Coca Cola VRIO Analysis (sources of competitive advantage)
Coca Cola is a soda beverages brand known for its large product range, global popularity and presence. The leading soda beverages brand is a global player that sells across more than 200 nations. It also has a global distribution network which enables it to run a global system in partnership with its bottling partners. The main target of the brand is the millennial generation and the brand has traditionally marketed itself as brand for the youth. It sells more than 500 brands of which 22 are billion dollar brands.
Coca Cola has also brought health friendly and low sugar options to the market. However, competition has become intense in the soda industry. Another important focus area for Coca Cola is its skilled human resources. It employs more than 700,000 people around the world. Apart from hiring the best, it also focuses on their training and education for keeping its staff motivated and focused. This is a VRIO/VRIN analysis of Coca Cola that analyzes how well its strengths are suited and organized to provide it a sustainable competitive advantage. VRIO is a framework used for analyzing the competitive potential of any resource. It is actually an acronym that stands for four important questions to be asked regarding the competitive potential of any resource. These four questions are about Value, rarity, imitability and organization?
Value: Does the resource allow the firm to exploit an opportunity or neutralize a threat?
Rarity: Is the resource available to only a few firms?
Imitability: Is it difficult to imitate for the others? Will it be costly for the other firms to imitate?
Organization: Are the firm’s policies and procedures properly organized to help it exploit its valuable, are and inimitable resources?
Most Important resources of coca Cola that can give rise to competitive advantage:
- Global distribution network
- Large product range
- Skilled human resources
- Marketing skills and expenses
- Secret formula
- Brand image
- Research and development
Main competitors of coca cola: Pepsico and Dr. Pepper Snapple,
Pepsico and Dr Pepper Snapple are the main competitors of Coca Cola. Of these two, Pepsico is the biggest competitor which is equipped with some formidable strengths and therefore the two giants- coca cola and Pepsi are constantly in a battle for market share. Several of the resources and strengths of the two brands are also quite similar and therefore even small points of differentiation matter. The two giants are also engaged in a marketing battle. However, Coca Cola’s expenditure on marketing is significantly higher. Below is a VRIO analysis that further highlights how Coca Cola’s resources provide it with sustainable competitive advantage.
VRIO Analysis:
Valuable:
- Global distribution network – Yes, it is an important resource enabling Coca Cola to serve the global market and maintain a global presence.
- Large product range: Yes, it has helped Coca Cola reach and serve the global audience with different tastes.
- Skilled human resources : Yes, it helps Coca Cola manage its large system efficiently.
- Marketing skills and expenses : Yes, it helps Coca Cola manage a differentiated brand image and connect with its audience better.
- Secret formula: Yes, this is something accessible to only a few people in the entire Coca Cola system.
- Brand image: Yes, brand image drives value and is important for managing an impressive market presence.
- Research and development: Yes, it helps Coca Cola to continuously innovate and respond to changing market situations.
Rare:
- Global distribution network – Possessed by only a few other firms in the soda industry and helps coca Cola manage its global reach.
- Large product range – Not absolutely rare, Pepsi and Dr Pepper Snapple also deal in a large product range.
- Skilled human resources – Yes, Coca Cola is ahead of all the other companies in the soda industry in terms of human resource management.
- Marketing skills and expenses – Coca Cola’s marketing expenses are around $4 billion which is far higher than that of its competitors. While marketing skills can be matched matching the high level of expenses is very difficult for any firm.
- Secret formula – Rare, However, Pepsi and Dr Pepper Snapple also serve unique flavours. Still, the differentiated flavour of Coca Cola gives the company an edge in terms of competition.
- Brand image – Yes, it is not easy to build a strong brand image like Coca Cola. However, Pepsi also has a strong brand image.
- Research and development – Yes, but Pepsi too places heavy focus on R&D.
Imitability:
- Global distribution network: Pepsi also has a global network of distributors.
- Large product range – Pepsi also has a large product range. -temporary advantage
- Skilled human resources – yes, it is difficult to imitate the competitive advantage generated by skilled human resources. A high expenditure is involved in hiring, training and paying skilled professionals. – competitive parity
- Marketing skills and expenses: Difficult to copy because of the high expenses. – competitive parity
- Secret formula : not possible to imitate – sustainable competitive advantage
- Brand image: Not possible to imitate. However, a competitor’s strong brand image can be a threat. – Competitive parity
- Research and development: Not inimitable because other firms too invest in R&D. – temporary advantage
O- Organization: firm’s policies and procedures are properly organized to help it exploit its valuable, are and inimitable resources.
- Global distribution network – Yes.
- Large product range – Yes
- Skilled human resources – Yes
- Marketing skills and expenses – Yes
- Secret formula – yes
- Brand image – Yes
- Research and development – Yes
Provides a sustainable competitive advantage.
- Global distribution network – No, just a temporary advantage because Pepsi can imitate easily. However, difficult for any other rival than Pepsi to imitate.
- Large product range – No, just a temporary advantage because Pepsi can imitate easily. However, no rival apart from Pepsi deals in such a large product range.
- Skilled human resources – (competitive parity), because involves heavy expenditure. However, not very difficult for Pepsi to imitate because of its financial strength.
- Marketing skills and expenses – (competitive parity), because involves heavy expenditure. However, not very difficult for Pepsi to imitate because of its financial strength.
- Secret formula – Yes. – Sustainable competitive advantage
- Brand image – to some extent, because just one competitor, Pepsi has as strong an image in the market.
- Research and development : To a small extent only. (competitive parity)
This analysis shows that the soda industry is marked by very heavy competition. While, Coca Cola has some important sources of competitive advantage most of them can be matched by Pepsi. the main competition is based on the flavors and quality of products. Pepsi has added snacks to its portfolio giving it extra advantage. However, Coca Cola’s secret formula and brand image still provide it with sustainable advantage.
Sources:
https://teaching.up.edu/BUS580/bps/Barney%20and%20Hesterly,%202008,%20ch3_VRIO%20internal%20analysis.pdf