A Story ofGlobal Success

No study of business success inthe twentieth century would becomplete without mentioningCoca-Cola.

Coca-Cola is the product whichperhaps best exemplifies globalmarketing. The Coca-Cola trademarkis recognised by 94% of the earth’spopulation and Coca-Cola is thesecond most universally understood phrase after OK.

It is not only instantly recognisablebut it can be found almostanywhere from petrol stations andshops in Central Africa, to smallvillages in mountainous areas onall five continents.

The first Coca-Cola was developedaccording to legend, by Dr. JohnStyth Pemberton in a three-leggedbrass pot in his backyard.

If you look at the first outdooradvertisement for Coca-Colawhich appeared in the nineteenthcentury you can see that thecompany is based on a core strengthwhich has an enduring quality.

Coca-Cola is “delicious andrefreshing”. This theme has been akey feature of advertising for thedrink ever since and more recentlythe message was that “Coke is thereal thing” i.e. anything else whichpurports to be similar, is at best,simply a pale imitation.

The Coca-Cola Company has anumber of important soft drinksproducts the most well known ofwhich are:•• Coca-Cola•• diet Coke•• Sprite•• Fanta

The illustration below shows abreakdown of the sales of theseproducts.

Key aspectsof Coca-Cola’s

BusinessThe Coca-Cola Company’sbusiness policy provides an objectlesson in many important principlesof business. For example:

i. Focus on the best lines.Coca-Cola concentrates on itsmost profitable lines. In 1984 77%of Coca-Cola’s operating incomecame from soft drinks. Today thefigure is 97%. By selling offbusinesses not sharing the sameattractive financial fundamentalsa s t h e s o f t d r i n k b u s i n e s sCoca-Cola now operates only inthe area of high-return business.

ii. ReinvestmentRe-investing profits is the key toongoing business development. Ifprofits are made today it isimportant to make sure of a basefrom which profits may be madetomorrow.In the 199Os Coca-Cola hasconcentrated its profits onre- investment . In 1983 thecompany’s dividend payout ratiowas 65% i.e. most of its profitswere paid out as dividendsto shareholders. Since thenCoca-Cola has been increasingdividends at a slower rate thanearnings growth, so that today, 6O%of profits ($66O million in 1994)was available for reinvestment.

iii.Focus on the consumerAll successful businesses today arebased on focusing on the consumer.If a company meets the requirementsof its consumers (and indeedexceeds these requirements), thenyou have a sure-fire recipe forsuccess.An important measure of success isthe volume and value of sales thatyou make.

The world-wide success ofCoca-Cola is illustrated in the chartbelow:

Coca-Cola hass e t o u t t ob e c o m e t h ew o r l d ’ sn u m b e r o n ec o n s u m e rm a r k e t i n gc o m p a n y b yt a k i n g c l e a ra c t i o n s t od i f f e r en t i a t etheir products.

i. Differentiationwith customersThe direct customers of Coca-Colaare outlets such as service stations,newsagents , le isure centres ,cinemas, clubs, supermarkets andmany other retailers selling softdrinks. In this area the emphasis inmarketing has therefore been onproviding superior del ivery,promotional services and salessupport. All of these elementsclearly differentiate Coca-Cola asbeing the beverage supplier mostlikely to generate profits forretailers.

ii. Differentiationwith consumersThe end consumers of Coke are themillions of people who consumesoft drinks world-wide. Over manyyears Coca-Cola has expanded itsmarkets horizontally in countryafter country, until there isvirtually no place on earth wherepeople do not drink Coca-Cola.Today this horizontal growth isalmost total, with fewer than 20countries not taking the product.

Coca-Cola is therefore now trying todevelop the brands vertically. Thissimply means creating a deeperconsumer desire for that brand thanexisted the day before. It involvesgiving people additional reasons tobuy Coca-Cola brands instead ofreasons to buy competing ones. Thatis the essence of differentiation. It isnot an easy task, because already 5.6b i l l i o n p e o p l e h a v e a w e l lestablished understanding of what Coca-Cola means to them.

However, there are considerablestrengths which support Coca-Colain this task namely:- The trademark which is so widelyknown and part of the publicimagination.

- Coca-Cola is continually buildingon i ts exis t ing expert ise inm a r k e t i n g a n d c o n s u m e runderstanding, and is supported byaccess to a wealth of financial andcreative resources.-Coca -Co la ha s an “ac t i onorientation”. Instead of waiting forchange to happen it is at the leadingedge, driving action forward.

iv. Win the largestmarket share.Being the major player in abusiness market is the key tobusiness success.A company only becomes themajor player in a market by beingthe best, and being the best meanshaving a detailed understanding ofits consumers’ requirements andthen exceeding these requirements.Once a company is a major playerthen it has considerable advantagesto draw upon. These advantagesare based on having a higher returnon capital than its rivals and theopportunity to plough this returninto fresh investment. Such areasfor investment are marketing,product research and development,and other aspects of soundbusiness growth.

The chart below illustratesCoca-Cola’s posi t ion as theworld’s favourite soft drink.In particular you should look at thecolumn showing leadership margini.e. the ratio of sales betweenCoca-Cola and its nearest rival softdrink. (Of course in many cases thenearest rival is produced byThe Coca-Cola Company).

Who Dares Wins!Organisations do not becomesuccessful by sticking rigidly to atried and tested formula. Of course,they stick to and cement in theircore strengths, but in a turbulentand dynamic marketplace, they alsoadapt and become agents forchange.

Successful individuals andcompanies have to keep succeeding,keep challenging themselves to dobetter to increase their lead.

Today, with hindsight, a number ofkey people at Coca-Cola recognisethat the company has not alwaysbeen prepared to take the risks that

Who dares wins - Success through Intelligent Risk

THE TIMES 100...THE COCA-COLA COMPANY

1994 Operating income

1984 Operating income

97%Soft Drinks

77%Soft Drinks

3%Other

23%Other

333

Benelux/Denmark

South Africa

Japan*

Hungary

Great Britain

Philippines

Italy

Brazil

Spain

Canada

Argentina

Germany

Chile

Israel

Norway

Australia

United States

Mexico

France

Zimbabwe

Korea

Thailand

Romania

Morocco

Int'l average**

Kenya

Poland

Taiwan

Turkey

Egypt

Nigeria

Indonesia

Russia

China

India

Ukraine

310

274

256

222

217

191 189

169 166

152

146

133

111

101

96

94

92 65

62

59

54

46

40

35

29

29

27

26

26

22

6

5

3

2

1

AustraliaBelgiumBrazilChileFranceGermanyGreat BritainGreeceItalyJapanKoreaNorwaySouth AfricaSpainSweden

Coca-ColaCoca-ColaCoca-ColaCoca-ColaCoca-ColaCoca-ColaCoca-ColaCoca-ColaCoca-ColaCoca-ColaCoca-ColaCoca-ColaCoca-ColaCoca-ColaCoca-Cola

3.9-19.0-13.7-14.5-14.2-13.5-11.8-13.7-12.8-12.2-11.6-12.7-13.8-12.4-13.6-1

diet CokeFantaBrazilian BrandFantaFrench BrandFantadiet CokeFantaFantaFantaKorean BrandCoca-Cola lightSparlettaSpanish Brand

MarketLeader

LeadershipMargin

SecondPlace

The World's Favorite Soft Drink

Share of flavored, carbonated soft drink sales.Source: Company data/store audit data

Fanta

PER CAPITA CONSUMPTIONAND UNIT CASE VOLUMESUMMARIES

THE TIMES 100

were required to achieve success.In the 6Os and 7Os for example theorganisat ion was somewhatconservative. It became reluctantto take risks, or even initiatechange in the core business.Experimentation was confined todiversification away from the corebusiness and into wines, coffee,water desalination and even fishfarms. As a result Pepsi-Cola wasable to make inroads into USmarket share, while Coca-Colacontinued to expand outside theUnited States.

Strategic Changein the 1980s

The 198Os heralded an era ofchange for Coca-Cola. On the 8thof July 1982 diet Coke waslaunched in the United States,

s tar t ing a newperiod in whichCoca-Cola wasprepared to takerisks by bringingin new products inthe soft drinks

sector. Within a year it had becomethe largest selling low-calorie softdrink in America.

In April 1985 the Company tookthe ul t imate r isk. I t removedmarket- leading Coca-Cola fromthe US market and introduced NewCoke. The decision was madeafter extensive marketing - forexample by canvassing 190,000consumer opinions and taste-testsof various Coke formulations.

The launch was spectacular in thatwithin 24 hours more Americanswere aware of the birth of NewCoke than had known about man’sfirst steps on the moon in 1969.

However, the market reaction didnot match the research. Withindays, several opinion poll showedthat consumers overwelminglypreferred the or iginal tas teCoca-Cola to the new Coke. Therewere floods of complaints acrossAmerica.

So what went wrong? In this case,blind testing did not tell the fullstory. Coca-Cola had minimisedthe “product” risk, but completely

under-estimated the brand risk.Consumers told the company thatthey were going to buy the newCola, but they were thinking morehypothetically. As a result, thecompany overread the research.

Consumers wanted to remind thecompany that their favourite softdrink belonged to them. It wasmore than a drink, it was a brandthat was an integral and aninseparable part of their lives!Chairman CEO Roberto C.Goizueta can laugh about it today,he might even make the samedecision again based on theresearch that was used. But fewexecutives would have taken therisk that he and his company took.

The Coca-Cola Company listened.and then dared to replace itswinning formula. It was nowdaring enough to admit it had beenwrong to do so. They meant tochange the dynamics of sugarcolas in the US, and they didexactly that albeit not in the waythey had planned. In the end, thecompany learned that in order tomaintain the interest and therespect of its consumers, it wouldhave to continually differentiate itsbrands in ways that offered highlyrelevant value.

The original Coca-Cola reappearedas Coca-Cola Classic to regain thetop slot as the USA’s leading softdrink, while the new formula,today known as Coke II, remainedo n t h e m a r k e t b r i n g i n g i nadditional sales and gaining extramarket share. By 1994 Coca-ColaUSA core sugar colas volume hadgrown 29 per cent since 1985. Thecompany’s share of U.S. soft drinksales, which had been declining,climbed from 39 per cent to 41per cent. Today, The Coca-ColaCompany stands at more than $75billion - better than eight timeswhat it was on April 23, 1985.

Since the 198Os the company hasfocused on its core business. Inparticular it recognises that itneeds to face its past mistakes withhonesty, and that the culture of theorganisation needs to be based onopenness. and intelligent risk-taking. The evnts of 1985 changedforever the dynamics of the softdrinks industry and the success of

The Coca-Cola Company. Goizuetacharacterised the new Cokedecision-then and now as a primeexample of taking intelligent risks.

Mr Goizueta emphasized thatevery single one of the best peopleat the Company has taken somesignificant risks in moving thebusiness forward. And every oneof them has endured risks thatfailed. With the benefit ofhindsight, you start to learn that theperception of risk is often based onfaulty assumptions. Sometimes ifyou look at the decision in adifferent way, what appearsdangerous at first is not really sucha risk after all. But it is importantto remember that intelligent risksare based on honesty, carefulcalculations and anticipatedresults. They are not gambles madeon a whim or determind by a tossof a coin.

The Coca-Cola Company iscommitted to re-inventing itselffor successive generations ofconsumers. In product terms thismeans offering a range of newdrinks to provide a wide repertoireof refreshment - choice, variety,excitement, and fun. The companyhas recently launched a variety ofnew drinks in the United Statesand, of course, Fruitopia in theUnited Kingdom. The launch ofFruitopia and OK Soda (in theUnited States) in 1994 were basedon “Pre-search” - not selling whatyou can make, but making whatyou can sell.

Fruitopia is a line of all naturalfruit juice drinks which offersvariety, taste and refreshment, witha range of flavours includingPassion Fruit Lemon Affinity andBlackcurrant Babylon.

Fruitopia and OK Soda reflect TheCoca-Cola Company’s emphasison creating value by activelymeeting consumer needs with newproducts. These new products willsupport existing brands and help togenerate growth for the organisation.

At the same time Coca-Cola hasup-dated its advertising approach.Instead of focusing on classiccommercials such as the seventies“I’d like to teach the world tosing.” - there are now a variety of

commercials under the umbrellatheme “Always Coca-Cola.” Theadverts are different and designedto meet the mood of programmesthat people are watching and hencetarget different audiences.

The organisation has also beenprepared to take risks in otherareas related to the promotion anddistribution of its soft drinks. Forexample, Coca Cola has becomethe number one sponsor associatedwith football, music, T.V showsand films in the UK. The ITV dietCoke Movie Premieres constitutedITV’s first ever programming-strand sponsorship

Daring to risksuccess

The culture at Coca-Cola hasshifted from the conservatism of the1960s and 1970s to one of “daringto risk success”. Risk can involvefailure, but if corporate valuesystems place too much emphasison penalising failure rather than onrewarding success, people will nottake risks - neither the people or thebusiness will flourish. Coca-Colawas able to turn their experience oflaunching New Coke into a successby recognising its mistakes. Theemphasis today is on being boldenough to face new challenges andbeing able to seize marketopportunities.

Ploughing back prof i ts intoinvestment has enabled thecompany to provide the impetus totake fresh risks. And the emphasison consumer orientation has meantthat products have continued to besuccessful, providing the impetusand cash-flow for new growth.Through “pre-search” Coca-Colais able to produce the products thatconsumers want, and if they do notprove to be successful they arebold enough to listen and to makechanges. The secret of success is tobe flexible in your response toongoing change in the market.

Taking intelligent risks will oftenmean taking bold decisions ratherthan “making do” with workingarrangements. For example, in1987 the company caused anupheaval in its own distributionsystem in the UK. It replaced theservices of two well-established

bottlers and set up a single, new,British operating partner. Itachieved this by establishing ajointly-owned company with thethen bottler of Coke’s biggestcompetitor. Sales doubled withinthe first five years of the newventure!

Today Coca-Cola is not onlyBritain’s most popular soft drink, butis the biggest selling of all grocerybrands across all categories. Thenumber two is diet Coke!

Elsewhere in the world, TheCoca-Cola Company has proveditself ready to do business in noveland inventive ways. The day theBerlin Wall came down in 1989,Coca-Cola representatives werehanding out cans of Coke to theEast Germans as they walked intoWest Berlin. Within three monthsthe company was distributingCoca-Cola to the Eastern States. By1 9 9 0 , 2 1 m i l l i o n c a s e s o fCoca-Cola were sold there and$450 million was being invested inland, buildings and equipment. By1993, per capita consumption in theformer East Germany had matchedthat of the western states at the timeof reunification.

Taking Risks -a Learning

Process.Intelligent risk taking at Coca-Colahas three main features:

1.There is confidence in thecore business. The organisationknows that people like Coca-Colaand want to have it available to them.

2.Action is taken boldly andswiftly. Once Coca-Cola recognisewhat they want to do, they get it donein a decisive, no-nonsense way e.g.the expansion into Eastern Europe.

3.The company is capable of learning“on the run”. It has the flexibility tochange course if things do not quitework out as was originally plannede.g. the launch of New Coke.

The important thing about intelligentrisk taking is not how you take a risk,or even what the risk is. Learningthrough the experience of takingrisks is vital if better results are to beachieved next time.

1 List eight reasons why The Coca-ColaCompany has been so successful in the

twentieth century?

2Explain how The Coca-Cola Company can make sure that the reasons which

you have identified in question 1 continueto lead to business success.

3Carry out a SWOT analysis on t h e Coca-Cola soft drink.

A SWOT stands for:+ Strengths + Opportunities- Weaknesses - Threats

When you are marketing a product youshould work out what its strengths andweaknesses are - then try to work out whatthe opportunities are which will help you topromote the product, and finally, the threatslikely to be faced by your product in thefuture.

For example, if Mars were going to do aSWOT analysis for its product the Mars icecream it might say -•• Its strengths include - the fact thateveryone knows what a Mars bar is;that the product can be stored easilyin supermarket freezer cabinets; that ithas a very strong brand image, etc.•• Its weaknesses include - that it hasto compete in an established icecream market in which Unilever has,until recently, been able to exercisefreezer exclusivity. It would be lesspopular in winter than in summer, etc.•• Its opportunities are -opportunities to sell in mass newmarkets throughout Europe and theworld. The fact that as incomes risepeople are prepared to spend more onnew foods like chocolate ice creambars, etc.•• Its threats might include - thatother companies have been quick tocopy the idea with similar chocolatebased products, other Europeanmanufacturers like Nestle alreadyproduce chocolate and ice cream, etc.

What Mars needs to do, then, is to promoteand improve strengths, play down and cutout weaknesses, make the most ofopportunities, and be aware of and respondto threats.Do your SWOT analysis for Coca-Cola, orfor diet Coke.Can you list three strengths, three weaknesses,three opportunities and three threats?Decide how you will:•• Maximise the strengths•• Minimise the weaknesses•• Make the most of opportunities•• Reduce the threats

Use the SWOT analysis sheet below:

SWOT ANALYSIS FOR COCA-COLA

STRENGTHS WEAKNESSES

OPPORTUNITIES THREATS

4Explain how Coca-Cola has beenable to take intelligent risks in

recent times?G i v e e x a m p l e s . W h a t d o y o uunderstand by an “intelligent risk”?

5 The Coca-Cola Company states that:

What do you understand by the term pre-search? Explain why i t i s s oimportant in dynamic and changing markets.

6The illustrationopposite shows

Coca-Cola’s shareof the world-wides o f t d r i n k si n d u s t r y i n1994. Explain howhaving this marketshare enables thec o m p a n y t ocontinue to be successful.

7The diagram below illustrates Coca-ColaUSA per capita consumption in 1994.

How would you account for regionaldifferences in demand?Why might Coca-Cola need to employ adifferent marketing mix in different regions?Explain how this marketing mix mightvary from one region to another.

8Firms brand their products for a numberof reasons. For example:

i. To create brand loyalty. Consumers willoften develop a loyalty to a brand like diet Coke or Sprite. It then becomes verydifficult for competitors to loosen thisloyalty.ii. To differentiate their product. This isespecially true in markets where productsare fairly similar e.g. in producingdifferent types of motor oil.iii. To gain flexibility in pricing. Wherecompanies are able to build up a strongbrand following they are not constrainedby the actions of competitors in settingprices.iv. To help recognition. Strong brandnames are associated with particularproducts e.g. Hoover, Sellotape, Coke, etc.Imagine that you have been givenresponsibi l i ty for developing andpromoting a new soft drink for TheCoca-Cola Company. Explain how youwould build up the brand to gain theadvantages of branding.

9Outline what you consider to be them a i n l e s s o n s t h a t a l l b u s i n e s s

organisation can learn from the Coca-Colaexperience.

THE TIMES 100...THE COCA-COLA COMPANY

The Times Newspaper Limited and ©MBA Publishing Ltd 1995.Whilst every effort has been made to ensure accuracy of information, neither the publisher

nor the clients can be held responsible for errors of omission or commission.

TASKS & ACTIVITIES

Coca-Cola, diet Coke, Fanta and Sprite are registered trade marks of The Coca-Cola Company.