yesthe local market. In entering the Chinese market, most of the investments made by Coca-Cola were directed towards the technological advancement of the facilities and equipment covered by the joint venture as well as the integration of quality standards in its operations. With regard to marketing, the company has also saved on the advertising and promotional expenses involved in achieving market acceptability of the company, its products and the company brand and logo since it takes advantage of the market links of its partners in the joint venture.
6.2 Weaknesses
Coca-Cola is part of a highly competitive industry causing the firm to experience several weaknesses in its operations. First weakness is the company’s lack of exclusive or advantageous access to resources (2001). As mentioned earlier, soft drink production involves large amounts of sugar. For some decades prior to the 1991 reforms, Coca-Cola had limited access to sugar from the domestic market due to the controlled industrial use of the raw ingredient. Control means that the company had to compete with other sugar-utilising firms to gain their share of the ingredient. With the removal of control over the industrial purchase and use of sugar, production increased. However, this environment still involves strong competition since all the firms belonging to the various sugar-utilising industries have heightened their production levels necessitating the acquisition of larger volumes of sugar and other raw ingredients. This means that Coca-Cola has to gear up for a fiercer competition with the relaxation of the regulation on the industrial use of raw materials than during the period of regulated acquisition and utilisation.
The lack of exclusive access to high quality raw materials (2001) constituting Coca-Cola’s weakness is further supported by the uniformity or similarity of the ingredients used in the production of competing soft drink products. In the case of carbonated beverages, although the taste of Coca-Cola and products are different, the ingredients used are the same but differing only in the manner of mixing the ingredients. Even juices and bottled water involve the same raw materials. This implies that all the competing business firms in the soft drink industry are competing with each other for access to the same ingredient suppliers. Although Coca-Cola has engaged in joint ventures with bottling and beverage concentrate producing firms, these firms have to compete for raw materials. Coca-Cola experiences the disadvantage of not having exclusive access to high quality raw materials.
Second weakness is the lack of advantageous access to channels of distribution (2001). Although Coca-Cola is widely distributed, so does competing products. Channels of distribution for soft drink products include supermarkets and grocery stores, fast food and other restaurants, vending machines, and event sponsorships. In the case of supermarkets and grocery, Coca-Cola products are displayed in shelves beside its competitors. This means that Coca-Cola does not have an advantage in supermarkets and groceries as channels of distribution and these retail outlets would not want to jeopardize their business relationship with competing companies by providing Coca-Cola with an advantageous position through product display, placement and signage. Fast food and other restaurants are channels of distribution where there may be exclusive distribution arrangements. Coca-Cola has entered into an exclusive beverage distributions agreement with and other restaurants but also exclusive beverage distribution agreements with . This does not really provide Coca-Cola with an advantageous distributions scheme.
6.3 Opportunities
Despite Coca-Cola’s enjoyment of increasing sales in the Chinese market, there are still areas of opportunity open to the company. First is expansion of distribution to rural areas. So far, Coca-Cola has successfully captured the urban market but there are still potential markets in rural areas. This opportunity is created by the increasing transfer of manufacturing firms to the rural areas due to the trend of shifting from agricultural production to manufacturing. This in turn has brought about by the entry of China into the world market influencing the re-establishment of the economic activities that the country would prioritize in order to achieve competitive position in the world market. The establishment of manufacturing firms in the rural areas would mean income opportunities for rural residents drawing the entry of various businesses such as fast food and beverage firms.
Coca-Cola could take advantage of this opportunity by expanding its distribution channels to rural areas by aligning with fast food companies or wholesale and retail distribution channels. Coca-Cola can successfully capture the rural market by linking the company, product and brand with the community practices. The company could start by sponsoring community affairs or engaging in community welfare services. The company could also form retail partnerships with local restaurants and stores to provide better visibility and greater access to Coca-Cola products of targeted rural market.
Apart from expansion to the rural market, Coca-Cola also is faced with the opportunity of furthering its product diversification schemes in order to gain a wider customer base. At present, Coca-Cola has already entered the four major sectors of the soft drink industry, which are: 1) carbonated drinks; 2) RTD tea drinks; 3) bottled water; and 4) juice and juice products. All these products and product brands are presently available in China. However, apart from carbonated drinks the company has only a number of products in the different soft drink sectors. Due to the growing health consciousness of Chinese customers, Coca-Cola may want to expand its product line in the other three soft drink sectors. An innovative opportunity for the company may even be to engage in food products to complement its beverages. This opportunity is supported by the strong brand equity of the company which can adequately support this venture.
Another area of opportunity is in the bottling system and packaging of its products. One venture open to Coca-Cola is the expansion of its bottling and beverage concentrate production in the rural areas in order to support its expansion to the rural market as well as to gain possible cost savings from the lesser expenses incurred in operating in rural areas. Another venture for Coca-Cola is the evaluation of the packaging of its products in the other soft drink sectors. In relation to carbonated drinks, the colour red for coke has helped in product recognition. The company should consider evaluating the packaging of its other products, especially those with sales lower than company expectations, covering the colour scheme, brand name, and bottle shape and size.
6.4 Threats
Although Coca-Cola has gained strength as a soft drink manufacturing company in China, the increasing number of food and beverage products being introduced in the market result to a certain degree of threat to the company. One threat is the shift in the tastes of consumers. Individuals and families in urban areas are increasingly joining the health consciousness bandwagon based on their experience and as influenced by the international campaign against obesity. If this further strengthens, this means that the consumption of Coca-Cola products could be affected. Since Coca-Cola carbonated drink has sugar and caffeine contents, customers seeking to cut back on the consumption of these products could drop out of the company’s customer base. Apart from this, the association of Coca-Cola carbonated products with fast food restaurants could mean that customers withdrawing from fast food consumption could also decide to lessen intake of carbonated products. If the company does not strengthen the saleability of its products in the other soft drink sectors, it could face an even bigger threat from companies offering substitute products.
While it is true that Coca-Cola has introduced diet cola, marketed as having the same taste as the original cola but with lesser sugar content, this single product innovation may not be sufficient to retain the customer pool that changed its customer preference in the direction going away from Coca-Cola products.
Concurrent with the recognized change in consumer preferences, substitute products are being introduced in the market such as tea, juices, coffee, hot chocolate and coffee that all fit the consumer taste for healthy living. These products serve as threats to Coca-Cola products. The company has to enhance brand equity by strengthening its non-carbonated products in order to retain its customer base and gain additional customers seeking alternative products to carbonated drinks.
Chapter 7 Marketing Strategy of Coca-Cola
Coca Cola’s marketing strategy in China is linked to its place in the history of China distinguishing the company and its product in the Chinese market. The introduction of coca cola into the Chinese market was initiated after the conclusion of the First World War with the establishment of the company’s first bottling plant through joint venture with Hong Kong based business firms. However, in terms of product marketing Coca Cola became the first US based company to distribute its products in the Chinese market immediately after catalyzed the opening of China to foreign investors towards the end of 1970s. Since then, Coca Cola has maintained a significant and growing market share in China. At present, Coca Cola holds ownership interest in twenty four bottling plants through join ventures with Hong Kong based companies that the company also owns in part such as and. Apart from joint ventures, Coca Cola also holds ownership interests in a completely foreign-owned firm, based in Shanghai, which produces beverage concentrates. It is also through this company that Coca Cola entered into a joint venture with another beverage concentrate producing firm located in Tianjin. Coca Cola has utilized joint venture in establishing twenty four bottling operations and several beverages concentrate producing operations in mainland China and Hong Kong. (2001)
It was Coca Cola’s long-term goals of localizing production and building of infrastructure through strategic partnerships with domestic companies as well as the Chinese government have pushed the company to achieve nationwide operations resulting to strong market presence. Due to these strategies, the company has control of 35 percent of the country’s carbonated beverage market. Coca Cola is also able to generate yearly sales amounting to .2 billion. The company earned an increasing profit from sales in China since 1990. Thus, Coca Cola has established a hold over the Chinese economy by contributing 15,000 employment opportunities and supporting the viability of various supply, distribution, wholesale and retail companies employing around 400,000 people. Apart from this, Coca Cola has also contributed to the technological enhancement of the beverage industry in terms of the updating of old facilities, introducing of quality testing, and providing training programs for managers involving .1 billion worth of investments into the Chinese market. (2001)
7.1 Market Segmentation and Product Positioning
Coca-Cola’s market is distinguished according to geographic location and age. Geographic location pertains to determination of whether the consumer comes from the rural or urban areas. Although, there are more potential consumers in the rural areas, most of Coca-Cola’s customer base is located in the urban areas. This manner of segmentation is supported by the economic diversity of China so that it is imperative that it should not be considered as a single market. China’s market diversity stems from the disparity in income between rural and urban areas since the per capita disposable income in urban areas is at a level of three times more than in rural areas. Apart from this, there is also a disparity in income among urban areas based on the level of economic development and the concurrent standard of living. The imbalance in economic development in different geographical regions of China affects the purchasing power of consumers in the different regions. In considering the top four largest cities in China, these accounted for only 4 percent of the population but responsible for 15 percent of retail sales while the remaining small cities and provinces represent 80 percent of the population accounting for a little more than 50 percent of retail sales. (2003)
Age as the other criteria for market segmentation of Coca-Cola consumers refers to the segmentation of the company’s consumers according to consumers below 45 years old and 45 years old and over. The age distinction is based on the young generation during the time of the reintroduction of Coca-Cola in China in the 1970s. It was this generation, aged 45 and below, that comprised the initial customer base of Coca Cola and integrated consumption of company products into their food and beverage purchases. The generation before them do not have a similar attachment to Coca-Cola products.
Coca-cola has a strong brand equity (2005) attached to its products. The value of its brand comes from the reputation of the company of developing a good tasting soda beverage that families and friends can share. Coke is all about tradition and stability. This was observed by the consistency of the company’s approach, message and product development. The strengths of coke come from its ability to be consistent, a product that is always there. When coke introduced New Coke in 1985, a product with a sweeter taste, the public reaction to the change was devastating to the company. The change represented a deviation from the values of stability and consistency attached to the brand equity of the company. Coke relies mainly on its brand equity to sell its products. Although, coke also got involved in celebrity endorsements, it withdrew from this race and continued with its equity-based campaigns. Thus, Coca-Cola has positioned itself in the international market and in China as a traditional and consistent company that will always be there to provide its products to the market.
7.2 Marketing Mix
The marketing mix of Coca-Cola comprises the factors that the company controls in order to provide customer satisfaction in the targeted market segments. Through the strategic blending of these factors, Coca-Cola ensures that it is able to generate a positive response from its targeted market segments.
7.2.1 Product
Coca-Cola has been able to diversify its products to include carbonated drinks such as Coke Classics and other soda products such as as well as bottled water, RTD tea drinks and juice drinks under the brand names. The diversification to other soft drink sectors was influenced by the growing demand for healthy beverages in its targeted market.
The diversity of the quantity of demand and the cost of packaging has also affected the products of the company. The companies packaged their products in glass bottles of different sizes and shapes. However, after the development of plastic containers the packaging shifted to plastic containers especially for larger volumes of soda making it lighter when carried. At present, the demand for better convenience resulted to the packaging of sodas in cans. Coca-Cola products are sold in glass bottles, plastic containers and cans.
7.2.2 Price
The pricing strategy of Coca-Cola is based on the pricing dynamics relative to its competitors as well as the value of its products. In China, as is true in the international market, the fiercest competitor of Coca-Cola is so that pricing is in a way influenced by the interplay of these competitors in a given market. However, Coca-Cola holds the advantage in pricing because it had a head start of several years giving the company a stable market share relative to , which suffered several bankruptcies. The product price of Coca-Cola became the industry benchmark. The strategy of then was to sell its products at half the price of Coca-Cola. The company was able to gain a share in the market. (2003). This pricing dynamics between Coca-Cola and continue today. In supermarkets, the price of coke is still higher by 15 to 20 cents when compared to
The higher price given by Coca-Cola to its products is supported by the value of the brand equity of its different soft drink products. Coca-cola was able to sell at a higher price than its competitors because of its stable share market share due to its marketing communications message linked to brand equity of product stability. This makes Coca-Cola a true leader in the industry due to its ability to determine the industry pricing benchmark. Despite its slightly higher pricing, it is still able to maintain a market share by establishing a high value for its products through associations with consistency and dependability.
7.2.3 Promotion
Coca-Cola applies consistency and dependability even in its promotional activities. The company actually makes use of pattern advertising (2003). The company develops advertisements containing its determined marketing communications message. The manner of advertising adheres to various specific audiences. However, despite the consistency of its advertising framework for its different markets around the world, Coca-Cola also implements local adjustments. The adjustments cover the 1) translation of words and lyrics in the local dialect of particular markets and delivered in a manner appropriate and acceptable to the local culture, 2) basic adjustments to the advertising format such as the use of locally significant words, phrases, messages and the arrangement of these elements to deliver a cohesive promotional campaign aligned with the basic marketing communications message of the company; 3) audio-visual adjustments made to the advertising format such as colour scheme, character selection, video stream and other audio-visual aspects of the campaign.
Apart from pattern advertising, Coca-Cola also adheres to product differentiation (2003) by withdrawing from the explicit cola war with . The cola war persisted until the late 1900s with taste-tests and celebrity endorsements of competing personalities. In succeeding years Coca-Cola reverted to its marketing strategy of appealing to the stability and consistency found in the value accorded to family and friendship differentiating the company, product and brand from its competitors.
7.2.4 Place
All the soda brands are marketed in the common channels of distribution except in the exclusive retail venues that companies bid to have. In supermarkets, these brands are sold side by side in the display shelf not giving a single brand any edge relative to the buyer. The rivalry over the channels of distribution was elevated to obtaining exclusive selling contracts in restaurants, places for vending machines, recreation areas, and popular events.
In China, the focus of Coca-Cola is in direct-to-retail distribution through the establishment of a minimum of one sales centre in cities with a total population of 1 million. The sales centres that also serve as warehouses are completely owned and operated by , and other bottling firms with which the company has entered into joint venture agreements. For logistics support, delivery trucks numbering around twenty in large cities are on standby in the sales centres to cater to retail orders. Apart from its own distribution centres, Coca-Cola also partners with large wholesalers with valuable experience in the area of retailing and independent wholesalers able to reach out to local communities. Apart from this, Coca-Cola also builds strong partnerships with government units by sponsoring welfare programs.
References
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