Executive Summary

Coke Zero is a subsidiary of the Coca Cola Company. The product was first launched in
2005 and was aimed at the 19 – 34 year old health conscious male segment. The
company had already launched Diet Coke for the health conscious women who were
mindful of their calorie intake.

After launch, however, the company did a survey in Great Britain which revealed that
customers did not know that Coke Zero was sugar free. The findings further highlighted
that customers were not happy with the taste of the Coke Zero as it was too different to
that of Coca Cola Classic. Over and above this, customers felt the white packaging of
the product was feminine and thus did not appeal to the male segment. The company
needed to take drastic steps to change this.

In 2016 the company relaunched Coke Zero Sugar and emphasized sugar in the name.
The company had developed different flavours for the drink; Coke Zero Sugar, Coke
Zero Sugar Caffeine Free, Coke Cherry Zero Sugar and Coke Vanilla Zero Sugar. The
company further altered the taste of Coke Zero Sugar to make it more like Coca Cola
Classic. The company then further changed the packaging to black, which was more
masculine. It also added the red that is associated with all Coca Cola products. This
was done in an effort to place the different Coca Cola products under one umbrella so
that it would be easily recognisable. This was then rolled out to 159 countries, although
not all countries had all four flavours.

Coke Zero Sugar is susceptible to macro environmental issues that affect production
and sales and would in turn affect profitability. The PESTLE analysis is used to evaluate
the environmental influences for the product. Further, there are four first principles of
marketing that inform how products operate. These are; all customers are different, all
customers change, all competitors react and all resources are limited. These first four
principles and how they relate to Coke Zero Sugar are analysed. This culminates with a
specific problem statement (all customers change) and tools (AER strategy) that would
resolve this problem for Coke Zero Sugar.

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Background

Environmental Influences

2.1 Political Factors;

Political stability is very important when trying to launch a product in a new country. This
will inform whether the product will be well received or not. There may exist trade
barriers that would affect how the product is received, whether the product can actually
be traded within that country. Issues that relate to the wages charged in a country would
induce a company to invest in that country, this is because this would mean the
company would save on wages and this would lead to increased profits. Further, the
integrity of politicians within a country would influence whether a company would be
able to invest in that country as high levels of corruption would serve as a determent.
This means that a Coke Zero Sugar would have to evaluate all these variables before
choosing to relaunch in a specific country or not. The company was able to successfully
launch in 159 countries worldwide, this means that the political climates of those
countries were favourable for the product.

2.2 Economic Factors;

The economic conditions in a country such as the GPD would affect how fast a product
would grow within the country. It would also determine if the people have enough
disposable income to afford the product. Interest rates would determine profitability of a
product especially if it is traded internationally as is the case with Coke Zero Sugar.
High unemployment levels would mean that there is a surplus of labour, meaning
people would work for less just to earn a living, this means that the Coke Zero would
make a larger profit in those countries due to savings in labour costs. Equally, if there
was a high employment rate that would mean affordability as people would have jobs
and can thus afford Coke Zero Sugar.

2.3 Socio-cultural Factors;

The demographics of a population would determine the success or lack thereof of a

product. This includes age and gender as it would determine whether the product would

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appeal to them. The standard of living or class distribution would determine the success
of the product. This is because Coke Zero Sugar would not be able to successfully
market a high end product to a population that was made up of mostly lower class
citizens. The level of education within the population would determine whether the
population is able to relate to the product. Further, it would ensure that Coke Zero Sugar
does not lose connection with the target market.

2.4 Technological Factors;

Technological developments would determine whether Coke Zero would operate

successfully at relaunch. This is because a lot of industries have moved to adopt
technology from production stage to distribution stage. Coke Zero Sugar would first
have to understand the amount of innovation needed within a country and how to
maximise on this. An example of this is the fact that both Britain and Australia are first
world countries with access to first world technology, therefore, it would be beneficial for
Coke Zero Sugar to employ technology at production through to distribution stages as
these countries have the infrastructure and know how to support and use this
technology. There would be areas in a third world country that would not be able to use
a vending machine for example especially ones where one can pay by card.

2.5 Legal Factors;

Laws of a country would determine the success of Coke Zero Sugar in that country.
This would be through labour laws that the company would need to observe which
would encourage equal employment opportunities for all. Tax laws also would influence
the profits of Coke Zero Sugar. Some countries charge high taxes for international
companies whilst some give these companies tax breaks as they benefit the local
communities. The fact that there is a ‘sugar tax’ that has been enforced in a majority of
countries means that Coke Zero Sugar cannot legally charge above a certain amount
for the product as it would be cheaper given that it is sugar free. This means that
consumers would save and buy more of the product which would result in increased
profits for the company.

2.6 Environmental Factors;

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Companies that look after and seek to protect the environment are growing in
popularity. This is because the world is currently battling with the effects of Global
Warming and those companies that seek to reduce the negative effects their products
may have on the environment are more popular. Countries enforce different waste
management laws which would reduce the effects on the environment, Coke Zero
Sugar might see their profits affected if they have to spend a lot of money on waste
management or even paying fines for improper waste disposition. Using renewable
energy at production might influence the government of a country to view the company
favourably thus give it tax breaks, also, customers in certain countries do not mind
paying extra for a product if it means they are contributing to saving the environment.
So while using renewable energy might drive the costs of production up for Coke Zero
Sugar, the company would be able to recoup this cost through sales.

Diversity

1. Market Size

The carbonated drink beverages market was worth USD361.5 billion in 2016 with an
estimated compound growth rate of 2.9% to reach USD417.05 billion by 2021 (Market
Data Forecast: 2017). Carbonated soft drinks are soft drinks that contain carbon
dioxide. They do not have any alcohol content in them and include; sparkling drinks,
smoothies, juices, ready-to-drink tea and coffee, concentrates as well as functional
drinks. These beverages are further segmented based on product types such as;
carbonated beverage regular, carbonated beverages diet, lemon/lime regular and
lemon/lime diet. Coke Zero Sugar falls under the carbonated beverages diet segment
(Marketwatch: 2019).

North America dominates the carbonated soft drinks beverages market followed closely
by Europe and then Asia. Central and South America and Middle East and Africa
contribute smaller percentages to the size of the market.

2. Growth

Coke Zero was originally launched in 2005. The product was targeted at the health
conscious man, between the ages of 19-34 years who wanted to decrease their sugar

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intake after adopting a healthy lifestyle. The launch of the product was necessitated by
the fact that there was no drink to serve this target market as Diet Coke was aimed at
the female segment.

The company encountered a few hurdles as the product was launched, the target
segment was not aware of the value proposition of the product, that it was sugar free
and the packaging was feminine as it was white. Further, consumers complained that
the product did not taste like Coca Cola Classic. The company then set out to change
all this. This was done through highlighting the fact that the product contained zero
sugar and then altering the taste to make it just like Coca Cola Classic, only without
sugar. The company also sought to find ways to improve on the packaging of the
product because white was viewed as feminine by the target market.

It was at this stage that Coke Zero Sugar was relaunched, in 2016. The product was
boasting of a similar taste to that of Coca Cola Classis and was still sugar free. Over
and above this, there were 4 variants of the product; Coke Zero Sugar, Coke Zero
Sugar Caffeine Free, Coke Cherry Zero Sugar and Coke Vanilla Zero Sugar. Coke Zero
Sugar was then reintroduced with different packaging, the company had taken lessons
from the Australian market that had adopted the colour black which was more
masculine. This was then replicated in Great Britain and the product was a hit!

In an effort to introduce the product to the rest of the world and also to benefit from its
association with the Coca Cola brand, Coke Zero Sugar was put under the Coca Cola
umbrella and branded with the red log that is distinct to Coca Cola. This was to help
with visibility and to further allow assure consumers that the product was part of Coca
Cola.

3. Major Segments

The major segments for Coke Zero Sugar are the health conscious group that has
adopted a healthy lifestyle. These consumers are watching what they eat and do not
want to consume a lot of sugar.

Some of the segments that can be identified for Coke Zero Sugar are:

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Health Conscious

These are people that can only consume specific drinks and food because of medical
reasons or dietary needs. These would include those that need to cut down on sugar
because they are on a specific diet or even those that are diabetic but still want the
taste of Coca Cola Classic, just without the sugar. These could also be people who are
trying to lose weight and are therefore conscious about calories or those that work out
and are active at the gym. All these would want healthy alternatives to their
consumption patterns. These can also be children whose parents want them to
experience Coca Cola Classic, just without the sugar as this is viewed as being bad for
kids.

Another major segment for Coke Zero Sugar would be those consumers that are thirsty
and are looking for a healthy drink that tastes good. People who do not want to prepare
a drink (as with concentrates) would also buy Coke Zero Sugar as it comes ready-
made. The drink is also a sort of status symbol in that the health conscious are viewed
to be of a certain calibre in society, those consumers that want to convey the message
of being upper class would buy Coke Zero Sugar.

4. Target Market

Once a company has developed a successful segmentation plan and broken down the
market to different segments, it is then important to identify the target market from these
segments. This will enable the company to have a clear target market on which to focus
its marketing mix efforts on. This also helps the company to develop products that
speak to the segment and sub segments.

Figure 1 below outlines the market for Coke Zero Sugar segment and the target market
from these segments.

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 sugar free

Based on Dietary
no callories
needs

no caffeine

trying to lose
weight

Health
Conscious about
conscious drink being Workout
consumed

seeking health
benefits

Diebetic
For Medical
Reasons
overweight
andthus must cut
down on sugar

Source: Adapted from Maema et al (2020).

Dynamics

Seminal events, life stages, knowledge or expertise, product category maturity and
regular exposure to information all influence changes in customer dynamics (Palmater &
Sridhar: 2017). This means that the five changes would significantly how the target
market receives Coke Zero Sugar.

1. Seminal Events

These are events in a person’s life that would influence their consumption patterns. This
means that one could get a promotion, a new job or even be involved in a car accident.
One might also be diagnosed with a disease that would require that person to change
their consumption patterns. This is especially true for consumers of Coke Zero Sugar
because it means that should a person get a job, they would be able to afford Coke
Zero Sugar when they might not have been in a position to afford the drink before. This
also means that a person might be diagnosed with Diabetes and this require a change
in diet, that would mean less sugar, then Coke Zero Sugar would be a viable option.

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Should a person decide to adopt a healthier lifestyle because they have witnessed a
family member die or get sick, they would consider Coke Zero Sugar because it offers
no sugar, tastes like Coca Cola Original and also has zero caffeine. Getting a promotion
would mean that a person is now able to buy more of the Coke Zero Sugar because
they now have more disposable income.

2. Life stages

Consumers pass through different life stages, from being born to being a teenager,
being single, married, having children, being parents of teens, retirement and empty
nest. These life stages all would influence how the consumer consumes Coke Zero
Sugar. As a child with no buying decision and dependent on their parents, a consumer
would consume Coke Zero Sugar because that is what the parents have bought in the
home. Growing up and becoming a teenager one might consume Coke Zero Sugar
because as a group of friends that is what they are drinking. At this stage the
consumption decisions are influenced by the teenager as they get allowance/lunch
money from home. Moving from that to now being a single and just after college, the
consumer still has to decide for themselves what to consume and when they start a new
job that means that they now have money to buy more Coke Zero Sugar.

Getting married and starting a family would also influence consumption because now
the consumer is in a joint setting. They want healthy alternatives as they are now
responsible for another human being (kids). This would lead to them adopting Coke
Zero Sugar as the preferred drink in the family. Even if the consumer grew up in a
household that consumed Coca Cola Original, they will now have an altered taste
seeing as the original Coke has a lot of sugar in it and that is not good for kids. At the
parents to teenagers and then having those kids move out of home, the consumer is still
the primary purchase decision maker in the household as they are responsible for
buying groceries. One of the key things to note here is that as children grow older and
pick up things from their friends, they may then request that the parents purchase Coke
Zero Sugar and thus the family might adopt this drink.

Kids moving out of the home and into retirement means that the consumer now has a
reduced income as one gets paid a percentage of their salary after retirement,

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depending on their retirement plan. This means that the consumer can now afford a
limited amount of Coke Zero. This also means that the consumer that was a fan of Coca
Cola Original might not be able to afford this drink anymore and would look for a
cheaper alternative with the same taste. This would be Coke Zero Sugar. This drink is
also beneficial because of the health benefits attached to it.

3. Knowledge/Expertise

This means that as a consumer has more experience with a certain product, they
become more knowledgeable on that product and that would influence their
consumption patterns. This means that a consumer may start having carbonated drinks
and gradually gravitate towards Coke Zero Sugar as they have tried out different tastes
and brands and finally settle on the Coke Zero Sugar.

4. Product Category Maturity

This is could happen at product level and at customer level. How a product has evolved
over time to accommodate changing consumer buying patterns. That is, where before
one would buy Coke Zero Sugar based on simply wanting a different tasting Coke, they
would now consider that there is zero sugar, zero caffeine that has flavours such as
Cherry or Vanilla.

5. Regular Exposure to Information

Consumers are continuously exposed to information. This could be from parents,

friends, social groups, the internet, product websites and even health professionals.
This would affect their buying decisions. Consumers who find that Coke Zero Sugar has
no sugar in it and is therefore a healthier version of Coca Cola Original might start
buying this drink for consumption. Equally a marketing campaign by Coke Zero Sugar
could result in the consumer getting information about the product and would thus
purchase it.

Competition

1. Major Competitors

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Competition is what keeps companies constantly evolving. The need to do better than
other brands/products that serve the same segment and target market leads to
companies constantly evolving and coming up with new and different ways to stay in the
lead. Managing a sustainable competitive advantage determines whether a product is a
market leader or a market follower within a market. This is based on the principle that all
competitors react.

The major competitors of Coke Zero Sugar in the sugar free drink segment are Diet
Pepsi, Pepsi Max, Diet Coke (this is an internal competitor) and Juice Brands. Indirect
competitors would be other carbonated drinks that may not offer sugar free alternatives
but are carbonated drinks nonetheless and consumers would buy these based on what
they want to drink at the time.

Diet Pepsi, Pepsi Max, Diet Coke and Juice Brands are direct competitors because they
have a similar target market. This means that these products are all competing for the
same customers in the sugar free and thus ‘healthy’ drink space. Competition in this
space is heightened by the fact that a growing number of consumers are adopting a
healthier lifestyle and thus watching what they eat as they attempt to remain healthy.

2. How these firms compete

Coca Cola is the leading brand in the carbonated drinks market, it is closely followed by
Pepsi. Coke Zero Sugar is a product from the Coca Cola company umbrella, the same
goes for Pepsi, this means that these two products benefit from the dominance of the
parent brands. While Coke Zero Sugar has direct competitors in the sugar free
carbonated drinks segment, it also has competitors in the general carbonated drinks
market and even energy drinks.

Palmatar and Sridhar (2017) highlight that companies can maintain a competitive
advantage through the use of technological innovations, adjusting and accommodating
changing customer behaviours and desires, copying and executing strategies from
other firms. This is to highlight the different ways in which competitors react and it
makes it important for companies to put up and maintain barriers in an effort to manage
these reactions.

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While Diet Pepsi Cola was first introduced to the market in 1964 and is thus older than
Coke Zero Sugar which was first introduced in 2005, Coke Zero Sugar has the larger
market share. This is because of the marketing efforts that Coke Zero Sugar put into
promoting the product when it was first introduced and further relaunching the product in
2016. The two products have over the years been in constant competition with both
launching flavoured offering of their sugar free range. Both offer Cherry flavour as well
as vanilla, caffeine free as well as sugar free. This means that consumers will buy the
product that they are most used to as both competitors offer something similar.

Over and above this, these products are both targeted at those who want to drink
healthy drinks for various reasons. This means that other juices that are sugar free and
are traditionally flavoured a certain way (orange) would pose a threat to the market
share because consumers would then consider these when making purchase decisions.
These products also compete through pricing as they are priced almost similar. This
means that both Diet Pepsi and Coke Zero are priced almost similar with Coke Zero
Sugar being cheaper in some areas and vice versa in other areas.

Diet Coke was launched before Coke Zero Sugar and was originally aimed at a different
market. The relaunch of the Coke Zero Sugar product now means that these markets
now overlap as one was meant for females and one was meant for males but now Coke
Zero Sugar is no-longer gender specific. While Diet Coke was first introduced in 1963, it
did not use the same formula as the Coca Cola Original thus there was a varience in
taste, the Coke Zero Sugar uses the formula for the Coca Cola Original. Diet Coke
introduced flavours such as vanilla and cherry which was also duplicated for the Coke
Zero Sugar.

Carbonated drinks and juices would compete with Coke Zero Sugar through offering
healthy, sugar free alternatives as these are viewed as healthy and thus meet changing
consumer requirements of adopting a healthier lifestyle.

3. Current Competitive Issues

There is the threat of new companies that will copy what Coke Zero Sugar has sought
to do, then offer this at a much lower price. This is especially true for those countries

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that are in remote areas and thus do not have access to information. They will not be
informed on Coke Zero Sugar and would thus choose a product based on its price only.

The carbonated drinks industry is constantly growing, thus there are constantly new
products that are introduced to the market and as consumers shift to healthy lifestyles
thus healthy consumption alternatives, this means that there will constantly be other
products that will compete for the market share. This also means that organic
carbonated drinks which use healthier ingredients to Coke Zero Sugar will be more
appealing to the market as they are constantly trying to be continuously aware of what
they are eating. This means that while there may indeed be consumers of Coke Zero
Sugar that will want to remain loyal to the brand, these might be swayed by other
healthier alternatives.

Constraints

These are various issues that would result in companies having to do trade-offs in an
effort to manage changing resources. These include; resources slack, changes in
customer needs, product landscape, effectiveness of marketing activities and lifecycle
stages of a products’ portfolio (Paltimar & Sridhar: 2017).

1. Resources slack

Firms may sometimes not have enough resources to implement their marketing
strategies. This may be due to the economy or the financial performance of the firm.
Coca Cola in Great Britain set aside USD12.5 million in an effort to promote the
relaunch Coke Zero Sugar in Great Britain, this meant that the company was not leaving
anything to chance and was going all out. There may be instances where there is not
enough to plan around for a big marketing campaign, due to financial constraints. There
are countries that may not have a big budget like Great Britain did and for these
countries Coke Zero Sugar would seek to carry out a generic global campaign not one
that is specifically targeted at one country. This is especially true because Coke Zero
Sugar leveraged off the Coca Cola umbrella and implemented a one brand strategy that
saw all the Coca Cola products put under the same umbrella, thus saving on costs.

2. Changes in customer needs

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These changes would greatly impact how a company’s segments and the sizes of these
segments are addressed overt time. Companies can at times divert resources from
other areas to meet the needs of changing segments. This is especially true for Coke
Zero Sugar because the segment needed a Coke that would taste like Coca Cola
Original whilst being sugar free and thus healthier. Over and above this, the segment
needed a coke that would be cheaper, offer different flavours and be readily available.
In an effort to meet these changing needs, Coca Cola would have had to divert funds
from other products and focus specifically on meeting the changing needs of the
consumer. This is why there was a need to relaunch the Coke Zero Sugar in 2016,
consumer needs were changing and the company needed to evolve to meet these
changing needs.

3. Product market landscape

The evolving product life cycle might drive a company to span other products that will
span different life cycle stages and serve the needs of the target market. For Coke Zero
Sugar this has been especially visible through the introduction of the Coke Zero Sugar,
then the Coke Zero Sugar no caffeine, then Cherry Coke Zero and Vanilla Coke Zero.
The company is constantly trying to change the product to meet the growing demands
and changes of the target market. Further, Coke Zero Sugar is still developing new
flavours whilst trying to maintain the taste of Coca Cola Original.

4. Effectiveness of marketing activities

Tastes, values and segments change as products age. This would lead in resources
that would have been previously earmarked for other projects becoming more or less
effective as there are changes in the marketing activity effectiveness. This means that
companies would then have to choose what to trade off and what to keep in an effort to
remain a player within the market. Coke Zero Sugar found that 50 percent of the people
they had surveyed did not know the value proposition of the product; that it was sugar
free. This meant that it was important to now focus on educating the consumer on the
benefits of the product and to further modify the product so that it tasted like Coca Cola
Classic.

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This then necessitated the implementation of a new approach through Value Creation,
Value Communication and Value Capturing for Coke Zero Sugar. This would be done
through using a value-needs framework that the company had conceptualized and thus
would help inform it on the way forward. All this would have otherwise not been possible
had the study not been carried out and Coke Zero Sugar would have continued to
record unimpressive sales figures thus negatively affecting the sales figures.

5. Product Market Landscape

The changes in the product market landscape is caused by the entry and exit of
competitors. This means that there is a constant need for companies to remain at the
top because competitors will be constantly trying to imitate what one company has
done. This means that there is a constant race to have the larger share of the market.
This is especially true with Diet Pepsi and Diet Cola which are constantly offering similar
products. Coke Zero Sugar and these two other products are constantly and
continuously competing for the bigger share in the market and with the relaunch and
rebranding of Coke Zero Sugar, it meant that the product was no longer just aimed at
the male health conscious carbonated drink drinker, but now was directly competing
with Diet Coke because of the product features and the fact that it was now gender
neutral.

The constant actions and reactions of the competing products mean that resources are
sometimes redirected because a company seeks to respond to what a competitor has
done. An example of this is with the relaunch of Coke Zero in Great Britain which saw
the company spend USD12 Million. This amount of money may have been earmarked
for other projects but was redirected to the relaunch when it became necessary that the
company would need to act swiftly in an effort to gain and maintain market share.

Integration

The First Four Principles of marketing are interlinked. This is because companies need
to know the solutions to other principles/problems first before they can come up with
solutions to another principle/problem.

1. All customers differ

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It is important that companies manage customer heterogeneity. This is because
customers are different and companies need to understand these differences if they
want to reach their target market. How a company can understand these differences
and find solutions to managing consumer heterogeneity is important. Segmentation,
Targeting and Positioning as well as using Perceptual Maps and understanding the
value of Customer Centricity as well as doing a cluster analysis would help.

Coke Zero Sugar has used Segmentation, Targeting and Positioning to its advantage.
This is because the company has set out to understand who the segment they are
marketing to is, they have further done targeting on that segment and sought to position
the product as a leader for that segment. This was done through researching the needs
of the segment and establishing what appeals to it and then further leveraging off the
Coca Cola Brand umbrella in packaging and labelling the product so that it would be
easily identifiable to the segment. The company has further sought to be customer
centric in that after establishing that the consumers were not happy with the taste of the
drink, the company set out to develop a Coke Zero Sugar that was as close to Coca
Cola Classic in taste as well as to highlight that the drink was sugar free. Further the
company changed the packaging of the product to appeal to a wider segment.

The company could use a positioning statement to help solve the problem of customer
heterogeneity.

2. All customers change

Customers go through different life cycle stages from birth to teenage hood, young
single adult, young married adult with young children, middle aged adult with teenage
children, retired adult and empty nester. These life cycle stages will inform how the
consumer consumes the product. Acquisition, Expansion and Retention strategies are
employed in an effort to keep the consumer. It is important that companies do a
Customer Lifetime Value analysis to establish how much a customer is likely to spend in
their lifetime on a product. This will in turn inform how the company will create a
sustainable competitive advantage through the use of AER positions and strategies.

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For Coke Zero Sugar, the customers would go through consuming the product at
different stages in their lifetimes. As these customers grow older and their needs
change, however, the company might be at risk of losing them as the product might not
be as appealing to them. An example of this is a customer who does not understand the
benefits of using Coke Zero Sugar (that it is sugar free and caffeine free), this customer
might then opt for a substitute product whose benefits are clearly highlighted. Further,
because of the taste of Coke Zero Sugar before the relaunch, a customer may have
stopped taking the product as it did not taste like Coca Cola Classic.

It is for this reason that it is important for companies to spend equal effort in attracting
and keeping customers as this will ensure that the customer lifetime value is fully
realised as the company will have a lifetime customer thus guaranteed revenues.

3. All competitors react

It is important to understand that all competitors react, therefore companies must strive
to create a sustainable advantage. It would be hard to establish this advantage if the
company did not know the positioning of the product or even have AER strategies in
place. This means that companies must know and understand that the customers they
serve are heterogeneous and thus require specific STP strategies. These customers
change over time as they go through the different life cycle stages and it is important to
come up with AER strategies. Both these strategies can then in turn be used in
informing the company on how to establish a sustainable competitive advantage.

Coke Zero Sugar was formulated to compete in the healthy carbonated drink segment.
The product was introduced to serve the 19 – 34 year old health conscious male
segment at the time that it was first introduced in 2005. As the product picked up it
became important to introduce new flavours that would help the product to remain
relevant and competitive within the market. After establishing that the value proposition
for the product was not known by the customer and that the customer was complaining
that the taste was not similar to that of Coca Cola Classic, Coke Zero Sugar relaunched
in 2016. The product was relaunched with the value clearly outlined as well as under the
Coca Cola umbrella therefore customers were not left to wonder if it was indeed part of
Coca Cola or not. This umbrella strategy meant that there was increased visibility for the

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product and further that those customers who understood the Coca Cola brand as a
trusted brand would easily identify the product and pick it up.

It is important for companies to establish a SCA for the present and the future which is
what Coke Zero Sugar has sought to do by rebranding.

4. All resources are limited

All the above principles and strategies would be guided by the availability or lack thereof
of resources. It is important that companies understand that resources are limited. This
therefore means that companies would need to use different approaches in an effort to
establish trade-offs for resources whilst formulating plans, budgets and metrics.

Problem Statement

All customers change and it is important for companies to understand this first principle
as it will help inform how to acquire and retain customers over time. While Coke Zero
Sugar understood that there was a gap in the market in terms of a product that would
appeal to the 19 -34 year old health conscious male, the company did not take into
account that this segment would associate packaging with femininity or that it would not
fully understand the value of switching to Coke Zero Sugar as this was not clearly
outlined. The company did not understand that customers would notice the difference in
taste between the Coke Zero Sugar and Coca Cola Classic.

Strategic Analysis Approach

Introduction

He Customer Lifetime Value model informs a company of the contribution that a

customer could have over a lifetime on the profits of the company. It looks at the
individual customer and therefore takes heterogeneity into account. This means that the
model does not assume that customers have the same financial value. The model
further accounts for dynamics as it discounts cash flows in the acquisition and retention
stages of AER. This is because it helps a company to integrate the acquisition and
expansion stages with cross-selling and retention for the customer segment. This

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analytical tool then informs AER strategies that a company can take to solve marketing
problems and implement marketing strategies.

Advantages and Limitations

Advantages;

The model allows companies to input that will enable the company to make trade-offs
and resources allocation decisions at different levels of the AER stages. Further, the
model provides information that managers require to make optimal acquisition,
expansion and retention decisions. The tool encourages firms to look at profits from a
customer contribution perspective and not simply by region but by customers. This in
turn helps the customer become customer centric. This approach further encourages a
company to be customer centric and not product centric. This means that a company
would develop products based on meeting needs of customers and not just offer
product variations based on products exclusively. CLV further allows a company to
group customers based recency of purchase, frequency of purchases and monetary
purchases in the last period.

Rationale for using this tool

The CLV tool helps a company to identify which customers to acquire, expand and
retain. It also helps in determining where marketing programs should be targeted for a
firm to maximise return on marketing investment. This in turn informs sections of the
AER as the two are interlinked. A company is able to understand the ‘true’ value of a
customer through revenues and costs associated with that customer. The tool quantifies
the future discounted profitability of a customer. The tool will break down company-
product level profitability to customer level thus enabling the company to adopt a
customer centric approach.

Results and Recommendations

For Coke Zero Sugar this means that the CLV tool would help the company establish
which customers to acquire and retain. Originally the target market for Coke Zero Sugar
was the 19 – 34 year old health conscious male that had adopted a healthy lifestyle.

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The CLV would help Coke Zero Sugar establish how much each individual would
contribute to the profits of the company, this would be compared against the costs of
acquiring the customer.

Coca Cola introduced a new product to the market in an effort to acquire a share of the
market. This product was to help the company penetrate the male healthy carbonated
drink segment. This is because the company already had Diet Coke which was targeted
at the calorie conscious, weight conscious female segment. There was therefore a gap
in the market for the male segment that was health conscious. It was then that Coke
Zero was first introduced to the market in an effort to acquire customers within this
segment.

Because Coke Zero noticed that sales for the product had declined, the company
conducted a study that found that the original target market was not aware of the value
proposition of the product, the product did not taste like the Coca Cola Classic and this
was a deal breaker for the market because the taste was important. Further, the
packaging of the product was viewed as feminine, thus did not appeal to the more
masculine segment. In an effort to retain those customers Coke Zero Sugar did the
following;

They set out to change the name of the product so that it would inform the customer of
the value proposition of the product by specifying that it was Coke Zero Sugar,
emphasising on how the product was sugar free. Further, the company then sought to
change the taste of the Coke Zero Sugar to resemble that of Coca Cola Classic so that
this segment would be satisfied. Over and above this, the company changed the
packaging to be black and added the red brand that was set to ensure that the product
was easily identifiable as a Coca Cola product. This means that the relaunched product
would serve to acquire new customers that had not previously used it before, but it
would also retain customers that had been using it all along.

As customers continue to use a product, their tastes change as well. So while some
customers will be happy with the Coke Zero Sugar, some people would like variants.
This led to the introduction of Coke Cherry Zero Sugar and Coke Vanilla Zero Sugar as
well as Coke Zero Sugar no Caffeine. This meant that there would be expansion on the

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product line. This is because now a customer would not only get the taste of Coke Zero
Sugar, but would now get it in different flavours. This would then mean that a person
can buy more than just the one flavour at a time.

Over time however, customers would get bored with Coke Zero Sugar. This is because
they would have tried all the product lines. This could lead to loss of customers. This
loss could be a contributing factor to customer defection or the customer characteristics
could change thus resulting in the loss of that customer. This defection can happen right
after acquisition or it could happen after the expansion stage. It is at this stage that
customer retention becomes important. When Coke Zero Sugar noticed that it was
losing customers in the segment, the company set out to establish how it could meet the
needs of these customers and thereby add value to thus retain them. This is what also
necessitated the relaunch of Coke Zero Sugar.

Recommendations;

Based on the findings, although Coke Zero Sugar already reacted by listening to
customers and thereby being customer centric. The company would still employ a five
step approach;

Step 1. Dynamic Segmentation

This entails dividing the existing customers into each AER stage. Acquisition would
entail breaking up for the Coke Zero Sugar from the health conscious segment that
want to drink Coca Cola Classic but without the sugar. Further those customers that
want to have carbonated soft drink (not specifically Coke) that is sugar free. At
expansion stage these customers would then discover and be introduced to the other
flavours of Coke Zero Sugar such as Vanilla and Cherry. At retention the company
would notice that customers are at risk of deflecting and would thus employ strategies to
retain these customers.

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For example, if the company were to create personas of the segment. This would mean
that Child (Persona 1), Young Adult (Persona 2), Middle Aged man (Persona 3) and
even retired man (Persona 4).

Step 2. Migration paths and triggers

This involves linking segments at each stage together in an effort to establish how
customers change over time. Persona 1 is introduced to Coke Zero Sugar by her
parents (Persona 3). As Persona 1 grows up and gradually becomes Persona 2, she is
still drinking Coke Zero Sugar as she has been told that it healthy and that is what they
have at home. As a young adult, Persona 2 would get a job in the health sector and
thereby come into contact with Persona 4, a retired man who loves his Coca Cola but is
told he can no longer take it as he is now a Diabetic. Persona 2, having been exposed
to Coke Zero Sugar from a young age will then recommend Coke Zero Sugar to
Persona 4 as a healthier alternative of Coca Cola Classic. The personas can also signal
the same person moving through the different lifecycle stages.

Step 3. Customer Lifetime Value of segments and migration

This stage involves a company doing a CLU for each segment and thereby estimate the
change in CLU which could be attributed to migration. This would inform the company
on which AER efforts to prioritise. This means that Coke Zero Sugar would first
establish the value of each customer within the AER through employing CLU. This
would then inform the company on whether to invest marketing efforts towards
Acquisition, Expansion or Retention. This is because some companies do not
understand that there could be a need to do trade-offs in marketing efforts to gain and
keep customers.

Coke Zero Sugar successfully employed this strategy by first establishing why the
market was not growing and then investing money in changing the product so that it
would meet changing consumer needs. To relaunch Coke Zero Sugar in Great Britain
cost the company USD12 million. This meant that the company had to take the money

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from other marketing efforts. Through this effort however, Coke Zero Sugar successfully
acquired, expanded and retained customers, where it had simply set out to expand.

Step 4. AER positioning strategies/statements

Step 5. AER Strategies

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References;

Palmatar, R. W. & Sridhar, S. (2017). Marketing Strategy: based on first principles and
Data Analysis. Palgrave & Macmillain: London.

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