Management Economics: Historical Background and Overview of Coca Cola

This document provides an introduction to management economics and focuses on the historical background and overview of Coca Cola. It discusses the demand and market equilibrium of Coca Cola in the beverage sector and explores the price elasticity of demand of soft drinks. The document also provides key suggestions on effective pricing policy for Coca Cola.

Management Economics

Contents
INTRODUCTION...........................................................................................................................................3
MAIN BODY.................................................................................................................................................3
1. Historical background and overview of Coca Cola with its products/services.....................................3
2. Demand and market equilibrium including the factors that impact on the products or services of
Coca Cola in beverage sector...................................................................................................................4
3. Price elasticity of demand of soft drinks with key suggestions on effective pricing policy for Coca
Cola.........................................................................................................................................................6
CONCLUSION.............................................................................................................................................10
REFERENCES..............................................................................................................................................11

INTRODUCTION
Management economics is a sub-field of economic theory that places special and focus on
the preference element. Management economics has the aim of helping financial terms and
rationale for improving management decision. Management economics is economic growth that
is implemented to making decisions. This is a specific part of economics. It fills the gap among
academic idea and executive practicing (Ainslie, 2016). Until the aim of managerial economics
is to introduce economies to a program to achieve management decisions, much of the topic
content in financial management has a micro - economic emphasis. Nonetheless, since
administrators need to recognize the condition of their climate when making important decisions,
as well as the economy involves the broader economy, an appreciation of just how
macroeconomic indicators can be interpreted and predicted is effective in creating strategic
choices. To better understand the concept of the report selects the company Coca Cola. It is an
American company which was established in 1892 by John Stith. In this report consist of
historical background of company and analysis market structure.
MAIN BODY
1. Historical background and overview of Coca Cola with its products/services
The Coca-Cola corporation is a large American soft drink company located in Atlanta ,
Georgia. The Coca-Cola Company has preferences in the manufacture, retail, and advertising of
focus entirely and syrup for non-alcoholic beverages. The factory makes Coca-Cola which was
developed by pharmacist John Stith Pemberton in 1886. In 1889 the recipe and product were sold
to Asa Griggs Candler for $2,300, who in 1892 founded The Coca-Cola Company in Atlanta.
Food & beverage industries play a significant role in the growth of the government and culture,
mixing global scope with limited importance, providing a broad variety of skills and strong
dependence on illegal immigrants. This business already has a greatly wide selection, from either
the manufacturing of non-alcoholic drinks to the manufacturing of alcoholic products, in respect
of both business size and subsectors inside it. In the sense of Coca Cola, it is continuously
concerned with developing new its market activities, with ability to collaborate through pre-
competitive projects with sub - sectors such as manufacturers, distributors and manufacturers.
The selecting product of soft drinks that sale out by the companies in large manner (Dittrich and
Srbek, 2016).

The company manufactured collect that is then distributed worldwide to authorized Coca-
Cola bottlers. The distributors, which possess special regional agreements with the business,
manufacture finished product in concentrates in conjunction with purified water and sugar
substitutes in beer bottles. The bottles then collect, make and market Coca-Cola products to
major retailers and retail outlets. Of certain distributors are Coca-Cola Companies, the biggest
independent Coca-Cola distiller in North America and Western Europe. The Coca-Cola
Company also gets to sell soda remain focused to significant restaurant and catering wholesaler
(Gurgul and Machno, 2016).
Product range and services
The Coca-Cola Company markets soft drink products from soda solvents and syrups, and big
drink items. Company has over 300 soda brands worldwide with a significant to be Pepsi, Fanta,
Raise, Sprite, Frutopia 100 % Fruit Juice and cranberry juice. The Coca-Cola Company drinks its
items into 2 liter, 1.25 liter, 600ml and 300ml plastic water bottles. All of these are obtainable in
375 ml aluminum cans. A very well-known brand name, Coca-Cola, is recognized by 94 percent
of the global population. Company has been very good, and has a pretty good reputation. Coca-
Cola's prices are varied by size , location and manufacturing process. Perhaps if Coca-Cola
selling in the college will have higher costs if the Coca-Cola sold in the market square or
supermarket, or if we evaluate Coca-Cola's prices in Indonesia in America will be identical. How
does the Coca-Cola Company go over to business administration since they want the goods to be
sold all around the country, so customers actually understand the brand. Besides that, the Coca-
Cola also needs to boost the profits, though that will influence the price, as well as the price will
rise as the production costs are also increasing (Gurgul Mestel and Syrek, 2017).
2. Demand and market equilibrium including the factors that impact on the products or services
of Coca Cola in beverage sector
Coca Cola, also known as Diet Coke, is one of the most famous carbonated beverages
accessible in most shops, convenience stores, restaurants in more than 200 countries. As a result,
coca cola has become one of the heavily advertised brands in the corporate world, and also
gaining competence over its direct rival Pepsi. Nonetheless, it has been threatened by various
companies selling healthier beverages, as its beverage items contain high levels of sugar water
that has life-threatening results. Nevertheless, the demand for Coca Cola product is strong on the

marketplace because of the ethical manner in which it works, and is generally recognized as a
leading soft drink in the UK as well as other foreign markets (Ho and Huang, 2017).
Price of substitute: This applies to the most significant aspect in a particular region that has a
significant effect on the demand of a specific product. In the beverage market, Coca Cola 's
existence of goods such as Pepsi, Thumps up, Sprite and much more is a few other oxygenated
close substitutes. Any price movements of the others have thus also affected Coca Cola's price
strategy, in which it lowers Diet Coke as well as other oxidized beverages prices to general
merchandise faithful business and ensure their sales. The effect of price shifts can be
demonstrated by the lower demand curve, whereby price adjustments push a same downward.
Therefore it is easier to maintain the cost of coca cola and other carbonated beverages at
reasonable levels to keep upside-down in equilibrium price.
Price of complements: This aspect also influences a device's requested amount, whereby
adjustments in the supplementary products either raise or minimize the very same. In the
framework of the soft drink industry, the supplementary components usually involve junk food,
where eateries like to deliver the same as in combination with alcoholic beverages to negotiate
prices like burger, pizza and more. Coca Cola has now made a strong collaboration with fast-
food firms such as McDonalds, Burger King and more to boost its sales value, with a small price
shift (Koo and Yang, 2018).
Customer income: People's wages often influences the amount of requested items, as they tend
to buy more needed material with a decent level of income. In the framework of aerated drinks
such as Coca Cola, businesses would like establish their price strategies according to their
specified viewer's income level. But since this organization has operate its operations in far more
than 200 countries, across both established and underused, it enables to even more effectively
target huge crowds. Thus, according to the financial environment of these nations, Coca Cola
offers its soft drinks according to the buying power and the level of income of the individuals.
Customer taste & preference: This factor also greatly influences Coca Cola's demand, in
which targeted audiences who prefer to drink strong flavored drinks are increasing their items'
demand. Either price goes up or down; consequently, individuals who just like the flavor of Diet
Coke and some other Coca Cola products don't quickly get control. Although if customers may

not much favor the very same flavor, therefore any price movements would have an immediate
effect on prices. But the significant element that transforms consumption patterns and their likes
and dislikes in aerates beverages is their detrimental effect on their health from carbonate drinks.
In the United Kingdom, and as such, given the growing number of individuals at significant risk
of obesity and associated problems.
Customer expectations of price: In the case of coca cola, whether there are real hardcore
customers who like the coca cola flavor, even though the coca cola increased prices, the demand
would stay same in. So if the customers have no coca cola taste or desire, because if the value
rises, the market will decline (Kuzmanova, 2018).
Demographics: Coca-Cola's product range was influenced by the value of Health Awareness by
providing beverages customized to the latest customer demands, including such Diet Coke.
Furthermore, when several companies migrated over during alcohol or other alcoholic drinks, the
entire non alcoholic market has expanded and it will definitely raise more.
The population growth rate already has a significant impact on the economy, as it greatly varies
between nations. It is up to the owners to conform its manufacturing and recognize it in its
strategic plan and then further making plans.
Age demographics also play an essential role: Coca-Cola, as previously discussed, focuses
primarily on the younger population. Thus a nation with a younger generation would have been a
more exciting corporation industry than just a country is influenced by an older population.
Allocation of profits and job behaviors are other considerations that affect the decision-making
mechanisms at Coca-Cola. In fact, Coca-Cola is an American based component: and in certain
nations the amount of sales varies as to how accessible the consumers are to Coke or Coke goods
(Lel and Miller, 2015).
3. Price elasticity of demand of soft drinks with key suggestions on effective pricing policy for
Coca Cola
In current microeconomic theory the link between demand variation and price variation is
calculated by price elasticity. When the business is elastic, a tiny price adjustment can result in a
major sales volume shift. In this scenario, if the market is inelastic, a large modify in price results

in a small reduction in the size of sales. So the pricing strategy will change based as to whether
the industry is either elastic or inelastic.
Using elasticity in pricing:
In elastic markets price movements contribute in fluctuation in demand. The effective marketing
technique, however, is to lower the price to sell a lot something of a specific resource. This is
indicated in the graph below about the two curves. The initial position is at (0 percent; 0
percent); at this stage the iso-profit curve shortens the consumer surplus. The all items on the
pricing mechanism above the iso-profit curve show an increase in revenue (Ntinas, 2019). So we
can maintain that the business in question can start increasing its revenues by lowering the price.
The aforementioned iso-profit curve highlights the relationship between price fluctuations and
overall sales differences while keeping a constant profit of 25 per cent
A strong luxury means an rise in revenue induces an increase in demand by a bigger
proportion. That implies demand's revenue permeability is higher than just one. HD TV's, for
instance, would be perfect for luxury. People would spend a larger percentage of income on the
precipitating agent so if income goes up.

Demand in the inelastic industries is entirely independent from demand fluctuations.
Furthermore, in this case, the best valuation option is to promote the market value in looking to
trade the very same amount as now (i.e. before the price increase), and thereby achieve
maximum profitability. At this stage the initial location is on the iso-profit curves which cut the
market price (Rogowski, 2015).
Factors affecting supply curve
COST OF PRODUCTION: Unless the cost of the product like taste, sucrose, caffeine increases,
the costs of production of its commodity increases and the provider helps to generate less from
the item, leading to a movement along the demand curve from left ward.
TECHNOLOGY: Any change in the processing processes used among Coca-Cola will result in a
reduction in operating costs and thus vendors would be capable of supplying too much and the
quantity supplied would have a correct ward change.
THE NUMBER OF CONSUMERS: Coca-Cola has a lot of consumers and a high form of brand
allegiance which means that distributors are able to accept more to meet their client's
requirements (Tang and et.al, 2018).

The potential customers of luxury products have historically been high income people who
govern the society at large elite class and necessitate the top end of the income continuum. The
luxury goods market has largely been confined to advanced countries such as the US, Europe and
Japan over the previous years. Yet the industry's strong wealth has been carried on by
globalization, improved connectivity, reducing regulatory barriers, new businesses, and opening
up the world environment. Capitalism has led to the introduction of the global economy to
companies throughout geographic regions, therefore growing business prospects with both the
reopening of new market segments perspectives. According to the Law of Supply, the quantity
demanded experiences a decline as the value of a commodity gets stronger. Basically, the more
buyers choose to purchase the commodity whenever the cost rises via the maturity phase, and
thus the demand rises afterward. It means that the price for the soft drink will increase if the
price of Coca-Cola declines (Zaťková and Poláček, 2015). There are various reasons given
concerning the essential difference of the aggregate demand with price. For example, it is
realistic to have the specific relationship between customer expectations and revenue. It implies,
the impact of incomes with such a price increase will influence the Coca-Cola demand.
Pricing policy employ by Coca Cola
One of its most key decisions that organizations make is the price a corporate fee
accusations for its good or service. Unlike most of the other elements of the marketing mix
(component, position & promotion), for instance, pricing decisions impact sales instead of
expenses. Thus, pricing has an integral element as an oriented tool to allow an industry to
overuse open positions advertising. Pricing must also be consistent for alternative marketing mix
elements, as it contributes to consumers' perception of a product or service. Coca Cola is in close
conflict with Pepsi so its pricing cannot surpass too much or fall too far when opposed to Pepsi
Cola price change. When Coca Cola's price increases too much from Pepsi therefore companies
migrate to the Pepsi Cola while on the other hand if Coca Cola's prices fall customers might have
the feeling that its performance is also poor.

There are three distinct pricing techniques that a business may adopt mainly:
1) Price Skimming: Primarily paying higher rates to receive full profits.
2 ) Market price: value location (by competing companies) as the current market price
3) Market penetration: going to charge the cheapest deal to attain the best revenue probable.
They used a cost-based forecasting framework for their Original Coke to first make a decision its
market value. They originally wrote the product, the very first coke, agreed on the expenditures
for the (service costs, capital expenditures, or operating costs), set a probably affect Coke 's cost,
eventually convinced the pop customers of the appreciation.
CONCLUSION
It has been summarized from all around the conversation that it is crucial to formulate
principles and main issues of management accounting in order to evaluate market dominance and
factors that influence the production and consumption of a product or service in an period. It
supports with recommendations in assessing the elasticity or non-elasticity of organization
goods, which helps to effectively operate a business. In addition, through such a report on the
soft drink industry, it was analyzed that the demand for Coca Cola products remains strong in the
consumer market given the unique and powerful flavors of soft beverages.

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