Assignment 2

A study on The Coca-Cola Company

Managerial Economics
IY2593

Group 7

Diego Daniel Vargas Carmona

Jose Antonio Soto Villacampa
Mohamed Kamil Morsi Mahmod
Daniel Leon Zapata
Executive Summary
The main goal of this assignment is to conduct a market analysis of the Coca-Cola company focusing on the
US market. To achieve this goal, we started in Section 1 by describing the company, its goal and product
offering. In Section 2, we estimated the demand function for one product, the 2-liter bottled classic Coke. This
was followed by a calculation of the price elasticity in Section 3. Finally, In Section 4, based on historical
revenue data from 2009 to 2020, a sales forecast for 2021 was performed using three different models including:
compound growth rate, 1-year moving average and simple seasonal model. The results obtained in each Section
are summarized below.
The Coca-Cola company is the largest beverage manufacturer and distributor in the world, with more than 2800
products distributed in more than 200 countries (The Coca-Cola Company, 2019). In addition to revenue
growth and market share economic goals, the company has other objectives such as customer satisfaction
and return on investment as well as non-economic objectives, which included investing in employee’s
personal growth and social responsibility. The company distributes their products in four categories: 1) coffee
and tea, 2) Juice and dairy and plant based, 3) Sparkling soft drinks and 4) waters and hydration.
To estimate the demand function for the 2-liter classic Coke, using the total units of 2-liter soft drinks sold per
year as the dependent variable, accompanied with six independent variables: 1), price of 2-liter coke, 2) average
price of 2-liter soft carbonated drinks, 3) advertising expenses per year, 4) US inhabitant population numbers
in the 16 to 18 years range, 5) price of 2-liter Pepsi and 6) average temperature per year. The regression analysis
for demand function allowed us to validate our hypotheses on how each one of those variables would impact
the demand. We got unexpected results for average Coca-Cola 2L price and temperature, which we attribute
mainly to the data set for Coke price and the election of temperature over similar options, such as number of
hot days in the year.
To obtain the elasticity of the 2-liter classic Coke, the partial derivative of its demand function with respect to
its price for 2021 was calculated. This leads to an elasticity value of 0.73 indicating that the demand for the 2-
liter packaging of the classic Coke is inelastic with regards to its price. Additionally, a cross-elasticity of the
Coca-Cola was modelled with respect to 1) other soft drinks in the market and 2) price of Pepsi. For the other
soft-drinks in the market, the cross-price elasticity was found to have a coefficient of -0.37, meaning that they
move in the opposite direction to changes in prices of Coca-Cola to counteract the market. The cross-price
elasticity of Coca-Cola against Pepsi was determined as 0.49. Dhar et al. (2005) manifested Coca-Cola’s attitude
with respect to Pepsi feeling somewhat dictating the market prices while Pepsi must follow (Dhar, Chavas,
Cotterill, & Gould, 2005).
To forecast future sales of The Coca-Cola company, we use historical data of revenues in the US between 2009-
2020 and estimated the sales for 2021. This was done with three different models: constant compound growth
rate, moving average and simple seasonal model from SPSS. The simple seasonal model provides the most
accurate forecast particularly with regards to the summer peaks around Q2 and Q3. This is because the model
not only gives higher weights to most recent observations but also considers a constant seasonal effect. The
moving average method on the other hand only considers the average during 2020 and gives an estimate per
quarter around the mean of sales during 2020. Finally, the constant compound growth rate gives the least
accurate forecast as it only considers the first and last year's observation and ignores the fluctuations in between.
 1. The Firm, its goals and product offerings
For this assignment we selected the Coca-Cola company, an American Company founded in 1886, with
headquarters located in Atlanta, Georgia. Today, Coca-Cola is the largest beverage manufacturer and distributor
in the world. It has more than 2800 products distributed to more than 200 countries (Encyclopaedia Britannica,
2022). Its main purpose, as described in their website is to: “refresh the world. Make a difference’’; while the
company’s vision is described as “to craft the brands and choice of drinks that people love, to refresh them in
body and spirit. And done in ways that create a more sustainable business and better shared future that makes
a difference in people’s lives, communities, and our plane’’ (The Coca-Cola Company, 2019). Figure 1 below
illustrates how the company works to achieve its purpose and vision.

Figure 1. How Coca-Cola achieves its purpose and vision (The Coca-Cola Company, 2019)

In addition to Coca-Cola’s revenue growth and market share main economic goal, the company has other
objectives, such as customer satisfaction and return on investment as well as non-economic objectives including
investing in employee’s personal growth and social responsibility (e.g., being more sustainable and supporting
local communities).
The company has 200 brands divided in four beverage categories:
1. Coffee and tea: Costa coffee and Fuzetea are among the most important products in this category.
2. Juice, dairy and plant-based: Examples include Ades and Simply.
3. Sparkling soft drinks: Coca-Cola, Fanta, Sprite, etc. Just to name a few.
4. Water and hydration: such as AHA Sparkling water and BODYARMOR (The Coca-Cola Company,
2022).
 2. Market Demand
In this section we propose a demand function equation for the 2-liter Coca-Cola product, based on publicly
available data gathered from The Coca-Cola Company website, in addition to data aggregator Orbis and
Data sets available on the internet. To fill the voids of non-accessible data we consider the following
assumptions:
• Sparkling soft drinks account for 69% of Coca Cola Company product sales (United States Securities
and Exchange Commision, 2018).
• One unit case of Coca-Cola is equal to approximately 5.678 liters, or 24 servings of 8 U.S. ounces: the
size of the original Coca‑Cola bottle (Pratap, 2020).
• To calculate the total in billions of 2L case soft drinks in the US, we obtained the total amount of unit
cases sold from Coca-Cola’s Business & Environmental, Social and Governance Report (The Coca-
Cola Company, 2020) This official report from Coca contains the quantity of sales (case units)
multiplied it by 5.678 as suggested Pratap (2020) to obtain the number in liters, and finally divided that
result by 2.
• As we were unable to retrieve historical data on the actual price of 2L Coca-Cola bottles per year, we
did an approximate calculation based on its current average cost: $2.28 extracted from these websites:
o Target: $2.59 (Taget, 2022).
o Kroger: $2.29 (Kroger, 2022).
o Walmart: $1.98 (Walmart, 2022).
And then we extrapolated the previous year values by subtracting the yearly inflation rate (Macrotrends,
2022) from the price.
• We followed the same procedure for approximating Pepsi’s 2L price over the year, starting from current
average of $2.05 extracted from these websites:
o Target: $1.99 (Target, 2022).
o Kroger: $2.19 (Kroger, 2022).
o Walmart: $1.98 (Walmart, 2022).
• According to Hwang et al. (2020) the main consumers of Sparkling soft drink products are the
population between 16-18 years old, hence we extracted the percentage number of population within
those ages from the Population Census website (United States Census Bureau, 2022) and extracted
those percentages from the total US population (Macrotrends, 2022).
• We extracted the statistics of the amount spent in ads by Coca-Cola from Statista website (2020). But,
since the data did not cover all the years we were analyzing for, we extrapolated the average
increase/decrease to fill the missing data points before 2014 and after 2020.
• We obtained the maximum temperature of the United States per year from Statista (2021), in an atempt
to correlate higher temperatures with an increase of hidration requirements that could translate to sales.
The subsequent section presents the demand function resulting from the data and the aforementioned
assumptions. Data from 2013 to 2021 is presented in Table 1 where the dependent variable Y for demand
is shown in the left column, and data from six independent variables are selected for the regression. For an
easier product-to-product comparison in market prices, the 2 liters packaging of the classic Coke was
chosen.
Y This dependent variable shows the total units of 2 liters soft drinks sold per year.
X0 This independent variable corresponds to the prices in USD of 2 liters coke product.
X1 This independent variable corresponds to the prices in USD of the 2 liters soft carbonated drinks
packaging.
X2 This independent variable refers to the advertising expenses in billion USD.
X3 This independent variable refers to the population within 16 to 18 years, expressed in millions of
inhabitants. The official Coca-Cola report mentions this age group as the biggest consumer for
their soft drinks.
X4 This independent variable corresponds to the prices in USD of the 2 liters Pepsi product.
X5 This independent variable refers to the average temperature for every year, expressed in degrees
Celsius.
Table 1. Demand and pricing for coke 2 liters presentation with independent variables.
2L, before inflation. Soft

Population in millions of

Approx. price of Pepsi 2L

Average temperature in the

year in degrees C source:
Advertising expense (in billion
based on current price 2022

Average price of carbonated

and reducing inflation for

based on current price 2022

and reducing inflation for
Approx. price of Coke 2L
Total units sold soft drinks 2L

inhabitants within 16-18 years

drinks source: (Statista, 2022)

U.S. dollars). Source:

previous year prices

previous year prices

(in billions).

(Statista)
Year

Y x0 x1 x2 x3 x4 x5
2013 55.46 1.93 2.5 3.26 12.66 1.74 17.86
2014 56.24 1.96 2.59 3.5 12.59 1.76 17.97
2015 57.42 1.99 2.68 3.98 12.61 1.79 18.93
2016 57.62 1.99 2.77 4 12.76 1.79 19.27
2017 57.42 2.02 2.85 3.96 12.74 1.82 19.08
2018 58.21 2.06 2.92 4.11 12.66 1.85 18.38
2019 59.58 2.11 3 4.25 12.54 1.90 17.82
2020 57.03 2.15 2.77 2.77 12.51 1.93 19.07
2021 61.55 2.18 3 4.3 12.65 1.96 19.09
Hypotheses
The following statements describe our hypothesis based on the relation we expect the selected variables
will have on the demand, based on our own experiences, before calculating the quantitative regression and
extracting the numbers from the data gathered.
• X0 – Average price of Coca-Cola 2L Coke, we expect X0 to have a negative coefficient, meaning
that an increase in the price of Coke would bring the demand down.
• X1 – Average price of carbonated 2L, we expect this to have a negative coefficient, If the overall
price of carbonated drinks goes up, people could start searching for other alternatives, such as plain
tap water, coffee, or energy drinks. Bringing the demand of soft drinks down.
• X2 – Advertising expenses, we expect this coefficient to be positive, since an increase in
advertising expenses should bring the sales up, this has been proved in the past. In 1980’s when
Pepsi closed a contract with Michael Jackson and their sales highly overpassed those from Coca-
Cola (Herrera, 2009).
• X3 – Population in millions of people between 16-18, this is the biggest carbonated soft drink
beverage consumer group according to Hwang et al. (2020). Therefore, we expect that an increase
in that population would also increase the demand of Coca-Cola, hence we expect the coefficient
to be positive.
• X4 – Average price of Pepsi 2L Coke, Pepsi is Coca-Cola’s most direct competitor, and hence
consider this variable as a substitute and hence we expect it to have a positive coefficient, where
the increase in Pepsi price would make more customers switch to Coca-Cola.
• X5 – Maximum temperature in the US. We assume that the increase in temperature would bring up
the need of refreshment and hydration and hence, we expect this coefficient to be positive.
To calculate the expression for demand, the coefficients are obtained from a regression in Excel, see
Figure 2.
SUMMARY OUTPUT

Regression Statistics
Multiple R 0,996608277
R Square 0,993228057
Adjusted R Square0,972912228
Standard Error 0,297904333
Observations 9

ANOVA
df SS MS F Significance F
Regression 6 26,03270602 4,338784336 48,88936815 0,020178562
Residual 2 0,177493983 0,088746991
Total 8 26,2102

Coefficients Standard Error t Stat P-value Lower 95% Upper 95% Lower 95,0% Upper 95,0%
Intercept -30,63975083 31,84892374 -0,962034105 0,437542512 -167,6746095 106,3951078 -167,6746095 106,3951078
x0 20,82825239 41,61964538 0,500442813 0,666404298 -158,2466284 199,9031332 -158,2466284 199,9031332
x1 -7,67553641 2,278363321 -3,368881661 0,077947873 -17,47854257 2,127469754 -17,47854257 2,127469754
x2 3,201129392 0,440277723 7,270704886 0,018396384 1,306767245 5,095491539 1,306767245 5,095491539
x3 3,695922537 2,56625995 1,440198035 0,2864858 -7,34580284 14,73764791 -7,34580284 14,73764791
x4 7,932617475 45,8778622 0,172907304 0,878639783 -189,4638915 205,3291265 -189,4638915 205,3291265
x5 -0,328427187 0,282474952 -1,1626772 0,364933909 -1,543818811 0,886964438 -1,543818811 0,886964438
Figure 2. Regression with dependent variable and six independent variables.
The coefficients are transposed to create an expression as follows:
𝑄 = −30.64 + 20,83 𝑥0 + 7.8 𝑥1 + 3.2 𝑥2 + 3.70 𝑥3 + 7.93 𝑥4 − 0.33 𝑥5
To solve this equation for a specific year, the price for Coca-Cola is taken respectively.
For 2021, with a 𝑃 = 2.18:
𝑄 = −30.64 + 20.83 ∗ 2.18 + 7.8 ∗ 3 + 3.2 ∗ 4.3 + 3.70 ∗ 12.65 + 7.93 ∗ 1.96 − 0.33 ∗ 19.09
𝑆𝑜𝑙𝑣𝑖𝑛𝑔 𝑓𝑜𝑟 𝑡ℎ𝑖𝑠 𝑒𝑞𝑢𝑎𝑡𝑖𝑜𝑛, 𝑄 = 61.75

3. Price Elasticity
To calculate the elasticity of Coca-Cola, the partial derivative with respect to its price, in this case 𝑥0 should be
multiplied by its price and quantity. The value obtained is the point elasticity.
𝛿𝑄 𝑃 Eq.1
𝐸𝑙𝑎𝑠𝑡𝑖𝑐𝑖𝑡𝑦 = ∗
𝛿𝑃 𝑄

2.18
𝐸𝑙𝑎𝑠𝑡𝑖𝑐𝑖𝑡𝑦 = 20.83 ∗
61.75
𝐸𝑙𝑎𝑠𝑡𝑖𝑐𝑖𝑡𝑦 = 0.73
As it is of interest to determine the cross-elasticity between Coca-Cola with respect to the other soft drinks and
to Pepsi, two scenarios are modelled:
• In the first scenario, only x1 referring to the price for other soft drinks in the market is considered along
with the other variables. x4 is left out of the equation, referring to Pepsi.
• In the second scenario, only x4 is considered along with the other independent variables, but not x1
referring to all soft drinks.
Scenario 1
In the first scenario, only x1 is considered along with the other variables, but not x4 referring to Pepsi.
SUMMARY OUTPUT

Regression Statistics
Multiple R 0,996557488
R Square 0,993126827
Adjusted R Square0,981671538
Standard Error 0,245049142
Observations 9

ANOVA
df SS MS F Significance F
Regression 5 26,03005275 5,206010551 86,69592238 0,001922752
Residual 3 0,180147246 0,060049082
Total 8 26,2102

Coefficients Standard Error t Stat P-value Lower 95% Upper 95% Lower 95,0% Upper 95,0%
Intercept -32,19452051 25,13236418 -1,280998488 0,290243293 -112,17692 47,78787902 -112,17692 47,78787902
x0 27,98549643 3,563797361 7,852718207 0,004301506 16,64390268 39,32709017 16,64390268 39,32709017
x1 -7,694463261 1,871964188 -4,110368837 0,02607636 -13,65188878 -1,737037748 -13,65188878 -1,737037748
x2 3,207358942 0,36094756 8,885941601 0,003005425 2,058662712 4,356055172 2,058662712 4,356055172
x3 3,840585105 1,995610588 1,924516299 0,149971048 -2,510338439 10,19150865 -2,510338439 10,19150865
x5 -0,344025526 0,220189286 -1,562408112 0,216126439 -1,044766105 0,356715053 -1,044766105 0,356715053

Figure 3. Regression from scenario 1 with dependent variable and five independent variables, with soft drinks.

Scenario 2
In the second scenario, only x4 is considered along with the other independent variables, but not x1 referring
to all soft drinks.
SUMMARY OUTPUT

Regression Statistics
Multiple R 0,977138391
R Square 0,954799435
Adjusted R Square0,879465159
Standard Error 0,6284149
Observations 9

ANOVA
df SS MS F Significance F
Regression 5 25,02548414 5,005096828 12,67417022 0,031311756
Residual 3 1,184715861 0,394905287
Total 8 26,2102

Coefficients Standard Error t Stat P-value Lower 95% Upper 95% Lower 95,0% Upper 95,0%
Intercept 15,00580529 60,80104921 0,246801749 0,820986465 -178,4902691 208,5018797 -178,4902691 208,5018797
x0 1,0635634 86,91800125 0,0122364 0,991005258 -275,5483086 277,6754354 -275,5483086 277,6754354
x2 2,029646351 0,569645075 3,563001665 0,037739429 0,216781487 3,842511215 0,216781487 3,842511215
x3 0,444611278 5,016004631 0,08863853 0,934954852 -15,51855413 16,40777668 -15,51855413 16,40777668
x4 (pepsi) 15,35820771 96,66539193 0,158880106 0,883856644 -292,2742117 322,9906271 -292,2742117 322,9906271
x5 -0,047405258 0,569293021 -0,083270401 0,938881621 -1,859149731 1,764339214 -1,859149731 1,764339214

Figure 4. Regression from scenario 2 with dependent variable and five independent variables, with Pepsi.
First regression scenario
From the second scenario, the cross-price elasticity of other soft-drinks in the market has a coefficient of -0.37,
meaning that they move in opposite direction to changes in prices of Coca-Cola to counteract the market. X0,
X2 and X3 are statistically significant at 0.05 level.
Second regression scenario
From the second scenario, cross-price elasticity of Pepsi with Coca-Cola is determined of 0.49. According to
Keat et al. (2014) if the value is larger than 0.5, this indicates that the products are good substitutions for each
other (Keat, Young, & Erfle, 2014). Dhar et al. (2005) manifested Coca-Cola’s attitude with respect to Pepsi
feeling somewhat dictating the market prices while Pepsi must follow (Dhar, Chavas, Cotterill, & Gould, 2005).
Only x2 is significant at the 0.05 level.
In conclusion, we obtained an elasticity value of 0.73 indicating that the demand for the 2-liter packaging of
the classic Coke is inelastic with regards to its price. This aligns with Keat et al. (2017) description of factors
of elasticity, where a low price of the product in relation to the income of the customer tends to decrease the
elasticity of a product. Additionally, cross-elasticity of Coca-Cola against other soft drinks in the market threw
a coefficient of -0.37, meaning that they move in the opposite direction to changes in prices of Coca-Cola to
counteract the market, this can be caused by the increase of more expensive European soft drinks that reach to
different market demographics, such as San Pellegrino (San Pellegrino, 2022) or Orangina (Orangina, 2022).
The cross-price elasticity of Coca-Cola against Pepsi was determined as 0.49. As Dhar et al. (2005) manifest,
Coca-Cola dictates the market prices while Pepsi must follow and adapt (Dhar, Chavas, Cotterill, & Gould,
2005).

Our hypotheses held true for four out of six variables, but we failed to assess the results for two variables. We
expected Average Coca-Cola price to have a negative coefficient that would decrease the demand as the price
increased, but we obtained positive coefficients, this inconsistency could have been caused by 1) the inaccuracy
of the historical data, since we were unable to retrieve the exact values and we extrapolated them linearly, they
might not exactly reflect the reality. 2) Since price of Coke has increased over time but sales have steadily
grown year over year, and since these are considered independent variables, the data itself could be misguiding
us to think that this is increasing the sales. We also assumed that increases in the maximum temperatures in the
US would contribute to the increase in sales and hence give us a positive coefficient, but we obtained negative
coefficients instead, the cause of this inconsistency can be because the maximum average temperature in a year
might not directly represent the variability and seasonality of the temperature of the year, a better data point
would have been to include the amount of hot days in a year.

4. Forecast
There are several forecasting methods to be used when estimating future sales of a company and the different
forecasting techniques can be classified into quantitative and qualitative. In this report, only quantitative is taken
into consideration. The goal is to forecast the sales of the Coca-Cola company within 2021 using historical US
revenue data between 2009-2020. This was done with three different models including constant compound
growth rate, 1-year moving average and simple seasonal model from SPSS.

a. Constant compound growth rate

One of the simplest ways to make a future trend projection is to assume a constant compound growth rate based
on historical data. This is defined in Eq 2 below (Keat, Young & Erfle, 2014, p.165).
𝐸 Eq. 2
(1 + 𝑖)𝑛 =
𝐵
Where E is the last year’s amount, B is the first year’s amount, I is the growth rate, and n is the number of years.
 Table 2. Yearly revenues of Coca-cola company.

Year/Q Q1 Q2 Q3 Q4
2009 7,169 8,267 8,044 7,510
2010 7,525 8,674 8,426 10,494
2011 10,517 12,737 12,248 11,040
2012 11,137 13,085 12,340 11,455
2013 11,035 12,749 12,030 11,040
2014 10,576 12,574 11,976 10,872
2015 10,711 12,156 11,427 10,000
2016 10,282 11,539 10,633 9,409
2017 9,118 9,702 9,078 8,314
2018 7,626 9,421 8,775 8,478
2019 8,694 9,997 9,507 9,068
2020 8,601 7,150 8,652 8,611

Where E is the last year’s amount, B is the first year’s amount, I is the growth rate, and n is the number of years.

Table 2 presents The Coca-Cola company’s yearly revenues between the years 2009-2020. To make a quick
forecast of the sales for 2021, the constant growth rate is calculated as follows
33014
(1 + 𝑖)10 =
23480
𝑖 = 3.47%
And thus gives a constant growth rate of 3.72%. Now that the growth rate is obtained it is possible to project
the sales for the year 2021 using Eq 3 as follows

𝐸2021 = 𝐵2019 ⋅ (1 + 𝑖)𝑛 Eq. 3

𝐸2021 = 11715 ⋅ (1 + 0.0372)2 = $12603 𝑚𝑖𝑙𝑙𝑖𝑜𝑛

Resulting in a projection in sales of $12603 million for 2021. However, it is important to consider that this
approach works fine for doing quick projections but can be misleading. As a way to highlight the model’s
inaccuracy, the projection has been plotted together with the yearly sales, as presented in Figure 5. It can be
observed that since the model only considers the first and the last data points, the fluctuation in sales between
2008-2018 is not taken into consideration by the model can thus be misleading (Keat, Young & Erfle, 2014).
Figure 5. Querterly Coca-cola sales between the years 2007-2019. Black dashed line illustrates the constant compound
growth rate model forecasting sales up to 2021.

b. Moving average
The moving average is one of the forecast methods which uses smoothing techniques, and the main idea is to
use an average of historical observations to forecast future values. Usually, smoothing techniques work best for
time series with no seasonal and cyclical changes (Keat, Young, & Erfle, 2014). Moreover, Eq 4 presents the
moving average as defined by Keat et al. (2014, p. 171).
(𝑋𝑡 + 𝑋𝑡−1 + ⋯ + 𝑋(𝑡−𝑁+1) ) Eq. 4
𝐸𝑡+1 =
𝑁

Where N was set as 4 since the data presented in Figure 6 is quarterly. To forecast the Coca-Cola sales for 2021
we used 1-year moving averages of the historical values between 2009-2020, listed in Table 2. The results
containing the 1-year moving average along with the results obtained earlier for the constant compound growth
model are illustrated in Figure 6 below.
 $14 000
Sales in Millions
Trailing 1 year moving average
$13 000
1 year moving average forecast
Constant compound growth rate model

$12 000

$11 000
Sales in Millions $

$10 000

$9 000

$8 000

$7 000

$6 000
2006-10-10 2009-07-06 2012-04-01 2014-12-27 2017-09-22 2020-06-18 2023-03-15

Q by year 2009 - 2021

Figure 6. Observed vs forecasted sales using 1-year moving average and constant compound growth rate model.

Figure 6, depicts the moving average curve (orange line) started around one year after the real sales curve (blue
line). For the first two years (i.e., 2010 and 2011), the moving average curve deviates from the real sales curve
and then smooths over the fluctuations of the real sale values.
To calculate our forecast errors, we used the following statistical measures:
- Mean absolute deviation (MAD): which is a measure of variability that indicates the average distance
between observations and their mean. In our case, this represents for each data set the absolute deviation
between the real sale value per quarter and its corresponding forecasted value using the moving average
method. The average of all MADs was calculated and listed in Table 3.
- Mean squared error (MSE): which measures the average squared differences between the forecasted
values and the real ones. The average of all MSE was calculated and listed in Table 3.
- mean absolute percentage error (MAPE): which measures the prediction accuracy of the moving
average. The accuracy is defined as the ratio of the absolute difference between the real and forecasted
values divided by the real value. The average of all MAPE was calculated and listed in Table 3.
- Table 3 indicates that the moving average model has on average: an absolute deviation of 692 million,
a squared error of 839 million and an accuracy of 7% error.
Table 3. 1-year moving average forecast errors

statistical Mean Mean Mean Absolute

measures Absolute Square Percentage Error
Deviatio d Error (MAPE)
n (MAD) (MSE)
Average 692.6 839.3 7.09%
c. Simple Seasonal Model
For this model, the same data set will be used as for the two previous model, i.e., historical data on quarterly
revenues in the U.S. between 2009-2021 (Macrotrends, 2021) as listed in Table 2. The main goal is to forecast
the sales for the year 2021 by using the data from 2009 up to 2020. The forecasted sales for 2021 were then
compared with the actual sales for that year to check our model’s accuracy.

To get an overall idea about the sales, the simple line graph of sales per year is plotted, as presented in Figure
7 below.

Figure 7. Simple line of Coca-Cola sales by Q year (2009-2020)

There is a clear seasonality relation since sales increase around June and July every year due to summer, except
for the summer of 2020 that has a decrease in sales caused by the COVID-19 pandemic, as observed in Figure
7.
The simple seasonal model integrated in SPSS is classified as an exponential smoothing model. It is appropriate
for time series with no trend and a seasonal effect which is constant over time (IBM, 2013). In general,
exponential smoothing models give smaller weights to older observations and greater weight to recent
observations (Keat, Young, & Erfle, 2014). The model fit parameters are shown in Figure 8below.
Figure 8. Model fit parameters of simple seasonal model.

The model has an R2 of around 0.808 which means 80% of the variation in the sales is explained by the historical
data used as input variables. The Mean Absolute Percentage Error (MAPE) is 4.8 meaning that the model is
off by about 4.8%. The forecasted sales are plotted against the real sales in Figure 8.

Figure 9. Observed vs forecasted sales by Q year (2009-2021)

The forecast model has a good fit to the observed values except for the following deviations:
- The increased sales during 2010: as 2010 was an exceptional year for Coca-Cola with 13% rise in
revenue (Eleftheriou-Smith, 2011).
- Sales peaks during summer (2012- 2019): as the simple seasonal model is appropriate for time series
with constant seasonal effect, it did not accurately forecast the fluctuations of the summer sales during
each year.
- Sales during 2020: due to Coronavirus pandemic (the model forecasted a peak during summer, while
the real sales were decreasing)
Finally, we compare the forecasted values of the three methods against real sale values for 2021. These are
listed in Table 4 below.
Table 4. Comparison in sales (in millions) between the three forecasting models and real sales.

Q 2021 / Real sales Forecast sales Forecast sales Forecast sales

Sales in (Constant (Simple (Moving average)
Millions compound seasonal)
growth rate)
Q1 $9464 $8159 $8 611
Q2 $10042 $9414 $8 632
Q3 $10129 $9005 $8 138
Q4 $9020 $8910 $8434 $8 254

The simple seasonal model provides the most accurate forecast particularly with regards to the summer peaks
around Q2 and Q3. This is because the model not only gives higher weights to most recent observations but
also considers a constant seasonal effect. The moving average method on the other hand only considers the
average during 2020 and gives an estimate per quarter around the mean of sales during 2020 (i.e., around 8253).
The MAPE values of the two the simple seasonal model (4.8%) and the moving average (7%) confirms the
better prediction of the simple seasonal model. The constant compound growth rate gives the least accurate
forecast as it only considers the first and last year's observation and ignores the fluctuations in between.
References
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 5. Appendix – Meeting Minutes
First meeting 1: February 19
Attendants: Diego, Daniel, Mohamed, Jose (full house)
Agenda:
• Quick introductions, kick off
• Reached alignment on which company we are going to analyze (Coca-Cola) and we decided to
concentrate on sparkling soft drink products, reasoning behind it: we consider it to be a very well-
known company, data can be found easily.
• Created shared folder for resources. Upload documents to Canvas under Groups > Assignment 2 >
Files > Coca-Cola (folder).
• To begin with we are choosing United States as the market and soft drinks as category.
• Daniel and Mohamed (Firm and Demand) Jose and Diego (Price Elasticity and Forecast)
• Next steps: we will sync offline on progress.
• Next meeting is on 23rd of February, 18:00 Central European Time (CET).
Notes
o Sparkling soft drinks grew 6%, resulting in volume ahead of 2019, driven by strong performance
across all geographic operating segments. Trademark Coca-Cola grew 5%, resulting in volume ahead
of 2019, led by Europe, Middle East & Africa and Latin America. Sparkling flavors grew 7%,
resulting in even performance on a two-year basis, led by solid growth in both Trademark Sprite and
Trademark Fanta.
o In Q3 2021, leading from the opening in theaters, stadiums and restaurants, revenues raised 16%.
Which could be a point to consider for our forecasts? DEMAND TO INCREASE WITHOUT
LOCKDOWN.
o Costs of manufacturing are likely to increase, increase in prices to counter the impact of surging
commodity and freight costs. PRICES TO INCREASE.
Coca-Cola Q3 Release (2021)
https://d1io3yog0oux5.cloudfront.net/_40e3af420f4950fc0669727f26dbf2f4/cocacolacompany/news/2021-
10-27_Coca_Cola_Reports_Continued_Momentum_and_Strong_1040.pdf
Thesis report University of Nottingham (2007) on Coca-Cola (including demand variables page 83)
https://citeseerx.ist.psu.edu/viewdoc/download?doi=10.1.1.456.8599&rep=rep1&type=pdf

Meeting-2: February 23
Attendants: Diego, Daniel, Mohamed, Jose (full house)
Agenda:
1. Going through the status of report
2. Decision on parameters to use for Demand estimation
3. Who should do what?
4. Next steps
Discussions:
1. Section 1 has been started with the definition of the company (i.e., Coca-cola) and its goal. Section 2, some
data has been collected to help with the regression analysis of demand estimation. The current available data is
average price, consumption per person per year, expense on advertisement, age (either number or % of those
between 15-19). We can add the price of competitors like Pepsi and weather conditions (average temperature
per year). Section 3, nothing has been done yet. Section 4, historical data on sales in the US were found which
can be used for sales forecast.
2. The following five parameters were selected: average price, consumption per person per year, expense on
advertisement, age of those between 15-19), price of competitors like Pepsi and weather conditions
3. Daniel and Mohamed will continue with sections 1 and 4, Diego and Jose will continue section 2 and 3 as
they are related to each other.
4. Next meeting will be on Sunday 27.02.2022, 8:00 CET. Everyone has to continue with his part.
Meeting 3 – 27 February
Attendants: Diego, Daniel, Mohamed, Jose (full house)
Agenda:
5. Going through the status of report
6. Evaluate the different forecasts calculated with the statistical software (SPSS) and excel
6.1. The methods were moving average and linear regression
7. Go through the demand equation
8. Next steps
Discussions:
1. Linear regression seems to have a very low Rsquare as obtained from excel. It is higher when taken from
SPSS software, closer to one.
2. Moving average follows the forecast more accurately since coca-cola's sales have a spike in June every year
(except for 2020) and move down in the rest of the year. So, they have a very zig-zag behavior.
3. Six independent variables are chosen, including Pepsi and all soft drinks. It should be determined whether
both are kept, or if Pepsi for instance is more relevant. Two variables out of the six are significant at .05 level,
x1 and x2.
4. Elasticity coefficient was quickly calculated. It should be determined to double check it.

Things to do for next meeting on Wednesday 2nd of March.

- Refine the moving average and linear regression, and present Excel and SPSS results.
- Test the demand regression for and without x1 and x4.

Meeting 4 – 2nd of March

Attendants: Diego, Daniel, Mohamed, Jose (full house)
Agenda:
1. Assign roles and responsibilities for the final delivery
2. Present the three regression scenarios, the explanation for the elasticity and cross-elasticity
coefficients pertaining to every scenario.
3. Daniel and Mohammed worked on the forecast and presented three models: compound growth rate,
simple seasonal and moving average.
3.1. Growth rate is illustrated how inaccurate it can be and not consider the increase in sales. It is
a “naïve” model.
3.2. Simple seasonal model was presented. It turned out not considering the seasonality. So it is a
bit paradoxical.
3.3. Moving average shows a smoother representation.

Next steps by next meeting on Friday the 4th at 18:00.

1. List the different hypotheses above the demand (Diego and Jose). Specify the demand equation in the
upper part of the demand section. Conclude upon the elasticities and their interrelation in between the
variables. Including the t-test and significance.
2. Fix the parenthesis in the equation of compound growth rate (Daniel).
3. Try to find out what the simple seasonal is doing and how to use it (Mohamed). Or if it will only be
used for comparison.
4. Determine if we can use the econometric model.
5. Determine how we can develop from the simple moving average into more complicated models.
6. Diego and Jose will conclude the 2 and 3 sections, and Daniel and Mohamed the 1 and 4 sections.
7. We will decide on Friday if we need to meet again or just keep discussing by whats app.