Cola Strategic Management Model
In the business world, competition is so stiff. Global organizations are acquiring more and more knowledge-skills workers in order to meet in the continuing demands of both the market and the consumers. These organizations only have one common aim – to render the best services to their consumers while at the same time increasing their market share.
These companies are into globalization which enables them to integrate with the global economies which allows them to sell products and services between countries. This also brings modernization and industrialization. (http://www.cadi.ph/globalization.htm)
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Pepsi Cola is known for its beverages which include Pepsi, Diet Pepsi, Pepsi Twist, Mountain Dew, Mountain Dew Code Red, Sierra Mist and Mug Root Beer. The company was founded in 1965 through the merger of Pepsi-Cola and Frito-Lay and in 1998 they acquired Tropicana and later on the company merged with Quaker Oats Company and eventually continue to creating the world’s fifth largest food and beverage company. The company produces 15 brands which generates more than $1 billion in its annual retail sales. (http://www.pepsi.com/corporate/company_info/index.php)
On the hand, Coca-Cola was established in 1886. With their desire to top the world’s beverage suppliers, they won 4 of the world’s top 5 nonalcoholic beverage brands and they have more than 90,000 associates worldwide. The company is in operation in more than 200 countries all over the world and sells more than 2,800 products in these countries. The company is guided by its established mission, vision and values. The company is inspired by their mission which is to refresh the world, to inspire moments of optimism and to create a value and make a difference. In order to achieve sustainable growths, they are also guided by their vision which includes gives importance to the people, planet, portfolio, partners and profits. The company is also guided by the value of leadership, passion, integrity, accountability, collaboration, innovation and quantity. Furthermore, Coca-cola is committed towards serving and supporting communities since they believe that their business succeeds where business thrives. (http://www.thecoca-colacompany.com/ourcompany/)
Coca-cola has been known in the global market for its beverages. When there is Coca-cola, there comes Pepsi-Cola. These two beverage companies continue to vie for “throat share” of the world’s beverage market. From 1975 – 1995, these two companies reached its annual growth of approximately 10% as both US and worldwide Carbonated Soft Drinks (CSD) consumption. According to the former CEO of Pepsi-Cola, the competition serves as continuing battle between the two large companies. He added that nothing contributes as much to the success of Coca-Cola than Pepsi. However, on the other side of the fence, Pepsi also sees Coca-Cola to be the best competitor there is.
The economy of the US Carbonated Soft Drinks (CSD) Industry continues to increase in numbers. American people consume 23 gallons of CSD and the consumption grows by an average of 3% annually. The producer of CSD combine raw material ingredients, place it in plastic canisters and ships the blended ingredients to the bottler. The most significant cost includes advertising, promotion, market research and bottler relations. The producers normally take the lead in the development of programs, more specifically in planning, researching and advertising. From the facts gathered, it is shown that the cola companies spend millions of dollars for product advertisement. In 2000, the companies spend $207.3 million for advertisement alone for Coke Classic.
Concentrate producers is one of the four major participants which are involved in the production and distribution of Carbonated Soft Drinks. The three other includes bottlers, retail channels and suppliers.
From 1975 to 2000, the financial status of the cola companies increases. For Coca-Cola company alone, the sales in 2000 reaches up to $7,870 million, its Net profit/sales is up to 10.6% which gives a total sales of $20,458 million. On the other hand, for PepsiCo, the sales in 2000 reaches to $3,289 million and its net profit/sales reaches up to 10.7%.
Moreover, the bottling process of the cola companies involves high-speed and specialized lines. The bottling costs up to $4 million to $10 million, depending on the package type and volume. The minimum costs is estimated to reach up to $25 million to $35 million, which involves building a small bottling plant with warehouse and office space. The bottlers also invested capital in trucks and its distribution networks.
In history, Coca-cola was the first producer to build a nationwide franchise bottling networks, in which, as years go by was followed by Pepsi and Cadbury Schweppes.
The products of the cola companies are channeled and distributed through its retail channels. The distribution of CSD in the US in the year 2000 first happened in food stores, fountain outlets, vending machines, convenience stores and other outlets. The costs were affected by the delivery method and frequency, advertising and marketing. Supermarket is the main distributor for soft drinks. These CSDs are among the five largest selling product lines sold by supermarket which yields 15-20% gross margin and 3-4% of food revenues. 15% of the CSD sales are accounted by discount retailers, warehouse clubs and drug stores. These organizations have their own private label CSD which are delivered to the retailer’s warehouse while the branded CSDs are delivered directly to the stores. The retailer is responsible for the transportation, storage, merchandising and stocking the shelves.
Furthermore, producers of the concentrate required inputs such as concentrate for most regular colas which is consist of caramel coloring, phosphoric and citric acid, natural flavors and caffeine. The bottlers purchased two major inputs. First is the packaging which includes $3.4 billion in cans, $1.3 billion in plastic bottles and $0.6 billion in glass and the sweeteners which includes $1.1 billion in sugar and high fructose corn syrup and $1.0 billion in artificial sweetener. In 1978, plastic bottles were boosted home consumption of Carbonated Soft Drinks (CSDs) because of their larger sizes.
Strategic Analysis and Choice
For profit and non-profit organizations, the management needs to do strategic planning which determines where the organization is going. In strategic planning, goal-based planning is the most common organization’s mission and the goals to work toward the mission. The strategic planning starts by articulating the vision of the organization and the values to achieve the vision while adhering to those values. (McNamara, 1997-2008)
In 1886, Coca-cola was formulated by a pharmacist in Atlanta Georgia, John Pemberton, who sold the product at a drug store soda fountain as a “potion for mental and physical disorders.” Asa Candler, few years later, established a sales force and began advertising Coca-Cola brands. The product was constantly snowed under by the imitations which are aggressively fought in court by the company. In 1923, Robert Woodruff became the CEO and was working with franchised bottlers to make Coke available whenever and wherever the consumers want it. He came to the idea of pushing bottlers to an “arm’s reach of desire” by the consumers. With this, in 1920s and 1930s, Coke was the pioneering open-top coolers to storekeepers and develops automatic fountain dispensers and later on introduced the vending machines. The CEO also developed an international business for Coke. One of the strategies he applied during the World War II was he said that “every man in uniform gets a bottle of Coca-Cola for five cents wherever he is and whatever it costs the company.” Since 1942, the product was exempted from wartime sugar and was destined for the bottling plants were set up during the war. These strategies contributed to the dominance of Coke in European and Asian countries.
On the other hand, in 1893, Pepsi Cola was invented in Bew Bern, North Carolina by Caleb Bradham, a pharmacist. Pepsi adopted franchise bottling system and in 1910 it had built 270 franchised bottlers. It was very unlucky for Pepsi to declare bankruptcy in 1923, but was able to gain in 1932. When Pepsi lowered the price for its 12-ounce bottle to a nickel, Coke also charged the same price for its 6.5-ounce bottle. Pepsi also launched its “Pepsi Challenge” in Dallas Texas. After the sales rise up in Dallas, the company started to do a nationwide campaign.
In 1963, Pepsi launched its “Pepsi Generation” under the leadership of Donald Kendall, the new CEO of PepsiCo. This campaign targeted the young and the young at heart. The company’s ad agency established an intense commercial using sports car, helicopters and a catchy slogan. This helped the company narrow Coke’s lead to a 2-to-1 margin. The company also worked with its bottlers to improve store delivery services. In 1970, the franchise bottlers grew larger compared to Coke bottlers.
On one hand, Coca-Cola, in 1950, began its advertisement to recognize the existence of competitors. It was in 1960s when Coca-Cola focused on overseas markets, believing that domestic soft drink consumption. In 1980, Coke switched to the lower-priced high fructose corn syrup. This move was emulated by Pepsi three years later. The product increases its intensity in its marketing effort, increasing advertising spending from $7 million to $181 million from 1981 to 1984. The management of Coca-Cola referred to its brand as “Mother Coke”.
For the entire soft drink industry in the late 1990s, various problems emerge which affects the organizations. US sales volume increased only 0.2% in 2000 to just fewer than 10 billion cases. This was in contrast to the 5-7% yearly growth in the US in the late 1980s. Moreover, Coca-cola was also affected by the adjustment caused in leadership transition. The successor of Roberto Goizueta, Rouglas Ivestor, had two years at the wheel. The two competing cola companies focused their attention to boosting domestic markets and diversifying into non-carbonated beverages.
In the early 1990s, the two cola companies employed a low-price strategy in the supermarket channel to compete more effectively with high-quality, low-price store brands. However, these two companies strive harder to flag cola markets in many ways. Pepsi introduced again the highly effective “Pepsi Challenge” which boosts the sales and draw attention of customers.
By the late 1990s, diet CSDs increased its CSD segment to 29.8% in 1991. the introduction of Pepsi One was responsible for the minor recovery of the diet drink segment.
Generic and Grand Strategies
The two cola companies continue to seek growth which can lead to the success of their respective organizations. In the 1990s, they are given new and free access to the markets in China, India and Eastern Europe which stimulates the intense bottles of the cola wars. When World War II ends, Coca-cola was known as the largest international producer of soft drinks. The company expanded its operation and built brand presence in the developing markets where the soft drink consumption was low. In the 1990s, Pepsi moved faster in the market and concentrated on the emerging markets. It was in 1999 when the bottler sales increased up to 5% in the international market and its operating profit increased up to 37%. And by 2000, international sales of Coke accounted of up to 62% and Pepsi’s revenues up to 9%.
The producers encountered problems in their international operations which include cultural differences, political stability, regulations, price controls, advertising restrictions, foreign exchange controls and lack of infrastructures. However, when coke attempted to acquire the international practice, it ran into roadblocks in Europe, Australia and Mexico – where in these countries the market share exceeds 50%.
It was in the year 2000 when Coke carried more than 200 brands in Japan and most of its brands include teas, coffees, juices and flavored water. Coke also offered brands of guarana which is a popular caffeinated carbonated berry drink which accounts one-quarter of the Brazil’s CSD sales.
The two companies expressed confidence that in the future they can be able to grow in the international market in terms of international consumption. This can be used as an opportunity to snatch bottlers’ distribution. They also tried to decrease their products and make it more affordable through the measures such as refundable glass packaging.
Coca-cola and Pepsi are doing its own thing in order to achieve their respective goals and objectives. These short-term objectives serve as a guide for both cola companies so that they can continue to give the best services to their valued consumers.
Both Coca-cola and Pepsi continue to launch other new drinks in the 1990s. They acquired brands which bolstered their portfolios such as Tropicana, Gatorade and SoBe. Both companies had a prediction that in the future the market share increases which comes from beverages other than the CSDs.
At the end of the 19th century, CSDs accounted for 41.3% of non-alcoholic beverage consumption and bottled water accounted for 10.3%. The measures of non-carbonated products increased up to 18% in 1995 and 5% in 2000 as compared to 3% and 0.2% for CSDs.
It is always the aim of Coca-cola and Pepsi to render the best services to their customers which is why they keep in seeking ways and even improving their current services. The companies’ target is to gain more and more customer satisfaction which can ensure an increase in its market share and make the product available anytime and anywhere the consumers need it.
The sales of the two cola companies continue to plateau in the United States and they have started to invest hundreds of millions of dollars which can help shore up international bottlers operating at low capacity. It was in 2001 when non-cola and even convenience foods offered a diverse growth potential.
According to a former CEO of Pepsi-Cola, Roger Enrico, “The warfare must be perceived as a continuing battle without blood. Without Coke, Pepsi would have a tough time being an original and lively competitor. The more successful they are, the sharper we have to be. If the Coca-Cola Company didn’t exist, we’d pray for someone to invent them. And on the other side of the fence, I’m sure the folks at Coke would say that nothing contributes as much to the present-day success of the Coca-Cola Company than…Pepsi.”
Policies that Empower Action
Coca-Cola and Pepsi bottlers offered a direct store-door delivery which routes sales people physically managing and placing the CSD brand in the sore. The smaller national brands distribute through food store warehouses. The Direct Store Delivery needs shelf space managing by stacking the product, positions the trademarked label, cleans the packages and shelves and sets up point-of-purchase and then displays them. The bottling process needs high capital and involves high-speed specialized lines. The bottling and canning process cost from $4 million to $10 million each, depending on the volume and package type.
The two cola companies franchise agreements give bottlers a chance to handle the non-cola brands of other concentrate products. This also gives them the option as to market new beverages or not which can be introduced by concentrate producer. The franchised bottlers were given the freedom to participate or reject new package instructions which include local advertising campaigns and promotions and test marketing.
Restructuring, Reengineering and Refocusing Organizations
For Coca-Cola and Pepsi, restructuring is a relevant act to ensure that they still are able to meet the demands of the market and that of their valued consumers.
One of the objectives of restructuring projects is to determine the best processes in which the work can be completed. This is also an opportunity of determining how the various departments of an organization fits together in the most effective way and in dealing with increasing work demands. In process reengineering, there are key players needed – the sponsors, project managers, project administrators and the project team. The latter participates in the creation of the model and assists in addressing the immediate workload distribution problems. (http://www.wghill.com/reengine.htm)
The products of the two cola companies are mainly distributed in the supermarket. They were among the top five largest selling products which get a 15-20% gross margin. These also represented a large percentage of the supermarket’s business. The discount retailers, warehouse clubs and drug stores increase its sales of up to 15% of CSD.
The strategy of the producers is directed towards can manufacturers which was typical for their supplier relationships. Coke continues to get its independent franchised bottlers and they became an investment banking firm which specializes in bottler deals.
The consolidation of the bottler made smaller producers dependent on Pepsi and Coke bottling network in the distribution of their products.
Strategic Control and Continuous Improvement
In business, strategic management is consists of the set of skills that each worker has in order to perform all the tasks and responsibilities assigned to them. This is important to capitalize on functional excellence to give way for specialists to give the greatest possible contribution to the organization and to understand how they fit in the organization in which they are a part. The successful companies give more attention on their efforts strategically. The main purpose of a strategic management process is the establishment of strategic options which can be of help in the success of the entire organization. (http://www.1000ventures.com/business_guide/mgmt_strategic.html)
Coca-Cola and Pepsi have seen the relevance of the local market and its demands for non-cola products. With this, Coke made a joint tie up with more than 200 brands in Japan and eventually in Brazil.
The yearly consumption of the consumers decreases in some regions of the country in the late 1990. However, the two cola companies were much more confident rather than worried that in the future the international consumption will increase and the use of downturn as an opportunity to snatch up bottlers. The two companies continue to make their products more available but less expensive. It is in this way where they can compensate the decrease of consumption in the previous years.
Implications for Middle Managers
In managing a large-scale enterprise, most especially if it is operating in the international market, is a very challenging tasks. It takes one genius manager to ensure the global company can continue to meet the demands of the market and the consumers. For middle managers, the success of Coca-Cola and Pepsi is also their success. Also, the success of each company is made possible because of each other. For middle managers, the good strategies of Coke and Pepsi made them stable in the local and global market. This, in turn, helps one another increase its annual profit as well as its share in the local and global market. The success also of Coke and Pepsi was made possible because of the hard work shown by each employee who might be assigned to do a specific task.
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Kotelnikov, Vadim. 2008. Strategic Management: New Approaches for the New Era of Rapid and Systematic Change. Retrieved on October 3, 2008 at http://www.1000ventures.com/business_guide/mgmt_strategic.html
McNamara, Carter. 1997-2008. Strategic Planning (in Profit or for-profit organization). Retrieved on October 3, 2008 at http://www.managementhelp.org/plan_dec/str_plan/str_plan.htm.
PepsiCo. 2008. About the Pepsi Cola Company. Retrieved on October 2, 2008 at http://www.pepsi.com/corporate/company_info/index.php.
The Coca-Cola Company, 2008. The Coca-Cola Company. Retrieved on October 2, 2008 at http://www.thecoca-colacompany.com/ourcompany/.
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