Marketing Mix and the Coca Cola Example
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Marketing Mix and the Coca Cola Example
1. Introduction
The marketing mix is one of the fundamental concepts of marketing. This paper provides an exposition of the theory of the marketing mix and its use in global business. The paper explores how the Coca Cola Company has adjusted its marketing mix in foreign countries. Based on the concepts discussed, practical examples on how the marketing team of Vegemite can launch their product in South Africa are given.
2. Marketing Mix Defined
a. Product
Marketing mix or the 4Ps of marketing consist of product, place, price, and promotion. Product refers to the physical attributes of the manufactured goods such as packaging, standards, taste, and size based on the requirements and inclinations of the local consumers. Place refers on how the products reach the customer. The location and distribution channels used to ensure that a product gets to the customer constitute the place entity. The optimal situation is to choose locations of operation and distribution channels that are based on technical needs, coverage, profile, efficiency, and other relevant factors (Kotler, 2001; Porter, 1996; Porter, 2008).
b. Place
For firms getting into foreign markets, place is of particular importance. Entry into the foreign markets can entail the franchising system, exporting, licensing, foreign direct investment, manufacturing, and contract management. In exporting, goods are manufactured in one country and transported to another country to be distributed, sold, and serviced. In franchising, goods and services are licensed to a partner for an agreed fee. The franchisor gives out operating systems, service support, quality assurance programs, training, and trademarks to the partner. Exporting is advantageous because it allows a firm to enter a foreign market without assuming too many risks and it helps a firm to gain knowledge about the export market before it can commit huge investments. Disadvantages of exporting are potentially high tariffs, risk of disagreement with distributors, and high costs of logistics. Licensing entails the entry of a firm into a foreign market by allowing other partners in the foreign market to utilize its intellectual property for a fee. The intellectual property leased out to the partner company may include patents, trademarks, technology, brand names, copyrights, or work methods. The advantage for the firm leasing out the rights are that costs and risks are low. The disadvantage is that the licensed firm can become competent in the technological processes leased and start competing against the licensing firm (Kotler, 2001; Porter, 1996; Porter, 2008).
Foreign direct investment (FDI) can occur in the form of Greenfield ventures, international acquisitions, joint ventures, and establishment of a manufacturing facility by the company in the foreign market. Greenfield ventures allow companies to acquire or lease land and build a new facility there. The firm then recruits or transfers employees and in subsequent periods starts a new facility without its partner’s involvement. Disadvantages of Greenfield ventures are that there may be a lack of local knowledge and that it is associated with high risks. Joint ventures are ideal for firms that lack the ability to assess and get into a market resort to joint ventures. Advantages of joint ventures are that they protect the firm from economic and political risks, reduce logistic costs, strengthen supply chain control, allow personnel in foreign markets to be recruited easily, allow the government to exercise oversight over foreign ownership. In manufacturing, the company starts a manufacturing facility in the foreign market. It can help the firm save costs due to tax exemptions by the foreign government and benefits from cheap labor. Contract management can take the form of Turnkey project or contract manufacturing. Entry strategies are influenced by several factors such as firm-specific resource advantages, country-specific advantages, and administrative advantages (Kotler, 2001; Porter, 1996; Porter, 2008).
c. Price
Price determination is done to come up with a correct level of price based on the competition, the purchasing power of the target market, and the profile of the brand. Pricing strategies include the cost-plus, hour-based, skimming, competitor-based, and penetration pricing strategies. In the cost-plus pricing strategy, the cost of producing the particular product is ascertained and marked up by a certain percentage. In hour-based pricing, the hourly cost of production is ascertained, a standard hourly rate levied, and it is most common with small businesses that offer services. In skimming, a premium is charged for a product that has just been introduced into the market. Some people may rush to buy the product at the high price in order to be associated with the prestige of owning the product. Later on, the price is lowered in order to enable less wealthy people to afford it and this is subsequently followed by mass production of the product for the larger market. Penetration pricing refers to the strategy whereby a company that is just entering into a particular market offers a low price for the product in order to gain some market share. The company then adjusts the price upwards to reflect the true cost of the product as soon as the product has penetrated the market (Kotler, 2001; Porter, 1996; Porter, 2008).
d. Promotion
Promotion entails the communication of the firm with customers through advertising campaigns, branding, events, discounts, and contests. Promotion includes aspects of branding, advertising, public relations, special promotions, packaging, and sponsorships. Branding is the process through which a unique identity of the product or service or a business is created while advertising is used to make the public aware about the products and services on offer as well as to convince the public to buy the goods or services. Packaging helps to portray the product as an attractive choice (Kotler, 2001; Porter, 1996; Porter, 2008).
3. Coca Cola and the 4Ps
The importance of firms doing research and adjusting the marketing mix when entering a foreign country cannot be gainsaid. This is because the company has control over the 4 P’s but may need to fiddle with its marketing mix in order to account for those factors it is unable to control such as legislation, rivalry, technology, geography, politics, culture, and infrastructure. Research aims to get information about the competitors’ product, distribution, and sales as well as to assess the environment for political, economic, socio-cultural, and technological factors.
Coca Cola Company has used a mixture of market entry strategies depending on the foreign markets being accessed. For instance, Coca Cola co-owns 24 bottling plants in China in a joint venture with the Swire Beverages and Kerry Group. Additionally, the company has other joint venture partnerships in Tianjin and Shanghai. A joint venture between Coca Cola and Tianjin Jin Mei Beverage Co. Ltd has spawned Tianyudi and Xingmu, which are among China’s leading beverages. These partnerships have made the China market edge out other operations to become the fourth most profitable operation for Coca Cola. Moreover, it has enabled Coca Cola attain a market share that is nearing 40% and attain impressive year on year growth in sales. Coca Cola has managed to achieve this in a country with strict controls and a highly regulated beverage industry. This is because of the company’s decision to localize manufacture of beverages and engage the government of the day (Weissert, 2001). This approach has been replicated all over Asia, with localization of company processes and introduction of regional drinks. A similar arrangement is witnessed in Africa where Coca Cola has deep ties with SABCO in a joint venture, which has enabled the company access the continent’s market with relative success. However, different approaches specifically foreign direct investment, licensing and exports are used in other parts of the world.
On the other hand, Coca Cola has used the exporting model to penetrate some African markets where political instability and a hostile investment climate persist. A case in point is Eritrea where operations are at a virtual standstill due to restrictive policies that prohibit importation of concentrates and Somalia where the longstanding war has led to a halt in the company’s operations (Economist.com, 2008). Licensing is yet another option Coca Cola has effectively used. A notable example is the Amatil group, which is licensed to sell Coca Cola’s products in Australia, Fiji, New Zealand and Papua New Guinea (Coca Cola Amatil.com, 2014). Finally, foreign direct investment is also used by Coca Cola to penetrate certain markets. For example, the company is taking advantage of the favourable investment climate in Latin America by investing in new plants in Mexico (Lydersen, 2002), the $4.1 billion buyout of Glaceau, the Vitamin water maker (Finance Review, 2008) and acquisition of shares in Honest Tea (Stanford, 2008). For Coca Cola, entry modes are country-specific and are informed by prevailing conditions and future prospects. Nevertheless, whichever the entry mode, Coca Cola ably lives its mantra of ‘think local, act local” (Weissert, 2001).
Other ways through which Coca Cola has adjusted its marketing mix include correct pricing, and effective promotions strategy that includes public relations programs, sponsorships, advertising campaigns, and events. In particular, promotion has helped the company to overcome cultural, technological, political, legislative, and competitive difficulties in its overseas markets. On culture, Coca Cola upholds gender parity, meritocracy, high content, and open and honest communication. Child labor is forbidden and Coca Cola employs only adults. The firm has an active corporate social responsibility (CSR) program as evidenced by its sponsorship of the National Urban League prize. This was seven decades ago when race was still a big issue, assistance for the United Negro College Fund, encouragement offered to the civil rights leader, Martin Luther King Jr., trend-setting placement of advertisements in minority media, and many other initiatives which helped build trust with minority communities in America in earlier years (Velasquez, 2004). It promotes cultural competence through its $5 billion diversity program, growth of its minority suppliers by 50%, support for local community initiatives, and sponsorship of the 2008 Beijing Olympics (IRC, 2008). This has helped the firm to navigate the cultural difficulties present in the several foreign markets it serves
4. Vegemite and Entry to South Africa
The recommended entry strategy for Vegemite in South Africa is exporting. This particular strategy is recommended because South Africa has high production costs, less stringent import controls, and great political threats. It is suitable because it will allow Vegemite to utilize excess capacity while offering a cost effective way of foreign market penetration. Exporting will also allow Vegemite to enter South Africa without assuming too many risks and it will also helps the firm to gain knowledge about the South African market before it can commit huge investments. However, trade restrictions can inflate expenses and high transport expenses make the goods less competitive. Penetration pricing is recommended as the pricing strategy as it will help the company to gain a share of the South African market. On product, Vegemite needs to come up with a name that can appeal to the South African market and one, which they can relate. Thus, the product for the South African market needs to be branded differently to reflect local realities and imprint it into the minds of the local population. Finally, full use of promotion strategies such as branding, advertising, public relations, special promotions, packaging, and sponsorships should be utilized to make South Africans aware about the product.
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