The Coca-Cola Company: Basis of Competition

As of 2012, Coca-Cola was worth $77.8 billion. It is currently the world’s leading brand according the annual “Brand Value Ranking” from ‘Interbrand’, and now, with ‘3,500 different beverages sold worldwide’ (Interbrand, 2012), Coca-Cola is leading the many emerging markets too. In order to be this successful, Coca-Cola must have an exceedingly strong basis of competition, and that, it does:

For starters, Coca-Cola has achieved very high economies of scale since its beginning in 1886. High economies of scale allow businesses to produce more, at a much lower cost, because average costs fall when buying in bulk. This then allows the business to lower its prices, which will obviously instigate an increase in demand and potentially, profits. Then, with more profits, businesses can increase the barriers to entry within a market and deter other companies from entry.

Furthermore, within the Soft Drinks Industry, the bargaining power of buyers is extremely high due to low switching costs, and the general ease at which consumers can switch; but due to them amassing a large degree of customer loyalty over the years, Coca-Cola is an exception to the rule as its customers have become increasingly less price sensitive. This is another benefit of having a competitive advantage.

Coca-Cola’s competitive advantage comes mainly from its innovation and product differentiation techniques. Coca-Cola ‘spends roughly 20% of its advertising budget on maintaining its differentiation strategy’ – and with good reason. Through innovation comes more brand loyalty, inelastic demand (due to lack of substitute products), and the potential of the desirable ‘Monopoly Power’ which many businesses aim towards. An example of Coca-Cola’s innovation is its ‘Coke Zero’ brand, which is a dieting product aimed at young men. This kind of product had