Myrna Assaf 12c

Yr 12 COURSEWORK: MODULE ONE

How Coca-cola use its competitive advantage to retain its market share

Hypothesis:

The core competence, which gives coca cola its competitive advantage, is thorugh its reputation and brand name.

       

What is competitive advantage?

Companies are constantly trying to maximize profits, minimize losses, and restrict their competitors from gaining more market share. Competitive advantage is the distinctive feature that makes coca-cola stand out from its ferocious competitors such as Pepsi. It is vital in an oligopoly which is the market structure of the soft drink industry. Coca-Cola makes use of its core competence i.e. its main strength in order to achieve competitive advantage and stand out. In order for Coca-cola to have higher demand than its competitors it needs to do something, which makes that product better than the rest. If not demand would fall, causing revenue to fall, causing profits  to fall as well. This means costs will have to be cut, which could mean having to fire workers causing unemployment or cut other investment such as in machinery or advertisment.

Having competitive advantage also allows coca cola to get bigger and more powerful through increasing sales and market share. Such an expansion is an advantage for coca cola and its costumers because when a business is big enough and has high output, economies of scale can be achieved. This is where as output increases average cost per unit falls. If costs are low it means that prices can be lower which means costumers are attracted and as a result demand increases. This increase in demand will cause an increase in total revenue and as a result profit will increase in the long term,or the company can use its cost savings in investing in other areas such as quality, new products or marketing. Coca Cola has amassed extreme customer loyalty, which has reduced consumer price sensitivity over the years and increased price inelasticiry. Thus, although Coca Cola's users can switch brands at anytime due to the number of brands available to them, 'Coca Cola loyalists' prefer the company's products over its competitors irrespective of price. This is mainly due to competitive advantage.

How is it achieved?

There are many ways in  which a company such as coca-cola may get its competitive advantage. The three main ways in an oligopoly  are through a combination of innovation, relations or reputation. Cost advantage is useful as it means that coca cola can decrease costs and therfore can use savings in strengthening these but it wont use it to decrease price as it is an oligopoly and price has inelastic demand.

First of all innovation can be used. This may certainly give coca cola competitive advantage because it introduces a new product, which many people will want to try. The advantages of this are that there would be no substitutes. This may mean monopoly power for a small period of time. This will obviously push up sales by a lot increasing revenue and therefore increasing total profit. Not only demand will increase but also the company is likely to erect barriers such as patents to prevent competition. The fact that it has no substitute would give coca cola inelastic demand. This is when demand is less sensitive to a change in price. People will like to purchase the good even though price is high because no substitutes are available. It may also give coca cola brand loyalty which means customers become loyal to them, even if competitors follow in the future. For example, Coke was the first company to invent the six-pack for people on the go. This new advancement brought in additional revenue as individuals purchased these bundles in place of a single bottle. This may mean that coca cola has a certain quantity of guaranteed sales which means coca cola would know that there is a certain number of products that will be sold for sure. Innovation also keeps the company dynamic. In Japan, for instance, where the market is extremely dynamic, coca cola introduces more than 200 new products each year. Examples of these are diet black cherry and vanilla coke which have arised curiosity amongst consumers and have risen demand in the first year of sales. This innovation will keep the company changing and not stagnent This will prevent demotivation and may motivate some workers. This motivation means that workers are more willing to do their job better and therefore productivity will increase. This will also add value. This will make coca cola able to charge higher products for its goods because the value is added through the value chain i.e. processes that they input through until they become the “output”. Another major advantage is that as the new item launches, it may draw from the previous success of the already established product. This "halo effect" helps both new and old consumers recognize Coke’s merchandise. Consumers associate the sturdy name of Coca-Cola and are therefore more willing to branch out and try new products. In return, if the product does well, it contributes to the principle brand of Coca-Cola.

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However there are also some disadvantages, which mainly are the costs. These costs come in the form of market research costs to know what people want and what they are looking for. The surveys and sending people out will make short-term costs rise. This will cause a short-term fall of profits. Another disadvantage is the research and development of the product itself. Maybe the innovated good requires new machinery that has to be purchased. It may also mean introducing a new production process. This will surely raise costs causing a short-term fall in profit and could need a lot of time to ...

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