The coca cola company case

Profitability is variable. Many businesses come in components and it may be that not all components have the same profitability. In fact, in most cases, profitability is quite variable - sometimes high, sometimes low, and sometimes even nil.

Think of Coca Cola: one product but many businesses. Coke has a warehouse component, a restaurant component, and a vending machine component. Most of the profit comes from sales at restaurants and vending machines; the income generated by the warehouses is insignificant. The Coca Cola Company recognized it, and PepsiCo did not. But there is much more to undertake about the history of the drink that was originally sold as a nerve-calming medicine.

How much do you pay for a canned Coca in a vending machine ?; $ 1.50. And how much do we pay in a restaurant? Probably about $ 4. What would be the price of a Coke in a warehouse? A two-liter bottle costs approximately $ 2.50. Amazing, right?; the same product, various prices, different businesses. Sometimes we buy Coke from the vending machine in the office, other times at a restaurant and occasionally at checkouts in the supermarket. In summary, we buy Coca at different prices, depending on where we are.

Coke's business is similar to that of a hotel, which also has several components. One is a single room for one night, another is a one-day party for twenty people, and another would be a three-day convention for three thousand people. Much for the profit model.

Dr. John Stith Pemberton, a pharmacist from Atlanta, Georgia, discovered in 1886 the magic formula of Coca Cola. The stupendous drink was a combination of lime, cinnamon, coca leaves, and the seeds of a Brazilian bush; and was originally used as a nerve and brain tonic, which some called a medical elixir.

The Pemberton accountant gave the name of the drink in question. He designed the famous logo and original letter stroke. Really, a very creative accountant, if you stop to think. Pemberton sold a portion of the Coca Cola Company to Asa Griggs Candler, and after his death Candler acquired the entire company for no more than $ 2,300. Pemberton, like many great inventors, did not know how to make a profit on his invention.

With Asa Candler - who was another Atlanta pharmacist - at the helm, the Coca Cola Company increased soda sales more than 4,000% between 1890 and 1900. Advertising was a major factor in Candler's success and in the early 20th century the beverage sold throughout the United States and Canada. Around the same time, the company began selling the syrup to independent bottling companies.

In 1893, the famous Coca Cola formula was patented. Candler's great achievement was the large-scale bottling of Coca Cola in 1899. In addition, Candler ran a dynamic Coca-Cola "marketing" campaign in newspapers and on billboards. And in the newspapers, he gave coupons for a free Coke anywhere. But the Coca Cola Company was sold again, after the Prohibition Era (for alcoholic beverages), to Ernest Woodruff for $ 25 million. He handed Coca Cola over to his son Robert, who would be president for the next six decades.

Woodruff introduced the six-bottle box to the market in 1923. It also made Coca Cola available for sale through vending machines that same year. He began advertising on radio in the 1930s and on television in 1950. Woodruff improved efficiency at every step of the manufacturing process and made Coca available in every café and bar in the United States.

The Coca Cola Company with Woodruff established a network of bottling plants across the country. Each one signed a perpetual contract with Coca Cola that set the price that Coca would impose for the syrup and gave the bottler exclusivity in their territory. And that early concession model was an impressive success, because consumers liked it, bottlers became rich, and the Coca Cola Company increased in value and became a market share leader. In 1920, Coca had established 1,200 bottlers in its concession system.

During the 1970s, Coca Cola lost its leadership in market share, especially in the grocery or warehouse segment. Large supermarket chains emerged across the country and Coca bottlers were unable to meet the needs of those chains, since they were regional. Supermarkets did not accept different prices for the same products, and bottlers lost a lot of money with Coca's competitor, Pepsi Cola.

Bottlers became a problem for the Coca Cola Company and Pepsi took advantage of this by further lowering prices. In addition, Coca Cola had to wage an intense "marketing" war with Pepsi Cola. It was fighting for fractions of a percentage in the market share, and security analysts were already composing the Coca Cola obituary.

During the brilliant marketing campaign, the "Pepsi Challenge" it was found that Coca drinkers preferred the taste of Pepsi. It succeeded in establishing Coca's differentiation for its flavor and consumers began to buy more and more Pepsi, for its price.

In 1977, Pepsi had acquired parity with Coca in US supermarkets. The company seemed satisfied with its triumph in stores and considered that the queuing war was over. But PepsiCo did not fully understand where the profit and return on investment really came from. The company acquired several restaurant chains, including Pizza Hut, Taco Bell, and Kentucky Fried Chicken (KFC). However, Pepsi had many possessions and was losing market value; What's worse, restaurants such as Burger King and Wendy's, sellers of Pepsi products, became direct competitors and sold Coca Cola exclusively.

Many people have forgotten how bad Coca Cola looked when Roberto Goizueta took office. After growing up in a wealthy family, he emigrated from Castro's Cuba with nothing. He entered Coca Cola in the United States as a development engineer. Coca Cola dominated the North American soft drink market with 35 percent of the stake, and everyone seemed to know that the market was mature. But Goizueta thought differently.

He had tremendous insight, a simple but very powerful idea. Business is very different from what is commonly taught at university where we must find the correct answers to the teachers' questions. Common sense, however, says the right questions have to be discovered first, and Goizueta asked the right questions about Coca Cola business design. An incredibly interesting question, which can be very helpful to your business as well, if it is tailored appropriately. It is all about spaciousness to imagine the definition of your business.

He asked himself: what is the "per capita" average daily liquid consumption of the 4.4 billion people in the world? And how is that related to Coca Cola consumption? The answers to these questions, of course, were spectacular. The world's population consumed 2 liters per capita daily, and Coca Cola consumption was only 0.06 liters.

Goizueta asked himself: What is our market share in the customer's stomach? Not Coca Cola's participation in the world soft drink market, but in the stomach of the customer. From that moment, Coca Cola's competitor was no longer PepsiCo, but it was coffee, milk, wine, tea and even water. Roberto Goizueta redefined the Coca Cola market as the largest that anyone could have ever imagined. From there, people within the Coca Cola Company changed their perception; they saw her not as a large restricted fish in a small lake, but as a small fish in the ocean.

That sounds simple and obvious. But as with other business paradoxes, it wasn't obvious until someone mentioned it. It was the beginning of Coca Cola's transformation from a mature business to one of the greatest market value creators in history. And it made Goizueta very rich in the process: his investment in Coca Cola amounted to more than a billion dollars.

Don't you think that many other companies could identify new sources for innovation if they just asked themselves the question: Are we a big fish in a lake or a small fish in the ocean? By following this line of thinking, perhaps one of us could also shift the focus from just cutting costs and starting to talk about growth, recognizing that there is no mature business once company leaders go beyond traditional definitions of industry and markets.

It all starts with a new perception, a new paradigm, a new pair of glasses, or a new point of view. Growing a business is much less risky than not growing it.

Today's great masters of business, and sometimes of entire industries, immersed themselves in the world of customers, and sometimes discovered needs that even customers had not identified. The greatest secret of growth is the secret of life itself; change is the only constant, everything else changes. Look nowhere else for new profitable growth trajectories. And as the history of Coca Cola Compaña shows, the change can be found in the perception or definition of the business, or else, from the definition of market share to potential participation.

Redefining the market forces an approach to the strategy "from the outside in", completely opposite to the way of thinking of conventional money losers. Redefining the market is the antithesis of fighting for market share. The objective is to put the current market share in perspective, reaffirming that it is a potential market share.

And that's also what another great businessman did: Jack Belcho told the leaders of his company units, at General Electric, to redefine their market to one in which the current stake was no more than 10 percent. You have to continually redefine your business. From the profit pattern that was diversification towards market share leadership - when Welch said: be number one or number two, or go - towards redefining the market, and even further to Six Sigma and digital business design. This unleashes energy and creativity, and most importantly, eliminates business bottlenecks that could have been successful.

The important thing is to ask yourself four questions: who are my clients, how are they changing, what exactly do they want and how can I give it to them. These are the kind of questions from which the idea of a minivan came up. Nike's athletic shoe delivers the next day from FedEx, Liz Claiborne's brand of women's business apparel, exclusive CNN news coverage, low-cost, custom computers from Michael Dell, Starbucks coffee, and Microsoft's low-cost PC operating system.

In addition, Goizueta identified another source of business design innovations within the value chain. In the beverage industry, this value chain consists of activities such as syrup manufacturing, bottling, logistics, distribution, "marketing", and advertising. In 1980, Coca Cola bottlers were a powerful force, preventing the company from growing its business. He redefined Coke's business design as a syrup maker, aggressive supplier, and effective brand designer, to include strategic control of distribution channels, bottlers.

Returning to the introductory paragraph of the article, it was Goizueta who recognized that the real profit was obtained in restaurants and vending machines. Warehouse sales were necessary to promote the Coke brand to customers, but were not profitable. He recognized that the profit of Coca Cola products depended on different places of purchase and that supermarkets represented intense price competition, but only a few restaurants would sell both products, Coca and Pepsi, and once a vending machine was installed in an office, there was no other competitor.

He knew that he had to gain strategic control over the bottlers was essential to reinvent Coke's business design, regain profitability, maximize it, and grow in market value. The Coca Cola Company began acquiring bottlers, and for them it was a win-and-win situation; Coca Cola Company modernized its operations and its "marketing" was much more effective.

It is still the most famous brand in the world; in fact, it is the most valuable, according to recent research from the Marketing Consultancy Interbrand. Since the death in 1997 of legendary CEO Roberto Goizueta and the less successful management of his successor, Doug Ivester, the once-powerful stock is now trading at $ 47, just like five years ago. Sales growth for Coke brand products has slowed dramatically. Three full years of declining earnings have weakened the company's strength.

Under Coke President and CEO Doug Daft, who took office two years ago, Coke has begun to slowly recover. Coke's fundamental problem was inherited by Daft: his predecessor, Ivester, became obsessed with deals and financial engineering at the cost of "marketing" and innovation in business design.

The growth in the consumption of the beverage abroad, where the company obtains 75% of its profits, has also slowed. Sales in the US peaked in 1998 and have been the same since then. Do you know Coke's current motto? If you answer "Coca Cola is like this", you are two decades behind. The answer: there is no new one.