Coca-Cola Firm Cost Structure, Market Share, and Recommendations

This report provides a comprehensive analysis of Coca-Cola's cost structure, market share, and competitive landscape. It examines the various types of costs, including fixed and variable costs, and their impact on profitability and output decisions. The report delves into Coca-Cola's market position, highlighting its dominant market share in the carbonated drinks sector and its competition with Pepsi. It also discusses the barriers to entry in the industry, such as capital requirements, branding, and advertising costs. Furthermore, the report analyzes the market structure of Coca-Cola, identifying it as an oligopoly. It also provides recommendations for future production, including strengthening consumer-based branding, product differentiation, and strategic partnerships to increase market share. The report also analyzes the firm's success through elasticity's, considering income, price, and cross-price elasticities. The report concludes by emphasizing the importance of strategic adaptations to address evolving consumer preferences and maintain a competitive edge in the market.

COST STRUCTURE OF THE FIRMS
IV) Examine the cost of the firms
a) Various types of the costs which the firm faces is same for all the firms. There are different
inputs used by the firms like land, labour, technology and entrepreneurship. Now some of
the inputs remain fixed for the firms because of their high cost and also because they can
produce proportionately. So fixed cost for the coco Cola Company can be the branding
value, the machinery used to produce, the variable cost for the firm will be the number of
workers working in the company, the cost for the transportation. Because they can hire
transportation so that when they have high demand they can use more trucks and less when
they have less demand. The general trend in the fixed and variable cost can be represented
as –
So when we look at the profitability, we can see from the graph that if we increase the fixed
cost the profit will decrease because variable cost can be recovered with prices but we have
to ensure that fixed cost are not so high that they turn to sunk cost when there is any
change in the plan for the company to shut down.
b) Now we have to look at the effect of various costs based on the output decision front. So
first we classify some costs as variable and fixed and then we will comment if they impact on
large scale or small scale. So first is the raw materials, which is the variable cost and is most
important variable cost because without it we can’t produce the output. Now comes the
machinery which is the fixed cost because once we buy machinery we have to operate it
irrespective of the output level. Yes we can definitely manipulate the output level but
initially we have to pay full cost to buy. Like we say in the case of Coca cola is the machinery
to filter the water, machinery to pack the bottles, etc. Now third comes the labour which is
also a variable cost because it is according to the production level that we use the labour.
When we look at Research and Development, this is again a fixed cost because we hire
people on different posts and then we have to pay them whether there is some research or
not, until unless we outsource it we can’t reduce cost but because the formula is the USP for
them we can’t basically outsource R and D. Now the output decision will be effected in the

sense that if there is more than proportionate input required to produce the output which
may be due to the shortage of supply, or maybe due to increased cost of the inputs, we will
decrease the supply of final output. When we have abundant inputs like the labour is cheap ,
operating cost of machine is cheap, R and D is not enough then we can supply more at less
prices thus output is entirely dependent on the cost of the production. So long term cost
impact the output of the firms not so much because in the long term profit matters and not
the output whereas in short run output matters more because with low prices and high
output we can increase the profits.
V) Overall Market for the firm
a) So market share of the firm depends on different characteristics like the origin they are selling
and what is their target group. Now we all are aware that Coca Cola produces products which
are readily used by all age groups. Currently Coca Cola in the carbonated drinks market have
48.6 % of the market share, where the global market is predicted at 341.6 billion USD.
The main competitor of the Coco Cola has been the Pepsi which can be seen by the above graph. But
the performance of the Coca Cola has always surpassed that of Pepsi.

The market share can be seen here in the above graph for the Coca Cola Company.
The revenue can be seen from the following graph which says that, coca cola needs some new
strategies to invest.
b- When we talk about the barriers to entry in the area. There are several barriers which are
very self-understanding. Some of the main barriers to the entry are the Capital
Requirements. The machinery in this field are very high end and thus require very high initial
cost. The branding is yet another barrier to entry because the major market is concentrated
in the hands of just few partners. So even if the players try to enter the field, either they will
get acquired by the giants or they have to survive with very high product differentiation. This
has happened with many brands which have try to venture into flavoured mineral water and
energy drinks rather than conventional carbonated drinks. Advertising cost is yet another

heavy barrier to entry because we can see that already Coke and Pepsi have huge
advertising because they have been the drinks partner to various event and organisations.
So impact has been not on a very higher side but the main impact has been the change of
taste and preferences. People prefer juices instead of cold drinks because lately there has
been large negative publicity of cold drinks as toilet cleaners. So it has been the cherry on
the cake for the late arrivals who have tried now to gain market share access.
So when we look at the overall barriers of the entry, we see that high initial cost of setup is
the most significant. So new entrants cannot easily enter the market.
c- The market structure of the Coca Cola is the oligopoly market structure because the market
is dominated by just Coca Cola and Pepsi. Another important feature if this market is that,
they won’t compete through prices which happens in the case of the Bertrand model. They
will pressurise other firm due to the advertising strategy. One of the example can be seen
from the following add-
So one add shows that even straw wants to choose Pepsi and other shows the legacy of
Coke. So in the oligopoly market Coke has over powered the Pepsi in terms of product
differentiation like arrival of Coke zero.
So as of now there are few entrants which are trying to enter the oligopoly market, but they
are moving into different direction with different products like juices, energy drinks,
flavoured water. This does not bother coca cola with respect to its own product but can
definitely alter the market expectations and taste which needs to be catered by coca cola.
vi) Recommendation
a- So we have develop a recommendation for the future production for the firm. Now this
can happen in various ways
1. Develop a stringer consumer based through better branding.

This image shows that already the Coca Cola is serving more number of restaurants
than the Pepsi and that has been a very good strategy used. So Coca Cola should
continue this to make better relationships with users. This also includes the products
to be available on global scale.
2. Covering different age groups through different packaging
We see that in 2002 Coke introduced the small bottles of coke of 100 ml which was
to increase the consumption in rural areas where people don’t spend on these
things.
3. Product differentiation in terms of Coke Zero, etc. can be competitive strategy for
the COKE.
4. Becoming partners with more organisations which lead events, so that coca cola can
become official sponsor of the beverage section. And also with that coca cola needs
to add some more product differentiation. Because with that more products can be
catered to different age groups.
B- So how will the recommendations help the firm increase market share. These
recommendations are already tested and have been performing well. But became
redundant from the market because of negative publicity of soft drinks. They have been
successful because” Chota Coke” helped Coca Cola to gain access to rural areas and very
small towns. Product differentiation will help Coca COLA because people now have
become very health conscious and if they are provided with some stuff like diet COKE,
LOW Carbonated coke and product like Coke which can help in digestion definitely
people would love to taste this new coke. So recommendation would help if Coca Cola
starts with increasing branding

C- When we look at the success of the firm through elasticity’s
So we see that there is not very high difference in the elasticity’s of the two goods but with Income
elasticity there is definitely change. With high income people prefer to choose Pepsi ahead of coke.
This might be spurious result but companies have to act based on these only. Now when we look the
cross price elasticity we see that when price of Pepsi increase , the demand for coke is not that much
increased but more of Pepsi when coke is costlier . This shows that people are very eager to shift to
Pepsi because its only close substitute and also because of the preference of coke. Price elasticity
shows that with high price people prefer COKE. We can see from here that coke is deemed slightly
high quality product compared to Pepsi. Thus future is bright for the company.
References
Eda Atilgan, Şafak Aksoy, Serkan Akinci, (2005) "Determinants of the brand
equity: A verification approach in the beverage industry in
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Story, M., French, S. Food advertising and marketing directed at children and
adolescents in the US. Int J Behav Nutr Phys Activity. 2004;1:3
Aaker, D.A(2012) . Brand extensions: the good, the bad and the ugly. Sloan
Management
Neary, J.P.& Leahy, D.(2010) .Ologipoly and Trade (No. 517).University of Oxford.
Some other references
https://www.google.co.in/search?
q=Pepsi+vs+coke&rlz=1C1NHXL_enIN714IN714&source=lnms&tbm=isch&sa=X&ved=0ahUKEwjBqf3-
gJzZAhXENY8KHTtkAWIQ_AUICigB&biw=1240&bih=615#imgrc=IOv8uaqDiGz_vM:
https://www.google.co.in/search?
q=fixed+cost+graph+and+variable+cost&rlz=1C1NHXL_enIN714IN714&source=lnms&tbm=isch&sa=
X&ved=0ahUKEwjr38uw95vZAhVIuY8KHcwFCDkQ_AUICigB&biw=1242&bih=614&dpr=1.1#imgrc=eA
e9C7-dA_V4ZM:
https://www.google.co.in/search?
q=chota+coke&rlz=1C1NHXL_enIN714IN714&source=lnms&tbm=isch&sa=X&ved=0ahUKEwivpIfOgZ
zZAhXKNI8KHZrcCqcQ_AUICygC&biw=1240&bih=615#imgrc=Z_0dTmd19RLp1M: