Coca Cola CASE STUDY
COCA COLA CASE STUDY
1.What are the pricing strategies adopted by Coca Cola brand in the three key markets of India, China and USA? (15 points) 2.Should they have done anything differently? In which market and why? (5 points) 3.Was the price decrease the right move in India? Why? What were the consequences for both companies? (5 points)
Coca Cola is one of the three largest carbonated beverage company in the world, before PepsiCo and Cadbury Schweppes. It greatly owes its success to its capability to adapt to completely different markets and cultures. It is one of the most experienced Company at tackling emerging markets as it derives more than 80 percent of its sales from outside the USA according to Ahmet C. Bozer, president of the Coca Cola group in Africa and Eurasia. Indeed, Coca Cola’s ongoing war with PepsiCo in the USA has reached a dead end due to the market stagnation and to the rise of alternative drinks such as juices and sports drinks. Although it is not far from being over as the new battle is taking place from across the globe. Underdeveloped nations such as in the Middle East, Asia or Africa are fast growers and the more these economies mature the more Coca Cola is spreading widely. However, the company has a varied market penetration, as the consumption is different from a country to another and different pricing strategies in the USA, China and India. We will focus on these three countries in order to analyze the overall pricing strategy of Coca Cola and its implementation in China and India.
In 2001, the Indian market was composed by more than 70% of rural population. This dominant part of the population had a much lower purchasing power and lower salaries compared to urban consumers. The gap in India between the rural and the urban consumers was massive 10 years ago. Indeed, in the early 90’s when Coca Cola decided to invest in India, not more than three bottles of carbonated drinks were consumed per year and seven in 2003 compared to 89 in China or 471 in Brazil. Today, the rural population represents 67% and the soft drink market “is now 37% of the total market beverage”. In order to penetrate the untapped market, Coca Cola had to undertake many pricing and advertising decisions. The first decision they made was to drastically reduce the price of their beverages. The strategy they used is called a cost-plus strategy. This strategy ensures that all costs are covered before profits are calculated. In order to penetrate the market they had to adapt to the price locally. This decision was a two-step process. They first decided to drop the prices slightly by 10-15% following Pepsi in the north of India and decided to reduce the price by 25% nationwide in 2003. This strategy motivated by cost-reduction also led them to reduce the size of their bottles in a 200mL container in order to target rural areas and price sensitive region. In addition to that, Coca Cola’s generic promotional campaign entitled “thanda matlab Coca-Cola” (or cool means Coca-Cola in Hindi) was a huge success and made the sales boomed in rural areas and created an increase per capita consumption. In China, the strategy was very different when Coca Cola decided to enter the soft drink market in the early 90’s. Their first goal when the company was established in 2003 was to consolidate their position in big and medium sized cities. Indeed, Coca Cola in opposition to India chose not to invest and implement its company in rural areas due to their very low incomes. In 2000 Chinese rural per capital income was less than $272 in comparison to $757 in urban cities like Shanghai or Beijing. They targeted bigger urban cities for their higher salary and to convince these regions that the product value justified the price. Indeed, Coca...
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"What Is a Cost-Plus Pricing Strategy?" Yahoo Small Business Advisor. N.p., n.d. Web. 22 Oct. 2014.
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