Case Analysis: COKE UNDER FIRE

Submitted by: Group#3

Dela Cruz, Azmia Binanitan, Samantha Baylon. Lois Raphle Atienza, Morris Gudito, Paolo Zano, Mark Lester King, Jeff Ignacio,

I. TIME CONTEXT In the year 1999, Coca-Cola proposed to purchase the soft drink brands of Cadbury Schweppes particularly in the European market. For over two years, CocaCola struggled to acquire the soft drinks brands of the said company. (BBC News. The Company File Cadbury-Schweppes waters down Coca-Cola deal. Retrieved fromhttp://news.bbc.co.uk/2/hi/business/351871.stm) II. VIEWPOINT Coca-Cola proposed to purchase soda brands of Cadbury Schweppes which includes Dr. Pepper, and 7Up. It encompasses all of Cadbury Schweppes international markets except those in United States, Franc, and South Africa. A successful purchase would increase Coca Colas market share in soda over 150 countries. Not everyone was pleased with the proposed purchase. Pepsi sent letters to legislators in Canada asking the Canadian government to disallow the purchase of the Canadian operations. Smaller independent bottlers joined Pepsi in opposition. It is not the only encounter that Coke has had with competition regulators in Europe and elsewhere. EU regulators were seeking incriminating documents related to Cokes allegedly having given German, Australian and Danish supermarkets illegal incentives to stock fewer rival products. Problems had cropped up back home in North America as well. Coke was accused of demanding exclusive advertising, displays, and vending machines from retailers. Coke lost the first 70 similar cases brought against it for anticompetitive actions. Mexican antitrust authorities also rejected the plans for Coca Cola and its Mexican bottler to purchase Mexicos second largest juice company.

III. OBJECTIVES * To improve Coca Colas handling of government operations * To avoid having troubles in countries where Coca Cola operates * T o seek for other options in which Coca Cola can increase its market share IV. STATEMENT OF THE PROBLEM Major problem: How can Coca Cola improve its handling of government relations? Minor problems: * How can Coca Cola avoid encountering troubles in countries where it operates? * How will Coca Cola increase in market shares without the need to acquire the brands of Cadbury Schweppes?

V. AREAS OF CONSIDERATION: COKE FINANCE MARKETING OPERATIONS STRENGTHS * Strong revenue growth * Has the highest market share in almost all markets * Strong financial position and profits * Strong brand recognition * Heavy advertising and promotion activities * Strong brand loyalty * Declared the worlds most valuable brand according to Interbrands global brand (2011) * Large scale of operations * Robust distribution network * Wide variety of product offering * Worlds largest beverage company WEAKNESSES * By giving the distributing and bottling of its own products, it resulted in dropping of mahor portion of potential revenue * Negative publicity * Criticized for its aggressive markeing to children and suspectd unfavorable health effects * Large manufacturing capacity makes it difficult to change production lines in order to respond to market changes * Product line restricted to beverages only OPPORTUNITIES * European market and China show marvelous potential for growth * The company can increase its partnership with fast food chains * Focusing on its advertisinga nd differentiation can contribute to increasing its profits * New markets to expand * Consumer prefer to drink in smaller beverage products * Diversify into the non-carbonated drinks THREATS * Pepsi, 2nd in revenue behind Coke and has also hit Coke in some markets * Changing consumer preferences * Consumers are becoming more health conscious * Intense competition * Declining demand for soft drinks * Large numbers of substitutes * Studies claim that Coke is harmful if consumed exessively * Government regulations set in different countries VI. ALTERNATIVE COURSES OF ACTION ACA1 : Engage with governments and regulators proactively and regularly ACA2 : Focus on ethical business practices ACA3 :Identify the right market to invest in ACA4 : Improve advertising in countries where companys market share is low ACA5 : Build customer brand loyalty VII. EVALUATION OF ALTERNATIVE COURSES OF ACTION ACA1 : Engage with governments and regulators proactively and regularly Advantages : * It can improve overall performance by developing proficiency in activities * It will provide resources and support for the company * Acceptance from the market it exists * Can acquire networks from people that can protect the company against risks for its business Disadvantages :

* Requires full effort from the company * Some rules may not be fully accepted by the company * It might be hard to communicate with the government regularly ACA2 : Focus on ethical business practices Advantages : * Good relationship with customers, distributors, etc * It will maintain a good image for the company * Avoids issues from the government and industry participants * Consumers remain loyal to ethical brands Disadvantages : * Reduce the companys freedom to maximize profit * Improvements in working conditions will reduce the leve of cost-savings of the company ACA3 : Identify the right markets to invest in Advantages : * Can increase companys market share * It can dominate markets * Can build stronger brand recognition * Wider geographic scope * Increase international market access Disdvantages : * Requires research to obtain qualitative and quantitative data about the customers * Requires large financial investment * Assurance of success can not be identified immediately * Takes time to recover invested amount ACA4 : Improve advertising in countries where companys market share is low Advantages : * Increase market presence * Increase brand awareness for customers * It can attract customers to switch to the brand * It can possibly increase profits Disadvantages :

* Additional marketing costs * It may not appeal to the target customers * It may not reflect to the companys market share ACA5 : Build brand loyalty Advantages : * Consumers will continue patronizing product * Stable profits for the company * Remain the market presence of the company * Reflected that the company has a good image in the market Disadvantages : * Hard to build brand loyalty considering all competitors VIII. CONCLUSION ACA2 : Focus on ethical business practices Since the problem of Coca Cola is the handling of its government relations which arose from having troubles in its operations, the company should focus on having strong ethical business practices to avoid any trouble. Ethical business practices will not only avoid issues from the government, but also avoid issues from the consumers and industry participants. Focusing on ethical business practices will maintain a good image for the company, it will help maintain a good relationship with distributors, and consumers will give more trust to the company and tendency they will be more loyal to the brand. However, ethical business practices might probably reduce the companys freedom to maximize profit. An example would be, when the company provides improvements on working conditions, this will reduce the level of cost-savings of the company. IX. RECCOMMENDATION With all the issues concerning Coca Cola that Ive learned in the case, the impact of this for me as a consumer is really negative. Because Ive looked up to Coke as one successful company without knowing that they are engaged in unethical practices. This publicity is bad for the company because consumers might not be able to trust the company and will not stay loyal to the brand. I believe that Coca Cola should avoid this by focusing on implementing ethical business practices. On countries, wherein the company was proven liable to unethical practices, they can choose to engage with governments and regulators proactively and regularly to improve their relations. DISCUSSION QUESTIONS 1) Why do you think some countries disallowed the Cadbury Schweppes acquisition whereas others did not?

I think some countries disallowed the acquisition because it would result in weaker competition, prices of carbonated soft drinks will rise, lost of jobs of many employees and it would increase market dominance of Coca Cola. Other countries, such as in South Africa, they approved the purchase of Cadbury Schweppes by Coca Cola because Coca Cola already dominates their market and the said acquisition will not shift market power and would not reduce competition. 2) Given Mr. Dafts statement that Coca Cola was committed to playing by the rules, why was the firm in trouble in so many countries? The company is in trouble in many countries because they are accused of practicing unethical marketing strategies of promoting their products in competing with the competitors. One of the issues is the company accused of allegedly having illegal incentives to stock fewer rival products countries such as Germany and Australia. Second, Coke was accused of demanding exclusive advertising, displays, and vending machines from retailers in Texas. In Mexico, Coca Cola was also accused of forbidding its many small shopkeepers to sell rival soft drinks. These practices of Coca Cola have been such big issues for the government because it do not only affect the company, but also on the industry of carbonated soft drinks which could have an impact to a countrys business environment. 3) What advice would you give Coca Cola concerning its handling of government relations? I believe that the best advice for Coca Cola is to stop their unethical business practices to avoid having trouble with governments. Theyve been so long in the market, they should have mastered how to maintain their standing, how to appeal to the consumers and how to compete with their rivals by not disobeying any rules. Since the company operates diversely over different countries, it should ensure that every operation they have are having good relationship with the government.