Niranjan Chatterjee’s Weblog

August 1, 2014

Nation Branding – A brand new concept in marketing

Filed under: International Economics,Marketing — niranjanchatterjee @ 11:15 pm

Introduction

Branding of a product is an age-old practice adopted by marketers to attract new customers while retaining the existing ones. A properly positioned brand often acquires an independent entity of its own and commands a devoted fan-following from a large group of committed customers who would not so much as look into a competing brand while making their purchases.

A brand could be a symbol, a logo or even a combination of both, often laid out in specific colours, that immediately associates with a particular product or service and causes a recall of previous experience the consumer has had with that particular product or service. More often than not, brand managers try to ensure that experiences the consumers would be having with the brand are overwhelmingly favourable so that the customer does not hesitate in making a repeat purchase.

But more and more marketing management experts are coming round to the view that a brand does not recall only the physical experiences related to a product or service but consumers tend to recall a total gamut of impressions that may be as wide and varied as business ethics, transparency in corporate governance or corporate responsibility of the producer. Thus, a brand tends to bring back a bouquet of impressions a customer might be having about the producer instead of the physical experiences of that particular product. Many producers take advantage of this overwhelmingly psychological aspect of brand recall to hard sell their merchandise.

A Starbucks logo, for example, does not only bring back the aroma of a perfectly prepared cup of coffee served in spotlessly clean environment, but also the additional information that Starbucks happens to be most favoured destination of an overwhelming number of fresh graduates and is one among the top five best employers. (Scmidt and Ludlow) This enormous strength of a brand has prompted many marketers to extend this concept from a product or service to an entire country or nation and position it as the most favoured destination of the targeted segment. The targeted segment could be anywhere between and including both tourists and investors.

The point of discussion in this project would be how a nation can be positioned as a brand, what are the prerequisites for such a positioning and, most importantly, how does it compare with conventional branding of a product or service that every marketer does day and day out. 

Branding of a Nation

Just as a product brand essentially highlights the best facets of a product and the positive attributes of the manufacturer, nation brand also tries to highlight the reputation of a nation in such a way that the very mention of the name of the country will conjure a positive sentiment in the minds of the targeted segment. It has been realised by the powers that may be that branding of a nation is almost as important as branding the exports of a country and a positive image of a country automatically tends to rub off on its products and services and lend them an additional sense of value which can command a premium in the market. Customers abroad might be willing to pay higher prices for products manufactured in a country that they hold in high esteem. If the properly positioned branding is accompanied by a carefully orchestrated advertising campaign, customers can be motivated to happily pay a price that defies the tenets of both – logic and gravity. (Olins) This ability of a brand to command a premium is often referred to as brand value. Every marketer tries to impart as much brand value as is possible in all the products it places in the market. A marketer who is trying to brand a nation or a country also tries to create as much as goodwill as is possible for the country so much so that customers all over the world do not hesitate to purchase an output of that country.

Not so long ago, automobiles manufactured in Germany could easily command a premium on account of the favourable impression the rest of the world had about German engineering and product reliability. Almost in a similar vein we might also recall the negative impression that Chinese products (especially toys and milk powder) have acquired in recent times.

Just as any German product other than automobile got an additional boost because of the favourable impression customers all over the world have about that country’s manufacturing ability, a Chinese product, even though faultless as far as it is concerned, will have to bear the brunt of the negative image the country has about product quality, durability and customer safety. (O’Guinn, Allen and Semenik)

Customers essentially buy something that not only has functional appeal but has a psychological appeal also. So, it has become almost imperative for every country to initiate the process of nation brand building to boost its exports, increase foreign direct investments and also its tourism industry. The only option available to countries to boost their foreign trade and attract more foreign direct investments is by projecting the country in a better light and this also has a distinctly positive spill over effect in areas of diplomatic and cultural interactions with the rest of the world. The most visible US diplomats are McDonald’s and Microsoft while Finland’s most high profile ambassador is surely Nokia. (Ham)

The opponents of this novel concept, however, tend to play down the importance of nation brand building by referring to globalisation and superfast interconnectivity fostered by internet as being the strongest forces of standardisation that is weeping across the world. Multinational companies have distributed the manufacturing centres all across the globe and now the specialities or exclusivities of countries and regions are gradually getting blurred. A Parker pen, irrespective of whether it is manufactured in UK, USA, Australia or India carries the same Parker logo and commands the same price and is produced under the same standardised production environment irrespective of the geographical location.

While this argument surely has substantial merit, it has to be admitted that the forces of globalisation have also given a boost to local flavour and regional diversities. Many manufacturers and nations have realised the hard way that the only technique to stay afloat in this era of cultural homogeneity, is to highlight the local peculiarity and speciality. It is the only way to make a mark in an otherwise highly standardised market. (True)

Thus, there should not be any two opinions about the need for nation branding. But nation branding is decidedly different from branding a product or service in the sense that every nation’s brand is defined by its people, their temperament, education, outlook and also their average economic status, their attitude to work and the general quality of life that nation provides. A nation brand thus is a delicate mix of values held by its population and the creature comforts that country provides.

One can surely appreciate how difficult it is to change the values of an entire nation. Not only does it require education but also enormous levels of patience. Switzerland undertook an elaborate brand building exercise after its name got sullied when it came to light that Swiss banks were holding Nazi gold but abandoned the process midway apparently because it did not see any positive results fructifying from that exercise. Belgium also dumped a nation branding project soon after initiating it ostensibly because no palpable positive outputs were visible immediately. Nation branding is a long process and policy makers can surely not be blamed if they do not show that much patience.

But above all, as in case of product branding, it is the quality of the products that a country is selling that ultimately determines a nation’s brand image. The products need not be tangible ones, it could even be the natural beauty of a region that can be sold to world to convert that place into a tourists’ paradise. Very often nation brand managers cite the successful branding of Slovenia and Croatia after their separation from the erstwhile Yugoslavia. Aggressive and clever advertising somehow pitched these countries in a different zone that did not carry any of the baggage from Belgrade era and presented these countries as the ultimate tourist destinations. A similar example is Tony Blair’s “Cool Britannia” branding that very imperceptibly but irreversibly brought about a quantum shift in the prism through which the British and rest of the world used to view United Kingdom. This campaign intended to portray Britain as a nation that has come a long way from its imperialist era by actively urging citizens to refer their motherland as simply Britain instead of Great Britain or the more repulsive United Kingdom. It might seem almost inconsequential that such an apparently trifle change would actually bring about any perceptible change in the opinion the world had about Britain, but the ground reality is that Britain has indeed been able to portray a far more modern and open image about itself to the rest of the world. (Anholt)

Nation branding, as has been repeatedly emphasised here and elsewhere also, is a very complex and slow process that can succeed only if all the stakeholders in this project provide the fullest cooperation and totally coordinate their efforts. Often times it has been observed that even the best efforts of the stakeholders lead to a chaos simply because of lack of any sort of coordination among the various agencies and departments that get involved in the process. Just as an example let us envisage a real life scenario where the tourism department of a country promotes the place as a beautiful country inhabited by wonderful laidback people leading a slow peaceful life untouched by pollution and industry, and, the investment promotion agency saying the exact opposite and promoting the country as having state of the art infrastructure and a robust work culture. Though you really cannot blame either of the agencies, the ultimate impact of these different messages is utterly confusing to the rest of the world. (Teslik)

Dr Keith Dinnie, one of the foremost proponents of the concept of nation brand, emphasises that all the four sectors of the society – Political Leaders, Government Departments, Private Sector Organisations and Civil Society as a whole need to be involved in the process of nation brand building. He further emphasises the need of a coordinating body and liberal leveraging of opportunities of co-branding, sponsorship etc. All directed towards to portraying the nation as a desirable brand. As an example, he refers to the film Braveheart and the product Glenfiddich malt whisky and the impact it has had on the brand Scotland. Dinnie admits branding a nation is an intensely political activity and managers of nation brand must be ready to tackle increasing diversity within nations that is taking place due to increasing integration among countries of Europe, unprecedented levels of mutual migration across European borders and the resultant heterogeneity among societies of each European nation. (Dinnie)

Nation Brands Index

Though nation brand is essentially a matter of perception, some management experts have tried to quantify this idea and tried to rank various countries in accordance with this concept. In its most elementary form, it is a sort of weighted average of several criteria that tries to put a number to all the countries under consideration and rank them according to their scores. There are of course many academics that do not really support or subscribe to this idea and tend to concentrate only on the foreign trade aspect of a country to have an idea of the nation’s brand image. But a glance at the details of this composite brand index makes one gradually gravitate towards accepting this measure as a genuine and acceptable measure of a nation’s standing in the international assembly of nations.

The most trusted and well known among these indices is the Anholt-GfK Roper Nation Brands Index that considers the following facets of a country while evaluating its brand value:

  • Exports – Highlights rest of world’s impression about the products and services of a particular country and whether the country has any brand value to the extent that consumers proactively seek products from that country.
  • Investment and Immigration – Measures the rate of flow of capital and trained manpower into the country from the rest of the world. It is a good indicator of how rest of the world perceives a country’s economic and social situation.
  • People – Attempts to quantify the general attitude of the local population, their average level of education and degree of xenophobia.
  • Governance – Measures transparency, lack of bias and competency in government. It also gives a fair indication about levels of propriety and individual freedom prevalent in the society. Obviously, the higher these levels are; the more attractive is this destination.
  • Culture and Heritage – It indicates the respect that the rest of the world has about the history, heritage and rich culture of the country. It is not always true that a high score in this aspect will automatically raise the brand value of this country. Often, as in the case with China, a high level of respect towards Chinese heritage and culture is almost synonymous to complete lack of understanding about local culture and customs.
  • Tourism – A larger number of tourists obviously means this country has a high brand value as far as a tourist destination is concerned. But this need not necessarily translate into higher investment and immigration – the two most important drivers of economic growth. (GfK Custom Research North America)

Score in each of these areas is neatly portrayed in the form of Nation Brand Hexagon of each country which is an easy tool for rating countries on the basis of their nation brand value. One must always remember that nation brands take a long time to develop and a long time to wither away too. Just as Australia enjoys the benefits of a good brand perception and will continue to do it for quite some time, it will take ages for North Korea to cleanse itself of the opprobrium of international denunciation it is subjected to for decades.

Nation Branding Greece

Every country in the world now feels the need to create a positive image and tries to take concrete advantage of that positive perception it is able to portray about itself to the rest of the world.

Greece is very advantageously placed in this race for creating perceptions as it has one of the most remarkable landscapes in the entire world and has a civilisation that is held in awe and wonder by the rest of the world. Greece is inextricably linked with some of greatest brands the world has ever seen as it happens to be birthplace of Olympics, a nursery for Democracy and an incubator for the loftiest philosophy mankind has till now been able to put forward. So, Greece does not suffer the fate of its neighbour Macedonia who has to make an effort for the world to wake up and take notice of it. This positive brand perception was further reinforced as the country managed the super successful Athens Olympics in 2004.

Perhaps as a logical follow through of Olympics, Greece climbed up in the rankings among nations of the world and clinched the 17th place in the Q2 2007 Anholt Nation Brands Index falling just behind Ireland and beating Belgium by a whisker.

The strong area of Greece is tourism and it is no wonder that with its magnificent landscapes and archaeological ruins dripping with heritage, it remains high on the wish list of every tourist in every country. It remains just behind Italy in the world’s list of desirable tourist destinations and the welcoming nature of local Greeks also adds up in good measure to its attractiveness in this sphere.

But in other areas Greece does not portray a bright picture of itself. In spite of successful management of Olympics and winning European Soccer Championships in 2004, Greece is still perceived by rest of the world as a country without any sporting excellence. This is an area where the brand managers must focus as it is purely a case of inadequate communication rather than any real shortcoming.

Greece also scores very poorly in exports (coming 26th in a list of 38 nations) and in Governance (coming 23rd among 38 nations that were considered).

The other notable feature that emerges from a careful study of these rankings is that Greece is viewed in a brighter light by distant countries while neighbours (most notably Turkey) is not prepared to hold such a charitable perception bout the country. Turkey admitted the inherent strength of Greece in areas of tourism but ranked it too far below in other sectors leading to an overall rank of 27th.

Even if we ignore the ranks as fancy figure work, the startling revelation that comes out loud and clear is a nation’s branding depends a lot on how deftly its political bosses handle its diplomatic activities and maintain cordial relations with its neighbours, some of whom may actually be its competitors in foreign trade and commerce. (Greece at the Nation Brands Index)

 

References

Anholt, Simon. Competitive Identity: The New Brand Management for Nations, Cities and Regions. Palgrave Macmillan, 2006.

Dinnie, Keith. Nation branding: Concepts, Issues, Practice. Butterworth Heinemann, 2007.

GfK Custom Research North America. “The Anholt-GfK Roper Nation Brands Index.” 2007. GfK Custom Research North America. <http://www.gfkamerica.com/practice_areas/roper_pam/nbi_index/index.en.html/&gt;.

“Greece at the Nation Brands Index.” 2 September 2007. Brandinggreece.com. 20 March 2009 <http://www.brandinggreece.com/greece-nation-brands/&gt;.

Ham, Peter van. “The Rise of the Brand State.” September/October 2001. Foreign Affairs. 18 March 2009 <http://www.foreignaffairs.com/articles/57229/peter-van-ham/the-rise-of-the-brand-state&gt;.

O’Guinn, T. C., C. T. Allen and R. J. Semenik. Advertising and Integrated Brand Promotion . OH: Thomson South-Western, 2006.

Olins, W. On Brand. London: Thames and Hudson, 2003.

Scmidt, K and C Ludlow. Inclusive Branding: The Why and How of a Holisitc Approach to Brands. Basingstoke: Palgrave Macmillan, 2002.

Teslik, Lee Hudson. “Nation Branding Explained.” 9 November 2007. Council on Foreign Relations. 19 March 2009 <http://www.cfr.org/publication/14776/&gt;.

True, Jacqui. “Globalisation and Identity.” Miller, Raymond. Globalisation and Identity. South Melbourne: Oxford University Press, 2006. 74.

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Global Marketing in Beverage Industry – Problems and challenges of global marketing in beverage industry as observed through the steady ascent of Coca-Cola and Pepsi as global marketers

Filed under: Corporate Management,Marketing — niranjanchatterjee @ 11:06 pm

 

 

 

 

 

Table of Contents

  1. Objective                                                                                                 1

 

  1. Methodology             3

 

  1. Literature Review

 

  • Global Companies             6
  • Global Marketing             9
  • Coca-Cola as a global company             13
  • The Power of Branding             15

 

  1. Findings and Analysis

 

  • Fierce competition between two cola giants             20
  • Consumers gain as cola war continues             22
  • Cola giants close ranks when faced with common threat             24
  • Coca-Cola and Pepsi – why one went ahead of the other             25

 

  1. Problems and challenges faced by cola companies             30

 

  1. A New Threat – Attempted Global Boycott of Coca-Cola and Pepsi 33

 

  1. Sea change in business approach of multinational companies 34

 

  1. Conclusion 36

 

  1. Bibliography 38

 

 

  1. Objective

The main objective of this research paper is to engage in a detailed analysis of the main drivers that motivate the beverage industry towards globalisation and whether there is at all any such absolute necessity for this industry to attempt any form of large scale globalisation. This study also focuses on the challenges associated with globalisation such as determining proper global pricing and product strategies and considers Coca-Cola and Pepsi as two of the biggest examples of beverage companies that have gone global in a massive way.

The project would begin with discussion on what exactly the term ‘globalisation’ has come to mean in modern business and commerce and would then proceed towards a rational examination of the concept of “brand” and its components and the extent to which proper branding can help a product in getting established in the global market without too much of resistance from all the constituents that form a marketplace.

The project will then undertake a general review and analysis of various determinants that play a substantial role in the success or otherwise of a globalisation venture of a beverage company taking the track records of Coca-Cola and Pepsi as frames of reference.

The next and possibly the most logical issue that this project tackles is the relative advantages and disadvantages that are associated with globalisation and how some companies have been able to glean the maximum advantage while some have not been so successful in doing so. The marketing strategies of the more successful ones like the Coca-Cola and those of the lesser participants like the Pepsi have been analysed and an attempt has been made to locate the exact reasons as to why Coca-Cola surged forward while Pepsi lagged behind. One of the reasons might be a reasonable degree of customisation that Coca-Cola implemented, at least in its advertisements, that Pepsi could do not do with such élan as its arch rival managed to achieve.

No study can be complete without a contrarian view and this study of globalisation cannot be complete without a review of the anti-globalisation ideas that have gained considerable ground in recent years. 

  1. Methodology

There are several methods and techniques that can be applied while conducting a study but the two most prominent approaches are the hermeneutic approach and the positivist approach. The positivist approach maintains that truth is observable and can be measured with correct methods. Further, it is also assumed that truth is an inviolable concept that cannot be influenced by the observer.

The other basic approach is the hermeneutic approach that maintains that the researcher should analyze the text from the author’s perspective while keeping in mind the social and cultural milieu in which the text was written. Actually hermeneutics is very closely related to Weber’s concept of Verstehen. In its basic form, this approach to conducting a study focuses on proper interpretation of text (Cooper and Schindler 1998).

This approach is often considered to be a close approximation to qualitative studies as researchers gather data that have to be interpreted properly and placed in the right context to obtain the correct result. Any error in viewing the data out of the proper social, cultural or economic context will most certainly lead to a wrong conclusion (Phillips and Brown 1993).

In the research undertaken in the present instance, there is no scope of adopting the positivist approach as there is no truth as such that needs to be uncovered and dispassionately observed and analyzed; all that is available is a huge mass of data garnered from secondary sources. The approach would be to collate this secondary data in as unbiased manner as possible and attempt to analyze it keeping in mind the socio-cultural milieu to which the particular data alludes to. Thus, hermeneutic approach would be the most suitable approach in the present context where the data available from secondary sources will be critically analyzed to arrive at concrete logical conclusions.

It might be proper to clarify and emphasize at this stage that secondary sources are data that have already been collected, analyzed and results presented by some earlier research process conducted in the related field. For the purposes of current research process, secondary data consists essentially of relevant information published in journals, magazines and websites (Zikmund 2000).

There are certain advantages and disadvantages of basing a research on secondary sources. The main advantage of secondary data is its ready availability in huge quantity and at negligible cost whereas collection of primary data is a very costly and time consuming exercise which is not always possible for every researcher to undertake on a large scale. Simultaneously, the inherent disadvantages of secondary data can also not be denied as the data available in journals, magazines and websites have been compiled by someone other than the researcher and the credibility and relevance of the data can very well be questioned (Emory 1985).

So, in the current research process, the researcher has exercised considerable precaution and judgment before incorporating any secondary data in the research material and can claim with a reasonable degree of confidence that the secondary data is authentic and entirely credible.

Since we will base our research process entirely on qualitative approach, it is perhaps necessary that we also clarify what exactly a qualitative approach signifies. Though it is difficult to give a technically accurate meaning of qualitative approach, all that can be said about this approach is that it concentrates on processes and meanings that cannot be concretely quantified in terms of amount, quantity or frequency. However, such an approach provides a deeper understanding of the researched variable in the larger context of interrelated social forces that combine together to continually influence the researched phenomenon (Hamel 1993).

There are a sizeable number of experts that believe although qualitative approach might not be that sound statistically or mathematically, it indeed provides a far greater understanding of a phenomenon in its socio-cultural milieu which helps the researchers to formulate logical theories about why and how a phenomenon occurs under certain specific circumstances (Markus and Robey 1988).

  1. Literature Review
  2. 1 Global companies

Globalisation in the sense of interdependence among nations is possibly not a very well comprehended concept. International trade and investment is actually controlled by a comparatively miniscule set of multinational enterprises and it has been observed that the largest 500 multinational enterprises account for over 90% of the world’s stock of foreign direct investment and they, themselves, conduct about half the world’s trade (Rugman 2000).

But a large number of these companies are not ‘global’ companies as such since most of them have the vast majority of their sales within their home leg of the ‘triad’, namely in North America, the European Union (EU) or Asia. Kenichi Ohmae, who was a leading McKinsey consultant in Japan at that time, had published a ground breaking study – “Triad Power” in 1985 where he argued that triad – the geographic space consisting of the United States, the EU and Japan shares a number of commonalities: low macroeconomic growth; a similar technological infrastructure; the presence of large, both capital-intensive and knowledge-intensive, firms in most industries; a relative homogenization of demand and protectionist pressures (Ohmae 1985).

This concept was possibly echoed earlier, though not in so categorical terms, by Theodore Levitt when he said consumers, though spread across the length and breadth of the world, are gradually becoming more and more alike in their tastes and preferences and this is resulting in the emergence of humongous global markets for standardised products on an unprecedented scale. Levitt could foresee that large corporations have been able to realise the massive scope of reaping the benefits of such a huge market by increasing the production levels and enjoying economies of scale. He could also envisage how such benefits of economies of scale would translate into cost reductions that would result in price reductions which would be impossible for local competitors to emulate thus resulting in a free playing field for giant multinational companies.

The main reason as to why such accustomed differences in national and regional preferences would gradually melt away, according to Levitt, was an astonishing progress of technology that has revolutionised the way people communicate with each other and travel from one end of the world to the other. Phenomenal improvement in communication and transportation has made the world a lot smaller space where the practice of yesteryears followed by multinational companies of maintaining product and price differentiation among various markets is no longer possible as the world or, major portions of it (this admission was the closest that Levitt could go towards the concept of ‘triad’ as put forward by Ohmae one year later), have become one vast market where they have to sell the same product in the same way everywhere. Thus, Levitt felt the age of multinationals have gone and now is the age of global corporations that sold standardised products in every corner of the markets they serve (Levitt 1984).

As both Ohmae and Levitt agree that the biggest examples of such globalisation can be observed in the ubiquity of Coca-Cola, Pepsi and McDonald that have actually become ‘global’ in the sense that these brands have grown beyond the ‘triad’ and penetrated literally all corners of the world. This issue is more relevant in the case of Coca-Cola and Pepsi that have been selling their standardised products in every market and dominate each one of them. McDonald has accommodated local tastes and preferences and has introduced local flavours in Middle East, Indian and Chinese markets (Bremner 2007) Coca-Cola and Pepsi have, however, been able to satisfy multitudes local tastes and preferences and have consistently emerged successful in every corner of the world.

  1. 2 Global marketing

The principle of global marketing works upon an age old adage that says “buyers everywhere are same but different” which means all buyers anywhere on the globe have common needs but the preferences are different. Any company functioning with this principle tries to come up with a single inimitable promotion strategy for its product in an extremely cluttered advertising arena (Rugman and Girod, Retail multinational and globalization: the evidence is regional 2003).

This brings to a sharper focus the significance of global marketing where marketing activities are synchronized and incorporated across very large number of countries essentially with the main rationale of achieving cost efficiency. The process can involve various essential activities such as standardised product strategy, identical brand names, unvarying packaging, similar advertisement messages, and coordinated sales campaigns across world markets (Vahlne and Johanson 2002).

However, one must not confuse between exporting and marketing globally. Generally, global marketing has some specific features such as most of the companies operating globally try to integrate sourcing and production with marketing, which though geocentric in nature, offers mostly a uniform marketing mix across various markets spanning several countries and even continents. Certainly, a truly global company instead of offering different products for each and every country brings in the market a distinct high quality branded product as a universal offering. Though at a first glance one might not be able to locate any appreciable difference with export, where an organisation also offers a product across international markets, the basic difference between export and global marketing is that while in the case of former a product is offered in a market after careful considerations of nature of the market and cultural affinities of the consumers of that market, in case of latter, the product is offered across a wide swath of markets that might have significant difference in terms of nature and culture of consumers. This standardisation of the product that is put on sale in widely varying markets is the main feature of global marketing (Schmitt and Simonson 1997).

Thus the most appropriate definition of global marketing would be; marketing activities by companies that emphasize three main features: global integration, standardization of effort, and coordination across markets.  In simple terms it actually means integration and coordination of all marketing activities across different markets spread across different countries into a single standardised format. It is perhaps needless to add that even though it is called global marketing it obviously does not mean that a company has got to enter each and every country in the world. It simply means widening business horizon to take advantage of opportunities and remain prepared against threats on a global basis.

It does not require too much of imagination to realise the enormous amount of market volatility a global marketer has to tackle while carrying on a global business. The basic problem that a global marketer has to tackle is to strike a balance between global marketing strategies of the company and the swings in the local market. The best possible way to achieve this is to develop the ability to ‘think globally and act locally’.

Global marketing has never been easy for any company as it also involves the chaotic task of maintaining equilibrium between standard and nonstandard approaches (standardisation and customisation) which, as any level headed marketer would admit, is absolutely necessary to retain the relevance of a global company in local markets. However, the degree of non-standardisation that a company might allow to creep into its product portfolio would depend entirely on similarities and differences in world markets (Keegan 2001).

The basic principle of global marketing is that the main difference between markets is not so much in tastes and preferences of consumers and their cultural leanings but mainly in the rules, regulations and laws that are prevailing in each country. Thus a common single strategy for marketing a product should work equally well irrespective of the market where it is applied.

The global market is now not what it was a few decades ago. Many countries have lowered their tariff barriers and are continually embracing free trade policies to further open up their markets to foreign and global players. Thus local producers are increasingly being subjected to competition from global players and with progressively shortening product cycles and ever improving technology, only those that can offer the best products at cheapest prices will survive; the rest will simply vanish from the commercial scene. Several international management experts feel that in near future only those companies that operate on a global basis will survive and prosper – others simply have no chance (Kay 1995).

Like any other marketer, a global operator would also love to develop consumer loyalty which happens to be the only protection against economic turmoil that the world economy is currently going through. Consumer loyalty ensures the survival of a brand, global or otherwise, through worst forms economic turmoil and downturn as consumers will rarely desert the brand even when marginally cheaper locally manufactured substitutes are available. Though consumers can be lured to buy a product through temporary price reductions, such price discounts are surely not the way to foster consumer loyalty. The only way to forge an emotional bond with consumers is to present a product that satisfies an overriding need of the consumer. In current world economic scenario, only global marketers have the wherewithal to spend money on elaborate research and development to come up with products that genuinely have a superior quality and are able to comprehensively fulfil customer requirements.

A global marketer thus needs to undertake serious market research to understand whether there is a scope for fulfilling some unfulfilled demand that existing products in the market are unable to satisfy and manufacture a product that fills in the utility gap. Once such a product is presented to customers, their loyalty towards that product is assured.

A product that has a large number of committed buyers obviously enjoys a high degree of brand equity and the marketer must continuously take pre-emptive steps to ensure a sustained advantage for the producer by enhancing the brand equity.

For that, an analysis is necessary to ascertain loyalty of frequent buyers as they are a source of constant revenue and also to quantify the impact of price reductions, discounts and intense promotional campaigns on consumer loyalty. These are important parameters that need to be monitored on a regular basis (Srull & Wyer, 1989). A global marketer has to, as already stated, thus ‘think globally and act locally while making such decisions as they are likely to vary significantly between markets and between countries.

  1. 3 Coca-Cola as a global company

As in 2004, Coca-Cola stood 129th in the Fortune 500 list and recorded 38.4% of its sales in North America, 22.4% in Europe and 24.9% in Asia. Out of total Coca-Cola sales in Asia, 74% of it was in Japan and the company was trying very hard to increase its market share in China (Rugman and Verbeke 2004).

(Pie Chart created by author)

There is a conundrum however, that marketers are yet to solve. It has been observed that countries that urge the world to respect and recognise their individuality and culture also urge the global corporations to transfer latest products in their markets almost simultaneously as they appear in first world markets (Wan and Hoskisson 2003). Coca-Cola and Pepsi though would not have to contemplate much on this issue as they have already penetrated deep into almost all of world’s markets.

The author of this project simply cannot resist the temptation of recounting an anecdote, though apocryphal, concerning Mr. Raj Narain, the health minister of the Janata Government that was formed in India in 1977. It is widely believed that Mr Narain, while debating in the Indian Parliament on some issue related to general standards of civic amenities available in Indian villages had commented that, while the Indian Government had not been able to provide clean drinking water to all its villages, Coca-Cola had been able to deliver its product in each and every Indian village. Nobody has taken the trouble of scouring through the records of Parliament to verify whether Mr. Narain had indeed uttered these words or not, but one thing is absolutely clear, and that is, Coca-Cola could win over every market it entered – partly through its inimitable taste and partly through its equally inimitable channels of distribution.

  1. 4 The power of Branding

There are two definitions of branding that are in circulation for years and we can term them as ‘erstwhile’ and ‘established’. While the ‘erstwhile’ or the most simplistic definition of brand denote a name or a logo or a trademark that signified ownership, the ‘established’ definition of brand includes the added values that a brand imputes on the product. While the products are made in factories, brand values are essentially a matter of personal perception that stay in the mind and have a longevity that far exceeds that of the product  (Blamer and Greyser 2003).

These values might or might not be directly noticeable but are attributed to the product through intelligent mix of continuous advertisements conceived by communications experts and delivered through proper channels as determined by experienced mass media advertisers. An example might be the brand of Starbucks that does not only bring back the experiences of exquisite coffee but also remind a person that the company is among the top five best employers (Schmidt & Ludlow, 2002).

Quite a few management experts perceive brand as simply the physical experience that a consumer recalls every time he is exposed to the brand and views a brand as an important and extremely effective tool for advertising, sales promotion and marketing. This somewhat constricted perception of brand is often termed as brand experience which many experts claim to be one of the most important bases on which a consumer makes a final decision.

Brand managers who are of this view, try to build a brand around the unique selling point of a particular product and a properly calibrated brand management builds up a favourable image of the product in the minds of prospective customers who get convinced about the superiority of the product much before the actual purchase.

If such a brand exists, advertising and sales promotion becomes that much easier since the unique selling points of that product need not be repeated or stressed in advertisements or sales promotion programs. A mere reference to the brand would be enough to cause a recall of all the USPs of the product.

Branding thus is a very effective tool in creating a favourable impression in the minds of prospective customers. This is many a time carefully manipulated by brand managers to instil a perception of value in the product so much so that customers willingly pay a higher price for it even though the raw materials and ingredients used in it are not in any way different or superior to those used in manufacturing competitive products. Customers can be motivated to pay a price that defies logic through a carefully managed advertising campaign (Olins, 2003).

Marketing experts describe this phenomenon as brand value and this can be built up only by orchestrating other aspects of marketing. When a brand reaches a stage where it can be instantly recognized over large sectors of targeted market places, without the name of the manufacturer, it is said to have obtained brand franchise as it has become matured enough to stand on its own without any help of manufacturer’s goodwill. This, as already stated earlier, can be achieved through sustained advertising, sales promotion and marketing.

A case in point is Coca-Cola and Pepsi that have so much brand franchise (built through years of sustained advertising and sales promotion) that the name of the manufacturers and their status as possibly two of the largest producers of soft drinks and beverages are completely irrelevant to the consumer who is already convinced about the efficacy of the soft drinks they offer at the time of purchase (O’Guinn, Allen, & Semenik, 2006).

It would be most logical at this stage to discuss a little about corporate brand equity. Brand equity is an intangible value associated with a brand that motivates a customer to pay a price that is higher than competitors’ products that have similar ingredients and satisfy similar needs. Example of brand equity could be the products of Coca-Cola and Pepsi that sell in market at a considerable premium over comparable local substitutes.

Corporate brand equity refers to reputations of companies that are held in high esteem by consumers and it is reflected in market-to-book ratio which is the ratio of net asset value of companies and their market capitalization. It is on an average 4.7 for the S&P 500 companies (Haigh & Knowles, 2004).

Corporate brand can also be considered as another form of address that carries with it certain inviolable tenets of business ethics and norms that act as a shield to protect the organisation as well as all its stakeholders from any form breach in corporate ethics. Corporate brand actually acts as very strong covenanted identity about the manner in which the company carries on its business and produces products that serve the best interests of consumers (Balmer March, 2002).

 

Source: AC3ID Test™ trademarked by J. M. T. Balmer, 2001.

The world has become a smaller place courtesy improved transportation facilities and widespread reach and penetration of internet. Marketers now have the entire world as their market and they have made full use of it as is evinced in increased preference by consumers for branded products. They are increasingly buying brands instead of products and are willing to pay premiums for leading brands. Thus a strong brand is especially a great asset of those firms that are global in the truest sense and offer soft drinks and beverages as Coca-Cola and Pepsi. A strong brand as can be seen has an identity of its own and can command an unprecedented amount of loyalty. Such a loyal clan of consumers is every marketer’s dream, especially in these bleak and gloomy times of an economic downturn (Srull and Wyer 1989).

  1. Findings and Analysis
  2. 1 Fierce competition between two cola giants

So it is not unnatural for these competing companies to bitterly fight with each other in an attempt to dominate consumers’ mindscape. With gloomy financial forecasts that do not predict a quick end to current economic downturn, both Coca-Cola and Pepsi have turned their attention to reviving consumer spirits through Pepsi’s “Every generation refreshes the world” and Coca-Cola company’s “Open happiness” that will replace it hugely successful “Coke side of life” which, quite obviously, is the brighter side. This however is not the first time that these competitors have unleashed advertisement blitzes to uplift the spirits of their consumers across the whole world. The -“Have a Coke and a smile” and “Joy of Pepsi” instantly come to the mind of any discerning observer of this never ending rivalry between Coca-Cola and Pepsi. But now it seems that both these giants are feeling an extra sense of urgency to do their bit in livening up an otherwise gloomy landscape.  Jeff Cioletti, editor in chief of Beverage World, felt that such uplifting campaigns are indeed necessary for both these giants to be close to their consumers’ hearts in these distressing times (Zmuda 2009).

Very recent stories of fisticuffs between delivery men of Coca-Cola and Pepsi over shelf space in a supermarket however have nothing to do with corporate rivalry; it was more a personal and localized matter between two individuals.

But one must never forget that this war between Coca-Cola and Pepsi is not restricted to American markets only. They fiercely fight with each other in every market of the world. A case in point would be the way they fought tooth and nail when Coca-Cola made its appearance in Delhi market where Pepsi was already enjoying a head start of three years. Coca-Cola fired the first salvo by proclaiming more or less literally from every roof top that the real thing was back. Pepsi responded with a brilliantly crafted rejoinder that started off with a bold declaration “Today Pepsi would like you to try a Coke.” and ended with a statement that has become one of the best examples of how to drag through dirt a competitor without breaking the norms of clean and healthy advertising: “Coca-Cola and Coke are registered trademarks of the Coca-Cola Company. Pepsi is the choice of a new generation.” Admittedly, Coca-Cola had very little to offer as a riposte. What followed however went beyond the realms of advertising and bordered on criminal offence as many Pepsi billboards and signboards were found smeared with black paint. Pepsi filed a police complaint laying the blame squarely on the doorstep of Coca-Cola, but, as expected, nothing substantial or concrete could be unearthed regarding the culprits that had actually defaced Pepsi’s advertisements.

Pepsi waited for an opportune moment and struck with full force on the day Coca-Cola was launched in Delhi. It hiked the price of Pepsi Cola from Rs. 5 to Rs. 6 per 250-ml. bottle that left Coca-Cola managers scrambling for cover to find a suitable counter strategy as they realised retailers were bound to hawk both Pepsi and Coke at Rs. 6 a bottle which would effectively neutralize Coke’s penetration price of Rs. 5 for a 300-ml. bottle. Neel Chatterjee, general manager, marketing, of Pepsi Foods Ltd, said that they had sold an average 29,000 crates the same day. He estimated that Coke would have sold about 18,000 crates that day (Easwaran 1994).

(Pie chart created by author)

  1. 2 Consumers gain as cola war continues

Pepsi had filed an anti-trust suit against Coca-Cola in May, 1998 alleging that Coca-Cola was using its substantial superiority in fountain-dispensed soft drinks in restaurants and movie theatres to stifle any move that Pepsi was making in entering that market.

While replying to the charges levelled by Pepsi, lawyers of Coca-Cola argued that “The `cola wars’ have brought consumers in the United States and, throughout the world, the benefit of low prices, extraordinarily broad availability, and wide consumer choice.” The lawyers went on to further declare that though Coca-Cola dominates the overall soft drink market others were not completely marginalised as was evident from the figures provided in Beverage Digest that stated that Coca-Cola has a 43.9 percent share, followed by PepsiCo with 30.9 percent and Dr Pepper Co. with 14.5 percent (Walsh 1998).

(Bar Chart prepared by author)

  1. 3 Cola giants close ranks when faced with common threat

Though these two cola giants are at each other’s throats most of the time, they also close ranks if they perceive there is a common threat that might harm businesses of both. It had happened in Middle East where the cola giants have perhaps fought the toughest and bitterest battle outside of United States. Initially Coca-Cola was way behind Pepsi and was actually referred to as “red Pepsi” as it was gradually clawing back after a hiatus of 25 years of boycott by Arab nations as retaliation against doing business with Israel, a Jewish state.

However, both these giants took a battering due to the regional instability that has become chronic to this region. In fact, anti-American sentiments took such a serious turn that Coca-Cola had to close its principal Middle East office in Bahrain and shift its strategic personnel back to Europe in March, 2003. Coca-Cola Egypt, the parent company’s largest subsidiary in the region was forced to float a $150 million share offering in March following losses of more than $100 million.

Pepsi also had to suffer several setbacks on account of this market instability that resulted from the political and social instability in this region. They are also facing challenges from home grown soft drinks and both have decided to push their non-core brands harder in a market that is gradually becoming populated with non-carbonated drinks.

These two companies have also closed ranks in India when they faced a scathing censure from an environmental watchdog that alleged in August, 2003 that samples of drinks produced and marketed locally by the two companies contained “residues of four extremely toxic pesticides and insecticides: lindane, DDT, malathion and chlorpyrifos … enough poison to cause – in the long term – cancer, damage to the nervous and reproductive systems, birth defects and severe disruption of the immune system”. The following day, as across the subcontinent young radicals took to the streets to smash bottles of Coke and Pepsi and call for a country-wide boycott, the two companies took the unusual step of holding a joint press conference to refute the allegations (Lidstone 2003).

  1. 4 Coca-Cola and Pepsi – why one went ahead of the other

As already stated in this thesis, Pepsi is behind Coca-Cola by a good 14% of global market share and the most obvious question that immediately crops up in any rational researcher’s mind is what could be the reason for Pepsi falling behind Coca-Cola as it was founded only seven years after Coca-Cola which was established in 1885 by John Pemberton as a patent medicine.

The early founders of the brand Coca-Cola, going back to the 19th century, had a grand vision of globalisation and wanted the drink to be available everywhere on planet earth and, they have succeeded to a large extent in achieving that highly ambitious target.

Just to put things in proper perspective, it may be stated that Coca-Cola has been in Africa for about 80 years – the first franchise was opened in Johannesburg in 1928. Today there are 160 manufacturing plants across the continent. Coca-Cola holds the number one position in the non-alcoholic beverages (excluding tea and coffee) segment and controls around 30% of the market. Coca-Cola Africa is readying itself for one of the biggest sporting events of the world – 2010 FIFA World Cup in South Africa (Versi 2007).

This information only puts in sharper relief the continuous surging forward of Coca-Cola while Pepsi remains stuck to its pre-eminence in Middle Eastern markets Saudi Arabia and other Arab countries where Coca-Cola was forced out of the market due to political reasons rather than commercial and economic.

Before we get into the analysis of this anomaly it would be better to accept the fact that from the customer’s standpoint, the difference between Coca-Cola and Pepsi is basically a matter of perception rather than actual taste. Both are sweetened carbonated beverages with Pepsi being a little sweeter than Coca-Cola and that might be one of the reasons as to why many people prefer Pepsi over Coca-Cola in a blind test but would prefer to drink Coca-Cola if they are asked to drink an entire can. Some say that the there is also a difference in the degree of carbonation between the two but it has been confirmed through laboratory testing that the extent of carbonation depended on the location of manufacture and on an average the degree of carbonation is almost the same in case of both Coca-Cola and Pepsi (Balabanis, et al. 2001).

Samuel McClure and his colleagues have found through elaborate scientific observation done on a batch of 67 volunteers that it is basically a matter of perception that is accentuated by visual messages and marketing messages that prompts a customer to choose one drink over the other. The researchers started with asking these 67 volunteers about their personal choices first by asking them and then subjecting them to blind tests. They actually gave subjects a couple of sips of either Coca-Cola or Pepsi and as they drank what was given to them, the researchers scanned the subjects’ brains by using the technique known as functional magnetic resonance imaging (fMRI). This technique of brain mapping uses harmless magnetic fields and radio signals to measure blood flow in regions of the brain since such flows indicate levels of brain activity. While this experiment was done, each volunteer was exposed to either anonymous pictures or photos of Coca-Cola or Pepsi cans before they took their sips.

The experiment allowed the researchers to study the regions of human brain that were activated when the subjects used information only related to taste as compared to when they also had information about the brand.

It was observed that while brand recognition about Pepsi did not have any specific effect on the perception zones of the brain, knowledge about the brand when Coca-Cola was sipped had a remarkable effect on “dorsolateral prefrontal cortex” and the hippocampus. Both these areas and, hippocampus in particular, tend to modify human behaviour and reaction by recalling cultural information. Thus when the subjects were sipping Coca-Cola, their perceptions about the brand played a great role in enhancing their enjoyment rather than the taste of the soft drink alone. No such exception was however noticed when they drank Pepsi (McClure, et al. 2004).

This perception or image about the brand Coca-Cola has been built up through decades of sustained advertising and though Pepsi was never shy of advertising its presence or product, its endeavours must have definitely fallen short of the potency of the sustained and varied campaigns unleashed by Coca-Cola over almost century and a quarter since it first came in the market. This, as this experiment also strongly suggests, might be one of the main reasons as to why Pepsi could not measure up to the stature of Coca-Cola as the leader in soft drinks market (Ruigrok and Wagner 2002).

One needs to draw another distinction at this stage between Coca-Cola and Pepsi. We are comparing here only the performances in the soft drinks sector but we must remember while Pepsi generates most of its revenue around the globe from its snack divisions, Coca-Cola is purely a beverage company. Thus, it is perhaps obvious that Coca-Cola will be a couple of steps ahead of Pepsi in this struggle for market share, if it wants to survive. Moreover, when it comes to investment, Pepsi prefers to channelize funds in only those markets where it is the dominant player (as in Middle East) whereas Coca-Cola, which has long been proud of the fact that it operates in every corner of the globe and is a leader in most of the markets that it operates in. As a result of this inherent difference in corporate attitude, Coke earns more than 60% of its revenue from outside of United States while Pepsi earns most of its revenue from within the United States (Wilbert 2006).

So, we have been able to cite one more reason as to why Pepsi has fallen behind Coca-Cola in the age old rivalry between cola giants. But there are other reasons too that have contributed to this scenario.

One of the major outlets of cola drinks in the United States is through fountains and Coca-Cola has a huge lead over Pepsi in this segment. Throughout the 1980s Coca-Cola had more than 80% of market share in this sector (Allen 1994).

Though it reduced to 65% with Pepsi’s share increasing to 22% by 2000, still Pepsi was way behind its main rival. Pepsi tried to force its way into this sector by coming to some form of agreement with food-service distributors who along with napkins, ketchup, French fries and hamburger buns also provide soda syrup that is used in soda fountains in 90% of the restaurants across United States. But when Coca-Cola could sense that Pepsi is trying to directly challenge its market monopoly in this area it warned the five major distributors of this syrup that they cannot simultaneously supply soda syrups of both Coca-Cola and Pepsi, they have to choose between one of these producers and, if they insisted on supplying both the manufacturer’s product, Coca-Cola would be constrained to terminate their contract with such a distributor. Though Pepsi approached the court of law claiming that Coca-Cola is trying to push out Pepsi from this market by exercising its near monopoly status, there still remains a huge gap between the two competitors in this market. This happens to be one of the major reasons as to why Coca-Cola is ahead of Pepsi in terms of overall market share of cola drinks (Ghemawat 2003).

  1. Problems and challenges faced by cola companies

Coca-Cola and Pepsi have of late been plagued by a series of local competitors that have grabbed a considerable share of the market but more than that have for the first time posed a challenge to these two cola giants. These two superpowers of the cola world had all along projected themselves as invincible and this challenge to their unquestioned supremacy might just be the beginning, opening the floodgates of a bigger challenge when the consumers also start thinking that they have genuine alternatives other than Coca-Cola and Pepsi to choose from whenever they feel like drinking a bottle of chilled carbonated beverage.

UAE’s Star Cola and state-owned ZamZam Cola of Iran gain their strength from the image of ethical, Islamic alternative to American Coca-Cola or Pepsi. But these products are limited to their countries of origin and if there are any exports they are essentially to other Gulf countries only.

Two other enthusiastic entrants in the Middle East market are UK-based Qibla Cola and Paris-based Mecca Cola. Mecca Cola had already signed an agreement to set up a bottling plant in Jebel Ali Free Zone during the middle of 2003 and had set for itself a target of 10% of the total cola market in the region. Qibla Cola also was in the process of setting up a bottling plant in UAE and was streamlining its distribution infrastructure in Egypt and Saudi Arabia.

Advertisements of both these brands have an underlying religious appeal of being genuinely Islamic and they try to take full advantage of the simmering anti-Americanism that has always been in this part of the world. One advertisement of Mecca Cola runs “No more drinking stupid, drink with commitment”. Though surely rather awkward but the underlying religious appeal is hard to miss. Both these brands profess to donate 10% of their profit to charitable causes and Qibla Cola identifies itself rather too blatantly with the Palestinian cause and tries to don the garb of a champion of ‘free trade’. Mecca Cola is also having problems of getting its name registered in Saudi Arabia and yet to commence operation in that vast cash rich market.

Though it would be a complete misnomer to say that these new entrants have dented the hegemony of Coca-Cola and Pepsi, it is a fact that both these behemoths are facing declining sales. Coca-Cola attributes this to a steady rise in the demand for non-carbonated beverages like juices and water. The real danger to their supremacy is not form Mecca Cola or Qibla Cola but from from crossover producers such as Egypt’s Fayrouz, which produces non-alcoholic malt beverages for the halal market. The marketing tactic for Fayrouz is very clever. It was originally in the non-alcoholic malt drink market, but by launching a new range of flavours it took on the big American producers and its orange and apple flavours are now outselling Mirinda and Fanta.

Coca-Cola and Pepsi have responded by pushing their non-cola brands and in Yemen, Coca-Cola has been able to achieve substantial increase in the sale of Canada Dry while the sale of classic Coke has remained constant.

Some researchers have come to the conclusion that the real competitor to Coca-Cola and Pepsi in Middle East is water. This is borne out by the fact that while the  sales of bottled water have grown by more than 40 per cent in the last four years, reaching 2,202 million litres in 2002, per capita consumption of carbonated soft drinks  over the same period declined by 16 per cent (Lidstone 2003).

Coca-Cola also got embroiled in a series problems and contamination scare that dented the sales in Europe very heavily. Economic slowdowns in emerging markets like South Korea also damaged global sales. In the meanwhile a racial discrimination lawsuit in Atlanta tarnished the company’s carefully manicured image. As if this was not enough, Doug Ivester suddenly resigned the chairman’s post (McClatchy-Tribune Information Services 2000).

  1. A New Threat – Attempted Global Boycott of Coca-Cola and Pepsi

A full page advertisement in the New York Times on 4th July, 2003 made a scathing attack on how corporate power has managed to complete its stranglehold on the government of United States. This negative feeling towards the erstwhile flag bearers American free spirit and spirit of enterprise did not materialise overnight, it took nearly six odd months, almost from the time George Bush ordered “Operation Iraqi Freedom,” citing dubious information of Iraq having a large storehouse of weapons of mass destruction. The world looked on in horror as the only superpower of the world suddenly started acting like a rogue state. The world-wide reaction against United States took the form of a rethink about the relation that would be maintained with corporate America and the conclusion was pretty obvious. Coca-Cola, the most ubiquitous symbol of corporate America was suddenly on the line and saying no to the United States was saying no to war. And saying no to United States suddenly became very easy as one could simply refuse to enter McDonald’s outlet or not drink a bottle of Coca-Cola or Pepsi. This boycott was never organised in a formal way but it started off on its own. The London-based Boycott America website (www.boycottamerica.org) launched in the wake of the Iraqi invasion, took the issue much beyond Iraq and the Bush administration’s military adventurism. It referred to American threat to environment as the country successfully stalled protocols aimed at curbing climate change and its threat to the world’s food chain with the proliferation of genetically modified organisms as additional reasons to press on with the boycott. Though such boycotts are usually short-lived and die a quiet death as emotions cool down, one must admit that there is a very strong undercurrent in large parts of the world against things that are American, mainly American global companies.

  1. Sea change in business approach of multinational companies

Multinational corporations no longer produce products. They are now solely in the image business. They no longer build factories. Today they build advertising campaigns. They no longer invest in plant and machinery or land and buildings but they invest in images. They scour across the globe in search of worst working conditions, which translates into the lowest wages and costs. They fire their employees while cultivating customers and continuously driving down living conditions all over the third world.

Coke and Pepsi typify the most successful of all the branders. Their assets rest on World Trade Organization protected amalgam of image and license. The scenario is pretty uncomplicated as it were. Coke and Pepsi own an image – one that ultimately represents American cool. In nations around the world people manufacture their own Coke and Pepsi under license, using their own water and bottles, often using their own sugar. They then sell it to themselves, using their own distribution networks, sending the profits off to the United States. These two companies, which in essence dominate the world’s beverage market, produce nothing tangible.

They sell cool while vacuuming money up from around the world. In doing so they are spreading a toxic culture of obesity – the same culture that is killing citizens in the U.S. homeland, where soda pop consumption has doubled since the mid 1980s, contributing to a 50 percent rise in the obesity and diabetes rates during the same time span.

The most sophisticated and attractively crafted advertisements in media outlets around the world seduce people to consume Coca-Cola and Pepsi, conveniently suppressing the highly damaging information that each bottle of these beverages contains an average of eleven tablespoons of sugar. Developing nations are left to deal with the health consequences while Coke and Pepsi investors deal up the profits (Niman 2003).

 

  1. Conclusion

Though there is indeed some very sound logic in the statements of those who oppose American giant global companies, the fact remains that as long as capitalist system of production is going to continue, maximisation of profit will remain as the sole motive of any business house or an entrepreneur. Thus there will always be an attempt to reduce costs and one cannot really find any fault with the global companies if they throng third world countries in search of cheap labour.

The highly impassioned statements that these global giants are exploiting helpless people might sound very soothing to the ears as we secretly pat our backs on being ‘ethical’, but any person who has the slightest knowledge about the ground reality prevailing in these nations would most surely agree that those workers (generally women and underage children) would have either way worked since they cannot survive otherwise. So, it is always better to toil at a place where payment (however meagre it might be) is assured.

All those crusaders for prevention of child labour are mostly unaware of the dire truth that in third world countries a child is considered as an additional pair of hands that would augment the family’s income. If the global companies have not come to the scene, these children would have had to toil under much starker conditions.

In any case, use of child labour has always been an issue against Nike, Gap and other global companies. Coca-Cola and Pepsi are always manufactured in factories where untrained and underage workers are never employed. Thus, these two global companies cannot be accused of being complicit party to exploitation of children and women.

However, there can be no argument to support Coca-Cola and Pepsi as they constantly motivate people to consume more and more of their respective colas that contain as much as eleven tablespoons of sugar in each bottle. Global companies Coca-Cola and Pepsi surely play havoc with global health and some restrictive action in this regard is always welcome.

 

 

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June 12, 2012

Global Marketing in Beverage Industry: Problems and challenges of global marketing in beverage industry as observed through the steady ascent of Coca-Cola and Pepsi as global marketers

Filed under: Marketing — niranjanchatterjee @ 10:07 am
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1. Objective

The main objective of this research paper is to engage in a detailed analysis of the main drivers that motivate the beverage industry towards globalisation and whether there is at all any such absolute necessity for this industry to attempt any form of large scale globalisation. This study also focuses on the challenges associated with globalisation such as determining proper global pricing and product strategies and considers Coca-Cola and Pepsi as two of the biggest examples of beverage companies that have gone global in a massive way.

The project would begin with discussion on what exactly the term ‘globalisation’ has come to mean in modern business and commerce and would then proceed towards a rational examination of the concept of “brand” and its components and the extent to which proper branding can help a product in getting established in the global market without too much of resistance from all the constituents that form a marketplace.

The project will then undertake a general review and analysis of various determinants that play a substantial role in the success or otherwise of a globalisation venture of a beverage company taking the track records of Coca-Cola and Pepsi as frames of reference.

The next and possibly the most logical issue that this project tackles is the relative advantages and disadvantages that are associated with globalisation and how some companies have been able to glean the maximum advantage while some have not been so successful in doing so. The marketing strategies of the more successful ones like the Coca-Cola and those of the lesser participants like the Pepsi have been analysed and an attempt has been made to locate the exact reasons as to why Coca-Cola surged forward while Pepsi lagged behind. One of the reasons might be a reasonable degree of customisation that Coca-Cola implemented, at least in its advertisements, that Pepsi could do not do with such élan as its arch rival managed to achieve.

No study can be complete without a contrarian view and this study of globalisation cannot be complete without a review of the anti-globalisation ideas that have gained considerable ground in recent years.

2. Methodology

There are several methods and techniques that can be applied while conducting a study but the two most prominent approaches are the hermeneutic approach and the positivist approach. The positivist approach maintains that truth is observable and can be measured with correct methods. Further, it is also assumed that truth is an inviolable concept that cannot be influenced by the observer.

The other basic approach is the hermeneutic approach that maintains that the researcher should analyze the text from the author’s perspective while keeping in mind the social and cultural milieu in which the text was written. Actually hermeneutics is very closely related to Weber’s concept of Verstehen. In its basic form, this approach to conducting a study focuses on proper interpretation of text (Cooper and Schindler 1998).

This approach is often considered to be a close approximation to qualitative studies as researchers gather data that have to be interpreted properly and placed in the right context to obtain the correct result. Any error in viewing the data out of the proper social, cultural or economic context will most certainly lead to a wrong conclusion (Phillips and Brown 1993).

In the research undertaken in the present instance, there is no scope of adopting the positivist approach as there is no truth as such that needs to be uncovered and dispassionately observed and analyzed; all that is available is a huge mass of data garnered from secondary sources. The approach would be to collate this secondary data in as unbiased manner as possible and attempt to analyze it keeping in mind the socio-cultural milieu to which the particular data alludes to. Thus, hermeneutic approach would be the most suitable approach in the present context where the data available from secondary sources will be critically analyzed to arrive at concrete logical conclusions.

It might be proper to clarify and emphasize at this stage that secondary sources are data that have already been collected, analyzed and results presented by some earlier research process conducted in the related field. For the purposes of current research process, secondary data consists essentially of relevant information published in journals, magazines and websites (Zikmund 2000).

There are certain advantages and disadvantages of basing a research on secondary sources. The main advantage of secondary data is its ready availability in huge quantity and at negligible cost whereas collection of primary data is a very costly and time consuming exercise which is not always possible for every researcher to undertake on a large scale. Simultaneously, the inherent disadvantages of secondary data can also not be denied as the data available in journals, magazines and websites have been compiled by someone other than the researcher and the credibility and relevance of the data can very well be questioned (Emory 1985).

So, in the current research process, the researcher has exercised considerable precaution and judgment before incorporating any secondary data in the research material and can claim with a reasonable degree of confidence that the secondary data is authentic and entirely credible.

Since we will base our research process entirely on qualitative approach, it is perhaps necessary that we also clarify what exactly a qualitative approach signifies. Though it is difficult to give a technically accurate meaning of qualitative approach, all that can be said about this approach is that it concentrates on processes and meanings that cannot be concretely quantified in terms of amount, quantity or frequency. However, such an approach provides a deeper understanding of the researched variable in the larger context of interrelated social forces that combine together to continually influence the researched phenomenon (Hamel 1993).

There are a sizeable number of experts that believe although qualitative approach might not be that sound statistically or mathematically, it indeed provides a far greater understanding of a phenomenon in its socio-cultural milieu which helps the researchers to formulate logical theories about why and how a phenomenon occurs under certain specific circumstances (Markus and Robey 1988).

3. Literature Review

3.1 Global companies

Globalisation in the sense of interdependence among nations is possibly not a very well comprehended concept. International trade and investment is actually controlled by a comparatively miniscule set of multinational enterprises and it has been observed that the largest 500 multinational enterprises account for over 90% of the world’s stock of foreign direct investment and they, themselves, conduct about half the world’s trade (Rugman 2000).

But a large number of these companies are not ‘global’ companies as such since most of them have the vast majority of their sales within their home leg of the ‘triad’, namely in North America, the European Union (EU) or Asia. Kenichi Ohmae, who was a leading McKinsey consultant in Japan at that time, had published a ground breaking study – “Triad Power” in 1985 where he argued that triad – the geographic space consisting of the United States, the EU and Japan shares a number of commonalities: low macroeconomic growth; a similar technological infrastructure; the presence of large, both capital-intensive and knowledge-intensive, firms in most industries; a relative homogenization of demand and protectionist pressures (Ohmae 1985).

This concept was possibly echoed earlier, though not in so categorical terms, by Theodore Levitt when he said consumers, though spread across the length and breadth of the world, are gradually becoming more and more alike in their tastes and preferences and this is resulting in the emergence of humongous global markets for standardised products on an unprecedented scale. Levitt could foresee that large corporations have been able to realise the massive scope of reaping the benefits of such a huge market by increasing the production levels and enjoying economies of scale. He could also envisage how such benefits of economies of scale would translate into cost reductions that would result in price reductions which would be impossible for local competitors to emulate thus resulting in a free playing field for giant multinational companies.

The main reason as to why such accustomed differences in national and regional preferences would gradually melt away, according to Levitt, was an astonishing progress of technology that has revolutionised the way people communicate with each other and travel from one end of the world to the other. Phenomenal improvement in communication and transportation has made the world a lot smaller space where the practice of yesteryears followed by multinational companies of maintaining product and price differentiation among various markets is no longer possible as the world or, major portions of it (this admission was the closest that Levitt could go towards the concept of ‘triad’ as put forward by Ohmae one year later), have become one vast market where they have to sell the same product in the same way everywhere. Thus, Levitt felt the age of multinationals have gone and now is the age of global corporations that sold standardised products in every corner of the markets they serve (Levitt 1984).

As both Ohmae and Levitt agree that the biggest examples of such globalisation can be observed in the ubiquity of Coca-Cola, Pepsi and McDonald that have actually become ‘global’ in the sense that these brands have grown beyond the ‘triad’ and penetrated literally all corners of the world. This issue is more relevant in the case of Coca-Cola and Pepsi that have been selling their standardised products in every market and dominate each one of them. McDonald has accommodated local tastes and preferences and has introduced local flavours in Middle East, Indian and Chinese markets (Bremner 2007) Coca-Cola and Pepsi have, however, been able to satisfy multitudes local tastes and preferences and have consistently emerged successful in every corner of the world.

3.2 Global marketing

The principle of global marketing works upon an age old adage that says “buyers everywhere are same but different” which means all buyers anywhere on the globe have common needs but the preferences are different. Any company functioning with this principle tries to come up with a single inimitable promotion strategy for its product in an extremely cluttered advertising arena (Rugman and Girod, Retail multinational and globalization: the evidence is regional 2003).

This brings to a sharper focus the significance of global marketing where marketing activities are synchronized and incorporated across very large number of countries essentially with the main rationale of achieving cost efficiency. The process can involve various essential activities such as standardised product strategy, identical brand names, unvarying packaging, similar advertisement messages, and coordinated sales campaigns across world markets (Vahlne and Johanson 2002).

However, one must not confuse between exporting and marketing globally. Generally, global marketing has some specific features such as most of the companies operating globally try to integrate sourcing and production with marketing, which though geocentric in nature, offers mostly a uniform marketing mix across various markets spanning several countries and even continents. Certainly, a truly global company instead of offering different products for each and every country brings in the market a distinct high quality branded product as a universal offering. Though at a first glance one might not be able to locate any appreciable difference with export, where an organisation also offers a product across international markets, the basic difference between export and global marketing is that while in the case of former a product is offered in a market after careful considerations of nature of the market and cultural affinities of the consumers of that market, in case of latter, the product is offered across a wide swath of markets that might have significant difference in terms of nature and culture of consumers. This standardisation of the product that is put on sale in widely varying markets is the main feature of global marketing (Schmitt and Simonson 1997).

Thus the most appropriate definition of global marketing would be; marketing activities by companies that emphasize three main features: global integration, standardization of effort, and coordination across markets.  In simple terms it actually means integration and coordination of all marketing activities across different markets spread across different countries into a single standardised format. It is perhaps needless to add that even though it is called global marketing it obviously does not mean that a company has got to enter each and every country in the world. It simply means widening business horizon to take advantage of opportunities and remain prepared against threats on a global basis.

It does not require too much of imagination to realise the enormous amount of market volatility a global marketer has to tackle while carrying on a global business. The basic problem that a global marketer has to tackle is to strike a balance between global marketing strategies of the company and the swings in the local market. The best possible way to achieve this is to develop the ability to ‘think globally and act locally’.

Global marketing has never been easy for any company as it also involves the chaotic task of maintaining equilibrium between standard and nonstandard approaches (standardisation and customisation) which, as any level headed marketer would admit, is absolutely necessary to retain the relevance of a global company in local markets. However, the degree of non-standardisation that a company might allow to creep into its product portfolio would depend entirely on similarities and differences in world markets (Keegan 2001).

The basic principle of global marketing is that the main difference between markets is not so much in tastes and preferences of consumers and their cultural leanings but mainly in the rules, regulations and laws that are prevailing in each country. Thus a common single strategy for marketing a product should work equally well irrespective of the market where it is applied.

The global market is now not what it was a few decades ago. Many countries have lowered their tariff barriers and are continually embracing free trade policies to further open up their markets to foreign and global players. Thus local producers are increasingly being subjected to competition from global players and with progressively shortening product cycles and ever improving technology, only those that can offer the best products at cheapest prices will survive; the rest will simply vanish from the commercial scene. Several international management experts feel that in near future only those companies that operate on a global basis will survive and prosper – others simply have no chance (Kay 1995).

Like any other marketer, a global operator would also love to develop consumer loyalty which happens to be the only protection against economic turmoil that the world economy is currently going through. Consumer loyalty ensures the survival of a brand, global or otherwise, through worst forms economic turmoil and downturn as consumers will rarely desert the brand even when marginally cheaper locally manufactured substitutes are available. Though consumers can be lured to buy a product through temporary price reductions, such price discounts are surely not the way to foster consumer loyalty. The only way to forge an emotional bond with consumers is to present a product that satisfies an overriding need of the consumer. In current world economic scenario, only global marketers have the wherewithal to spend money on elaborate research and development to come up with products that genuinely have a superior quality and are able to comprehensively fulfil customer requirements.

A global marketer thus needs to undertake serious market research to understand whether there is a scope for fulfilling some unfulfilled demand that existing products in the market are unable to satisfy and manufacture a product that fills in the utility gap. Once such a product is presented to customers, their loyalty towards that product is assured.

A product that has a large number of committed buyers obviously enjoys a high degree of brand equity and the marketer must continuously take pre-emptive steps to ensure a sustained advantage for the producer by enhancing the brand equity.

For that, an analysis is necessary to ascertain loyalty of frequent buyers as they are a source of constant revenue and also to quantify the impact of price reductions, discounts and intense promotional campaigns on consumer loyalty. These are important parameters that need to be monitored on a regular basis (Srull & Wyer, 1989). A global marketer has to, as already stated, thus ‘think globally and act locally while making such decisions as they are likely to vary significantly between markets and between countries.

3.3 Coca-Cola as a global company

As in 2004, Coca-Cola stood 129th in the Fortune 500 list and recorded 38.4% of its sales in North America, 22.4% in Europe and 24.9% in Asia. Out of total Coca-Cola sales in Asia, 74% of it was in Japan and the company was trying very hard to increase its market share in China (Rugman and Verbeke 2004).

(Pie Chart created by author)

There is a conundrum however, that marketers are yet to solve. It has been observed that countries that urge the world to respect and recognise their individuality and culture also urge the global corporations to transfer latest products in their markets almost simultaneously as they appear in first world markets (Wan and Hoskisson 2003). Coca-Cola and Pepsi though would not have to contemplate much on this issue as they have already penetrated deep into almost all of world’s markets.

The author of this project simply cannot resist the temptation of recounting an anecdote, though apocryphal, concerning Mr. Raj Narain, the health minister of the Janata Government that was formed in India in 1977. It is widely believed that Mr Narain, while debating in the Indian Parliament on some issue related to general standards of civic amenities available in Indian villages had commented that, while the Indian Government had not been able to provide clean drinking water to all its villages, Coca-Cola had been able to deliver its product in each and every Indian village. Nobody has taken the trouble of scouring through the records of Parliament to verify whether Mr. Narain had indeed uttered these words or not, but one thing is absolutely clear, and that is, Coca-Cola could win over every market it entered – partly through its inimitable taste and partly through its equally inimitable channels of distribution.

3.4 The power of Branding

There are two definitions of branding that are in circulation for years and we can term them as ‘erstwhile’ and ‘established’. While the ‘erstwhile’ or the most simplistic definition of brand denote a name or a logo or a trademark that signified ownership, the ‘established’ definition of brand includes the added values that a brand imputes on the product. While the products are made in factories, brand values are essentially a matter of personal perception that stay in the mind and have a longevity that far exceeds that of the product  (Blamer and Greyser 2003).

These values might or might not be directly noticeable but are attributed to the product through intelligent mix of continuous advertisements conceived by communications experts and delivered through proper channels as determined by experienced mass media advertisers. An example might be the brand of Starbucks that does not only bring back the experiences of exquisite coffee but also remind a person that the company is among the top five best employers (Schmidt & Ludlow, 2002).

Quite a few management experts perceive brand as simply the physical experience that a consumer recalls every time he is exposed to the brand and views a brand as an important and extremely effective tool for advertising, sales promotion and marketing. This somewhat constricted perception of brand is often termed as brand experience which many experts claim to be one of the most important bases on which a consumer makes a final decision.

Brand managers who are of this view, try to build a brand around the unique selling point of a particular product and a properly calibrated brand management builds up a favourable image of the product in the minds of prospective customers who get convinced about the superiority of the product much before the actual purchase.

If such a brand exists, advertising and sales promotion becomes that much easier since the unique selling points of that product need not be repeated or stressed in advertisements or sales promotion programs. A mere reference to the brand would be enough to cause a recall of all the USPs of the product.

Branding thus is a very effective tool in creating a favourable impression in the minds of prospective customers. This is many a time carefully manipulated by brand managers to instil a perception of value in the product so much so that customers willingly pay a higher price for it even though the raw materials and ingredients used in it are not in any way different or superior to those used in manufacturing competitive products. Customers can be motivated to pay a price that defies logic through a carefully managed advertising campaign (Olins, 2003).

Marketing experts describe this phenomenon as brand value and this can be built up only by orchestrating other aspects of marketing. When a brand reaches a stage where it can be instantly recognized over large sectors of targeted market places, without the name of the manufacturer, it is said to have obtained brand franchise as it has become matured enough to stand on its own without any help of manufacturer’s goodwill. This, as already stated earlier, can be achieved through sustained advertising, sales promotion and marketing.

A case in point is Coca-Cola and Pepsi that have so much brand franchise (built through years of sustained advertising and sales promotion) that the name of the manufacturers and their status as possibly two of the largest producers of soft drinks and beverages are completely irrelevant to the consumer who is already convinced about the efficacy of the soft drinks they offer at the time of purchase (O’Guinn, Allen, & Semenik, 2006).

It would be most logical at this stage to discuss a little about corporate brand equity. Brand equity is an intangible value associated with a brand that motivates a customer to pay a price that is higher than competitors’ products that have similar ingredients and satisfy similar needs. Example of brand equity could be the products of Coca-Cola and Pepsi that sell in market at a considerable premium over comparable local substitutes.

Corporate brand equity refers to reputations of companies that are held in high esteem by consumers and it is reflected in market-to-book ratio which is the ratio of net asset value of companies and their market capitalization. It is on an average 4.7 for the S&P 500 companies (Haigh & Knowles, 2004).

Corporate brand can also be considered as another form of address that carries with it certain inviolable tenets of business ethics and norms that act as a shield to protect the organisation as well as all its stakeholders from any form breach in corporate ethics. Corporate brand actually acts as very strong covenanted identity about the manner in which the company carries on its business and produces products that serve the best interests of consumers (Balmer March, 2002).

Source: AC3ID Test™ trademarked by J. M. T. Balmer, 2001.

The world has become a smaller place courtesy improved transportation facilities and widespread reach and penetration of internet. Marketers now have the entire world as their market and they have made full use of it as is evinced in increased preference by consumers for branded products. They are increasingly buying brands instead of products and are willing to pay premiums for leading brands. Thus a strong brand is especially a great asset of those firms that are global in the truest sense and offer soft drinks and beverages as Coca-Cola and Pepsi. A strong brand as can be seen has an identity of its own and can command an unprecedented amount of loyalty. Such a loyal clan of consumers is every marketer’s dream, especially in these bleak and gloomy times of an economic downturn (Srull and Wyer 1989).

4. Findings and Analysis

4.1 Fierce competition between two cola giants

So it is not unnatural for these competing companies to bitterly fight with each other in an attempt to dominate consumers’ mindscape. With gloomy financial forecasts that do not predict a quick end to current economic downturn, both Coca-Cola and Pepsi have turned their attention to reviving consumer spirits through Pepsi’s “Every generation refreshes the world” and Coca-Cola company’s “Open happiness” that will replace it hugely successful “Coke side of life” which, quite obviously, is the brighter side. This however is not the first time that these competitors have unleashed advertisement blitzes to uplift the spirits of their consumers across the whole world. The -“Have a Coke and a smile” and “Joy of Pepsi” instantly come to the mind of any discerning observer of this never ending rivalry between Coca-Cola and Pepsi. But now it seems that both these giants are feeling an extra sense of urgency to do their bit in livening up an otherwise gloomy landscape.  Jeff Cioletti, editor in chief of Beverage World, felt that such uplifting campaigns are indeed necessary for both these giants to be close to their consumers’ hearts in these distressing times (Zmuda 2009).

Very recent stories of fisticuffs between delivery men of Coca-Cola and Pepsi over shelf space in a supermarket however have nothing to do with corporate rivalry; it was more a personal and localized matter between two individuals.

But one must never forget that this war between Coca-Cola and Pepsi is not restricted to American markets only. They fiercely fight with each other in every market of the world. A case in point would be the way they fought tooth and nail when Coca-Cola made its appearance in Delhi market where Pepsi was already enjoying a head start of three years. Coca-Cola fired the first salvo by proclaiming more or less literally from every roof top that the real thing was back. Pepsi responded with a brilliantly crafted rejoinder that started off with a bold declaration “Today Pepsi would like you to try a Coke.” and ended with a statement that has become one of the best examples of how to drag through dirt a competitor without breaking the norms of clean and healthy advertising: “Coca-Cola and Coke are registered trademarks of the Coca-Cola Company. Pepsi is the choice of a new generation.” Admittedly, Coca-Cola had very little to offer as a riposte. What followed however went beyond the realms of advertising and bordered on criminal offence as many Pepsi billboards and signboards were found smeared with black paint. Pepsi filed a police complaint laying the blame squarely on the doorstep of Coca-Cola, but, as expected, nothing substantial or concrete could be unearthed regarding the culprits that had actually defaced Pepsi’s advertisements.

Pepsi waited for an opportune moment and struck with full force on the day Coca-Cola was launched in Delhi. It hiked the price of Pepsi Cola from Rs. 5 to Rs. 6 per 250-ml. bottle that left Coca-Cola managers scrambling for cover to find a suitable counter strategy as they realised retailers were bound to hawk both Pepsi and Coke at Rs. 6 a bottle which would effectively neutralize Coke’s penetration price of Rs. 5 for a 300-ml. bottle. Neel Chatterjee, general manager, marketing, of Pepsi Foods Ltd, said that they had sold an average 29,000 crates the same day. He estimated that Coke would have sold about 18,000 crates that day (Easwaran 1994).

(Pie chart created by author)

4.2 Consumers gain as cola war continues

Pepsi had filed an anti-trust suit against Coca-Cola in May, 1998 alleging that Coca-Cola was using its substantial superiority in fountain-dispensed soft drinks in restaurants and movie theatres to stifle any move that Pepsi was making in entering that market.

While replying to the charges levelled by Pepsi, lawyers of Coca-Cola argued that “The `cola wars’ have brought consumers in the United States and, throughout the world, the benefit of low prices, extraordinarily broad availability, and wide consumer choice.” The lawyers went on to further declare that though Coca-Cola dominates the overall soft drink market others were not completely marginalised as was evident from the figures provided in Beverage Digest that stated that Coca-Cola has a 43.9 percent share, followed by PepsiCo with 30.9 percent and Dr Pepper Co. with 14.5 percent (Walsh 1998).

(Bar Chart prepared by author)

4.3 Cola giants close ranks when faced with common threat

Though these two cola giants are at each other’s throats most of the time, they also close ranks if they perceive there is a common threat that might harm businesses of both. It had happened in Middle East where the cola giants have perhaps fought the toughest and bitterest battle outside of United States. Initially Coca-Cola was way behind Pepsi and was actually referred to as “red Pepsi” as it was gradually clawing back after a hiatus of 25 years of boycott by Arab nations as retaliation against doing business with Israel, a Jewish state.

However, both these giants took a battering due to the regional instability that has become chronic to this region. In fact, anti-American sentiments took such a serious turn that Coca-Cola had to close its principal Middle East office in Bahrain and shift its strategic personnel back to Europe in March, 2003. Coca-Cola Egypt, the parent company’s largest subsidiary in the region was forced to float a $150 million share offering in March following losses of more than $100 million.

Pepsi also had to suffer several setbacks on account of this market instability that resulted from the political and social instability in this region. They are also facing challenges from home grown soft drinks and both have decided to push their non-core brands harder in a market that is gradually becoming populated with non-carbonated drinks.

These two companies have also closed ranks in India when they faced a scathing censure from an environmental watchdog that alleged in August, 2003 that samples of drinks produced and marketed locally by the two companies contained “residues of four extremely toxic pesticides and insecticides: lindane, DDT, malathion and chlorpyrifos … enough poison to cause – in the long term – cancer, damage to the nervous and reproductive systems, birth defects and severe disruption of the immune system”. The following day, as across the subcontinent young radicals took to the streets to smash bottles of Coke and Pepsi and call for a country-wide boycott, the two companies took the unusual step of holding a joint press conference to refute the allegations (Lidstone 2003).

4.4 Coca-Cola and Pepsi – why one went ahead of the other

As already stated in this thesis, Pepsi is behind Coca-Cola by a good 14% of global market share and the most obvious question that immediately crops up in any rational researcher’s mind is what could be the reason for Pepsi falling behind Coca-Cola as it was founded only seven years after Coca-Cola which was established in 1885 by John Pemberton as a patent medicine.

The early founders of the brand Coca-Cola, going back to the 19th century, had a grand vision of globalisation and wanted the drink to be available everywhere on planet earth and, they have succeeded to a large extent in achieving that highly ambitious target.

Just to put things in proper perspective, it may be stated that Coca-Cola has been in Africa for about 80 years – the first franchise was opened in Johannesburg in 1928. Today there are 160 manufacturing plants across the continent. Coca-Cola holds the number one position in the non-alcoholic beverages (excluding tea and coffee) segment and controls around 30% of the market. Coca-Cola Africa is readying itself for one of the biggest sporting events of the world – 2010 FIFA World Cup in South Africa (Versi 2007).

This information only puts in sharper relief the continuous surging forward of Coca-Cola while Pepsi remains stuck to its pre-eminence in Middle Eastern markets Saudi Arabia and other Arab countries where Coca-Cola was forced out of the market due to political reasons rather than commercial and economic.

Before we get into the analysis of this anomaly it would be better to accept the fact that from the customer’s standpoint, the difference between Coca-Cola and Pepsi is basically a matter of perception rather than actual taste. Both are sweetened carbonated beverages with Pepsi being a little sweeter than Coca-Cola and that might be one of the reasons as to why many people prefer Pepsi over Coca-Cola in a blind test but would prefer to drink Coca-Cola if they are asked to drink an entire can. Some say that the there is also a difference in the degree of carbonation between the two but it has been confirmed through laboratory testing that the extent of carbonation depended on the location of manufacture and on an average the degree of carbonation is almost the same in case of both Coca-Cola and Pepsi (Balabanis, et al. 2001).

Samuel McClure and his colleagues have found through elaborate scientific observation done on a batch of 67 volunteers that it is basically a matter of perception that is accentuated by visual messages and marketing messages that prompts a customer to choose one drink over the other. The researchers started with asking these 67 volunteers about their personal choices first by asking them and then subjecting them to blind tests. They actually gave subjects a couple of sips of either Coca-Cola or Pepsi and as they drank what was given to them, the researchers scanned the subjects’ brains by using the technique known as functional magnetic resonance imaging (fMRI). This technique of brain mapping uses harmless magnetic fields and radio signals to measure blood flow in regions of the brain since such flows indicate levels of brain activity. While this experiment was done, each volunteer was exposed to either anonymous pictures or photos of Coca-Cola or Pepsi cans before they took their sips.

The experiment allowed the researchers to study the regions of human brain that were activated when the subjects used information only related to taste as compared to when they also had information about the brand.

It was observed that while brand recognition about Pepsi did not have any specific effect on the perception zones of the brain, knowledge about the brand when Coca-Cola was sipped had a remarkable effect on “dorsolateral prefrontal cortex” and the hippocampus. Both these areas and, hippocampus in particular, tend to modify human behaviour and reaction by recalling cultural information. Thus when the subjects were sipping Coca-Cola, their perceptions about the brand played a great role in enhancing their enjoyment rather than the taste of the soft drink alone. No such exception was however noticed when they drank Pepsi (McClure, et al. 2004).

This perception or image about the brand Coca-Cola has been built up through decades of sustained advertising and though Pepsi was never shy of advertising its presence or product, its endeavours must have definitely fallen short of the potency of the sustained and varied campaigns unleashed by Coca-Cola over almost century and a quarter since it first came in the market. This, as this experiment also strongly suggests, might be one of the main reasons as to why Pepsi could not measure up to the stature of Coca-Cola as the leader in soft drinks market (Ruigrok and Wagner 2002).

One needs to draw another distinction at this stage between Coca-Cola and Pepsi. We are comparing here only the performances in the soft drinks sector but we must remember while Pepsi generates most of its revenue around the globe from its snack divisions, Coca-Cola is purely a beverage company. Thus, it is perhaps obvious that Coca-Cola will be a couple of steps ahead of Pepsi in this struggle for market share, if it wants to survive. Moreover, when it comes to investment, Pepsi prefers to channelize funds in only those markets where it is the dominant player (as in Middle East) whereas Coca-Cola, which has long been proud of the fact that it operates in every corner of the globe and is a leader in most of the markets that it operates in. As a result of this inherent difference in corporate attitude, Coke earns more than 60% of its revenue from outside of United States while Pepsi earns most of its revenue from within the United States (Wilbert 2006).

So, we have been able to cite one more reason as to why Pepsi has fallen behind Coca-Cola in the age old rivalry between cola giants. But there are other reasons too that have contributed to this scenario.

One of the major outlets of cola drinks in the United States is through fountains and Coca-Cola has a huge lead over Pepsi in this segment. Throughout the 1980s Coca-Cola had more than 80% of market share in this sector (Allen 1994).

Though it reduced to 65% with Pepsi’s share increasing to 22% by 2000, still Pepsi was way behind its main rival. Pepsi tried to force its way into this sector by coming to some form of agreement with food-service distributors who along with napkins, ketchup, French fries and hamburger buns also provide soda syrup that is used in soda fountains in 90% of the restaurants across United States. But when Coca-Cola could sense that Pepsi is trying to directly challenge its market monopoly in this area it warned the five major distributors of this syrup that they cannot simultaneously supply soda syrups of both Coca-Cola and Pepsi, they have to choose between one of these producers and, if they insisted on supplying both the manufacturer’s product, Coca-Cola would be constrained to terminate their contract with such a distributor. Though Pepsi approached the court of law claiming that Coca-Cola is trying to push out Pepsi from this market by exercising its near monopoly status, there still remains a huge gap between the two competitors in this market. This happens to be one of the major reasons as to why Coca-Cola is ahead of Pepsi in terms of overall market share of cola drinks (Ghemawat 2003).

5. Problems and challenges faced by cola companies

Coca-Cola and Pepsi have of late been plagued by a series of local competitors that have grabbed a considerable share of the market but more than that have for the first time posed a challenge to these two cola giants. These two superpowers of the cola world had all along projected themselves as invincible and this challenge to their unquestioned supremacy might just be the beginning, opening the floodgates of a bigger challenge when the consumers also start thinking that they have genuine alternatives other than Coca-Cola and Pepsi to choose from whenever they feel like drinking a bottle of chilled carbonated beverage.

UAE’s Star Cola and state-owned ZamZam Cola of Iran gain their strength from the image of ethical, Islamic alternative to American Coca-Cola or Pepsi. But these products are limited to their countries of origin and if there are any exports they are essentially to other Gulf countries only.

Two other enthusiastic entrants in the Middle East market are UK-based Qibla Cola and Paris-based Mecca Cola. Mecca Cola had already signed an agreement to set up a bottling plant in Jebel Ali Free Zone during the middle of 2003 and had set for itself a target of 10% of the total cola market in the region. Qibla Cola also was in the process of setting up a bottling plant in UAE and was streamlining its distribution infrastructure in Egypt and Saudi Arabia.

Advertisements of both these brands have an underlying religious appeal of being genuinely Islamic and they try to take full advantage of the simmering anti-Americanism that has always been in this part of the world. One advertisement of Mecca Cola runs “No more drinking stupid, drink with commitment”. Though surely rather awkward but the underlying religious appeal is hard to miss. Both these brands profess to donate 10% of their profit to charitable causes and Qibla Cola identifies itself rather too blatantly with the Palestinian cause and tries to don the garb of a champion of ‘free trade’. Mecca Cola is also having problems of getting its name registered in Saudi Arabia and yet to commence operation in that vast cash rich market.

Though it would be a complete misnomer to say that these new entrants have dented the hegemony of Coca-Cola and Pepsi, it is a fact that both these behemoths are facing declining sales. Coca-Cola attributes this to a steady rise in the demand for non-carbonated beverages like juices and water. The real danger to their supremacy is not form Mecca Cola or Qibla Cola but from from crossover producers such as Egypt’s Fayrouz, which produces non-alcoholic malt beverages for the halal market. The marketing tactic for Fayrouz is very clever. It was originally in the non-alcoholic malt drink market, but by launching a new range of flavours it took on the big American producers and its orange and apple flavours are now outselling Mirinda and Fanta.

Coca-Cola and Pepsi have responded by pushing their non-cola brands and in Yemen, Coca-Cola has been able to achieve substantial increase in the sale of Canada Dry while the sale of classic Coke has remained constant.

Some researchers have come to the conclusion that the real competitor to Coca-Cola and Pepsi in Middle East is water. This is borne out by the fact that while the  sales of bottled water have grown by more than 40 per cent in the last four years, reaching 2,202 million litres in 2002, per capita consumption of carbonated soft drinks  over the same period declined by 16 per cent (Lidstone 2003).

Coca-Cola also got embroiled in a series problems and contamination scare that dented the sales in Europe very heavily. Economic slowdowns in emerging markets like South Korea also damaged global sales. In the meanwhile a racial discrimination lawsuit in Atlanta tarnished the company’s carefully manicured image. As if this was not enough, Doug Ivester suddenly resigned the chairman’s post (McClatchy-Tribune Information Services 2000).

6. A New Threat – Attempted Global Boycott of Coca-Cola and Pepsi

A full page advertisement in the New York Times on 4th July, 2003 made a scathing attack on how corporate power has managed to complete its stranglehold on the government of United States. This negative feeling towards the erstwhile flag bearers American free spirit and spirit of enterprise did not materialise overnight, it took nearly six odd months, almost from the time George Bush ordered “Operation Iraqi Freedom,” citing dubious information of Iraq having a large storehouse of weapons of mass destruction. The world looked on in horror as the only superpower of the world suddenly started acting like a rogue state. The world-wide reaction against United States took the form of a rethink about the relation that would be maintained with corporate America and the conclusion was pretty obvious. Coca-Cola, the most ubiquitous symbol of corporate America was suddenly on the line and saying no to the United States was saying no to war. And saying no to United States suddenly became very easy as one could simply refuse to enter McDonald’s outlet or not drink a bottle of Coca-Cola or Pepsi. This boycott was never organised in a formal way but it started off on its own. The London-based Boycott America website (www.boycottamerica.org) launched in the wake of the Iraqi invasion, took the issue much beyond Iraq and the Bush administration’s military adventurism. It referred to American threat to environment as the country successfully stalled protocols aimed at curbing climate change and its threat to the world’s food chain with the proliferation of genetically modified organisms as additional reasons to press on with the boycott. Though such boycotts are usually short-lived and die a quiet death as emotions cool down, one must admit that there is a very strong undercurrent in large parts of the world against things that are American, mainly American global companies.

7. Sea change in business approach of multinational companies

Multinational corporations no longer produce products. They are now solely in the image business. They no longer build factories. Today they build advertising campaigns. They no longer invest in plant and machinery or land and buildings but they invest in images. They scour across the globe in search of worst working conditions, which translates into the lowest wages and costs. They fire their employees while cultivating customers and continuously driving down living conditions all over the third world.

Coke and Pepsi typify the most successful of all the branders. Their assets rest on World Trade Organization protected amalgam of image and license. The scenario is pretty uncomplicated as it were. Coke and Pepsi own an image – one that ultimately represents American cool. In nations around the world people manufacture their own Coke and Pepsi under license, using their own water and bottles, often using their own sugar. They then sell it to themselves, using their own distribution networks, sending the profits off to the United States. These two companies, which in essence dominate the world’s beverage market, produce nothing tangible.

They sell cool while vacuuming money up from around the world. In doing so they are spreading a toxic culture of obesity – the same culture that is killing citizens in the U.S. homeland, where soda pop consumption has doubled since the mid 1980s, contributing to a 50 percent rise in the obesity and diabetes rates during the same time span.

The most sophisticated and attractively crafted advertisements in media outlets around the world seduce people to consume Coca-Cola and Pepsi, conveniently suppressing the highly damaging information that each bottle of these beverages contains an average of eleven tablespoons of sugar. Developing nations are left to deal with the health consequences while Coke and Pepsi investors deal up the profits (Niman 2003).

 

8. Conclusion

Though there is indeed some very sound logic in the statements of those who oppose American giant global companies, the fact remains that as long as capitalist system of production is going to continue, maximisation of profit will remain as the sole motive of any business house or an entrepreneur. Thus there will always be an attempt to reduce costs and one cannot really find any fault with the global companies if they throng third world countries in search of cheap labour.

The highly impassioned statements that these global giants are exploiting helpless people might sound very soothing to the ears as we secretly pat our backs on being ‘ethical’, but any person who has the slightest knowledge about the ground reality prevailing in these nations would most surely agree that those workers (generally women and underage children) would have either way worked since they cannot survive otherwise. So, it is always better to toil at a place where payment (however meagre it might be) is assured.

All those crusaders for prevention of child labour are mostly unaware of the dire truth that in third world countries a child is considered as an additional pair of hands that would augment the family’s income. If the global companies have not come to the scene, these children would have had to toil under much starker conditions.

In any case, use of child labour has always been an issue against Nike, Gap and other global companies. Coca-Cola and Pepsi are always manufactured in factories where untrained and underage workers are never employed. Thus, these two global companies cannot be accused of being complicit party to exploitation of children and women.

However, there can be no argument to support Coca-Cola and Pepsi as they constantly motivate people to consume more and more of their respective colas that contain as much as eleven tablespoons of sugar in each bottle. Global companies Coca-Cola and Pepsi surely play havoc with global health and some restrictive action in this regard is always welcome.

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May 1, 2009

H&M – A study of the company and its marketing techniques

Filed under: Marketing — niranjanchatterjee @ 9:24 pm

Relationship between functional needs and emotional needs

The basic riddle that every marketer wants to solve is what actually motivates a customer to loosen his purse strings and how does he think while making a purchase. But there is a basic ground rule. For a product to be of any value to a customer it must be able to satisfy some need of his and it is a common knowledge to all students of marketing that needs are primarily of two types – functional and emotional.

Functional needs are some basic requirements – generally of a physical nature, of a customer that he satisfies by purchasing goods. A car, for example, satisfies the basic need of transportation from one place to another. Thus the functional need of transportation will be satisfied if a customer buys a car, any car for that matter. A BMW M5 that has a top speed of 205 miles an hour might have no extra appeal to a customer who is looking for a luxury car for intra city movement and obviously he would not pay anything extra for the speed factor for which BMW M5 is renowned world over. But for a connoisseur, a BMW M5 is a dream car and he would not mind paying a fortune for it.

So, a product can be marketed only if it is primarily capable of satisfying functional needs of a customer. Only after these needs are satisfied, would a customer proceed to satisfy his emotional needs that are mainly a matter of the mind and vary widely from person to person.

The functional needs have an upper limit, one cannot simultaneously ride in two cars, but emotional needs are unlimited. There is really no upper limit to how many cars one might like to be parked in one’s garage. (Hawkins, Best, & Coney, 1992)

Consumer Loyalty

One of the most important constituents of Brand Management is a proper understanding of the concept of consumer loyalty. Many marketers make the mistake of labeling consumer loyalty as a decided preference of consumers towards a particular brand but it might not necessarily always be so. Consumers might be loyal to a particular size, form or flavor like many housewives prefer to buy detergents only in packages of two kilos as they feel they are able to keep a tighter control on monthly quantity consumed that way. There are also some consumers that want their domestic cleaner to have a particular flavor, while being reasonably flexible about manufacturer.

The other aspect in studying consumer loyalty is to assess how loyal frequent buyers are as this is the most important group that determines the turnover level. If a manufacturer is able to garner loyalty of a sizeable group of frequent buyers, he can be assured of a steady inflow of revenue for a long time to come as consumers will search out that manufacturer’s products and will also be willing most of the times to pay a considerable premium for those. Thus the manufacturer will also be able to maintain a slightly higher price level than his competitors and this will add an esteem value to its already popular products.

A marketer with a progressive mindset will also analyze the entire mix of the bundle of products that a consumer buys in order to properly understand the dynamics between his brand and the competitive set and also to correctly evaluate the impact complementary products might have on the demand of his output. Retailers are very much dependent on consumer loyalty for sustenance and they pay a lot of attention on the specific issues of pricings and promotions that affect store loyalty. (Espejel, Fandos, & Flavian, 2008)

The impact of consumer loyalty on consumer behavior

One thing is absolutely clear that a loyal consumer will skip competing brands and choose the preferred brand even if that means paying a premium for making that purchase. Thus a producer or, more particularly, a retailer would not mind going extra lengths to cultivate a dedicated band of loyal consumers who would make it a point to do all their purchases from a particular retail outlet.

Marketers have agreed to certain basic techniques of winning over and retaining consumer loyalty and experts from all schools of marketing management feel that constant communication with consumers in a way that engages them and makes them feel important and innovations in product presentation are the two most effective means of nurturing and retaining consumer loyalty. Innovativeness also plays a decisive role in winning over the large chunk of consumers who generally remain undecided before making a purchase and decide upon the product on an impulse at the actual point of purchase.

Consumers have traditionally been loyal to brands they have trusted over the years but it has been observed that a sizeable group of consumers are progressively becoming more and more cynical about large companies and their underlying motivations. So, it is becoming increasingly crucial that a company must appear to be authentic and genuine in serving the consumers especially if the products are of a nature that affects consumers’ interests immediately. The phenomenal growth of private labels and their increasing fan following is enough of an indication of growing disenchantment of consumers with established brands and large manufacturers should start taking notice of this shift in marketing trend if they are to retain their preeminence in the marketplace. The competition is no longer from another established brand but from localized products that have a small but fiercely loyal band of consumers. (Wright, 2006)

What is a brand?

A brand might be symbol or a logo or a combination of words and pictures that immediately conjure an image or cause a recall of some previous experience the consumer might have had that prompts him to choose a particular product over other competing goods or services. This brand recall might not be restricted only to the physical experiences and it could very well spill over to the image of the company as a whole. (Schmidt & Ludlow, 2002)

There has been a long running debate among management experts about whether brand recall is restricted to only the physical experiences or it has some allied mental perceptions as well. Many marketers feel that preconceived notions play a large part towards creating a brand image and are convinced that properly orchestrated advertisement campaigns highlighting the unique selling points of a particular product can effectively create a positive brand image leading to higher and steadier sales turnover.

Branding thus can create a favorable impression in the minds of prospective consumers about either a specific product or the company in general and these consumers might become ready to pay a premium for this perceived superiority of the product or its manufacturer. This would surely defy the standard laws of market price mechanism but the producer of a popular brand usually enjoys this sort of extra benefit and it becomes rather difficult for competing producers to catch up with the market leader.

This sort of preeminence among competitors is usually termed as brand value and it requires a considerable time to slowly build it through meticulously managed and planned advertising and publicity campaigns. When a brand is able to stand on its own, without the backup of the producer, it is said to have obtained a brand franchise. (Olins, 2001)

How many among us know Ferraris are manufactured by Fiat?

Functions of a brand

A brand is a consistent image that a company projects of itself and its products in a competitive marketplace to set it apart from competition. Some management experts term brand as a business card of a company. It indeed plays a huge role in creating an elevated position in a highly competitive scenario and is possibly the best and most efficient way of conveying to all stakeholders of a business enterprise the core values and principles the organization stands for.

Brands fulfill following functions from a consumer’s perspective:

  • Brands are best means of communication between consumer and manufacturer as the consumer is aware of what he can expect from a branded product. Thus it becomes easier for a consumer to make an informed choice while making a purchase.
  • The risks associated with purchasing are thus minimized and a bond based on mutual trust and faith between producer and consumer gradually develops and gets stronger by the day.

The functions of brands when viewed from company’s perspective are:

  • Brands generate and nurture customer loyalty that makes consumer less sensitive to price changes and these brand conscious consumers would neither mind paying a premium for the branded products nor would drastically reduce their consumption in the face of price rises thus making them very valuable to the producers. All marketers dream of such a dedicated band of consumers who would never shift to an alternative source irrespective of the provocation.
  • A brand is a form of goodwill that can be effectively milked by the producer in obtaining licenses and permissions, especially in the area of international expansion, as there have been instances of otherwise restrictive regimes like China opening their doors wide open to internationally reputed brands when they expressed a desire to set up production facilities in Chinese mainland. (Malaval, 2001)

Brand Positioning

Positioning in marketing implies creating a niche position of the product and the producer in the minds of consumers. A brand is successful when it results in immediate recall and a properly positioned brand most certainly brings to sharp focus certain uniqueness of that particular brand which creates strongly favorable ripples in the minds of consumers that almost always result in sale. A properly positioned brand lets the consumer know what he might expect after purchasing the product and the producer takes all measures to ensure that the consumer actually experiences the advertised result. So, a product that has the potential to consistently deliver certain proclaimed values easily creates a special position in the consumers’ minds and creates a committed band of loyal customers. One of the most preferred marketing techniques to properly position a brand is to create four or five short (not more than five words) phrases that convey the spirit of the brand in a pithy and attractive way so that a consumer can immediately visualize what lay in store for those who consume the branded good or service.

This sort of recalling or constructing a mental picture is known in marketing terms as brand resonance where a strong psychological bond comes into existence between consumers and the producer through a properly positioned brand.

Producers need to be proactive in order to survive in highly competitive environs of modern day markets. Any management must create certain uniqueness in its products and services for the brand to achieve any strength. This is true also in case of generic products where the producer’s image of an honest and sincere operator often motivate customers to buy (sometimes at a premium) a generic product from that particular producer when competitors are willing to sell the same generic product at lower prices. (Trout, 1969)

Brand programs and positioning used by H&M in western markets

H&M AB (originally known as Hennes and Mauritz) is one of the world’s most famous producers of apparels and dresses for men and women. The dresses from the house of H&M are conspicuous for the uniqueness of their designs and an appeal that is slightly off the beaten track. This company has dedicated online stores through which it serves fashion conscious and aesthetically inclined numerous men and women in US, UK and Europe with all the exquisitely designed apparel. Possibly the main reason for the mind boggling popularity of H&M is its ability to cater to subtle differences in tastes and preferences that invariably occur as one traverses through the countries that dot the European mainland. H&M seems to have a finger on the pulse of each and every country’s culture and tastes of people and almost invariably seems to supply apparel that have been made as if to specifically suit that particular country’s tastes and preferences. This strategy of supplying only those clothes that would appeal to the citizens of a particular country or region has elevated H&M almost to the status of a myth in marketing. (Concepcion, 2008)

H&M specializes in apparels and dresses that are moderately priced but made from fabrics of good quality and, most importantly, exclusively designed to perfectly satisfy the sartorial desires of the population of various countries and continents. H&M would have had to invest huge amounts if it went about designing dresses for each country on its own, so it took the most prudent way out of this crisis by entering into joint ventures with renowned retailers like Gap (to keep distribution costs at a minimum) and established companies and persona in the field of apparel designing like Stella McCartney. The planned brand ambassador of this new clothing line of Stella McCartney which was to be introduced in 2005 was Kate Moss. H&M did not hesitate to drop Kate Moss late in 2005 when allegations regarding drug abuse began to surface about this renowned personality of the glamour world thus sending a clear signal about its corporate stand on dubious and avoidable matters as drug addiction. This action of the company immediately generated enormous amounts of goodwill in entire western world and positioned the brand at an enviably high perch. (H&M, 2004)

H&M has become one of the largest retailers in Europe. It has reached this iconic status by targeting each member of the consumer group by primarily dividing them into convenient groupings as men, women, teenagers, children and future mothers and has exclusive offerings to satisfy each group. Moreover, the company slots its customers into two distinct categories – practical consumers and fashionable and trendy consumers and caters to requirements of each group separately. While clothing never exceeds basic physical requirement for the former group, it becomes a matter of sartorial elegance in case of the latter. Keeping this basic difference of these two groups in mind, H&M stocks its stores with clothes of distinct categories so that not one member of either group return unsatisfied. Thus H&M pursues a policy of uniqueness and differentiation from its competitors and manages to create a unique position for itself in the minds of consumers. It never refrains from surprising the consumer as it did when it entered into a partnership with Karl Lagerfield, one of the hot names in the field of haute couture, to design one of its new lines of collections. None could ever imagine Lagerfield would associate himself with such a non-exclusive label but this partnership was a win-win proposition for both as Lagerfield got a publicity he would have never ever been able to manage on his own and H&M got a veneer of respectability that was not a part of its portfolio till then.  (Schultz, Antorini, & Csaba, 2005)

H&M realizes that any promotion that does not take into account specialties of the region where the advertising campaign is being carried out is bound to have little effect on the population that is being targeted by the advertising campaign. So, H&M conjures up unique campaigns that seamlessly merge with the local flavor without losing out on the essence and personality of the corporate image of H&M that strongly sends out a message of customer satisfaction at minimum expense. (Roberts, 2004)

Do consumers treat H&M as Mcfashion?

Mcfashion is a word coined to reflect as correctly as possible the current trend of international retailers to swamp markets with clothes and apparel that are mass manufactured. This has lead to a situation of unfailing similarity in what people wear across continents. A young lady from Thailand is wearing a dress that is exactly similar to that worn by her counterpart in Germany. The situation has an uncanny similarity with McDonald outlets. No matter which part of the world you are, fries and burgers would taste just the same without any variation or any hint of a local flavor.

The clothes peddled by international retailers are, exactly like the output of McDonalds, neither costly nor exclusive and, just as you crumple the disposable plastic and paper cutlery and crockery that come with McDonald fries, these giant retailers like Gap and H&M expect you to throw away the clothes you had bought off one of their ubiquitous outlets once the fashion changes. Somewhere in the entire process, fashion crushes whatever individuality one had in the form of style and we are faced with a terribly boring proposition of one individual getting dressed up exactly as the other with words like ‘ethnicity’ and ‘local flavor’ being consigned to the dump of history. (Lee, 2003)

But, some diehard fans of H&M try to draw a line of distinction between Gap and H&M by saying that the latter is an apparel house of some distinction that caters to local sensibilities and tastes instead of forcing the same design down everyone’s throat. But the reality is somewhat different. It is indeed true that H&M does not stock their stores with khakis and plain sweaters but what in effect it does is mass produce and mass market so-called individualistic apparel. You will find young men and women all across the world wearing those studded belts and ‘cool’ T-shirts bearing those ‘exclusive’ and ‘intensely personal’ messages as ‘Service before Self’ and huge tinted shades that cover half of their faces with the other half being hidden by those chunky cotton hoodies.

There is however no doubt in anyone’s mind that the difference between an apparel from H&M and that from an exclusive and respected boutique are as much wide apart as a Big Mac and a candle-lit five-course dinner. The former is forever unsatisfying, ubiquitous and hence, utterly forgettable while the latter, immensely satisfying, once in a blue moon occurrence and hence etched indelibly in memory.

Consumers also do not consider H&M as the ultimate in luxurious clothing. They consider it to be a convenient outlet where you could grab a decent looking (it really does not matter whether every other person in the town is wearing something that is an exact replica or very near to it) outfit at a really affordable price. While every lady would pounce on a £3 tank top from H&M surely none would ever step in for her bridal gown. (Law, 2007)

H&M’s success is based on the infallible model of supplying cheap products while removing the stigma attached to outfits that are cheap. The retailer has been able to mix and match affordability with aesthetics to a great extent where one would not think twice before splurging $5.99 on a red and white gingham miniskirt and be happy with the new acquisition and even show it off to friends and associates. Again one is tempted to draw a parallel with Big Mac that everyone knows is not exactly good for health but nobody feels guilty of binging on during lunch time.

Cheap clothes in H&M have also allowed it to continually turn the wheel of high fashion so that the consumers are forever kept running to keep up with all that is latest in order to look ‘cool’ and be a part of the fashion conscious slick urbanite. An average customer would not think twice to dump a dress bought a month ago for $40 and go for the new fashion that is singeing the town. H&M is aware of it and hence markets a new line of clothing almost in every quarter to keep its outlets full of eager beaver customers and ensure that its cash registers keep ringing all the time. (McFASHION, 2006)

Are consumers in western markets loyal to H&M?

The serpentine queue of customers in front of the cash counters in any of the numerous H&M outlets that throng any city worth the name in any country of the world are not customers who would remain loyal to H&M come what may. They will surely drop in at Gap or at Wal-Mart in search of a bargain and if they get something that they were looking for at an acceptable price, they would not hesitate even once to purchase the merchandise.

Customers who very often visit H&M outlets do so in search of fashionable dresses and accessories at vastly affordable prices. These people know that they cannot or will not buy a £350 slingback from Jimmy Choo, but they have no hesitation in buying an almost similar pair (at least superficially) at Nine West by paying £40. Thus, it is the irresistible combination of affordability and fashion that make people rush towards H&M outlets, but no appreciable sense of brand loyalty have been observed till now among this huge crowd of regular customers that have in some cases become compulsive shoppers who very often end up buying things that they do not need or may not try out in near future.

These shoppers expect customer service and a worthwhile shopping experience. H&M has been able to provide a neatly choreographed; as it were superior marketing experience with its brightly lit stores flaunting inviting interiors complemented by a relentless, but very carefully calibrated advertisement campaign featuring celebrities. Customer do feel they are actually dealing with high fashion and spend hours in H&M outlets (it is always a pleasurable experience given the exemplary levels of customer service that they maintain), but the bottom-line still remains affordability and discount campaigns that run throughout the year in H&M.

A black T- shirt for women if bought from the Armani section of a Bloomingdale’s store might cost $275 while if you drop in at Gap you may find a similar T-shirt for $14.50 ($20 if you buy two) and if you want to slash your budget even further, step inside a H&M outlet and you will surely find a black T-shirt for women for only $7.90. Why is the difference in price? In case of Armani it is surely a case of the status and glamour that is associated with the brand and in case of H&M it is mass production that thrives in volumes with a consequent steady reduction in per unit prices. H&M is surging ahead of competition in retail sector simply by serving customers that are least brand sensitive and are only concerned with reasonably tailored garments at very cheap prices. H&M has also mastered the fine art of remaining fashionable and constantly keep changing their window displays to remain firmly within the focus of bargain hunters. (Sarkar, 2007)

The customers that throng H&M outlets can broadly be divided into following categories:

  • Road Runner – These customers love to shop but are not compulsive shoppers and would like to spend time in other activities also. This group would not hesitate in buying if they are able to locate products that are fashionable, cheap and, most importantly, conveniently located for quick purchase.
  • Rainbow – These customers love variety, a lot of collections and almost always buy accessories along with dresses and lay more emphasis on fashion and style while making a purchase.
  • Tailor Fit – These customers are on the lookout for trendy styles and attractive designs. Good quality of fabric and fit and finish is a must for this group of customers and they simply do not mind to pay a little extra for that perfect cut and fit.
  • Bargain Basement – This group is purely on the lookout for bargains and all that they are concerned with is price, discounts and sales. The best way to attract and retain this group is to provide special offers that promise to provide more than what the customer pays for.

The common determinants that would motivate all these four categories to enter an H&M store and buy its products are:

  • A well thought out and innovatively planned layout of the store that would allow customers to get a clear idea of the different varieties that are on offer and related prices without becoming too much dependent on store assistants.
  • Regular stream of offers and discounts that would wean customers away from competitors
  • Conveniently located stores that can be easily accessible
  • A sales staff that would bend over backwards in assisting customers to choose from available products and provide helpful tips to clear confusion in the minds of consumers. This is the single most important criterion for many to drop in regularly at H&M outlets. (sifires5525, 2008)

Thus, it is service and not product loyalty that seems to continually attract customers to H&M outlets.

 

References

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