(Tiểu luận) microeconomics assignmentfinal group projectcoca cola

The growing demand for clean-label, gluten-free, low-calorie, and low-carb products drives the global soft drinks market.. Coca-Cola, or Coke, is a carbonated soft drink manufactured by

National Economics University

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MICROECONOMICS ASSIGNMENT FINAL GROUP PROJECT COCA-COLA

Class: EBBA 14.1

TEAM 3 Phan Thi Mai Anh

Nguyen Khanh Linh

Tran Huyen Nga

Ho Thu Nga Nguyen Ha Phuong

Ha Noi - 12/2022

INTRODUCTION 3

CONTENT 4

I The soft drink indusstry is oligopoly 4

1 A few large firms dominate the market 4

2 Firms are interdependent/interrelation 4

3 Products differentiation 5

4 Substantial barriers to entry 6

5 Imperfect information 7

II Factor that affect demand and suppy over last year 7

1 Demand 7

1.1 Price 7

1.2 Prices of related goods (complementary/ subtitutes) 8

1.3 Hobby, tastes, and preferences 9

1.4 New slogan 10

1.5 Marketing strategy 10

1.6 New products 11

1.7 The recovery after Covid 19 11

2 Supply 11

2.1 Technology 11

2.2 Costs of production (Input prices) 12

2.3 Government policies 12

2.4 Number of producers 13

CONCLUSION 14

REFERENCES 15

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Soft drinks are defined as water-based flavored drinks usually with added carbon dioxide and with nutritive, nonnutritive, and/or intense sweeteners with other permitted food additives They first appeared in 1884 It was believed that

a drugstore owner in Lisbon Falls, America, produced the product under the brand name Moxie Soon after, comparable products like Pepsi-Cola and Coco-Cola debuted Soft drinks have advanced significantly over the previous century, going from being a product available only at neighborhood pharmacies

to a $60 billion industry that produces 10 billion ounces annually This development is the result of breakthroughs in marketing and manufacturing technology In this post-industrial period, soft drinks are one of the important beverage goods, and in recent decades their sales have been rapidly increasing The market for soft drinks is growing day by day due to the focus on health and wellbeing

The global soft drinks market size was valued at USD 416.19 Billion in

2021 and is expected to expand at a CAGR of 5.2% from 2022 to 2028 Rising disposal incomes, changing lifestyle, and a growing population is expected to promote market growth over the next few years The growing demand for clean-label, gluten-free, low-calorie, and low-carb products drives the global soft drinks market Additionally, rising popularity among the millennials and increasing investments in R&D in the food and beverage sector are expected to drive the industry demand [2]

Cola is the most famous and best-selling soft drink in history Coca-Cola, or Coke, is a carbonated soft drink manufactured by the Coca-Cola Company It was created by John Stith Pemberton in Atlanta, Georgia, in the late 19th century with the intention of being a patent medicine In 1888, Pemberton sold Coca-Cola's ownership rights to Asa Griggs Candler Coca-Cola was registered as a trademark in 1893 and began selling in every state of United States by 1895 in 1906, the business started to spread internationally Through Candler's innovative marketing strategies, Coca-Cola went on to dominate the world market for soft drinks in the 20th and 21st centuries On the 50th anniversary of Coke, it became the national symbol of America In 2020, Coca-Cola ranked as the sixth most valuable brand in the world according to Interbrand's "best global brand" research Coca-Cola ranked No 87 in the 2018 Fortune 500 list of the largest United States corporations by total revenue

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I The soft drink indusstry is oligopoly

1 A few large firms dominate the market

The soda market is a large sector of the economy There are many carbonated beverages available in real life, which means that there is competition However, in the practice, Pepsi Co and Coca-Cola Co domained the carbonated beverage market for decades Coca-Cola Company is one of the most influential beverages and soft drinks corporations with global influence and the largest market share So, the soft drink industry becomes oligopoly Therefore, a smaller company like F&N in the beverage business has a small share of sales and cannot be compared to the sales of Coca-Cola and Pepsi Due to the factor of economies of scale, the market can be categorized into six main groups These are Coca-Cola, PepsiCo, Dr Pepper, National Beverage, Cheerwine and others The respective market shares for 2021 are 46.3%, 25.6%, 21.7%, 0.5%, 0.2%, and 5.6% (M Ridder 2022) It can be seen that Coca-Cola takes up almost half of the market share and its main competitor’s share twice as little

The carbonated beverage business is an oligopoly market rather than a monopolistic competition market due to the number of firms in the market, the tendency for firms to enter the market, and the branding and advertisement effort

2 Firms are interdependent/interrelation

Definition: Firms always consider rival’s response when they make decisions

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The firms in the soft drink industry are mutually interdependent and each firm is affected by the actions of the competitors The sales of Coca Cola Company may end up being affected in case Pepsi changes its product specification or even the price of the product The competitors often act by changing their advertising, specification, and price

In 2003 Coke-Cola introduced it`s affordable pricing strategy, sharply lowered its prices to 0.06$ A change in price can result in a significantly larger change in quantity demanded An increase in demand can help Coke achieve large-scale production and consequently reduce average total costs in the long run due to benefits of economies of scale Consumers would prefer Coca-Cola rather than Pepsi because it’s cheaper than Pepsi in this segment Pepsi - the main rival of Coca-Cola was obliged to reduce its price to a minimum of 0.097$

to maintain its market share The longer Pepsi allows Coke to retain a price advantage over it, the more customers it would lose in the long run However, these two businesses found it difficult to run operation at such low prices, therefore they both abandoned their reduced pricing strategy

3 Products differentiation

Definition: Product differentiation is the characteristic or characteristics

that make your product or service stand out to your target audience It’s how you distinguish what you sell from what your competitors do, and it increases brand loyalty, sales, and growth

Coca-Cola Company is in an oligopoly type of market structure because the firms in this industry produce products that are differentiated The competition depends on the way the brand of the firm markets its products because they have similar taste How then does Coca-Cola differentiate itself from the Pepsi drinks?

- Coca-Cola Company uses diverse competitive strategies to sustain their leading position in the industry of soft drink It is vital for the company to sustain a brand image that mainly looks more diverse than Pepsi

- Coke has a raisin-vanilla flavor and high salt nutritional value The corporation has been able to distinguish its offers to the various customer segments through its several brands, such as Lemon Coke, Diet Coca-Cola, Cherry, and Vanilla Coke

- The special of Coke that makes strong impression is different packaging used for its different brands Coca-Cola sets itself apart from Pepsi through its packaging: the classic Coke with the red color, Diet Coke is black Coca-Cola frequently releases new looks for its products of each line

- In addition to the packaging, Coca-Cola ensures that consumers can get these different brands in different quantities The plastic bottles come in sizes of

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0.5, 1, 1.5, and 2 liters, the cans in 0.25 or 0.33 liters, and the glass bottles in 0.25, 0.5, and 1 liter It guarantees the recyclable and environmentally friendly nature of the packing materials In 2021, Coca-Cola reveiled PlantBottle - the world’s first fully recyclable PET plastic bottle made from 30% plant-based material In this way, Coca-Cola has differentiated its drinks from that of Pepsi

to make sure it better meets the needs of its consumers

- Most of Coca-Cola’s adverts are keen on emphasizing family, friendship, happiness The global brand platform of Coca-Cola is “Real Magic” which invites everyone to celebrate the real magic of humanity and coveys the message: Magic exists in unexpected moments of connection that transform the ordinary into the exceptional

- The two competitors produce products that are almost similar, yet their practices of marketing have largely managed to generate a high brand loyalty level for every product Coca Cola maintains its discrepancy from other soft drinks by spending more than 20% of its advertisement budget to only differentiate its products

4 Substantial barriers to entry

It is difficult to enter an oligopoly industry and compete as a small

start-up company Oligopoly firms are large and benefit from economies of scale It takes considerable know-how and capital to compete in this industry

Coca-Cola Company operates in an oligopoly market structure Its only real competitor is PepsiCo Together Coca-Cola and Pepsi’s dominate the industry and their size in the market create barriers that deter new companies from trying to compete on the international level High barriers to entry prevent smaller firms from making a large impact This allows the two firms to compete

on areas other than price in an attempt to maximize profit

Producing soft drinks for a wide market would require a significant investment in production equipment, brand material, and advertising The high cost and captital of operating in this industry prevent many companies from entering the competitive arena According to O’Sullivan et al (2008), the government has intervention in this market, making sure there is no bunch of firms operating in the oligopoly industry by issuing controllers such as patent and business licenses

There aren’t many barriers to entry in the soft drink industry, it can be easy for any firm to begin their company and sell soft drinks to their customers However, mostly it can be very hard to be noticeable since there are already numerous diverse products and brands of soft drinks out there for consumers to select from According to Doyle (1990), the per capita beverage rate of consumption is the highest for Coca-Cola Company consolidated in the world Additionally, Coca-Cola Company has the highest number of consumers in the world and has created a high barrier to entry in soft drink market through its

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increasing advertising To be precise, building a brand is the biggest barrier to

entry in the soft drink industry

Economies of scale is a important element that should be took into

account:

- Focusing on economies of scale, which basically refers to the manner an

organization can focus on the reduction of the average per unit cost of its

services or goods by basically increasing the production scale for a single type

of product For Coca-Cola, economics of scale are mostly at work when the

corporation lowers the manufacturing or production cost by increasing its level

of output

- Coca-Cola is considered a billion-dollar brand in 19 countries It also

owns 16 other billion-dollar brands and 20 more sparkling and still brands,

which each produce around $500 million-$1 billion in revenue annually The

company has the leadership position in the American soda industry, with a

46.3% market share PepsiCo ranks second, accounting for 25.6% of the soda

market

- Furthermore, Coca-Cola has a strong global distribution system in 200

countries, possessing more vehicles than both UPS and FedEx combined Thus,

Coca-Cola has a huge moat with great economies of scale that no competitors

could easily copy or beat That provides an extremely strong foundation for the

business future growth

5 Imperfect information

Definition: Imperfect information occurs when the economic agents lack

information about a good or any other information relevant to the transaction In

this case, for example, the consumers may have partial information about the

product quality, which would make it difficult to make a rational choice upon

purchase

Until 2019, Coca-Cola did not mention its sugar content publicly

Because the consumers were unaware of the high sugar content and the possible

risks associated with the product, they consumed it disproportionately This

over-consumption has made the public overweight, which puts a significant

strain on the healthcare system and the Government brought in the Sugar

Sweetened Drinks Tax (SSDT) in 2018

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II Factor that affect demand and suppy over last year

1 Demand

1.1 Price

The price of Coca-Cola in USA is 0.76$ (while in VietNam is 0.38$) The average price for 92 countries is 0.94$ Recently, Coca-Cola has raised its price

by 12% mainly due to food inflation Despite the increase in price of Coke and global recession, the demand for Coca-Cola doesn’t change much The company's second quarter data showed that net revenue increased 12% to reach

$11.3 billion, exceeding analyst estimates However, Coca-Cola executives warned that there are already signs of inflation and an economic recesssion having a bad impact on consumer buying power, particularly Europe

A consumer is more likely to buy larger quantities of Coca-Cola if the price is lower Thus, that price plays a significant role in determining demand 1.2 Prices of related goods (complementary/ subtitutes)

- Subtitutes: The biggest substitute good is Pepsi Coca cola’s price is higher than Pepsi ($0.04) However, thanks to good quality and special flavor, Coca is still trusted by a large number of consumers Coke knows people are willing to pay a little more to get its products However, during the Covid 19, Coca-Cola’s price has rised, consumers want to put aside as much as possible,

so they tend to choose cheaper products from small or private brands instead of Coca-Cola

Since the price of coca is slightly more expensive than Pepsi, the demand for coca will decrease slightly because of its popularity among consumers and the demand curve will shift to the left

- Complementary: Coca-Cola has contracted with many restaurants as well as famous food&beverage brands such as: McDonald’s, Popeyes, Burger

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King, Domino's Pizza, Dunkin’s Donut So, the demand for coco cola would decline if the cost of complementary products (Mc Donald’s, Burger King, KFC ) rises This shifts the demand curve to the left

- The number of consumers: 1.9 billion Coca-Cola products will be sold around the world each day Coca-Cola operates in more than 200 countries around the world and has traditionally—like many global corporations—operated with a complex network of marketing and advertising partners throughout its worldwide business (J Beer 2022) Due to the impact of the covid epidemic in recent years, the number of consumers is also lower than before the epidemic, causing the demand curve to shift to the left

Demand curve when shifting to the left (demand decreases)

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The Coca-Cola Company’s

operational structure is

composed of four geographic

operating segments: Europe,

Middle East & Africa; Latin

America; North America; and

Asia Pacific