Question

The Coca Cola Company

1. Summarizes the competitive environment in the industry and describes one or two strategies used by other firms.
2. Identifies which of Porter’s generic strategies is being pursued the Coca-Cola Company
3. Justifies your strategy choice in item #2 above, with specific examples.
4. Explains the advantages and disadvantages of the generic strategy.

Answer 1

A firm position itself by leveraging its strengths. Micheal Portel has argued that a firm's strengths ultimately fall into focusing on creating strategies that helps to gain competitive advantages from three different bases: Cost leadership, Differentiation and focus.

The main generic strategy used by Coca Cola is a mix of cost leadership and Differentiation

Coca Cola is the leading brand in the beverages industry and this position has been achieved with the help of a sustainable competitive advantage. Cost leadership is a very effective strategy that helps brands quickly increase market share and gain popularity. . A cost focus means you also maintain a low-cost approach, but unlike cost leadership, you specialize in serving a smaller, niche market. Everyone wants to spend less on any product. Especially, the middle class which forms a very large part of Coca Cola’s customer base loves low prices of products. Coca Cola has kept the prices of its products low. These are affordable products and available easily in every corner of the world.

The main objective of Coca Cola was :

• To increase the profits by reducing costs, while charging industry-average prices.
• To increase the market share by charging lower prices, while still making a reasonable profit on each sale because you've reduced costs.

Coca Cola has ensured both affordability and accessibility which has led to both higher sales and popularity. This has proved to be a source of sustainable competitive advantage for Coca Cola.

While cost leadership is the main generic strategy sued by Coca Cola, it has also used differentiation strategy to gain an advantage over the competitors. It has introduced a number of healthy products including health drinks and juices that are aimed at the health conscious customers. So, Coca Cola has sued a mix of cost leadership and differentiation to gain competitive advantage and to build customer loyalty. This strategy is common in highly competitive industries with large players who often invest heavily in TV ads and other marketing efforts to attract customer attention.

Micheal Porter has argued that in order to become successful over the long-term, a firm must select only one of these three generic strategies. Otherwise, with more than one single generic strategy the firm will be stuck in the middle and will not achieve a competitive advantage.

There are three main streams for the Michael Porter’s Generic Strategies which are:

• Cost leadership
• Differentiation
• Focus

Also, These main strategies are divided in 5 types:

• Low Cost -Strategy
• Best Value-Strategy
• Differentiation
• Focus- Low Cost
• Focus –Best value

The advantages and disadvantages of the generic strategy :

Advantages :

Porter's generic strategies showed that differentiation is as effective a strategy as cost leadership.

• Best strategy does not exists : Choosing a strategic position depends on time and circumstance. Implementation must be consistent once a position has been selected.

• Customer loyalty : Focus strategy comprise lower investment in resources and organisations could benefits from the specialisation provided by the organisations. Organisations that adopt focus strategy will enjoy a high degree of customer loyalty.

• Relevance of Internal Positioning : Both methods of Porter’s can create entry barriers in some extent, which means that the external competitors may need to tradeoff much in order to compete in the industry. This show how internal positioning more important than the external environment.

• Gain competitive advantage : Companies which apply cost leadership strategy will enjoy a higher average profit from their products. Reducing the production cost will lead a higher profit gained even products is traded with average price. Organisations could gain advantage in price war for the products.

• Helps with ‘stuck in the middle’ concept : By separating the strategies into different units having different policies and different cultures, a company is less likely to get Stuck in the Middle. While the Art of War is mainly coping with the external environment, the company itself may ‘stuck in the middle’ of cost and differentiation. Porter’s strategy will focus on either one according to its strength.

Disadvantage :

• Greater Cost Involved : Differentiation strategy will involve greater cost. Competitors might get copy the products and eliminate the differentiation. It will be too hard for small companies or firms to choose the strategy. The tools for low cost or differentiating techniques may be unaffordable for them. Also, price sensitive customers might choose on price rather than uniqueness of the product.

• Limited opportunities for companies : Organisation that apply focus strategy have limited opportunities to growth as its only focus on narrow scale. It forgoes the economies scale that would be available from larger market.