External Analysis of Coca-Cola

Trident University Matthew J. Vallero Strategic Management, Module 2, Session Long Project External Analysis of Coca-Cola Dr. Michael Garmon

External Analysis of Coca-Cola As in all facets of life, competition is a formidable factor that determines how things are

done. Businesses are subject to this rule and those that are able to adapt and overcome to outside factors are able to survive while those that are not perish. Michael Porter discovered this and developed an analysis tool to better identify these external contributing factors to the market. Aptly named the Five Forces, he determined that competition is no longer between two companies it is a conglomeration of numerous outside elements. These elements are the intensity of rivalry among competitors, the bargaining power of the suppliers, the bargaining power of customers, the substitutes against the market and the barriers of entry into the market. The strength of each of these forces can be accessed as being low, medium or high and determine the opportunities or the threats a corporation faces when in a market. Using this analysis tool gives insight to the capabilities of the Coca Cola company. Intensity of rivalry among competitors - High Within the global, regional and local beverage market, there are several competing corporations. The main competitors of note are Coca-Cola and Pepsi. Both corporations have been around for over a hundred years and as such have created a very intense rivalry. This intense rivalry is one of the greatest external barriers that a new beverage corporation would face when attempting to enter the beverage market. Coca-Cola and Pepsi have been the major players within the beverage market for over the past 100 years, edging out other colas such as RC Cola creating a legacy of brand loyalty (Clark, 2011). Bargaining power of the suppliers Low When analyzing a market, one of the simplest things that a strategic planner can do is to search the necessary supplies that it takes to make the product that a corporation will sell. In the beverage market, the same ingredients appear on the label of Coca-Cola as many of the

External Analysis of Coca-Cola competing products: aspartame, cocoa, cane sugar, high fructose corn syrup, flavorings, natural spring water as well as the necessary packaging materials that the final product needs to go in (Coca-Cola, 2011). Several factors diminish the power of the suppliers including the commonality of ingredients, the substitution of ingredients, the globalization of the supply market and the number of suppliers. Since these commonly found ingredients are used not only in the beverage market but the food industry, there are large numbers of suppliers of these particular ingredients. If a particular ingredient was too expensive or unavailable, an alternative ingredient can take its place without drastically changing the product. As a globally operated corporation, Coca-Cola is also able to keep its supplies of raw materials high because it can purchase them where they are prevalent. The large number of suppliers means that Coca-Cola has numerous choices when deciding on who to buy from which means that the suppliers have limited power in the beverage market competition. The only way that the suppliers can increase their footprint on this market is if they reduced their competition. Bargaining Power of Customers - Medium

Although Coca-Cola has been selling its product for the past one hundred and twenty five years, the bargaining power of its customers is at a medium level as an external factor that the corporation faces. This is apparent because of the numerous Coca-Cola products that are available, as well as the quantity that they want. In response to consumer demands, Coca-Cola has adjusted the size of its containers to provide on the go refreshment (Newswire, 2005). The longevity of Coca-Cola over the last century is a testament to its staying power. Consumers of this particular market have a significant amount of brand loyalty. Due to the brand loyalty of its consumers, the brand has lasted generations.

External Analysis of Coca-Cola The availability of Coca-Cola products comes through several channels including

independent distributors such as restaurants, convenience stores, vending machines and retailers. Retailers provide the largest symbiotic relationship for Coca-Cola as the retailers need the product to bring in customers that may end up buying several different products. Vending machines provide a profitable means for Coca-Cola to sell its product as they have an established price upon their product and they do not have to pay any overhead for each location. Finally, restaurants and convenience stores provide means for the consumer to purchase Coca-Cola products. Coca-Cola is able to sell concentrated syrups to these locations and they would have to provide the carbonated water to mix into the syrup. This means that Coca-Cola can cut the cost of the water yet still sell the concentrate and receive larger profits. Substitutes in the Market-Medium In the beverage market, there are many choices to whet your whistle. Several substitute drinks are available as a substitution to soft drinks. These substitutions vary from classic coffees and teas to exotic sports and energy drinks. Substitutes threaten the soft drink market as consumers that choose not to drink the overly sweetened beverages in response to reports of their causes of obesity (Conniff, 2010). In addition to the soft drinks Coca-Cola is known for (CocaCola, Diet Coke and Sprite), Coca-Cola expanded into this realm of substitute drinks (Full Throttle Energy Drink, Nestea and Natures Own water) (Coca-Cola, 2011). To change this threat into an opportunity, Coca-Cola diversified and created these subtitutes. Barriers to entry into the market-High In the beverage market, Coca-Cola holds a significant share of the beverage market. This gives Coca-Cola significant advantage in creating an extremely high barrier for others to enter the market. The marketing ability that Coca-Cola holds is significantly greater than any startup

External Analysis of Coca-Cola company and therefore has a great deal of power within the market as it holds approximated estimate of half of the $150 billion worldwide drink market (Bloomberg News, 1998)

Consumers associate with the Coca-Cola brand through the memories that it brings (for example, sharing a Coke with a long lost Grandparent) which is something that a startup corporation cannot replace. Coca-Cola also has a unique appeal to Americana and therefore corporations outside of the United States find it difficult to move within the market. In addition to the Porter Five Forces analysis, a strategic planner when looking at the Coca-Cola Corporation can accomplish a PEST analysis. A PEST analysis is determining the external political, economic, social and technological barriers too entering the beverage market. Political - Low The most significant political barrier that a startup beverage corporation would have to undertake is knowing the applicable laws regarding the manufacturing of soft drinks. Not understanding or adhering to these laws threatens the creation of a new entry in this market. In the United States, this information is provided through the Food and Drug Administration. Knowing and adhering to the laws of the country that a beverage corporation is attempting to import to, creates an opportunity for that company. Economic - Medium Economic considerations are a large part of deciding on entering a market. Coca-Cola is a multi-billion dollar corporation that can use this capital for the advancement and manufacturing of its products (Coca-Cola, 2011). The startup costs of creating a new beverage may be low but marketing it against a giant corporation such as Coca-Cola makes it a medium sized barrier. Social High

External Analysis of Coca-Cola

As described above, your drink of choice has large social implications about who you are. Coca-Cola and its rival have established themselves as the prominent corporations in the beverage industry and drinking anything but can make you a social outcast. This creates a significantly high, if not the highest, barrier to entering this market. Technological advances - Medium In response to the growing fascination of the online world and wanting to keep its brand loyalty going strong, Coca-Cola has done multiple things on the internet. Although a consumer product, it decided to continue to reward its customers for drinking its product by offering them incentives. Through the online Coke Zone, repeat customers that acquire multiple codes from drinking their products are able to receive incentives for using their product (Shearman, 2011) This is a positive embrace of the technological product advancement. Playing off of the social aspect of product loyalty, Coca-Cola capitalizes off of embracing technology.

External Analysis of Coca-Cola References

Bloomberg News. (1998, May 13). Virgin Cola Unvieled on Coke's Home Turf. The Record. Retrieved from: http://proquest.umi.com/pqdweb?index=2&did=29438357&SrchMode=1&sid=9&Fmt=3 &VInst=PROD&VType=PQD&RQT=309&VName=PQD&TS=1324968608&clientId= 29440 Clark, N. (2011, June 22). The New Pepsi Challenge. Marketing. Retrieved from: http://proquest.umi.com/pqdweb?index=0&did=2402959901&SrchMode=1&sid=3&Fmt =3&VInst=PROD&VType=PQD&RQT=309&VName=PQD&TS=1324962320&clientI d=29440 Coca-Cola. (2011). Beverage Ingredient glossary. Retrieved from Coca-Cola.com: http://www.beverageinstitute.org/en_US/pages/glossary.html Conniff, R. (2010). How a Fat Nation can Slim Down. Men's Health. Retrieved from: http://www.menshealth.com/weight-loss/american-slim-down/page/3 Newswire, C. (2005). Coca-Cola goes mini... wit its Coca-Cola Classic, Diet Coke and Sprite. Canada Newswire. Retrieved from: http://proquest.umi.com/pqdweb?did=805557481 &sid=5&Fmt=3&clientId=29440&RQT=309&VName=PQD Shearman, S. (2011, January 19). Coca-Cola to relaunch online loyalty scheme. Marketing, 1. Retrieved from: http://proquest.umi.com/pqdweb?index=3&did=2274088271&SrchMode=1&sid=6&Fmt =3&VInst=PROD&VType=PQD&RQT=309&VName=PQD&TS=1324966288&clientI d=29440