Coca Cola Company is the biggest seller of soft drinks in existence. The company also boasts the most recognizable brands across the globe. The most recognizable product of Coca Cola Company is Coca-Cola soda. Other products include Fanta, Diet Coke, Coca Cola Zero, Coca Cola Life, Coca Cola Light, Fresca, bottled water such as Dasani, Glaceau Smartwater, and Ciel, juices such as Minute Maid, Fuze, Del Valle, and Simply Orange, energy drinks such as Powerade, and bottled tea such as Fuze Tea and Honest Tea (Company et al., 2016).
Coca-Cola Company is a global business meaning that it operates in a local scale in every community where it does business. This implies that the company sells its products in the global market. The strength of its system which consists of the company and its bottling partners worldwide enables the company to have a global reach. The bottling partners distribute the products to the market including grocery stores, street vendors, restaurants, convenience stores, parks, and movie theaters, among others (Company et al., 2016).
The pricing strategy of coca cola product is dependent on the pricing of its competitors especially Pepsi company. Other factors that may influence the pricing strategy of coca cola products include product public demand, need to maximize shareholder wealth, the target market, and the need to grab a certain market segment (“PRICING STRATEGY OF COCA COLA – The Final Projects”, 2016). The current or recent prices of coca cola product in Indian Rupees (RS) are as follows;
- Non-returnable bottle = 30
- 1.5 liter bottle = 70
- 2.25 liter bottle = 90
- Coca-Cola can = 40
Revenue and profit history
According to the company’s annual report for the year 2005, Coca Cola Company sells its products in at least 200 countries globally. The company’s beverages form the largest servings of beverages served across the globe with a total serving of about 1.5 billion servings daily. This trend has since increased to 1.6 drink servings by the year 2010. The sales revenues for Coca-Cola Company lead in every market where it conducts business. For instance in the year 2007 the company’s sales accounted for 43% of all beverage servings in the United States. These increased sales revenue translates to high profits for the company.
Features of the industry in which Coca-Cola operates
Coca-Cola operates and falls under the beverages industry which includes beer, tea and wine. The beverage products industry is a highly fragmented industry. The fragmentation is evident in the number of manufacturers, production processes, packaging methods and the final products. However, Coca-Cola products are all soft drinks and as such fall under the soft drink industry which is a highly concentrated industry (“Chapter 65 – Beverage Industry”, 2016). This means that sales are dominated by one or more businesses. The industry is also very competitive. The major competitor of Coca Cola Company is the Pepsi Company. For this reason therefore, the firms in this industry including coca cola have to carry out extensive marketing. In 2010 alone, Coca-Cola spent $5 billion on marketing. The industry is also characterized by high operating costs especially the transportation costs. High transportation costs are due to the weight of the liquid; therefore, the firms in this industry have to set shop overseas where their target markets are located.
Discussion Question 1
Market power is the ability of a firm to vary its pricing model without affecting the quantity demanded of its products. This therefore means that an increase in price will have a less effect on the quantity demanded of a country’s products if it has more market power than its competitors. Coca cola and Pepsi Companies are perfect examples of close substitutes in that, in the absence of Coca-Cola products one can easily substitute it for Pepsi’s product. The presence of Pepsi as a substitute for Coca-Cola products offers Coca-Cola a threat in terms of competition for market share. The companies are constantly promoting their products in the market, large as they are. The two products that is, Coca-Cola and Pepsi have essentially the same taste and price, and under normal conditions we would expect that the demand for the two product to be also essentially the same. However, the market share for the two products has greatly favored Coca-Cola over Pepsi especially in Australia. This heavy market share for coca cola is its market power. This market power has led to the dominance of Coca-Cola in the market.
The key to Coca-Cola’s market power and thus market dominance is due to its wide availability in the market as compared to Pepsi (Lin, 2012). Most vending machines are almost exclusively Coca-Cola, food outlets in the city such as McDonalds and Subway all sell coke as compared to KFC who sell Pepsi. In places where Pepsi is sold such as in petrol stations and supermarkets, you will find out that coke is also sold. Due to the availability of coke, consumers purchase it more often than they purchase Pepsi and this leads to brand loyalty by the consumers. Brand loyalty ensures continued consumption of coca cola products. Store managers under the effects of brand loyalty and who also happen to be consumers in the larger market also prefer stocking Coke due to its popularity in the market. Therefore as businesses stock Coke in place of Pepsi, the convenience advantage of Coke is amplified leading to its dominance in the marketplace.
Discussion Question 2
Coca-Cola applies the price strategy mostly and especially when penetrating new markets. The strategy is to charge low prices than the competitor until it grabs the market in which case it will raise the prices steadily to a competitive level. Apart from the use of pricing strategy the company also has employed product differentiation as one of its key competitive tool.
Product differentiation involves the production of goods that are different from what the competitors’ offers. Through innovation Coca-Cola Company has been able to lead in the production of healthy soft drinks. This has been brought by the fact that more people in the market are opting for low calorie food and beverages. In reaction to this market development the firm produced and introduced Diet Coke into the market (“Coca-Cola Beverages & Products │ World of Coca-Cola”, 2016). Diet Coke is one example of product differentiation where the company realizes that there exists consumers who want a no-calorie beverage. The company also differentiates its products in other areas such as production of juices, energy drinks, bottled water and bottled tea. This product differentiation ensures that no part or category of consumers is left unattended. Coca-Cola Company is also highly committed when it comes to advertising and promoting its products. As indicated above in 2010 alone coca cola spent $5 billion on marketing.
Chapter 65 – Beverage Industry. (2016). Ilocis.org. Retrieved 16 July 2016, from http://www.ilocis.org/documents/chpt65e.htm
Company, O., Main, O., Journey, A., Mission, V., System, T., & Overview, W. et al. (2016). Coca-Cola Product Descriptions: The Coca-Cola Company. The Coca-Cola Company. Retrieved 16 July 2016, from http://www.coca-colacompany.com/brands/product-description
PRICING STRATEGY OF COCA COLA – The Final Projects. (2016). Sites.google.com. Retrieved 16 July 2016, from https://sites.google.com/site/thefinalprojects/home/project-on-beverage-industry/coca-cola/pricing-strategy-of-coca-cola
Lin, H. (2012). Coca-cola vs. Pepsi: The Economics behind Coke’s Dominance – Economics Student Society of Australia (ESSA). Economics Student Society of Australia (ESSA). Retrieved 16 July 2016, from http://economicstudents.com/2012/10/coca-cola-vs-pepsi-the-economics-behind-cokes-dominance/
Coca-Cola Beverages & Products │ World of Coca-Cola. (2016). World of Coca-Cola. Retrieved 16 July 2016, from https://www.worldofcoca-cola.com/about-us/coca-cola-beverages-products/