Change Pattern in Market Model: A Contextual Analysis of Coca Cola Company

Introduction

A business market is made up of all the organizations that buy goods and services for the purposes of use in production of other products and services that are rented, supplied or sold to others. It is crucial to note that the core of any business is what it sells. A business will invariably sell legal rights either in terms of ownership of asset or the sale of the right to use an asset. Defining a business model acts as an exceptional predictor of financial performance which is fundamentally in terms of profit and market value. Companies in market model strive to be competitive in selling their goods and services in the marketplace. Competitiveness thus forms a significant aspect in the determination of whether a firm will prosper, fail or barely get by. It is through a composite of marketing and operational functions that business organizations compete. A basic input in an organization’s decision making process is identification of consumer wants and needs which is a considerable underpinning to competitiveness. In addition, price control as well as advertising and promotion forms the prime factors in influencing the consumers buying decisions. This paper seeks to evaluate the market industry in which Coca Cola operates and highlights the key factors that affects the market model and the company’s competitive advantage.

Coca Cola and Soft Drink Industry

Acknowledging that an assortment of impressive industrial advances has increasingly made global business easier and effective, together with the fact that efficient airline transportation have served to make the business world become gradually smaller, it is pertinent to note that such market forces have indeed had an influence on the way Coca Cola operates its business in the soft drink industry. Assessing the apparent competitive forces can aid a Coca Cola as a company in venturing out a position in its respective industry that is less susceptible to attack.  This is helpful in determining how structurally attractive an industry is and seeks to illuminate on Coca Cola’s relative position within the industry in question. It is vital to note that the ultimate profit potential of an industry is subject to the collective strength of the industry forces (Puravankara, 2007).  . Every industry has structural underpinnings in terms of a set of fundamental economic and technical characteristics that result in the competitive forces.

The soft drink industry is essentially made up of two primary manufacturing systems which distinctly are; the flavoring syrup and concentrate manufacturing and the soft drink manufacturing. The supply chain of this market model depends significantly on the syrup producer. The soft drinks business involves a life cycle that moves from syrup producers, to bottling, distribution, to merchants through to final consumers (Deichert et al., 2006). Generally, the industry in its entirety is confronted with challenges resulting from slumping economy as well as variations in consumer’s consumption patterns which lately are subject to an enhanced health consciousness among the public.

The US Flavoring and concentrate manufacturing sub-industry of the soft drink market is dominated by two major players who represent a 73% of the total US market. These players are Coca Cola Company, taking up 40%, and PepsiCo. represents a 33% of the market share. The remaining 27% of the soft drink industry is taken up by the smaller companies. The other sub-industry which is the Soft drink manufacturing is dominated by Coca Cola (28.6%), PepsiCo, Inc (26.8%) and Dr Pepper Snapple Group (806%). Other small companies represent the remaining 36% of the market share.

The flavoring Syrup and concentrate manufacturing industry generated a revenue of 1.4 billion dollars by 2010 and it is expected that the industry grows at a rate of 1.4% yearly, however, the industry is projected to increase with a 0.8 % by the year 2015. On the other hand, the Soft Drink Manufacturing Industry is valued at 47.2 billion US dollars in the United States in terms of revenue.  The annual growth of the industry was placed at 1.8 % between 2005 and 2010 while it is projected that the industry will maintain this growth rate in the period between 2010 and 2015. The products of the industry are generally referred to as soft drinks. However, the products can further be subdivided into six main product segments. These segments are; Carbonated Soft Drinks, Fruit beverages, bottled water, functional beverages, Sports drinks and others (Puravankara, 2007).  .

Coca Cola Company is a leading manufacturer, marketer and distributer of soft drinks concentrates and syrups. The company owns over 500 brands spread across all categories the soft drinks. With its headquarters in Atlanta, Georgia, the company sells its syrup and concentrates to a number of contracted independent bottlers which in turn produce, bottle and distribute the soft drinks final products. The North American business segment consists of the company’s operations in the United States, Canada, Puerto Rico, the Virgin Islands, and the Cayman islands. The segment operates three business units: sparkling beverages, still beverages, and emerging brands (Deichert et al., 2006). The North American business segment owns and operates nine still beverage production facilities, 10 principal beverage concentrate and syrup manufacturing plants, and four bottled water facilities; leases one bottled water facility; and owns a facility that manufactures juice concentrates.

 

General Pattern of Change of Soft Drink Market Model

The market model in the soft drink industry has undergone a number of significant changes over the past half decade. A major significant encounter in the industry has been the building pressure from government regulation as regards advertising directed towards children of 12 year of age and below. Although some companies still direct a portion of advertising to children, these companies have agreed to promote more healthful messages in their advertising. Regulation involves the imposing of certain requirements by the government on private firms and individuals in a bid to achieve set government’s purposes in the market (Deichert et al., 2006) .  Regulation seeks to allow the provision of cheaper goods and services, protection of existing companies and firms from unfair competition, provision of safer products and workplaces among others. Regulation falls into two broad categories namely; economic and social regulation. Social regulation involves the government’s lookout on the safety and quality of goods and products. In addition, social control deals with superintending the conditions under which the goods and services are manufactured.

The other noteworthy challenge fronting the soft drink industry is finding out a better way to address the public’s concerns over diet as well as the overall health and wellness. With a growing majority of the public concerned with these issues, there is a rising demand for products that address these needs and for marketing messages that convey the benefits of these products to consumers. All segments of the soft drink industry have been working to develop products to meet these needs and differentiate their brands from the competition.

Subsequently, the industry has been adopting new forms of media marketing and promotion employing the internet and social media platforms to reach out to consumers. Coca Cola has a dedicated website that has been designed with the target consumer audience in mind. The Coca Cola website provides to the consumers, additional information, promotions, and interactive opportunities (Puravankara, 2007).

Competitive Forces of Coca Cola Company

The soft drink industry has remained very competitive for all the companies involved. The greatest notable competition has been from rivalry exhibited by major sellers in the industry (Lima, 2006).  All these soft drink companies have to appreciate the effects of pressure from rival players, substitute products, new entrants to the market, buyers and suppliers. Coca Cola, Pepsi, and Cadbury Scheppes are the main competitors in the industry. All these major competitors are well established globally which translates into a great competition. Coca-Cola owns four of the top five soft drink brands (Coca-Cola, Diet Coke, Fanta, and Sprite). However, it had lower sales in 2005 than PepsiCo (Murray, 2006). Nonetheless, Coca-Cola has higher sales in the global market than its biggest competitor PepsiCo.

It should be noted that the brand name loyalty has proven to be another major competitive pressure. This has compelled the rival companies to create new varieties of soft drinks in a bid to improve sales while ensuring they capture the attention of new consumers. In the soft drink industry, new entrants are not a major competitive pressure. With the view that Coca Cola and Pepsi dominates the market both companies having strong brand names and exceptional distribution channels makes the threat of new entrants minimal. Additionally, the industry can be take to be saturated which means that market growth is small. Consequently, it has become challenging for new entrants to penetrate the market and leaves the competition between the two major players.

Oligopoly in the Soft Drink Industry

The Soft Drink industry is characterized with market oligopoly. Oligopoly is a market structure that is characterized by competition among small number of large firms having huge market power. In the soft drinks industry market structure Company’s derive their market powers from barriers to entry thus only a small number of firms compete with each other. The market has few interdependent firms that change their prices subject to changes by their competitors (Waddams, 2011). In addition, the market structure in oligopoly is characterized by similar products but differentiated by competing firms and imperfect knowledge on best price and availability. Firms resolve to use product differentiation in a bid to enhance their capacity to set prices (Corchon and Marcos, 2010), which leads to products of a firm becoming more inelastic.

Coca Cola Company has maintained the reputation being of one of competitive international soft drink company having expanded its market penetration to all the main geographical locations around the globe. This has earned the company a broad base portfolio and in turn ventured in offering a wide spectrum of soft drink beverages. With the current strong soft drink market in Asia, Coca Cola is aware that the region will in the near future account for more than a quarter of the worldwide soft drink consumption.

Conclusion

Trends from macro-environment are the major key factors in the market model changes in the soft drink industry. For a company to be successful, it has to be cognizant of consumer needs and wants while ensuring they maintain the ability to adopt following changes in the market model. The size of the company is also a key aspect when it comes to determining market share in the soft drink industry. Coca Cola, as a large distributor, has the ability to negotiate with school systems, universities and stadiums giving them the benefit of being exclusive suppliers for specified events and period of time. The established brand loyalty is a chief aspect in the soft drink market. Statistics have indicated that most consumers of carbonated soft beverages are extremely dedicated to Coca Cola brands without the opting to purchasing other varieties.

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