THE TIMES 100

Who dares wins - Success through Intelligent Risk

A Story of Global Success
No study of business success in the twentieth century would be complete without mentioning Coca-Cola. Coca-Cola is the product which perhaps best exemplifies global marketing. The Coca-Cola trademark is recognised by 94% of the earths population and Coca-Cola is the second most universally understood phrase after OK. It is not only instantly recognisable but it can be found almost anywhere from petrol stations and shops in Central Africa, to small villages in mountainous areas on all five continents. The first Coca-Cola was developed according to legend, by Dr. John Styth Pemberton in a three-legged brass pot in his backyard. If you look at the first outdoor advertisement for Coca-Cola which appeared in the nineteenth century you can see that the company is based on a core strength which has an enduring quality.

The Coca-Cola Company has a number of important soft drinks products the most well known of which are: Coca-Cola diet Coke Sprite Fanta The illustration below shows a breakdown of the sales of these products.

1994 Operating income

iii.Focus on the consumer

All successful businesses today are based on focusing on the consumer. If a company meets the requirements of its consumers (and indeed exceeds these requirements), then you have a sure-fire recipe for success. An important measure of success is the volume and value of sales that you make. The world-wide success of Coca-Cola is illustrated in the chart below:
Mexico United States Australia Norway Israel 222 217 191 189 169 166 152 146 133 111 101 96 94 92 65 62 59 54 46 40 35 29 29 27 26 26 22 6 5 3 2 1 Chile Germany Argentina Canada Spain Benelux/Denmark South Africa Japan* Hungary Great Britain Philippines Italy Brazil France Zimbabwe Korea Thailand Romania Morocco Int'l average** Kenya Poland Taiwan Turkey Egypt Nigeria Indonesia Russia China India Ukraine 274 256 333 310

i. Differentiation with customers

The direct customers of Coca-Cola are outlets such as service stations, newsagents, leisure centres, cinemas, clubs, supermarkets and many other retailers selling soft drinks. In this area the emphasis in marketing has therefore been on providing superior delivery, promotional services and sales support. All of these elements clearly differentiate Coca-Cola as being the beverage supplier most likely to generate profits for retailers.

97% Soft Drinks

3% Other

However, there are considerable strengths which support Coca-Cola in this task namely: - The trademark which is so widely known and part of the public imagination.

The chart below illustrates Coca-Colas position as the worlds favourite soft drink. In particular you should look at the column showing leadership margin i.e. the ratio of sales between Coca-Cola and its nearest rival soft drink. (Of course in many cases the nearest rival is produced by The Coca-Cola Company).
The World's Favorite Soft Drink
Market Leadership Margin Leader Australia Belgium Brazil Chile Coca-Cola Coca-Cola Coca-Cola Coca-Cola Coca-Cola Coca-Cola Coca-Cola Coca-Cola Coca-Cola Coca-Cola Coca-Cola Coca-Cola Coca-Cola Coca-Cola 3.9-1 9.0-1 3.7-1 4.5-1 4.2-1 3.5-1 1.8-1 3.7-1 2.8-1 2.2-1 1.6-1 2.7-1 3.8-1 2.4-1 3.6-1 Second Place diet Coke Fanta Brazilian Brand Fanta French Brand Fanta diet Coke Fanta Fanta Fanta Korean Brand Coca-Cola light Sparletta Spanish Brand Fanta

77% Soft Drinks

23% Other

1984 Operating income

ii. Differentiation with consumers

The end consumers of Coke are the millions of people who consume soft drinks world-wide. Over many years Coca-Cola has expanded its markets horizontally in country after country, until there is virtually no place on earth where people do not drink Coca-Cola. Today this horizontal growth is almost total, with fewer than 20 countries not taking the product. Coca-Cola is therefore now trying to develop the brands vertically. This simply means creating a deeper consumer desire for that brand than existed the day before. It involves giving people additional reasons to buy Coca-Cola brands instead of reasons to buy competing ones. That is the essence of differentiation. It is not an easy task, because already 5.6 billion people have a well established understanding of what Coca-Cola means to them.

ii. Reinvestment
Re-investing profits is the key to ongoing business development. If profits are made today it is important to make sure of a base from which profits may be made tomorrow. In the 199Os Coca-Cola has concentrated its profits on re-investment. In 1983 the companys dividend payout ratio was 65% i.e. most of its profits were paid out as dividends to shareholders. Since then Coca-Cola has been increasing dividends at a slower rate than earnings growth, so that today, 6O% of profits ($66O million in 1994) was available for reinvestment.

- Coca-Cola is continually building on its existing expertise in marketing and consumer understanding, and is supported by access to a wealth of financial and creative resources. -Coca-Cola has an action orientation. Instead of waiting for change to happen it is at the leading edge, driving action forward.

France Germany Greece Italy Japan Korea Norway South Africa Spain Sweden

Great Britain Coca-Cola

Share of flavored, carbonated soft drink sales. Source: Company data/store audit data

Key aspects of Coca-Colas Business

T h e C o c a - C o l a C o m p a n y s business policy provides an object lesson in many important principles of business. For example:

iv. Win the largest market share.

Being the major player in a business market is the key to business success. A company only becomes the major player in a market by being the best, and being the best means having a detailed understanding of its consumers requirements and then exceeding these requirements. Once a company is a major player then it has considerable advantages to draw upon. These advantages are based on having a higher return on capital than its rivals and the opportunity to plough this return into fresh investment. Such areas for investment are marketing, product research and development, and other aspects of sound business growth.

Who Dares Wins!

Organisations do not become successful by sticking rigidly to a tried and tested formula. Of course, they stick to and cement in their core strengths, but in a turbulent and dynamic marketplace, they also adapt and become agents for change. Successful individuals and companies have to keep succeeding, keep challenging themselves to do better to increase their lead. Today, with hindsight, a number of key people at Coca-Cola recognise that the company has not always been prepared to take the risks that

PER CAPITA CONSUMPTION AND UNIT CASE VOLUME SUMMARIES

i. Focus on the best lines.

Coca-Cola is delicious and refreshing. This theme has been a key feature of advertising for the drink ever since and more recently the message was that Coke is the real thing i.e. anything else which purports to be similar, is at best, simply a pale imitation. Coca-Cola concentrates on its most profitable lines. In 1984 77% of Coca-Colas operating income came from soft drinks. Today the figure is 97%. By selling off businesses not sharing the same attractive financial fundamentals as the soft drink business Coca-Cola now operates only in the area of high-return business.

Coca-Cola has set out to become the w o r l d s number o n e consumer marketing company by taking clear actions to differentiate their products.

THE TIMES 100... THE COCA-COLA COMPANY

were required to achieve success. In the 6Os and 7Os for example the organisation was somewhat conservative. It became reluctant to take risks, or even initiate change in the core business. Experimentation was confined to diversification away from the core business and into wines, coffee, water desalination and even fish farms. As a result Pepsi-Cola was able to make inroads into US market share, while Coca-Cola continued to expand outside the United States.

under-estimated the brand risk. Consumers told the company that they were going to buy the new Cola, but they were thinking more hypothetically. As a result, the company overread the research. Consumers wanted to remind the company that their favourite soft drink belonged to them. It was more than a drink, it was a brand that was an integral and an inseparable part of their lives! Chairman CEO Roberto C. Goizueta can laugh about it today, he might even make the same decision again based on the research that was used. But few executives would have taken the risk that he and his company took. The Coca-Cola Company listened. and then dared to replace its winning formula. It was now daring enough to admit it had been wrong to do so. They meant to change the dynamics of sugar colas in the US, and they did exactly that albeit not in the way they had planned. In the end, the company learned that in order to maintain the interest and the respect of its consumers, it would have to continually differentiate its brands in ways that offered highly relevant value. The original Coca-Cola reappeared as Coca-Cola Classic to regain the top slot as the USAs leading soft drink, while the new formula, today known as Coke II, remained on the market bringing in additional sales and gaining extra market share. By 1994 Coca-Cola USA core sugar colas volume had grown 29 per cent since 1985. The companys share of U.S. soft drink sales, which had been declining, climbed from 39 per cent to 41 per cent. Today, The Coca-Cola Company stands at more than $75 billion - better than eight times what it was on April 23, 1985. Since the 198Os the company has focused on its core business. In particular it recognises that it needs to face its past mistakes with honesty, and that the culture of the organisation needs to be based on openness. and intelligent risktaking. The evnts of 1985 changed forever the dynamics of the soft drinks industry and the success of

The Coca-Cola Company. Goizueta characterised the new Coke decision-then and now as a prime example of taking intelligent risks. Mr Goizueta emphasized that every single one of the best people at the Company has taken some significant risks in moving the business forward. And every one of them has endured risks that failed. With the benefit of hindsight, you start to learn that the perception of risk is often based on faulty assumptions. Sometimes if you look at the decision in a different way, what appears dangerous at first is not really such a risk after all. But it is important to remember that intelligent risks are based on honesty, careful calculations and anticipated results. They are not gambles made on a whim or determind by a toss of a coin. The Coca-Cola Company is committed to re-inventing itself for successive generations of consumers. In product terms this means offering a range of new drinks to provide a wide repertoire of refreshment - choice, variety, excitement, and fun. The company has recently launched a variety of new drinks in the United States and, of course, Fruitopia in the United Kingdom. The launch of Fruitopia and OK Soda (in the United States) in 1994 were based on Pre-search - not selling what you can make, but making what you can sell. Fruitopia is a line of all natural fruit juice drinks which offers variety, taste and refreshment, with a range of flavours including Passion Fruit Lemon Affinity and Blackcurrant Babylon. Fruitopia and OK Soda reflect The Coca-Cola Companys emphasis on creating value by actively meeting consumer needs with new products. These new products will support existing brands and help to generate growth for the organisation. At the same time Coca-Cola has up-dated its advertising approach. Instead of focusing on classic commercials such as the seventies Id like to teach the world to sing. - there are now a variety of

commercials under the umbrella theme Always Coca-Cola. The adverts are different and designed to meet the mood of programmes that people are watching and hence target different audiences. The organisation has also been prepared to take risks in other areas related to the promotion and distribution of its soft drinks. For example, Coca Cola has become the number one sponsor associated with football, music, T.V shows and films in the UK. The ITV diet Coke Movie Premieres constituted ITVs first ever programmingstrand sponsorship

bottlers and set up a single, new, British operating partner. It achieved this by establishing a jointly-owned company with the then bottler of Cokes biggest competitor. Sales doubled within the first five years of the new venture! Today Coca-Cola is not only Britains most popular soft drink, but is the biggest selling of all grocery brands across all categories. The number two is diet Coke! Elsewhere in the world, The Coca-Cola Company has proved itself ready to do business in novel and inventive ways. The day the Berlin Wall came down in 1989, Coca-Cola representatives were handing out cans of Coke to the East Germans as they walked into West Berlin. Within three months the company was distributing Coca-Cola to the Eastern States. By 1990, 21 million cases of Coca-Cola were sold there and $450 million was being invested in land, buildings and equipment. By 1993, per capita consumption in the former East Germany had matched that of the western states at the time of reunification.

TASKS & ACTIVITIES

1 2 3
List eight reasons why The Coca-Cola Company has been so successful in the twentieth century? Explain how The Coca-Cola Company can make sure that the reasons which you have identified in question 1 continue to lead to business success. Carry out a SWOT analysis on t h e Coca-Cola soft drink. A SWOT stands for: + Strengths + Opportunities - Weaknesses - Threats When you are marketing a product you should work out what its strengths and weaknesses are - then try to work out what the opportunities are which will help you to promote the product, and finally, the threats likely to be faced by your product in the future. For example, if Mars were going to do a SWOT analysis for its product the Mars ice cream it might say Its strengths include - the fact that everyone knows what a Mars bar is; that the product can be stored easily in supermarket freezer cabinets; that it has a very strong brand image, etc. Its weaknesses include - that it has to compete in an established ice cream market in which Unilever has, until recently, been able to exercise freezer exclusivity. It would be less popular in winter than in summer, etc. Its opportunities are opportunities to sell in mass new markets throughout Europe and the world. The fact that as incomes rise people are prepared to spend more on new foods like chocolate ice cream bars, etc. Its threats might include - that other companies have been quick to copy the idea with similar chocolate based products, other European manufacturers like Nestle already produce chocolate and ice cream, etc. What Mars needs to do, then, is to promote and improve strengths, play down and cut out weaknesses, make the most of opportunities, and be aware of and respond to threats. Do your SWOT analysis for Coca-Cola, or for diet Coke. Can you list three strengths, three weaknesses, three opportunities and three threats? Decide how you will: Maximise the strengths Minimise the weaknesses Make the most of opportunities Reduce the threats Use the SWOT analysis sheet below: SWOT ANALYSIS FOR COCA-COLA
STRENGTHS OPPORTUNITIES WEAKNESSES THREATS

The Coca-Cola Company states that:

What do you understand by the term pre-search? Explain why i t i s s o important in dynamic and changing markets.

Strategic Change in the 1980s

The 198Os heralded an era of change for Coca-Cola. On the 8th of July 1982 diet Coke was launched in the United States, starting a new period in which Coca-Cola was prepared to take risks by bringing in new products in the soft drinks sector. Within a year it had become the largest selling low-calorie soft drink in America. In April 1985 the Company took the ultimate risk. It removed market- leading Coca-Cola from the US market and introduced New Coke. The decision was made after extensive marketing - for example by canvassing 190,000 consumer opinions and taste-tests of various Coke formulations. The launch was spectacular in that within 24 hours more Americans were aware of the birth of New Coke than had known about mans first steps on the moon in 1969. However, the market reaction did not match the research. Within days, several opinion poll showed that consumers overwelmingly preferred the original taste Coca-Cola to the new Coke. There were floods of complaints across America. So what went wrong? In this case, blind testing did not tell the full story. Coca-Cola had minimised the product risk, but completely

Daring to risk success

The culture at Coca-Cola has shifted from the conservatism of the 1960s and 1970s to one of daring to risk success. Risk can involve failure, but if corporate value systems place too much emphasis on penalising failure rather than on rewarding success, people will not take risks - neither the people or the business will flourish. Coca-Cola was able to turn their experience of launching New Coke into a success by recognising its mistakes. The emphasis today is on being bold enough to face new challenges and being able to seize market opportunities. Ploughing back profits into investment has enabled the company to provide the impetus to take fresh risks. And the emphasis on consumer orientation has meant that products have continued to be successful, providing the impetus and cash-flow for new growth. Through pre-search Coca-Cola is able to produce the products that consumers want, and if they do not prove to be successful they are bold enough to listen and to make changes. The secret of success is to be flexible in your response to ongoing change in the market. Taking intelligent risks will often mean taking bold decisions rather than making do with working arrangements. For example, in 1987 the company caused an upheaval in its own distribution system in the UK. It replaced the services of two well-established

The illustration opposite shows Coca-Colas share of the world-wide soft drinks industry in 1994. Explain how having this market share enables the company to continue to be successful. The diagram below illustrates Coca-Cola USA per capita consumption in 1994.

Taking Risks a Learning Process.

Intelligent risk taking at Coca-Cola has three main features: 1.There is confidence in the core business. The organisation knows that people like Coca-Cola and want to have it available to them. 2.Action is taken boldly and swiftly. Once Coca-Cola recognise what they want to do, they get it done in a decisive, no-nonsense way e.g. the expansion into Eastern Europe. 3.The company is capable of learning on the run. It has the flexibility to change course if things do not quite work out as was originally planned e.g. the launch of New Coke. The important thing about intelligent risk taking is not how you take a risk, or even what the risk is. Learning through the experience of taking risks is vital if better results are to be achieved next time.

How would you account for regional differences in demand? Why might Coca-Cola need to employ a different marketing mix in different regions? Explain how this marketing mix might vary from one region to another.

Explain how Coca-Cola has been able to take intelligent risks in recent times? Give examples. What do you understand by an intelligent risk?

Firms brand their products for a number of reasons. For example: i. To create brand loyalty. Consumers will often develop a loyalty to a brand like diet Coke or Sprite. It then becomes very difficult for competitors to loosen this loyalty. ii. To differentiate their product. This is especially true in markets where products are fairly similar e.g. in producing different types of motor oil. iii. To gain flexibility in pricing. Where companies are able to build up a strong brand following they are not constrained by the actions of competitors in setting prices. iv. To help recognition. Strong brand names are associated with particular products e.g. Hoover, Sellotape, Coke, etc. Imagine that you have been given responsibility for developing and promoting a new soft drink for The Coca-Cola Company. Explain how you would build up the brand to gain the advantages of branding.

Outline what you consider to be the main lessons that all business organisation can learn from the Coca-Cola experience.

Coca-Cola, diet Coke, Fanta and Sprite are registered trade marks of The Coca-Cola Company.

The Times Newspaper Limited and MBA Publishing Ltd 1995. Whilst every effort has been made to ensure accuracy of information, neither the publisher nor the clients can be held responsible for errors of omission or commission.

THE TIMES 100... THE COCA-COLA COMPANY