Coca Cola

Content

Part 1

Introduction-Coca-Cola

Coca-Cola is a carbonated soft drink. It is produced by The Coca-Cola

Company of Atlanta, Georgia, and is often referred to simply as Coke (a registered

trademark of The Coca-Cola Company in the United States since March 27, 1944). The

name refers to two of its original ingredients: kola nuts, a source of caffeine, and coca

leaves. The current formula of Coca-Cola remains a trade secret, although a variety of

reported recipes and experimental recreations have been published.

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Components Details Pages

Content 1

Part 1 Introduction of Coca-Cola 2

History of Coca-Cola 3

Type of product 3-4

Complement and Substitute goods for product 4-5

Market structure 5-6

Part 2 Comparison of price with other substitutions 6-7

Part 3 Advantage and disadvantage from the firm’s viewpoint being as an oligopoly

7-8

Advantage and disadvantage from the customer’s viewpoint being as an oligopoly

8-9

Part 4 Law of Demand 9-10

Theory of Elasticity 10-11

Economies of Scale 11-12

Reference and Appendix

13-14

The Coca-Cola Company has, on occasion, introduced other cola drinks under the Coke

brand name. There are many types of Coca Cola for example Coca Cola Zero, Coca Cola

Light or diet coke. Coca-Cola Zero provides real Coca-Cola taste for variety-seeking

consumers. Coca-Cola Zero is sweetened with a blend of low-calorie sweeteners, while

Diet Coke is sweetened with aspartame. As for Coke/Coca-Cola light, in certain

countries, the term "diet" is not used to describe low-calorie foods and beverages. In

these countries, we offer Coke/Coca-Cola light. The sweetener blend used

for Coke/Coca-Cola light is formulated for each country based on consumer preference.

The most common of these is Diet Coke, with others including Caffeine-Free Coca-

Cola, Diet Coke Caffeine-Free, Coca-Cola Cherry, Coca-Cola Zero, Coca-Cola Vanilla,

and special versions with lemon, lime, or coffee. In 2013, Coke products could be found

in over 200 countries worldwide, with consumers downing more than 1.8 billion

company beverage servings each day.

Karl Legerfeld is the latest designer to have created a collection of aluminum bottles for

Coca-Cola. Lagerfeld is not the first fashion designer to create a special version of the

famous Coca-Cola Contour bottle. A number of other limited edition bottles by fashion

designers for Coca Cola Light soda have been created in the last few years.

History of Coca-Cola

Coca-Cola history began in 1886 when the curiosity of an Atlanta pharmacist, Dr. John S.

Pemberton. His curiosity had led him to create a distinctive tasting soft drink that could

be sold at soda fountains. He created a flavored syrup and took it to his neighborhood

pharmacy, where it was mixed with carbonated water. This new beverage was deemed

“excellent” by those who sampled it. Dr. Pemberton’s partner and bookkeeper, Frank M.

Robinson, is credited with naming the beverage “Coca Cola” as well as designing the

trademarked and distinct script. It is still being used until today.

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Before to his death in 1888, just two years after creating what was to become the best

world’s selling sparkling beverage, Dr. Pemberton sold portions of his business to various

parties, with the majority of the interest sold to Atlanta businessman, Asa G. Candler.

Under Mr. Candler’s leadership, distribution of Coca Cola expanded to soda fountains

beyond Atlanta. In 1894, impressed by the growing demand and desire for Coca Cola to

make the beverage portable, Joseph Biedenharn installed bottling machinery in the rear of

his Mississippi soda fountain, becoming the first person to put Coca Cola in bottles.

Large scale bottling was made possible just five years later, in 1899, three enterprising

businessmen in Chattanooga, Tennessee secured exclusive rights to bottle and sell

Coca-Cola. The three entrepreneurs purchased the bottling rights from Asa Candler for

only $1. Benjamin Thomas, Joseph Whitehead and John Lupton were those who

developed the Coca-Cola worldwide bottling system.

Normal/inferior /luxury of product/service

Coke is a worldwide soft drink in the world and also known as the favorites for our

Malaysian. It costs RM1.60 in our country and it is an inferior good for our citizens. This

is because rising income leads to reduced demand or decreasing income leads to

increased demand. When income changes demand changes in the opposite direction, this

is calls inferior good. Thus, coke is an inferior good.

Complement and substitute product

The product we have chosen is Coca-Cola beverage by the Cola-Cola Company. Being a

carbonated drink, there are many other substitutes in the market for this category.

Substitute goods are the goods that can satisfy similar needs or desires. We have only

identified and taken a few examples found in the local Tesco hypermarket. The first

substitute identified is an isotonic carbonated sports drink manufactured by Fraser &

Neave Limited called “100 plus”. Introduced in 1983, it has since become a very popular

drink in countries such as Malaysia and Singapore. According to 100 plus official website

as of 2012, it commands a dominant 88% of the isotonic beverage market in Malaysia. In

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2011, a non-carbonated version called 100Plus Edge was introduced in addition to the

four existing variations: Original, Tangy Tangerine, Lemon Lime, Berries and Active.

The second substitute identified is a lemon-lime flavored, non-caffeinated carbonated

drink manufactured by Charles Leiper Grigg called “7UP”. Introduced in 1929 it was

formerly named "Bib-Label Lithiated Lemon-Lime Soda", due to the fact that the drink

contained lithium citrate. As of the late 1940s, 7UP is the third best-selling soft drink in

the world. And in 1950 the manufacturers decided to remove lithium from the drink

recipe in a move to create a healthier drink for the consumers. Moving on to 1961, The

Coca-Cola Company introduces Sprite to compete with 7Up. However in 1967 7UP came

back by marketing 7Up as "The Uncola" as it did not contain caffeine like other

carbonated drinks in the market. This marketing campaign in turn caused sales of 7Up to

soar. Currently there are about 12 existing variations of 7UP available in the market in

various parts of the world.

The third substitute is A&W Restaurants which is a chain of fast-food restaurants

distinguished by its draft root beer and root beer float. A&W began in June 1919 at 13

Pine Street Lodi, California, when Frank Wright partnered with Roy Allen to help Wright

with the root beer business he started that year. The A&W Company became famous in

the United States. A&W Root Beer was brand after the original name. Then, in 1924

A&W was the first America franchised restaurant chain. The only place to get A&W

Root Beer was on tap at an A&W Restaurant. In 1962, the first overseas A&W restaurant

was open in Guam. The Great Root Beer is created in 1974 to participate in grand

openings and perform community service, such as entertaining at children's hospital. In

1971, a beverage division began, supplying bottled A&W products to grocery stores. The

soft drinks sold under A&W are root beer and cream soda made by Dr Pepper/Seven Up,

Inc. A&W Restaurants’ beverages are followed by Agro Tea, Biggby coffee and

Starbucks.

The final substitute is Pepsi. Pepsi is a carbonated soft drink that is produced and

manufactured by PepsiCo. It was created and developed in 1893 and introduced as Brad’s

Drink, then to the Pepsi in 1961, and in select areas of North America. Pepsi was owned

and also founded by Donald Kendall, Herman Lay. Pepsi is stylized convert as pepsi,

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formerly stylized in covert as PEPSI is a carbonated soft drink that is produced and

manufactured by PepsiCo. It was advanced in 1893 and introduced as Brad's Drink, it

was renamed as Pepsi-Cola on August 28, 1898, then to Pepsi in 1961, and in selected

areas of North America, "Pepsi-Cola Made with Real Sugar" as of 2014. Pepsi have

alternative beverage product which is PepsiCo begins with Pepsi was invented more than

a century ago. Pepsi have much more with soft drink choices such as Mountain Dew and

Sierra Mist, Aquafina bottled waters, Gatorade sports drinks, Tropicana and Naked Juice,

Lipton ready-to-drink teas and Starbucks ready-to-drink coffees.

For complementary products, the Cola-Cola company themselves have produced various

products to go along with their beverage. First and probably the most sought after of

their products amongst avid collectors, is their refrigerators. Available in many options

of shapes and sizes, they have become an iconic object to keep consumers cans and

bottles chilled for ultimate satisfaction in drinking Coke. The second product to go along

with a Coca-Cola beverage would be glasses to drink them with. Throughout history of

The Coca-Cola Company, many different forms of glasses have been made. Many to

commemorate different festivals and events celebrated around world. Limited editions for

sporting events such as the Olympics and FIFA World Cup have also been made.

Market Structure of Coca-Cola Company

The market structure of Coca-Cola Company belongs to oligopoly. First, there are few

seller in this market because of the majority of market share in soft drink industry are

controlled by Coca-Cola Company and its competitor Pepsi. The market share of the

small firms that they are still surviving is so small compared to them. Next, the soft drink

industry is very high barrier to entry. In the production of soft drink is required a high

investment in technology, equipment, brand material and advertisement. Thus, the small

firm don’t have no enough financial capital and any name recognition and this is the

barrier causes them can’t entry into this market. Last, Coca-Cola is selling the

homogenous product with Pepsi so they can control over the prices. Coca-Cola and Pepsi

also have signed a cartel contract. Cartel is a small number of firms acting together to

limit cost, raise price and increase profit. They are acting together to prevent other firm

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from entering this market because it will decrease their economic profit. If either of them

exits from this market, the other will become a monopoly. The soft drink price of course

will become higher because the market share is just controlled by one firm.

Part 2

Compare the price of product with other close substitute

For price research we have chosen to get our information from the local Tesco

hypermarket, as it is an international hypermarket company worldwide, as so prices

should be standardized and more reliable. The volume of the bottles we have chosen to

compare is 500mL bottles.

Coca-Cola (Original flavour) was sold at RM2.20, 7UP was sold at RM2.65. Compared

to Coca-Cola price, 7UP is 20.5% more expensive than Coca-Cola. The first reason for

this difference is the packaging of the product. Coca-Cola bottle are usually plain clear

plastic while 7UP bottles are usually in green color, therefore 7UP would have to pay

more for production cost for the dye used to make the bottles. The second is the place

where each of the company produces their products. Coca-Cola is bottled in Malaysia.

While 7UP is bottled in Nigeria, therefore due to shipping cost to bring 7UP to Malaysia,

7UP would cost more. Finally is probably the difference in the ingredients used for in

both the beverages. Theoretical 7UP should cost more because lemon is included in the

ingredients, while like Coca-Cola the rest of the ingredients is produced chemically by

themselves.

Part 3

Advantages of Oligopoly to firm

Based on the firm’s viewpoint, if Coca Cola Company operates under the oligopoly

market structure, they will face some advantages and also disadvantages. Under

oligopoly market structure, Coca Cola will having advantage as a price maker, they can

determine their product’s price and also quantity based on the demand curve to maximize

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their profit. Besides, Coca Cola will faced few competitors on its market. Fewer

competitor will limit the choices of soft drink being chosen as substitutes for Coca-Cola

by the customer and also increase the probability to dominate the market, which will

supplying a larger share in the global wide market. Coca Cola Company will going to

earn economic profit in long run. This is cause by high barriers of entry to the market due

to name recognition on Coca Cola, patents and copyrights, scale economies and also

technology use to produce Coca Cola.

Disadvantages of Oligopoly to firm

However, operating under the oligopoly market structure, Coca Cola Company might

facing losses or zero economic profit in short run. Losses or zero economic profit can be

caused by new entrant to the market which attracted the attention of the customer which

are more curious on trying new products. Coca Cola Company are mutual independent

with their rivals such as Pepsi. The rival’s action will affect the profit made by Coca Cola

Company. Coca Cola Company has to shapes its policy with an eye to the policies of

competing firms such as Pepsi in order to maintain or increase their profit. Coca Cola

Company need to strategize, constantly monitoring and anticipating all of the time of the

rival’s moves. A single mistake made by Coca Cola Company will affect their profit.

This will place Coca Cola Company in a higher risk situation. Coca-Cola had to spend

money on advertising their products to the public to compete with other similar products.

This will increase their operating cost which will affect their profit.

Advantages of Oligopoly to Customer

From the consumer’s viewpoint, the advantages of buying a product under the oligopoly

market are simple choice. The goods and services that they are looking for is easier to

compare and choose the best option for them because there are only a few companies that

are producing the specific goods and services. Most of the consumers always choose the

Coca-Cola as their primary options or its substitute goods Pepsi because soft drink

industry is controlled by them. Next, consumer will get a lower price. In the oligopoly

market, the companies will keep their price to compete with the other companies which

are involved in the market. Coca-Cola Company always compare their price with other

brands because they want to attract more consumers despite of lowering their price. This

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is a great advantage for the consumer because the prices are going lower and lower as

other companies are lowering their prices to compete with each other. Lastly, consumer

also will get better information on the goods they are going to purchase by referring to

the advertisement made by the company. Each company goes with advertising their

product with providing information on the goods and services they produce in order to

attract more customer. For years, Coca-Cola has created a "family-friendly" image by

utilizing the polar bear and Santa as its identifier in their advertising campaigns and

describes itself as the classic and traditional soft drink producer. Consumer will

understand more about the goods and they will choose to purchase the goods that are

most suitable for them.

Disadvantages of Oligopoly to Consumer

On the contrary, there are some disadvantages too. Consumer will having limited

choices and option for the goods and services that they wanted to consume because the

oligopoly market is controlled by a few firms. The consumers can only choose either

Coke or Pepsi and there are no more choices for them because they are the largest firm in

the industry and the consumers are not interested in consuming other new and unfamiliar

brands. So, the few products in the market are not enough for the large population. Next,

oligopolies allow businesses to engage in cartel-like behavior it will reduce competition

between the firms. For instance, Coca-Cola and Pepsi have signed a cartel contract and

they are cooperating together in order to increase their profit. This may result in both

company fixing their price to a higher value in order to maximize their profit, and this

will causes customer to pay more than before for the goods and services. Lastly, fixed

price are bad for consumers. While the competitive price come into but the differences of

the prices are small. This is because the businesses agree to fix the price. The prices of

the Coke and Pepsi are almost the same because they agreed to fix the prices after getting

the agreement from both parties which can maximize their profit. So, there is a set limit

for the price can go, forcing consumer to pay the high prices.

Part 4

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Law of demand

According to the law of demand, as the higher the price of a good and service, the lower

the quantity demanded. More directly when the price of a goods falls, the quantity

demanded increases. Therefore, when the price of Coca Cola decrease, the quantity

demanded will rise. There are numerous of reason stated why there is an inverse

relationship between the price and quantity demanded.

Firstly, there is a direct relationship between income of consumer and demand. The

income effects of a price change will affect the demand of Coca Cola. Now Coca Cola

being a normal good, if there’s an increase in income, the demand will increase. A price

increase in Coca Cola will decrease the quantity demanded of it due to it reduce a buyer’s

purchasing power. The buyers cannot buy as many cans or bottles of Coca Cola at higher

prices.

Secondly, taste and preferences of the consumers also influence the demand to greater

extent. In case of Coca Cola, if there are hard core consumers who prefer the taste of

Coca Cola, even if the price of Coca Cola increases, the demand will remain the same.

But if the consumers have no taste or preference of Coca Cola, then if the price increases

the demand deceases. There are many types of Coca Cola for instance Coca Cola light,

Coca Cola Zero or diet coke. Coca-Cola Zero is sweetened with a blend of low-calorie

sweeteners, while Diet Coke is sweetened with aspartame. As for Coke/Coca-Cola light,

in certain countries, the term "diet" is not used to describe low-calorie foods and

beverage.

Besides that, an increase in the potential consumer population will increase (shift right)

the demand for a good or service. As the potential consumer population increase, the

demand for Coca Cola will increase. Especially, the supplier can considerate to

advertising to promote Coca Cola through newspaper, internet and magazines as will

increase the people know about Coca Cola well that will lead to increase the demand of

Coca Cola.

Theory of elasticity

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Theory of elasticity for Coca Cola is the related to the price elasticity of demand and

price elasticity of supply. The Coca cola is measures how the responsive of quantity

demanded is changed price, and compare or estimate to the size of the change in quantity

demanded with size of the change in price. Since, the Coca Cola and Pepsi are measuring

in different units. The price elasticity of demand in theory always force to negative way.

However, the quantity of Coca Cola is always expressed in an absolute value terms, as a

positive value for simplicity. Thus, degree of price elasticity of demand is closely related

to the slope of the demand curve. The coefficient of elasticity is used to quantify the

concept of elasticity. The degree of price elasticity of demand has five type which are

elastic, inelastic, perfectly inelastic, perfectly elastic, and unit elastic. Elastic in Coca

Cola of the price change, the quantity demand will increase more than 10%. Inelastic in

Coca Cola that will affect the quantity demand of Coca Cola rises less than 10%.

Perfectly elastic is equal to infinity when the price is diminishing cost. Unit elastic of

Coca Cola when the price fall, then the quantity of demand rise by 10%.There are

depends on the availability of close substitutes, it can be weather the Coca Cola is a

luxury or a necessity, the proportion of income spent on the good, and the amount of the

time people have to adapt to a price change.

The Coca Cola of the price elasticity of supply is measuring on how the responsive

quantity supplied is to a price change with make a compare or estimate from the size of

the change in quantity supplied with the size of the change in price. In order to law of

supply, there is a positive relationship between the price and the quantity of supplied. The

price elasticity of supply in theory is always force to positive. Then, the degree of price

elasticity of supply has five types which are elastic, inelastic, unit elastic, perfectly

elastic, and perfectly inelastic. Elastic that can cause the seller price relatively high and

the quantity of supply will rises more than 10%. Inelastic that the price is increase, the

quantity of supply rises less than 10%. The unit elastic when the price of Coca Cola

increase, the quantity rises by 10%. Perfectly elastic of Coca Cola quantity of supply will

changes by any percentage of price. Perfectly inelastic when the price increases, the

quantity changes by 0%.Its effect to the determinant of price elasticity of supply such as

resource substitution possibilities that can make an easier to substitute among the

resources used to produce a good or service, the greater is its elasticity of supply. Next,

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the time is frame for the supply to make decision, the time is usually critical in supply

elasticity because of the more costly to the producers to bring forth and release resources

in shorter periods of the time. The supply will become elastic in the long run better than

short run.

The total revenue and elasticity effect to Coca Cola product which is the profit

maximization require that the business set a price that will maximize the firm’s profit.

The total revenue from the sale of good or service equals to the price of the good

multiplied by the quantity sold when the price is changes, the total revenue also will

change but the price would not increase the total revenue. The elasticity responsive as the

firm control it has over using the price to raises up the profit.

Economies of scale

Economies of scale is the cost advantage that arises with increased output of a product.

Economies of scale arise because of the inverse relationship between the quantity

produced and per-unit fixed costs. For example, the greater the quantity of a good

produced, the lower the per-unit fixed cost because these costs are shared over a large

number of goods. Coca-cola company has apply economies of scale in order to lower the

cost to manufacture its signature beverage “Coke”. Coca-cola company produce more at

a time by increasing output standards of its machines and people. Coca-cola is the largest

manufacturer and marketer of non-alcoholic beverages in this world. The company sells

its products in more than 200 countries. The large scale of operations ensures that the

company is able to invest in new markets and reap benefits when the business grows

profitable there. Coca-cola company benefited from the economies of scale, from larger

scale bottling and also large scale advertising. In order to take advantage of the

economies of scale, it is necessary to have a large demand for the product sold. With the

purpose of increasing demand for Coca-cola, the company aggressively advertised Coca-

Cola in newspaper and billboards, making the product known throughout the country and

building the brand name of the company. Coca-cola continually benefited from the

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economies of scale by large scale of bottling and advertising as it increases sales and

thereby increases the company's revenue. This contributed to the two factors of profit

maximization: minimization of cost and maximization of revenue. Currently , Coca-cola

is advertised on over 500 TV channels around the world.

Diagram of Economies of Scale

This diagram shows that as firms increase output from Q1 to Q2, average costs fall from

AC1 to AC2.

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Reference and Appendix

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http://www.twoop.com/food/7up.html

http://inventors.about.com/library/inventors/bl7up.htm

http://100plus.com.my/#introduction

http://www.fnbm.com.my/content.php?pagename=100PLUS&id=27

http://www.coca-colastore.com/

http://www.rootbeer.com.my/about-anw.html

www.pepsicobeveragefacts.com/

http://www.slideshare.net/AnikaTasnim/pepsi-12288667

http://www.awrestaurants.com/

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