Introduction
A company that fully understands the importance of value chain in business is the Coca-Cola Company. A global leader in the beverage industry, the Coca-Cola Company further indulges in enhancing their value propositions as an instrument to create ‘virtuous cycles of geographic expansion’ and thus greater advantage. Coke, the term the paper will use to refer to the company, owns the most important elements of the value chain or the “globally leverage able intangibles” such as the brand, the technology, the management, the marketing expertise and the relationships ( 1999).
For this reason, Coke was chosen to be the subject of this value chain paper. Coke, in addition, addresses that value chain as drivers of increased profit, enhanced ability to invest more into gaining greater geographic access and penetrating existing markets more deeply as well as more confidence in investing on intangibles like intellectual property and talent, and increased sale and specialization advantages; making the company the most conceivable subject for the intents of this paper.
Coke – Porter’s Five-Force Model
Soft drink industry is divided into two segments namely production of soft drink syrup and manufacturing and/or distribution of soft drinks in retail level. Coke chose to concentrate their operation on the first segment while intimately depending on independent bottlers companies. Basically, the company is engaged into blending raw material ingredients (product planning), packaging in plastic canisters (market research) and shipping to bottlers (advertising).
Rivalry condition is concentrated on two main actors – Coca-Cola and Pepsi Cola – thus, the emergence duopoly competition or the Cola wars. The term Cola wars was invented to describe the extent of campaigns of mutually-targeted advertisements between the two cola giants. Through these advertisements, the two companies attack each other and therefore a tough competition that strategically hampers the profitability of each other.
Existence of substitute products is wide and thick and substitute products for Coke reached the market where Coke has a strong presence. Apart from the primary rival (PepsiCo), the company finds intensified competitions on companies that produce, market and sell teas, beers, milk, coffee, wine, powered drinks, juice, bottled water, sport drink and other refreshments causing a significant decline in Coke prices. To reduce threats, Coke embraced the idea of bottling and concentrated on product diversification.
Penetrating the soft drink industry is hard because of the established name of Coke; hence, new entrants must first overcome the remarkable marketing muscle and marketing presence of Coke. Other barriers to new entrants are the: direct-store-delivery (DSD) strategies and the Soft Drink Inter-Brand Competition Act of 1980. Respectively, Coke has long-term relationships with their retailers and distributors making possible the defense of the position by means of discounts and other tactics, and regulation make it impossible for new bottlers to enter areas where an existing bottler operates.
Bargaining power of suppliers is low due to two reasons. First, the main inputs are sugar and packaging. Sources of sugar are on the open market which subsequently makes the creation power of suppliers at low levels. There are several suppliers for packaging as well as the abundance in supply of inexpensive aluminum. Second, direct negotiations from concentrate producers to suppliers are present; an initiative to encourage reliable supply, faster delivery and lower prices.
Bargaining power of buyers depends on the marketing channel used. For Coke, there are five core channels such as food stores, convenient stores, fountain, vending machine and mass merchandisers. The bargaining power of buyer is high for fountain supermarkets and mass merchandising because of the low profitability and strong negotiation power of retail channels but for vending bargaining power is non-existing caused by high profitability.
Coke – Value Chain
As one of the most exceptional business concepts that emerged, value chain refers to the series of activities firms and organizations converged into towards putting the goods or services in the marketplace, and wherein through all and each of the activities within the chain, the product or the service gains value. The premise is that the chain of activities provides the product more added value than the sum of added values of all activities. (1985) advocated that value chain analysis could be a strong tool to analyze the sources of competitive advantage, to discover new ways of creating and sustaining the competitive edge and to design for a more efficient organizational structure.
The commitment of the company to become a world class leader in customer and distribution services which are reflected in the continuum of building value chain excellence. The purpose of Coke’s value chain is divided into four areas namely shareholder, business operation and key processes (Diagram 1 in Appendices section).
1) To deliver superior returns to its shareholders is the mission of the Coca-Cola value chain. The key elements to achieve this end are a strong brand equity and revenue management that is comprised of sales, volume, pricing and costs.
2) Consumers and customers are the focal points of the value chain driven by brand preference, pervasive market penetration and superior price/value ratio.
3) Operational drivers are identified as the strategic metrics, process excellence and organizational excellence.
4) Key processes are further divided into five key functions: Consumer and Customer Service Systems, Demand and Operations Planning, Warehousing and Logistics, Manufacturing, and Infrastructure Planning and Development.
There are four enablers in Coke’s value chain. These are the suppliers, the customers the Coca-Cola Retailing Research Councils and the Customer Development and Training (refer to Diagram 2). Coke’s suppliers include business partners that provide the company with raw materials such as ingredients, packaging, machinery and services. Authorized and direct suppliers are subjected to comply with all applicable laws and regulations specially which tackles just employment practices. In addition, these suppliers must comply with the company’s Supplier Guiding Principles.
Coke’s customers range from far-reaching, international chains of retailers and restaurants to major corporations to small and independent businesses to corner markets down to local pushcart vendors. Coke works with these people for the purpose of creating mutual benefits alongside their bottling partners. To assist them in their initiative, serving the customers are assisted by account management teams that provides service and support tailored to the need of the customers.
Coca-Cola Retailing Research Councils provide research concerning issues that have significant impacts on the food retailing industry. Within the company, there exists collaborative customer relationship process. The purpose of this collaboration is to improve shopper marketing and supply chain collaboration. Acceleration of innovation in order to provide superior beverage selections to every customer is another aim of the collaboration.
Through managing the subsistence of beverage leadership, Coke continued to deliver unit case volume growth. The sustainability of the business too is motivated by the expanded portfolio that makes way for the offerings to new customers and satisfying the evolving needs nutrition occasions of the current customers. These are proven by the ranking – 4 of the top 5 nonalcoholic sparkling beverage brands are owned by the Coca-Cola Company; number of associates – 90, 500 worldwide; operational reach – 200+ countries; consumer servings – 1.5 billion per day and beverage variety – more than 2, 800 products.
Brand-wise, the original Coca-Cola is still the best known brand globally as it also offers the ultimate refreshment for young people. Diet Coke is the second biggest soft drink brand due to lighter taste that aimed for women in their twenties. Bloke Coke or Coke Zero is already a record-breaking success as it brings great Coke taste but with zero sugar for men aged between 20 and 29. Evidently, the beverage leadership position is delivered by how consumers can more around the Coke portfolio depending on their needs at different stages of their lives.
Financially, the Coca-Cola Company reported in February that profit jumped of about 18% with net income nearly B – .98 billion on .9 billion in revenue. The fourth quarter earnings per share of .52 had increased with 79% compared to that of the previous year and .58 after considering items with impacting comparability which is of 12% increase. The overall earnings per share increased by 19% (.57) and .70 after considering items impacting comparability which increased by 14%. Further, Coke and its bottling partners delivered unit case volume growth of 6% for the year 2007 and four consecutive quarters of double-digit earnings per share growth. Worldwide, the sparkling beverage volume increased by 4% and the still beverages by 12%.
Credit:ivythesis.typepad.com
0 comments:
Post a Comment