Team 3 Phase Ii

Phase II MKTG 361-001 March 20, 2019

Team 3 Abdullah Aldahnin Farah Aldossary Jessica Backer Monica Beckley Elise Peters

Company & Industry Coca Cola is the world’s largest carbonated drink manufacturer. Headquartered in Atlanta Georgia, the company operates in 200 countries spread over six operating segments- North America, Latin America, Middle East, Asia Pacific, Bottling Investments and Corporate (The Coca-Cola Company, 2018). Besides the main brand Coke, Coca Cola Co. owns Fanta, Sprite, Minute Maid, etc. Coca Cola is the dominant player of the carbonated drink industry. Coca Cola faces direct competition with its American rival PepsiCo. In the last decade, owing to its continued focus on the core products, Coca Cola enjoys a market share of 43%. Life Cycle, Growth & NAICS Coca Cola is an example of a product that has had a long life. Introduced in 1886, Coca Cola has spent most of its life in the maturity stage of the product life cycle (Cahill, 2017). However, there has recently been a decline in the consumption of soft drink across its product ranges. However, the perennial thirst of its consumers may keep it alive for many years to come. As per SICCODE.com, "The Coca Cola Co" of Atlanta, GA 30313 operates primarily in SIC Code 5149 - Groceries and Related Products, Not Elsewhere Classified and NAICS Code 424490 - Other Grocery and Related Products Merchant Wholesalers. SICCODE.com further adds that Coca Cola Co. is a large-sized business with high revenue, that is well-established in its industry (The Coca Cola Co, 2019). See Figure A for more info on the industry’s overall decline. Environmental & Seasonal Trends Being in the soft drink industry, Coca Cola makes conscious efforts to conserve water and minimize its wastage. It partners with its channel partners to evolve innovative methods of using water judiciously, which has helped them reduce water usage over time as shown in Figure B. Additionally, it is the endeavour of Coca Cola Co. to reduce its carbon footprint by adopting efficient methods of production. Most of its plants are ISO 14001 certified and subjected to annual audits for their operational systems. In terms of seasonal trends, since Coca Cola Co. deals largely with the chilled non-alcoholic drinks, the consumption and sale of its products is naturally higher in summer and lower in winter. Considering this, it sells more in areas that experience extended summers such as tropical regions. See Figure C for the difference in sales between summer and winter over the past five years. Products & Services Over the years, Coca Cola has diversified into segments like ready-to-drink tea and coffee, packaged drinks and sports drinks. Perhaps this is the reason that it is able to report robust sales figures despite the drop in its sale from the carbonated drink portfolio. Being a multinational company, Coca Cola customizes the products for the region of its operation. For instance, in the Middle East, Africa, and Eastern Europe, it sells drinks with Mango flavor called “Maaza” that originated in India. Further, the company follows the differential pricing mechanism. This means the price varies from place to place. Coming to the contribution of different markets, a substantial part (68%) of the total revenue of Coca Cola is coming from the international market, though the North American market still accounts for almost one third of the total revenue as shown in Figure D. Unique Selling Proposition The USP of Coca Cola lies within its brand name, which has been built over a long period of time. Over the years, this brand value has helped to diversify successfully in still beverages segment. In fact, it is this brand name that helped it to establish the drinks such as Fanta and Sprite that were introduced much later. Similarly, when Coca Cola launched sugar-free and nocalorie Diet Coke, it became an instant hit. Besides, in some markets such as the UK, the

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company is trying to offer four cola variants- Coca Cola, Diet Coke, Coca-Cola Zero, and CocaCoca Life- under one Coca Cola brand. The company, through ads, has created an image of being synonymous with thirst quenching and refreshment that creates a specific and unique reputation to anything that becomes associated with Coca-Cola. SWOTT Analysis (Figure E) Strengths Coca Cola has an efficient distribution network and holds 43% of the market share in the industry (Bonnett, 2018). With this growing efficiency, they make themselves known in the market on an industry scale. Weaknesses Coca-Cola’s main weakness is its dependency on CSD beverage sales. Specifically, 69% of Coca-Cola’s sales come from CSD products (Euromonitor, 2017). This leaves the company at risk as the CSD industry as a whole is on the decline. Opportunities Europe, The Middle East, and Africa house Coca-Cola’s largest share of volume by operating groups outside of the United States at 30%, and Latin America is close behind at 27%. (The Coca-Cola Company, 2018). This opens up global opportunities for growth, which is illustrated by Figure F. Threats Our CSD products contributing to 69% of our sales is largely threatened when CSD-specific taxes are introduced. Seattle starting a $0.175 per ounce tax (Amir, 2018) is only the beginning to a potential nationwide trend. Growing health concerns and concerns towards our CSD products pushes that threat towards an urgent need for restructuring. Trends Growing trends that affect our marketing strategies are growing demand for healthier options and a social media prevalence associated to advertising. “Mintel’s Carbonated Soft Drinks – US, April 2017 Report shows that the majority of consumers (52%) who are drinking less CSDs now compared to a year ago are doing so because they are drinking more healthful options” (Hambelton, 2018). Also, Social media ad buys have increased from $10.9 million in 2015 to $22.2 billion in 2017 (Hulkower, 2018). Market Segmentation (Figure G) Primary Market (Coke) Consumers ages 18 or younger who enjoy at least one sugary beverage per day. There are approximately 74.2 million individuals aged 18 years or younger in the United States (Howden and Meyer, 2011). It has been reported that on a given day, two-thirds of children consume at least one sugary beverage daily, approximating to 49.47 million people 18 and under consuming a sugary beverage on a given day (Bleich, Vercammen, Koma, and Li, 2018). Of the whole U.S. population, about 10% do not care about a healthy diet (Mintel, 2018), dropping our target market significantly to 4.95 million. Based on research, the median income for people aged 18 years or younger is $28,000 per year, meaning that half of our market makes more than that amount (2.48 million). On average, 1 in 4 people within this chosen age group attend school bringing our market size down to approximately .62 million (Davis and Bauman, 2013). As the biggest consumers of Coke are individuals 18 and under who enjoy sugary beverages, we have

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been able to create a clear target market based on psychographic, location, demographic and education. Secondary Market (Honest Tea) Health-conscious consumers 25-34 years old that have at least one kid is our secondary target market. Out of the total U.S. population, approximately 45.34 million individuals are aged 25 to 34 (Population of the U.S., 2017), which is the age group who purchases Honest Tea most frequently. Furthermore, 52% of the population says they are health conscious to some extent (Mintel, 2018), and 55% of the Honest Tea drinkers have at least one child (Honest Tea Demographics, n.d.). Our initial target market size is therefore 12.97 million individuals. Out of those individuals, 90% care about a healthy diet, making Honest Tea a more preferred beverage and targeting our market down to 11.67 million. On average, the typical 25-34 year old family income is $80,000 per year (Bureau of Labor Statistics, 2018). The amount of individuals families who make more than that totals to be 5.84 million people, and 1.46 million of them have attended school or have already received an education (Davis and Bauman, 2013). Based on these statistics, we are left with 11.26% of our initial target market and now have a stronger focus on the group we hope to target for our Honest Tea product. Tertiary Market (Coke Zero Sugar) Males who are 55 years of age or older whose first choice of sweetener in a CSD is aspartame is our tertiary market. Due to the rising health concerns of the upcoming generations, Coke Zero Sugar is becoming less desirable. By marketing to our chosen group, we can keep this brand alive despite the declining market. This age group and gender is the largest of those that preferred aspartame as a sweetener. As Coke Zero Sugar uses aspartame in place of sugar or other sweeteners, it would be most practical for Coca-Cola to focus on customers who already find the product formulation appealing (Bonnett, 2018). There are approximately 151.78 million males in the United States, 42.83 million whom are 55 and over (Howden and Meyer, 2011). Out of these individuals, 41% of them drink beverages containing aspartame giving us a initial size of 17.56 million (Science News, 2017). Out of this amount, 90% care about a healthy diet, giving us a value of 15.80 million (Mintel, 2018). For this age group, the median income is around $53,000 a year, meaning 7.90 million individuals make more than this amount (Bureau of Labor Statistics, 2018). Segmenting our target market even further, 1 in 4 individuals have either attended or are attending school, giving us a value of 1.98 million males (Davis and Bauman, 2013). Our tertiary target market for Coke Zero Sugar is therefore only 11.28% of our initial market size, giving us a detailed and very targeted group of consumers who prefer this specific beverage. Competitive Analysis Competitive Landscape The market of Carbonated soft drinks is highly concentrated due to the dominance of the top three market players: Coca-Cola, PepsiCo, and Keurig Dr Pepper. In 2018, the three main competitors were accounted for 90% of dollar sales (Pastre, 2019). Figure H shows that CocaCola accounts for an estimated 43% of the market share followed by PepsiCo and Keurig Dr. Pepper. According to IBIS World, the market concentration is expected to grow since the major competitors are expanding their beverage segments (Amir, 2019). Moreover, the competition among those market giants is based on gaining brand loyalty by introducing a variety of flavors

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and offering competitive promotions. For instance, demand for sugar-reduced soft drinks has been increasing in the past few years. In fact, the change in compound annual growth rate (CAGR) of sales for this segment was 13.6% in 2018 as illustrated by Figure I. In response to this trend, soda producers have been heavily investing in this product segment. Another factor of competition is distribution channels. Even though supermarkets and convenience stores account for 52% of retail sales, soda producers value obtaining contracts with downstream channels like vending machines because those services limit their soda products from one manufacturer (Figure J). Direct Competition PepsiCo is Coca-Cola's primary competitor. The company accounted for 26% of the market share which is not much when compared to Coca-Cola (Figure H). However, PepsiCo’s product diversification has enabled the company to gain a competitive advantage in terms of winning sponsorships agreements. PepsiCo has been sponsoring MLB, NHL, and NFL which allows the company to expand its marketing opportunities. Dr Pepper/Snapple: followed by PepsiCo, Dr. Pepper is considered the second direct competitor of Coca-Cola. The company promotes its Dr. Pepper drinks to college students and millennials with profiles that focused on sports. It also promotes Canada Dry to adults by capitalizing on its ginger flavor and promoting natural ingredients (Bonnett, 2018). This product diversification enabled the company to increase its sales by 2.7%, compared to Coca-Cola’s lower growth of 1.5% and PepsiCo’s decline of 4% (Figure K). Indirect Competition CSDs are losing share to hybrid beverages which are lower in sugar/calories and use more natural flavors. Currently, US adults accounted for 10% of the fusion drinks market (Bloom, 2018). Considering the increasing amount of people who are conscious about their health, hybrid drinks will continue to be in direct competition with CSDs. Other Competitors in the market are ready to drink (RTD) beverages like coffee. RTD coffee is considered one of the fastest-growing non-alcoholic beverages with sales reaching $23.4 billion in 2017, and by 2021, sales are expected to reach $28.7 billion (Bonnett, 2018). Micro & Macro Competition In an attempt to appeal to health-conscious consumers, PepsiCo reintroduced Pepsi Max as Pepsi Zero Sugar to the market. The product not only targets healthy consumers, but it also targets men who prefer CSDs with aspartame sweetener. Comparing the prices of Pepsi Max Zero Sugar and Coca-Cola Zero Sugar 12pk/12 fl oz cans, they have the same price. Therefore, the competition between these products is heavily driven by promotions and advertising. Marketing Challenges (Figure L) Problem 1: Calorie Intake The United States has had a continuous rise in obesity since 1970 (Jenkins, 2013). The Coca Cola Co. has been one of the top brands associated with unhealthy and unnecessary calorie intake, which is believed to contribute to the rising obesity levels (Backalar, 2018). To help combat this scrutiny Coca Cola must re-evaluate the calories each 12 ounce can contains. By

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lowering the added sugars in each can these cans could be marketed with a lower calorie count in comparison to competitors. A second option would be to launch a health and fitness campaign. If Coca-Cola encourages consumers to work off calories that they consume on a daily basis they may be more willing to “indulge” in our products as a “reward” to their work out. A third possible solution would be to add a Sodastream related concept to their inventory. If they market an add your own syrup expansion the consumer would then be able to add as many calories as they desire to their beverage, while still taking part in the CSD product. Problem 2: Artificial Sweeteners “Sugar appears to have assumed the role of the modern-day villain, and sweeteners (particularly artificial options) are hardly regarded as a better solution” (Roberts, 2018). Artificial sweeteners have been fighting an uphill battle for a while now, and the only way to truly change this is with alternative options. Solution one would be to altogether switch to an all natural plant based sweetener that still contains zero calories. A second solution would be to switch to another natural sweetener such as honey, although further research would need to be done regarding the impact on the formula and the added calories to the typical zero calorie drink. A third option would be to lower the amount of artificial sweetener used in the diet product and to market the lowered rate in comparison to other diet competitors. Problem 3: Demographics Targeting a demographic much younger than those who grew up with Coca-Cola is a difficult problem to tackle. The only way to re-introduce Coca-Cola into this target market is by aligning with current trends. The first potential solution would be to launch a Twitter campaign similar to the way Wendy’s and McDonald’s have begun to align with the younger consumers. Using this example increasing social media presence would make Coca-Cola a name present in the mind of millenials. Our second solution would be to add more advertisements to the shows typically viewed by a young adult audience. Our third option would be to target the current trend of “social media influencers” and either use their videos (makeup tutorials, fashion blogs, stunt acrobatics, etc.) as a tool to advertise with before or during ad breaks or to specifically have those in the videos drink our marked beverages in a subliminal fashion. Each one of the nine solutions highlighted above will make an impact on where we stand within our industry and with our key consumers. Conclusion Coca-Cola Co. is a major soft drink manufacturer based in Atlanta, Georgia which operates under NAICS code 424490 and holds 43% market share in the industry. Coke, Honest Tea, and Coke Zero Sugar attract the company’s primary, secondary, and tertiary target markets, respectively. However, Coca-Cola Co. faces three challenges in attracting these markets: consumer concerns over caloric intake, concern regarding artificial sweeteners, and difficulty managing changing demographics. Some preliminary solutions for these problems include formula modifications or new marketing tactics and campaigns. These solutions are relevant to Coca-Cola Co. because they have the potential to challenge their most direct competitor, PepsiCo, to follow suit or fall behind. They may also reposition Coca-Cola Co. to better compete with RTD and other soft drink alternatives.

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References Amir, A. (2018, June). IBISWorld Industry Report 31211a. Soda Production in the US. Retrieved from IBISWorld database. Backalar, N. (2018, November 14). Americans Are Putting Down the Soda Pop. The New York Times. Retrieved from https://www.nytimes.com/2017/11/14/health/soda-popsugary-drinks.html Bleich, S. N., Vercammen, K. A., Koma, J. W., & Li, Z. (2017, November 14). Trends in Beverage Consumption Among Children and Adults, 2003‐2014. Retrieved from https://onlinelibrary.wiley.com/doi/full/10.1002/oby.22056 Bloom, Beth. (2018, January). Beverage Blurring. Mintel. Retrieved from http://academic.mintel.com.ezproxy1.library.arizona.edu/display/860233/ Bonnett, M. (2018, April 20). Carbonated Soft Drinks - US - April 2018. Mintel. Retrieved from http://academic.mintel.com.ezproxy4.library.arizona.edu/display/860373/# Bureau of Labor Statistics. (2018, January 17). Table 3. Median usual weekly earnings of full-time wage and salary workers by age, race, Hispanic or Latino ethnicity, and sex, fourth quarter 2018 averages, not seasonally adjusted. Retrieved from https://www.bls.gov/news.release/wkyeng.t03.htm?isid=careeradviceUS&from=careeradvice-US Cahill, B. (2017, April 26). Coca-Cola and the decline stage of the PLC | tutor2u Business. Retrieved from https://www.tutor2u.net/business/blog/coca-cola-and-thedecline-stage-of-the-plc Davis, J., & Bauman, K. (2013, September). School Enrollment in the United States: 2011. Retrieved March 17, 2019, from https://www.census.gov/prod/2013pubs/p20571.pdf Euromonitor International. (2018, July 30). Coca-Cola in Soft Drinks (World). Retrieved from http://www.portal.euromonitor.com.ezproxy1.library.arizona.edu/portal/Analysis/Tab Hambelton, M. (2018, February). Bottled Water. Mintel. Retrieved from http://academic.mintel.com.ezproxy1.library.arizona.edu/display/878549/ Honest Tea Demographics and Consumer Insights. (n.d.). Retrieved March 18, 2019, from http://snapshot.numerator.com/brand/honest_tea Howden, L. M., & Meyer, J. A. (2011, May). Age and Sex Composition: 2010. Retrieved March 17, 2019, from https://www.census.gov/prod/cen2010/briefs/c2010br-03.pdf Hulkower, B. (2018, August). Digital Advertising. Mintel. Retrieved from http://academic.mintel.com.ezproxy1.library.arizona.edu/display/912070/?highlight Jenkins, H. W., & Jr. (2013, January 30). Coke and the Calorie Wars. Wall Street Journal. Retrieved from http://ezproxy.library.arizona.edu/login?url=https://search.proquest.com/docview/128250 1749?accountid=8360

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KO's Revenue Growth by Quarter and Year. (2019, March 17). Retrieved from https://csimarket.com/stocks/single_growth_rates.php?code=KO&rev Mintel. (2018, January 16). Half of Americans report living healthier in 2017. Retrieved March 17, 2019, from https://www.mintel.com/press-centre/social-andlifestyle/resolution-resolve-more-than-half-of-americans-report-living-healthier-in-2017 Pastre, Tom. (2019, March) U.S. Beverage Market Outlook 2019. Retrieved from http://academic.marketresearch.com.ezproxy3.library.arizona.edu/product/display.asp?pr oductid=12079370&curl=&surl=%2Fsearch%2Fresults%2Easp%3Fprid%3D102306924 8%26query%3Dcoca-cola%26cmdgo%3DGo&view=abs&prid=1023069248 Population of the U.S. by sex and age 2017 | Statistic. (n.d.). Retrieved March 17, 2019, from https://www.statista.com/statistics/241488/population-of-the-us-by-sex-and-age/ Roberts, W. (2018, December). Sugar and Alternative Sweeteners. Mintel. Retrieved from http://academic.mintel.com.ezproxy3.library.arizona.edu/display/933422/?highlight#hit1 The Coca Cola Co. (2019, March 17).SICCODE.com - The Leader in SIC and NAICS Codes, Company Search, Business Lists, siccode.com Retrieved from https://siccode.com/business/the-coca-cola-co The Coca-Cola Company. (2018, October 30). Coca-Cola Reports Strong Operating Results for Third Quarter 2018. The Coca-Cola Company. Retrieved from https://www.cocacolacompany.com/content/dam/journey/us/en/private/fileassets/pdf/inve stors/2018-Q3-Earnings-Release-Final.pdf U.S. Census Bureau. QuickFacts: UNITED STATES. (n.d.). Retrieved March 17, 2019, from https://www.census.gov/quickfacts/fact/table/US/PST045218

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Attachments Figure A

Figure H

Figure B

Figure C

Figure I

Figure D

Figure J

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Figure E

Figure K

Figure F

Figure L

Figure G Primary Target Market: Coke

Secondary Target Market: Honest Tea

Tertiary Target Market: Coke Zero Sugar

Target Description

Consumers ages ≤18 who have 1+ sugary beverages per day

Health-conscious consumers ages 25-43 that have 1+ kids

Males ≥55 whose first choice CSD sweetener is aspartame

Initial (N) in United States

49.47 million

12.97 million

17.56 million

Segment Basis 1: Psychographic (Lifestyle)

Not health-conscious: 4.95 million

Health-conscious: 11.67 million

Health-conscious: 15.80 million

Segment Basis 2: Demographic (Income)

>$28k per year: 2.48 million

>$80k per year: 5.84 million

>53k per year: 7.90 million

Segment Basis 3: Education (Is attending/has attended)

Attend(ed) school: .62 million

Attend(ed) school: 1.46 million

Attend(ed) school: 1.98 million

Final N (True Target Market Size)

.62 million (approx. 1.25%)

1.46 million (approx. 11.26%)

1.98 million (approx. 11.28%)

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