“Business level strategy refers to those strategies adapted by business units of the organisation.” (Robbins & Barnwell 2003, p. 142) The business units of The Coca-Cola Company, are its number of local bottling companies, these companies then develop business level strategies that are relevant to their particular market, in accordance with The Coca-Cola Company’s six global imperatives. Coca Cola uses the imperatives because the end product for both companies is relatively the same.
Since the appointment of CEO Terry Davis in 2001 at Coca-Cola Amatil, there has been a major focus on extending the product range to include milks, waters and juices, as part of the company’s strategy to respond to changing consumer tastes(Australian Fin Review, 19/4/02, S. Mitchell page 28). He also has plans to create “a leaner, flexible and more innovative organisation”(Financial News, 26/3/02, K. Walker) in order to respond to customers needs, currently staff numbers have been reduced by 6%( Australian Financial Review, 19/4/02, S. Mitchell page 28).
The differing levels of strategy require different structures, as they need to perform different functions. In reference to Coca-Cola, head office provides some of the core functions such as administrative and coordination activities, as well as product and market research. This is to ensure that their products are being consumed in the most profitable markets. Since their customers consume the products very differently in each of the markets, the “think locally, act locally” strategy was developed and is operationalised in the form of the bottling and distribution network.
Coca-Cola Amatil must think of how the Asia Pacific customers consume Coca Cola’s products. Coca Cola Amatil must follow the guidelines given by the Coca-cola company. It is then Coca-Cola Amatil’s job to put these into operation in their specific region, for example they market Diet Coke as one type of product to Australians, whereas the British bottling franchise would market Diet Coke differently to suit their market.
Miles and Snow’s Four Strategic Types
Raymond Miles and Charles Snow classify organizations into one of four strategic types based on the rate at which they change their products or markets (Robbins & Barnwell, 2002). They call these types defenders, prospectors, analysers and reactors.
Miles and Snow, (1978, cited in Robbins and Barnwell, 2002) state that defender firms seek stability by producing only a limited set of products directed at a narrow segment of the total potential market. They tend to ignore developments and trends outside their domains, with little or no scanning of the environment to find new areas of opportunity. A defender firm does however have intensive planning practices oriented towards cost and efficiency issues.
In contrast, prospectors are the opposite of defenders. Their strategy involves finding and exploiting new market opportunities. A flexible structure low in formalisation with decentralised control is a characteristic of a prospector organization. Innovation may be more important than high profitability. Success dependant on developing and maintaining the capacity to survey a wide range of environmental conditions, trends and events and introducing new products based on that research (Miles and Snow 1978, cited in Robbins & Barnwell 2002).
According to Miles and Snow’s strategic theory, the key characteristic of an analyser firm is that these organizations attempt to minimise risk by adopting innovations only after others have tested them for viability. They take successful ideas of prospectors and copy them, or in most cases take them over and greatly expand their production.
The fourth strategic type described by Miles and Snow (1978, cited in Robbins & Barnwell, 2002) is that of the reactor organization. This label describes the inconsistent and unstable patterns that arise when one of the other three strategies is pursued improperly. In general, reactors respond inappropriately, perform poorly and, as a result are reluctant to commit themselves aggressively to a specific strategy for the future.
Porter’s Competitive Strategies
Michael Porter of the Harvard School of Business argues that no firm can successfully perform at an above average level by trying to be all things to all people. He proposes that management must select a strategy that will give its organization a competitive advantage. Management can choose from among four strategies: cost leadership, differentiation, focus and stuck in the middle (1980, cited in Robbins & Barnwell 2002).
Porter (1980, cited in Robbins & Barnwell 2002) describes a cost-leadership strategy as being utilised when an organization sets out to be the low-cost producer in its industry. He states that success with this strategy requires that the organization be the cost leader and not merely one of the contenders for that position. Organisations can gain such a cost advantage by having efficient operations, economies of scale, technological innovation, low-cost labour and preferential access to raw materials (Porter 1980, cited in Robbins and Barnwell 2002).
In contrast, a differentiation strategy is one where a firm seeks to be unique in its industry in ways that are widely valued by buyers. It might emphasise high-quality, extraordinary service, innovative design, technological capability or an unusual, positive brand image. The key is that the attribute chosen must be different from those offered by rivals and significant enough to justify a price premium that exceeds the cost of differentiation.
The two previously mentioned strategies seek a competitive advantage in a broad range of industry segments. A focus strategy however, aims at a cost advantage or differentiation advantage in a narrow segment (Porter 1980, cited in Robbins and Barnwell 2002). Management will select a segment or group of segments in an industry (eg. product variety, type of end buyer, distribution channel, geographical location of buyer) and tailor the strategy to serve this segment to the exclusion of others.
Porter (1980, cited in Robbins and Barnwell 2002) describes organizations that are unable to gain a competitive advantage by one of the previous strategies as being “stuck in the middle”. Due to not utilising specific strategic thinking, he predicts that such organizations will have great difficulty achieving long-term success.
Application To The Coca-Cola Company
Coca-Cola outlines six key strategies that drive their organization:
To accelerate carbonated soft drink growth, led by Coca-Cola.
To selectively broaden its family of beverage brands and drive profitable growth.
To grow system profitability and capability together with its bottling
partners.
To serve customers with creativity and consistency to generate growth across all channels.
To direct investments to the highest potential areas across all markets.
To drive efficiency and cost effectiveness everywhere
(The Coca Cola Company Financial review, 2002)
When analysing The Coca-Cola Company, it became apparent that their strategic thinking was most like Miles and Snows, ‘Prospector” strategy. They rate innovation very highly and invest a lot of resources into market research and product development.
‘Creation of new value begins with a commitment to innovation, the kind of insight, creativity and determination that brings to life new ideas, new products and new consumer experiences”
(The Coca-Cola Company Annual Report 2002)
The Coca-Cola Company also develops and maintains the capacity to survey a wide range of environmental conditions, trends and events, though relies heavily on their bottlers and distributors for information on local markets. Pitts and Lei (2000) state that the secret behind the success of The Coca-Cola Company is in innovating new products and entering new markets no matter how prohibitive they appear to be. This observation is supported by The Coca-Cola Company’s recognition and response to the growing problem of obesity. Though still focusing on producing beverages, The Coca- Cola Company has diversified into healthier beverages such as juice, bottled water and in some countries ice-tea.
The strategies of The Coca-Cola Company are not all characteristic of the “prospector” approach as it would be very unlikely to have an organization that was perfectly matched to the theory. Innovation though rated highly, is not rated more highly than profit and The Coca-Cola Company does not have decentralised control, with all power and authority emerging from one head office in Atlanta, Georgia.
From our analysis and research, it appears that The Coca-Cola Company used to be quite defensive in their strategic thinking. They were very focused on carbonated beverages, weren’t taking into account global market trends and were not innovative thinkers. The strategy of The Coca-Cola Company only changed with the appointment of a new CEO, which is a good example of how the right people can positively change the direction, strategy and ultimately profit of an organization.
“Within the carbonates sector, there was a complete absence of core brand
spin-offs for an eight-year stretch until 2001. However, Coca- Cola's
repositioning as a total beverages company in 2001 after the appointment of
chief executive Douglas Daft led to a flurry of innovation”
(“The poor man’s champagne”, Centaur Communications (2003) p.16)
The behaviour and strategic thinking of The Coca-Cola Company is characteristic of Porter’s “differentiation” strategy. The Coca-Cola Company seeks to be unique in its industry by releasing products that are unique and do not have a counterpart already on the market (i.e., Vanilla Coke). They also emphasise a very positive brand image in an attempt to distinguish themselves from their competitors.
The emphasis on promoting the Coca-Cola “brand” appears to be very successful when taking account of recent taste tests. When participants were administered an unbranded taste test it was revealed that 51% preferred Pepsi, while only 44% preferred the taste of Coke. The difference in branded tests is startling; just 21% preferred Pepsi while 65% preferred Coke (2003, The poor man’s champagne, Centaur Communications Ltd.).
Coca-Cola Amatil
Similarities exist between Coca-Cola Amatil and Miles and Snow’s “defender” strategy. The organization strives aggressively to prevent competitors from entering their “turf”, however as a large amount of capital would have to be spent setting up the bottling and distribution facilities it would be harder for them to gain a competitive advantage compared with the Coca-Cola Company.
Coca-Cola Amatil outlines 6 key strategies that drive their organization:
Profitable Revenue Generation
Customer Service Improvement
Cost Reduction
Capital Management
The Coca-Cola Company Relationship
Community
(Coca-Cola Amatil Annual Report 2002)
As can be seen from their key strategies, Coca-Cola Amatil has a strong focus on cost and efficiency, which are characteristics of a “defender” strategy. While Coca-Cola Amatil conducts its own market and product development research, indicating more of a “prospector” approach, they are primarily focused on bottling and distributing and simply do not have the financial resources to maintain a strong focus on innovation and product development.
When analysing Coca-Cola Amatil, it appears they utilise Porter’s “focus” strategy in that they tailor their strategies towards the specific geographical location they are in and are aiming to exploit a narrow segment of the global market. Their aim is to be competitive on cost reduction and efficiency.
Distribution and bottling
The Coca-Cola company has made a conscious decision to set its self up as a majority shareholder in its bottling and distribution facilities, rather than owning them. For example, as it stands they own only 36% of Coca-cola Amital. Owning the intellectual property instead of the bottling services gives the company a better chance at maintaining their competitive edge.
However, by owning a large enough portion of these subsidiaries, Coca-cola can ‘keep their finger in the pie’ you might say. They still have a large influence over the company without taking on board all the risks involved in such a business.
Owning the services would create a drain on company resources. This structure not only saves on costs in financial terms, it also saves in terms of labour required by the Coca-cola company and costs attributed to the maintenance of the factory. Operations performed by the distributors and bottlers means huge cost savings involved for Coca-Cola.
Another reason for such a structure is that if the market changes in the country/area and demand drops off, Coca-cola have no problems in removing themselves from the situation with very little loss involved. The facilities, employees and costs would be mainly the responsibility of the outsourced companies.
We must also remember that local knowledge is a must for any international company. Using local distributors and bottlers allows Coca-cola access to this knowledge, making it easier to operate in various cultures and countries.
The strategies adopted by the company have also been affected by this decision. Strategic alliances have been set up as a direct result and they also use a “think local, act local” strategic ideology.
If coca-cola did own it’s own bottling and distribution facilities its structure would become more vertically integrated. Meaning not only would they have the intellectual property but also the supply chain would become part of the company. Coca-cola’s structure is currently a matrix with a component of operations outsourced to partial subsidiary companies. This would not be the case if Coca-cola owned these two services, the matrix would grow to include them.
The structures of the Coca-Cola Company and Coca-Cola Amatil are likely to differ in many aspects. First of all it would be very difficult for a single company based in Atlanta to control all aspects of their company on a world scale. Therefore the Coca-Cola Company deals solely with the selling of its brand name and by performing various administrative and coordinating activities. It also is involved heavily in product research and development and they also manufacture and sell the concentrate to the bottlers situated around the world. Whereas, Coca-Cola Amatil focuses solely on the production of the beverages, promotional activities and some product research.
Another reason that the structure of the Coca-Cola Company and Coca-Cola Amatil are likely to differ is because they are in two completely different areas in the world. Coca-Cola is consumed differently around the world depending on factors such as culture, climate and most importantly local tastes.
Structures
Its no secret that international corporations tailor products and marketing techniques to local markets. Coca-Cola sells around 300 different beverage brands in around 200 countries, but you would have to travel around the world to sample all 300 of these drinks, as they are not produced in every country. Tom Long, the president of Coca-Cola UK and Ireland, acknowledges that one of the great challenges about Coca-Cola is its mass-market appeal. He says Coke-cola has a "…broad customer base. Its promise is to be the world's most refreshing beverage, but again we don't have a prototypical consumer."
In America, there is no minty Ice, lemon Lift or passion fruit Fantas as there is in Australia. In fact, there are not many Fantas at all. It’s been a European favorite since the 1940s, when Coke attained the company in 1960 and began selling its full range of flavors around the world. In the U.S., orange, strawberry, pineapple and grape are available in selected areas. The point is what consumers want is not global, tastes vary around the world.
Having said this though many products and services fulfill basic human needs and wants and there seems to be no good reason why a drink that sells successfully in America won't be as successful in Melbourne. This means that, within the context of a global marketplace, the company manufacturing the drink in America could sell it in Australia. However, they need the resources necessary for production and distribution, and they also need to inform their target market about their product. This is what Coca-Cola does, and they do very well. But, they do not gain a great enough market share in just selling a single product to a global market. This is why Coca-Cola gives each individual subsidiary the opportunity to develop products to meet the needs of that particular region.
At some point in the future, consumer culture will be extensively homogenous. At the moment, there are still strong differences between markets, with different regions showing preferences for different products. These different choices stem from basics such as climate and complex social or religious factors. Coca-Cola are aware that these differences are not going to change overnight, and that the diversity of the human race should not be compromised for their own financial gain.
Recommendations
It is recommended that The Coca-Cola Company continue to be innovative and take on a “prospector” approach with their strategic thinking. They should maintain a high level of support and communication to their bottling partners and continue to be aware of environmental and market trends. Broadening their product range into various other markets and categories is also highly recommended for the continued success of the Coca-cola company.
Bibliography
Article accessed via Lexis Nexis, (2003) The poor man’s champagne, Centaur Communications Ltd.
Ferguson, Adele., Milk; Coke’s Next Big Thing, 10/7/2003, Business Review Weekly, page 28
Mitchell, Sue., CCA plans Nine New products, 19/4/2002, Australian Financial Review, page 64
Robbins.S.,P & Barnwell, N. (2002) Organisation Theory: Concepts and Cases (fourth edition). New York: Prentice Hall.
Pitts,R & Lei, D. (2000) Strategic Management: Building and Sustaining Competitive Advantage (second edition). Cincinnati, Ohio: South-Western College Publishers.
(2002) Coca-Cola Amatil Annual Report
(2002) The Coca Cola Company Annual Report
The Coca Cola Company Financial Review, 2002, www.coca-cola.com.au
