PED = %ΔQd /%ΔP (PED=20/-10)
Graph 1.41
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Income elasticity of Coca cola is the response of demand in quantity to change of consumers income .During the period of decline in consumers income ,the demand of coca cola also declines,as Coca cola is not considered to be a basic necessity for consumers , instead the demand for Milk and bread increases .On the other hand when the consumers income rises the demand of coca cola increases termed as 'Normal Good'.
Cross price elasticity of demand:
The substitute product of coca cola is considered to be Pepsi, in that way if the price of Coke decreases by 10%then Pepsi will have increase in its demand by10%.
XED = %ΔQd Good A /%ΔP Good B (+10/+10= +1)
The complimentary product of coke will be fast foods like McDonald's burgers etc.
If the price fast food increases the demand for coke will decrease.
Graph 1.51
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The market structure of coca cola is considered to be Duopoly which is also a type of oligopoly. Coca cola and its rival competitor Pepsi is having this type of market structure. There is a high barrier for new competitors to enter as the sector is dominated by these two firms.Also, there is chances of indirect rivalry for price decisions.
The target market of Pepsi and Coke are focused more on Teen and youngsters. Pepsi came up with a strategy to sponsor an music event by which teens are more attracted. Thus they decided to become the official sponsor for 'The X Factor' 1 .In response Coca cola planned to sponsor 'American Idol' 2 . Also Coca cola has started a competition called 'Discover with Taio Cruz' 3 which is a challenge for upcoming artist to collaborate with Taio Cruz.
By the above example it is clearly understood that Both Coca cola and Pepsi are targeting the same market i.e. Music loving Youngsters and teenagers but different strategy.
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2&3 -
Coca cola segments its market as
Demographic Segmentation
Age is a very important factor for determining the segments of coke.For age groups 14-28 the regular classic coke takes its share. On the other hand for diabetes people, 28-40 age groups, the company has Diet coke Which has no sugar .Also for consumers who require more caffeine, no sugar& zero calorie the company has Coke zero as choice. For low income groups coke has returnable glass bottles, for high income groups PET bottle coke is available, apart from that coke's pricing strategy is in a way that most of the people can afford so they also have Tin cans coke. For various family sizes coke has various quantities such as 200ml,350ml,500ml,1ltr,3ltr and cluster of cans(6s,12s,18s).
Geographic Segmentation
Hot and sunny weather pattern countries like UAE and African countries.
Psychographic segmentation
Focuses on Music and sports lovers (ex : Coca cola owns a baseball park in Allentown,Pennsylvania attracts sports consumers)
Pricing Strategy:
Coca-Cola uses have different pricing strategies because of its existence over 195 countries:
Psychological pricing strategy: The price of a 2-liter bottle of Original Coke was $2.495. They set the price to end in a 9, because this makes customers think the price is less than $2.50, to appeal to the customer.
Promotional pricing strategy: In supermarkets coke is priced temporarily low, to increase short-period sales. It creates a sense of urgency to purchase it quickly as it the price is for short term
Segmented pricing strategy: Coca-Cola has 6s cans, 6s bottles, and 12s cans of the same product, all for separate prices. By their product in different sizes and at different costs, they get to increase their revenue, because there is not much difference in the costs required to produce the products.
International pricing strategy: For instance, the price of a 2-litre bottle of Coke in the United States is different from the price of the same product in China. This has to do with the difference in economic conditions, competitive situations, and laws.
Channel pricing: Coke carries a different price depending on whether it is purchased ill a fine restaurant, a fast-food restaurant, or a vending machine.
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Coca cola will be the Official Sponsor for London Olympics& Paralympic games 2012 .By sponsoring this massive event Coca cola is targeting to create high demand among young athletes and sport loving spectators.
"The Olympic Games are described as the 'Greatest Show on Earth'. With a global TV audience of over 4 billion, 8 million spectators, 10,000 athletes and more than 200 countries competing, the show is now coming to London in 2012.Our aim is clear. To use the power of the Olympic Games and the passion and talent of our people to accelerate our plans to create an even stronger business for years to come"(
By this statement it is clearly understood that Coca cola has planned to create high demand.
As you can see from the above graph that there has been a steady growth in sales for the last decade exceptionally due to the effect of global economic recession a mere decline in 2009 happened. When Recession occurs some consumers choose to buy only basic beverages like Milk, spring water etc.which in turn affects the sales rate of Coke. Therefore, by this graph and the strategy to sponsor Olympics , we can forecast that there will surely be High demand in 2012.
Government policy:
In some countries the government policies act as barrier to increase demand.
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In 1999 Belgium government banned the sales of coke due to health policies ( )
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In 2006, the Indian state of Kerala banned the sale and production of Coke, along with other soft drinks, due to concerns of high levels of pesticide residue.( )
- At 2006 in USA, a number of states had regulations restricting the sale of soft drinks and other foods in schools.
The company functions over 195 countries and it deals with 47 currencies.
Coke uses cumulative foreign exchange structure i.e holistic not a individual currency market.
If there is some fluctuation in the currency market it affects
- International operation
- Weakness in global economy
- Price reduction due to local competition
- Less profit due to weakened currency
- Dollar's fall against other major currencies will increase its turnover.
"The company manages most of the foreign currency exposures on a consolidated basis, which allows us to net certain exposures and take advantage of any natural offsets. In 2005, we generated approximately 71 percent of our net operating revenues from operations outside of our North America operating group; therefore, weakness in one particular currency might be offset by strengths in others over time. We use derivative financial instruments to further reduce our net exposure to currency fluctuations. Our Company enters into forward exchange contracts and purchases currency options (principally euro and Japanese yen) and collars to hedge certain portions of forecasted cash flows denominated in foreign currencies. Additionally, we enter into forward exchange contracts to offset the earnings impact relating to exchange rate fluctuations on certain monetary assets and liabilities. We also enter into forward exchange contracts as hedges of net investments in international operations.
Interest Rates:
We monitor our mix of fixed-rate and variable-rate debt, as well as our mix of term debt versus non-term debt. From time to time we enter into interest rate swap agreements to manage our mix of fixed-rate and variable-rate debt."
Conclusion
