MB601 Strategic Management Lesson 3 Internal Analysis and Strategy Formulation

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MB601 Strategic Management

Lesson 3: Internal Analysis and Strategy Formulation

Activity 3: Coca-Cola Analysis

Part A

Description of Coca-Cola

Among the bright engines in the Lafayette, Co. fire stations leans a carved-out portion of a wooden wall painted a slightly different shade of red (Nemer, 2016, p.1). A somewhat faded, though indistinguishable, Coca-Cola red (Nemer, 2016, p.1). The propped-up of a wall is not much smaller than the fire trucks beside it. Holding its own at 26 feet wide by 14 feet tall, the massive mural weighs more than 4,000 pounds. But it is not the sign’s size that makes it so unique (Nemer, 2016, p.1). It’s history evident on its surface (Nemer, 2016, p.1). Flakes of paint,frozen mid-peel, speckle the decade’s old sign, which one overlooked the heavily trafficked Lincoln Highway, advertising Coca-Cola to thirsty passers-by (Nemer, 2016, p.1).

Over the years, the sign faded from public memory covered by a new exterior and forgotten between layers of the wall in a building ultimately slated for demolition (Nemer, 2016, p.1). It was during the tear-down process that the city uncovered the sign (Nemer, 2016, p.1). Building plans were immediately put on hold (Nemer, 2016, p.1). The whole community did a collective intake of air recalled Sally Martin chair of Lafayette’s Mural Committee drawing in an animated gasp. They got excited people started conversing with each other (Nemer, 2016, p.1). Rather than restore the sign the town sought to celebrate its history by preserving it as it was found a tribute to the tests of time the sign has withstood (Nemer, 2016, p.1). In 1894 A modest starts for a bold idea in a candy store Vicksburg, Mississippi, brisk sales of the new fountain beverage called Coca-Cola impressed the store’s owner, Joseph A. Biedenharn.

In1899 the first bottling agreement two young attorneys from Chattanooga, Tennessee believed they could build a business around bottling Coca-Cola. 1900-1909 rapid growth the three pioneer bottlers divided the country into territories and sold bottling rights to local entrepreneurs (Nemer, 2016, p.1). 1916 Birth of the contour bottle the bottlers worried that the straight-sided container for Coca-Cola easily confused with imitators (Nemer, 2016, p.1).1920 bottling overtakes fountain sales more than 1,000 Coca-Cola bottlers were operating in the U.S. 1920 and 30s international expansion 1940s. Postwar growth 1950s packaging innovations, 1960s new brands introduced the following Fanta in the 1950s. Sprite, Minute Maid, Fresca, and Tab joined brand Coca-Cola in the 1960s Mr. Pibb and Mello Yello were added in the 1970s (Nemer, 2016, p.1). The 1980s brought diet Coke and Cherry Coke, followed by Powerade and Dasani in the 1990s, 21st century the Coca-Cola bottling system grew with roots deeply planted in local communities (Nemer, 2016, p.1).

Describe the company’s main competitors

Coca-Cola main competitors in the beverage industry, of course, is PepsiCo, Red Bull, Nescafe, Tropicana (Bhasin, 2017, p.1). One of the reasons these brands PepsiCo and Coca-Cola fight tooth and nail is because both are very strong in their distribution and have excellent marketing and sales policies Bhasin, 2017, p.1). Red Bull is one of the most active growing energy drink/sports drink and is amongst the most influential direct coca cola competitors regarding brand valuation Bhasin, 2017, p.1). Nescafe is without a doubt a dominant coca cola competitor because of its superb taste and fantastic distribution Bhasin, 2017, p.1). Tropicana has a unique and such a large flavor base it is one of the most active indirect coca cola competitors in the market Bhasin, 2017, p.1).

Assess the company’s performance over the past five years and document Coke’s profit and market share position.

Revenue USD Mil 2013-12 2014-12 2015-12 2016-12 2017-12
Gross Margin % 46,854 45,998 44,294 41,863 35,410
Operating Income USD Mil 60.7 61.1 60.5 60.7 62.6
Operating Margin % 10,228 9,708 10,240 9,750 9,427
Net Income USD Mil 21.8 21.1 23.1 23.3 26.6
Earnings Per Share USD 8,584 7,098 7,351 6,527 1,248
Dividends USD 1.9 1.6 1.67 1.49 0.29
Payout Ratio % * 1.12 1.22 1.32 1.4 1.48
Shares Mil 56.7 66.4 82.5 83.6 140.3
Book Value Per Share * USD 4,509 4,450 4,405 4,367 4,324
Operating Cash Flow USD Mil 7.3 7.66 6.02 6.08 5.19
Cap Spending USD Mil 10,542 10,615 10,528 8,796 7,106
Free Cash Flow USD Mil -2,550 -2,406 -2,553 -2,262 -1,675
Free Cash Flow Per Share * USD 7,992 8,209 7,975 6,534 5,431
Working Capital USD Mil 1.79 1.85 1.94 1.47 1.41

(Morningstar, 2018)

Part B Identify which resources, core competencies, and distinctive competencies have allowed Coke to reach its level of success.

Five Strategic Actions

We focus on driving revenue and profit growth- We have segmented revenue growth strategies across our business in a way that varied by market type

We invested in our brands and business- Health business require continuous investment.

We became more efficient- Part of the solution was zero-based work a way of looking at our business that starts from the assumption that organizational budgets start at zero and must be justified annually not simply carried over at levels established in the previous year.

We simplified our company- Few industries have changed more rapidly in recent years than the nonalcoholic beverage industry.

We refocused on our core business model- The Coca-Cola company has always been a creator of refreshing beverage brands (Coca-Cola, 2017, p.1).

Part C Using a VRIO framework, build a table that addresses the value, rarity, limitability, and organization for each of the items you have identified above. Be very explicit in your explanations.

VRIO Analysis: According to Pratap, 2017


Global distribution network – Yes, it is an important resource enabling Coca Cola to serve the global market and maintain a global presence.

Large product range: Yes, it has helped Coca Cola reach and serve the global audience with different tastes.

Skilled human resources: Yes, it helps Coca Cola manage its large system efficiently.

Marketing skills and expenses: Yes, it helps Coca Cola manage a differentiated brand image and connect with its audience better.

Secret formula: Yes, this is something accessible to only a few people in the entire Coca Cola system.

Brand image: Yes, brand image drives value and is important for managing an impressive market presence.

Research and development: Yes, it helps Coca Cola to continuously innovate and respond to changing market situations.



Global distribution network – Possessed by only a few other firms in the soda industry and helps coca Cola manage its global reach.

Large product range – Not absolutely rare, Pepsi and Dr Pepper Snapple also deal in a large product range.

Skilled human resources – Yes, Coca Cola is ahead of all the other companies in the soda industry in terms of human resource management.

Marketing skills and expenses – Coca Cola’s marketing expenses are around $4 billion which is far higher than that of its competitors. While marketing skills can be matched matching the high level of expenses is very difficult for any firm.

Secret formula – Rare, However, Pepsi and Dr Pepper Snapple also serve unique flavours. Still, the differentiated flavour of Coca Cola gives the company an edge in terms of competition.

Brand image – Yes, it is not easy to build a strong brand image like Coca Cola. However, Pepsi also has a strong brand image.

Research and development – Yes, but Pepsi too places heavy focus on R&D.


Global distribution network: Pepsi also has a global network of distributors.

Large product range – Pepsi also has a large product range. -temporary advantage

Skilled human resources – yes, it is difficult to imitate the competitive advantage generated by skilled human resources. A high expenditure is involved in hiring, training and paying skilled professionals. – competitive parity

Marketing skills and expenses: Difficult to copy because of the high expenses. – competitive parity

Secret formula: not possible to imitate – sustainable competitive advantage

Brand image: Not possible to imitate. However, a competitor’s strong brand image can be a threat. – Competitive parity

Research and development: Not inimitable because other firms too invest in R&D. – temporary advantage.

O- Organization: firm’s policies and procedures are properly organized to help it exploit its valuable, are and inimitable resources.

Global distribution network – Yes.

Large product range – Yes

Skilled human resources – Yes

Marketing skills and expenses – Yes

Secret formula – yes

Brand image – Yes

Research and development – Yes

Provides a sustainable competitive advantage.

Global distribution network – No, just a temporary advantage because Pepsi can imitate easily.

Large product range – No, just a temporary advantage because Pepsi can imitate easily.

Skilled human resources – (competitive parity), because involves heavy expenditure.

Marketing skills and expenses – (competitive parity), because involves heavy expenditure.

Secret formula – Yes. – Sustainable competitive advantage

Brand image – to some extent, because just one competitor, Pepsi has as strong image in the market.

Research and development: To a small extent only. (competitive parity)

Part D Last, analyze whether the items discussed are likely to continue to yield a competitive advantage for Coke. Why or why not? Yes of course well considering Coke has been around since the beginning of time the are growing and constantly creating new ideas.


Bhasin, H. (2016, December). 11 Top Coca Cola competitor- Competitor analysis of Coca Cola. Marketing91.

Nemer, H. (2016, November). It’s the Real Thing: Restored Coca-Cola Mural Inspires Community Reflection in Colorado.

Coca-Cola, (2018). MorningStar. Retrieved from http://financials.morningstar.com/ratios/r.html?t=KO

Coca-Cola (2016). Five Strategic Actions. Retrieved from http://www.coca-colacompany.com/stories/five-strategic-actions

Pratap, A. (2017, July). VRIO Analysis of Coca Cola. Retrieved from https://www.cheshnotes.com/2017/07/vrio-analysis-of-coca-cola/

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