COCA-COLA AS AN INNOVATIVE COMPANY
Executive Summary
Coca-Cola fully understands the meaning of innovation as evidenced by the ever-growing brand portfolio and internal processes. In this paper, I discussed Coke’s three cola strategy as both a product and service innovation. Such strategy was implemented to widen the market presence of Classic Coke, Diet Coke and Coke Zero. The three cola strategy was developed initially for the purpose of rekindling the growth of the sparkling beverages. The strategy is basically a campaign to boost public confidence wherein an array of marketing, advertising and promotion was implemented. The three cola strategy was backed by Research Council towards the development of consumer-centered innovation.
Coca-Cola Company
Founded by Asa Griggs Candler in 1882 in Atlanta, Georgia, a company that fully understands the importance of innovation in business is the Coca-Cola Company. Coca-Cola, or simply Coke, chose to concentrate their operation on production of softdrink syrup while maintaining an intimately relationships with its bottlers and distributors at the retail level. Basically, the company is engaged into blending raw material ingredients (product planning), packaging in plastic canisters (market research) and shipping to bottlers (advertising). In 1886, John Stith Pemberton invented the company’s flagship product Coca-Cola. Today, Coca-Cola Company offers more than 400 brands in over 200 countries and territories and serves approximately 1.5 billion servings daily.
The Coca-Cola Company manufactures the concentrates, beverage bases and syrups that bring uniqueness in the products and sell them to its 300 bottling companies. Bottling partners serve as the producers and distributors of the brands and the main connectors between the customers and the company. Bottling partners range from international and publicly-traded business to small, family-owned operations. They are responsible for producing, packaging, distributing and merchandising the brands through localized marketing plans that are developed in partnership with Coke. Along with the bottling partners are 90, 500 associates and over 200 million customers that makes the Coca-Cola System. Such system has been the key to operate in the global scale while maintaining the local approach.
With the support of Beverage Science and Innovation, Coca-Cola commits in continuously looking for new beverages that will bring enjoyment to the public. The company ventured into juice drinks, energy drinks, sports drinks, functional drinks and ready-to-drink coffee and tea among others. In fact, the company had introduced at least 29 new lines of products from October 2004-August 2007 alone. Nevertheless, Coca-Cola recently rolled out the tree-cola strategy consisting of reinvigoration of the trademark Coca-Cola and Diet Coke and introduction of Coca-Cola Zero to increase the portfolio of the company.
Three cola strategy
Coca-Cola Company is well aware that sparkling beverages are the life of the company as well as the industry. A fact is that in the last decade Coca-Cola’s operational and financial performance has dwindled. According to Strategic Direction (2006), Coca-Cola’s core market is increasingly difficult to please and senior managers are not confident or quick-moving enough in their strategies to reach them. Through a confident approach, the company remedied the dilemma via extensive product strategies hence the three-cola strategy. As both a product and service innovation, such a strategy is an effort to rekindle growth in sparkling beverages, focusing on driving unit case volume growth for Coca-Cola, Coca-Cola Zero and Diet Coke or Coca-Cola light (Bokaie, 2007).
Since the Coke portfolio is driving the growth, and disparity, in the colas segment, the company had realized for deeper integration in marketing and merchandising specially the three brands. In 2007, the Coke Side of Life creative platform was used to make the people aware of the ‘specialness’ of the iconic Coke brands. Marketing strategies not only focus on the brands themselves but also on seasonal summer and Christmas peaks through global creative advert and extensive digital activities (Coca-Cola online, 2008).
There are also limited flavors that had been offered in the market following the success of Coca-Cola with lime and the fusion of two bets citrus flavors lemon and lime or the Diet Coke Citrus Zest. For this products and Coke Zero, the Coca-Cola system allotted sampling campaigns in different experiential locations like sporting events and train stations and investing on high-end advertising such as heavy-weight TV, cinema, billboards and prints (Trade Support, 2006). Further, the company rolled out Coca-Cola Zero in 37 countries in 2007 and it became one of the Company’s billion-dollar brands since then. Coke Zero is believed to have regained the public confidence on sparkling beverages while also generating great interest from new consumers. There are about 450 million cases of Coke Zero sold in 2007.
The three cola strategy is also responsible for achieving all-time highest rates. For instance, it was known that sparkling beverages have no growth potential in Japan but the three-cola strategy proved this wrong as the Trademark Coke achieved its highest growth rate in 30 years. Brand Coca-Cola volume was increased by 3% and Coke Zero grew over 250% in 2007 and had penetrated over 80 markets in the first quarter of 2008. In markets where both Diet Coke and Coke Zero are inexistence, the combined diets and lights category grew by 8% in 2007 (Coca-Cola online, 2007).
PepsiCo, the perennial rival of Coke, is recently pursuing the same strategy through spontaneously introducing Diet Pepsi, Pepsi Max and Diet Pepsi Max along with the reinvigoration of basic Pepsi brand (Trout, 2007). Coke and Pepsi are responsible for the emergence of the duopoly in the softdrinks industry dubbed as the Cola war. The difference, however, is that Coca-Cola’s product innovation is embedded on health and wellness initiatives by means of increasing both light carbonated soft drinks and non-carbonated beverages.
Three cola strategy as both product and service innovation
In generating high impact innovations, it is important that the organization should devise a systematic method of identifying opportunities that provide new value for the consumers (Johnston and Bate, 2003). What Coca-Cola Company did was to be continually on the offensive wherein the company purports in marketing unique brands, generating identity-preserved products and combining collective efforts. Coke regarded the three cola strategy as a value-adding service to the consumer at the retail level.
The desire to innovate must also come with the company’s top leadership and permeate every corner of the organization (Paley, 2006). This is what CEO Naville Isdell did when he entered the company. Prior to the introduction of the three-cola strategy, the sales of Trademark Coke were seriously declining in the world’s most established markets. Isdell argued that the way forward is through its core products which are mainly carbonated. Because the Company had its share of criticisms targeting the healthiness of the products, Coke, as a product innovation, reintroduced the Diet line and coupled it with Coke Zero in a collective effort (Stanford, 2007).
As such, the changing consumer preference for healthier food products was an opportunity that is exploited through the three cola strategy (Paley, 2006). The Coca-Cola Company searched for changes and respond to it as a true innovative company should do. Edersheim and Drucker (2007) argued that the mismatch between supply and demand in the market is a powerful tool for innovation. It includes unforeseen successes and failure inside the organization and unexpected activities at suppliers, competitors, customers and complementors.
Innovation also means to tolerate internal processes especially those that will contribute to the growth of the company (Johnson and Scholes, 2002). Coca-Cola has Research Councils which conduct different studies on issues that could possible assist retailers to respond to the ever-changing marketplace. According to the company, the unique value of these activities is vested on the fact that retailers define the objective, the scope of each project and own the process after it was released and disseminated to the broader retail community. Listening to the voice of consumer (VOC) is one of the critical aspects of innovation especially because it is difficult to take risks without a clear foundation (Harvey and Brown, 2006).
It is important for Coke to improve productivity while aligning product strategies to the goal of the consumers. It is a known fact that consumers are increasingly becoming ethical shoppers especially when it concerns their health. At Coke, consumer-centered innovations include most of “shopper perception is reality” that drives Coke Company to effectively embrace the brand portfolio strategies based on personalization and the concept of self-checkout on the basis of what consumers want. Innovation directs to the fact that an organization should be capable of bringing genuine innovation while remaining practical while doing so (Harvey and Brown, 2006).
While many people associate innovation with major technological or organisational advances, the vast majority of successful innovations result from a stream of small incremental changes which may individually have only limited effects on consumer behaviour (Johnson and Scholes, 2002). For example, in order for Coke to develop products that will regain the reputation of a leading beverage brand, the Company removed those barriers to innovation. Research Council removes unnecessary costs that could be incurred from distribution and supply systems; increase consumer choice and reduces overall costs of inventories and physical assets hence supporting growth, improving customer service and increasing market responsiveness.
Although innovation directly implicates the initiative to drive profitability, this must be the goal at all times (Harvey and Brown, 2006). An organization must understand that what will really drive profitability is the appreciation for putting innovative strategies into action. For Coke, this was realized through positioning four conditions – clarity and commitment to goals, focus on key drivers, simple mechanisms that propel achievement and cadence of accountability – that are always associated with great performance.
Conclusions and Recommendations
In sum, there are specific drivers for the three cola innovation. These are economic benefits, achieving public objectives, aligning supply with demand and increased investment in research and development. Further, there is only one recommendation for Coke that is to conduct a materiality analysis. The materiality could clarify issues on how the three cola strategy could drive long term business value, identify and address risks surrounding the strategy and build and maintain a strong brand and reputation.
References
Bokaie, J 2007, ‘Coca-Cola and its three-cola strategies,’ Marketing Magazine, retrieved on 4 March 2009, from http://www.marketingmagazine.co.uk/news/765194/Media.
Edersheim, E H and Drucker, P F 2007, The Definitive Drucker: The Final Word from the Father of Modern Management, McGraw Hill Professional.
Harvey, D and Brown, D 2006, An experiential approach to organization development, 7th ed., Prentice Hall, Upper Saddle River, NJ.
Johnson, G and Scholes, K 2002, Exploring Corporate Strategy, Prentice Hall.
Johnston, R E and Bate, J D 2003, The Power of Strategy Innovation, Sage Publication, London.
Leadership Message, 2007, Coca-Cola website, retrieved on 4 March 2009, from http://www.thecoca-colacompany.com/ourcompany/ar/leadershipmessages.html.
Paley, N. 2006 The Manager’s Guide to Competitive Marketing Strategies, Thorogood: London
Remarks by Muhtar Kent at The Coca-Cola Company’s 2008 Annual Meeting, 2008, Wilmington Delaware, retrieved on 4 March 2009, from http://www.thecoca-colacompany.com/presscenter/viewpoints_kent_annual_meeting_2008.html.
Stanford, D D 2007, ‘Coke is it’ for CEO, sales bubble up,’ The Atlanta Journal Constitution.
Trout, J 2007, ‘Confusion in Coke Land,’ Forbes online, retrieved on 4 March 2009, from http://www.forbes.com/2007/03/29/trout-marketing-coke-oped-cx_jt_0329trout.html.
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