The Coca-Cola Company

Group 5

NAME ROLL NUMBER

Anjali PGP11007

Ankit Paliwal PGP11008

Apurva Vinay Chitale PGP11009

Asutosh Tiwary PGP11012

Shaurya Prassan Jain PGP11054

 The Coca-Cola Company

The Coca-Cola Company is an American Multinational beverage company, headquartered in

Atlanta Georgia. The company produces Coca-Cola which was invented in 1886 by pharmacist
John Stith Pemberton. It is the World’s biggest beverage company. It owns 48% of the global
Market share. It has franchises in over 200 countries and has a variety of around 160 drinks.
Coke, Sprite, Dasani are examples of some of its products.

Coca cola controls around 48.6% of the global carbonated drinks market with its only
competitor being PepsiCo. having a market share of 20.5%. The rest of the global market is
controlled by small companies each having less than 5% of the share.
Coca Cola and its competitors represent an oligopolistic market competition structure as there
are many other small soft drink companies also present. This situation is due to the
availability of several products from companies like Pepsi, Red Bull etc. that are very
different from each other. Due to this factor there is very high competition in this market
where there are more than 10 producers of soft drink.

Market Structure
The market structure that Coca Cola operates in is an oligopoly. In an oligopoly there are
some large firms who control the market. They have moderate to substantial market power
and are interdependent on one another. For coke it has a substantial market power due to the
high market share it holds. Other firms find it challenging to enter the market due to various
barriers to entry. In the beverage industry these barriers exist in the form of:
1) High Investment Cost- The existing firms are enjoying economies of scale due to
their large size. This forces the aspiring entrant to come into the industry on a large
scale. There is also a high cost of advertising and other promotional activities.
2) Brand Loyalty- Coke has been able to create a very strong brand loyalty among the
customers. Through the power of marketing, Coke has made all the other competing
brands a substitute for its product only when its products are not available.
3) Patents - One of the most significant barriers exist in the form of patents. Each
company has its distinct formula that is protected by patents.
4) Distribution Channels- A well developed distribution channel is one of the most
important barriers.
Their products are differentiated with Pepsi being considered as a substitute of Coke in most
of the markets. This differentiation exists in the form of secret ingredients protected by
patents, advertising policies with Coke focusing on family, friendship and Pepsi focusing on
teens.

Cost Structure
Coca-cola incurs different costs in production. These costs can be categorised into fixed costs
and variable costs. There are many variable costs faced by Coca Cola in terms of Labour
charges. Variable cost alo affects the marginal cost for soft drink owners, higher the variable
cost means higher marginal cost. The fixed costs which do not vary with production are fixed
costs. Land, plant, machinery, salary of the employees, advertising is a major cost for coca-
cola whether the production is high or low the company will continue to advertise the
products. The advertising costs for 2019, 2018, 2017 stood at $4246, $4113, $3958 million
respectively.
Variable costs are the costs which vary with production. labor, raw material, bottling
expenses, transportation etc are the variable costs. The Cost of Goods Sold for 2019, 2018,
2017 are $14619, $13067, & $13721 million respectively. Usually the variable cost drives the
marginal costs of production, higher the cost, higher the cost of production and vice versa.
The total cost is the sum of fixed cost and variable cost. For 2019, 2018, 2017 total cost for
coca cola stood at $28.3, $25.4, & $34.2 billion.

Pricing decision for Coca-Cola

Pricing decisions affect revenues rather than cost unlike other aspects like product, place &
promotion. Pricing is also used as a tool for business to advertise. Therefore, pricing should be
predictable and according to the marketing mix since it adds to the overall view of the product
and service.

Pricing strategy of Coca-Cola

Following are the strategies a company can follow for pricing:

1. Price skimming: Setting up high prices at the start to earn maximum revenue.
2. Market price: Charging price according to the market price and the competitors.
3. Market penetration: Ability to charge lowest prices to maximise sales.
Initially, the price is decided on the basis of the cost estimation framework of the original Coke.
First they decided on expenses like operational costs, capital costs and item costs and then
persuaded the customers considering the cost of Coke. They were able to utilize the market-
entrance in terms of evaluating its cost. Coca Cola products are now competing against Pepsi
products for setting their prices. Hence, their essential methodology is Market Price as they
know that prices might not vary significantly low or above the value competitors are charging.

The major pricing policies followed by are as follows:

1. Psychological Pricing: The marked prices of the product play a significant role
whether it would be bought or not. Identifying this particular aspect, Coca-Cola started
psychological pricing, i.e., if the price is 40, it starts marking it as 39 which gives the
customer a feel of low price and such sales would increase.
2. Promotional Pricing: Coca-Cola has always focused on promotional pricing like the
offers on the bottles during the festival time which imbibed the feeling of coca cola as
a necessity to the customer. They also motivated the retailers to offer free bottles and
samples and hence push the product in the market and this was one of the reasons the
coke is seen in the market.
3. Segmented Pricing: Based on different packaging, Coca-Cola priced the product
differently. Different packaging involved glass bottles, plastic bottles, aluminium cans
and tetra packs; these packaging were priced differently even though the weight was
the same. By pricing the different packaging differently, they increased the revenue,
even though the cost of production was the same for all the packages.
4. Discriminatory Pricing: Coca Cola is sold from a variety of channels like Retail store,
Restaurants, theatres, petrol stations etc. the products are priced high at places like
theatres and restaurants as compared to the retail shops and wholesale shops. The
product is priced higher at places where people go in their leisure time as people are
not much concerned about the prices there.
5. International Pricing: The company also adjusted its prices according to the country
it was making sales in. The pricing in every country was decided on various factors like
the targeted customer, laws and the income of the population. It also changed the
product in its look and feel according to the culture it was operating in.

In an oligopoly market, firms are the price setters instead of price takers. The firms usually
don’t compete on price. This can be seen from the pricing war between Coke and Pepsi in
2013. Coke reduced the price of its 200ml bottle from Rs 10 to Rs 8. This is a major revenue
segment as it carters to rural areas where people have low disposable income. Pepsi, as a
close substitute, followed suit as it would otherwise lose a major portion of the market share.
This price war went on till both of them reduced the price till Rs 5 and realised that the two
companies couldn’t sustain on such low prices and thus withdrew. The prices have remained
stable since then.

With the carbonated beverage market facing saturation both the companies have diversified
their portfolios with Coke focusing more on other beverage brands to dominate the beverage
industry and Pepsi focused both on the beverage industry and consumer packaged goods
industry. They should also try to make the operations in smaller markets more efficient to get
better profits.