The Coca-Cola Company in Japan (Case #8, Notes)
History of the Coca-Cola Company
Since its advent in 1886, Coca-Cola Company has arguably been a marketing genius, dominating the soft drink market across the globe. A pharmacist in Atlanta invented the Coca Cola beverage in 1886 to help people feel better, and sold it out of the pharmacy where he worked. In 1894 the company opened its first syrup manufacturing plant outside Atlanta in Dallas, Texas. Sixty three years later Coca-Cola entered the Japanese market.
Dynamics of the Japanese Marketplace
Japan is a high context culture, where the interpretation of messages rests heavily with cultural cues, in terms of age, gender, and balance of power. Japanese culture also tends to be group oriented with groups having similar expectations and experiences. Compared to US and EU consumers, Japanese consumers are more likely to choose products from firms whose values are like their own. Additionally, the Japanese population is aging, triggering a shift away from sugary, sweet sodas to beverages with perceived health and functional benefits, like low-calorie beverages, bottled water, ready to drink tea and vitamin beverages.
The Japanese Beverage Industry
The beverage industry in Japan is mature and highly competitive, with approximately 1,000 - 1,500 new drink products introduced each year. While the overall industry is relatively stable, segments within the industry are changing more rapidly in response to changing market conditions. The Japanese food and beverage market is relentless and built upon innovation, with older products being cast aside for newer fads as the country is obsessed with novelty. Unlike in the United States, where single elaborate product launches are backed by huge budgets, endless product line and brand extensions are the norm in the Japanese marketplace.
Competition
The top five beverage providers in Japan are Coca-Cola, Suntory, Kirin, Ito En, and Asahi, respectively. The top three combined hold nearly 50% market share.
Coca-Cola Performance
Coca-Cola's top two competitors, Suntory and Kirin, have historically been alcoholic drink makers, however, at the start of the 21st century they both started showing a true commitment to innovation and product launches in the soft drink market. Consequently, Coca-Cola's dominance in that market has become threatened with Coca-Cola's volumes declining. The Coca-Cola Company ranked 3rd in Asian specialty drinks in both off-trade volume (7% share) and value (10% share) in 2006. Coca-Cola suffered declining sales by both off-trade volume (-0.4% CAGR, 2001-2006) and value (-3% CAGR, 2001-2006) due to the increasingly competitive nature of the Japanese market, despite the successful introduction of many new products.
Case Objective
The case demonstrates the main concepts discussed in Chapter 4 of Global Marketing Management. It illustrates the ways in which a multinational company must adapt its marketing mix to compete in a country whose culture is not like that of the company's home country. This case of Coca-Cola in Japan shows that by adapting its marketing mix to best suit local conditions, a multinational company can succeed in a foreign market. As a former president and COO of Coca-Cola Asia said, "There is no such thing as a global consumer."
The effects of cultural idiosyncrasies have been stressed throughout the course, and the case demonstrates that multinational companies need to be sensitive to local biases. It also illustrates how cultural contexts affect consumer thinking, behavior, and decision making - especially for a company as large as Coca-Cola. The key to Coca-Cola's success has been its understanding of culture and how culture context is a key driver in any marketplace. Coca-Cola understands the differences of a high context culture, like Japan, and how a culture obsessed with fads affects the way marketers target consumers and position products to be successful. Beverages are very culture-bound and since Coca-Cola is beginning to lose market share to competitors in some key segments in Japan, they may have to reassess some strategies in those segments.
The case also discusses the US way of expansion, which is through means of achieving economies of scale, compared to the Japanese way of expansion, which is by producing products that meet the needs and desires of local markets. That means that Coca-Cola Japan must continually innovate; it must be willing to accept failure in order to find success - economies of scale are not as important as they are in the US. It also means that Coca-Cola executives need to give its foreign subsidiary the freedom to operate in a way that does not conform to home country methods. Coca-Cola Japan must be able to make quick decisions - to create products, launch products, and continue the along the product cycle.
Unlike the United States, where Coke leverages Americana, tradition, and a few classic soft drink formulas through economies of scale, the Japanese marketplace is built upon innovation and product extensions. Even though the soft drink segment in both the United States and Japan are mature markets, activity, strategy, and competition in those markets is drastically different. Accordingly, in Japan Coca-Cola needs to be a Japanese company to compete and be a local market leader, particularly as Japanese companies become increasingly competitive.
Questions for Discussion
1. How have the United States and Japanese cultures affected Coca-Cola's operations in each country?
2. How has Coca-Cola demonstrated the "two birds with one stone" method to global segments in their Japanese operations?
3. With increased competition in Japan and emerging trends in the market place, where does Coca-Cola Japan need to concentrate its efforts to remain number one?