The soft drink industry has become a very competitive industry in the past two decades. It has shown a huge shift in the market model in the recent past, with the major companies in the market seeing their market share take a significant drop due to the entry of other companies into the market. The soft drink industry has of late shifted from a monopolistic into an oligopolistic kind of market competition. This paper will look to analyze this market, in particular the Coca-Cola Company and how the shifts and changes in the in the market models have affected the company’s operations and competitiveness within the market.
The Coca-Cola Company is the world’s leading soft drink company. The Coca-Cola Company is publicly traded and listed in the NYSE (New York Stock Exchange) under the ticker symbol “KO”. The Coca-Cola Company is of American origin, based in Atlanta, Georgia, and this beverage company manufactures retails and markets non-alcoholic beverage syrups and concentrates. The company currently markets and owns 500 brands boasting a major market share in over 210 countries.
The beverage company has, in the recent past seen a rejuvenated competition, however between major companies in the world. The market has of recent, due to many factors, seen major companies gain a significant global market share, changing the landscape of the market from a monopoly to oligopoly. This is because the major global market structure of the non-alcoholic company contains a small number of relatively large firms. This is further influenced by the several barriers to entry into the market for other firms. Several factors have led to this change, with the major one being the recent surge in the need for healthy drinks. The 21st century need for a healthier lifestyle and diet amidst increasing cases of terminal illnesses triggered by unhealthy lifestyles, has led to major companies capitalizing on healthy non-alcoholic beverages.
This change in the landscape of the market model has caused the Coca-Cola Company extending the scope of their products beyond the carbonated drinks. The introduction of “Minute Maid” in the African market has seen the company attempt and successfully retaining their market share within the region. The company has had to purchase and construct other plants specifically designed for the product of these healthy non-alcoholic beverages and embark on an aggressive marketing strategy to retain its market share.
In this kind of competition, i.e. oligopolistic competition, The Game Theory best explains the short-run and short-run behaviors of the companies involved. Basically, the Coca-Cola Company, being the leading company in the industry, will seek to set a series of strategic moves that the other companies will seek to counter. The company will have the luxury to change product prices as it suits the external and internal economic and financial conditions surrounding the company. The company will be profitable in both the short-run and long-run as it can choose the level of output that the company so wishes to achieve. However, this is between the level that a monopolistic and competitive producer would set. Even though most companies involved in an oligopolistic market would seek to create a cartel by setting a unified and standard price for their goods in the market, The Coca-Cola Company would not resort to this strategy. This is because the company has the largest global market share, with the widest range of beverages that ensures that the company sets its own prices that the other competitors seek to counter. Economies of scale favor the Coca-Cola Company.
This is evident in the way that Coca-Cola Company competitors tend to react to prices set by the Coca-Cola Company. Furthermore, Coca-Cola has taken the franchise to another level with most of its brands being associated with sports. For example, its main brand, the Coca-Cola beverage is associated with football/soccer and the Sprite beverage is associated with basketball. The competitors such as Pepsi are trying to counter this by having their Pepsi Cola beverage being associated with X-Games. These are however a sports that are only played in the United States and Europe and have very little following.
The elements of the potential of competitiveness in the beverage industry are influenced by three major factors. Firstly proximity to the raw materials naturally reduces the operational costs. Transportation of raw materials from their source(s) reflects on the price of the end product as it naturally does during the value adding process through which the commodity goes through. The Coca-Cola Company strategically places its plants in areas close to the raw materials it requires. Even though the formulas for its products are a company secret, the major components such as cola and sugar are openly known to influence the location of plant locations all over the world. In Africa, most of the Coca-Cola company plants are located close to sugar production regions to reduce production costs incurred from transportation of raw materials.
The access to state of the art technology to ensure optimum output at minimal costs ensures a low production cost, translating to a competitive priced commodity ensures a good competitive advantage. A well balanced but aggressive marketing strategy comes in handy in creating a global perception of the finished product. Coca-Cola’s aggressive marketing strategy such as sponsoring global sports activities gives it the competitive edge over its competitors.
It is therefore safe to conclude that three factors define the extent of a company’s competitiveness in the beverage industry; technology indicators, productivity and price and cost competitiveness.
The two major global competitors for the Coca-Cola Company would have to be PepsiCo and the Dr. Pepper Snapple Group.
Pepsi have been the fiercest of Coca-Cola’s competitors, especially in the United States. The company’s major brand, Pepsi-Cola, has a great resemblance to Coca-Cola’s chief brand, Coca-Cola (Coke). However, the two products still do have difference ion taste. Pepsi have been involved in a price war with Coca-Cola with Pepsi opting for a premium pricing approach where they package their beverages as a quality, high-end product. However, over the years, over and over again, they have been forced to adopt the competitive pricing approach in order to try to increase their market share and increase competitiveness.
The Dr. Pepper Snapple group have been playing third fiddle for a long time in the battle for supremacy in the beverage industry. However, unlike PepsiCo, the company has resigned itself to skim pricing. Here the company has chosen to approach the top level market segment by introducing a quality product for a select client base.
The Coca-Cola Company would use and probably should use the Economy Pricing strategy. Here the company sets a no frills low price. This is possible with the company having the significant economies of scale advantage over the rest of the competition. With over 200 brands spread over 210 countries, the company can afford to sell its products at a lower price than the competition and concentrate on mass production that is enough to satisfy its immense client base.
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