Coca-Cola Company's market entry strategy for Iran

History of Coca-Cola Company (Coke)

We all know - at least if we are old enough to have heard the jingle - that Coke would like to teach the world to sing in perfect harmony. Except that this isn't quite true. What the Coca-Cola Company would most like to do is to teach the world to drink Coke - or one of its other wholly owned brands. The company has in fact proved to be remarkably hardy in the ever-more-globalizing economy. It's hard to travel anywhere in the world today and not see someone sipping a Diet Coke.

But this does not mean that the company's entrance into different national markets has been smooth - or that its continued competitiveness in various national markets will be assured. Each country presents a unique set of cultural and economic challenges. This paper examines the possible entrance of the Coca-Cola Company into Iran, looking at what problems it may have in entering this market, how it might be able to overcome these challenges, and what continuing challenges that it would face in this market.

History of Domestic U.S Corporation and Product

Before looking specifically at how the Coca-Cola Company might enter into a new market (or rather, re-enter into a market, because Coca Cola was sold in Iran before the current embargo was imposed there), it may be helpful to give a brief of overviews of the entire company. The company is a picture of corporate health and this economic health is based in many ways on its continuing to expand into new markets. It is clear from every aspect of the company - from its mission statement to its sales strategies to where it builds new bottling plants - that while Coca-Cola may be as American as apple pie, the company itself is resolutely international. Indeed, ironically, a large part of its domestic marketing strategy has to do with the fact that it is so popular overseas.

Although Coca-Cola® was first created in the United States, it quickly became popular wherever it went. Our first international bottling plants opened in 1906 in Canada, Cuba and Panama, soon followed by many more. Today, we produce more than 230 brands in nearly 200 countries. More than 70% of our income comes from outside the U.S., but the real reason we are a truly global company is that our products meet the varied taste preferences of consumers everywhere. We bring refreshment to people in nearly 200 countries.

A slightly more objective viewpoint follows. It cannot be emphasized enough that the Coca-Cola Company is far, far more than just Coke as the following graph shows.

Figure 2. Coca-Cola's share in beverage categories http://www.thecoca-colacompany.com

The company's ability to combine a flagship product like Coke that is known throughout the world with a wide diversity of other products has up until recently been one of its greatest strengths.

The Coca-Cola Company is the world's biggest drinks company, controlling more than half the global soft drinks market. It's principal brand is of course Coca-Cola itself, the single most valuable brand in the world. But the company also owns almost 240 other soft drinks ranging from spin-offs like Cherry Coke and Sprite to bottled water and iced coffee.

However, and this point shall be explored in greater depth below, that size is now beginning to work against it at least some of the time. Certainly, the foreign divisions of Coca-Cola have found that anti-monopoly government agencies are more and more likely to intervene against proposed mergers - perhaps even more eagerly than they would if the company were not such an obvious symbol of American hegemony.

Recently the company has found its sheer size working against it. Competition authorities watch the company's every move, while market saturation and economic downturn in emerging territories has caused sales to plateau. (Advertising Age estimate a 2000 global media spend of $1.6bn, of which $1.2bn was outside the U.S., making it the world's #6 advertiser).

The company has come a very long way indeed since its 19th century roots as an offering at an Atlanta soda fountain. There are probably few more products that signal the American entrepreneurial spirit (as well as American greed) more clearly to those outside of the U.S. than Coke, as Pendergast (2000) makes clear throughout his clear exegesis of the company's history and success.

With sales in 195 countries, the company's worth is over $50 billion, value that is likely - Allen argues - to climb rapidly as it breaks down the last remaining markets closed to it, especially the one-billion people in China. Much of the company's success is due to the skill and intelligence that Robert Woodruff, who ran the company from the 1920s to the 1980s, brought to his directorship of the firm - leadership that guided the company through the Great Depression, World War II, a century of changing tastes and fashions, legal challenges, ethical lapses by other executives and that pesky rival, Pepsi.

Domestic Marketing Strategy

Coca Cola is a product aimed primarily at younger consumers, although as those Baby Boomers who grew up with Cokes are aging many of them are continuing to drink their favorite beverage.

However, given that most Coke drinkers are young, the Coca Cola Company is mindful that as its consumers age they may begin to slip out of its grasp. As a result, the company makes continual efforts to recruit new, younger drinkers.

One of the most recent examples of this marketing strategy was pairing Coke with Harry Potter - a favorite among preteens and young teenagers. Piggybacking onto pop cultural products that resonate with its key consumer base is a long-time strategy for the company. It is willing to make compromises - as it did in this case with author J.K. Rowling - if by doing so it can connect its product in the minds of young people with something that they view very favorably:

Around 100 families in the U.S. could win free trips to England as part of the Hogwarts Castle Adventure promotion.

More than 850 million Coca-Cola, Minute Maid and Hi-C promotional packages are being produced with Harry Potter imagery.

But a specific detail of its marketing deal was that no images of Harry Potter or any characters from the books or film can be used.

Author JK Rowling was keen that her young wizard would not be over-exploited as part of the campaign.

She also insisted that the soft drinks giant donate money to community projects as part of the deal.

Competitive Analysis of Market in Iran

Although it might not accord with American perceptions of life in Tehran, soft drinks are in fact very popular in this conservative Muslim country. However, in the absence of large U.S. And European soft drink companies the market for sodas is highly fragmented. There is also a robust market in juices and the "re-emergence of an almost static bottled water market" as well as a growing interest on the part of a number of companies in selling non-alcoholic beer.

The company's ability to expand its presence into Iraq, while very difficult in some ways, in other ways may well be easier than its recent attempts to expand in Belgium and other Western Europe countries, where the American company has met considerable resistance from government officials seeking to limit the market share that the company may grab through its long-standing policy of dealing with rivals by buying them out.

This vigilance on the part of regulators was seen in May 1999 when Coca-Cola was blocked from acquiring the soft drink brands owned by Cadbury Schweppes - another company facing accusations of monopolistic practices.

Cadbury Schweppes is to keep control of its soft drinks brands in most of Europe instead of selling them to Coca-Cola, following concerns about delays in winning approval from European regulators.

Under the original £1.14bn deal, announced in December last year, Coca-Cola was to buy all of Cadbury's drink brands except those in the U.S., France and South Africa.

Cadbury has now abandoned plans to sell the brands in another 20 European markets, fearful that such a move would be blocked by competition watchdogs.

The countries where Cadbury Schweppes will now retain control include Belgium, Norway, Spain, Switzerland, The Netherlands and Germany which was reportedly ready to reject the plan later this week.

Coca-Cola met the same reception in 1997 when it tried to buy Orangina, a fizzy fruit drink produced by the French firm Pernod Ricard. But having failed once, the company tried again a year later in a slightly altered form. Coca-Cola divisions in Europe seem to acknowledge that they may well have to settle for less than a full share in the products that they wish to buy. It is unlikely to face such opposition in Iran.

The company must also be careful not to risk the contamination problems that it has had in overseas plants in Europe. In the spring of 1999 a number of bottles of Coke products would be found to be contaminated with dioxin, prompting a 9-day ban on all Coke products and a loss of trust in the product that still continues to some degree.

The company's short-term as well as long-term prospects in Belgium were hurt by what the public perceived as its refusal to deal openly with the problem when it made the all-too-typical corporate philosophy of sticking its head in the sand and hoping that the public would consider no news to be good news. The Belgian national government exploited the problem for its own ends, worsening the company's position:

It is a topsy-turvy world when the Belgian government, routed at the polls after its disastrous handling of dioxin food contamination, can scold the world's most successful brand for lousy public relations. But so it is: the Coca-Cola Co. was on the defensive last week after its miserly flow of information helped prolong a Belgian ban on its most popular products. Belgian Minister of Health Luc Van den Bossche was still maintaining at week's end that the company had not provided "a satisfactory and conclusive explanation" for a mysterious spate of what some were calling "Coca colic."

The problems stemmed from early June 1999, when "42 school children in the northern town of Bornem complained of nausea, headaches and stomach cramps after drinking Coke." The following day, June 10, the company recalled 2.5 million bottles that had come from its plant in nearby Antwerp "citing "a quality issue where you have an off odor or taste," in the words of a Coke spokeswoman."

Adoption of Current Domestic Marketing Strategies

While the Coca Cola Company might well use some of the marketing strategies that it has in the United States, it might be wiser to consider some strategies that it has recently employed to break into new markets. For example, it might use its strategy in China - a market it entered on a large scale just recently - as a model for winning over a population very different in its tastes and beliefs than Americans.

It should probably consider if not outright purchase of local firms than joint ventures with them:

Coca-Cola's long-term strategies of localizing production and building infrastructure through partnerships with the Chinese government and domestic companies have allowed it to establish nationwide operations and generate a strong market presence. Coca-Cola products currently account for 35% of China's carbonated beverage market and generate annual sales of up to $1.2 billion, according to press reports. The company has earned a gross profit in China each year since 1990.

Conclusion: Future

The Coca-Cola Company is blessed with one of the best-know trademarks in the world. The red swoosh across its bottles and cans signifies a sense of American fashionableness that even now - in a world in which American economic as well as political power is often looked at as far less than fully beneficent - is usually greeted warmly. And yet the company's future success in Iraq is certainly not guaranteed. It's future in the country in the short-term is likely to meet with continued failure. However, with a changing political climate it may well find Iranian doors opening to it. The company faces substantial challenges to cracking one of the very few markets that it does not yet command.