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Coca Cola Dissertation – Case study Analysis
This is third part Coca Cola Dissertation Case study Analysis. Dissertation complete in six parts so see the previous part and stay update for next and enhance knowledge with this part of dissertation.
Research is to explore the unsealed heights and to seek insights into an unknown territory is all about finding explanations and knowledge regarding a subject. It serves as a means to devise new ideas and develop new outlooks to solve an issue (Stone, & Durathy, 96). At times, a company can be unknown about a lot of aspects involving market penetration. Initially when the knowledge about the market remains low, the research policies help in breaking the ice and slowly the market starts becoming a familiar territory. Moreover, during the progress of the research, the market experts first took whatever knowledge was available and started their approach based on that. But as the picture started becoming clearer, the approach path became narrower, thus pinpointing the most effective methodology and strategy (Rogers, 1995).
During the research process, it is needed that the outcome of the research be described and explained. During research phase, the policy that helped the researchers gather more and more information was known as the explorative policy. This, in a way, facilitated the flexibility of the research. Once the findings of the research were out, need came to explain the findings to put forward a suitable approach. Hence there was the need to explain the analytical data and plot them along the experimental data. Thus the method of descriptive research came into play.
The present topic under discussion focuses on largely two aspects, firstly, The International and standardized marketing strategies, and how do they differ from strategies of localization. Secondly, the implementation of standardized and localized marketing practices, focusing on rural and urban marketing strategy for globally recognized brand.
The objectives of the study can be summarized in the below mentioned points.
- Discuss the theories of International business and Marketing strategy
- Discuss the theories of Standardization and Localization in terms of brand positioning
- How the concepts of standardization and localization is implemented regionally, internationally, nationally, and locally.
- What are the different approaches in standardization and localization and how do they differ in implementation
Method of data collection
To conduct this research, a through and detail literature survey was done, on theories on international business, international marketing practice, standardization and localization etc. Further a case study was selected and it is discussed in detail to draw an analytical perspective.
Secondary data are gathered from company websites, annual reports, previous research paper, where as for primary data, few interviews were conducted with company higher officials, CEO reports, etc.
This was divided in two parts, firstly the data, facts were analyzed thoroughly from literature survey, and secondly the primary data were correlated to the found data, facts and selected case study discussion.
The limitations of this research are summed up in following points:
- The research was done on heavy reliance of secondary data, and only few primary data were taken into account.
- The Scarcity of data on china’s market, consumer behavior pattern was another barrier.
- Market survey should have included analysis of consumer behavior pattern as well, which was not a part of the research
- Sample size for primary data source was very small.
Future research scope
This research can be extended further with incorporation of more primary data sources, analysis of consumer behavior pattern, market scope for Coca cola, competitor’s analysis etc. Along with that a comparative study can be made on market of coca cola in Asian & European countries.
Case study analysis
Coke’s journey in india
India is a vast country. It is the seventh largest country by area, and second most populous country with more than 1.2 billion people. India offers a unique combination of varied culture, language, economic background, along with value system, traditional beliefs, one gets the blend of diversity in one big basket. India is the tenth most largest economy in the world, and the rapid forces of globalization, growing income of middle class, upper middle class families has made India a major business platform for investments, employments, marketing opportunities etc (Krishna, 2005).
Growth & expansion
Coke’s journey in India came to a sudden crisis in 1977, when it was emerging as the most popular soft drink brand in India. The Foreign Exchange Regulation Act (FERA), the governing body of India, governing the operations of multinational companies or foreign companies in India, instructed coke to reduce their equity share. Coke returned to India in 1993, acquiring Indian soft drink brands like Thums Up, Limca, Maaza, Citra, Gold Sport, which provided them distribution network, ownership of nation soft drink brands, bottling network, manufacturing facilities, etc (Fawkes, 2010). Coke became immensely popular across India due to this- Local-Global approach. The combination of global brands along with local brands gave Coca-Cola the opportunity to set a standard and trend in global branding and allowed access to domestic and more localized market. Coca-Cola’s international family branding got extended with addition of leading Indian brands like Diet coke, Sprite, Fanta, and the Schweppes product portfolio. In 2000, Kinley water bottles were launched by the company in India, and followed by that in 2001, shock energy drink and powdered Sunfill hit were launched in the market. In short than a decade of business span in India from 1993-2000, Coca-Cola stood out to be one of the major investors in the country by investing more than US$1 billion (Krishna, 2005). Coca Cola achieved a growth by 39% in terms of volume, and the industry experienced a growth of 23% across the country. Coca-Cola increased its investment in India by making an investment of $125 million i.e. 750 crore INR, between September 2002 to March 2003 (Johri & Petison, 2011).
In India coca-cola has a wide network of manufacturing plants, franchises of bottling operation, and has over 7000 local employees to support their business operation, growth and success. It has 29 manufacturing units, seventeen franchises that perform the bottling operations, and twenty seven other bottling operation performing facilities which are directly owned by the company (Krishna, 2005). With more than 700,000 retailers, selling their products, both in cities, metropolis, rural and urban areas coca cola has amazing network of distribution and logistics system that includes trucks, three wheelers, tricycles, pushcarts etc. Cock has generated huge employment by employing local people at large not only directly as employees of the company but also generated employment for more than 125,000 Indians by the establishment of supply chain and logistics delivery system (Krishna, 2012).
Sanjiv Gupta (present president and CEO) who joined Coca-cola India in 1997, as vice president, has rightfully identified the vast potential of India’s untapped rural and urban market in soft drink industry. He tried to utilize Coca-Cola’s Global brand strength and mould it into an Indian format to develop it as an Indian brand (Prahalad & Lieberathal, 2003).
India has a huge population and which is varied and complex. It provides the international companies a huge market opportunity, but remains difficult to handle. In the early twenty first century India had a booming middle class population with a low per capita consumption of soft drinks (Prahalad, 1997). The major population in India lived in rural, semi urban areas and villages where consumption of soft drink was very less, less than four bottles per capita and only 10% of the whole population lived in urban and city areas and had a consumption rate of ten bottles of soda per year. Soft drinks was considered to be a part of affluent lifestyle and for the people belonging to higher socio-economic classes, but the scenario changed by paving the way to rural villages where consumption of soft drinks has drastically improved. During 2003, 90% of the sales were made rural and semi urban areas to the lower, lower middle and upper middleclass strata (Jain, 1999). A voluminous growth of 76% was experienced in soft drink industry in India in 1998 to 2002, where selling of bottles reached to 10,000 million from 5670 millions. The industry experts announced a growth of 10% per year up to 2012-2013 (Krishna, 2012).
Issues, challenges and competition
Despite the growth and expansion in terms of market share, profit percentage and market expansion, per capita consumption was 6 bottles a year, where other countries in South-East Asia had a better selling rate, i.e. 17 bottles per capita annually in Pakistan, in Thailand, it was 73. In other regions like Philipines, USA, the consumption rate was much higher like 173 and 800 respectively. The rural market in India found to be promising where the company can penetrate and find significant market opportunities. India has its long traditional culture, and people often prefer sticking to the old habitual and cultural practices, like drinking lemon-water (Nimbu-Pani), Green-Coconut Water, Tea, Freshly prepared fruit juices, Lassi (a drink made of curd), etc. To compete with those available refreshment options Coke came up with a model of cost leadership, that is launching smaller bottles at a very low price, which was at least 50% lower than the present price (Krishna, 2012).
The major competition Coca-Cola faced while entering in India again after the liberalized state of economy, was from Pepsi. Pepsi made a creative entry during 1985 in collaboration with Punjab Government, through a joint venture named PepsiCo, between Pepsi and Punjab government owned Punjab Agro Industrial Corporation (PAIC) and Voltas India Ltd, prior to economic liberalization in 1991. The project, Pepsi Food Limited Project took shape in 1988, and Pepsi entered the market and grab a major share by being sold as Lehar Pepsi until the economic liberalization took place in India in 1991. Pepsi ended the joint venture in 1994, by buying the partners and became a totally-owned subsidiary, under the new rules of foreign direct investment policy. As a result of the joint venture initiative it provided Pepsi with the opportunity to study Indian market, socio-economic classes, gain insights about consumer’s perception, and reap the benefits of an early entry in a business platform. Coke had the advantage of Pepsi’s creation of demand and market of soft drinks in India, but Pepsi’s advantage was its early start and deeper insight into the consumer’s minds. Pepsi focused on the booming youth group, and reaped the benefits, while Coca-Cola, a late entry in the soft drink market tried to woo consumers in a more westernized and American approach, which did not see the light of success.
CEO of Coca-Cola Douglas Daft, recognized the reason for failure, which was adopting a single universal branding strategy and not being oriented towards customers minds. He devised the “GLOCAL- think global act local” strategy and implemented as the marketing strategy to develop market in India. Slowly but steadily Coke gained an insight of consumer’s market in India, and during 2001, it analyzed their marketing strategy and approach towards market to become the dominant leader in soft drink market. Coke pointed out India’s rural and semi urban market to be the future potential market and devised strategy to develop customer relationship developmentbase in rural India. To be instrumental the company devised strategic plans recognizing the facts that pattern of consumption, consumer behavior, taste and preferences in Urban and rural India are vastly different, and can serve as two completely different markets. In rural Indian markets, the task was to develop a market base for soft drink industry, to establish brand positioning and expansion; however the task in urban market was to focus on creating differentiation factor for the brand and strengthen the brand positioning by narrowing it down and securing a loyal customer segment, while providing the customers uniqueness and the value of brand association. Therefore the focus for Coke became very clear, i.e. to develop two separate markets along with two separate marketing mix strategies for Urban and Rural Markets (Hines, 2003).
The rightful use of marketing mix elements, i.e. product, price, place, promotion, people, physical evidence and process makes a company stand out in crowd and helps it to position its brand strategically. To position a brand strategically a company needs to divide the market as segments, and identify target segment where the company can leverage the brand strength by rightly positioning the brand by using right combination of marketing mix strategy (Kotler & Keller, 2012). Coca-Cola segmented the Indian consumer market in two segments and identified the potential to be unlocked, which can be proved a huge opportunity for tapping into those untapped regions. The two segments were Urban India, and Rural India. Urban India comprise of the population who lived in cities, metropolis, urban areas, and have higher economic stability, and enjoys affluent lifestyle, where as the other segment the Rural India comprises of the majority of the population, living in small villages, rural, semi rural, semi urban areas, small towns etc, and from lower strata of socio economic class (Kotler & Keller, 2012). Therefore STP strategy, i.e. Segmentation-Targeting –Positioning has to be used intelligently and systematically to reap maximum benefits. In this context several theories of strategic marketing and positioning can be discussed.
The Ansoff’s growth matrix elaborates strategies by which a firm can enhance its market share, establish market dominance, acquire new markets, acquire new customers in established markets (Kotler & Keller, 2012).
When a company wants to acquire new customers in established market, with existing product line the firm can follow market penetration strategy. When a firm wants to acquire customers in old market with new product the firm is clearly on the path of product development strategy. When a firm wants to capture new market with existing product line up the firm is following the market training and development strategy. When a firm ventures out to acquire completely new market which has no relation to its present product or market the firm is said to be adopting diversification strategy. In present case the Coca Cola followed two different strategies for growth and expansion in two different market segments. It adopted the strategy of market penetration in Urban India, where the choice for the rural India was to develop new market.
Porter’s Generic Strategy
Michael Porter identified three major strategic approach that when used rightly, can help a firm in maintaining competitive advantage and sustainability. Those three strategies, namely, Cost leadership, Differentiation and focus or strategic scope are termed Porter’s Generic strategies. Cost leadership, is when a firm cuts down its operational cost, by maintaining economies of scale, and enhances profit percentage. Differentiation is when a firm tries to make a point of difference in its products and services and propose to deliver value, by maintaining a competitive edge. The focus approach is basically pointing towards the fact that to survive a firm must choose one strategy at a time, i.e. one firm can maintain its profitability by maintaining cost leadership model in mass market, or a narrow market segment can be served by following a differentiation strategy. In case of Coca-Cola, the companies intelligently divided two market segments and choose completely different strategy for both. The rural market, which was untapped, and was of low economic profile, was attracted by the mass marketing, by cost leadership policy. Coke reduced its price by 50%, by introducing smaller bottles. Whereas in Urban market where the soft drink industry was already set, the task was to penetrate and build brand loyalty. The company identified differentiation strategy to create a point of difference in urban consumer market in India, where the task was not only to make connection with people, but also to build brand strength and loyalty. To implement the differentiation strategy Coca-Cola focused on product promotion, packaging, logo, bottle and usage of attractive colours, catchy taglines, celebrity endorsements etc.
Brand positioning in urban india
The two different market segment has two different brand positioning strategy. The first market, which had developed economic backdrop, high employment ratio, higher GDP and per capita income, was the middle class and upper middleclass and higher class people living in metropolis, cities and Urban areas, which was only 4% of the overall population. Coca-cola came up with a tagline, “Life ho to Aisi” i.e. Life should be as it is now, which was intended towards the successful young crowd, thriving with economic prosperity, enjoying the benefits of being educated, successful, and living a privileged lifestyle. Coke rightfully caught their aspiration side of life, where people were bound by the emotional aspects, people to people connection, the need to be recognized, identified and be a part of the socially valued group. Coke used celebrity endorsements and other promotional strategies to tap this market. Advertisements were focused to grab the attention of upper and middle class segments that can identify the touch of emotion and human connection with themselves. Many advertisements came with the big Indian value system, i.e. Coke is an integral part of family dinner, a drink that you can share with your parents, grandparents’ relatives, friends, and everyone. Clearly coke focused on the value of family and elderly persons which was close to India’s value system culture and close to the heart of people of India.
Brand positioning in rural india
The other focused market segment for Coca-Cola was the rural, semi rural and village areas. This segment accounted for the 96% of India’s total population, and with the growing economic stability in small town, the changing pattern of expenditure, consumption and lifestyle, it was the most promising market to build a strong consumer base. Coca cola came up with a cost differentiation strategy in rural India, where the strategy in Urban India was to create a point of differentiation. The company identified that coke is considered as a luxury brand in rural and village area where a bottle of coke costs 10 rupees and daily wage is Rs 100. Besides, when it came to the need for quenching thirst village people could not differentiate coke from other soft drink options available, along with traditional home made drinks like lemon water, Lassi, Tea, fruit juice, etc. Therefore coke came with a smaller bottle of size 200ml, and reduced the cost by 50%, i.e. the bottle was available at Rs.5, which allowed Coke to be available and affordable to its target consumer base. Another major area was making Coke available down in the narrow alleys, in small retailer shops round the corner of small village huts. Coke invested hugely to develop a widely built distribution network, which would serve a population of 160,000 in 2003, rather than only 80,000 in 2001. The company doubled the retail outlets available and made sure coke reaches to the furthest corner possible, which resulted into a market penetration from 13% to 25%.
Coke’s marketing strategy in rural India concentrated on the rural simplicity and the touch of village culture. The tagline used went like, “Thanda Matlab Coca-Cola”, i.e. if it is a cold Drink it has to be Coke. Strategical use of national Language Hindi in advertisement tagline, meant to appeal a big consumer base, replacing refreshment as Coca Cola. In these advertisements Coca Cola also used celebrity endorsements, only the Commercials Advertisement were more localized in nature, depicting the rural simplicity, the need for the peasants to quench thirst after a tiring day, the source of enjoyment in mundane village life. The rural segment provided with 74% of population among which 40% was middle class, and thus served as an attractive segment delivering high output. The rural segment grew more than the Urban segment, in 2003, while rural segment experienced a growth rate of 37%, Urban market grew only 24%. The new pricing strategy, which was selling bottle at only Rs.5 enhanced the market share and accounted for 80% of new Coke Drinkers, increasing volume by 30% in 2003, than in 2002. This segment of market also provided 50% of total company sales during 2003.
The environmental & legal challenges
Coca-Cola has been subject to criticism for issues in detrimental effects on health, labor crisis and labor politics, exploiting labors, findings of high amount of pesticides, aggressive marketing strategies adopted by the company to tap the children’s market. Coca cola has been running its operations in India since 1993, by the subsidiary, The Hindustan Coca-cola beverages Private Ltd. It has more than 49 bottling plants across the country. India has a huge population base, and due to underdeveloped infrastructure, under controlled usage of natural resources India has been facing a crisis of natural resources. Coca-Cola involves use of ground water in bottling operation in a large quantity. But with the increasing problem of unavailability of ground water due to the under management of use and handling of natural resource, Coca-Cola’s bottling operations are facing major problems. Many of the bottling plants are located in areas which are going under water crisis, like the village of Kala Dera, in 1999, in Rajasthan State, India’s Central Ground Water Authority (CGWA), announced that the region’s ground water has been abused by over exploitation. Despite knowing the fact Coca-Cola established a major bottling operational firm in 1999 in Kala Dera. As a result of which the level of ground water has lowered further by 22.36 meters. Local farmers and agricultural producers, the local village people are facing tremendous water crisis, and therefore are skeptical and often offensive about Coca-Cola and its expansion. The criticism further elaborated that abusive use of ground water only gets much deteriorated by the pumping facilities which extract ground water and releases contaminant, deteriorating the quality of soil. Depletion of ground water resource, contamination by heavy metals is also experience in other villages like Mehdiganj, during 2006-2008, and other areas. Due to the lack of concern for environment management, irresponsible behavior towards community and nature, Coca-Cola is facing criticism and legal actions all over the world.
The University of Michigan strictly instructed Coca-Cola to relocate their bottling plant outside Kala Dera, where water resource is available. The instructions were being made as a result of third party investigation report made by TERI, who investigated on the water management and handling practices by Coca Cola in India. Coca-Cola has not yet implemented the recommendation yet (Krishna, 2012).
There was immense criticism of Coca-Cola for using pesticides in aerated soft drinks. Content of toxins was complained by the Centre for Science and Environment (CSE) which is a non-governmental organization. They claimed that there is toxin content like Lindane, DDT, Malathion and chlorpyrifos – pesticides which can cause terrible ailments like immune system breakdown, cancer etc. in the aerated waters manufactured by soft drink manufacturing giants like Coca-Cola and PepsiCo. The tested products were mainly Coke, Pepsi and other soft drinks like 7UP, Fanta, Mirinda, Limca, Sprite etc which are manufactured by Coca-Cola Company (Lewis, Motley 7 Perry, 2010).
CSE discovered that Indian soft drink products like that of PepsiCo had 36 times the percentage of pesticide residues allowed by the European Union Regulations. CSE claimed that they had done the same test in the US but did not find such pesticide residues in the products (Krishna, 2012).
Both the soft drink manufacturing giants Coca-Cola and PepsiCo had strongly opposed all the allegations that their Indian manufactured products have toxin levels much above the permissible limit of the developed nations (Noel, 2009). David Cox, Hong Kong based director of Coke for Asia alleged that CSE’s director, Sunita Narain had been deliberately diluting the brand name of Coke utilizing its brand name to promote her campaign against pesticides. However Narain justified CSE’s actions by labeling them as normal follow-up to an earlier study which was done on bottled water (Liu, 2002).
CSE’s findings were backed up by an Indian parliamentary committee in 2004 and in parallel, a government appointed committee was allotted the task of benchmarking the pesticide standards for soft drinks for the 1st time in the world. The soft drink giants opposed the action with the argument that the test results at the lab are not authentic enough to trace the pesticide levels in soda and similar other complex drinks (Krishna, 2012). Coca-Cola reverted back with the response that in their plants water is filtered to remove the harmful contaminants, and products are undergone rigorous testing method to meet the effective health standards (Krishna, 2005). Coca cola experienced huge loss, a drop in total sales volume by 11% due to the allegations regarding pesticide contamination in 2003. Again in 2006, Coke suffered attacks by Kerala government, who banned coke due to heavy pesticide contents. But due to the non authority of governments over imposing rules and regulations of food products, the Kerala bann got overturned, as only Federal Government can ban food items.
Coke entered India with a dream of tapping the big Indian market, but the learning period for Coke was extensively tough and tiring, which included tough competition from early entrants Pepsi, local beverage market, and traditional Indian drinking habits etc. Misinterpretation of consumer’s psychology, wrong foot steps in marketing and labor management, continuous collision with legal political officials, has made the journey steep (Prahalad, 2008). In recent times, Coke has been experiencing growth and has generated fizz in Indian soft drink industry. In India overall sales increased by 24% last year. According to industry experts coke has lost many potentially beneficial years in trial and error methods, but finally the strategic positioning ha began to take place. Sanjiv Gupta (present president and CEO) who joined Coca-cola India in 1997, as vice president, has rightfully identified the vast potential of India’s untapped rural and urban market in soft drink industry. He tried to utilize Coca-Cola’s Global brand strength and mould it into an Indian format to develop it as an Indian brand (Krishna, 2012).
India has a huge population and which is varied and complex. It provides the international companies a huge market opportunity, but remains difficult to handle. In the early twenty first century India had a booming middle class population with a low per capita consumption of soft drinks. The major population in India lived in rural, semi urban areas and villages where consumption of soft drink was very less, less than four bottles per capita and only 10% of the whole population lived in urban and city areas and had a consumption rate of ten bottles of soda per year (Prahalad, 2008). Soft drinks was considered to be a part of affluent lifestyle and for the people belonging to higher socio-economic classes, but the scenario changed by paving the way to rural villages where consumption of soft drinks has drastically improved (Prahalad, 1997). During 2003, 90% of the sales were made rural and semi urban areas to the lower, lower middle and upper middleclass strata. A voluminous growth of 76% was experienced in soft drink industry in India in 1998 to 2002, where selling of bottles reached to 10,000 million from 5670 millions. The industry experts announced a growth of 10% per year up to 2012-2013.