Coca-Cola India

San Francisco State University MKTG 432-02 Fall 2010 Professor Veronica A. Papyrina

Group 3

TABLE OF CONTENTS
1. Problem Definition .................................................................................................................................. 3 1.1 Coca-Colas Concerns ........................................................................................................................ 3 1.2 Coca-Colas Problem .......................................................................................................................... 3 1.3 Coca-Colas Decisions........................................................................................................................ 3 1.4 Companys Challenges ....................................................................................................................... 4 1.5 Companys Opportunities ................................................................................................................... 5 2. Data Analysis ........................................................................................................................................... 5 2.1 Who found out what, when and how? ................................................................................................ 5 2.2 Timeline and events that produced the current the situation .............................................................. 5 2.3 Opinions anchored by evidence from the case ................................................................................... 7 3. Solving the problem ................................................................................................................................ 7 3.1 Alternative Generation........................................................................................................................ 7 3.1.1 Where the causes of the problem identified properly? .................................................................... 7 3.1.2 Were other alternatives analyzed? ................................................................................................... 8 3.1.3 Was the decision implemented carefully? ....................................................................................... 8 3.1.4 Suggested Alternatives..................................................................................................................... 8 3.2 The Preferred Alternative ................................................................................................................. 10 3.3 Implementation Plan ......................................................................................................................... 10 3.3.1 Who, what, where, when, and how? .............................................................................................. 11 3.3.2 Short term and long term actions ................................................................................................... 12

4. References .............................................................................................................................................. 12

1. Problem Definition
1.1 Coca-Colas Problem
Coca-Cola, deemed the #1 Brand in the World, has been a successor in the soft drink industry for over 100 years. Along with their success they have incurred crises along the way. One in particular is the Coca-Cola India Case Study. On August 5, 2003, Coca-Cola India was attacked by The Center for Science and Environment (CSE), an activist group of engineers, scientists, journalists and environmentalists in India, for unsafe products, said to contain pesticide residues which surpassed global standards. Coca-Cola Indias products were attacked in a press release stating: Twelve major cold drink brands sold in and around Delhi contain a deadly cocktail of pesticide residues. The tests done on three samples of 12 PepsiCo and Coca-Cola brands were said to contain 30-36 times the global standards of pesticide residue. The pesticides found were known to cause disease such as cancer, birth defects, and severe disruption of the immune system, among other health conditions.

1.2 Coca-Colas Concerns

As any company this accusation posed great fear and concern for Coca-Cola Company and their future standing in India. After the discovery of the pesticide residue, the Indian Government banned Coke and Pepsi products. Thus, Coca-Cola stock dipped $5 in the New York Stock Exchange. Pepsi and Cokes response to the accusations were denying CSEs validity. Pepsi conducted their own tests independently and results showed no detectable signs of pesticides.

1.3 Companys Challenges

Because of the attacks by the CSE and NGOs (Non-Governmental Organizations) on Coca-Cola, the brand faced many challenges. First, being the worlds most valuable brand whose value is greatly influenced by the image of the company and its products, their primary problem was trying to rebuilding their image to the Indian public and regaining Indian consumers trust. This was a hard task because

NGOs have high instinctive credibility and reliance by the people, making it difficult for companies to compete with such trustworthiness given to NGOs. Another problem posed is the socially responsible reputation of Coca-Cola as a corporate company in the U.S. The United States is a flourishing, developed country; yet, India is a developing nation with a different set of standards. Should Coca-Cola withhold their social responsibilities internationally? Is the company economically upheld to do so?

1.4 Coca-Colas Decisions

Coca-Cola is faced with an enormous crisis so many decisions face them as well. Does action need to be taken? Is so, what type and how aggressive? The implications of these possible decisions are outlined below.

1.5 Implications for profitability, corporate reputation and image

Without a doubt, this issue is of great importance to the organization. These allegations are not only threatening to Coca-Colas customers, but to the companys reputation as well. The effects of the pesticides could be devastating to Coca-Colas customers. Coca-Colas advertising and marketing messages have always given customers a reason to trust their products. Cant beat the real thing was a longstanding message and is one that proclaims authenticity and authority. The pesticide claims go against everything Coca-Cola has advertised to their customers. If action was not taken, Coca Colas customer base could diminish, the brands name tarnish and their reputation completely demolished. Revenue could decrease significantly if customers think Coca-Cola is not a reliable or safe product to drink. The pesticides contain chemicals which have devastating outcomes, including causing cancer. If customers begin to get ill, this will be a huge tragedy for Coca-Cola. The customers well-being is in jeopardy, as well as the economic performance of the company. Just within a few days after the initial reports came out, Coca-Cola stock dipped by $5 on the New York Stock Exchange. Additionally, their sales dropped 30-40% just within two weeks. Prior to the CSE reports, Coca-Cola boasted a 25-30%

growth. Financially, these allegations could lose Coke a significant amount of revenue. Taking action is a necessity against the pesticide allegations.

2. Data Analysis
2.1 Who found out what, when and how?
August 5, 2003, CSE issued that three samples of 12 PepsiCo and Coca-Cola brands from across the city were found to contain pesticide residues surpassing global standards by 30-36 times including lindane, DDT, malathion and chlorpyrifos; pesticides known to cause cancer, damage to the nervous and reproductive systems, birth defects, and severe disruption of the immune systems. The results were based on tests conducted by the Pollution Monitoring Laboratory (PML) of the CSE. In February this year, CSE had blasted the bottled water industrys claims of being pure when its laboratory had found pesticide residues in bottled water sold in Delhi and Mumbai. This time, it analyzed the contents of 12 cold drink brands sold in and around the capital. They were tested for organ chlorine and organ phosphorus pesticides and synthetic pyrethroids all commonly used in India as insecticides. However, the process in which was used to determine these allegations were declared baseless by Coca-Cola.

2.2 Timeline and events that produced the current the situation
Regulations on soft drinks were weak in India, and there were no standards to define clean or portable water. An NGO such as the CSE called on the government to put in place legally enforceable water standards and chastised the multi-nationals for taking advantage of the situation at the expense of consumer health and well-being. Moreover, The CSE turned to the United States and the European Union for international norms. However, Coca-Cola Company argued that:
There are no standards for soft drinks in the US, the EU, or India. In India, water used for beverage manufacture must conform to drinking water standards. The water used by Coca-Cola conforms to both [the Bureau of Indian Standards (BIS)] and EU standards for drinking water and our production protocols ensure this through a focus on process control and testing of the water used in our manufacturing process and the final product quality.

From 1993-2003, the Coca-Cola company expensed $1 billion (US) in Coke India making them one of the countrys highest investors. A large portion of this allowance was used to test quality of its products. Over 400 tests were done to assure that the quality of Coca-Cola was nothing short of the best. The Coca-Cola Company uses the same state-of-the-art manufacturing facilities in India as they do in the US. Though the company was in a public scare, it deeply expressed that the company is constantly monitoring its ingredients.
We test for traces of pesticide in groundwater to the level of parts per billion. This is equivalent to one drop in a billion drops. For comparisons sake, this would also be equivalent to measuring one second in 32 years, or less than one person in the entire population in India. These tests require specialized equipment at accredited labs to have accurate results. Even at these stringent miniscule levels we are well within the internationally accepted safety norms.

Despite Coca-Colas confidence, On August 20, 2003, President and CEO of Coca-Cola India, Sanjiv Gupta, had faced a period of crisis due to environment sustainability problems that issued a press release stating, Twelve major cold drink brands sold in and around Delhi contain a deadly cocktail of pesticide residues. In only two weeks, sales had dropped by 30-40 percent, because many leading clubs, retailers, restaurants, and college campuses across the country had stopped selling Coca-Cola. The initial response of Coke and Pepsi denied of the validity of the CSEs claims, and the companies attacked the credibility of the CSE and their lab results, citing regular testing t independent laboratories providing the safety of their products. They promised to provide this data to the public, threatened legal action against the CSE while seeking a gag order, and contacted the United States Embassy in India for assistance. In the following days, the Delhi High Court asked the government to convene an expert committee to test and report on the safety of soft drinks within three weeks and to revise existing standards to include pesticide norms. Coca-Cola and Pepsi launched independent campaigns to reassure the public, taking out full-page newspaper advertisements and directing consumers to their corporate Web sites to review test results and safety protocol in greater detail.

2.3 Opinions anchored by evidence from the case

The allegations against Coca-Cola were based on consumer confusion, and the labs that were said to have done these tests on soft drink companies were internal unaccredited facilities, the Pollution Monitoring Laboratory. Coca-cola addressed that:
In India, as in the rest of the world, our plants use a multiple barrier system to remove potential contaminants and unwanted natural substances including iron, sulfur, heavy metals as well as pesticides. Our products in India are safe and are tested regularly to ensure that they meet the same rigorous standards we maintain across the world,

and provided Myths and Facts from Coca-Cola India on the Coca-Cola India Web site. Furthermore, Coca-Cola hired a public relations firm, Perfect Relations, to rebuild the companys reputation, and the head of communications for Coca-Cola Asia moved to India from Hong Kong to try to deal, in a PR way, with the growing resistance in 2004. After the time of the incident, the company launched Coca-Cola India eKO Management System, an initiative to translate environmental policy into action in daily operations, in order to regain public trust as well.

3. Solving the problem

3.1 Alternative Generation
3.1.1 Were the causes of the problem identified properly?
When the CSE issued their report on bottled drinking water, Coca-Cola faced image problems in both Indian and American markets. In India, consumers lost their trust in the company after the report declared that Coca-Colas bottled water was extremely dangerous. In the U.S., Coca-Cola risked losing its reputation as a socially responsible corporate citizen. Coca-Cola, along with Pepsi, chose to attack the CSEs credibility. Both companies did not realize the power of NGOs, something that they should have recognized prior to attacking the CSE. Most NGOs have a high level of credibility around the world and the general public often takes their side rather than that of a large multi-national organization.

3.1.2 Were other alternatives analyzed?

Instead of attacking the CSE, calling their findings misleading and unaccredited, Coca-Cola should have identified the NGOs power and chosen to collaborate with them. Coca-Cola did not analyze other alternatives before attacking the CSE and denying their own liability.

3.1.3 Was the decision implemented carefully?

When the CSEs report was published, Coca-Cola was under pressure and decided to attack the findings right away. Coca-Cola felt that they were wrongly accused of serving the Indian people a deadly cocktail of pesticide residues. Before aggressively stressing their innocence, Coca-Cola should have thought more carefully about their options. Even though the company was in no doubt that the lab results were incorrect, they should have realized whom they were up against.

3.1.4 Suggested Alternatives

Instead of attacking the CSE, other alternatives to handle the situation would be: - Alt. 1: Collaboration with the CSE: Instead of attacking the CSE, joining forces with them to solve the problem, which could have prevented the loss of consumers trust. Coca-Cola could have proposed that the CSE have the tests performed by an independent third party. The company would have shown reduced offensiveness and consumers would believe that Coca-Cola took the report seriously and cared about the publics health. Coca-Cola would not state that the CSEs findings were either correct or incorrect or make any apologies, but this alternative would have strengthened the companys image. If tests showed no signs of pesticide residues, Indian consumers would be likely to show even higher trust in Coca-Cola according to the Recovery Paradox (Papyrina, 2010). This conclusion might backfire though, which would be a disadvantage. It might also be hard to collaborate with the CSE if they resisted doing so. Though it would be in the CSEs interest to protect consumers and solve the problem. There are downsides to this alternative. One would be if the results from the second round of tests proved that

beverages contained pesticide residue. Another is the possibility that by agreeing to collaborate with the CSE and performing a second round of tests, Coca-Cola could be perceived as admitting that the CSEs report was actually correct the first time. - Alt. 2: Status Quo: This alternative is denial through argument from ignorance and would entail CocaCola remaining silent and waiting for the buzz to go away. After all, Coca-Cola is a large organization and is probably the target of many investigations by several NGOs. Coca-Cola is a powerful brand though, and the company should deny the CSEs claims by simply ignoring them. Indian consumers are likely to forget about it after a while anyway. In fact, in rural areas consumers might not even hear about the report. This alternative is easy to implement; Coca-Cola has to do nothing at all. Even so, there is a risk that this alternative will go wrong. Reporters like to criticize large, powerful corporations and are likely to give the issue media attention. Also, NGOs might be small in size, but consumers tend to trust them and this issue could turn out to be devastating for Coca-Colas brand. American consumers might also take the report seriously and see the company as another multi-national corporation that just wants to sell more products and does not care about consumers health. Eventually they might abandon Coca-Cola in favor of competitors such as Pepsi. - Alt 3: PR campaign: Just as in Belgium a few years earlier, Coca-Cola could implement a PR-campaign to retain consumer loyalty. The PR campaign could include vouchers and coupons for free product delivered to [all households], sponsored [events], and significant television advertising. This might have been successful in Belgium, but Belgium is a small country with 4.4 million households. India has a population of 1 billion and sending every household a coupon for free product would be impossible. Due to both cultural and infrastructure differences, the same campaign could not be carried out in India. A PR campaign could produce many benefits, but it would need to be tailored to meet the parameters of the Indian market. Another PR campaign in the US could inform the American public about Coca-Colas efforts as a global citizen who gives back to communities. This ingratiation strategy, an argument by example, would show that Coca-Cola is not just a large, greedy corporation, and would demonstrate the companys social and environmental responsibility.

3.2 The Preferred Alternative

Alternatives Alt 1: Collaboration with the CSE Reducing Offensiveness Recovery Paradox

Advantages - Consumers like NGOs - Image strengthened - Reputation improved - Through the Recovery Paradox higher trust for the brand will be built

Disadvantages - CSE might not be willing to collaborate - Can be understood as an apology for actually doing wrong - Second round of pesticide tests are positive - Recovery paradox might backfire

Alt 2: Status Quo Denial through Argument from ignorance

- Ease of implementation - Incident quickly forgotten - Coca-Cola powerful

- Media attention - Brand tarnished - NGO powerful

Alt 3: PR Campaign Ingratiation through Argument from example

- Worked well in Belgium - Loyal consumers - Chance to show Coca-Colas corporate social responsibility (CSR)

- India not comparable to Belgium - Very expensive

After analyzing the options outlined in the table above, it is recommended that collaboration with the CSE, combined with a PR campaign (a modified version of the one used in Belgium), is the most beneficial strategic alternative for Coca-Cola.

3.3 Implementation Plan

The implementation plan would be to collaborate with the CSE and launch a PR campaign, CocaCola must first gain the trust and the commitment of the CSE, convincing them that Coca-Cola has the consumers best interest in mind. As for the PR campaign, Coca-Cola can utilize the successful aspects of the Belgium campaign and incorporate them in the India campaign.

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3.3.1 Who, what, where, when, and how?

Before launching a similar PR campaign to regain customer loyalty, its very important that CocaCola first works with the CSE to regain the trust of their customers. If the CSE released these reports with inaccurate information they are obligated to the public to correct their mistakes. The issue of the upmost importance is getting the truth out to customers. CSE should conduct independent third party tests to ensure their results are accurate. Assuming they are inaccurate as suspected, Coca-Colas marketing team should collaborate with CSE to issue an apology and/or retraction of the first study. This needs to be done as soon as possible so it can be followed with promotional activities so business can pick up swiftly. These apology letters or corrected reports not only need to be issued immediately, but to trusted publications throughout the country. These publications will need to be contacted and Coca-Colas PR team needs to find top reporters to cover the apology story. If CSE is willing, they should even make a public apology to Coca-Cola and make an in-person correct. Again, the apology would need to gain a great deal of exposure in correction efforts. Coca-Cola would want to make sure they are saturating the market with CSE apology notices. As the study indicated, the Indian public was very convinced by CSEs initial research and press release. Our preferred alternative is that CSE issues another press release with corrected information as it was so convincing the second time. Also, for Coca-Cola, its crucial they work with the media extensively to ensure there any allegations of conspiracy theory. Some citizens could assume that CSEs apology is insincere and is really coming from pressure from Coca-Cola. It would be essential to monitor coverage and do as much damage control as possible. The next thing Coca-Cola needs to do is to implement a customer retention program, similar to what was done in Belgium. As India is a much larger country then Belgium it is essential that the PR campaign is extensive, and targets a wide range of citizens. Promotional activities, coupons, vouchers and even television advertisement should all be components of this marketing plan. The promotional activities should include charity work, as well handing out free beverages at public events. Coca-Cola needs to rebuild their reputation and these will show citizens Coca-Cola is still a very reputable company that has nothing to hide. Coupons and vouchers 11

will also help retain brand loyalty and should be widespread especially in lower-income areas. These promotional activities, combined with the collaboration with CSE will greatly contribute to rebuilding the Coca-Cola name throughout the country.

3.3.2 Short term and long term actions

In the short term, the actions that need to taken are working with CSE and then saturating the market with promotional activities and discounts. The efforts with CSE need to be immediate. The PR plan to regain customer loyalty should include a variety of activities and should continue for 1-2 years. Its crucial these aggressive marketing efforts are long-terms to continue to rebuild the brands name. Then, they need to maintain this level of media presence to keep the Coca-Cola name as one of the countrys most powerful brands.

4. References
Fraser P. Seitel (2010), The Practice of Public Relations, 11th Edition, Pearson Prentice Hall, Upper Saddle River, New Jersey Kaye- Jennifer (2005), Tuck School of Business, Dartmouth College, Coca Cola India, Journal Case Study Competition in Corporate Communications

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