1-Description: Coca-Cola is the top ranking beverage brand on the globe. Resources say that Coca-Cola licenses and markets almost 500 beverage brands including waters, juices, sports drinks and disposable coffees and teas. It has world’s largest distribution system in almost 200 countries.
The production process of coke is an interesting but complex procedure. Factors of production involved in the business are generalized as land, labor, capital and enterprise. Capital requirements for Coca-Cola consist of machinery required for the production of bottles and the cola drink it in bulks. Labor refers to the managers, supervisors, production staff and frontline employees. Land may include renewable (water and trees) and non-renewable (minerals and fossil fuels) resources that a business owns. Land resources of Coca-Cola consist of minerals for preparing glass bottles, oils for plastic bottles and contents for the production of cola drink. Lastly, the Enterprise consist of resources to organize and plan all the above three factors. Entrepreneurs are differentiated from the labor resource as they possess creativity and passion.
The major competitors of company include PepsiCo., Nestle and Dr. Pepper Snapple Group, Inc, Lipton, Tropicana. Coca-Cola is a global brand and tends to associate itself to all age groups, geographic areas and lifestyles. It has created a strong brand image through massive advertising and marketing . Coca-Cola has tried to reach its consumers through a wide distribution network. It has a very strong value chain network of distributors, suppliers and retailers. The different sale points owned or hired by the company include: whole-sellers, corner/grocery stores, restaurants/cafes, gas stations and lastly Automated Teller Machines in malls. Coke has positioned itself strongly in consumer’s mind through high visibility and availability, across the globe.
Suppose that the company is operating in a mixed economy of developing country where federal and private bodies’ together plan and practice economic control. Coca-Cola is a global brand but, still it has to operate in accordance with the respective country’s economic policies. Prices are regulated with the consensus of federal government and company has to follow the local labor laws. The mixed economy favors consumers’ sovereignty to buy products of their own choice. Coca-Cola shapes the psychology of its consumers and thus the consumers are free to buy the product they want. Coca-Cola follows government’s economic policies and acts as a socially responsible organization through CSR. CSR practices influence consumers purchase patterns. From sales and purchase perspective, a free market economy exists along-with competitive business environment and free flow of products.
2-Scarcity and choice in the market: In a beverage market, apart from Coca-Cola, consumers have certain other choices like Pepsi, Miranda, Nestle juices etc. In addition to that, local beverage companies like gourmet and Olfrute offers beverage choices for consumers.
In a scarce market where product availability is limited, consumer faces a number of constraints like reduced switching power, less bargaining power, tied to buy the same product often and get no other taste changers in the market. Coca-Cola may have a gigantic power to lead the market by being in tough economic competition. Discussing scarcity in terms of producer resources, Coca-Cola may face scarcity of human labor, machinery, and secret formula ingredients, plastic bottles and cans etc. ‘Scarcity’ is actually used for limitation and insufficiency of resources in an order to achieve the desired goal.
3- Cost Benefit Analysis: Cost-benefit analysis is conducted to find out whether benefits outweigh the cost. Analysis of Coca-Cola is clearly shown in the diagram below where Coca-Cola’s market availability increases its brand loyalty and demand, thus increasing its sales ultimately.
Incentives: Economic incentives are steps taken by businesses and individuals to protect the environment while taking care of personal benefits. Three types of economic incentives exist as stated by Clark and Wilson (1961), to manipulate behaviors and attitudes of people towards the organization:-
- Market incentives: monetary or tangible rewards like wages and fringe benefits.
- Solidarity Incentive: Associative rewards usually intangible like status, sociability and identification.
- Purposive Incentives: Related to organizational goals like working for a quality award for company.
CSR practices and customization of product by Coca Cola present a positive brand image of the company. Coca-Cola has already taken care of consumer behaviors through advertising and creating customer value. It should continuously reinvent its marketing strategy as it is already a market leader. Providing economic incentives to consumers makes them think about the company and they consider the organization’s products as the best use of their scarce resources.
4- Elasticity of Demand: It refers to percentage change in quantity demanded due to a 1% change in price of product. A number of factors affect the elasticity like income, availability of substitutes, duration of price fluctuation, and consumer preferences. If the percentage change in demanded quantity is more than the relative change in price (absolute value>1), we can say demand is elastic. But if absolute value of price elasticity is less than 1, then the demand is inelastic.
PED = % Change in Quantity Demanded / % Change in Price
Demand for coca-cola is elastic because it has a large number of substitute products especially Pepsi. So if a change in price of Coca-cola happens, its demand will decrease but with time. Time duration plays an important role in determining the elasticity of demand, if the price increase is for a short time then the demand will be inelastic but if the price change is for long-run, demand, customer may switch.
Income elasticity refers to a percentage change in quantity demanded due to a 1% change in income of consumer. It depends on a number of factors like: income level, time period, availability of substitutes, etc.
IED = % Change in Quantity Demanded / % Change in Income
Whenever the income of consumer increases, the demand for Coca-Cola will ultimately increase.
5- Demand And Supply: There are many articles written on coca cola for instance A Case Study on Corporate Peace: The Coca-Cola Company: Coke Studio Pakistan , Corporate Social Responsibility Does Not Avert the Tragedy of the Commons-Case Study: Coca-Cola India, Explicit Evidence of an Implicit Contractand Advertising Soft Drinks to Children: Are Voluntary Restrictions Effective. The factors affecting demand of coca cola includes: prices of relative goods in coca cola case there are many substitute like sprit, Miranda etc hence if coca cola increase its price and products price remain same it will effect coca cola demand, secondly, income of consumer which has direct relation with demand hence if income increase demand increases as shown in figure a thirdly, taste and preference also effects the demand of coca cola if consumer have no taste of coca cola increase price would decrease its demand, fourthly, time plays its role like during summer, fifthly, any rumor or news like pesticide in coca cola will reduce its demand and product price will decrease like shown in figure b, lastly, age group is not a constraint it is for almost every age group for young and old. On the other hand, supply analysis of coca cola states that the price of coca cola its positively related to quantity of the coca cola, if price of cola increases the producer wants to produce more product. The state of production also plays its role in determining the supply, better technology leads to low production cost which allow the supplier to supply more on the fewer prices. Further numbers of consumer are also important for supply purpose
In case of coca cola the number of consumer are in large number hence supplier are willing to supply more. Lastly price of inputs which includes labor cost, machinery etc. the cost of these factor would reduce as the producer is ready more at the same price. There are two types of shifts discussed in the supply curve upward shift and downward shift. For example in upward shift supply of sugar decreases due to increase in price which turn out to be a reduction in coca cola production as shown in figure c where in downward shift due to enhancement in the technology the cost of producing coca cola decreases which ultimately motivate the supplier to supply more at the same price. Further given the current economic situation in the world it can safely say that there would be no major changes in the prices and quantities of coca cola product in the next year.
6- Market Characteristics: In economics, markets are usually defined as the set of conditions for buying and selling of a product and the interaction between the producer and consumer. Four different types of market models exist: Perfect competition, Monopolistic competition, Oligopoly and Pure Monopoly.
Coca-cola exists in a market where it has obscured the market along-with PepsiCo.. In the last decade many new brands have entered the market and are competing according to their market size. It is a kind of Monopolistic competition. Products produced are slightly different in type and quality. Entry barriers relating to social, technological or legal factors exist but not significantly for entry of new producers. Buyers and sellers are fully aware of the competition and price fluctuations, and the sole goal of the company is to increase its profit share.
In short run, if new producers enter the market, demand for coca-cola will be elastic and demand curve moves to right lowering price and diminishing profits. While in long-run, new entrants inspired by high profits come and after some time hen competition increases leave the market, bringing profits back to normal.
Fig3. Monopolistic Competition (In short run and long run)
In a monopolistic competition, consumers get the chance to grab a handful of goods at low prices. Products differentiate from one another, expanding range of products. But the consumers cannot differentiate between the products. As it happens too often with Coca-cola and Pepsi, consumers even find it hard to pronounce them differently. In a monopolistic competition, producers get the chance of using market resources to the fullest. New products are introduced to fight market competition and increase profits. It ensures success of firms who fight for long time.
Coca-cola has fully matured as a brand and it needs to evolve its products through continuous and intense R&D practices. In the next 5 to 10 years, company has to spend a lot on R&D to become a monopoly in the market. But economy is never sure about anything; one bad day may turn the tables for anyone.
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