Diversification for Coke
Diversification can be referred as a strategic decision which primarily takes a company to other markets or products. The process of diversification occurs in general by way of either external or internal development. For a company like Coke which has over the years established itself as one of the leaders in the carbonated soft drink segment, diversification can work as a positive stimulator for propelling the company into growth. Diversification into related segment can be advantageous for Coke in terms of increasing its efficiency in the overall business process. The un/under-utilized resources at the present moment can be strategically diverted towards the new segment. It will also help Coke to increase its market power by way of having an opportunity to capture the market share of an unchartered business segment. It also will help Coke to mitigate risk of the overall business to a large extent as the diversification will help Coke to fall back on another business activity if their core business fails to reach up to the desired level. However, the disadvantages of diversification for Coke can be that it can slow up the progress in the core business segment, can also result in increase of management related cost towards maintaining the newly diversified segment and can also increase intricacy in the bureaucratic level of the organization.
From the year 1990-1997, under the efficient leadership of Roberto C. Goizueta, Coke was able to achieve impressive growth record due to the way the entire process of brand-building was handled by the management. Coke’s business model was based on successful formula of preparing carbonated soft drinks that appealed to the consumers throughout the world. However, since the passing away of its charismatic CEO in 1997, Coke has stumbled in its endeavor to rise up to the ensuing challenges of the ever-changing business scenario. The constant alterations in the tastes and preferences of the consumers especially towards noncarbonated soft drinks have been one of the banes in the way of progress for Coke. Coke has also faced increasing challenges due to their rigidity towards sticking to age-old beliefs and structures. The company has also lacked a clear vision towards making progress and sustaining progress.
Coke’s decision to sell off its bottling company has benefitted the company in terms of helping the company to put forth de facto control and establish a new company named as Coca-Cola Enterprises Inc (CCE). After this sell off Coke was able to expunge from its balance sheet $2.4 billion of prevailing debts and was able to control six seats of the board members in the newly formed company. It also provided advantage to Coke in terms of allowing it to be more attuned with changing scenario of trade in the US and also to have authority towards decision making on various fronts. However, there were certain disadvantages as well such as there was a certain portion of marketing costs related to the brand that required to be shouldered by the CCE which created a difficulty. In lieu of the increasing discontent like scenario between the bottlers and Coke, there was a 7.6% price hike which enhanced the difficulties.
Coke, over the years has been the masters of brand building. They have believed in the philosophy that making the carbonated soft drink available to the consumers would sufficient the spiral growth rate of the product sell. The prime reason for Coke’s sustainability over the years has been its ability to seize the opportunity to build their brand such as Coca-Cola Classic among the consumers and the brand is considered to be powerful enough to sell the products prepared by the company.
Coke is wary of making any transformative acquisition because the management believes that any major daring acquisition would not be the right path to fix the existing problem. They believe in putting the simple things in order which has from the inception and for a substantial period of time had helped Coke to maintain a dominating position in the market. They also feel that the carbonated soft drink has still growth prospect in it which can be leveraged to enhance profit. This conservative strategy has been identified by the management of Coke towards sustained growth and profitability.
Foust, D., 2004. Gone Flat. Bloomberg Businessweek, pp. 76-82.