Coca-Cola - Expansion of Markets and Business Operations, Competing for Market Dominance - Case Study Example

Table of Contents 1.0.Introduction 1 2.0.Expansion of Markets 2 3.0.Expansion of Business Operations 5 4.0.Identification of Lead Market 7 4.1.Figure 1: Coca-Cola Performance of the lead markets 8 5.0.Competing Rival Companies for Market Dominance 10 6.0.Formation of cross-border alliances 13 7.0.Conclusion 15 8.0.References 16 1.0. Introduction International marketing strategy has become the new paradigm in international business. In 1983 there was a thrilling book published by Theodore Levit about “The Globalization of Markets.” In reference to this book, the Harvard Business Review article asserted that large scale international companies should stop customization of their products and instead, provide globally oriented products and services that are functional, advanced low priced and reliable. Levit’s position must have been driven by the fact that the then customers were starting to move towards what Szymanski et al. (1993) term as ‘convergence of taste’ therefore calling for the concerned companies to exploit the economics of simplicity. This idea is what is perfectly working with modern international companies. That is, the future is currently belonging to companies working as though the entire world (if not major regions of it) were a single entity. In so doing, they manage to sell the same products in the same way all over the world. While this is the general position that from the view point of Theodore Levit’s, this research is concerned with reasons behind international marketing strategies by Coca-Cola. International marketing strategies involve marketing of products and services outside its home country. The Company undergoes complex form of international marketing engaging in operations in many countries. With this, the multinational commercial world nears its end, in so speaking does Coca-Cola. This is to mean that due to the world that has irrevocably been homogenized (market needs) there should be a reason why Coca-Cola has been adopting international marketing strategies that are particularly tailored to be effective and efficient for its range of non-alcoholic products. 2.0. Expansion of Markets One of the All Business analyst, William Edwards, once argued that the reason why international companies adopt international marketing strategies is to reduce the level of reliance on local and even national markets (Grullon and Miachaely, 2012). The point they were trying to argue out is that as there could be downturns in consumer demands at home, upturns in consumer demands from international markets can offset the trend. To be specific, in 2009 Coca-Cola dealt with a growing concern in its local market where it was alleged that its sugary beverages could be a factor in obesity (Hill, 2010). This led to flattening sales to a point where investors were not only concerned about its pricey stock but unimpressive growth trajectory. As a matter of fact, Hill (2010) further asserts that the Company reported a 3.5 percent drop in second –quarter profit and further 2.7 percent drop in revenue. This is the reason why some of its products previously known as exemplar and synonymous with world quality took a different approach. In their new wake of international market, the Company sought to expand the market to deal with the downturns in consumer demands at home. In the process of expanding such markets, it introduced new product known as ZERO Coca-Cola---a sugarless Coca-Cola drink that resembled the previous brand. As one way of integrating one of the 4P’s of marketing mix, the Company sought to promote this brand by, the Company liaised with FTI Consulting initiating a research-based survey to reshape the general perception of Coca-Cola (Coca-Cola Company, 2013). To expand its market even further, the Company took a unique strategy of advertising that sought to open markets all over the world. For instance, the approach taken in Africa was known as “Billion Reasons to Believe in Africa.” Conversely, Middle East took “Today I Will” to help the ZERO Volume Coca-Cola penetrate markets in these regions so as to counter the effect the Company was experiencing in the parent country. On expansion of the market, former Coca-Cola chair, Douglas Daft explained, “expansion of the market is one of our key strategies when marketing especially after re-branding. The world had changed and we had not. The world was demanding greater responsiveness and concern in our products, while we were also consolidating and making decisions as to why we should market the product, expansions of the market was necessary for the product to start” (Kotler et al., 2012 p. 312). As a matter of fact, the Company reported that by the end of 2012, Coca-Cola Zero volume grew by 6% and continuing its strong momentum across the world---an achievement attributed to its strategy (Coca-Cola Company, 2013). There were significant problems with the Company in 2009. First was the crumbling reputation in Colombia as one of its key market in South American. Secondly, the sudden cancellation of its acquisition by the Chinese government and third was major acquisitions announced by its largest competitors. To this regard, Gary Fayard, Chief Financial Officer Argued “As I look back at 2009, it was a year with mixed fortunes. We had challenging economic conditions, we managed to deliver against expected volumes but we must admit a problem. Our marketing strategies did not improve our relationship with our bottling partners but positive elements taken from such strategies were the expanded markets especially in South America” (Sousa and Lengler, 2009). A breakthrough came in late 2011 when FTI Consulting took a marketing strategy of creating Coca-Cola reputation in Colombia. As a result it opened markets by more than 30 percent according to Burdon and Bhalla (2012). During this marketing strategy, the Company was able to showcase its commitment to both Colombians’ well-being and sustainable development. Schiffman and Kanuk (2013) terms the ZERO Volume Coca-Cola campaign as ‘international segment strategy’ where the company has decided to target the same segment in a number of countries. It has developed an understanding of its targeted customer base therefore leveraging that experience within the parent country and outside. Sometimes an international company may apply segment strategy especially when it intends to deal with wrong information about its products. Such companies will need to gain in-depth understanding of a segment or niche. In so doing, the company will have to allow for different brands, products or advertisement though they have to work with a given level of standardization. This is where one can argue that the reason for this kind of marketing strategy is that Coca-Cola is making the attempt to start strategic actions so as to achieve competitive advantage over others and in particular PepsiCo. However, these actions can be shaped, and there outcomes influenced, by both internal and external environment. Institutional theory argues that the actions taken by companies and the consequences of these decisions are influenced by the knowledge of beliefs, systems and rules that characterize the context of the Company. In addition, introduction of ZERO Volume Coca-Cola was a marketing strategy whereby the Company took the initiative of branding the already existing product. Foglio and Stanevicius (2010) argued that Coca-Cola took this initiative not only to expand new markets but launch brands that could counter the accusation of obesity. 3.0. Expansion of Business Operations Coca-Cola has gone international for a variety of reasons. There has been a period between March 2008 and May 2009 when the Company was hiring international employees and at the same time searching for new markets abroad with an aim of expanding its business operations (Holt et al., 2011). This was a case where game theoretic model as cited by McDermott (19990 was at its best consideration. The international marketing strategy that involved hiring international employees and searching for new markets abroad is assumed to be a decision taken by a company that is (hyper)rational utility maximiser---or still, becoming aggressive with their activities in foreign markets as the theory of Uppsala model postulates. In this particular case, rationality means that Coca-Cola strive to obtain the most desired of its outcomes subject to the difficulties or constraints that their competing companies also act in the same way. While it is clear that there may be uncertainty about the expectations and behaviors of rival Companies such as Cadbury Schweppes, AmBev and Pepsi Cola, Coca-Cola considered as rational firm overcame the uncertainty by coming up with competitive conjectures, behaviors and subjective estimates of rivals’ expectations. In practice, game-theoretic models believes that Company like Coca-Cola can put themselves into their rivals’ position and reason from their perspective to expand markets where the rivals have not thought (Yan, 1994). Opting to hire international employees at the same time searching for new markets abroad is a marketing strategy that researches have identified as “international marketing mix element” (Theodosiou t al., 2001; Holt et al., 2004). In so saying, this strategy pursue international markets along a given marketing mix elements such as price, place, distribution, promotion and hiring more personnel. To conceptualise this statement, Company’s expansion of markets and business operation came with the tag “Share a Coke and Share the Value.” Chief executive officer Muhtar Kent explained that hiring international employees was aimed at convincing investors to believe that the performance witnessed during financial crisis was just an anomaly and not a systematic issue or trend. Companies are facing difficult decisions concerning what international market strategy to adopt so as to expand their business operations. To this regard adoption of new markets abroad and hiring international workers help Coca-Cola expand its business operations. This position supports the theory of standardization of marketing activities. What the Company is doing can only work at strategic level therefore the marketing activities would be even more successful when adapted to local conditions and circumstances. However, some arguments have it that this global marketing strategy is not ideal as it fails to take into account locally related problems (Ghemawat and Hout, 2008). However, this argument is not valid basing from the statistics released by the Company. The global soft drinks market is currently dominated by three household names; Coca-Cola, PepsiCo and Cadbury-Schweppes with Coca-Cola commanding a lead of 47% of the operations, PepsiCo at 21% and Cadbury-Schweppes standing at 8%. Secondly, a good example regards the competition from Coca-Cola and PepsiCo. PepsiCo penetrated markets of East Asia and Europe by introducing unique snacks to its portfolios such as cheese-onions in United Kingdom, Paprika Lays in Germany, the Lemon Lays in Thailand and Sea-food Lays in China. To fight the competition, Coca-Cola later introduced new products, particularly in Japan. These included canned coffee Georgia, tea beverage Sokenbicha and sports drinks Aquarius. This confirms what Sergio Zyman, former chief marketing officer once said. In his statement he explained, “I order to expand its business operations around the world, the Company must work globally and strategise its market in such a manner that it will expand regions of operations.” (Coca-Cola Company, 2013). This message has been emphasized many times by other Coca-Cola Company marketing officers. 4.0. Identification of Lead Market Going by contemporary definition, Lead Market is the environment where a company should place more emphasis as far as its products and services are concerned (xxxxx). It is necessary for internationally competing companies to keep track of lead markets or better yet build up some important market presence in the identified markets. As Coca-Cola continues to the array of countries that are still available for operation, they sometimes get informed that not all countries are potential for their products and global leadership. To put this economically, structure-conduct-performance model argues that marketing strategy ought to identify places where products sell. This is because there is relationship between profitability and industry concentration. Evidence from Laroche et al. (2001) suggests that there is robust relationship between market share profitability across different definitions of market lead market. It is the reason why international marketing strategies as applied by Coca-Cola Company seek to identify environments where it places more emphasis as far as its products and services are concerned. Going by data from its sustainability report 2012/2013 the company through its international marketing strategies has identified lead markets as shown in the table below; 4.1. Figure 1: Coca-Cola Performance of the lead markets Source: Coca-Cola Annual review 2012/2013 Considering the figure, it can be seen that Eurasia and Africa are the leading markets for the company and they have been performing well either for the sparkling beverages, still beverages or all of its introduced products. On the other hand, Pacific regions perform relatively low for its products. Arguing from the basis of international marketing strategies and identification of lead markets, it is worth noting that the company adopts unique strategy methods such as “Billion Reasons to Believe in Africa” to identify further lead markets as well as retaining the existing ones. Further to this, in 2009 the company through its Chief Executive Officer announced that it penetrated a lead market in Sri Lanka through its Facebook marketing strategy of ‘one-size-fits-all.’ Since this time, the Company has regained carbonated soft drinks from its rival Company Ceylon Cold Storage. In as much, the Company has already established LKR600mn (US$5.2mn) in the newly established lead market located near the Sri Lankan capital Colombo. This is estimated to be a key driver of the Company’s 24% sales forecast to LKR12bn (US$105mn) in 2014/2015 trading period (Coca-Cola Company, 2013). A number of scholars have written about lead markets as the reason why companies consider a given international marketing strategies (Rigby and Vishwanath, 2006). To readers, it first needs to be distinguished, for the sake of the effectiveness and efficiency of Coca-Cola products that international marketing strategy does not mean the Company struggles to establish and be represented everywhere. Rather, the concept ‘lead market’ and international marketing strategy should be linked in the sense that the Company is marketing to ensure that it is well represented in the region it has identified as the best as far as its products are concerned and in so doing, apply a common set of strategic marketing principles within the identified market. The decision by the Company to consider Sri Lankan capital Colombo as its lead market through its campaign best fits within the realm of theory of Reasoned Action (RA). The theory posits that organisations sometimes make decision to venture or establish new products or markets as a result of attitudes, normative believes and intentions (Levitt, 1983). Therefore the most common predictor for Coca-Cola in this market was its intention to act which was influenced by attitudes towards the environment previously dominated by Ceylon Cold Storage. Furthermore, the intention of this Company to work with the identified strategy can well be seen to get hold of the market in Sri Lanka since a company that decides to pursue a global marketing strategy considers the world market identified as a whole rather than as markets on a nation-by-nation basis which has been typical of other international companies. It is therefore conceivable that Coco-Cola is having an international strategy to find lead market but at the same time delegate many parts of the marketing plan to its local subsidiaries in United States. 5.0. Competing Rival Companies for Market Dominance Coca-Cola faces competitive environment where it operates. Two types of approaches come up to be of particular interest in this case. To begin with, there exist a number of heated international marketing duels in which Coca-Cola compete with the others across the entire global chessboard. The second aspect pits it as an international Company against a local company---a situation frequently experienced by Coca-Cola with PepsiCo. Bringing this case into real situation, there has been long battle between Coca-Cola and PepsiCo for market dominance as the world largest soft drink companies. However, it is clear from the comparison of their financial reportings that Coca-Cola has superior resources but sometimes become inflexible after several successful market entries thus tend to stay with standard approaches when they call for flexibility. For instance, Coca-Cola was toppled as Best Global Brands by Apple in 2012 and in 2013, the soft drink giant missed its top spot to Google according to The Best Global Brand report (Schiffman, 2013). These Companies are not rivals but it is an indication that Coca-Cola no longer changes peoples’ lives with its ethos. The central point in this case is that other competing Companies have been watching moves made by Coca-Cola and thus taking advantage of such advances by building defenses or even launching a preemptive attack on the same segment. This is where proper international marketing strategy is required. For instance, in Nigeria and Argentina, Coca-Cola embarked on what has since been termed as ‘International Advertising Strategy’ which was associated by it using the same brand names except for tea beverage Sokenbicha where it used different brand names partly for historic reasons (Schiffman, 2013). Through this, it managed to compete with the existing beverage companies particularly the cheese-onions introduced by PepsiCo by slightly rebranding tea beverage Sokenbicha because it knew the local beverages had their own distinctive market and Coca-Cola could have found it counterproductive to totally change all names of its brands. Product and packaging differentiation was also witnessed when it entered some parts of Colombian and Brazil markets. During this period, the marketing strategy adopted were the slogans that read, “Good ‘til the last drop”, “Always Coca-Cola”, “Things go better with Coke” and the fusion of “I want to buy the world a coke” produced by Billy Davis. To fight the dominance of two big companies in the name of AmBev and Schincariol (Schincariol is now known as Brasil Kirin) the Company was forced to customize some of its products to meet cultural demands of Brazilians. Some of the products that were introduced in this market were flavored Coke products, Powerade, Vanilla Coke and Cherry Coke. At the same time, the company strived to be conscious about health of older people in both countries by availing products such as Vitamin Water, Diet Coke and Odwalla products. This is what Procter and Gamble did when they arrived into the Nigerian market with their marketing strategy. They realized that the market was already having similar products from competing Companies so they had to slightly rebrand their products at the same time differentiating the sizes of their products. For instance, their Ariel detergents could be bought in sachets thus making it affordable for many families. Arnold (2000) also gives an example of a situation where Danone was forced to change its product base to something that was less of lactose in order to compete with other companies already operating in China since Chinese are lactose intolerant. Finally Tesco Company carefully adopted local approach towards competing with rival companies established in United States. Even though it was comfortable trading under its brand names in countries such as Hungary, Thailand and the Czech Republic, competing with other names in United States forced it to trade under the name ‘Fresh and Easy Neighborhood Market’ stressing that its local credentials was up to rivals (Arnold, 2000). In summary, Coca-Cola has now managed through the above marketing strategies to create an extensive and neatly organized international distribution network that has guaranteed the ubiquity of its over 230 products (Arnold defines ubiquity as the situation where one believes a given product or brand is present everywhere at once). This has been necessitated by Company’s belief that Coca-Cola has always tempted to quench the thirst of every individual in the world---5.6 billion at any time! 6.0. Formation of cross-border alliances According to latest survey conducted by Burdon and Bhalla (2012), international marketing strategies are aimed at ensuring that companies secure cross-border alliances so as to improve the effectiveness of operations as well as products, commodities and services offered. On the other hand, multinational companies are sometimes forced to develop marketing strategy geared towards attracting alliances from other countries because they aim at developing new business or reduce costs of investment. Good example is the ten leading drug companies, including SmithKline Beecham who came up with a marketing strategy thus attracting other companies to create a $50 million research consortium with the aim of studying variations in human DNA. Conversely, Coca-Cola has adopted a number of international marketing strategies that have been aimed at finding international alliances. As a result, on January 17th, 2013 the Company made announcement that it was forming alliance with Grupo Yoli. This was done through Coca-Cola FEMSA; the largest bottler of Coca-Cola products internationally. This agreement was approved by both Boards of Directors from Grupo Yoli and Coca-Cola FEMSA and was to be legalized by April 2013 by The Coca-Cola Company and Comisión Federal de Competencia (Mexican anti-trust authority) (Coca-Cola Company (2013). These kinds of cross-border alliances are aimed at improving economic position of the Company. For instance, Coca-Cola FEMSA was expected to become the owner of 11.8% stake in Promotora Industrial Azucarera, a participant in the Mexican sugar industry thus limiting competitions from other beverage companies in Mexico. This strategic plan does not only places Coca-Cola as the giant in the region but also weakens market operations of its rival companies in this case Cott which has rivaled Coca-Cola as world’s largest beverage producer on behalf of retailers. Chief Executive Officer, Carlos Salazar Lomelin said, “Once again as we enter New Year we can agree that our marketing team as led us to merge with a Company that has vast experience in soft drink industry. Together we all capitalize on the geographic proximity to effectively deal with the market. This move underscores our continuous global marketing strategies aimed at expanding the operations within Latin America” (Coca-Cola Company, 2013). This statement conforms to the theory of market orientation (Douglas, 2001). The normative philosophy that conceptualise modern marketing strategies and thoughts is that for firms to be successful, they must study the orientation of the market and try to work in a manner that is likely to satisfy their goals. For this case, when Carlos Salazar Lomelin argues that, “…global marketing strategies aimed at expanding the operations within Latin America” it means that the marketing strategy the Company adopted was to ensure it expands its operations within the identified region. This is why Yan (1994) defines theory of market orientation as, “doing what is possible within the realm of the firm to effectively deal with environment of operations” (p. 463). On the other hand, its attempted merger with Singapore’s Fraser and Neave came as a result of its international marketing strategy that aimed at colluding with leading bottlers in Singapore. The ongoing talks between The Coca-Cola Company and Singapore’s Fraser and Neave are aimed at eliminating risks in the market. Furthermore, costs of operations are going to be minimal thus creating safer environments of operations. This argument could be valid owing to the recent mergers seen by DaimlerChrysler and Renault, General Motors who bought stakes in Nissan with the idea that a stake in a Japanese carmaker controlling other networks of factories is less risk way of venturing into the international market. 7.0. Conclusion The quest for the secret success of The Coca-Cola Company has no single answer. This can be realized from its international operations and achievements realized since its inception. This research however, concentrated on its international marketing strategies and reasons that have triggered such moves. In the process, this research discovers that the Company has performed a lot in a relatively shorter period of time. They have become global leaders in the industry and continue to become a stronger force as they continue to penetrate more international markets. However, this research also finds that these quests and successes are not only down to its strategic managements but also skills in marketing strategy formulations and its further implementations. Coming back to the thesis statement, the reason for adopting international marketing strategies are equally multifaceted. However, this can be summed up from the reasons given above. In addition, it is worth noting that that the environments in which businesses operate have become dynamic as the rate of globalization also renders traditional methods irrelevant. Therefore, it is not the question of why it is adopting the international marketing strategies but working with the principle that considers its strengths and weaknesses in the face of the available opportunities and threats so as to survive. 8.0. References Read More