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Market Structure of Coke

Coca-cola is the largest non-alcoholic beverage company in the world. It is an American multinational beverage company, headquartered in Atlanta, Georgia. The company was established by John Pemberton in 1886 and today it sells around 1.9 billion servings per day. Coca-Cola is a leading beverage industry with 20 billion dollar brands. Their range of product includes non-alcoholic beverages, sparkling beverages, ready-to-eat cold tea and coffees, juices and juice drinks along with low calorie beverages. Coke operates in more than 200 countries. It is one of the top 10 employers of the world with an employee strength of approximately 7,00,000 worldwide (The Coca-Cola Company, 2016).

The market structure of Coke is oligopoly. An oligopoly is a market structure where there are few firms dominating the market and entry is difficult. The number of firms should be low enough so that one firm can significantly impact and influence the actions of the other firms (Garaicoa, 2015). Hence, an oligopolistic market is characterized by:

  • Few firms
  • Differentiated products but close substitutes
  • High barriers to entry
  • Interdependence of the firms

Coca-cola operates in oligopolistic structure. PepsiCo is Coke’s major rival company in the world. The brands under the Coca-cola Enterprise are Fanta, Sprite, Diet Coke, Coca-Cola zero, Coca-Cola Life, Coca-Cola Light, Minute Maid, Ciel, Dasani, Powerade, Simply Orange, Fresca, Mello Yello, Smartwater, Fuze, Fuze Tea, Honest Tea, Odwalla, Powerade Zero and Glacéau Vitaminwater (The Coca-Cola Company, 2016).

Coca-Cola and Pepsi dominate the world’s market share. Coke started its journey in 1886 and Pepsi in 1899. Both the companies have managed to create huge brand names for themselves. They sell homogenous but differentiated products, interdependent on each other’s strategy, they generally change their prices based on a kinked demand curve and both the firms use low-price strategies for profit maximization (Bailey, 2014). These two companies have formed a cartel to make high barriers to entry in the market for other firms. Cartel is a group of firms which act together to reduce costs, increase price and increase profit. This would also deter other firms to enter into the market (Nair & Selover, 2012). 

 The Cartel behavior

Figure 1: The Cartel behavior

(Source: Author)

Figure 1 depicts the cartel behavior of firms in an oligopoly market structure. The firms together behave like a monopolist in a cartel. They set the price at the monopolist’s profit maximizing level and share the profits together. This price level also discourages other firms to enter the industry (Sethuraman & Raju, 2012).

The topic of discussion in this report can be best addressed with the help of Coke. The author decides to choose Coke for this topic due to its huge variety of products. The author likes many Coke products, such as, Coke, Fanta, Sprite. He even prefers to buy Dasani mineral water whenever he is on a trip. Hence, he would like to dig deep into the marketing strategies of Coca-Cola along with that of its rival Pepsi.

Coca-Cola's Major Rival Company

Being a multinational beverage company Coke engages in high competition with its biggest rival Pepsi. That includes price and non-price competition.

Non-price competition is a marketing strategy where a firm tries to differentiate its product from its substitutes based on features other than price. The factors of non-price competitions are designs, packaging, advertisements, regional impacts, sales promotion strategies etc (Nair & Selover, 2012).

The non-price competition is followed to avoid price wars. It is about being competitive in terms of differentiation of the products rather than cutting prices. In the oligopoly market, at the end the non price competitions earn more revenues than price cuts (Bhasin, 2016). The methods followed by Coke are described below:

Shelf acquisition in stores: Coke purchases or manages to get those shelves in the stores in such a strategic position so that their product gets to be displayed much more and in an attractive manner (Sethuraman & Gielens, 2014).

Strategic position of the freezers and vending machines: Coke keeps their freezers and vending machines in a very strategic eye-catching position, such as near the entrance of the store or near the billing counter (Garaicoa, 2015).

Sale promotion: For sales promotion, Coke offer sponsorships for different events at schools and colleges and it also keep its products in the cafes. This helps them to increase their market share.

UTC Schemes: UTC refers to Under the Crown scheme. Coke often adopts this marketing strategy. They print prizes under the crown of the bottle such as bikes, caps, cash prizes etc. this is very popular among children.

Infrastructural machines: Modern equipments are provided by Coke to the stores to keep their products. Such as, freezers with the name Coke printed on it, Vizi cooler, vending machines, display racks.

Advertisement mediums: Different mediums such as online, print media, TV commercials, billboards and hoardings and POS materials are used by Coke for advertisement.

Distribution channels: Coke sells its products through two types of methods: Direct and indirect selling.

In direct selling they use their own transport to supply their product to the stores, while it uses indirect selling strategy where it supplies its product through wholesalers and agents, such as, in countries like Pakistan, they cannot cover the whole country on their own, hence they appoint their agents to ensure that the products reach the customers all over the country (Garaicoa, 2015).

Segmentation: Coke has done the customer segmentation successfully. It has a large range of differentiated products to cater to different customer groups. While Coca-cola is loved by all age groups, Coke Zero is preferred by the customers who want to lose weight. The intensive marketing strategy for Coke Zero has earned huge revenues and placed it in the second position after regular Coke. The level of product differentiation gave Coke an upper-hand from Pepsi to create more brand awareness as well as to gain a greater customer base around the globe (The Coca-Cola Company, 2016).

Marketing Strategies of Coca-Cola

Availability on an international scale: Coca-Cola has managed to make contracts with the biggest restaurant chains globally to serve their products only. For example, MacDonald’s, the burger and fast food giant of USA, sells only Coke products, which lefts customer with no choice than buying Coke. It has made such contracts with almost all major food chains in every country of the world to ensure that the customer buys their products only. Over time this strategy helps to build up brand loyalty of the customers (Erickson, 2012).

Catchy campaigns: Coke launched its most notable promotion the ‘Happiness Campaign’ that has been running successfully for decades.  Coca-cola never attacks Pepsi directly in its campaigns; rather they promote their own nature to create happiness for the consumers globally. The campaigns are always about the happiness factor of life. Some of their taglines are “Enjoy Life”, “Open Happiness”, the latest being “One Brand”, lunched in early 2016 (The Coca-Cola Company, 2016). The “Open Happiness” campaign included many innovative strategies like music, digital components and these helped to boost the revenues sky high. Also, in most of the advertisements, Coke features common people to connect more with the customers of all ages, while Pepsi mostly makes contracts with celebrities to push their brand popularity among the masses.

New Coke is the failure story of Coke. In the 1970’s and 80’s, Pepsi conducted a blind test on the consumers preference of taste between Coke and Pepsi and surprisingly Pepsi won. To meet this challenge Coke replaced its regular Cola and launched the ‘New Coke’. That was the biggest disaster in Coke’s history. New Coke was not accepted and original Coke was no longer available. Pepsi earned 37% more revenues than Coke that year and Coke brought back its original Cola (Bhasin, 2014).

Conclusion:

Coke is the biggest non-alcoholic beverage company in the world. It forms an oligopoly market along with its rival Pepsi. They do not engage in price wars, rather they prefer to engage in non-price competition. In the past century, the intensive non-price competitions by these two companies have led to huge growth of the softdrinks industry. Coke and Pepsi have formed a Cartel to deter the entries of other companies in this industry. However, it is seen that, Coke has the maximum market share globally, and that is due to the very creative and innovative advertisement strategies by Coke.

References:

Bailey, S. (2014). Why the soft drink industry is dominated by Coke and Pepsi. Market Realist. Retrieved 19 March 2017, from https://marketrealist.com/2014/11/soft-drink-industry-dominated-coke-pepsi/

Bhasin, H. (2016). Coca Cola Brand Failure. Marketing 91. Retrieved from https://www.marketing91.com/coca-cola-brand-failure/

Erickson, G. (2012). Dynamic models of advertising competition (Vol. 13). Springer Science & Business Media.

Garaicoa, D. (2015). Oligopoly - Non-Price Competition. Prezi. Retrieved 19 March 2017, from https://prezi.com/k4s-fc3sourx/oligopoly-non-price-competition/?webgl=0

Market share of carbonated beverages worldwide as of 2015, by company. (2016). Statista. Retrieved 19 March 2017, from https://www.statista.com/statistics/387318/market-share-of-leading-carbonated-beverage-companies-worldwide/

Nair, A., & Selover, D. D. (2012). A study of competitive dynamics. Journal of Business Research, 65(3), 355-361.

Sethuraman, R., & Gielens, K. (2014). Determinants of store brand share. Journal of Retailing, 90(2), 141-153.

Sethuraman, R., & Raju, J. S. (2012). 19 Private label strategies–myths and realities. Handbook of marketing strategy, 318.

The Coca-Cola Company, (2016). Coca-Cola Announces "One Brand" Global Marketing Approach. Retrieved from https://www.coca-colacompany.com/press-center/press-releases/coca-cola-announces-one-brand-global-marketing-approach

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