AbstractThe purpose of this paper is to demonstrate how a business operating in the modern business can continue being competitive. Coca-cola Company will be analyzed by the researcher to determine factors affecting their future success such as barriers to entry, competition, and macroeconomic factors. Coca-Cola is a public traded company and the world largest producer and marketer of nonalcoholic beverages. Currently, the company is operating in more than 200 countries globally and over 500 brands. Some of the Coca-Cola main competitors include Pepsi Company and Dr. Pepper. Some of the recommendation to ensure future success at the company includes creating a strong, loyal customer base and increasing the company’s production line.
Key words: globalization, beverages
In the last few decades, major changes have been taking place in the global business. Some of the changes are because of development in technology and globalization. Because of these changes, there has been a significant increase in competition forcing business to come up with ways of understanding customers and how they make their decisions. The purpose of this paper is to recommend some of the ways a business operating in the modern business world can become successful in future. The research will identify some of the factors affecting the success of a Coca-Cola Company such as barriers to entry, competition and macroeconomic factors and the impact they have on a given business.
The Organization and Products
Coca-Cola Company is an America publicly traded company and the leading marketer and owner of nonalcoholic beverage in the world. Currently, the company is owning and licensing more than 500 non-alcoholic beverage brands in more than 200 countries. The Company is known for its famous sparkling beverages, enhanced waters, juice drinks, and juices, ready to drink coffee and teas and energy and sports drinks. Some of the most common products by coca cola include Diet Coke, Fanta, Sprite, and others.
Coca-Cola market structure determines the competitive environment in which the firm operates. The characteristics of the coca cola market structure have a major impact on competitive tactics and strategies implemented by the firm. Coca-cola is one of the companies operating in oligopoly market which has many implications for both the consumers and the competing firms. The market is seen as oligopoly because it is controlled by two firms, Coca-Cola, and Pepsi. Even though there are small companies operating in the industry, their market share cannot be compared to the dominating firms.
The Market Structure
In terms of structure, the market is currently experiencing a significant growth due to an increase global population and change in lifestyle of young generation. The culture of drinking non-alcoholic beverage is passed from one generation to another in events and other occasions. Lastly, the demand of products from the industry is experiencing steady increase as a result of improved disposable income of the consumers in the developing countries. In the last few decades, increase in consumption of non-alcoholic beverage has experienced significant increase in Africa and India as a result of rise in disposable income. However, the industry is experiencing major products diversity products such as tea, coffee, drinking chocolate and fresh juices joining the market.
Currently, Coca cola has a massive share of the world beverage market. According to a study conducted by Bloomberg in 2015, Coca-Cola Company commands 45% of the total market share of nonalcoholic beverage market. The market share has managed to give the company competitive advantage where the consumer does not have to contemplate on which beverage to buy whenever they are thirsty. This has created stickiness in the market which makes it clear that coca cola will maintain the relatively stable market share for quite in future.
Coca-Cola Company has been facing major competition both locally and in the global market. In the global market, coca cola company main competitors include Pepsi which with 25% global market share, Dr. Pepper Snapple commanding about 5% of the global market with other companies such as National Beverage, AJE, and Suntory owning less that 1% each. The greatest competition for coca cola is being experienced in the local market where huge numbers of local companies are packaging different non-alcoholic beverages for their regions. The competition is increasing because of social changes where consumers are more aware of the beverages they consume because of health related issues.
Barriers to Entry in Nonalcoholic Beverage Market
Barriers to entry in the nonalcoholic business are very high. First, producing nonalcoholic beverages for wide market require a huge investment to launch the products in the market. Additionally, operating in the business require high cost and this has prevented many companies from entering into this competitive market and even other leaving the market few years after launching their products. Additionally, companies dealing in this industry engage in non-price product differentiation where companies will only try to compete using creative advertisements rather than cutting on prices.
Table 1: Market share
Competition is a major factor in soft drink business. Companies operating in this industry also produce similar products and target the similar customers. This means that losing the competitive advantage will have a major impact on the company. However, coca cola use variety of strategies to ensure they continue dominating in the industry. Brand image is one of the most important elements of the companies operating in soft drink and because of this coca cola has been working tirelessly to ensure their brand image appears significantly different from that of their main competitors Pepsi.
Trends in Current Macroeconomic Indicators for Last Three Years
Current Stage of the Business Cycle
Coca-Cola has been in the business since 1886. However, for the last three years, the company has been one of the world’s most consistent companies regarding dividend. The company has the highest market share, and in the last three years, it has managed to have a market share of about 33% in the United States soft drink market.
Real Gross Domestic Product (GDP)
In the last three years, coca cola has produced a high real gross domestic product for the countries it has been doing business. For example, the company managed to produce 0.32% of the South Africa Real gross domestic product in the last three years which is more than one billion dollars.
As result of the contribution made by the Coca Cola in South Africa, the country’s real GDP has increased from 3.7% in 2015, to 4.1% in 2016 and thus, more growth is anticipated in 2017. One of the potential factors leading to increased consumption of Coca-Cola products in the country is the huge number of football events taking place I the country with Coca Cola being the official sponsor of most of these events.
Inflation as Measured by the Consumer Price Index (CPI)
Based on the consumer price index which is the main method used in measuring the price changes in consumer goods with the changes beings as a result of a change of the perspective of the buyers, its impact has been high on coca cola. The price index has been impacting coca cola company business in markets such as North America significantly in the last three years. The main contributor to the increasef infalation in Nrthe Aemica is rise in rates of unemplyment. Currently, the region is experiencing 15% unemployment rates with youths who are the highest consumers being the most affected. As a result o the rise in unemployment rates, the Coca-Cola products have experienced 25% decrease in total sales with the sales expected to drop in the next five years.
Current Rate for Borrowing Funds Such as the So-Called “Prime Rate
In the last three years, the interest rates have been changing, and this has a major impact on the company’s business. The increase in rate means that the consumers are not capable of affording the products. Changes in the prime rates and federal fund rates have a major impact on discount rates offered in the Wall Street which has major interest to borrowers.
Trends in Demand over Last Three Years and Their Impact on the Industry and the Firm
In the last three years, coca cola has been facing major pressure in the efforts of reviving their product demand in their major markets such as North America. The company has been introducing smaller formats in efforts of changing the demand, and as a result, the demand for their products has increased significantly as indicated below.
Coca Cola has been maintaining a global pricing system. However, to boost demand for their products in their top markets such as Europe and North America, the company has been changing the price of their products in the last few years. However, the changes in pricing strategy have managed to boost demand and sales in these markets significantly.
Ways Different Kinds of Costs Affect the Firm’s Level of Output
Even with a linear demand curve, price elasticity for Coca Cola products varies as the price for that product varies. At Coca-Cola, demand tend to be relatively inelastic whenever the company is experiencing low price levels in the market, but tend to be more elastic whenever the company is experiencing low price levels in the market, but tend be more elastic with the increase in prices. With change in price with 100%, the company will experience change in demand by 12.5%. Therefore, price elasticity of demand will be 0.13. The current price change in Coca-Cola products of 16.70% will result to -33.30% change in demand and price elasticity of demand will be -2.
Output decisions at Coca Cola Company refer to the action that ensures the marginal cost is equal to the marginal revenue and the quality of products. For coca cola to make an optimal output decision, the company needs to ensure that its marginal cost is equal to its marginal revenue. Additionally, to maximize the profit, coca cola need to analyze their variable and fixed costs even though the fixed cost will not affect profit.
Coca-Cola Company can use a variety of strategies to ensure they are successful in the future. Some of the strategies that the company can use include creating a stronger loyalty scheme which will help maintain the loyal customer base. This kind of non-pricing strategy will ensure the company maintain the current market share and obtain new customers in all their markets. Secondly, the pricing strategy the company can use based on their market structure to maintain their market share and expand their market is expanding their production line. This will ensure the products reach a diverse customer base. This will ensure the company offers their customer products based on their preferences. Being at the top position in the global soft drink industry, Coca-Cola Company can create a loyal customer base because their products are highly competitive in the market. With such a strong brand, it is easy to implement the loyal customer base system recommended. Based on findings from demand trends, price elasticity, current stage of the business cycle, and government policies I recommend that coca cola needs to establish a brand differentiation through brand advertising and product packaging so as to be able to sustain its success going forward.
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