Background of the Organization
The Coca-Cola Company is the largest manufacturer, distributor and marketer of nonalcoholic beverage concentrates and syrups in the world. Coca Cola products bearing the company’s trademark are now being sold in 200 countries around the world. The business of Coca Cola is nonalcoholic beverages – principally sparking beverages, but also a variety of still beverages. The company owns or license more than 450 brands, including diet and light beverages, waters, enhanced waters, juices and juice drinks, teas, coffees, and energy and sports drinks.
Innovation Focus – Product Innovation
Product innovation is an important business process. It aids in sustaining growth and is a possible source of competitive advantage. According to (1999) new products and services are the lifeblood of an enterprise that fuels business growth. Product innovation is a critical business process that drives growth in both revenues and profits
Product innovation is an essential strategic approach for creating competitive advantages in the dynamic, global business environment. Globalization and the changes in social, political, economic, and technological arenas topped with turbulent market conditions have resulted in shorter product life cycles. These changes also created demands for better, cheaper, cleaner, safer and more effective products. The process of product innovation is about the development of new solutions that provide positive benefits to customers and stakeholders. Product innovation according to (2005) is the fundamental management practice used for creating new products, reinvigorating existing products and solving product-related difficulties with customers and stakeholders.
Product innovation is a core process within an organization associated with renewal – with refreshing what it offers and how it creates and delivers that offering. Innovation is essential in sustaining the prosperity of most organizations. Innovation is the prescription for reinvigorating the organization to compete more successfully in a demanding world. Product Innovation concentrates on improving the strategic position and product delivery capabilities of the organization through creativity and leadership. Product innovation includes several essential aspects:
1. Examining the needs for new products, processes, and services
2. Determining the appropriate direction and for new products
3. Establishing the appropriate game plan of the entire management system for developing and commercializing new products
4. Selecting new-product opportunities for investment
5. Enhancing the organizational capabilities to create successful new products
6. Creating the new product and executing the new-product development program
The primary objectives of product innovation are to create value, to obtain a competitive advantage, and to achieve long-term success through the development and commercialization of new products and services.
Coca Cola is a company with rich history and tradition that has build an iconic brand. The company prides itself with being a leading innovator in the soft drinks industry and being able to turn customer demands to products. Being in step with customer trends and being able to anticipate what lies ahead as well as marketing innovation has always been a hallmark of The Coca Cola Company, helping the brand evolve with time and keep in step with consumers’ changing lifestyles.
In 2006, Coca Cola introduced another innovative product – the Coca Cola Zero (Coke Zero). Cokes zero is now a part of the Coca Cola core family with Classic Coke and Diet Coke. Complementing these, and meeting consumers’ desire for new ways to enjoy the great taste of Coke, the company also introduced brand extensions such as Coke with Citrus Zest and Diet Coke with Cherry.
Selected Product Innovations
In this section, I will discuss some product innovations that Coca Cola introduced.
1. No-Calorie Drink (Coke Zero) – the introduction of Coke Zero was motivated by the increasing consumer demands for healthier products. Consumers are increasingly seeking more choices and order to keep up with the demands of the consumers and their lifestyles, Coca Cola launched Coke Zero. Coke Zero offers the same taste as Coca-Cola with no calories.
2. Calorie Burning Tea (Enviga) – as part of the company’s commitment to keep up with the changing lifestyles of the consumers, Coca Cola introduced a calorie-burning tea named Enviga in 2006. This product is intended to complement healthy lifestyles. By drinking three cans of Enviga each day, consumers can burn an extra 60-100 calories daily. This innovative product is added with a powerful antioxidant EGCG that speeds up metabolism and increase energy use, especially when combined with caffeine.
Reasons behind the Innovation
1. Changes in Customer Demands and Requirements (Lifestyles)
Changing consumer concerns, attitudes, and lifestyles have tremendous impacts in Coca-Cola. In the United States and in Europe, consumers are becoming more concerned with a healthy lifestyle. The soft drinks sector is threatened by the increase in consumer awareness of health problems arising from obesity and inactivity. In order to satisfy the new consumer demands and requirements, Coca Cola is introducing new products that compliments healthy lifestyles.
2. Expansion of Noncarbonated Category and Bottled Water
Noncarbonated drinks is a dynamic, fast-growing category. The growing demands for noncarbonated drinks is pushing soft drinks companies such as Coca-Cola to introduce noncarbonated drinks. The bottled water market is also expanding. The expansion and developments of these segments presents an opportunity for Coca-Cola. The company started its exploration of these segments and have been successful in creating new products.
3. First Mover Advantage
One of the reasons why Coca-Cola engages in product innovation is to gain first mover advantage. By being the first to introduce a product category, Coca-Cola is able to define competitive rules, to gain reputation advantage, to gain superior access to channels and inputs, to influence industry standard and to develop skills advantage.
4. Fill the Gaps between the Markets and Coca Cola’s Products
As customer demands and requirements change and as customers become more health conscious, a gap between the markets and Coca Cola’s products begin to surface. A new market has emerged composed of consumers who are health conscious and have a high demand for healthy products. Health reports emphasizing the possible negative health effects of Coca-Cola’s and other similar company’s products abound.
5. Growth in Emerging Markets
Coca-Cola is attracted with new emerging markets such as China, Russia and Brazil. In order to successfully penetrate these markets, Coca Cola needs to have a first mover advantage and to introduce differentiated products.
6. To Strengthen Brand Image
By introducing new products, Coca-Cola aims to strengthen its brand image as the home of quality beverages.
Internal Analysis
Current Growth Strategy
To compete in the global beverage market, Coca-Cola employs a differentiation strategy to create value for its consumers. The mission statement of Coca Cola reflects its growth strategy “To refresh the world. To inspire moments of optimism”.
1. Grow Core Global Carbonated Soft Drink Brands – Coca-Cola is seeking to expand its core brands in each market through immediate consumption opportunities.
2. Grow Other Core Brands – Coca-Cola is seeking to expand its profitable noncarbonated products such as coffee, energy drinks and sports drinks.
3. Create Customer Value – Coca-Cola employs different strategies for it to understand the customers’ needs and wants. Understanding its customers can help Coca-Cola in focusing different products to different markets.
Product Strategy
Coca-Cola practices a high degree of product adaptation and modification across every market it serves. Rapid product testing, and adaptation are the foundation of Coca-Cola’s product strategy. Coca-Cola performs product testing and development in each individual market. This is primarily because of the different market trends in every country. In order to compensate with the stagnating sales in the carbonated drinks category, Coca-Cola embarked on product development to widen its product offerings. With increase consumer interest in healthier drinks such as bottled water, fruit juice, energy drinks, ready-to-drink teas and coffees, the company has embarked on an ambitious program of product launches. Some of the recent popular product launches are:
1. Coke Zero – In 2005, Coke Zero was launched in North America. Coke Zero is a zero-calorie cola.
2. Coca-Cola with Lime – This was introduced in 2005 as a brand extension for Coca-Cola. Following the introduction of Coca-Cola with Lime is the launch of Diet Coke with Lime.
3. Enviga – In 2006, a delicious sparkling green tea containing green tea extracts, calcium and caffeine, Enviga was launched.
4. Gold Peak – In 2006, Gold Peak was launched in North America. Gold Peak is a premium ready-to-drink iced tea. With its fresh homemade taste, Gold Peak revives the timeless flavour of classic, authentic iced tea.
5. DASANI – This was launched in 2007. DASANI is a vitamin-enhanced flavored water. The line, with zero calories per serving, comes in three varieties namely Refresh+Revive, Cleanse+Restore and Defend+Protect.
Internal Processes
Research and Development
The company invests a lot of money on research and development in order to come up with innovative products. The continual improvement initiatives of the company aim to provide the company with competitive advantage. Product innovation is important in order to answer consumer’s search and desire for a variety of beverage varieties. Coca-Cola is pursuing a differentiation strategy by introducing innovative products that are sure to attract a wide variety of consumers. Recent additions to the company’s product range include Coke Zero, C2, Cherry Coke, Diet Cherry Coke, Vanilla Coke, Coca-Cola with Lime and Coca-Cola with Lemon.
The research and development activities at Coca-Cola principally involve development of new products, increasing the quality of current product portfolio, improvement and modernization of production process and implementation of the latest technology. Coca-Cola is committed to maintaining its leadership position in research and development for the beverage industry.
Market Research
Product innovation is imperative for a company such as Coca-Cola. New product ideas are generated through marketing research. Through marketing research consumer wants, needs, and requirements are identified and the trends in the industry are determined. The information that are gathered in the market research are then turned into new product ideas.
Production
Coca-Cola’s core operations consist of company-owned concentrate and syrup production. The company basically produces syrups and concentrates and then sells them to authorized bottling and canning operations that package and distribute the final product. Separate contracts, or bottler’s agreements exist between Coca-Cola and each of its bottlers regarding the manufacture and sale of Coca-Cola products.
Existing Competencies
The existing resources and competencies of Coca-Cola plays an important role in product innovation. First, financial resources are important in financing the new product innovation projects of the company. Human resources are also important in turning the new product plan into reality.
1. Size – Coca-Cola is a large company with an excellent distribution channels. These distribution channels are important in making sure that new products reach the consumers.
2. Brand Image – Established brand loyalty is important in making sure that the new products that Coca-Cola introduces will be supported by the consumers. Many consumers of carbonated beverages are extremely dedicated to a particular product, and rarely purchase other varieties. This stresses the importance of developing and maintaining a superior brand image.
3. Global Presence – Global presence is an important factor in the success of Coca-Cola’s product innovation.
4. Distribution – Superior distribution channel is a key success factor in product innovation as it enabled the company pt move the products from the manufacturer to the consumer efficiently.
5. Product Differentiation – Coca-Cola’s products are diverse in order to cater to different consumers. Healthy choices will be a source of competitive advantage for Coca-Cola. Being able to produce beverage that has unique and valuable characteristics for certain market segment like health conscious consumers is a potential source of competitive advantage for Coca-Cola.
Broader Context surrounding the Innovation
1. Industry
The state of the industry is one of the important factors in determining the strategies that a company will employ.
Threat of New Entrants
New entrants do not pose as serious threats to Coca-Cola. The soft-drink industry is primarily dominated by Coca-Cola and PepsiCo which have string brands and superior distribution channels. New entrants cannot compete directly with Coca-Cola.
Threat of Substitutes
Coca-Cola products can be substituted by bottled water, sports drinks, coffee, and tea. The increasing emphasis on health and healthy living makes bottled water and sports drinks a desirable substitute to Coca-Cola’s products. Consumers are becoming more health conscious and they are looking for healthier substitutes. There are a growing number and varieties of water and sports drinks that appeal to different consumers’ tastes. These products are marketed and heavily advertised as healthier than soft drinks.
Bargaining Power of Suppliers
Coca-Cola works with bottling equipment manufacturers and secondary packaging suppliers. Because Coca-Cola introduces new products frequently, tension between the company and its suppliers is building. Some bottlers are refusing to bottle new Coca-Cola products.
Bargaining Power of Buyers
The significant buyers of Coca-Cola and other soft drinks are mainly large grocers, discount stores and restaurants. The soft drinks company distributes the beverages to these stores for resale to the consumer. The bargaining power of the buyers is high. Large grocers and discount stores buy large volumes of soft drinks allowing them to buy at lower prices.
Competitive Rivalry
The competition that Coca-Cola faces from its rivals is the greatest challenge to the company. Coca-Cola, PepsiCo, and Cadbury Schweppes are the largest competitors in the soft drinks industry with global presence. PepsiCo is the main competitors for Coca-Cola and the rivalry between these two brands is more than a century-old.
2. Industry Life Cycle
Industries according to (2000) have life cycles. Industries, like products progress through their life cycles and as they do so the nature of competition and consumer demand changes. The soft drink industry is a mature industry that is experiencing change.
3. Competition
Perhaps a big reason why Coca Cola continues to implement product innovation is because of the intense competition in the non-alcoholic beverage industry. In order to remain competitive and to maintain its leadership position, Coca Cola introduces innovative products that create value for the customers and shareholders.
The nonalcoholic beverages segment of the commercial beverage industry is highly competitive. Coca Cola competes with major international beverage companies that, like Coca Cola operate in multiple geographic locations, as well as numerous firms that are primarily local in operation. In order to withstand competition form numerous rivals, Coca Cola uses its resources in creating new products.
4. Role of National and International Institutions
As a company that operates in more than 200 locations around the world, national and international institutions such as government bodies have significant impact on Coca-Cola’s product innovation. Changes in laws and regulations relating to beverage and packaging could increase costs and reduce demand for the company’s products. Another area where national and international institutions influence the company is through health issues. Over the years, there have been a growing concern over health and the possible health risks that Coca Cola’s products carry. One main concern is the impact of Coke and similar products on Obesity particularly in Children. In order to address health issues, the company has developed products which complements healthy lifestyle. Innovative products such as Coca-Cola Zero and Enviga have been introduced.
Credit:ivythesis.typepad.com
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