Macroeconomic conditions are concerned with the features within the external environment in which a business operates. These factors include the general economic situations, political, legal, and regulatory factors, technological influences, socioeconomic aspects, and the natural environment. The macroeconomic elements of a firm guide its strategic course and decisions. The paper aims to evaluate the macroeconomic factors affecting the Coca-Cola Company and demonstrate how these factors influences its business strategies.
General Economic Conditions
The Inflation Rate
Inflation rates can have debilitating effects on firms; they can negatively affect a consumer’s purchasing power, inventory costs, investments, borrowing, and foreign exchange. Coca-Cola has to consider ways of minimizing foreign expenses. Additionally, due to its supply chain’s complexity across subsidiary companies, it is nearly impossible for the industry to shift from foreign to domestic suppliers in a short span. The Company responds to inflation rates by increasing commodity costs to handle the surging prices of raw materials. For example, following the import tariffs imposed by the government, Coca-Cola raised its prices to handle the soaring prices of aluminum (Tobin, 2018). Since the dollar depreciates relative to other currencies during inflation, the organization can sustain significant losses from importing raw materials. Therefore, it has to constantly adjust its strategies to deal with changes in the market.
Interest Rates and the Availability of Credit
Interest rates, foreign exchange, savings, and inflation rates influence the market aggregate demand and investment and borrowing. When businesses fall short of expenses, they always depend on loans to fill the capital gaps. When the interest rates are high, it becomes costly to repay lenders. Given that the primary goal of a business is to generate profits, companies have to consider every profit prospect. For Coca-Cola, high interest rates are a source of profit and investment returns. The amount of money the company makes from interest incomes exceeds that the amount it pays in interest expenses (Jannarone, 2015). Coca-Cola can conduct a cost-benefit analysis to predict the growth trajectory of a business.
Political, Legal, and Regulatory Influences
Friendliness or Hostility of Government Officials to a Business
Coca-Cola is active in the political and advocacy sphere to promote their business sustainability plan. The company provides financial support to campaign groups that strive for their areas of interest to be addressed effectively. For example, when the South African government posited a sugar tax on all sugar-sweetened beverages in the country, the company intervened by lobbying against the policy. Coca-Cola spends over $106 million in lobbying against the proposed tax policies (Whitman, 2015). It was later revealed that the company was sponsoring research studies that supported the notion that the lack of physical activity, and not a diet, was the leading cause of obesity; this attracted criticism and backlash. In response, the firm created an oversight and compliance department to oversee all business activities concerning public policy and sustainability.
Import Tariffs
In 2018, the U.S. government imposed a tariff on imported aluminum and steel and since most of Coca-Cola’s beverage products are available in aluminum cans, the company was significantly affected. Consequently, this move triggered a surge in the price of Coca-Cola products and other beverages throughout the country. Various economists projected that tariffs would lead to a 2% increase in soft drinks’ and beverages’ prices (Tobin, 2018). Although Coca-Cola benefitted from the tariffs, increasing a product’s charges can have negative implications. To effectively adjust to the changing market, the company strategizes on cost-expenses to maintain a viable profit margin. Smart pricing strategies used by Coca-Cola can help businesses choose key price points that can benefit both the consumer and business.
Technological Influences
Internet Retailing
Technological trends affect businesses on different levels, including production, processes, and business practices. Coca-Cola embraced eCommerce as a strategy of reaching a broader target audience; it uses innovative systems to create long-term relationships with consumers. For example, the sip & scan app allows customers to unlock gifts by scanning codes on Coca-Cola products through their mobile phones. The Coca-Cola Freestyle, a dispenser owned by the company, is Bluetooth enabled to allow consumers to retrieve nutritional information of the company’s products. By digitalizing their business activities, processes, and production, the company has succeeded in creating an innovative value chain. Retail stores can renew their inventories and schedule orders online. Additionally, restaurants featuring their products can also update menu boards based on a database available on cloud-based signage systems.
Big Data Analytics
Businesses can enhance their operating margins by harnessing the power of Big Data Analytics. Business analytic reports show that the Coca-Cola strategy and business decisions are mainly data-driven (Marr, n.d.). For example, in 2017, the organization launched a new product inspired by data collected from self-service drinks. The company also utilizes Artificial Intelligence bots to improve customers’ experiences. The business further uses AI image-recognition tools that stores information when their social media followers post or take a picture of their product. The collected data is then used by the establishment to inform their marketing strategies.
Sociocultural Influences
Attitudes
A community’s cultural beliefs can impact a company’s organizational culture. Consumers perception towards an organization can influence their experiences with its products. The public viewpoints that have significantly affected Coca-Cola practices and decisions are healthy living. The attention of the government and media on obesity has raised awareness on health issues on the condition. The awareness influenced consumer preference for healthy living, low-calorie foods, and natural products. To adjust to changes in lifestyle and food preferences, Coca-Cola shifted the production to healthy food options. The company introduced new low and sugar-free products such as Coke Zero, fruit juices, plant-based options, coffee, tea, and dairy (“The Coca-Cola Company,” 2019). The production of these food options shows that its strategies are responsive to consumers’ needs and preferences.
Demographic Changes
Marketing strategies need to be designed to appeal to a target population because different products attract various groups of people. Coca-Cola typically adapts to the market changes by developing new products. The main strategies used by the company are positional and niche marketing. The organization creates a niche marketplace by identifying the needs of a given population and then develops products that will attract them. For example, Coca-Cola realized that healthy-living individuals might prefer low-calorie products over their typical products. In response to the identified needs, the firm developed beverages and soft drinks with low calories to entice the grouping.
Natural Environment
Water Pollution
A glance at the Coca-Cola business sustainability report shows that its business activities are deeply rooted in the Triple Bottom Line sustainability concept. The company is committed to replenishing water sources for impoverished communities. The organization is socially obligated to partly protect the water system because it consumes a considerable amount of it to manufacture its products. The firm reported that it would launch a new water strategy in 2020 to reach more impoverished communities (“The Coca-Cola Company,” 2019). By supporting impoverished groups, the organization can build long-term relationships with customers and members within the society.
Climate Change
The company adopted technologies such as the Carbon Scenario Planner to evaluate all its business practices’ carbon footprint. The tool helps the company reduce its carbon emissions by 25% before 2030 (Coca-Cola, 2019). Each business unit and department is expected to comply with its sustainability goals. The annual sustainability reports also show information on the financial outcomes that materialized from their climate change initiatives. Through the TBL profit spectrum, the business can maximize its market competitiveness.
Conclusion
Coca-Cola’s business strategies are appropriately aligned with its external environmental factors. The company’s macroeconomic conditions guide its strategic course and decisions. Inflation rates influences its product pricing strategies while interest rates impact its investment decisions. The attitudes and demographic changes in the U.S population have mainly affected the organization’s marketing strategies and the type of products the industry manufactures. The business is also committed to adopting new technologies and supporting the sustainability of the natural environment.
References
The Coca-Cola Company (2019). Business sustainability report: Coca-Cola (2019). [PDF document]. Web.
Jannarone, J. (2015). Higher rates mean a double whammy for Coca-Cola. CNBC. Web.
Marr, B. (n.d.). Coca-Cola: Driving success with AI and big data. Forbes. Web.
Tobin, B. (2018). Coca-Cola cites Trump’s tariffs in raising prices on soft drinks. USA TODAY. Web.
Whitman, E. (2015). When Soda taxes fail: Coca-Cola, Pepsi spent $100M against public health initiatives, new analysis shows. International Business Times. Web.