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Coca Cola company in America (Product: Coke)

Coca Cola company in America (Product: Coke)

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Table of Contents

  1. Executive Summary ………………………………………………………………….3
  2. Introduction………………………………………………………………………….4
  3. Factors Contributing to the Demand and Supply for Coca-Cola…………………….4
  4. Review of Product Price History……………………………………………………..6
  5. Product Elasticity ……………………………………………………………………7
  6. Assessing whether Coke is a Normal or Inferior Good………………………………9
  7. Analysis of Substitutes and Complements…………………………………………..10
  8. Recommended Strategies…………………………………………….……………..11
  9. Conclusion……………………………………………………………………….….14
  10. References…………………………………………………………………….…….16

 

 

 

 

 

 

 

 

 

 

 

 

Executive Summary

Every manufacturer puts effort to develop brands that would attract customers and it is up to the producers to embrace forms that would enhance productivity. The report pays attention to the Coke drink which is one of the products of the American Coca-Cola Company. It shows that factors such as supply, pricing, and consumers’ income influence the product’s demand, and also reveals how prices, technological growth, and price of input determine the supply. The second section of the analysis sheds light on factors that influence the changes in pricing over the years, and it comes out that factors such as the appearance of competitors and technological advancement compel the company to set lower prices than in the past when the cost of production was quite high. The report proceeds to the elasticity of the American Coke where it appears that the product is elastic and the manufacturers would alter the quantity to meet the market price. The report explains how elasticity helps the firm to avoid losses that would occur by releasing large amounts for a small amount. The compilations highlights on the normality of Coke as it comes out that an increase in consumers’ income would generate the desire to buy the drink. The report, afterward, shifts focus on the influence of substitutes and compliments on the product’s demand whereby it comes out that alternatives can either lower or increase the request depending on the quality of the replacements. The research ends with providing recommendations that may help to add value to the stakeholders. The possible recommendations include recruiting employees who understand how the concepts of demand and supply function, applying the concepts of business forecasting and embracing advanced marketing techniques. The general impression that comes out in the report is that promoting a brand entails a lot of issues that must be in place to achieve the desired consequence.

 

Coca Cola company in America (Product: Coke)

Introduction

The American Coca-Cola Company has its headquarters in Atlanta, Georgia but is incorporated in Wilmington, Delaware. The company serves as a multinational beverage corporation that manufactures, retails, and markets non-alcoholic syrups and beverages in more than 30 nations around the globe (The Coca-Cola Company, 2017 b). Many consumers know the firm for its widely consumed product, Coca-Cola. Several factors influence the demand and supply of the carbonated soft drink (Coca-Cola, also known as Coke) such as pricing and level of income. The report shows how issues such as the emergence of new players and technological transformation force Coca-Cola to sell the product at a relatively lower price compared to the past. Coke is an elastic product whose quantity changes with the market price and is a normal good which means that buyers would gain the desire to buy the drink when their income goes high. The company has to deal with the emergence of substitutes, and needs adopt proper recommendations that would elevate the value to stakeholders. The selected techniques should vary in nature and must be achievable to gain the wanted outcome. The success of the American Coke will depend on how the company handles the economic issues that determine the production, marketing, and selling of a product.

Factors Contributing to the Demand and Supply for Coca-Cola

The law of demand affects virtually all the goods and the American Coca-Cola is no exception. The demand curve outlines the quantity of goods that consumers are willing to buy and can pay for over a period and at a given price (Kutasovic, 2013). One of the factors that determine the demand for the product is the rate of pricing in the market when compared with other producers who offer substitutes (Puravankara, 2007). Consumers mostly note that the demand goes high when the rate of supply goes down. Kutasovic (2013) writes that in a typical scenario, more customers will be need of a product when the supply reduces because there would be some shortage in the market. The company has even put in place a supplier development program that seeks to build capacity of different suppliers to build their competitiveness and to ensure that raw materials reach the company at all times to avoid shortages (The Coca-Cola Company, 2017). The second factor that may influence the demand for the item is the pricing of the brand and other similar products. The market for American Coca-Cola goes down when the prices go high due to one reason or the other. The Coca-Cola Company will have to increase the price of its products when others do that, and this may be attributable to insufficient raw materials, increased competition, low rate of supply, or economic hardships among other factors (Puravankara, 2007). It is also significant to note that the demand for Coke is likely to go high because a majority of Americans love cake and would prefer a drink such as Coke that serves as the suitable companion when taking such foods. Lastly, individuals’ level of income has a great effect on the demand of Coca-Cola which makes it important for the manufacturers to pay attention in this area (Puravankara, 2007). The relationship works in such a manner that the demand for the drink will go high when the consumers have a stable income as opposed to when their income can hardly support luxury items and drinks.

The law of supply has similar effects on American Coca-Cola in the same way as the law of demand. The law of supply states that the quantity supply of an item or product goes when the market price shifts upwards (Kutasovic, 2013). The same case applies to Coke where the producers are likely to introduce more drinks into the market when the prices are high or when the product is in high demand (Puravankara, 2007). The company, for instance, had to increase the number of drinks that had low sugar quantity in 2016. The America’s Coca-Cola’s president and CEO mentioned that the increase seeks to comply with the requirements of WHO that limit level of sugar intake to 10% of their daily caloric consumption (Moye, 2017). Technological advancements emerge as a contemporary factor that affects how the American company supplies its product (Puravankara, 2007). The company now utilizes advanced machines that lower the cost of production but enhance the firm’s ability to increase supply. Lastly, Puravankara (2007) informs about the price of inputs which encompass labor cost, the rate of supply, and machinery. The amount of the product (Coke) usually shifts upwards when the company receives these supplies at a lower cost, but the rate of supply into the market goes down when the price of inputs is high.

Review of Product Price History

The idea that the American Coca-Cola Company produces different volumes of the product (Coke) and in varying packaging forces it to come up with prices that suits the items. Kestenbaum (2012) writes in his article that Coke sold at five cents between 1886 and 1930. The article proceeds to mention that buyers could still get the drink at the same price 70 years after its production because the company sought to establish solidity in its pricing. It was until the late 1940s that the company increased its prices to 6 cents (Kestenbaum, 2012). The product cost about $1 in 2003 and by 2012 the drink cost $1.24 due to increased cost of production (Sprague, 2013). Presently, for instance, one can buy a 500ml can of Coke at $2 in Vermont and New York. Consumers can get the bottled packaging at $1.94 in the same cities (HuMuch, 2017). Customers can buy the 355ml bottled Coke at $1.25 although this may differ with cities (HuMuch, 2017). The prices have decreased over the years and in about a decade ago, consumers could find similar volumes with relatively higher prices. Presently, as it appears in the American Coca-Cola Company’s website now seeks to maintain a relatively lower price in developing markets while focuses on improving profitability in developed nations by setting relatively higher prices and offering smaller packages (The Coca-Cola Company, 2016). The report further shows that in 2015, the global price increased by 2% which impacted on the economy (The Coca-Cola Company, 2016). Further investigation on the historical price lookup shows that the prices of Coke brands hit the highest mark at the beginning of 2017 meaning that the sector is becoming competitive in terms of pricing (The Coca-Cola Company, 2017c). Analysts should conduct investigations to identify the prices in the future markets to allow for early preparations.

The transformations in the pricing of the American Coke have a reflection on the recent alterations in demand and supply. First, the emergence of new competitors forces the firm to lower its price because of the slight decrease in demand that now exists for American Coke unlike in the earlier years when the company was dominating. Aserkar, Kumthekar, and Aserkar (2014) assert that when only a few players dominate a market, they are in a good position to set high prices which consumers must accept to enjoy the products. Aserkar, Kumthekar, and Aserkar (2014) proceed to mention that when the supply increases, the demand will automatically go down thereby forcing producers to set prices that many people can afford. Growth in technology, as earlier mentioned, also serves as a reason why the prices are now lower compared to the previous years. The high speed of production and the efficiency that advanced machines bring make it possible to widen supply thus elevating revenue generation even when the prices are a bit lower. The American Coca-Cola, however, seeks to maintain its prices up to a certain level to avoid engaging in activities that do not generate adequate returns.

Product Elasticity

Elasticity as an economic concept has a significant influence on the rate at which the American Coke sales. Labandeira, Labeaga, and Lopez-Otero (2016) describe elasticity in economic and business terms as the degree to which consumers and producers alter their demand or some supplies in response to the changes in price or income. Economists and entrepreneurs predominantly use the concept of elasticity to analyze the changes in consumer wants as a result of a transformation in a good or service’s price. Labandeira, Labeaga, and Lopez-Otero (2016) write that when the value of elasticity surpasses 1, it shows that the demand for that good or service is determined by the price, and when the value is less than 1 indicates that the product is insensitive to price alterations. Elasticity mostly measures the changes in the quantity of a good or service about price adjustments. Scholars, therefore, term a product or service whose volume changes with the price to be elastic and inelastic when shifts in price have an insignificant effect on the quantity.

The Coke in America is a good example of an elastic product because the manufacturers would want to come up with products that fit the market price. The company would not give large quantities for lower prices because that may lead to losses, and similarly, the firm would not want to offer so little regarding volume, especially when the prices are high, because buyers may consider alternatives. One of the reasons that make Coke elastic is that the manufacturers can come up with either smaller or large bottle to come up with volumes that fit the market price. Information from the Coca-Cola Company (2015) website shows that the company has changed the shapes and volumes of its bottles very many times since 1915 to 2015 further confirming the elasticity of the product. The other factor that makes the product elastic is that customers could easily switch to a product that offers a relatively large quantity when the prices are almost similar. The product could be inelastic if were difficult to reshape the size of the bottles or the cans. The elasticity of Coke as described above may have positive effects on the rate of revenue generation. The American company, for example, can lower the quantity of its packaging when prices go down and this way it becomes possible to avoid losses. The manufacturer may also decide to offer large volumes when the others shrink to attract more buyers thereby making more gains from the concept of elasticity.

Assessing whether Coke is a Normal or Inferior Good

A good can either be inferior or normal depending on the effects of income on demand. A right is termed to be inferior when an increase in individual income creates a fall in demand (Hussein, 2015). A normal good, on the other hand, means that an increase in individual’s income leads to more demand (Hussein, 2015). The two differ from luxury goods which suggest that an elevation of profit develops a larger percentage increase in demand (Hussein, 2015). Coke is an example of a normal good because consumers would mostly think of buying the product when their income is stable and would not experience any financial pinch after the acquisition. An individual would think of buying the American Coke when they are financially stable or when their income increases because many consumers consider the drink to be of high quality and which does not appear inferior even to the upper class. A good example that may show that the American Coke is a normal good and many people are likely to buy it when their income increases is the company has thousands of stores across the globe that sell in developed and less developed areas. The company, for instance, has stores in the modern areas of Mexico, Switzerland, and Japan where in the level of income is relatively higher (The Coca-Cola Company, 2017). Not every American, however, will be in a position to purchase the product even when they have an increase in their level of income because every person has varying levels of revenue. The analysis confirms that the more number of consumers in developed areas where individuals generate adequate income indicates that Coke is a normal good.

 

Analysis of Substitutes and Complements

Every business has to deal with competitors and must adopt more efficient forms of operations to emerge as the leading. The emergence of substitutes is a situation that can have a dramatic effect on revenue generation as it appears in Porter’s five force analysis. Matooko and Ogutu (2015) urge business people that the best way to handle the appearance of substitutes is to consider quality and cost as well as to adopt proper marketing means. America’s Coke’s chief substitute in the market is Pepsi which is attracting a huge market. Pepsi’s marketing strategy of setting lower prices and offering a full category of brands seem to be a thorn in the flesh for Coke which is quite costly compared to the substitute (Marketing 91, 2016). Coffee also serves as a replacement for the American Coke with the worry becoming greater with the appearance of coffee chains such as Starbucks, Costa Coffee, Dorman’s, and Café Coffee Day. Coke further faces stiff competition from energy drinks such as Gatorade and Red Bull and healthy drinks such as Tropicana and Real (Marketing 91, 2016). The complements for coke include cakes, biscuit, and donuts which may be taken together with the drink. The presence of the substitutes and complements for Coke compels the American Coca-Cola firm to incorporate features that would attract more consumers.

The availability of substitutes and complements might have a significant influence on America’s Coke’s demand. First, the demand may go down because some customers may find the other products to be attractive. Shocker, Bayus and Kim (2004) mention that when operators in the same industry develop different products, every party tries to infuse elements that would attract more buyers and it is up to the producers or manufacturers to win customers. The presence of substitutes, however, may have a positive influence on the demand when it emerges that the products by the other players do not match the quality of the American Coke. Many buyers, for example, may disregard other similar drinks when they realize that they have excessive sugar thereby giving the American Coke the chance to penetrate the market. The key effect of the complements on the demand on Coke is that fewer buyers are likely to purchase the drink when the prices of the complements go high. A report by Journey Staff (2017), for instance, informs that “no meal is complete without a drink. Beyond issuing refreshment, a beverage cal also show up the best tastes a meal offers, making the experience more enjoyable.” The American Coca-Cola understands the effects complements such as meals have on the sales of Coke and this compelled it to partner with Chef’d (an online meal kit firm) to provide refreshing meal inspirations meal kits and recipes that consumers can access online (Journey Staff, 2017). An increase in the price of complements such as foods, therefore, may lower the sales of Coke because there will be fewer buyers to take meals while complementing with the beverage. The relationship that exists between the American Coke and its complements depicts the concept of cross elasticity of demand that analyzes the responsiveness in the quantity demand of one item when a shift in price happens in another item (Labandeira, Labeaga & Lopez-Otero, 2016). For example, it is apparent that when the prices of pizza or French fries go high, the number of Coke consumers will go down to some extent.

Recommended Strategies

The team in charge of producing and marketing the American Coke will witness improved outcome in their activities by embracing certain features that determine performance in any business operation. The parties responsible for promoting the American Coke should buy the idea of Shears (2014) who informs that success in penetrating the market calls on the groups in charge to identify and apply as many economic concepts and skills as possible to avoid errors that may have detrimental effects on performance. The best way to deal with the unprecedented performance that comes with issues dealing with demand and supply would be to hire employees who have adequate knowledge of how this area works. The personnel, for example, may offer tips on the right time to release products and may also provide guidelines on when to hold until the right time comes. The chief advantage the business owners will experience through the intervention of experts is that they will limit losses when the demand and supply are low.

The suitable way to handle the changes that occur in the pricing of the product is to study the market trend before making any decision. The sellers should have knowledge in business forecasting which according to Gilliland and Tashman (2015) can be of significance in determining future prices based on past happenings. Applying the concept of business forecasting will also make it easy to determine how the changes in price may determine future demand and supply. Taking precautions to describe how pricing would occur in the future, for example, may be of value to employees who would be able to judge whether they will record adequate profits in the coming times, and will also prepare buyers on what may come in future regarding pricing.

The groups that take charge of promoting the sales of the Northern American Coke should consider the future implications of the product’s elasticity and determine whether the state would be of importance in the next generation of revenue. The group in charge of promoting the product, for example, should identify whether maintaining elasticity will be beneficial in handling future or whether it may be necessary to try inelasticity. The concept of business forecasting that Morris (2014) terms to be predicting future happenings based on current and past data may also be of importance in determining how elasticity may help to increase revenue in the coming times. The decision from the analysis should be one that would have a long-lasting impact on the product’s performance in the market. The employees, through applying the concept of business forecasting, will be able to understand what customers may expect in future in terms of pricing and volume.

The company’s shareholder may gain beneficial returns by improving the current state of the American Coke. The group in control of production should apply the concepts of value addition which are becoming applicable to many business institutions across the globe. Tan (2007) mentions that the process of improving the quality of goods and services is essential for preparing a firm to compete at the international level where customers only expect the best. A good way of adding value and which may stabilize the normal status of the American Coke would be to develop more attractive pickings cans and bottles. The team, for example, may either decide to rebrand or to add more and distinct features that would intrigue consumers. The rebranding in this case will attract more customers who may develop the urge to try out the new products. The additional value process may also include adding flavor to the drink’s taste but still maintain the original flavor. Apart from applying value addition, the company may strengthen the American Coke as a normal sound by developing more brands under Coke. Presently, purchasers have the freedom to choose between Coke Zero and the original brand, and this suggests that the strategy may be fruitful judging from a large number of consumers who find the American Coke Zero to be more refreshing. The product manufacturers (the employees) would realize that more people will develop the urge to buy Coke when the general quality improves and when buyers have the freedom to choose from a broad category.

Finally, the company must apply much better ways of enticing customers to win a considerably higher number of consumers compared to the parties that provide the substitutes. The marketing team should consider creating as many online adverts as possible to attract the different groups of buyers who search for products over the internet. Similarly, the team should consider describing the positive features of consuming the product on print publications such as magazines and newspapers. The marketing should go ahead to perform road shows that sensitize consumers about the benefits of the American Coke. The road shows, for example, should inform the consumers that the drink offer refreshment and has a nourishing taste that they would love. The marketers should offer convincing reasons; otherwise, it may be difficult to persuade purchasers to prefer the drink to the available substitutes and complements. The marketing should not only cover the local market but should also reach distant points because this will make the product more popular. The groups that take control of the marketing should have adequate skills on how to conduct the process to ensure that the outcome attracts a large number of buyers. The company will only be in a good position to generate adequate returns that satisfy the shareholders and the employees when it manages to reach out to many customers as possible within and without the region of operation. The customers, on their part, will gain from the marketing activity in the way they will understand the benefits they are likely to experience from drinking the American Coke when compared to the available substitutes.

Conclusion

The success of the American Coke in the market will depend on how well the producers consider and apply the economic concepts that determine how a business promotes a brand. Several factors determine the demand of the American Coke, and these include the rate of supply, the price of the commodity, and level of income of buyers. The elements that define the supply of the similar product include the market price, the advancement in technology, and price of input which covers things such as suppliers cost. The American Coca-Cola Company now sells Coke at a lower price compared to the earlier years when the time and cost of production were high. The study shows that the American Coke is an elastic product and the manufacturer would adjust the quantity to fit the market price. The American Coke also emerges as a normal good because consumers would develop the urge to buy the drink when their financial status becomes stable. Even though Coke remains to be among the leading sellers in America, it receives stiff competition from substitutes such as Pepsi, coffee, healthy drinks and energy drinks. Some of the recommendations that would help to increase value for the stakeholder include hiring personnel who have knowledge in laws guiding demand and supply, applying the concept of business forecasting, and adopting proper marketing strategies that surpass the players in the same industry.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

References

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