation does not have enough finances it may not be able to cope. Again the organisation which decides to diversify will put in place an adequate amount of public awareness in terms of advertisements and trainings. This may involve using news papers, television, internet etc. All these can be very enormous so diversification requires careful planning.

Methods for pursuing strategies

Most of Coca-Cola products are manufactured and sold by its bottling partners. The Company typically sell concentrates and syrups to its bottling partners, who convert them into finished packaged products which they sell to distributors and other customers. Separate contracts (”Bottler’s Agreements”) exist between the Company and each of its bottling partners regarding the manufacture and sale of Company products. Subject to specified terms and conditions and certain variations, the Bottler’s Agreements generally authorize the bottlers to prepare specified Company Trademark Beverages, to package the same in authorized containers, and to distribute and sell the same in (but, subject to applicable local law, generally only in) an identified territory. The bottler is obligated to purchase its entire requirementof concentrates or syrups for the designated Company Trademark Beverages from the Company or Company-authorized suppliers. Coca-Cola agrees to refrain from selling or distributing, or from authorizing third parties to sell or distribute, the designated Company Trademark Beverages throughout the identified territory in the particular authorized containers.

The Coca-Cola Company has created and achieved a strategic lock-in such that it has achieved dominance in the industry. For instance many people will think of ‘Coke’ once they think of using or taking a soft drink.