ALPHA UNIVERSITY COLLEGE

SCHOOL OF GRADUATE STUDIES

MARKETING MANAGEMENT: GROUP ASSIGNMENT-2 (20%)

Now, Coke is No Longer "It"

New CEO Daft promises a fundamental shift of focus as consumers flock to
bottled water, juice, and tea

Jill Friedman, a 21-year-old college student in Atlanta, says she used to drink Diet Cokes all day
long but now prefers bottled water. "As I've gotten older, I've realized that drinking five Diet Cokes
a day isn't good for you," she says. Walking away from caffeine and aspartame may have been a
smart choice for Friedman, but it is bad news for Coca-Cola Co.

Coke's problem is the countless /numerous/ number of people out there who, like Friedman, have
cut way back on their soda consumption. For years, consumers have been moving in
droves/groups/ toward juice, bottled water, tea, and other noncarbonated beverages. Now, after
decades of focusing almost exclusively on selling the world a Coke, the company has a new chief
executive, Douglas N. Daft, who is gearing up /getting ready/to take on/retain/undertake/ the non-
soda market in a big way.

Coke has a lot of catching up to do. Competitors such as The Perrier Group and Quaker Oats Co.,
maker of Gatorade, have already made big strides/paces or walks/ in noncarbonated drinks,
weakening Coke's soda sales. After nearly two decades of 7% annual gains in unit volume sales,
Coke's global volume grew just 1% last year, while its operating profits plunged 20%, to $3.98
billion. Says Tom Pirko, president of New York consultant Bevmark: "If Coke wants to succeed,
[it has] now got to embrace/hold/ other beverages."

Given Coke's long tradition of focusing most of its marketing clout/power/ on its cola brands, that's
a tall order. Over the years, Coke has tended to treat its noncarbonated offerings as second-class
beverages, giving them far less aggressive marketing than the flagship/leader/ product. Indeed, one
Coke insider acknowledges that in noncarbonated categories, the company has been content
/happy/ to produce what he terms "me-too" or "second-in-the-market" products that have produced
small-but-easy profits. "I don't think we've gone at [alternative categories] with our heart and soul,"
says the executive.

BRIBERY/Incentive or Encouragement/: Making matters worse has been Coke's long-term

strategy of subsidizing/support financially/ its noncarbonated beverages to keep competitors off
store shelves. In return for cash payments that run into thousands of dollars per store, many stores
agree to hand over shelf space to Coca-Cola products, including less popular drinks, such as juice-
flavored Fruitopia. Invariably, the practice has left little room on store shelves for rivals such as
New Age SoBe and Veryfine juices.

But that strategy may soon wear out/fatigue/ its welcome. Some retailers have begun to revolt,
scaling back on Coke subsidies in favor of stocking more popular brands. Now, on the shelves of
many 7-Eleven Stores, Coke's Nestea, for instance, has had to make more room not just for the
better-selling Pepsi brand Lipton but also for Snapple and Arizona Iced Tea. Other Coke products,
including its newly launched Dasani bottled water and its Powerade sports drink, are getting
squeezed by more popular brands, such as Poland Springs water and Gatorade. Says Jim Jackson,
beverage manager for 7-Eleven: "In stores where they're competing on a level playing field,
consumers usually choose competitors' products."

That's going to change if Daft has anything to say about it. Departing from years of Coke-centric
tradition, Daft says he's ready to give beverage drinkers the variety of products they crave/desire/.
His goal is to remake Coke into "a leader of the beverage sector, as opposed to a soft-drink
company."

Daft and his team agree with analysts that to get back to those halcyon /peaceful/days of 7% annual
growth in volume and 15%-or-better annual increases in profits, Coke will have to generate as
much as 30% of its future growth from noncarbonated categories. "For us to achieve the growth
rate that people are expecting, we have to become more diversified," says Steve Jones, Coke's new
chief marketing officer. "We have to move beyond Coke and the carbs."

To that end, Daft, Jones, and other top Coca-Cola executives are pushing hard to shake up/surprise
victory/ the company's culture. In the less than three months since Daft has been in the top job, he
has shuffled/mix up/ his management team to promote executives with a track record in
noncarbonated products. What's more, Daft hopes that his bombshell move on Jan. 26 to lay off
roughly 20% of Coke's workforce will help reduce bureaucracy and allow more new ideas to
bubble up from the field.

Next on Daft's agenda is laying out basic guidelines for new products, packaging, and marketing.
Then he intends to cut his local managers loose to develop products tailored /customized/ to local
tastes. While Coca-Cola already sells some 300 diverse beverage products around the globe, Daft
envisions /imagines/ a day when Coke will offer 2,000 or more, many of which will be new juices,
teas, and hybrid products, such as carbonated tea. "We will be trend-setting," he vows/promises/.

That would surely mark a dramatic shift from Coke's predicament/mess/ today. And Daft has a
fighting chance. For starters, Coke's vast global network of independent bottlers, valued by some
analysts at $100 billion, gives it a reach that no other beverage company can match. Even so,
analysts believe that those bottlers, many of which are financially stretched from costly expansions
of the past two decades, may be reluctant to plunge/fall/ into the non-soda market. Generating the
volume needed "to provide profits is going to be a challenge," says Scott Wilkins, an analyst at
Deutsche Banc Alex. Brown Inc.

Even if Coke persuades bottlers to carry its new drinks, some question whether the company will
enjoy the same brand equity in, say, mango juice in Latin America or rice-based drinks for Asia
as it does with Coke. "Without the Coke name, they're just another brand on the shelf," says Brown
Brothers Harriman & Co. analyst Roy D. Burry.

Still, beverage experts say Daft is on the right track. With consumers voting convincingly for new
noncarbonated beverages, it would be suicide to cling/fit/ to cola alone, they say. Just ask Jill
Friedman and the many others like her. They're not drinking as much Diet Coke, but they are
drinking something. And whether it's juice, tea, or water, Doug Daft is determined that they'll soon
start buying it from Coca-Cola Co.

By Dean Foust, with Deborah Rubin in Atlanta

Questions
1. Which of the marketing concepts has coke been using so far?
2. The CEO Douglas N Daft is now moving toward which /or combinations/ of concept/s/?
Why?