Cambridge International College Diploma in Business Conduct Marketing Audit

The Coca Cola Company

Domingos Azevedo Ary Azevedo

Introduction
The company that we chose is The Coca Cola Company, one of the biggest companies in the whole world and it is also the worlds #1 soft drink company, The Coca-Cola Company (TCCC) owns four of the top five soft-drink brands (Coca-Cola, Diet Coke, Fanta, and Sprite). Its other brands include Minute Maid, Powerade, and Dasani water.

Origin
Soon after John S Pemberton prepared the first batch of syrup of 'Coca-Cola' on May 8, 1886 his friend and bookkeeper, F.M Robinson chose an alliterative name. He wrote the words in the now familiar flowing "Spencerian "script and 'Coca-Cola' was registered officially in the US Patent and Trademark Office in 1893. Early advertising tried to stop people calling the product 'Coke'. They urged people to "ask for 'Coca-Cola' by its full name; nicknames encourage substitution" but it didn't work. People kept asking for 'Coke'. In 1941, the Company started advertising as 'Coke' and 'Coca-Cola'. In 1945 'Coke' was registered as a trademark. As peoples' lifestyles changed they demanded different soft drinks. For example, consumers might want a drink containing sugar and caffeine in the morning, a diet soft drink for lunch and a caffeine-free drink at night. This market segmentation, created an opportunity for more 'Coca-Cola' brand drinks. The extension of the 'Coca-Cola' name began in 1982 with the introduction of 'diet Coke'. 'Diet Coke' quickly became the number one selling low calorie soft drink in the world. In 1983, caffeine-free versions of 'Coke' and 'diet Coke' were introduced. With these extensions, megabrand 'Coca-Cola' has more products for people to enjoy more often and on more occasions than ever before.

Product Line
The product mix for Coke includes the total set of products that the Company sells and can be considered in terms of its breadth, depth and consistency. The product mix for Coke beverages is divided into four categories: 1. Refreshments - main Coke brands; 2. Hydration - mainly waters; 3. Energy and stimulation - brands with caffeine and vitamins; Nutrition and health - juices and milks Instead of talking about one of Cokes brands, we will talk about the four categories that its products are divided. We think that like that we can present a more overall idea of the Coca Cola products and its unique strategies.
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Swot Analysis
Strenghts
y y y y Popularity Brand easily recognized Customer loyalty International trade

Coca Cola is an extremely recognizable company. Popularity is one of its superior strengths that is virtually incomparable. Coca Cola is known very well worldwide. It's branding is obvious and easily recognized. Things like, logos and promos shown on tshirts, hats, and collectible memorabilia. Without a doubt, no beverage company compares to Coca Cola's social popularity status. Some people buy coke, not only because of its taste, but because it is widely accepted and they feel like they are part of something so big and unifying. Overwhelming is the best word to describe Coca Cola's popularity. It is scary to think that its popularity has been constantly growing over the years and the possibility that there is still room to grow. If you speak the words Coca Cola, it would definitely be recognized all around the world. Money is another thing that is a strength of the company. Coca Cola deals with massive amounts of money all year. Like all businesses, they have had their ups and downs financially, but they have done well in this compartment and will continue to do well and improve. The money
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they are earning is substantially better than most beverage companies, and with that money, they put back into their own company so that they can improve. Another strength that is very important to Coca Cola is customer loyalty.

Weaknesses
y y y y Lack of popularity of many Coca Colas brands Health issues Word of mouth Most unknown and rarely seen, result of low profile or non-existent advertising

Coca Cola is a very successful company, with limited weaknesses. However they do have a variety of weaknesses that need to be taken care if they want to pass to the next level. Word of mouth is probably a strength and weakness of every company. While many people have good things to say, there are many individuals who are against Coca Cola as a company, and the products that they produce. Many drinks that they produce are extremely popular such as Coke and Sprite, but this company has approximately 400 different drink types. Most are unknown and rarely seen for available purchase. Another weakness is the health issues that surround some of their products. It is known that a popular drink like Coke is not very beneficial to your body and health. The today focus on health and weight could be a problem for a product that is known for not being good for the customer s health.

Threats
y y y Legal issues Competition (Pepsi) Changing health-consciousness attitude

Despite the fact that Coca Cola dominates its market, it still has to deal with many threats. Even though Coca Cola and Pepsi control nearly 40% of the entire beverage market, the changing on the health-consciousness attitude of the market could have a serious effect on Coca Cola, and this has to be viewed as a dominant threat. Another possible issue is the legal side of things, because there are always issues with a company of such supreme wealth and popularity. The other threat of course is the
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competition the Coca holds with Pepsi. This is a serious threat and Coca Cola needs to be very careful, because Pepsi has a big product portfolio that could overwhelm Coca Colas products.

Opportunities
y y y y Many successful brands to pursue Advertise its less popular products Buy out competition More brand recognition

Coca Cola has a few opportunities in its business. It has many successful brands that it should continue to exploit and pursue. Coca Cola also has the opportunity to advertise its less popular products. With a large income it has the available money to put some of these other beverages on the market. This could be very beneficial to the company if they could start selling these other products to the same extent that they do with their main products. Another opportunity that we have seen being put to use before is the ability for Coca Cola to buy out their competition. This opportunity rarely presents itself in the world of business. However, with Coca Colas power and success, such a task is not impossible. Coca Cola has bought out a countless number of drink brands. An easy way to turn their profit into your profit is too buy out their company. Even though this may cost a vast amount of money initially, in the long run, if all goes to plan, it results in a large profit. Also, the company will no longer need to worry about this product being part of the competition. Brand recognition is the significant factor affecting Cokes competitive position. Coca Cola is known well throughout 90% of the world population today. Now Coca Cola wants to get there brand name known even better and possibly get closer and closer to 100%. It is an opportunity that most companies will ever dream of, and would be a supreme accomplishment. Coca Cola has an opportunity to continue to widen the gap between them and their competitors

Marketing Mix
Product
The Coca Cola Companys products include beverage concentrates and syrups. The business has over 400 brands of beverages around the world. Coca Cola is the most well known trademark. Core Product is what the consumer is actually buying and the benefits it gives. Coca Cola customers are buying wide range of soft drinks. Actual product is the parts and features, which deliver the core product. Consumers will buy the coke product because of the high standards and high quality of the Coca Cola products. Augmented product is the extra consumer benefits and services provided to customers. Since soft drinks are a consumable good, the augmented level is very limited. But Coca Cola do offer a help line and complaint phone service for customers who are not satisfied with the product or wish to give feedback on the product

Price
Competition-based pricing: Coca Cola products are above or equal to its competitors prices. Discount price: Coca Cola products are often marked down during sale periods and special occasions.

Placement
Indirect distribution: The Coca Cola Company uses intermediaries in its distribution. The company does not sell its products directly to its customers. Intensive distribution: retail outlets, small shops, restaurants, petrol stations, newsagents, schools, sports and entertainment venues

Promotion
Advertising: There are many television advertisements on Coca Cola products. The company also uses the radio as another source of advertisement. y y Coke was first advertised as a remedy for headaches and exhaustion Coke has been advertising on television for 50 years
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y y y

Songs used in Coca Cola commercials have become popular They have used lots of different slogans As it should be. ( Australia and NZ only)

Coca Cola is a company that always used promotion as a strong way to reach their target market. They have some of the most innovative slogans and marketing campaigns that have ever been made.

Personal Selling: Coca Cola Company has a highly trained sales team. The promotional mix consists of advertising, personal selling, sales promotion and publicity Since the death of Goizueta ( the companys president) in 1997, Coke's overall promotional performance has been less than satisfactory. Investors have lost confidence due to declining profit growth, and a succession of poorly handled negative publicity has made matters even worse. The Company's misfortunes have included poisoning scares in Europe, anti-trust issues, racial discrimination claims in the U.S. and deteriorating relationships with bottlers over syrup prices. It is apparent that Coke has had ineffective crisis management strategies and has perhaps even been unable to determine when situations actually warrant treatment as a crisis. The problem seems to stem from the Company's poor responsiveness to its environment, largely caused by a slow decision-making system, centralised in Atlanta. The weakness of centralisation is that ownership is taken away from those staff in regional offices who are best positioned to act in the interests of the Company.

Target Market
The companys beverages are generally for all consumers. However, there are some brands, which target specific consumers. The target market has been defined as multi-cultural youth of age 13 24. Companys people says: Our company will target multi-cultural youth by identifying common youth struggles and positioning Coca-Cola as a unifying element in a diverse youth culture.

Market Segmentation
Primary Market 13 to 15 year olds:
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This segment is important to consider because it is influencing its parents decision as well as its friends decisions. 16 to 18 year olds: This older segment is making its own decisions. Secondary Market 21 to 24 year olds: Coke must retain those who have chosen Coke as their primary soft drink brand by this point. At the same time Coke must make switchers out of those who have not chosen a specific soft drink brand through social events, which are a priority for this segment.

Porter Analysis
Soft drink industry is very profitable, more so for the concentrate producers than the bottlers. This is surprising considering the fact that product sold is a commodity which can even be produced easily. There are several reasons for this, using the five forces analysis we can clearly demonstrate how each force contributes the profitability of the industry.

Barriers to Entry:
The several factors that make it very difficult for the competition to enter the soft drink market include:
y

Bottling Network: Both Coke and PepsiCo have franchisee agreements with their existing bottlers who have rights in a certain geographic area in perpetuity. These agreements prohibit bottlers from taking on new competing brands for similar products. Also with the recent consolidation among the bottlers and the backward integration with both Coke and Pepsi buying significant percent of bottling companies, it is very difficult for a firm entering to find bottlers willing to distribute their product.

Advertising Spend: The advertising and marketing spend in the industry is in 2000 was around $ 2.6 billion mainly by Coke, Pepsi and their bottlers. The average
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advertisement spending per point of market share in 2000 was 8.3 million. This makes it extremely difficult for an entrant to compete with the incumbents and gain any visibility.
y

Brand Image / Loyalty: Coke and Pepsi have a long history of heavy advertising and this has earned them huge amount of brand equity and loyal customers all over the world. This makes it virtually impossible for a new entrant to match this scale in this market place.

Retailer Shelf Space (Retail Distribution): Retailers enjoy significant margins of 1520% on these soft drinks for the shelf space they offer. These margins are quite significant for their bottom-line. This makes it tough for the new entrants to convince retailers to carry/substitute their new products for Coke and Pepsi.

Fear of Retaliation: To enter into a market with entrenched rival like Pepsi and Coke is not easy as it could lead to price wars which affects the new comer.

Suppliers:
y

Commodity Ingredients: Most of the raw materials needed to produce concentrate are basic commodities like Color, flavor, caffeine or additives, sugar, packaging. Essentially these are basic commodities. The producers of these products have no power over the pricing hence the suppliers in this industry are weak.

Buyers:
y

The major channels for the Soft Drink industry are food stores, Fast food fountain, vending, convenience stores and others in the order of market share. The profitability in each of these segments clearly illustrate the buyer power and how different buyers pay different prices based on their power to negotiate.

Food Stores: These buyers in this segment are some what consolidated with several chain stores and few local supermarkets, since they offer premium shelf space they command lower prices. Convenience Stores: This segment of buyers is extremely fragmented and hence have to pay higher prices.

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Fountain: This segment of buyers are the least profitable because of their large amount of purchases hey make, It allows them to have freedom to negotiate. Coke and Pepsi primarily consider this segment Paid Sampling with low margins.

Vending: This channel serves the customers directly with absolutely no power with the buyer.

Substitutes:
Large numbers of substitutes like water, beer, coffee, juices etc are available to the end consumers but this countered by concentrate providers by huge advertising, brand equity, and making their product easily available for consumers, which most substitutes cannot match. Also soft drink companies diversify business by offering substitutes themselves to shield themselves from competition.

Rivalry:
The Concentrate Producer industry can be classified as a Duopoly with Pepsi and Coke as the firms competing. The market share of the rest of the competition is too small to cause any upheaval of pricing or industry structure. Pepsi and Coke mainly over the years competed on differentiation and advertising rather than on pricing except for a period in the 1990s. This prevented a huge dent in profits. Pricing wars are however a feature in their international expansion strategies. Economics of Bottling vs Concentrate Business Factor Bottling Business Concentrate Business

As the above table indicates concentrate business is highly profitable compared to the bottling business. The reasons for this are:
y

Higher number of bottlers when compared to the concentrate producers which fosters competition and reduces margins in the bottling business

Huge capital costs to set up an efficient plant for the bottlers while the capital costs in concentrate business are minimal Costs for distribution and production account for around 65% of sales for bottlers while in the concentrate business its around 17%

Most of the brand equity created in the business remains with concentrate producers
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Possible Reasons for Vertical Integration:

y

With the decrease in the number of bottlers from 2000 in 1970 to less than 300 in 2000, the concentrate producers were concerned about the bottlers clout and started acquiring stakes in the bottling business.

They could offer attractive packaging to the end consumer.

In order to launch its new short-cycle products (and new individual brands) in restricted time periods, the Coca-Cola Company will have to meticulously refine its new product development process. There are seven key steps in the new product development process, including:

1. New product strategy; 2. Exploration (idea generation); 3. Screening; 4. Business analysis; 5. Development; 6. Test marketing; and 7. Commercialisation.

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PLC
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In the PLC we can observe that the soft drinks in general are all in the maturity state. All the others are in the growth. Hidration drinks are almost reaching the maturity.

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BCG Matrix
We can observe that Energy drinks are at the moment with a good growth market but are still a between the star and the question mark. Refreshments are still the coke core business. Coke refreshments are the perfect example of cash cow.

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Conclusion
There are six principles that will drive Coca Cola in the next years, and they are: 1. Consumer demand must drive everything; 2. Coca-Cola Classic is the Companys most important brand; 3. Coca-Cola must be known for serving all non-alcoholic beverages; 4. Coca-Cola must be the best marketer in the world; 5. Coca-Cola must think local and must act local; and 6. Coca-Cola must be a modern citizen. Our image is everything.

If Coke's new strategies are to ensure the Company maintains a competitive market position, new product innovations will have to provide tangible benefits in relatively short periods of time. Changing product life cycles will have to be carefully considered when forecasting future revenue, and as the needs and wants of consumers change, the marketing focus will have to adapt. Furthermore, brand building will be crucial in attracting consumers and building sales volumes. This includes the need to strengthen the core Coke brand, which still accounts for 60 percent of sales. Perhaps most

importantly, Coke will have to portray to consumers the image of a locally aware company that recognises its corporate social responsibility. Coca Cola is one of the biggest companies on the world, but has to continue to develop new ideas and improve the relationship with its customers in order to maintain the number one spot on the soft drinks market.

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References
Barry, T.E. (1986) Marketing: An Integrated Approach, New York: The Dryden Press. McColl-Kennedy, J.R. and Kiel, G.C. (2000) Marketing: A Strategic Approach, Melbourne: Nelson Thomson Learning. www.cocacola.com www.wikipedia.com www.google.com

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