The paper analyzes the market model patterns of change in Coca-Cola Company in the economy and conjectures both the short-run and long-run trends and behaviors of a given model in the economy. In addition, it focuses on the three possible areas that could affect the transaction costs and provide an explanation on the effect of these costs. The paper also speculates about the behavior that could impact the transaction and recommends possible strategies of collecting costs and revenue data from the industry.
There are various modifications that Coca Cola has been undertaking in marketing its products since inception, combined with the issues that the management should incorporate in order to realize its strategic goals.
Introduced in 1894 as Pepsi-Cola, the now renowned and successful organization has incorporated strategic measures in its undertakings in an attempt to realize its objective. The initial headquarters for the organization was in New Zealand, where most of its operations were choreographed. By World War I, the drink had achieved modest success, with franchised bottlers in half of the states. Caught in the wildly swinging sugar market of 1920, the owner of Pepsi-Cola was declared bankrupt. This made the stakeholders to sale the company to Wall Street speculator named Roy. The demise did not stop there, as what followed was a stream of court issues with the organization. Later on, there was separation between Coca-Cola and Pepsi.
During World War II, Coca-Cola aced Pepsi in production and revenue outlay. This was attributed to the marketing strategies of the organization that led to a wide range of customer base. Coca-Cola workers were designated ‘technical servers,” whose work behind the lines setting up bottling plants was deemed vital to the war effort. As a result, the company was able to increase its productivity and reduce the rate of employees’ turnover compared to its competitors.
In the late 20th century, the global recess that faced the economy had an impact on the performance of the organization. Its profitability was affected, as most of the resources were dedicated to the revival of the manufacturing activities in the economy. However, the marketing department devised ways in which it could effectively harmonize the adversity of the situation in the long run. In the contemporary world, Coca-Cola has consistently maintained a large market share globally. Its market is mainly drinks and beverages, and the company earns most of its income from overseas markets (Winston & Albright, 2008).
Currently, Coca-Cola exists as an oligopoly in the economy. The beverage industry has few large firms that have differentiated or standardized products, and Coca-Cola is no exception. As such, in the short-run, the firm enjoys high profit, as the market of its products is defined. However, due to differentiation, it does not realize a perfectly elastic demand curve. Therefore, the company would experience a situation where the average total costs would not equal the price, in the long-run (Jain & Griffith, 2012). The situation would worsen until when the cost curve is tangent to the demand curve. At this point, the Marginal Cost (MC) will equal Marginal Revenue (MR).
In the case of long-term behavior of oligopoly market, the organization tends to collude with one another in order to dictate the market price in the industry. This was the case with Pepsi and Cola, although later on they separated. This will have an effect on the consumer demand for the product—especially in the case where it is neither a necessity nor luxury. As a result of such development within oligopoly market, many governments endeavor to ensure that the companies are not merging. Additionally, a government usually enacts regulations that precisely indicate the maximum number of oligopoly firms that can operate in a specific area.
Areas that can lead to an increase in transaction costs
a) Obesity and other health issues may affect demand.
Customers and officials have been increasingly debating about possible impacts of various foods of mass consumption on obesity cases in young people. In fact, some scientists and dietologists encourage the populace to cut on sugar-containing beverages in their everyday consumption. As a result, growing fears over such products and their effects on human health are likely to produce new government taxes and regulations on marketing, meaning higher transaction costs for the company (Varey, 2002).
b) Shortage of water, as well as its poor quality can have adverse effects on production capacity and costs for Coca-Cola Company.
In the production process, water is the most basic resource, but it is limited in nature, especially in places with increased water pollution, adverse climate change, overexploitation, and poor management. Because of a massive increase in the demand for water in the globe, water becomes a scarce resource and its quality becomes poor. Therefore, Coca Cola can increase its productivity or experience constraints in terms of capacity. In the long run, this can have a negative impact on the company’s profitability or net operating income.
b) Changes facing the non-alcoholic beverage industry
The non-alcoholic beverage industry is swiftly progressing due to variations in customer tastes. The reasons include the already mentioned concerns over obesity and other potential health problems, as well as the shifts in competition, pricing mechanisms, and overall consumer needs. In addition, the industry is going through the concentration of retail in the USA and Europe. As a result, the non-alcoholic business environment may incur increasing production cost or face capacity constraints due to market dynamics, which could adversely affect the firm’s net operating revenues in the long run (Bilton, 2007).
Behaviors that would occur from these transactions
The above transactions in the economy imply that Coca-Cola would experience a relative low revenue outlay, as its production level would be minimized. In addition, introduction of non-alcoholic beverages would imply a reduction in the market share for its products. As a result, the management of the company must design strategies that will enable Coca Cola to counter high competition from aggressive rivals in the industry (Davidson, 2006).
Coca-Cola Company Financial analysis, First Quarter 2012
The Company reported a rise of 5% in the volume of production, with North America region realizing 2% and 6% growth internationally. The revenues grew by 6%, in which the management speculated that it was due to solid price mix deployed by the team. In addition, earnings per share (EPS) increased to $0.89. In order to realize competitiveness in the changing global economy, the organization needs to increase its production volume by at least 10%, revenue outlay should be increased by 8%, and EPS should be targeted at $1.50. Ideally, the management hopes to undertake a stringent reinvestment and productivity program that will see the company increase its annual savings to $700 million and $600 million respectively at the end of the financial year 2015. Every organization’s decision making is inclined to becoming one of the leading organizations in the economy, and Coca-Cola Company is no exception (Varey, 2002).
Factors affecting the degree of competitiveness
As Coca-Cola is undertaking its business activities in a free economy, the degree of competitiveness is vital in order to achieve a wide market share. Currently, the degree of competitiveness is affected by the imitation of non-alcoholic beverages that resemble Coca-Cola products. The products are sold at a cheaper price, and are packaged the same way as the real products of the organization. In addition, demand and supply for the company may not be accurately estimated, making the organization experience surplus or deficits in its production (Matejka & Murphy, 2001). Finally, technology advancement affects the degree of competitiveness in the economy. Companies, which incline to technological advancement, realize high production, thereby increasing their revenue outlay.