#142 Coca Cola with a Buzz

In his latest book, Pankaj Ghemawat, celebrity professor at NYU and at IESE, describes – among many other things – how Coca Cola’s early international expansion followed a completely decentralized approach. As long as no major damage was done, everything was allowed and according to Professor Ghemawat, only two rules existed, “You can’t change the formula, and you can’t steal money”. Everything else was left to country managers or partners. Then came a period when the company became highly centralized as it chased a dream of megabrands that were built on full and complete globalization – “No left turns, no right turns” allowed. However, as many other companies also experienced, the expected benefits of complete global standardization never fully materialized. Quite to the contrary, over-standardization left market potential untapped, and so the pendulum swung back for the company in recent years. Today, Coca Cola shows more appreciation for country differences, and rather than to force its core soda products on consumers globally, it has started to acquire local brands. It has also developed entirely new products for foreign markets. Just recently, Coca Cola provided proof of how serious it is about tapping into opportunities in foreign markets. For the first time since its founding in 1886, Coca Cola decided to develop an alcoholic beverage (for a brief moment in time, it owned a winery from 1979-1982). For now, the experiment is limited to Japan where lower-alcohol beverages called “chu-hi”, in essence alcopops, are hugely popular. Under the name “Lemon Do”, Coca Cola has started to sell this fizzy, lemon-flavored drink in 3%, 5% and 7% alcohol content varieties. Besides different alcohol content, Lemon-Do is also available in both a salty-lemon and a honey-lemon variation. Japan’s highly developed beverage market seems to be Coca Cola’s favorite testing ground for new products. After many years of development, Coca Cola also brought a frozen Coke product in pouches as well as peach-flavored Coke to the market early this year. In marketing terms, Coca Cola is now pursuing a strategy of adaptation (sometimes also referred to as local responsiveness). Going beyond just the usual minor and common adaptations for FMCGs in pricing and promotion, the company is willing to incur the higher cost of product development. Coca Cola opted to let go of the much sought economies of scale in manufacturing and marketing in return for a larger piece of the pie. There is even more: Developing new products for foreign target markets can make companies more agile and innovative, which may help them in other regions, including their core or home markets. While Coca Cola has not announced a roll out of Lemon Do to other countries, it is not unlikely that the product will eventually be marketed elsewhere. I am already wondering what Coca Cola’s story will be when Professor Ghemawat writes his next book…

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