By: abinaya • 5,118 Words • August 14, 2010 • 2,653 Views
We have delivered strong business results and increased value to our shareowners by expanding our consumer appeal across our beverage brands and connecting in very meaningful ways with the communities we serve."
--- (Chairman and Chief Executive Officer)
As a primary advocate of value-building in beverage industry, Coke converged with different value-added activities. Within the Coca-Cola system that is consists of suppliers, bottling partners, customers and consumers, one of the primary value-added activities which is the Coca-Cola Retailing Research Councils, such contributes largely on the value chain of the company especially on the aspect of innovation and products. This paper includes Coke's Porter's five forces analysis and diverse value-chain activities in different areas. In addition, the document presented the interplay between the Research Councils and how it impacts Coke's value chain as well as creating the absolute effective position. ,
A company that fully understands the importance of value chain in business is the Coca-Cola Company. A global leader in the beverage industry, the Coca-Cola Company further indulges in enhancing their value propositions as an instrument to create ‘virtuous cycles of geographic expansion' and thus greater advantage. Coke, the term the paper will use to refer to the company, owns the most important elements of the value chain or the "globally leverageable intangibles" such as the brand, the technology, the management, the marketing expertise and the relationships (Bryan et al 1999, pp. 54-55).
For this reason, Coke was chosen to be the subject of this value chain paper. Coke, in addition, addresses that value chain as drivers of increased profit, enhanced ability to invest more into gaining greater geographic access and penetrating existing markets more deeply as well as more confidence in investing on intangibles like intellectual property and talent, and increased sale and specialization advantages (Ibid, p. 54); making the company the most conceivable subject for the intents of this paper.
Coke – Porter's Five-Force Model
Soft drink industry is divided into two segments namely production of soft drink syrup and manufacturing and/or distribution of soft drinks in retail level. Coke chose to concentrate their operation on the first segment while intimately depending on independent bottlers companies. Basically, the company is engaged into blending raw material ingredients (product planning), packaging in plastic canisters (market research) and shipping to bottlers (advertising).
Rivalry condition is concentrated on two main actors – Coca-Cola and Pepsi Cola – thus, the emergence duopoly competition or the Cola wars. The term Cola wars was invented to describe the extent of campaigns of mutually-targeted advertisements between the two cola giants. Through these advertisements, the two companies attack each other and therefore a tough competition that strategically hampers the profitability of each other.
Existence of substitute products is wide and thick and substitute products for Coke reached the market where Coke has a strong presence. Apart from the primary rival (PepsiCo), the company finds intensified competitions on companies that produce, market and sell teas, beers, milk, coffee, wine, powered drinks, juice, bottled water, sport drink and other refreshments causing a significant decline in Coke prices. To reduce threats, Coke embraced the idea of bottling and concentrated on product diversification.
Penetrating the soft drink industry is hard because of the established name of Coke; hence, new entrants must first overcome the remarkable marketing muscle and marketing presence of Coke. Other barriers to new entrants are the: direct-store-delivery (DSD) strategies and the Soft Drink Inter-Brand Competition Act of 1980. Respectively, Coke has long-term relationships with their retailers and distributors making possible the defense of the position by means of discounts and other tactics, and regulation make it impossible for new bottlers to enter areas where an existing bottler operates.
Bargaining power of suppliers is low due to two reasons. First, the main inputs are sugar and packaging. Sources of sugar are on the open market which subsequently makes the creation power of suppliers at low levels. There are several suppliers for packaging as well as the abundance in supply of inexpensive aluminum. Second, direct negotiations from concentrate