Who dares wins - Success through intelligent risk
A Coca-Cola Great Britain case study
A story of global success
No study of business success in the twentieth century would be complete without mentioning Coca-Cola.
Coca-Cola is the product which perhaps best exemplifies global marketing. The Coca-Cola trademark is
recognized by 94 per cent of the earth's population and Coca-Cola is the second most universally
understood phrase after OK. It is not only instantly recognizable but it can be found almost anywhere
from petrol stations and shops in Central Africa, to small villages in mountainous areas on all five
continents.
The first Coca-Cola was developed according to legend, by Dr. John Styth Pemberton in a three-legged
brass pot in his backyard. If you look at the first outdoor advertisement for Coca-Cola which appeared in
the nineteenth century you can see that the company is based on a core strength which has an enduring
quality. Coca-Cola is 'delicious and refreshing'. This theme has been a key feature of advertising for the
drink ever since and more recently the message was that 'Coke is the real thing' i.e. anything else which
purports to be similar, is at best, simply a pale imitation.
The Coca-Cola Company has a number of important soft drinks products the most well known of which
are:
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Coca-Cola
Diet Coke
Sprite
Fanta
Key aspects of Coca-Cola´s business
The Coca-Cola Company's business policy provides an object lesson in many important principles of
business. For example:
1. Focus on the best lines - Coca-Cola concentrates on its most profitable lines. In 1984 77of CocaCola's operating income came from soft drinks. Today the figure is 97 by selling off businesses not
sharing the same attractive financial fundamentals as the soft drink business Coca-Cola now operates only
in the area of high-return business.
2. Reinvestment - Re-investing profits is the key to ongoing business development. If profits are made
today it is important to make sure of a base from which profits may be made tomorrow. In the 199Os
Coca-Cola has concentrated its profits on re-investment. In 1983 the company's dividend payout ratio was
65i.e. most of its profits were paid out as dividends to shareholders. Since then Coca-Cola has been
increasing dividends at a slower rate than earnings growth, so that today, 6Oof profits ($66O million in
1994) was available for reinvestment.
3. Focus on the consumer - All successful businesses today are based on focusing on the consumer. If a
company meets the requirements of its consumers (and indeed exceeds these requirements), then you
have a sure-fire recipe for success. An important measure of success is the volume and value of sales that
you make. Coca-Cola has set out to become the world's number one consumer marketing company by
taking clear actions to differentiate their products.
4. Differentiation with customers - The direct customers of Coca-Cola are outlets such as service
stations, newsagents, leisure centers, cinemas, clubs, supermarkets and many other retailers selling soft
drinks. In this area the emphasis in marketing has therefore been on providing superior delivery,
promotional services and sales support. All of these elements clearly differentiate Coca-Cola as being the
beverage supplier most likely to generate profits for retailers.
5. Differentiation with consumers - The end consumers of Coke are the millions of people who
consume soft drinks world-wide. Over many years Coca-Cola has expanded its markets horizontally in
country after country, until there is virtually no place on earth where people do not drink Coca-Cola.
Today this horizontal growth is almost total, with fewer than 20 countries not taking the product. CocaCola is therefore now trying to develop the brands vertically.
This simply means creating a deeper consumer desire for that brand than existed the day before. It
involves giving people additional reasons to buy Coca-Cola brands instead of reasons to buy competing
ones. That is the essence of differentiation. It is not an easy task, because already 5.6 billion people have a
well established understanding of what Coca-Cola means to them. However, there are considerable
strengths which support Coca-Cola in this task namely:
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The trademark which is so widely known and part of the public imagination.
Coca-Cola is continually building on its existing expertise in marketing and consumer
understanding, and is supported by access to a wealth of financial and creative resources.
Coca-Cola has an 'action orientation'. Instead of waiting for change to happen it is at the leading
edge, driving action forward.
6. Win the largest market share - Being the major player in a business market is the key to business
success. A company only becomes the major player in a market by being the best, and being the best
means having a detailed understanding of its consumers' requirements and then exceeding these
requirements.
Once a company is a major player then it has considerable advantages to draw upon. These advantages
are based on having a higher return on capital than its rivals and the opportunity to plough this return into
fresh investment. Such areas for investment are marketing, product research and development, and other
aspects of sound business growth.
Who dares wins!
Organizations do not become successful by sticking rigidly to a tried and tested formula. Of course, they
stick to and cement in their core strengths, but in a turbulent and dynamic marketplace, they also adapt
and become agents for change. Successful individuals and companies have to keep succeeding, keep
challenging themselves to do better to increase their lead.
Today, with hindsight, a number of key people at Coca-Cola recognize that the company has not always
been prepared to take the risks that were required to achieve success. In the 6Os and 7Os for example the
organization was somewhat conservative. It became reluctant to take risks, or even initiate change in the
core business. Experimentation was confined to diversification away from the core business and into
wines, coffee, water desalination and even fish farms. As a result Pepsi-Cola was able to make inroads
into US market share, while Coca-Cola continued to expand outside the United States.
Strategic change in the 1980s
The 198Os heralded an era of change for Coca-Cola. On the 8th of July 1982 diet Coke was launched in
the United States, starting a new period in which Coca-Cola was prepared to take risks by bringing in new
products in the soft drinks sector. Within a year it had become the largest selling low-calorie soft drink in
America.
In April 1985 the Company took the ultimate risk. It removed market-leading Coca-Cola from the US
market and introduced New Coke. The decision was made after extensive marketing - for example by
canvassing 190,000 consumer opinions and taste-tests of various Coke formulations. The launch was
spectacular in that within 24 hours more Americans were aware of the birth of New Coke than had known
about man's first steps on the moon in 1969. However, the market reaction did not match the research.
Within days, several opinion polls showed that consumers overwhelmingly preferred the original taste
Coca-Cola to the new Coke. There were floods of complaints across America.
So what went wrong?
In this case, blind testing did not tell the full story. Coca-Cola had minimized the 'product' risk, but
completely under-estimated the brand risk. Consumers told the company that they were going to buy the
new Cola, but they were thinking more hypothetically. As a result, the company over read the research.
Consumers wanted to remind the company that their favorite soft drink belonged to them. It was more
than a drink; it was a brand that was an integral and an inseparable part of their lives! Chairman CEO
Roberto C. Goizueta can laugh about it today; he might even make the same decision again based on the
research that was used. But few executives would have taken the risk that he and his company took.
The Coca-Cola Company listened and then dared to replace its winning formula. It was now daring
enough to admit it had been wrong to do so. They meant to change the dynamics of sugar colas in the US,
and they did exactly that albeit not in the way they had planned. In the end, the company learned that in
order to maintain the interest and the respect of its consumers, it would have to continually differentiate
its brands in ways that offered highly relevant value.
The original Coca-Cola reappeared as Coca-Cola Classic to regain the top slot as the USA's leading soft
drink, while the new formula, today known as Coke II, remained on the market bringing in additional
sales and gaining extra market share. By 1994 Coca-Cola USA core sugar colas volume had grown 29 per
cent since 1985. The company's share of U.S. soft drink sales, which had been declining, climbed from 39
per cent to 41per cent. Today, The Coca-Cola Company stands at more than $75 billion - better than eight
times what it was on April 23, 1985.
Core business
Since the 198Os the company has focused on its core business. In particular it recognizes that it needs to
face its past mistakes with honesty, and that the culture of the organization needs to be based on openness.
And intelligent risk- taking. The events of 1985 changed forever the dynamics of the soft drinks industry
and the success of The Coca-Cola Company. Goizueta characterized the new Coke decision-then and now
as a prime example of taking intelligent risks.
Mr. Goizueta emphasized that every single one of the best people at the Company has taken some
significant risks in moving the business forward. And every one of them has endured risks that failed.
With the benefit of hindsight, you start to learn that the perception of risk is often based on faulty
assumptions. Sometimes if you look at the decision in a different way, what appears dangerous at first is
not really such a risk after all. But it is important to remember that intelligent risks are based on honesty,
careful calculations and anticipated results. They are not gambles made on a whim or determined by a
toss of a coin.
The Coca-Cola Company is committed to re-inventing itself for successive generations of consumers. In
product terms this means offering a range of new drinks to provide a wide repertoire of refreshment choice, variety, excitement, and fun. The company has recently launched a variety of new drinks in the
United States and, of course, Fruitopia in the United Kingdom. The launch of Fruitopia and OK Soda (in
the United States) in 1994 were based on 'pre-search' - not selling what you can make, but making what
you can sell. Fruitopia is a line of all natural fruit juice drinks which offers variety, taste and refreshment,
with a range of flavors including Passion Fruit Lemon Affinity and Blackcurrant Babylon. Fruitopia and
OK Soda reflect The Coca-Cola Company's emphasis on creating value by actively meeting consumer
needs with new products. These new products will support existing brands and help to generate growth
for the organization.
At the same time Coca-Cola has up-dated its advertising approaches. Instead of focusing on classic
commercials such as the seventies 'I'd like to teach the world to sing.' - There are now a variety of
commercials under the umbrella theme 'Always Coca-Cola.' The adverts are different and designed to
meet the mood of programmes that people are watching and hence target different audiences. The
organization has also been prepared to take risks in other areas related to the promotion and distribution
of its soft drinks. For example, Coca Cola has become the number one sponsor associated with football,
music, T.V shows and films in the UK. The ITV diet Coke Movie Premieres constituted ITV's first ever
programming- strand sponsorship.
Daring to risk success
The culture at Coca-Cola has shifted from the conservatism of the 1960s and 1970s to one of 'daring to
risk success'. Risk can involve failure, but if corporate value systems place too much emphasis on
penalizing failure rather than on rewarding success, people will not take risks - neither the people or the
business will flourish.
Coca-Cola was able to turn their experience of launching New Coke into a success by recognizing its
mistakes. The emphasis today is on being bold enough to face new challenges and being able to seize
market opportunities.
Ploughing back profits into investment has enabled the company to provide the impetus to take fresh
risks. And the emphasis on consumer orientation has meant that products have continued to be successful,
providing the impetus and cash-flow for new growth. Through 'pre-search' Coca-Cola is able to produce
the products that consumers want, and if they do not prove to be successful they are bold enough to listen
and to make changes. The secret of success is to be flexible in your response to ongoing change in the
market.
Taking intelligent risks will often mean taking bold decisions rather than 'making do' with working
arrangements. For example, in 1987 the company caused an upheaval in its own distribution system in the
UK. It replaced the services of two well-established bottlers and set up a single, new, British operating
partner. It achieved this by establishing a jointly-owned company with the then bottler of Coke's biggest
competitor. Sales doubled within the first five years of the new venture!
Today Coca-Cola is not only Britain's most popular soft drink, but is the biggest selling of all grocery
brands across all categories. The number two is diet Coke! Elsewhere in the world, The Coca-Cola
Company has proved itself ready to do business in novel and inventive ways. The day the Berlin Wall
came down in 1989, Coca-Cola representatives were handing out cans of Coke to the East Germans as
they walked into West Berlin. Within three months the company was distributing Coca-Cola to the
Eastern States.
By 1990, 21 million cases of Coca-Cola were sold there and $450 million was being invested in land,
buildings and equipment. By 1993, per capita consumption in the former East Germany had matched that
of the western states at the time of reunification.
Taking risks - a learning process
Intelligent risk taking at Coca-Cola has three main features:
1. There is confidence in the core business. The organization knows that people like Coca-Cola and
want to have it available to them.
2. Action is taken boldly and swiftly. Once Coca-Cola recognizes what they want to do, they get it
done in a decisive, no-nonsense way e.g. the expansion into Eastern Europe.
3. The company is capable of learning 'on the run'. It has the flexibility to change course if things do
not quite work out as was originally planned e.g. the launch of New Coke. The important thing
about intelligent risk taking is not how you take a risk, or even what the risk is. Learning through
the experience of taking risks is vital if better results are to be achieved next time