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Coca-Cola Company: Product Life Cycle

Introduction

Background to the study

The US beverages industry has witnessed rampant growth over the past decades (Spelman Research, 2003, p. 2). This is evident in the large number of domestic and foreign investors who have ventured into the industry. The core operations of the industry entail the production and marketing of diverse non-alcoholic beverages, mineral water, and carbonated beverages. Due to the industry’s profitability potential, the degree of rivalry amongst competing firms has increased.

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According to Adam & Armstrong (2005, p. 60), increment in competition amongst rival firms tends to reduce the industry’s level of profitability. This arises from the fact that firms compete to attain significant market share compared to their competitors.

One of the firms operating in this industry is Coca Cola Company. Over the years, the firm has managed to develop a relatively high competitive advantage compared to its competitors. The firm’s management team has appreciated the importance of conducting market trend analysis. This enables the firm to develop effective operational strategies. Through consumer market research, the firm has appreciated the need to meet customers’ needs satisfactorily.

This results from the realization of the fact that consumers change their consumption behavior over time. According to PRLog (2008, para. 1), consumers have become health conscious in their consumption patterns. The report asserts that increment in consumer health awareness has culminated from information explosion regarding beverages and soft drinks. This has been translated into an increment in demand for a soft drink amongst the consumers. In addition, changes within the competitive environment have played a significant role in the operation of the firm. Some of Coca-Cola’s key competitors include PepsiCo and Cadbury Schweppes (Spelman Research, 2003, p. 4).

According to Spelman Research (2003, p. 6), Coca-Cola Company managed to attain a significant market share of 30% in the US industry compared to that of PepsiCo and Cadbury Schweppes which were 27% and 11% respectively. Nestlé’s market share was 3% while other small firms’ market share was 29%. Considering the changes within the external environment, firms need to incorporate effective operational strategies. To attain this, the firm has integrated the concept of product diversity. The firm has been attaining this through continuous product development. This contributes towards the firm meeting consumers’ demands.

Aim

This report is aimed at analyzing the product life cycle with specific reference to Coca-Cola Company.

Scope

Definition of the product life cycle is given and the four stages of the product life cycle are identified and analyzed. These include introduction, growth, maturity, and decline. In addition, the report gives an analysis of the impact of these stages on the firms marketing strategies. These relate to the product, promotion, pricing, and distribution. Finally, a conclusion and recommendations are given.

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Product Life Cycle

According to 12 Manage (2010, para. 7), the Product Life Cycle (PLC) is defined as the stages that a given product undergoes in its development. For a firm to succeed in an environment characterized by intense competition, it is paramount for the firm to incorporate effective entrepreneurial strategies. One of the key strategies that a firm’s management team can integrate relate to invention and innovation.

The resultant effect is that the firm can attain a high competitive strategy relative to its competitors. In its operation, Coca-Cola Company has effectively incorporated the concept of product innovation. As a result, the firm has introduced several segments. These include carbonates, fruit juices, bottled water, functional drinks, and Ready-To-Drink (RTD) tea and coffee. These products are traded under different brand names (Spelman Research, 2003, p.7). For these products to succeed in the market, it is paramount for the firm’s management team to consider the concept of PLC.PLC has 4 stages which include;

  • Introduction stage
  • Growth stage
  • Maturity stage
  • Decline stage

The concept of PLC is based on the same concept of the biological life cycle. Over the years, PLC has become very important in the operation of firms. This is because firms are increasingly incorporating product development to attain their profit maximization objective. As result, the firm’s management teams are being committed to ensuring that this objective is attained within the PLC. This makes it clear that the firm’s management teams must incorporate the concept of PLC in the process of formulating and implementing diverse marketing strategies.

Introduction stage

Upon successful development of a product, the product has to be introduced in its specific target market. This contributes towards the target customers accessing the product. This is the firm’s first step towards ensuring that there is sufficient market awareness regarding the product. Significant cost is incurred at the introduction phase. For instance, the successful introduction of a product in the market is determined by the effectiveness with which the firm has tested the market.

In addition, the cost of introducing the product into the market will also be increased by the need to create market awareness through promotion. At this stage, the firm’s ratio of promotion expenditure to sales is very high. The cost involved at this stage is also increased by the need to secure an effective distribution channel (Free presentation slides, 2008, para. 7).

To compete with firms producing a variety of functional products, Coca Cola Company introduced Bubble Buzz which is a tea product. The need to develop the new product was instigated by a change in consumer demands for the soft drink. According to Afsha, Chin-Yun, Audrey, and Nicolas (2006, p. 6), there is a shift in consumer consumption patterns. Currently, consumers do not prefer carbonated drinks. The product was specifically designed to meet the physiological, nutritional, and hydrating demands of the customers. According to Marketing Teacher (2010, para. 5), the need for the firm to attain instant profit is not a key consideration in this phase. As a result, the introduction stage is characterized by relatively low market size and slight growth.

Growth stage

At this stage, the product has already penetrated the market. As a result, the firm’s level of profit is increased due to a high rate of sales growth. In addition, firms attain economies of scale at this phase enabling them to develop their competitive advantage about pricing. The intensity of competition also increases at this stage. This arises from the fact that a large number of potential investors are attracted to venture into the industry. As a result, it becomes vital for firms to incorporate strategies aimed at building the brand. One of the strategies relates to market communication strategies.

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This is attained through an increment in the firm’s commitment to its promotion campaign enabling the product to survive in the market. In addition, the firm’s market share at this stage starts to stabilize. In marketing its Bubble Buzz product within the RTD tea segment, the Coca-Cola Company has witnessed a relatively high level of market share. By 2003, the segment was the fastest growing. According to Spelman Research (2003, p. 3), the market for RTD tea has witnessed an annual growth of 6%. This growth has been sustained for the last 5 years.

Maturity stage

The maturity stage is universal in all the products. At this stage, the degree of rivalry amongst competing firms is very high. This results from the fact that all firms are fighting to retain their market share. In addition, firms receive the highest level of profits at this stage. However, growth in sales is at a low rate until they stabilize.

Decline stage

At this stage, the market for the product shrinks leading to a reduction in the level of profit within the industry. The shrink may result from a shift in consumer tastes and preferences or the introduction of other products which are more innovative.

Impact of PLC on marketing strategies

Promotion strategy

At this phase, product awareness is vital. Thus, the company must strategize on how to market its product/service. This can only be attained through the incorporation of a promotion strategy. Depending on the target market, the firm has to determine the best promotion method at the introduction phase. However, a firm needs to consider Integrated Marketing Communication (IMC) at this phase.

According to Adam& Armstrong (2005, p. 65), IMC entails diverse methods of creating market awareness. This will ensure that information awareness is effectively created within the target market. In introducing Bubble Buzz in the market, the Coca-Cola Company utilized diverse promotion methods. These included advertising, public relation, sales promotion, and incorporation of emerging information communication technologies. This enabled the product to be widely recognized in the domestic and international markets.

According to Marketing Teacher (2010, para. 4), there is a low probability of a firm making a profit about new products being introduced in the market during their introduction stage. At this stage, the firm’s management team should formulate effective monitoring strategies. These strategies should be aimed at ensuring that the product penetrates the market and start to grow. In addition, monitoring the products at this phase will safeguard against the products from being withdrawn.

Pricing strategy

Because consumers are price-sensitive, it is paramount that the management teams formulate an effective pricing strategy. In their purchasing patterns, price is one of the variables that consumers consider. This makes it important for firms to decide on the best pricing strategy to utilize in this stage. Because the product is new to the market at this phase, a penetration pricing strategy should be incorporated.

The strategy entails setting the price of the product at a relatively low price compared to its competitors. As a result, the price set will appeal to the consumers making them consider purchasing the product. The ultimate result is that a firm can penetrate the market and attain a large market share. However, a penetration pricing strategy should be used when the market size of the product is large and the intensity of competition is high (Free presentation slides, 2008, para. 9). For Coca-Cola Company to effectively penetrate its target market for Bubble Buzz, penetration pricing was used.

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Considering the intensity of competition at the growth stage, it is paramount for firms to consider attaining price competitiveness. At this stage, the firm has already attained economies of scale. This will make it possible for the firm to set the price of its products at a low point.

The maturity stage has an impact on the firm’s pricing strategy. This arises from the intensity of competition characterizing this stage. This makes the maturity stage to be characterized by a price war.

At the decline stage, most of the firms cut the price of their products to attract and retain customers. However, consumers are attracted to more innovative products. In extreme situations, the product may be withdrawn.

Product and Expansion strategy

For a firm to be competitive, continuous product innovation should be undertaken (Adam & Armstrong, 2005, p. 66). At this juncture, the market is by now saturated. This is because a large number of similar products are introduced in the market by competing firms. At this stage, the firm needs to integrate product differentiation. This will enable the firm’s products to be unique.

The maturity stage has an impact on the firms financing and marketing activities. Due to the intensity of competition, the firm has to be keen on the marketing strategy adopted. This is because there is a high probability of the competitor adopting the same strategy. The effect is that the strategy will not be effective. To attain a competitive edge during the growth phase; firms have to consider strategies aimed at attaining a high market share through expansion.

Some of the strategies that firms consider integrating relate to the formation of joint ventures, takeovers, and formation of alliances (Marketing Teacher, 2010, para. 8). This enables firms to enable the firm to position themselves in the market. The above expansion strategy culminates in an improvement in the firm’s production efficiency. To implement these strategies, a significant amount of finance is required. This makes it vital for the firm to make an optimal financing decision. In addition, finances are paramount at this stage since it enables the firm to conduct product development more effectively. This can be achieved through the incorporation of product innovation leading to an improvement in the quality of products.

In the decline juncture, the organization must look for alternative markets for its products where they can offer them at a lower price. In addition, the firm should reduce the amount incurred in its production cost.

Conclusion

For a firm to be successful in the long term, it should consider developing effective operational strategies. One of the strategies that should be incorporated relates to product innovation. Upon introducing the product in the market, the firms’ management team needs to consider its life cycle. Most products have 4 stages. Each stage has different characteristics about the market. By considering these stages, a firm can able to formulate and implement effective marketing strategies.

This is because these stages have an impact on the strategies relating to the product, price, promotion, and distribution. According to the stage of the product, a firm can be able to adjust its marketing strategies. The ultimate effect is that the firm can develop a high competitive advantage.

Recommendations

Coca-Cola Company should consider the following in marketing its products.

  • Conduct continuous evaluation of the products PLC.
  • Adjust its marketing strategies according to the various stages of its products.

Reference List

Adam, K. & Armstrong, D., 2005, Principles of marketing. Australia: Pearson Education.

Afsha, B., Chin-Yun, C., Audrey,L. & Nicolas, R. 2006. Example of a marketing plan: bubble buzz. New York: University of New York. Web.

Free Presentation Slides. 2008. Introduction phase of product life cycle concept. New York: Amazon Kindle Review. Web.

Marketing Teacher. 2010. The product life cycle. New York: Marketing Teacher Limited. Web.

PRLog. 2008. Soft drink production in the US. Washington: Bharatbook. Web.

Spelman Research. 2003. US soft drink market. New York: Independent Investment Research. Web.

12 Manage. 2010. Analyzing industry maturity stages: explanation of product life cycle of Levitt. London; The Executive Fast Track. Web.

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