Essay Instructions: we will be conducting a strategic analysis of The Coca-Cola Company. In order to be best prepared and perform well on the cases, it is highly recommended that you
complete the background readings and the SLP before writing to the case. For this case, you will be identifying the primary business strategy employed by The
Coca-Cola Company. You will also be providing a critical analysis evaluating that strategy in the context of the strengths, weaknesses, opportunities and threats
we will concentrate our efforts on strategic alternatives at the corporate, business, and functional levels. Companies follow strategies at each of these levels,
as well as at the global level.
At the functional level, strategies are short-term in nature, and refer to such company functions as marketing, manufacturing, materials management, customer service,
and R&D.
At the business level, strategies are of medium range. They include the company's market positioning, geographic locations, and distribution channels.
At the corporate level, strategies are long-term, and include such options as horizontal and vertical integration, diversification, strategic alliances, and mergers
and acquisitions (M&A).
Competitive Advantage
In this module, we will focus on the strategic options available to companies at the business level. Companies select business strategies to obtain sustained competitive
advantage (SCA) against competitors. SCA's are advantages that cannot be easily copied or imitated by competitors. A few years ago, strategists talked in terms of
Porter's generic strategies (basically cost and differentiation). Today, we have four distinct strategies we use to analyze strategic options, although there are various
approaches to achieving these strategies employed by different firms. They are:
Cost leadership
Differentiation
Niche focus
Preemptive move (or first-mover advantage)
Cost leadership
Most people think of economies of scale when they think of low cost strategies. McDonalds and Wal-Mart notwithstanding, high volume is not the only way to achieve low
prices. Here are some other approaches to implementing a low cost strategy:
No frills. Southwest Airlines eschewed big airports and cut costs by flying in to smaller fields. Competitors such as Delta and American were too heavily invested in
the hub business model to change.
Product design. Masonite developed an alternative to expensive wood products by using sawdust and woodchips. Some telecommunications companies "bundle" products
offering cable/satellite TV, high speed internet and telephone service for one low price. Hershey's shrank the chocolate bar to keep from raising their low price.
Operational economies. Firms can save money by eliminating high costs in the value chain. Amazon was able to significantly cut costs by eliminating physical stores,
inventories, and cutting the 30% return rate of bookstores to just 3%.
Economies of Scale. With higher sales, fixed costs such as R&D, overhead, advertising, and even legal support, can be spread over a larger revenue base.
Experience. Costs decline at a predictable rate with a firms accumulated experience. Such declines are attributed to the learning curve, technological improvements,
and product redesign resulting in product and process efficiencies.
Here is another way of looking at low-cost strategies:
Algasae (n.d.) Promoting thought leadership...Customer focused low-cost strategy. Retrieved on August 15, 2011 from: http://www.alagse.com/strategy/s10.php
Differentiation Strategies
If a company positions itself as offering a product or service that is different from its competitors in a way that customers value, it is following a differentiation
strategy.
A successful differentiation strategy will create customer value that is perceived as such by the customer. Many so-called "new-and-improved" products have fallen
flat because the customer simply didn't care! In addition, a successful differentiation strategy will only build a sustained competitive advantage to the degree that
it is difficult to copy.
There are many ways to add value to any aspect of a business through differentiation:
Ingredients/components: Healthier, "greener", more lasting ingredients/materials. (Maytag, Healthy Choice frozen dinners)
Product offering: Better designed products (Blackberry touch screen, Dell 'ultra thin" notebooks)
Combining products: Two is better than 1! (Colgate 2 in 1 toothpaste with mouthwash)
Added services: Extra services beyond the basic purpose of the product or service (Concierge service with American Express Cards)
Breadth of Product Line: Extra convenience in dealing with fewer vendors. (Wal-Mart super stores offer one stop shopping, eliminating the need to go to multiple stores.)
Channel: Offering items or services through a medium or channel unavailable in that form anywhere else. (E-bay offers instant access to hundreds of individuals located
worldwide simultaneously - asynchronously.)
Design: Product or service is unique, e.g., bed-and-breakfasts offer a more ''homey" alternative to standardized hotel rooms.
In general, there are two ways to build SCA through differentiation strategies. Most of the methods of adding value mentioned above can be related to either quality or
brand recognition.
Quality Strategy. In this type of differentiation, a company tries to set it's product/service appart on the basis of superior quality It is probably the most widely
used method of attaining sustained competitive advantage. Usually, quality means superior performance, and a primium brand as opposed to discount or economy brands.
These top of the line offerings command a high price tag. However, quality does not always mean pricey. Both Mercedes and VW connote high quality German engineering.
Branding. Brands build SCA through customer familiarity, loyalty, and trust. Aspirin is aspirin, but Bayer continues to trive against low-priced generics due to the
power of the brand.
Blue Ocean: An Alternative Approach
A combination of low cost and differentiation strategies has created a buzz in the recent business press. Known as "Blue Ocean" strategy, it is an interesting new
idea that challenges the standard classifications of strategy.
The following is the official Blue Ocean website, Be sure to check out some of the links to view the tools and frameworks for Blue Ocean strategic planning:
Kim, W.C. and Mauborgne, R. (2009), What is BOS? Nine key points of Blue Ocean Strategy. Retrieved on August 15, 2011 from:
http://www.blueoceanstrategy.com/abo/what_is_bos.html
Niche Focus Strategies
Niche or Focus strategies are really variations of a cost or differentiation (or both!) strategy, only concentrating the company's efforts on a single or limited
product or market. By focusing its efforts, the firm is able to realize the following advantages:
Avoid distraction or dilution: All the firms efforts are directed toward a single end and competitive pressures are diminished. All company resources and capabilities
are matched to the market needs - creating a SCA (remember RBV?)
Maximize limited resources: When resources are tight, they will go father and create a greater impact when the target is limited.
Circumvent competitors resources and capabilities: By operating in a niche market, say, private-label manufacturing, a firm does not have to contend with the big
advertising and distribution capacities of the brand names. Competitive pressure are dimished overall as there are likely to be fewer competitors.
Establish a unique identity: Offering a narrow product line, or operating in a limited geographic area can confer a certain cachet. In-and-Out Burgers, for example
competes successfully with the huge fast food franchises by refusing to offer anything but hamburgers, made with the freshest site-prepared ingredients, in California,
Nevada and Arizona only.
There are basically three ways a firm can establish a focus strategy. It can concentrate on one of these approaches, or a combination.
Focusing the product line. Firms that focus their product line often do so because they possess some expertise and special interest that often translates into technical
superiority. These products excite and electrify. Take Bose Corporation, for example. It manufactures a very small line of exceedingly high quality audio products that
are based on astonishing technology. If Bose broadened its offerings to all kinds of consumer electronics, it would run the risk of sliding into mediocrity with ho-hum
products.
Targeting market segments. This is essentially "snob-appeal", broadly defined. Gucci handbags target high-end fashionistas, Harley Davidson targets rebellious
non-conformists (at least in their own minds!), and Castrol motor oil, which is not even sold in service stations, targets independent male do-it-yourselfers.
Limited geographic area. We have already considered In and Out Burger, but many other products are conferred a kind of cachet because you can't get them just anywhere.
Other examples include small breweries (Shiner in Texas), coffee shops (independent and locally owned), or bakeries (Tim Horton donuts in Canada and the NE United States)
For another take on niche strategies, including some important caveats and warnings about potential pitfalls, read:
Iansiti, M. and Levien, R. (2004). Strategy for small fish. Harvard Business School Working Knowledge. Retrieved on August 15, 2011 from:
http://hbswk.hbs.edu/item/4331.html
Preemptive Strategy
By being the first entrant into a new market or business area, a firm can establish competencies or assets that competitors are not able to copy or develop on their own.
The first-mover advantage can create high switching costs for customers, erect high barriers to entrance for competitors, and tie up contracts with suppliers.
Thus, a pre-emptive strategy can confer SCA's from both internal and external sources.
Pre-emptive strategies are usually implemented in one of three ways:
Product opportunities. The first product offered in a new market can generate advantages in terms of dominant position that can be hard for competitors to later dislodge or
overcome. They can establish the "standard" for an industry, such as Intel did with microprocessors and Microsoft with operating systems. Of course, firms must continue
investment in improvements lest an upstart come up with a "better mousetrap".
Production systems. When a firm invents a better or more efficient production system that expands capacity, reduces cost and/or improves quality, they have created an SCA.
Customer advantages. First movers have an advantage with customers - creating brand loyalty and increasing switching costs. Customers become used to a familiar product or
brand and see no reason to switch. Some companies get customers to make ling term commitments - as in long contracts for the latest in i phone or blackberry technology.
Banks may vie to get first mover advantage in online banking because such systems involve substantial switching costs for customers who pay all their bills online.
Here is a brief, but good article discussing the first mover advantage in practice:
Liang, T., Czaplewski, A., Klein, G., & Jiang, J. (2009). Leveraging First-Mover Advantages in Internet-based Consumer Services. Communications of the ACM, 52(6), 146-148.
Retrieved on August 15, 2011 from:
http://web.ebscohost.com/ehost/detail?vid=27&hid=113&sid=18d89755-8d24-41a7-ad17-a051c85ff182%40sessionmgr115&bdata=JnNpdGU9ZWhvc3QtbGl2ZQ%3d%3d#db=bth&AN=40217630
Required Readings
Algasae (n.d.) Promoting thought leadership...Customer focused low-cost strategy. Retrieved on August 15, 2011from: http://www.alagse.com/strategy/s10.php
Kim, W.C. and Mauborgne, R. (2009), What is BOS? Nine key points of Blue Ocean Strategy. Retrieved on August 15, 2011 from:
http://www.blueoceanstrategy.com/abo/what_is_bos.html
Liang, T., Czaplewski, A., Klein, G., & Jiang, J. (2009). Leveraging First-Mover Advantages in Internet-based Consumer Services. Communications of the ACM, 52(6), 146-148.
Retrieved on August 15, 2011 from:
http://web.ebscohost.com/ehost/detail?vid=27&hid=113&sid=18d89755-8d24-41a7-ad17-a051c85ff182%40sessionmgr115&bdata=JnNpdGU9ZWhvc3QtbGl2ZQ%3d%3d#db=bth&AN=40217630
Iansiti, M. and Levien, R. (2004). Strategy for small fish. Harvard Business School Working Knowledge. Retrieved on August 15, 2011 from: http://hbswk.hbs.edu/item/4331.html
Assignment
Step One: Which of the four strategies discussed in this module (see background materials) does The Coca-Cola Company follow? How do you know?
Step Two: Using the process you learned in the SLP, integrate this strategy with the strengths, weaknesses, opportunities, and threats you identified.
This should give you some specific actions the company is taking relative to their strengths, weaknesses, opportunities, and threats. These actions are referred to as
"strategic choices." Do The Coca-Cola Company's strategic choices align with the firm's generic strategy? If not, what are the points of disconnect? You need to think
critically about this step, no company achieves perfect alignment of its strengths, weaknesses, opportunities and threats with its chosen strategy. It is your job to
uncover the discrepancies and problems.
Step Three: Identify any specific sustained competitive advantages conferred on The Coca-Cola Company by virtue of its strategic choices.
Step Three: In a 4-5 page paper:
1) Discuss the effectiveness of The Coca-Cola Company's strategy in the light of its internal strengths and weaknesses, and external threats and opportunities.
2) Has the company created any sustained competitive advantages?
3) Identify any unaddressed threats or missed opportunities.
4) What can The Coca-Cola Company do to build on its strengths and shore up its weaknesses by altering its strategic choices?
5) Complete the paper by commenting on how your view of The Coca-Cola Company's vision and mission has changed or has been reconfirmed by this process of strategic analysis. Would you make any suggestions to revise the strategy, mission or vision?
Step Four: Consider the Case as a formal business report that you are developing for the Board of Directors and CEO as The Coca-Cola Company's consultant. This is a
professional document. Follow the format below:
Executive summary: a synopsis of the main points, conclusions and recommendations made in the longer report. If you have never written an executive summary before, or
would like a refresher, check this website: http://www.highendfinance.com/CommercialLoans/Docs/07-4%20ES%20Guidelines.doc
Introduction: State the main purpose of the paper (thesis statement), what you hope to accomplish, and how you will go about doing it.
Main Body: The "meat" of the paper. Emphasize analysis, not just description. Delineate separate topics or sections with headings.
Conclusion: Summarize your paper in light of your thesis statement.