Coca-Cola's differentiation strategy and sustainable competitive advantages

KO Advantages

Coca-Cola pursues a differentiation strategy, and has built its company around the pursuit of this strategy. The strengths that the company has -- R&D, marketing, and heavy advertising -- all directly support the differentiation strategy. Coca-Cola uses its strategy to foster sources of sustainable competitive advantage, although the strongest of these is the company's brand. All told, Coke has an excellent strategy that does not result in many missed opportunities. There are different strategic directions that the company could take, but there is also evidence that Coca-Cola management is aware of these options and has rejected them. All told, the approach that the company has taken remains successful, and should be successful for the foreseeable future.

Strategies

Porter's generic strategies typology highlights four main strategies that can be used to succeed in business (QuickMBA, 2010). Two of these are focused on niche markets, which obviously does not apply to a mass market company the size of Coca-Cola. The other two strategies are cost leadership and differentiation. Coca-Cola is seldom the cost leader in its markets. Usually, there are generic or house-brand products that are similar to Coke's products but are priced lower. In general, Coca-Cola follows a differentiation strategy. The company relies heavily on branding and other marketing elements, along with patented product recipes, in order to create differentiation in the market place.

Sustained competitive advantages

While the first mover advantage is something that Coca-Cola has been able to maintain over the long-run, it is worth considering that the company's ability to foster other competitive advantages is one of its key success factors. The company has a lot of advantages, and against most firms these factors are sustainable. Porter identified two main sources of sustainable competitive advantage, cost advantage and differentiation advantage, both relating to his generic strategies (QuickMBA, 2010).

Sustainable competitive advantages should be ones that competitors cannot easily replicate. For the most part, Coke only has one competitor -- Pepsi -- that can replicate its sources of competitive advantage. So the question then becomes -- what does Coca-Cola have that Pepsi cannot replicate? It is not distribution, management or organizational culture, all of which are replicable albeit with great difficulty. What Coca-Cola has is the world's most iconic brand. Pepsi has a strong brand as well, but that company simply does not have the brand power than Coca-Cola has (Interbrand, 2011). The company's brand allows it to enter new markets, gain distribution rights, to cultivate a favorable political environment and to gain credibility with consumers and retailers alike for new products.

Coca-Cola's Strategy

There are few unaddressed threats or missed opportunities. Diversification, it could be argued, is one. Coca-Cola's management may not agree with that assessment, since the company has been careful not to diversify out of non-alcoholic beverages, but this is a threat to the company that it has not addressed in a meaningful. Pepsi has diversified out of beverages, in contrast to Coca-Cola, and is now a larger company overall. In addition, Coca-Cola may not have adequately addressed the weather issue. We know that Coke's sales increase when the weather is good, but aside from a strong Christmas promotional strategy for its core brand, Coca-Cola does not do a great job pursuing cold weather beverages. If Coke had a better position for colder climates, it might find that its sales were less affected by the weather -- consumers would simply switch from one product to another.

Altered Strategic Choices

A company as successful as Coca-Cola does not make too many missteps, but that does not mean that it cannot improve its operations. Strategically, the company has succeeded by building a company that is uniquely focused on driving value from one core business, so it is hard to recommend that the company diversifies, yet there is room for some diversification because ultimately the firm's dependence on a single industry creates some vulnerability. Its strength has allowed it to avoid challenges thus far, and it has grown along with the population of the planet, but eventually growth opportunities will slow. Coca-Cola should consider branching out, even if just in the form of vertical integration.

Another strategic choice that the company has made is to allow low cost competition to enter the market. The differentiated strategy is an important one for the brands the company has now, but there is room for growth in cost leadership brands as well. As long as these brands are distanced from the existing Coke portfolio, the company should be able to gain total market share by introducing them. The key here is that as the largest beverage company, Coca-Cola actually has the economies of scale to be the lowest-cost producer in the industry. It could actually undercut the current cost leaders, and that is a sustainable competitive advantage. This might not fit with the strategic vision that the firm has, but it is worth pointing out that this opportunity does exist should Coca-Cola management find a way to enter this market without diluting the value of its core brands.

A third new strategic alternative is to focus on high growth countries. This is a variation on the company's current strategy, but with maturity in the existing top markets, the path to growth goes through emerging markets. Coca-Cola can not only experience strong growth with its core brands, but can develop entirely new brands for these markets. This would leverage the company's innovation pipeline and it would also give Coke the opportunity to gain first mover advantage and find the "blue ocean" in product categories where there are few serious competitors.

Conclusions

My view of the company's mission and vision statements has not changed as the result of this process, but I did understand all along that the mission and vision statements were not reflective of the actual mission or vision of the company. The company's mission and vision as practiced are their own thing, and have been supported by the analysis that has been undertaken. Coca-Cola know what it is and where it wants to be, and its corporate and business-level strategies support this mission. It is a shame that the company's actual mission and vision statements do not correspond much with the mission and vision that the company clearly has.

Works Cited:

Interbrand. (2011). Best global brands 2011. Interbrand. Retrieved March 24, 2012 from http://www.interbrand.com/en/best-global-brands/Best-Global-Brands-2011.aspx

Kim, W.C. And Mauborgne, R. (2009), What is BOS? Nine key points of Blue Ocean Strategy. Retrieved on August 15, 2011 from:

http://www.blueoceanstrategy.com/abo/what_is_bos.html

Lee, M. (2012). The real story behind the real thing. CNBC. Retrieved March 24, 2012 from http://www.cnbc.com/id/33307309

Liang, T., Czaplewski, A., Klein, G., & Jiang, J. (2009). Leveraging First-Mover Advantages in Internet-based Consumer Services. Communications of the ACM, 52(6), 146-148.