Economic factors affecting the company- A case study on Coca-Cola

History of the firm

Coca-Cola operates in the soft drink industry and it originated in 1886. The founder of the company was Asa Griggs Candler. The company specializes in the sales of sweetened and carbonated beverage. Gradually, it managed to acquire global recognition by producing 2800 products in 200 countries (coca-colacompany.com, 2020). The present headquarters of the company is in Atlanta, Georgia.

Figure 1: Company Logo

(Source: coca-colacompany.com, 2020)

Application of big economic questions to the firm

1. Factors of production and ways of producing goods in the firm

The major factors of production include land, labour, entrepreneurship and capital. All these factors work together for producing and selling a successful product.

Land- The Company requires a huge number of natural resources, including carbon dioxide, water, corn, sugar along with phosphate rock. These natural resources are produced in the land.

Labour- After gathering the natural ingredients, the company uses their labour to clean, run and to maintain the machines

Capital- Physical capital is required for utilizing the machineries, and human capital is needed as the technical knowledge is essential for producing the services and goods.

Entrepreneurship- The venture is entrepreneurial because it was founded by John Pemberton and later sold to Asa Candler, who re-invented the business.

1. Ways in which self-interest choices promotes self-interest

The choices centred on promoting self-interest ensure self-interest because the Company uses its natural and human resources efficiently. Thereafter, it distributes services and goods. For instance, Coca-Cola has always invested in building its brand and organizational capabilities.

Steps taken to achieve allocative efficiency

The Company understands the concept of sustainability, and therefore resource utilization is one of the priorities of the firm. Again, waste reduction and efficient energy use and packaging are considered by the firm. For instance, the company targeted to reduce its carbon footprint by 15% within 2020 (Kiiru, Makokha & Gichuhi, 2017). It is making efforts to use energy-saving devices and reduce emissions during the distribution process.

Figure 2: Weight reduction over the years

(Source: cokecce.co.uk, 2020)

The absolute or comparative advantage of the firm

Coca-Cola managed to penetrate national markets because it has gained an overwhelming response after operating in the American markets. It has gained an absolute advantage as it ensures equal opportunities and refreshments. Gaining global recognition has been easier as it specializes in its production of soft drinks and other beverages. While sharing a bottle of coke, people easily get along and somehow commune. They share similar values and hence, gaining an absolute advantage has been possible for the brand.

Demand elasticity

Coca-cola products are elastic because the changes in product prices tend to increase the demand for the product by 10% (Monier-Dilhan & Bergès, 2016). In case the demand is inelastic, the price of Coca-cola products diminishes the cost of the product. Coke is capable of raising the price of its products because consumers are loyal, and they have a strong liking or brand preference. Even if the price of Coke products increase, consumers are less likely to switch to other brands.

Steps taken by the firm to improve operations and future developments

The company constantly restructures its operations to increase its operational efficiencies and enhance the profitability. The non-alcoholic maker of soft drinks increases its revenues by using strategic pricing tactics. Even in the saturated U.S market, the company manages to account for 42.3% of the total net volumes (Team, 2020). In the future, it is working towards growing organically. Structural changes are being made, and it is aligning its operations in accordance with the changing market demands.

Market structure of the firm

Coca-Cola Company can be categorized within the oligopoly structure because the soft drink industry is dominated by limited companies. Pepsi is one of its competitors; however, the company managed to use competitive strategies to gain the upper hand over its rivals. The company, since its inception, managed to produce standardized products. Therefore, despite producing close substitutes of Coca-Cola products by rivals, the company continued to operate in the oligopoly market (Wilkerson, 2018).

Production possibilities that changed the firm

The soft drink giant realizes the importance of making its products viral, and it will bring back new “Coke Cans” in the upcoming season to enhance its possibilities. The company will be streaming its products on Netflix and re-invent its image as an iconic beverage producer. It is working towards redesigning or recreating its products and presenting the traditional products in a new way. It is using the ad as well as non-ad platforms to promote its products and satisfy customer’s needs. The company discontinued its Lemon-Lime Slice, and in 2003, it replaced the product with Sierra Mist.

Figure 3: Coke focuses on new production possibilities

(Source: theguardian.com, 2020)

Externalities associated with the firm

Positive consumption externality- By consuming the products of Coca-Cola, people can increase their energy levels, and it also eases digestion. It is one of the positive externalities of Coke products.

Positive production externality- The global brand conducts its business in more than 200 nations, and therefore, it creates a positive economic outcome for the nations. Notably, in developing nations, Coca-cola managed to stimulate businesses and created jobs in the market.

Negative consumption externality- Coca-Cola is a processed drink, and its ingredients are harmful enough to cause high levels of blood pressure, obesity, diabetes and heart diseases.

Negative production externality- Health-related effects of Coca-Cola have already been discussed. Apart from that, Coca-cola production can have a devastating impact on the major water resources of the operational regions.

Effects of globalization on the firm

The Coca-Cola brand is globally recognized, and it continues to gain growth along with momentum in the globalized world. The market share of the company is one of the largest in the world as it continues to work with 84000 suppliers over 200 nations. Due to globalization, the company manages to generate a business income of 70%, mainly from the non-US companies (Yadav, Stapleton & Van Wassenhove, 2013). In the early 1990s, it started the process of globalization. It spread across Panama, Cuba and opened firms in the Philippines, Hawaii and Peurto Rico. Again, the marketing strategies of Coca-Cola, such as the advertising slogans along with catchy lines, attracted customers and retained them as well. Though the company faced accusations regarding unfair labour or low nutritional value, it continues to expand its marketplace.

References

Kiiru, K. C., Makokha, E. N., & Gichuhi, D. (2017). Effect of Pricing of New Coca Cola Soft Drink Products on Sales Performance of Coca-Cola Company in Nyahururu Town. mergers and acquisitions, 34.

Monier-Dilhan, S., & Bergès, F. (2016). Consumers’ motivations driving organic demand: Between self-interest and sustainability. Agricultural and Resource Economics Review, 45(3), 522-538.

Team, T. (2020). How Coke Is Restructuring Its Way To Higher Profitability. Forbes. Retrieved 19 March 2020, from https://www.forbes.com/sites/greatspeculations/2015/08/21/how-coke-is-restructuring-its-way-to-higher-profitability/#36080faa37b4

The Coca-Cola Company: Refresh the World. Make a Difference. (2020). Coca-colacompany.com. Retrieved 19 March 2020, from https://www.coca-colacompany.com/

Wilkerson, T. (2018). Advanced Economic Theory. Scientific e-Resources.

Yadav, P., Stapleton, O., & Van Wassenhove, L. (2013). Learning from coca-cola. Stanf Soc Innov Rev, 11(1), 51-55.