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The Coca Cola Company


by dgclip1981 on Apr 19, 2009

Information about Coca-Cola Company.

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The Coca Cola Company Document Transcript



1. The Coca-Cola Company MKT300 October 8, 2008 2. A. Introduction The Coca-Cola Company is the world's

largest beverage company, operating in over 200 countries with a product line that includes over 2,800 diverse items. The company's primary responsibility is to develop concentrates, beverage bases and syrups, which are sold to bottling companies that comprise the world's largest beverage distribution system. In addition to product development, the Coca-Cola Company is responsible for product marketing. Their mission is to refresh the world, inspire moments of optimism, and to create value and make a difference. B. External Environment Socio-Cultural Factors Coca-Cola is recognized as the world's most valuable brand. The company has been extremely successful in global marketing, and experts indicate that this success is largely based on product variation and adaptation (Lamb, Hair & McDaniels, p. 114). Since the Coca-Cola Company extends to over 200 countries (with headquarters located in Atlanta, Georgia), they have an immense need to diversify their products and create a marketing plan that meets the socio-cultural interests of all their customers (vendors) and consumers (drinkers) around the world. The Coca- Cola trademark is recognized worldwide, no matter what language is printed on the bottle. However, the Coca-Cola Company must continue to tailor their marketing plan and product development to respect each consumer's unique values, beliefs and cultures. An example of the Coca-Cola Company adapting to the external socio-cultural environment is in 2007, the Coca-Cola Company received a silver award at the Iberoamerican Advertising Festival for their quot;Levate la Manoquot; (Raise Your Hand) commercial that was aired in Latin America (2007 Annual Report: Marketing Highlights). Coca-Cola has also created a unique formulation for Sprite sold in Japan to meet the cultural preferences (p. 114). Social factors have been carefully considered in the company's marketing plan. The Coca-Cola Company has successfully developed products to please the 21st century's health-conscious consumer with brands like Coca-Cola Zero (their best selling brand in over 25 years), sports drinks, and bottled water. Coca-Cola must continue to adapt to the external environmental threat of the healthy lifestyle movement through product development and marketing of healthy options available

3. in the product line. Economic Factors The United States is

currently experiencing an economic recession. This period of negative growth includes higher unemployment, inflation, and cost of living expenses while consumers are experiencing lower disposable income and purchasing power (p. 641). The Coca-Cola Company contracts with numerous bottling companies around the

world to create and distribute their beverages. The weakened economy could have a negative impact on any of the bottling companies, which would threaten the stability of the Coca-Cola Company due to the dependent relationship. The Coca-Cola Company must be profitable in order to sustain their investment in communities around the world. Furthermore, small communities depend on large businesses like the Coca-Cola Company to strengthen their own economy and help create social and environmental programs. The Coca-Cola Company has been very successful in helping other nations grow and become economically stable by investing millions of dollars back into the countries in which they are operating. Legal Factors Legal factors that could pose an environmental threat to the Coca-Cola Company include new legislation or regulation of food and beverage products. Activists are trying to push for more government involvement in product advertising and labeling. While many laws have already been passed in this regard, expanded or new laws could threaten the company by creating more overhead expenses and decreasing the profit margin. Technological Factors In today's marketplace, technology is a key player in helping a business stay profitable. Large businesses, like the Coca-Cola Company, must invest in technological research to find ways to become more efficient, and ultimately better competitors. The Coca-Cola Company should address external technological threats by investing directly in applied research to improve recording and monitoring of the sales, production and delivery process between the Coca-Cola Company and the bottling companies (p. 90). Competitive Factors Consumer tastes and needs are ever changing. With the new focus on health and nutrition and

4. concerns with obesity, many consumers are changing

their behaviors and products choices. Tea products, bottled water and energy drinks have become favored as opposed to the typical soft drink. This is an external threat to the Coca-Cola Company, as these changes in preferences have increased the number of competitors in the industry. The Coca-Cola Company is not only in competition with soft drink companies, like PepsiCo, Inc., but with other unassuming companies like Unilever, Kraft Foods, and Nestle. The Coca-Cola Company must continue aggressive efforts in responsible marketing, community investment and product development to hold the No. 1 place in sales of juice, ready-to-drink coffees, and teas. Surprisingly, Coca-Cola is ranked No. 3 in soft drinks, but their No. 1 ranking in juices, teas and coffee products indicate that they are in touch with their consumer's interests, and that they understand that soft drinks cannot be their sole products in order to sustain business. C. Target Market The primary target market of the Coca-Cola Company is all consumers of all nations that have a thirst for a high-quality beverage from a reputable brand that cares about small communities and saving the environment. The

Coca-Cola Company is well known for advertising to persons of all ages, genders, incomes, ethnicity and lifestyles. Nevertheless, more specifically, over the last decade the Coca-Cola Company has focused on a secondary target market, based on specific psychographic characteristics, of consumers that are health conscious and interested in buying products to support their overall wellness. The Coca-Cola Company has reached this market through many product lines, and has customized their website to provide healthy resources and marketing of products that are considered smart choices. D. Product Coca-Cola is the number one selling sparkling beverage in North America. Coca-Cola is primarily a business product. As a business product, Coke is sold to grocery stores, convenience stores, gas stations, vending companies and restaurants. Coke could also be considered a convenience product as it is a relatively inexpensive item that merits little shopping (Lamb, Hair, McDaniel, pg. 308). It is can found almost everywhere, from schools, hotel, theme parks, airports, places of

5. business and even rest stops on the highways. Coca-cola

was packaged solely as soda fountain drink when it was introduced in 1886. In 1894, a candy storeowner started placing the drink in bottles and approached the owner of the Coca-Cola Company, Asa Griggs Candler, about bottling the drink. Candler declined. Then in 1899, Candler sold the rights to bottle the drink and over the next 10 years, 400 bottling plants would be born. The packaging of red and white Coca-Cola products is a world recognized. There are three main functions of packaging (Lamb, Hair and McDaniel, pg. 320): 1. Contain and protect the product 2. Promote the product 3. Facilitate storage, use and convenience The Coca-Cola bottling plants have continued to develop new packaging to meet these three functions, while also adding the ability to recycle and produce a product that is no longer seen as waste, but as a valuable resource for the future (www.coca-cola.com). This recycling initiative adds to Coca-Colas position in the consumer market. The products that Coca-Cola offers have many strong competitors and it is important for the brand to be recognized everywhere as a leader in all aspects, from taste and price to contributions and recycling. E. Price The Coca-Cola Company uses status quo pricing. It is important for Coca-Cola to stay competitive in price with its leading competitors. This type of pricing is also known as meeting the competition. Most prices are set by the retailers of the product, but in general, these prices are based on the growing rate. It almost seems as if Coca-Cola and its competitors have a cooperative agreement when pricing one week Coca-Cola is on sale and the next it is Pepsi. However, this is not set by the cola companies, but that of the grocery stores to maximize sales. F. Place Coca-Cola is distributed to more than 200 countries, with more than 450 brands consisting of 2800 beverage products. Each of these products is packaged and formulated to meet the consumer needs

and preferences of its region or country. Coca-cola produces the product, but relies on its

6. distribution channel to get the product to the consumer,

by working with bottling companies and retailers. Coca-cola does not have control over the entire distribution channel, but has strong governing principles for all of its suppliers to ensure they adhere to Coca-Colas guidelines. G. Promotion How does Coke use marketing communication to reach customers? By making relationships with not only consumers but also everyone who comes in contact with Coke products, Coca Cola is able to market to a diverse amount of people. According to Muhtar Kent, President and Chief Operating Officer of The Coca-Cola Company, Building cross-cultural relationships, in particular, is why we are the largest beverage company in the worldand why nearly 80 percent of our revenue and profits come from outside North America. (Kent 2007) Overall, good business ethics play a major role in how Coca Cola handles the business. What does their promotional mix include? Coca Colas promotional mix includes product, price, place, and promotion. Cokes product, all 2800 of them, varies from soft drinks all the way to just water and, depending on the product, the price can vary quite much. Just Coca-Cola alone is found all over the world. How is that for placement? Cokes promotional efforts, of course, span worldwide. According to the Coca Cola website, the per capita consumption of Coke products as increased from 1987 to 2007 in Africa, Eurasia, European Union, Latin America, North America, and the Pacific. (www.thecoca- colacompany.com) What promotional strategies do they use? One of the promotional strategies that Coke advertises comes right from the website. It uses phrases like, Satisfying your needs and The choice is yours to let consumers know that they are being taken care of and have control over what they consume. (www.thecoca- colacompany.com) In addition, Coke also offers links on their website to help the consumer learn about hydration, sweeteners and taste. H. Overall Marketing Mix

7. How do the 4 Ps work together to bring a cohesive

package to the consumer? Because Coca Cola has an enormous amount of diverse consumers from diverse locations around the world, Coca Cola can easily adjust just one thing like price or all four components to cater to the diverse needs of Cokes consumers, and still make a profit. How does one marketing mix strategy affect another? Depending on the market segmentation, the proximity of other segments and the current marketing mixes being implemented will make the difference on how well the marketing mix does in each of those areas. After the market segmentation is selected, a more exact description of consumer needs and wants can be determined. Next, marketing objectives that are more accurate, followed by improved resource allocation, can be planned. Putting all the

elements together will lead to better marketing results. According to Charles W. Lamb, Jr., Joseph F. Hair, Jr., and Carl McDaniel, authors of Marketing, Before 1960, for example, the Coca-Cola Company produced only one beverage and aimed it at the entire soft drink market. Today, Coca-Cola offers over a dozen different products to market segments based on diverse consumer preferences for flavors and calorie and caffeine content. Coca-Cola offers traditional soft drinks, energy drinks (such as Powerade), flavored teas, fruit drinks (Fruitopia), and water Dasani). (Lamb, Hair, and McDaniel 2006) One can see the many dimensions of Coca Colas product line and how specific the marketing mixes have to be to stay competitive among other businesses. Are there limitations to the marketing mix? Yes. For example, if a can of Coke sold for a penny here in America and there was advertising everywhere about Coca-Cola products, people might question the quality of the soda; the coke might not sell very well. On the other hand, a Coke machine out on the top of a mountain or a $25 can of Fresca probably will not appeal to many people; also will not profit. The main point of marketing mix is the mix; it has to be just right to provide the desired results. What are the disadvantages or pitfalls to the strategies used by this company? Because Coca-Cola uses advertising props such as billboards, painted buildings and sings, this could affect the buying habits of an ever-growing group of people, environmentalists. The kind of

8. paint used on the building could be toxic, the signs could

end up littering land, and depending on how well the billboards are maintained, they could be a possible pollutant as well. (www.aidg.org) I. CRM How does this company keep momentum? Coca-Cola keeps their momentum by following changes in the consumer environment and responding with new products. According to Erich Joachimsthaler, author of Is Coke Zero a Tonic for What Ails Coca-Cola?, Coke Zero gives the Coca-Cola company much needed momentum. (Joachimsthaler 2007) Coke Zero is an attempt at luring men to diet drinks because it sounds less feminine. How do they maintain a relationship with their customers? In order to maintain a relationship with their customers, Coca-Cola offers Coke Solutions on their website to appeal to the retailers that sell Coke products. There are links such as better beverage marketing, crew programs and innovations and insights. Have they lost touch? Will they lose touch in the future? Coca-Cola has not lost touch because they have been able to change with the times after evaluating feedback and listening to their customers. Coke knows that people and trends change and they should be able to adjust to future demands. J. Conclusion The Coca-Cola Company is well ahead of the game with their marketing efforts, which has allowed them to sustain profitability for over 100 years. Their conviction that Coca-Cola is the absolute best beverage company is passionately communicated throughout the world. The Comany is not only interested in

advertising and marketing beverages, but making a difference in every corner of the world in which they operate. The Coca-Cola Company strives to go beyond simple marketing and reach into the hearts and lives of consumers.

9. Bibliography Lamb, Hair & McDaniels. Marketing. 8th ed.

Thomson Southwestern Publishing, Mason: Ohio The Coca-Cola Company. Home page. 07 Oct 2008. www.thecoca-colacompany.com quot;Product List.quot; The Coca Cola Company. 2008. The Coca Cola Company. 8 Oct 2008 <http://www.thecocacolacompany.com/brands/brandlist.html>. quot;Per Capita Consumption.quot; The Coca Cola Company. 2008. The Coca Cola Company. 8 Oct 2008 <http://www.thecocacolacompany.com/ourcompany/ar/percapitaconsumption.html>. quot;Satisfying Your Needs.quot; The Coca Cola Company. 2008. The Coca Cola Company. 8 Oct 2008 <http://www.thecocacolacompany.com/brands/index.html>. Fuchs, Miriam. quot;Coca Cola Marketing in Developing Countries.quot; AIDG. 11 Jul 2007. Appropriate Infrastructure Development Group. 8 Oct 2008 <http://www.aidg.org/component/option,com_jdwp/Itemid,34/p,535/>. Joachimsthaler , Eric. quot;Is Coke Zero a Tonic for What Ails Coca-Cola?.quot; Conversation Starter. 19 Apr 2007. Harvard Business Publishing. 8 Oct 2008 <http://conversationstarter.hbsp.com/2007/04/is_coke_zero_a_tonic_ for_what.html>.

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Coca-Cola Company (KO)

SUMMARY BULLS BEARS TOPIC S DATA CENTRAL

STOCK CHART

SEC FILINGS BALANCE INCOME CASH FLOW


QUOTE AND NEWS

70.14 0.17 (0.24%) as of Jan 03, 4:47 PM EST


Day 52 Wk Vol Avg Vol P/E Mkt Cap 70.1 - 70.71 61.29 71.77 6.42M 12.9 158.92B

Coke urged to abandon Swazi king


BBC News Jan 03 Comment Pro-democracy activists in Swaziland call on Coca-Cola - a major investor in the country - to withdraw its support for King Msawti III.

The dictator with 13 wives who rules a country fuelled by Coke


Sydney Morning Herald Jan 03 Comment Coca-Cola has been accused of propping up one of Africa's most notorious dictators.

Coca-Cola accused of propping up notorious Swaziland dictator


guardian.co.uk Jan 02 Comment Swaziland's King Mswati III accused by activists of human rights abuses and of looting national wealth Coca-Cola has been accused of propping up one of Africa's most notorious dictators. The multibillion dollar beverage company owns a...

The Coca-Cola Company (NYSE:KO) Stock Picks In The Market Yield Major Trading Interest
Penny Stock DD Dec 30 Comment Stock Performance: The Coca-Cola Company (NYSE:KO) stock picks moved up by 0.94% and closed at $70.16 whereas overall traded volume stood at 4.36 million shares for the last trading session as compare to its average volume stood at 8.51...

Coke and Tango named in report of 'dodgiest' junk food claims of 2011
guardian.co.uk Dec 30 Comment Brands such as Coca-Cola, Nutella and Chupa Chups under fire over misleading messages in their marketing campaigns Food campaigners have named Coca-Cola and the makers of Tango, Chupa Chups and Nutella at the top of a report of brands that have...

Fast Money Picks For December 30th (COP, CVI, AAPL, KO)
Benzinga Dec 30 Comment On CNBC's Fast Money, Josh Brown suggested that investors should consider buying ConocoPhillips (NYSE: COP) on Friday. He thinks that COP will have some major catalysts in the next year, and he started to buy the stock this week. ConocoPhillips...

Coca Cola Does a Hoover


Forbes Dec 27 Comment To introduce you to a little bit of English English. To "do a Hoover" is not exactly everyday language, even here, but it will be understood by those discussing retail promotions. It means doing something sufficiently silly that it ends up...

Coke remedy for a happier tomorrow


The Hindu Business Line Dec 27 Comment Coca-Cola is ringing in the New Year with a new communication campaign titled Believe in a Happier Tomorrow.' The campaign weaves a world of hope and optimism, with reasons to bel... Suggest other news sources for this topic

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Pepsico (PEP) Emerging Markets Dr Pepper Snapple Group (DPS) Hansen Natural (HANS) Commodities

WIKI ANALYSIS

TOP CONTRIBUTORS

Sar Medoff

Sean Hinton

Vincent McPhillip

This article refers to the overall multinational beverage manufacturer, distributor, and marketer. To view Coca-Cola bottlers, see Coca-Cola (disambiguation) The Coca-Cola Company (NYSE: KO) is the worlds largest manufacturer, distributor, and marketer of nonalcoholic beverage concentrates and syrups. Based in Atlanta, Georgia, KO sells concentrated forms of its beverages to bottlers who then produce, package, and sell the finished products to retailers. The Coca-Cola Company operates in over 200 countries and sells more than 400 different brands that produce over 3000 different products, including the famous Coca-Cola and Sprite lines of soft drinks. [1]

Growing consumer preference for healthier drinksand increasingly saturated markets has resulted in slowing growth rates for sales of carbonated soft drinks (abbreviated as CSD), which constitutes 78% of KOs sales. [2] KOs profits are also vulnerable to the volatile costs for the raw materials used to make drinks the corn syrup used as a sweetener, thealuminum used in cans, and the plastic used in bottles. Furthermore, decreased consumer spending in Coke's large North American market compounds the challenge of rising costs and a weak economic environment.[3] Finally, Coca-Cola earns approximately 75% of revenue from international sales, exposing it to currency fluctuations, which are particularly adverse with a stronger U.S. Dollar (USD). [4] Contents

1 Key Trends & Forces 1.1 New Aversion to Soda Threatens

Main Business

1.2 Commodity

Cost

Fluctuations

Affect Margins

o
Performance

1.3 Dollar

Affects

International

2 Domestic Competition and Market Share 2.1 Coke vs. Pepsi

o o

2.1.1 Global Footprint 2.2 Dr. Pepper Snapple Group 2.3 Coca-Cola Company Must Grow

Its Coffee and Tea Lines

3 International Competition 4 References

Despite these challenges, Coca-Cola has remained profitable. Though the non-CSD market is growing quickly, the traditional CSD market is still large in terms of both revenues and volume and highly lucrative. The size and variety of KOs offerings in the CSD category, coupled with the unparalleled brand equity of the Coca-Cola trademark, has allowed KO to maintain its share of this important market. KO has also responded to consumers changing tastes with new, non-CSD product launches and acquisitions such as that of Glaceau[5]. Strong international growth has also more than offset a weak domestic market. My hat is off to your atuste command over this topic-bravo!

Kudos to you! I hadn't toghhut of that!

Key Trends & Forces


New Aversion to Soda Threatens Main Business
77% of the Coca Cola Company's products are classified as carbonated soft drinks, making it particularly sensitive to changes in demand for CSD. [6]

Consumer demand for CSD has been negatively affected by concerns about health and wellness.

This is true across most of KO's markets.

There has been an increase in the number of regulations regarding CSDs in the United States in

response to the heightened desire for healthy food consumption.

Many states' public school systems banned the sale of soft drinks on their campuses. [7] The Center for Science and Public Interest proposed that a warning label be placed on all

beverages containing more than 13g of sugar per 12-oz serving. Although never enacted, this proposal would gave affect all non-diet, full calorie drinks produced by KO. [8]

These factors have driven a shift in consumption away from CSD to healthier alternatives, such as

tea, juices, and water.

Within the CSD segment consumers have been moving away from sugared drinks, opting instead

for diet beverages, which do not generally contain any sugar or calories. Though KO has been somewhat slow to respond to this shift in consumer preferences, it has recently begun to increase its development of both diet CSD and non-CSD beverages. KO is faced with the task of balancing the risk of new innovations with the low growth rates of established brands, a predicament for manufactures throughout the beverage industry.

Commodity Cost Fluctuations Affect Margins


The Coca-Cola Companys profitability can be affected both directly and indirectly by the costs of various production inputs. KO itself is responsible for purchasing the raw materials used to make its concentrates and syrups. Variations in the prices for these goods can affect the companys total cost of production as well as its profit margins. Changes in the production costs of bottlers can also impact KOs profitability, though in a more indirect way. If the raw materials necessary for bottling become more expensive, the bottler may be forced to drastically raise prices to compensate. Such a price increase would likely hurt KO and provide a possible incentive for consumers to switch to other companies beverages. Aluminum, corn, and PET resin are three examples of input costs that could have significant bearing on the Coca-Cola Companys profit margins.

Dollar Affects International Performance


Another trend affecting Coca-Cola is the relative strength of the U.S. Dollar (USD) . Although the company is based in the US, KO derives about 75% of its operating income from outside United States. Because of this, the company is very sensitive to the strength of the dollar. As foreign currencies weaken relative to the dollar, goods sold in foreign markets are suddenly worth fewer dollars back in the US, lowering earnings. Thus, if the dollar strengthens, it has a negative effect on KO's earnings. KO has broad exposure to foreign currencies and actively hedges a large portion of these to avoid wide swings in earnings from currency fluctuations. Although this hedging insulates it from the potential downside of a strengthening dollar, it also limits larger gains from drastic downswings in the dollar's value.

Domestic Competition and Market Share

U.S. non-alcoholic beverage market share, by volume

Coca-Colas main competitors in the U.S. are Pepsico (PEP) and Cadbury Schweppes (CSG). There are many smaller beverage companies competing domestically, and marketers of non-CSD brands sometimes possess significant shares of their specific sectors. Examples include Red Bull GmbH's Red Bull energy drink, Monster energy drink, produced by Hansen Natural (HANS), and Ferolito, Vultaggio & Son's Arizona iced tea.

Coke vs. Pepsi


PepsiCo is the second-largest company in the domestic non-alcoholic beverage industry. PEP counts among its brands some very well known trademarks, most notably:

Pepsi Mountain Dew Gatorade

Aquafina Tropicana Lipton

For decades now, Coke and Pepsi have battled for the title of tastiest soda producer, but which company will add the best flavor to your investment portfolio? Although both companies share powerful brand names and global franchises, there are two important distinctions between Pepsico and Coca-Cola that any investor should consider before choosing between these comestible titans:

Global Footprint
When it comes to international presence, Coca-Cola easily trumps Pepsico. Coca-Cola's larger global footprint exposes it more to international economic forces, particularly in the developing world. While this led to strong growth through much of the decade, weakness in emerging market economies could easily slow this momentum. Furthermore, because Coke generates so much of its revenue abroad, it stands to suffer from the continuing strengthening of the dollar as sales denominated in foreign currencies are suddenly worth less money back in the US. At the same time, Pepsico's heavy dependence on North America makes it much more susceptible to a slowing US economy. The company is also interested in developing a joint venture partnership for growing mangoes, similar to an operation they already have in Brazil.[9]

Dr. Pepper Snapple Group


Dr Pepper Snapple Group (DPS),Pepper_Gains_Share Soft Drink Sales Down for Fifth Year in a Row, CNBC, 3/24/10]</ref> DPS manufactures both beverages and confectionery goods, and it has sold some of its trademarks in certain geographic regions to both KO and PEP. In the U.S., some of DPSs significant beverage brands are:

7Up Dr. Pepper Hawaiian Punch Canada Dry Snapple (US Operations)

The company identifies itself as a beverage business, and its sole revenue source is from its beverage lines. It is a direct competitor of both KO and PEP, though its as a company is significantly smaller.

Coca-Cola Company Must Grow Its Coffee and Tea Lines

With a partnership between Starbucks, Pepsi is the undisputed owner of the U.S. ready-to-drink (i.e., canned) coffee and tea market, with 90% market share. The global market is a different story - Coca-Cola's Georgia product line owns over 30% of the international market, easily dwarfing Starbuck's 4%. However, the Pepsi-Starbucks partnership has started to exert pressure on Coca-Cola Company's international sales with the 2008 beginning of its two year expansion into new markets, including China. Coca-Cola will have to protect its sales from the new competition, which is supported both by Pepsi's distribution strength and Starbucks' brand recognition.[10]

International Competition
Internationally, the Coca-Cola Companys largest competitor is, again, PepsiCo (PEP). Both companies have significant presence in the domestic market, but KO sells more beverages outside of the U.S. KO receives nearly 80% of its operating income from international sources and holds over half of the global market share for non-alcoholic beverages. PEP, meanwhile, makes only 42% of its net revenue from outside the U.S., and a large portion of PEPs income comes instead from its snack business, a market in which KO does not participate. [11] In addition to PEP, Dr Pepper Snapple Group (DPS) also sells beverages internationally, specifically in Australia, Mexico, and Canada. DPS's predecessor Cadbury Schweppes (CSG) had previously sold beverages in Europe, South Africa, and Hong Kong, among others, but the new company since sold its businesses in all markets except Australia and North America. DPS generates only 10% of its revenue from abroad, relfecting the companys desire to concentrate on its strongest markets. [12] There are various other concentrate manufacturers and beverage franchisers across the world, though none hold a significant percentage of the global market, instead focusing on particular geographic regions.

References
1. 2. 3. 4. 5.
Coca-Cola 2008 Annual Review Coca-Cola 2008 Annual Review International Sales Boost Coca-Cola's Results 2008 10-K, Item 1A, Page 14 Coke set to buy Glaceau for $4.2 bln

6. 7. 8. 9. 10. 11. 12.

Coca-Cola 2008 Annual Review New York Times. "Bottlers Agree to a School Ban on Sweet Drinks." 5 April 2006 Center for Science and Public Interest Coke Group to Invest US $300 Million in Pakistan, Dawn.com, 5/14/10 Starbucks, Pepsi take bottled coffee overseas. PEP 2008 10-K DPS 2008 10-K, Geographical Data, page 106

Categories: Mature | Food & Beverage | Soft Drinks

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Even though the focus in economics is on the relationship between the price of a product and how much consumers are willing and able to buy, it is important to examine all of the factors that affect the demand for a good or service. These factors include:

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Price of the Product There is an inverse (negative) relationship between the price of a product and the amount of that product consumers are willing and able to buy. Consumers want to buy more of a product at a low price and less of a product at a high price. This inverse relationship between price and the amount consumers are willing and able to buy is often referred to as The Law of Demand. The Consumer's Income The effect that income has on the amount of a product that consumers are willing and able to buy depends on the type of good we're talking about. For most goods, there is a positive (direct) relationship between a consumer's income and the amount of the good that one is willing and able to buy. In other words, for these goods when income rises the demand for the product will increase; when income falls, the demand for the product will decrease. We call these types of goods normal goods. However, for some goods the effect of a change in income is the reverse. For example, think about a low-quality (high fat-content) ground beef. You might buy this while you are a student, because it is inexpensive relative to other types of meat. But if your income increases enough, you might decide to stop buying this type of meat and instead buy leaner cuts of ground beef, or even give up ground beef entirely in favor of beef tenderloin. If this were the case (that as your income went up, you were willing to buy less high-fat ground beef), there would be an inverse relationship between your income and your demand for this type of meat. We call this type of good an inferior good. There are two important things to keep in mind about inferior goods. They are not necessarily low-quality goods. The term inferior (as we use it in economics) just means that there is an inverse relationship between one's income and the demand for that good. Also, whether a good is normal or inferior may be different from person to person. A product may be a normal good for you, but an inferior good for another person. The Price of Related Goods As with income, the effect that this has on the amount that one is willing and able to buy depends on the type of good we're talking about. Think about two goods that are typically consumed together. For example, bagels and cream cheese. We call these types of goods compliments. If the price of a bagel goes up, the Law of Demand tells us that we will be willing/able to buy fewer bagels. But if we want fewer bagels, we will also want to use less cream cheese (since we typically use them together). Therefore, an increase in the price of bagels means we want to purchase less cream cheese. We can summarize this by saying that when two goods are complements, there is an inverse relationship between the price of one good and the demand for the other good. On the other hand, some goods are considered to be substitutes for one another: you don't consume both of them together, but instead choose to consume one or the other. For example, for some people Coke and Pepsi are substitutes (as with inferior goods, what is a substitute good for one person may not be a substitute for another person). If the price of Coke increases, this may make Pepsi relatively more attractive. The Law of Demand tells us that fewer people will buy Coke; some of these people may decide to switch to Pepsi instead, therefore increasing the amount of Pepsi that people are willing and able to buy. We summarize this by saying that when two goods are substitutes, there is a positive relationship between the price of one good and the demand for the other good. The Tastes and Preferences of Consumers This is a less tangible item that still can have a big impact on demand. There are all kinds of things that can change one's tastes or preferences that cause people to want to buy more or less of a product. For example, if a celebrity endorses a new product, this may increase the demand for a product. On the other hand, if a new health study comes out saying something is bad for your health, this may decrease the demand for the product. Another example is that a person may have a higher demand for an umbrella on a rainy day than on a sunny day. The Consumer's Expectations It doesn't just matter what is currently going on - one's expectations for the future can also affect how much of a

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product one is willing and able to buy. For example, if you hear that Apple will soon introduce a new iPod that has more memory and longer battery life, you (and other consumers) may decide to wait to buy an iPod until the new product comes out. When people decide to wait, they are decreasing the current demand for iPods because of what they expect to happen in the future. Similarly, if you expect the price of gasoline to go up tomorrow, you may fill up your car with gas now. So your demand for gas today increased because of what you expect to happen tomorrow. This is similar to what happened after Huricane Katrina hit in the fall of 2005. Rumors started that gas stations would run out of gas. As a result, many consumers decided to fill up their cars (and gas cans), leading to long lines and a big increase in the demand for gas. This was all based on the expectation of what would happen. The Number of Consumers in the Market As more or fewer consumers enter the market this has a direct effect on the amount of a product that consumers (in general) are willing and able to buy. For example, a pizza shop located near a University will have more demand and thus higher sales during the fall and spring semesters. In the summers, when less students are taking classes, the demand for their product will decrease because the number of consumers in the area has significantly decreased.

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