Strategic Management

 

 

 

 

 

Strategic Management

Name:

Institutional Affiliation

 

 

Strategic Management

PART A

Introduction

  • Background to the assignment – purpose and format of the report

Today’s global business environment has become more dynamic and challenging. Companies are experiencing more challenges than ever before, although opportunities still exist. This is due to numerous changes in trends and conditions in the external environment (Rothaermel, 2015). For instance, as technology continues to evolve, consumer patterns and needs are also changing. Furthermore, sustainability issues are gaining more attention across the globe. This means companies must be able to analyze, formulate, and implement appropriate strategies that can generate superior performance by addressing the existing and current threats, while taking advantage of the potential opportunities. The purpose of this paper is to prepare a strategic analysis report on Coca Cola Company, suggest two growth opportunities, and offer a set of recommendations for establishing a competitive advantage for the growth opportunities.

Firm background

Coca Cola is an American multinational corporation headquartered at Atlanta, Georgia. Coca Cola leads as the biggest beverage company in the world. The company owns and licenses over 500 nonalcoholic drinks including ready to drink coffees, and teas, and water. Coca Cola markets these products in more than 200 countries/states across the globe (Coca Cola, 2015a).

The general soft drink industry has been very challenging to various factors mostly changing consumer patterns and increasing competition from other incumbent firms. Coca Cola faces steep competition from local, regional and multinational players including PepsiCo, Nestle, and Dr Pepper Snapple, among others (Fry, Spector, & Williamson, 2012).

Nonetheless, the company has established a unique position in the market for offering high quality products at affordable costs. Currently, Coca Cola owns four out of five leading brands around the world. These four brands encompass Sprite, Coca Cola, Fanta, and Diet Coke (Coca Cola, 2015a). The following are two major growth opportunities that Coca Cola can pursue.

Growth opportunity

  1. Adopt a green marketing strategy to strategically position the company’s products in the consumers’ minds (Arseculeratne & Yazdanifard, 2014).
  2. Analyze, formulate and implement a CSR (corporate social responsibility) strategy to boost the company’s credibility and its ability to sustain the current competitive advantage over the next three years.

Analysis

Macro-environmental factors

Political

Political factors continue to have substantial impacts on the industry and incumbent firms competing in the industry. Although political environment has been stable in various countries across the globe, the environment has been uncertain and/or discouraging in other parts. For instance, the political environment has been stable in Western markets including United States and European markets. On the other hand, the environment has been unstable in various parts including Middle East and some parts of African continent. Political instability is a critical threat to the industry and individual incumbent firms.


 

Economic

The economic condition around the world is generally uncertain. Although firms can develop strategies to overcome impacts of unfavorable economic conditions, they are absolutely to control economic factors. Changes in economic factors may have negative impacts on the company’s performance. For instance, decline in general economic activity may affect consumer’s expenditure. However, this is not the case in most countries around the world. Analysis indicates that economic growth in developed economies will continue to grow as slow rate, but emerging economies including India and China, to name a few, is expected to growth by an average of  6% annually, which is above the average global economic growth of between 3 and 4% (Garcia, 2011). This means that consumer income is also improving leading to increasing market demand for soft drinks.

Socio-cultural

Given that Coca Cola is operating in numerous countries around the world, it is exposed to various socio-cultural factors. This is because these factors tend to vary from one country/market to another. Socio-cultural factors affect the industry and the company in different ways. For instance, these factors affect consumer’s perceptions and attitudes towards different products and marketing and promotional campaigns. However, socio-cultural factors especially population growth and changing consumer patterns and lifestyles are opportunities to pursue product-market diversification.

Technological

Over the last several years, technology has been a vital component that affects how companies operate. In today’s global business world, technology is influencing almost every business-associated aspect/activity. Most companies are taking advantage of newest superior technologies to earn, boost, and/or sustain their competitive advantages. Rather than being a threat, technology is an opportunity that Coca Cola can take advantage of.

Ecological/environmental

Like any other industry in the world, the soft drink industry cannot evade the impacts associated with ecological/environmental issues. Today’s world is experiencing climate change and increasing environmental degradation. These impacts are associated with human activity, mainly business. For instance, manufacturing and transportation activities lead to emission of greenhouse gasses and other harmful substances into the environment. Yet, today’s consumers are becoming more aware about the harmful impacts of business on the natural environment. Thus, firms are pressurized to adopt more environmentally-friendly decisions and practices. This serves as an opportunity for firms to gain a competitive advantage over other rivals in the market (Coca Cola, 2015b).

Legal

Legal factors also have substantial impact soft drink industry. Policy makers and other relevant authorities continue to enforce various policies that influence how incumbent firms continue to operate in the industry. These policies tend to vary from one country/market to another. For instance, Fry, Spector, & Williamson, (2012, pp. 6) inform that “the soft drink industry is also in the middle of growing policy debate in the United States regarding the taxation of sugar-sweetened beverages.” Furthermore, governments are enforcing strict regulations to govern not only production, but also marketing of soft drinks (PR Newswire, 2016).

Major financial data and analysis

The company has been experiencing fluctuating financial performance over the last three years as shown in exhibit 1 in the appendix below. It is shown that decreased by 4% between 2014 and 2015 compared to 2% decrease between 2013 and 21014. Exhibit 1 also shows that the company’s gross profit, gross profit margin, and operating margin have been decreasing over the same period. This trend is associated with different factors including unfavorable geographic mix, bottling investments, acquisitions, and shifts in geographic mix, among others. Nonetheless, the company’s net income has been increasing between 2013 and 2015 as shown in exhibit 1 below. This is generally due to effective tax rates, although there are other factors (Coca Cola, 2015a).

Existing and potential competitors

The soft drink industry is highly competitive. The industry consists of many small/emerging, medium, and multinational companies. The major competitors encompass PepsiCo, Kraft Foods Group, Nestle, Mondelez International Inc., Dr Pepper Snapple, Uniliver, Red Bull, and Danone, among others (PR Newswire, 2016). These major competitors are directly competing against Coca Cola in various international markets as well as in its domestic market – United States. Apart from the existing competitors, potential competitors may intensify competition in the market. Potential competitors encompass independent suppliers and retailers who are able to develop their own branded products and potential companies that may enter in the industry in future (Coca Cola, 2015a). These existing and potential competitors are competing in different industries. For instance, Dr Pepper Snapple and PepsiCo are main players in soft drink industry while Kraft Food Group and Mondelez International Inc are competing in both food and soft drink industries. On the other hand, Uniliver is a well recognized retailer across the globe.

Despite of increasing competition, the industry offers too appealing opportunities to ignore. Soft drink industry has been growing over the last several years and this trend is expected to continue until 2019. For instance, analysts expect the industry to experience a steady growth rate of 7 percent between 2015 and 2019 (Pr Newswire, 2016).

PART B

Executive summary

The above macro-environment analysis offers more insights into main external trends and factors that may affect the company’s competitiveness and performance. The above analysis reveals that Coca Cola has a competitive advantage over other rivals in the soft drink industry. The company can sustain and boost its competitive advantage by pursuing the above recommended growth opportunities. The general macro-environment is favorable, although there are some threats associated with political, legal, and environmental issues. Thus, the company should focus on analyzing, formulating, and implementing a strategy that help to address these issues while sustaining and boosting the current competitive advantage.

Introduction

Today’s global business environment has become more dynamic and challenging. Companies are experiencing more challenges than ever before, although opportunities still exist. This is due to numerous changes in trends and conditions in the external environment. For instance, as technology continues to evolve, consumer patterns and needs are also changing. Furthermore, sustainability issues are gaining more attention across the globe. This means companies must be able to analyze, formulate, and implement appropriate strategies that can generate superior performance by addressing the existing and current threats, while taking advantage of the potential opportunities. The purpose of this paper is to prepare a strategic analysis report on Coca Cola Company, suggest two growth opportunities, and offer a set of recommendations for establishing a competitive advantage for the growth opportunities.

Firm background

Coca Cola is an American multinational corporation headquartered at Atlanta, Georgia. Coca Cola leads as the biggest beverage company in the world. The company owns and licenses over 500 nonalcoholic drinks including ready to drink coffees, and teas, and water. Coca Cola markets these products in more than 200 countries/states across the globe (Coca Cola, 2015a).

The general soft drink industry has been very challenging to various factors mostly changing consumer patterns and increasing competition from other incumbent firms. Coca Cola faces steep competition from local, regional and multinational players including PepsiCo, Nestle, and Dr Pepper Snapple, among others (Fry, Spector, & Williamson, 2012).

Nonetheless, the company has established a unique position in the market for offering high quality products at affordable costs. Currently, Coca Cola owns four out of five leading brands around the world. These four brands encompass Sprite, Coca Cola, Fanta, and Diet Coke (Coca Cola, 2015a). The following are two major growth opportunities that Coca Cola can pursue.

Growth opportunity

  1. Adopt a green marketing strategy
  2. Adopt a CSR strategy

Analysis (that supports the growth opportunity)

Analysis

Macro-environmental factors

Political

Political factors continue to have substantial impacts on the industry and incumbent firms competing in the industry. Although political environment has been stable in various countries across the globe, the environment has been uncertain and/or discouraging in other parts. For instance, the political environment has been stable in Western markets including United States and European markets. On the other hand, the environment has been unstable in various parts including Middle East and some parts of African continent. Political instability is a critical threat to the industry and individual incumbent firms.

Economic

The economic condition around the world is generally uncertain. Although firms can develop strategies to overcome impacts of unfavorable economic conditions, they are absolutely to control economic factors. Changes in economic factors may have negative impacts on the company’s performance. For instance, decline in general economic activity may affect consumer’s expenditure. However, this is not the case in most countries around the world. Analysis indicates that economic growth in developed economies will continue to grow as slow rate, but emerging economies including India and China, to name a few, is expected to growth by an average of  6% annually, which is above the average global economic growth of between 3 and 4% (Garcia, 2011). This means that consumer income is also improving leading to increasing market demand for soft drinks.

Socio-cultural

Given that Coca Cola is operating in numerous countries around the world, it is exposed to various socio-cultural factors. This is because these factors tend to vary from one country/market to another. Socio-cultural factors affect the industry and the company in different ways. For instance, these factors affect consumer’s perceptions and attitudes towards different products and marketing and promotional campaigns. However, socio-cultural factors especially population growth and changing consumer patterns and lifestyles are opportunities to pursue product-market diversification.

Technological

Over the last several years, technology has been a vital component that affects how companies operate. In today’s global business world, technology is influencing almost every business-associated aspect/activity. Most companies are taking advantage of newest superior technologies to earn, boost, and/or sustain their competitive advantages. Rather than being a threat, technology is an opportunity that Coca Cola can take advantage of.

Ecological/environmental

Like any other industry in the world, the soft drink industry cannot evade the impacts associated with ecological/environmental issues. Today’s world is experiencing climate change and increasing environmental degradation. These impacts are associated with human activity, mainly business. For instance, manufacturing and transportation activities lead to emission of greenhouse gasses and other harmful substances into the environment. Yet, today’s consumers are becoming more aware about the harmful impacts of business on the natural environment. Thus, firms are pressurized to adopt more environmentally-friendly decisions and practices. This serves as an opportunity for firms to gain a competitive advantage over other rivals in the market (Coca Cola, 2015b).

Legal

Legal factors also have substantial impact soft drink industry. Policy makers and other relevant authorities continue to enforce various policies that influence how incumbent firms continue to operate in the industry. These policies tend to vary from one country/market to another. For instance, Fry, Spector, & Williamson, (2012, pp. 6) inform that “the soft drink industry is also in the middle of growing policy debate in the United States regarding the taxation of sugar-sweetened beverages.” Furthermore, governments are enforcing strict regulations to govern not only production, but also marketing of soft drinks (PR Newswire, 2016).

Major financial data and analysis

The company has been experiencing fluctuating financial performance over the last three years as shown in exhibit 1 in the appendix below. It is shown that decreased by 4% between 2014 and 2015 compared to 2% decrease between 2013 and 21014. Exhibit 1 also shows that the company’s gross profit, gross profit margin, and operating margin have been decreasing over the same period. This trend is associated with different factors including unfavorable geographic mix, bottling investments, acquisitions, and shifts in geographic mix, among others. Nonetheless, the company’s net income has been increasing between 2013 and 2015 as shown in exhibit 1 below. This is generally due to effective tax rates, although there are other factors (Coca Cola, 2015a).

Existing and potential competitors

The soft drink industry is highly competitive. The industry consists of many small/emerging, medium, and multinational companies. The major competitors encompass PepsiCo, Kraft Foods Group, Nestle, Mondelez International Inc., Dr Pepper Snapple, Uniliver, Red Bull, and Danone, among others (PR Newswire, 2016). These major competitors are directly competing against Coca Cola in various international markets as well as in its domestic market – United States. Apart from the existing competitors, potential competitors may intensify competition in the market. Potential competitors encompass independent suppliers and retailers who are able to develop their own branded products and potential companies that may enter in the industry in future (Coca Cola, 2015a). These existing and potential competitors are competing in different industries. For instance, Dr Pepper Snapple and PepsiCo are main players in soft drink industry while Kraft Food Group and Mondelez International Inc are competing in both food and soft drink industries. On the other hand, Uniliver is a well recognized retailer across the globe.

Despite of increasing competition, the industry offers too appealing opportunities to ignore. Soft drink industry has been growing over the last several years and this trend is expected to continue until 2019. For instance, analysts expect the industry to experience a steady growth rate of 7 percent between 2015 and 2019 (Pr Newswire, 2016).

The firm’s current marketing

Target markets

Coca Cola lacks a specific target market. In other words, the country targets the general market since its products can be consumed by every person all over the world regardless of the gender and age disparities. Since in 1919, the company adopted its global marketing strategy. However, the company has been conducting intensive market research to gain more understanding about the trends and factors in certain foreign countries including China and Central America. Furthermore, due to changing consumer needs, the company develops products for particular markets (Coca Cola, 2015a).

Value is delivered and how

The company’s current marketing function is designed to deliver exceptional value to customers. That is, the company delivers economic value for its customers. Coca Cola achieve this through designing, developing and offering high quality products at lower costs. Coca Cola’s products have higher value preposition in the eyes of customers in terms of quality and cost.

Positioning

The company has been positioning its products to achieve more competitive advantage over other rivals in the market. Coca Cola has been achieving this through communicating the value of its products to customers. Apart from communicating the value, the company links the products to people’s lifestyle (Coca Cola, 2015a).

Product range

Coca Cola offers a wide range of products including Coca-Cola, Diet Coke, Fanta, Coca-Cola Zero, water, ready to drink coffees and tea, energy drinks, and sports drinks, among others. Coca Cola understands that product element of the marketing mix is very vital as far as the company’s success is concerned. Thus, the products are designed and developed not only to meet consumers’ needs, but also address various issues including health and sustainability issues (Coca Cola, 2015b).

Green marketing

Green marketing is not a new concept at Coca Cola. The company acknowledges that sustainability should be considered as an integral part in strategic decisions. In attempt to encourage green marketing, the company considers various factors including sustainable management of energy, water, as well as packaging use (Coca Cola, 2015b). Recently, the company adopted greener packaging strategy that encourages use of environmentally friendly bottles in packaging (Morris, 2016).

CSR program(s)

Furthermore, the company’s current marketing involves various CSR programs that are aligned with its green marketing. The company encourages various CSR programs including supporting nutrition and physical activity, health living programs, streetGames, and other programs designed to promote sustainability (Coca Cola, 2015b).

Recommendations

Goals and objectives

For the three years, the company should focus on accomplishing the following goals and objectives.

Objectives

  1. Increase the operating margin from 19.7% (see exhibit 1 below) to 25% over the next three years.
  2. Increase market share by an average of 10% annually for the next three years.
  • Increase market awareness by 20% annually over the next three years.

Goals

  1. Effectively implement green marketing strategy to accomplish the above objectives within the defined period.
  2. Effectively implement CSR strategy to boost the company’s credibility by 30% in the next three years.

Growth opportunity marketing program

In order to accomplish the above objectives and goals, the company should adopt a growth opportunity marketing program that covers various aspects including target market(s), value preposition, positioning, marketing mix, green marketing, and appropriate CSR programs. The company can continue targeting the general market, but consider creating and delivering not only economic value to customers, but also encouraging environmental sustainability.

Contingency plan

Due to ever changing trends and conditions, the company may encounter critical challenges in its attempt to accomplish the above objectives and goals. Increasing competition as well as changing consumer demands in the market may hinder the company’s capability to accomplish such objectives and goals. For instance, the two recommended growth opportunities cannot help the company to meet changing needs and demands in the market as more consumers are seeking more convenience and healthier products. However, Coca Cola can overcome by considering product-market diversification as its plan B. That is, the company can pursue the alternative strategy by developing more new products while expanding into new markets.

References

Fry, C., Spector, C., & Williamson, K. A. (2012). Breaking down the chain: a guide to the soft drink industry. Change Lab Solutions. Retrieved from http://www.changelabsolutions.org/sites/default/files/ChangeLab-Beverage_Industry_Report-FINAL_(CLS-20120530)_201109.pdf

Rothaermel, F. T. (2015). Strategic Management. 2nd ed. New York: McGraw Hill.

Garcia, T. (2011). The Global Construction Industry: What Can Engineers Expect in the Coming Years? Plumbing Systems & Design, 22-25. Retrieved from https://www.aspe.org/sites/default/files/webfm/ArchivedIssues/2011/201112/TheGlobalConstructionIndustry.pdf

Coca Cola. (2015b). 2014/2015 Sustainability Report. Retrieved from http://www.coca-colacompany.com/content/dam/journey/us/en/private/fileassets/pdf/2015/09/2014-2015-sustainability-report.pdf

Morris, A. (2016). Coca-Cola Goes Green with Environmentally Friendly Bottles. All Business. Retrieved from https://www.allbusiness.com/coca-cola-takes-a-green-lead-6178-1.html

Arseculeratne, D., & Yazdanifard, R. (2014).How Green Marketing Can Create a Sustainable Competitive Advantage for a Business. International Business Research, 7(1), 130-137.

Coca Cola. (2015a). 2015 Annual Report. Retrieved from http://www.coca-colacompany.com/investors

PR Newswire. (05 Jan., 2016). Global Soft Drinks Market. PR Newswire. Retrieved from http://www.prnewswire.com/news-releases/global-soft-drinks-market-2015-2019-300199684.html

 

Appendix

Exhibit 1: Key financial performances

  2015 2014 2013 2015 vs. 2014 2014 vs. 2013
Net operating revenue $44,294 $45,998 $ 46,854 (4)% (2)%
Gross profit 26,812 28,109 28,433 (5) (1)
Gross profit margin 60.5% 61.1% 60.7%    
Operating margin 19.7% 21.1% 21.8%    
Net income $ 7,351 $ 7,098 $ 8,584 4% (17)%

 

Source: (Coca Cola, 2015, pp. 49).

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