Coca-Cola chief defends pricing strategy By Alan Rappeport in New York
The article focuses on Coca-Cola company’s defense of its pricing strategy that has come under heavy criticism by investors who allege that the company’s pricing formula is acting as a ‘spoiler’ in the soft drinks niche of the market. The strategy mentioned in this case is the low prices that have been set by the company in the North American market.
Coca Cola’s investors question why the company has not increased the prices of its products in the home market despite the soaring costs of inputs, and see this as a spoiler strategy. The company’s defends its strategy by arguing that it does not qualify as a spoiler since there had bee an announcement that prices would be increased globally by between 2-3 percent. Besides, the company has adopted other strategies to help it withstand the effects of the inflation (Rappeport, para. 3).
The author mentions that similar to other consumer-packaged goods, Coca Cola has been providing its products in smaller quantities in order to maintain its low prices. It’s rival, PepsiCo, had earlier mentioned that despite the inflation, it would not increase its prices to match the inflation levels. Due to its low prices, Coca Cola’s revenues had risen by 40 percent in the latest quarter (Rappeport, para. 6).
Mr. Kent, the company’s chief executive, mentions that the company has a strategy based on acquisitions but rebuffed suggestions it would make a bid for some energy drink companies. However, the company contends that there is a potential in this category. A second strategy would involve developing ties with the local bottling companies. The previous year, the company bought its largest North American bottler in response to an identical move by PepsiCo.
Comparison of News Article to Text
Pricing is one of the strategies that is used by businesses to improve SECONDtheir competitive advantage. The book defines pricing as the procedure through which a company determines the amount of money that its products will sell for. Pricing is affected by various factors and these include competitor prices, cost of inputs, marketing costs and economic factors such as inflation.
In this article, we come across a number of factors that affect Coca Cola’s pricing strategy, these are economic factors such as inflation and the cost of inputs. Further, the investors accuse the company’s pricing formula as being a ‘spoiler’ move, indicating that the company’s prices are influenced by the competitor’s prices.
The book mentions that a low cost strategy will rarely increase the company’s competitive advantage by a significant margin, however, in Coca Cola’s case, the strategy seems to be working as the company’s revenues rose by 40% in the latest quarter.
However, the article and the book agree on one thing: a low cost strategy is likely to result in a price war. In this case, we see a potential price war between Coca Cola and its North American competitor’s, especially PepsiCo. This is confirmed by PepsiCo’s announcement that even though it has faced an inflation of between 8 to 9.5 percent, it would not increase its prices.
Coca Cola’s strategy of packaging its products in smaller quantities in order to maintain its low prices is a marketing strategy that is also mentioned in the book. The book mentions that packaging is affected by factors such as marketing, quality assurance, shelf life, and regulatory mechanisms.
We see a direct influence of marketing on the packaging method employed by Coca Cola. The strategies adopted by the company to increase its competitive advantage such as acquisitions is mentioned in the book as a corporate strategy that can help a company to grow rapidly.
The investors’ claims that Coca Cola’s low pricing strategy is acting as a ‘spoiler’ are not well founded. First, Coca Cola is the largest multinational corporation, hence it enjoys huge economies of trade and is able to offer its products at prices significantly lower that its competitors.
To prove its effectiveness, the company has registered growth in its revenues and stock turnover while its competitors also continue to enjoy phenomenal growth. Therefore, the low price strategy has not acted as a ‘spoiler’ as alleged by the investors.
Instead of increasing prices, Coca Cola has adopted other strategies that include acquisitions, expansion into other areas of operation, and improving ties with local bottling partners. Its recent acquisition of its largest North American bottler was a positive move as this will reduce the company’s expenditure and enable it to focus on its core competencies.
High pricing is not the only through which a company can increase its competitive advantage, other strategies include product differentiation, brand name recognition, value added products/ services, improving product quality, customer experience, and adopting innovation.
Several of these strategies are plainly working in Coca Cola’s favor and include brand name recognition, product differentiation, innovation, and provision of quality products. The company’s global presence has enabled it to have different strategies for each of the markets, and in North America, its low pricing strategy seems to be effective.
Rappeport, Alan. Coca-Cola chief defends pricing strategy. Financial Times, 2 June. 2011. Web. June 9, 2011.