Coca-Cola Gaining a Competitive Advantage

Coca-Cola's key resources are its brand, its distribution network, its innovation pipeline and its bottlers. The company success is largely related to its ability to leverage the first three, while the bottlers are basically a hygiene factor. Poor relations with bottlers can distract the company but at best the bottlers can only be a minor contributing factor to the other three resources. The company's positioning within the industry is as an industry leader, and the most powerful firm within the industry. Coca-Cola markets itself as a differentiated producer.

Coca-Cola's strong industry position is only somewhat congruent with its key resources. Certainly the strength of the Coca-Cola brand is closely related with the firm's premium status in the industry. The brand supports this status and the differentiated pricing that Coca-Cola has. However, the rocky relationship with the bottles does not support Coca-Cola's premium image. Customers would probably expect that an exceptional company would have a great relationship with its bottlers, specifically because of the significant role that the bottlers play in Coca-Cola's value chain.

The company's international presence, being one of its strongest resources, is aligned with the brand positioning perspective. In both cases, Coca Cola benefits from its status as a premium product, and in some countries an aspirational product. The positioning perspective argues that the company can derive value from having a premium position and then supporting it. Resources are required to support Coke's positioning and in general the company can only expect to succeed to the extent that those resources directly support premium positioning.

When they do not -- such as when the innovation pipeline comes up with dud products or misses new trends -- then the company loses its status as an innovator and a strong company. It is only through alignment of the company's resources with the positioning of its brand that Coca-Cola will be able to derive value over the long run. The best way for Coca-Cola to succeed is to properly align its resources with its strategy.

When this occurs, the different resources work well together as better than the sum of their parts. The company's distribution partners and bottlers are better able to identify opportunities and funnel those ideas to the innovation pipeline, where those ideas can be turned into new products. Likewise, innovation supports the brand's reputation as an industry leader, but it also lends strength to distributors and bottlers by giving them an opportunity to increase market share.

When one of these key resources is not functioning properly, the opportunities for strategic synergy are reduced and this impacts the company negatively. By investing more in improving the four key resources, Coca-Cola will only serve to reduce the number of instances where the different resources support each other. With each resource strengthened, synergies between them will be improved, allowing each to perform its function and to strengthen the premium positioning of the brand.

By the same token, there are no key resources that should be divested, as each of these key resources is required to help the company succeed. Even when one resource is relatively weak, the strategy for Coca-Cola should be to strengthen it rather than divest it. Divestiture is best for resources that do not support the corporation's positioning within the industry. The case does not provide much evidence of any such resources within Coca-Cola.

Most of the superfluous resources were found at Pepsi at different points in the company's existence, although today Pepsi is much leaner, adopting more of a Coke-style strategic outlook. Going forward, the two cola companies are going to be dealing with markets that are more mature. This will necessitate an increased focus on cost containment as a source of competitive advantage. For Coca-Cola, this does not suit its key resources well.

The company may have some leverage over its distribution network and bottlers, but ultimately cost cutting is not congruent with a differentiated strategy. Coca-Cola, then, is going to be faced with the decision either to change its strategy to meet new market conditions and subsequently change some of its key resources, or it will be forced to develop new resources in order to bring those in alignment with a cost reduction strategy. At present, cost reduction can come in the form of bargaining power over.