The New Cola Wars
As it is known, Coca-Cola is a leader in the industry of soft beverages. Pepsi is considered as its major competitor, even though its market share is smaller. The rivalry between these two corporations is quite intense, which keeps under control quality of their drinks. Both companies are American based, but the economic globalization, which caused Coke’s and Pepsi’s penetration around the world, encouraged the emergence of local soft beverage brands in other states. Undoubtedly, this situation increased competitor’s power, making this industry even more challenging. The main brands that compete with Coca-Cola in today’s world are Qibla and Mecca Cola (situated in the Western Europe and the Middle East); and Kola Real (or Big Cola) that conquered the market of Latin America. What makes things even worse for Coca-Cola is that above-mentioned rivals benefit from the Coke’s brand name. As a result, in contrast to Coca-Cola, its competitors get popularity with minimum advertising costs. The purpose of this case study is to discuss the new Cola wars by detecting and analyzing the benefits and shortcoming of the new Coke’s rivals and provide the appropriate recommendations that can increase company’s sustainability.
To begin with, one should stress that both Qibla and Mecca Cola are the companies that are launched to oppose the US international monopoly in the soft beverage industry. These companies implement differentiation advantageous strategy. Specifically, Qibla and Mecca Cola are created for the Arabic markets, as well as for the European Muslims. These rivals of Coca-Cola benefit from the advantageous political environment of the local markets which they strive to target. The success is predefined with the fact that the United States experience serious tension with Iraq and Iran. Confronting the U.S. monopoly (Coke and Pepsi corporations) Qibla and Mecca Cola support the opponents on the U.S. international policy. In this way, they excel in self-advertising positioning themselves in opposition to the American soft drinks corporations. As a result, the advantageous political environment is combined with the positive word of mouth.
Nevertheless, despite successful entering into the European and the Middle East markets and good competitiveness, Qibla and Mecca Cola cannot totally displace their US rivals. The sustainability of Coca-Cola is predefined by a number of tactical strategies. In particular, Coca-Cola created a brand, called Innocent, which was launched in the UK. The purpose of Coke’s Innocent is to establish and maintain a reputation of the ethically responsible corporation that cares about the communities, which it enters. For example, one of the most compelling initiatives of Innocent is to give 10% of its revenues to charity. Besides, it displays environmental sustainability to implementing the recycling techniques that strengthens environmental ethics of this company. Without a doubt, the above-mentioned strategies are utilized by Coca-Cola to keep client loyalty and conquer the new buyers. In this regard, Qibla and Mecca Cola concede their US opponent.
Hence, critically analyzing Coca-Cola’s strategies that correspond to corporate ethics, it is possible to suggest that they are hardly viable in a long-run perspective. Consider the rationale, 10% charity and adherence to environmental sustainability are costly. This fact implies the two possible outcomes: decreased revenues, or increased prices. Both tendencies are relevant for today’s Coke’s business performance. In particular, experiencing the need to balance manufacturing costs and obtained profits, the discussed company reduces financial expenditure by firing employees. In this regard, Coca-Cola CEO Muhtar Kent has even called 2015 a “transition year” and announced plans to lay off between 1,600 and 1,800 employees to cut costs. In addition, this corporation had to increase prices of its beverages. As a result, thanks to cost cuts and price increases, it manages to remain sustainable. Hence, this approach violates financial responsibility simultaneously to employees and customers, which reduces the value of above-described Coke’s responsibility to communities and environment.
What is more, one can assume that the increase of prices is stipulated by the limited possibility to expand the market share with the former prices. In other words, using predation pricing is not an option for Coca-Cola because of the intense rivalry and above-revealed political considerations. Therefore, in order to enhance prices with the aim to increase profits seems to be reasonable given the circumstance; however, it is necessary to remember that this strategy makes Coke’s products less competitive. Thus, Coca-Cola’s excessive corporate ethics in the UK are the temporal solutions; which means that Qibla and Mecca may benefit from rival’s issues.
At the same time, all Coca-Cola companies experience an adverse social environment connected with the ever-increasing comprehension of the possible harm of carbonated drinks that use sugar substitutes which contribute to the global issue of obesity. In this respect, the Coke’s leaders admit that there is an adverse secular trend in the carbonated beverage industry continuing as consumers seek out healthier alternatives to sugary soft drinks. The components that are potentially harmful to a customer’s health represent a serious shortcoming for Coca-Cola, as well as for its rivals. In the meantime, this significant problem remains unresolved. Health considerations prevent the expansion of the carbonated beverage industry, and this tendency is reinforced with the sufficient amount of substitutes, such as juices and carbon-free drinks.
To make the matters worse, Coca-Cola’s major market -the Latin America customers, shift their attention to a local producer of the soft drinks, Ajegroup, that launched a brand Kola Real (Big Cola). As it is seen from the name, this company benefits from a well-known brand image of Coca-Cola, which means that Ajegroup can save money for advertising. Undoubtedly, this fact adds company competitiveness; however, the main beneficial characteristic of Kola Real is their low prices.
Using a low price competitive strategy is the reason why Ajegroup manages to conquer the market of Latin America. Apart from setting reasonable prices that allow competing with the multinational brands, this firm successfully collaborates with small and medium-size local distributors. In addition, Kola Real proposes big and cheap bottles of soft beverage, by this, succeeding to fulfill customers’ demand, since people in Latin America are known to consume a lot of Cola drinks. It is appropriate to clarify that setting low prices becomes possible due to the cheap manufacturing process. Besides, Ajegroup benefits from the advantageous political environment because the local government discourages the increase of power of the multinational corporations (Coca-Cola, Pepsi). This approach gives green light for the local producers of the soft beverage industry. As a result, the above-described factors predefine considerable success of Ajegroup in Latin America.
To compete with Ajegroup, Coca-Cola strives to develop mutually beneficial collaboration with distributors. This company utilizes freebies as a strategy to win distributor loyalty. Specifically, by offering free refrigerators to chill Cokes and buying its small retailers life-insurance policies Coca-Cola encourages its distributors to remain loyal. Besides, this company offers retailers “free cases of Coke” and assists in stocking and displaying. At the same time, Coca-Cola refuses to lower the prices of its drinks, even though this approach could have increased its competitiveness.
Considering the intense rivalry between Coca-Cola and Ajegroup, one can make the following recommendations; given that a low pricing strategy is not an option for Coca-Cola, it needs to concentrate on differentiation advantageous strategy. In particular, it is advisable to launch several new flavors. Moreover, it is necessary to study thoroughly cultural peculiarities of the natives and implement the obtained findings for rebranding (that will comply with cultural setting of the Latin Americans) and appropriate advertising. In addition, other strategies to differentiate products may be considered by this company.
Scrutinizing whether Big Cola can achieve the same high success in Asia, as it did in Latin America, it is natural to presume that the chances to excel are very good. In particular, it can also benefit from low manufacturing costs and the already popular brand name. Besides, the Asian market is huge due to the high population and big cheap bottles of Kola Real are assumed to be demanded in this area. That is why, one can rightfully conclude that Ajegroup may conquer the Asian market. Hence, given a more liberalized economy, it is necessary to warn that Ajegroup would face less favorable political environment that it enjoys in the domestic market. Besides, entering foreign market requires dealing with the diverse cultural dimension. This consideration needs to be taken into account, while deciding to enter the Asian market.
Summing up, the new Cola wars are stipulated by the emergence of the local brands that confront the monopoly of American multinational corporations. This situation intensifies rivalry, which leads to the reduction of Coke’s profits. As a result this company experiences harsh environmental conditions in many offshore markets. Specifically, the main competitors are the Muslim-oriented firms, Mecca Cola and Qibla; and the Latin American Kola Real or Big Cola. To remain sustainable, the American major producers of the soft beverage should work on enhancing differentiation, since they increased the costs of products. Besides, it would be wise to seek for the new ways to decrease manufacturing costs and create healthy products.
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