Coca-Cola Low Cost Differentiation Preemptive

Coca-Cola

Low cost

Differentiation

Preemptive

Strengths: Economics of scale

Focus on core products to improve economies

Control market for key inputs, restricting competitor access to those inputs

Use market size to find unserved niches

Saturate new markets, increasing barriers to new entrants

Weaknesses: Reliance on beverages

Bulk purchasing and production of similar products improves economies of scale

Focus on drinks as a selling point compared to rivals

Find beverage niches too small for rivals

Gain first mover advantage in new products

Opportunities: Undersaturated markets

Use excess production to enter new markets

Use strong brand to enter new markets

Find new niche products to increase share in undersaturated markets

Discount sales to build market share and preempt competition

Threats: Competition

Undercut competitors on price

Use powerful brand to gain preferential access to retail channels

Find areas where there is less competition

Use market power to shut competition out of critical channels

Coca-Cola has significant economies of scale in purchasing, marketing and production. This is a competitive advantage, over everybody with the possible exception of Pepsi. Coca-Cola can take advantage of the economies of scale by focusing on its core business in order to increase the economies of scale. This is an especially valuable strategy in countries where consumption of Coca-Cola is relatively low. In such countries, the company may have more than one competitor that is in a position to compete on price, so Coke can improve its market position to extending its economies of scale. With market size also comes opportunities to bring new products to market. Coca-Cola can identify niches in the market and then use its marketing clout in distribution to gain shelf space for niche products that would otherwise not be available.

The company is strictly a beverage company, unlike Pepsi and some other competitors. This focus does allow it to have economies of scale, but can also hold it back because its income streams are insufficiently diversified. However, with specialization comes expertise, and this can be used against its competitors, if they become distracted by non-beverage products. In addition, specializing in beverages allows the company to gain first mover advantage because it is more in tune with market needs. That said, Coca-Cola must be aware of the challenges associated with not having a diversified income stream -- it needs to be extra strong in drinks in order to thrive.

Despite the company's presence in almost every market, Coca-Cola still has underserved markets where consumption is relatively low. This provides tremendous opportunity to build market share without significant increases in infrastructure. The downside of these markets is that they tend to be less efficient, because fixed costs are higher in relation to revenues. The company can win in such markets, however, if it uses its globally powerful brand to gain a stronger presence in underserved markets, thereby pre-empting rival firms from entering these markets. With Coca-Cola establishing market share, it will be all the more difficult for other companies to match the distribution clout and brand loyalty that Coca-Cola can build up.

In every market, competition remains a serious threat. Economies of scale can help the company in two ways. The first is that it improves margins, leaving more money left over for marketing efforts. The second is that there is often price competition in competitive markets. With better economies of scale, Coca-Cola can withstand price wars long enough to outlast competitors. Being such a strong company, Coca-Cola can also gain preferential access to distribution and retail channels, enabling it to outlast the competition. Competition can be pre-empted by using the company's power to block competitors out of key channels. There are sometimes laws against this, but often there are not. Even when there are, the company can gain preferential relationships that limit market access for competitors. In addition, Coca-Cola can find the open space in markets where there is less competition, and in those markets the profit opportunities will be greater for Coca-Cola.