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Business Policy and Strategy Project -

Choose one Multinational Corporation (Coca Cola) to analyze its strategic situation, assess the strategy implemented, and evaluate the financial and operational result.

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Answer -

Introduction

Coca-Cola is considered as the leader in production, marketing and distribution of non-alcoholic beverages. It was founded in the year 1886 and since then the products are sold in the United States. Presently, it operates in more than 200 countries which is supported by a global distribution network and supply chain. The headquarter is located in Atlanta, Georgia (Serôdio, McKee, & Stuckler, 2018). There are approximately 30000 employees looking for the company all around the world. The beverages available under the brand include sparkling soft drinks, and enhanced water, juice, sports drink, and energy drinks. It owns and markets the best non-alcoholic beverage drinks including Coca-Cola, Coca-Cola Zero sugar, Diet Coke, Sprite, and Fanta. It uses the branding strategy of "taste the feeling" to make its customers feel the relaxing sensation. According to the report, more than 70% of the brand's volume and 80% of profit comes from outside of the U.S (Gersen, & Hemphi, 2019). In 2017, it was revealed that the net operating revenue the company has decreased, which has an adverse impact on its acquisition and divestitures of the investment in bottling on the net operating revenue (Li, S., Jiang, C., Wang, Cong, & Tan, 2018).

Outline of this report

The above section gives an introductory background for the Coca-Cola Company and illustrates the market positioning as well as competitive image. In the present report, the objective is to analyze the strategic situation of this company by using tools such as SWOT analysis, PESTLE, and Porter's five forces analysis. Further, the strategy implementation weas analyzed with respect to cost leadership, product diversification, marketing strategies, and efficiency enhancement by reducing the overhead expenses. In addition to this, analysis mermaid also on financial and operational procedures such as the partnership with third-party companies, cash flow, and strategies for gaining competitive advantages. Finally, the report is concluded with a summary of important findings.

Analysis of the strategic situation of Coca Cola.

The strategy of the situation of coca cola can be analyzed but evaluating its SWOT analysis, PESTEL analysis, and Porter's five force analysis.

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SWOT Analysis:

Internal Factors

Weight

Rating

Weighted Score

Comments

Strengths





  • Global brand image

.15

5.0

.42

Connected with youth customers and concerned with ethical and customer-friendly activities.

  • Global presence

.05

3.7

.35

Global presence in more than 200 countries with a high level of popularity.

  • Efficient distribution network and supply chain

.15

3.9

.20

Helps in reducing manufacturing costs

  • Large customer base

.20

2.5

.35

Spent huge money on building customer loyalty

  • Excellent marketing capability

.10

3.5                

.31

Marketing expenditure in 2017, which is 3.9 billion dollars (Allen, 2015)

Weaknesses





  • Criticism

.15

4.1

.25

Issues related to Water Management

  • Diversified workforce

.05

3.1

.15

Lawsuits against the company

  • Declining profit

.15

3.9

.21

Net profit has been declined steadily

Total Score

1.0


2.24


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External Factors

Weight

Rating

Weighted Score

Comments

Opportunities





  • Brand expansion

.10

3.2

.62

Partnership with fast food or food brands

  • Supply chain digitalization

.15

4.1

.47

Increase productivity and decrease manufacturing cost

  • New technologies in marketing strategy

.10

1.2

.35

Artificial intelligence

  • Healthy brand

.15

3.2

.15

Health-friendly products

Threats





  • Competition

.15

4.3

.25

Affect its net annual revenue

  • Increase in raw material cost price

.20

3.5

.10

Higher manufacturing costs

  • Regulatory laws

.15

3.1

.15

Environmental conservation laws

Total Score

1.0


2.09


A global presence in 200 countries leads to a high level of popularity for the brand. It mostly focuses on digital marketing and advertising for customer engagement. The company has to handle a diversified workforce in each nation where it operates. In the year 2012, 16 workers filed lawsuits against the company for discriminating them on the basis of race. At present, to mitigate the water crisis-related issues, it is investing a huge amount for water conservation. For the past few years, its net profit has been declined steadily. In 2016 the gross profit was $25.4 billion and it reduced to $22.15 billion in 2017. (Renz, & Vogel, 2016).

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PESTEL Analysis

Political: In the recent period, the European Union (EU) has imposed several strict policies and regulations on the beverage industry for the protection of consumer rights. The trade relationship of the United States with other nations can also affect business. Coca-Cola operates under FDA prescribed rules and regulations (Bragg, Roberto, Harris, Brownell, & Elbel, 2018). Political instability also restricts economic and financial growth. Since Coca-Cola is a global company and any political disruption can weaken its distribution network and supply chain.

Economic: during the recession, there was a steep decline in economic activity. This was the result of reduced consumer spending on international brands. However, with the over of this period, consumer achieved higher dispensable income and again started to spend on food and beverage products.

Socio-cultural: changing social trends worldwide also affects the social image of the business. For instance, in Japan, it provides more than 30 alternative flavours to appeal the Japanese customers (Dekhil, Jridi, & Farhat, 2017). However, in America customers prefer to swabs sugary beverages to teas and water. Hence, there is a need to provide a healthy alternative for the American public.

Technological: It has implemented advanced masonry for making better and high-quality products. What instance, in Britain it has installed a missionary which helps in quality product development and fast delivery. Moreover, it has successfully used the social media platform to connect with the present audience.

Environmental: the brand is not only focusing on environmental conservation but also producing low carbon footprint. It has become more important than ever to comply with the existing environmental laws.

Legal: Coca-Cola has employed compliance teams for taking care of the compliance-related issues in the global markets. They manage issues from product quality to labour by abiding with legal regulation.

Porter's five force analysis

The threat of new entry: It is often considered that the barriers for entry to the beverage industry are low. It is because there are zero capital requirements and no consumer switching cost. For this reason, new competing brands are increasing in the soft drink market with almost close prices as that of Coke products.

The threat of substitution: There exist many kinds of soda or drinks or juice in the current market. Moreover, Coca-Cola doesn't have any distinctive flavour. It is evident that in a blind test, the customer cannot differentiate between Coca-Cola and Pepsi.

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Buyers power: The individual buyers do not put bargaining pressure on Coca-Cola. On the contrary, the bargaining power of a superstore like Walmart is high due to the large quantity order. However, the existence of high-end customer brand loyalty, the bargaining power is minimum for such superstore also (Linnander, Yuan, Ahmed, Cherlin, and Talbert-Slagle, 2017).

Supplier power: The major constituents for the non-alcoholic beverage includes carbonated water, sweetener, phosphoric acid, and caffeine. The suppliers of these products are not differentiated either concentrated and Coca-Cola is one of the largest customers for them (Jones, & Comfort, 2018). For this reason, Coca-Cola has high bargaining power on these suppliers.

Competitive rivalry: At present, Pepsi is the prime most competitor of Coca-Cola. Pepsi also holds a wide range of beverages products under its brand. Apart from this, there are also some other carbonated beverage brands in the market that offer unique flavour and are a potential competitor in the future.

Assess of the strategy implemented

Coca-Cola as an organizational design that is divided into two operational groups, Bottling investment and corporate. It holds the mission of refreshing the world, inspiring optimistic and happy moments, and to make a difference. The primary strategy of the company is to create differentiation by using its distinctive products and brand image. There is a continuous process that monitors and analyzes the business as well as its strategic implementation.

In conjunction with the product diversification, it is able to sustain its business growth through diversification in the product as well as marketing strategy. It is considered as a Pioneer brand having hidden formulation for product diversification. According to the customer trend, they add value to the core product, which is a soft drink. As per the demand of health-conscious Americans, it has introduced Coke Zero Sugar and the Coke Diet (Jackson, & Singh, 2015). It has converted itself into a soft drink brand that offers a regular soda, a decaffeinated soda, a diet soda, and a diet decaffeinated soda. Each type of beverage is directed towards segments of the soda market. For this purpose, the company ensures that each of its product portfolios is linked to the brand logo and thematic image.

Likewise, cost leadership is also another important consideration that must be discussed in this context. With this strategy, it aims to become the low-cost soft drink producer in the beverage industry. Most of the market segments emphasize and prefer low-cost drinks. The fixed selling price of Coca-Cola is equal to the average price for the market, which makes the company enjoy the best profits. It has used both its brand image as well as a cost leadership strategy to expand the business in the US and abroad. Investment in the research and development (R&D) section and marketing department. A healthy business the quest continues investment. Recently, the company had increased its investment by more than $250 million on media advertisements (Ciafone, 2019). It has also invested across its expansive beverage portfolio. It has also expanded the countrywide distribution of "fairlife ultrafiltered milk" in the US. In 2015 it started its first marketing campaign at a global level to support the brand logo of Coke, Coke zero, diet Coke and Coca-Cola life (Jackson et al. 2015). With this strategy, it promoted "one brand" objective having calories, fewer calories, no calories, and with and without caffeine.

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Another consideration is to refocus on the business model. Currently, the brand has an expansive portfolio that constitutes more than 500 brands, such as sparkling beverages, sports drinks, juices, coffee, tea, Juice drinks come out water, dairy products, and enhanced hydration drinks (Ciafone, 2019). One of its core competency is Coca Cola independent bottling partners, which improve performance and optimized manufacturing and distribution system.

Efficiency through cut costs is although considered as a useful strategy to reduce the overhead cost, however, it also leads to deterioration in market standard as well as reducing in the competitive positioning for the company (Bragg, Roberto, Harris, Brownell, & Elbel, 2018). For instance, the company tried to increase its productivity and efficiency while minimizing costs. The "zero-based work" approach was adopted in which the organizational budget starts from zero and it should be justified annually. It also reduced spending on non-media marketing such as in-store promotion. New ways of saving from the global supply chain were also identified (Jackson & Singh, 2015).

Evaluation of financial and operational result

Based on the strategy adopted for the last few years, the financial report of coca cola showed strong financial and operational results for the third quarter of 2018. The report suggests that the net revenue for the quarter declined by 9% to $8.2 billion, due to bottler franchising. However, the company delivered strong growth in the organic revenue (non-GAAP) by 6% which was possible with revenue growth management initiatives as well as continued innovation in the sparkling soft drinks (Serôdio et al. 2018). It was evidenced that there is a worldwide huge volume growth for the production of Coca-Cola Zero Sugar. Apart from sparkling soft drinks, its other associated brands like smart water and fuse tea also showed strong performance in the market. The unit case volume increased by 2% and which was positioned by the Coca-Cola brand. The operating margin also expanded by 600 basis points approximately (Ciafone 2019). The X operating margin (comparable) or non-GAAP raised by basis points of 575 which was possible from a subsidiary of low margin bottling operation. Furthermore, the company also achieved considerable value share in the Non-Alcoholic Ready-To-Drink beverages. The cash flow declined by 7% which was earlier $5.5 billion. This decline was the result of re-franchising bottom territories of North America as well as an increase in tax payment (Ciafone, 2019). It has also altered some of the key leadership and managerial positions such as chief operating officer and president. During this quarter, it also announced the expected acquisition of Costa limited to be held in 2019. The acquisition will provide the ability to enter the global coffee platform of $500 billion. In the US market, smart water will be available in two more variations, smart water antioxidants, and smart water alkaline. These newly introduced products will be able to satisfy the hydration requirements of US customers. It also announced a strategic relationship with another company - "BODYARMOR" (Gersen, & Hemphi, 2019). This strategic relationship with BODYARMOR, which is also a leading beverage brand, will help Coca Cola to expand its hydration portfolio including vitamin water, Powerade, and smart water.

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Conclusion

As the leading beverage company, Coca-Cola needs to continuously improve to maintain leadership in the market. It should focus to find an alternative way to resolve the water management crisis. For this purpose, it can invest in the development and construction of water desalination plants for long-term benefit. Further, to differentiate itself from its competitor, especially Pepsi, Coca Cola should make its flavour unique. Instead of only focusing on American customers, it should also invest in emerging markets like India and China which have significant growth opportunities. Finally, the sustainable development of the company will not only increase customer preference but also help in cut costs. In this context, it should use environmentally friendly packaging material and focus on efficient energy consumption.

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