Strategic Management - Case Discussion

CASE DISCUSSION QUESTIONS

Case 1: Coca-Cola in 2011: In search of a new model

1. What are Coca-Cola’s competitive advantages?

Large Scale – the world market leader in soft drink industry.

Strong brand business – the value of the business is in the brand

Pricing power – Capability to respond to market changes

Secret Formula – unique customer satisfaction

Marketing strategy – well-known in effective and creative advertisement

1. What are the biggest challenges facing Coke today? How serious are those challenges?

Price sensitive - The 2009 recession makes consumers more price-driven. The low price charged by private brands put pressure on Coke.

Technological change (Internet) – They have to inspire new marketing effort for Brand building by. Instead of the traditional method (TV advertisement, billboard), social media should be the major platform of promoting product.

The technical changes required in engaging in still beverage products are also a challenge. Production of still beverage products involves a process of “hot-filling”, which is different from traditional “cold-filling”.

Competition in coke’s own system is another challenge. There are plenty of choices of cokes for consumers in convenience store, including bottlers’ product, coke’s own product and the fountain. This weakened the profit.  

The franchise contract with bottlers is also a challenge. The agreement granted the bottlers exclusive rights and any request by Coke may not be handled. Coke has lost control in the distribution channel in North America. For instance, some bottlers sued Coke for interfering their right when Coke approached them and request for the promotion of new drinks.

Health issue leads to popularity of still beverage. Selling soda is not enough (Changing taste preference by anti-obesity campaign, active lifestyle movement). Carbonates soft drinks represented 76% of Coke’s global volume. Product diversification is needed (Tea, coconut drink)

Environmental concern about packaging and bottling material

Rising commodity cost and transportation cost.

1. What were the pros and cons of buying CCE – the largest acquisition in Coke’s history?

Pros

Economies of scale – can resale part of the total facilities the combined company owns, the income can be re-allocated to the manufacturing aspect based on the customer demographics and growth prospects.

Restructuring – set up CCR, which also engages in juice-production business. The distribution network of CCE was utilized. The point of sale was greatly increased. This allows Coke to promote their still beverage business.

Savings and revenue opportunities – the takeover will consolidate the supply chain into Coca-cola and lower the cost. (But in order to achieve full supply chain efficiencies, they have to buyout the remaining 10 %)

Pricing power – Regarding the increased commodity cost, Coca-cola can raise the product price to offset the costs increased by commodity price.

Customer satisfaction (Increase local execution power) – Bottler is able to engage with their customer. It would be easier to deal with one unified company that handled all beverages, distribution and customer service.

Flexibility and speed to adjust future preference – Complexities associated with the separate ownership of fountain versus bottle/can drinks would be eliminated

Cons

Debt of CCE – the acquisition of CCE is a cashless transaction. Coke will take over CCE debts as well as giving up 34% of its stake in CCE. The debt may cause interest burden to the firm.

Greater exposure to commodity costs – rising commodity price for sweetener, aluminum and plastic and transportation cost would generate an increase of cost by $400m in 2011