Page 2: Key aspects of Coca-Cola´s business
The Coca-Cola Company's business policy provides an object lesson in many important principles of business. For example:
1. Focus on the best lines - Coca-Cola concentrates on its most profitable lines. In 1984 77of Coca-Cola's operating income came from soft drinks. Today the figure is 97 By selling off businesses not sharing the same attractive financial fundamentals as the soft drink business Coca-Cola now operates only in the area of high-return business.
2. Reinvestment - Re-investing profits is the key to ongoing business development. If profits are made today it is important to make sure of a base from which profits may be made tomorrow. In the 199Os Coca-Cola has concentrated its profits on re-investment. In 1983 the company's dividend payout ratio was 65i.e. most of its profits were paid out as dividends to shareholders. Since then Coca-Cola has been increasing dividends at a slower rate than earnings growth, so that today, 6Oof profits ($66O million in 1994) was available for reinvestment.
3. Focus on the consumer - All successful businesses today are based on focusing on the consumer. If a company meets the requirements of its consumers (and indeed exceeds these requirements), then you have a sure-fire recipe for success.
An important measure of success is the volume and value of sales that you make.
The world-wide success of Coca-Cola is illustrated in the chart below:
Coca-Cola has set out to become the world's number one consumer marketing company by taking clear actions to differentiate their products.
4. Differentiation with customers - The direct customers of Coca-Cola are outlets such as service stations, newsagents, leisure centres, cinemas, clubs, supermarkets and many other retailers selling soft drinks. In this area the emphasis in marketing has therefore been on providing superior delivery, promotional services and sales support. All of these elements clearly differentiate Coca-Cola as being the beverage supplier most likely to generate profits for retailers.
5. Differentiation with consumers - The end consumers of Coke are the millions of people who consume soft drinks world-wide. Over many years Coca-Cola has expanded its markets horizontally in country after country, until there is virtually no place on earth where people do not drink Coca-Cola. Today this horizontal growth is almost total, with fewer than 20 countries not taking the product. Coca-Cola is therefore now trying to develop the brands vertically.
This simply means creating a deeper consumer desire for that brand than existed the day before. It involves giving people additional reasons to buy Coca-Cola brands instead of reasons to buy competing ones. That is the essence of differentiation. It is not an easy task, because already 5.6 billion people have a well established understanding of what Coca-Cola means to them. However, there are considerable strengths which support Coca-Cola in this task namely:
- The trademark which is so widely known and part of the public imagination.
- Coca-Cola is continually building on its existing expertise in marketing and consumer understanding, and is supported by access to a wealth of financial and creative resources.
- Coca-Cola has an 'action orientation'. Instead of waiting for change to happen it is at the leading edge, driving action forward.
6. Win the largest market share - Being the major player in a business market is the key to business success. A company only becomes the major player in a market by being the best, and being the best means having a detailed understanding of its consumers' requirements and then exceeding these requirements.
Once a company is a major player then it has considerable advantages to draw upon. These advantages are based on having a higher return on capital than its rivals and the opportunity to plough this return into fresh investment. Such areas for investment are marketing, product research and development, and other aspects of sound business growth.