Impact of Microeconomics Principle in Maintaining Sustainability of Coca Cola Company

ECO 201 Final Project Guidelines and Rubric
Overview
The final project for this course is the creation of a research paper. Every day, millions of economic choices are made by people—from what brand of soap to buy
to how many employees to hire for a factory. Microeconomics provides us with the tools, models, and concepts to better understand individual choices in the
marketplace and how resource allocation is determined at the micro level. The decisions made by individuals and households impact the market and influence
decisions made by firms. Firms use these tools as a way to determine pricing, output, and profit maximization. As a student of economics, you can use the
microeconomic principles to gain an understanding of how firms and individuals make decisions and also to make your own conclusions about actions we can
take to improve those decisions.
Now, imagine that you are a consultant to the firm of your choice. The firm has hired you to advise it on how it can ensure its future success as a company in its
current market. To do this, you will write a 7–9-page research paper analyzing market and business data to explain how the core microeconomic principles
impact the sustainability of the firm and what actions it can take to ensure success.
The project is divided into three milestones, which will be submitted at various points throughout the course to scaffold learning and ensure quality final
submissions. These milestones will be submitted in Modules Two, Four, and Five. The final submission will occur in Module Seven.
In this assignment, you will demonstrate your mastery of the following course outcomes:
 ECO-201-01: Apply microeconomic models to real-world situations for informing effective business decisions
 ECO-201-02: Analyze business and market data using microeconomic tools for their impact on business sustainability
 ECO-201-03: Evaluate the structure of various markets for informing effective decision-making strategies
 ECO-201-04: Assess the behavior and decisions of individuals and firms for their relation to the microeconomic framework
Prompt
You will work with your instructor to choose a firm for which you can find reliable data and information, both at the firm level and the industry level. The firm you
select must be a publicly traded company, must operate in the U.S. market, and must currently be in business. You will need instructor approval before continuing
on with your research paper in order to ensure you have met the necessary requirements. Publicly traded companies file reports with a great deal of data that
you will find useful for your analysis. Once you have selected a firm for your case study, you will gather information and data relevant to the firm and its industry
and use the core microeconomic principles you have learned in class to analyze the information and make a recommendation for your firm. You will compose a
7–9-page research paper in which you will analyze the market and business data to explain how the core microeconomic principles impact the sustainability of
the firm, and your recommendation will suggest the actions the firm can take to ensure success.

Impact of Microeconomics Principle in Maintaining Sustainability of Coca Cola Company
Introduction
The Coca Cola Company was founded in 1892 by the American Corporation. It is widely known from manufacturing and sale of syrup that is concentrated with coca cola together with a carbonated beverage (Bondesson & Liss, 2016). The company produces citrus beverages and sells soft drinks to different parts of the world. It has more than 2,800 products which are evenly distributed in more than 200 countries. According to Serôdio et al. (2016), Coca Cola is ranked as the largest distributor and manufacturer of the soft drinks and the largest corporation in the United States (Headquarters are in Atlanta). The drink has a tremendous history from one of the great people who invented the soft drink of Coca Cola. It was originated in 1886 by a pharmacist from Atlanta known as John S. Pemberton at his Pemberton Chemical Company. The name “coca cola” originated from one of his bookkeeping friend, Frank Robinson, who penned down it to a certain script to be the trademark of the company. By 1891, Asa Griggs Candler secured complete ownership of the Coca Cola Company while he was still at another Atlanta Pharmacy. He exchanged some proprietary rights in the following year, and it was registered in 1893 in the U.S. Patent office. In the post-World War II, there was diversification of the Coca Cola packaging and acquisition of some new products. In 1941, the trademark “coke” was first advertised and later registered in 1945. In the preceding years (1946), the company purchased rights to Fanta, and its growth rate took effect in Germany. Also, the company introduced a lemon drink which currently is referred to as Sprite in 1961 and a sugar-free tab. In 2005, the company introduced zero-calorie soft drink and energy brands in 2007.
The purpose of this paper is to address the sustainability of Coca Cola firm through core microeconomics principles. The study aims to discuss the trends of the demand and supply in the Coca Cola firm and how critical measure can be devised to address various recommendation of improving the supply chain. Ideally, annual sales would be considered in this study to reflect the elasticity in the market of interest. The data would be drawn from the relevant company profile to reflect the consumer responsiveness to price changes and availability of the substitute’s goods. According to Serôdio et al. (2016), the cost of production is another element in the microeconomics which is necessary to be illustrated to differentiate its market return from other competitive companies. While we may focus on critical features that distinguish competitive advantage from other companies, it is relevant to highlight the market structure of the Coca Cola Company (Bondesson & Liss, 2016). He argues that many research companies have fail to address the relevant information to evaluate the source of competitiveness in the manufacturing arena of soft drinks. With the growing concerns from crucial international players of soft drinks, the study will outline the necessary barriers to entry for new competition in this market. Besides, the research will aim to describe the market share which is a proxy to determine the fixed and variable costs in a graphical representation.
Moreover, the data will be obtained from the company’s profile such that no relevant information will be left out. The final data collected, will be analyzed to make conclusions based on the derivatives of interest. The research methodology to be used will be inferential and descriptive analysis. With the thorough study put in place, the conclusion will rely on the review of critical components of microeconomic principles.
Problem Statement
While we may focus on critical elements that distinguish competitive advantage from other companies, it is relevant to highlight the market structure of the Coca Cola Company. Many research companies have failed to address the information pertinent to evaluate the source of competitiveness in the manufacturing arena of soft drinks. With the growing concerns from vital international players of soft drinks, the study will outline the necessary barriers to entry for new competition in this market, demand conditions, the price elasticity of demand, factors affecting the consumer responsiveness, cost of production of the firm, and the overall market of the firm. In general term, the study will examine the impact of sustainability of Coca Cola Company in regards to the core microeconomic principles.
Objectives
1. To assess the supply-demand conditions of the Coca Cola Company.
2. To determine the price elasticity of demand for critical products of Coca-cola Company.
3. To examine the cost of production of the coca cola company.
4. To assess the overall market of the coca-cola company.
Purpose of the Study
The purpose of this paper is to address the sustainability of coca cola firm through core microeconomics principles. Also, the study emphasis on discussing the trends of the demand and supply in the coca cola firm and how critical measure can be devised to address various recommendation of improving the supply chain. Ideally, annual sales would be considered in this study to reflect the elasticity in the market of interest. The data would be drawn from the relevant company profile to indicate the consumer responsiveness to price changes and availability of the substitute goods. According to (Voleti & Sethuraman, 2015), the cost of production is another element in the microeconomics which is necessary to be illustrated to differentiate its market return from other competitive companies.

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Literature Review
This section will address the four objectives to evaluate critical components that are ideal in treating market sustainability in the coca cola company. Therefore, the chapter will focus on specific detail measures that affect a variety of objectives.
Supply and Demand Condition
Supply and demand is the most fundamental concept of economics and the backbone of the company market. Demand is the quantity of a service or a product that the buyer desires to buy while supply refers to how the market is willing to offer. The relationship that exists between supply and demand is mainly on the allocation of the resources. Demand in Coca Cola Company is influenced primarily by the price of the related goods. In this case, substitute goods such as Pepsi, Miranda, and Gorment may affect the demand for coca cola products. Also, if there is an increase in income, the demand will increase as a result of the consumer’s income.
On the other hand, determinants of supply are mainly determined by the price of inputs, some consumers, the amount of the products and state of technology. According to Annual Report of Coca-cola 2018, coca cola sold 29.3 billion, 29.2 billion, and 29.6 billion products of coca cola unit case in 2016, 2017 and 2018 respectively (Bondesson & Liss, 2016). In 2013, coca cola posted a revenue decline of 2 percent to $46.9 billion.
Consequently, the global value was positively recorded in the year of 2013 and 2014, with 2 percent growth each year. Later, the sales dropped further to 4 percent at a rate of $44.3 billion in 2015. Also, in the preceding year, it increased with a margin of 4 percent. The graphical representation highlight the trend of annual sales of coca cola products.

Considering annual sales in terms of regions, Europe, the Middle East, and Africa recorded significant growth. In 2013, coca cola reported separated figures in Europe, the Middle East, and Africa down from 1 percent to 4 percent. Coca-cola sales in Eurasia and Africa had a significant growth ahead with 2 percent, with volume up of 7 percent in 2013 despite macro environment challenges.

Price Elasticity of Demand
Price elasticity of demand takes place when demand changes considerably after a change in price. Also, it is the measure of how consumers react to different costs of services and products. According to Voleti & Sethuraman (2015), when amounts of a coca cola product rise, the consumers are subjected to change to another substitute product that has a low cost. In case coca cola products prices rise, the consumer will shift to substitute goods available such as Miranda, Pepsi, and Gorment.
Consequently, if the amount of coca cola increases, while the other prices of substitute remain the same, the demand for coca cola will fall. The elasticity of demand for products can be determined through a change in the prices of certain products in the market. According to Voleti & Sethuraman (2015), substitutes tends to determine the elasticity of coca cola products, and when there are many products of alternatives, demand is usually elastic. Therefore, price elasticity has an inverse relationship: demand for a particular product declines if the price increases.
The data below represents supply, demand, substitute and expenditure of coca cola products which will be analyzed to estimate price elasticity.
sales Demand Supply Expenditure substitute
2.30 1.60 3.00 4.30 3.20
4.00 3.40 3.40 4.10 3.50
3.00 2.50 2.40 3.23 3.90
3.60 2.90 4.30 3.45 2.80
3.80 3.10 3.80 3.80 3.70
3.50 3.20 2.80 2.98 3.70
3.90 3.00 2.67 3.89 2.60
4.00 3.60 3.10 3.78 3.00
4.30 3.80 3.40 3.50 4.00
4.20 2.40 2.80 1.60 3.00
3.80 3.90 3.60 3.40 3.40
4.20 5.00 3.80 2.50 2.40
2.80 4.30 3.00 3.00 3.20
3.60 3.20 3.90 3.10 3.60
3.43 3.80 4.10 4.20 2.80
3.20 4.20 4.30 3.00 3.40
3.60 3.60 3.20 2.97 3.10
3.20 3.60 3.80 3.80 2.80
4.30 2.90 4.20 2.40 2.80
4.50 3.20 3.60 2.70 3.60
3.10 3.60 3.20 3.70 3.80
2.76 3.50 4.30 4.30 3.00

The dependent variable for this scenario is the sale price while substitute, supply, demand, supply, and expenditure are independent variables.

ANOVAa
Model Sum of Squares df Mean Square F Sig.
1 Regression 1.827 4 .457 1.500 .247b
Residual 5.177 17 .305
Total 7.004 21
a. Dependent Variable: sales
b. Predictors: (Constant), substitute, Expenditure, Demand, Supply

Coefficientsa
Model Unstandardized Coefficients Standardized Coefficients t Sig.
B Std. Error Beta
1 (Constant) 4.291 1.477 2.906 .010
Demand .096 .182 .118 .528 .605
Supply .098 .232 .098 .422 .678
Expenditure -.405 .179 -.480 -2.263 .993
substitute -.002 .281 -.001 -.006 .037
a. Dependent Variable: sales

In the above table, the p-value (0.247) is more significant than the level of alpha (0.05). Therefore the model is insignificant. The ANOVA table cannot be used to conclude as it does not explain the total variation of the data. From the above information, the substitute harms the sales of coca cola products. The p-value of substitutes (0.037) is less than the level of alpha (0.05). Therefore we reject the null hypothesis. It merely means that substitutes contribute a lot in the determination of price elasticity. Also, factors affecting consumer responsiveness include the price of related goods, consumer income, and purchasing power.

Cost of Production
Cost of production is essential in the determination of the margin of sales, revenues, market share and cash flow of the firm. In 2018, net income declined by 6 percent for the first quarter and 10 percent decline with an amount of $31.9 billion. Similarly, the company owned bottled operation had headwinds of 13 percent and 17 percent in the fourth quarter and full year respectively. Organic revenues grew with a margin of 5 percent of the concentrated sales growth of 4 percent in the quarter year.

The above data describes the revenues of goods in different years and how the revenue keeps on changing. As a result, coca cola net operating revenues declined from the year 2016 up to 2018. Implications of this sudden drop in revenues are majorly influenced by the number of sales and variable costs in the firm.

Coca-cola has been trying to accept the fact that they are experiencing a strategic dilemma. Their vast profit relies on America, leading to specific variable and fixed costs to be affected by regions which are not performing best. With increased concern in the nutritional aspects, they have tried to reduce their cost by 1 billions of pounds to restructure the market of the campaign it is unlikely that there would be cuts in variable costs to stabilize the market since they cannot afford to reduce the quality of a given product. Unfortunately, the company has focused on increasing its fixed value for better production of coca cola products (Voleti & Sethuraman, 2015). To increase the firm productivity and profitability, the firm needs to record a gross profit related to rental, marketing or advertising, labor and research, and development cost of selling the products of coca cola.

Overall Market Share

Coca-cola has over 30 percent market share in the soft drink market followed by Pepsi making it the top competitor of Coca-cola with over 25 percent market share. According to quantitative analysis from different research, coca cola control a significant market share across the world due to its products (Wells, 2016).

One of the forces that shape or keep the level of coca cola at the top spot is the barrier of entry. The barrier of entry in soft drink is at low entrant. Also, for a company to venture into soft drinks, they need to invest a lot in capital investment (Wells, 2016). Without ideal capital investment, it would be harder to enter the soft drink industry. Coca-cola has over 500 brands which are considered or potentially substitutes. Therefore, the buyer can switch from one product to another. To get my point, it would be unlikely for the consumer to change to another product in the soft drink industry when there are a variety of substitute products of coca cola.
Furthermore, the market structure of coca cola is made up of the oligopoly structure. It uses a variety of market strategies which ensures it remains at the dominant position in the soft drink industry. Therefore, they use an essential brand image that appears different from its competitors making it different from other competitors. Ideally, they engage in competitive and aggressive market strategies of the campaign about different product packaging.

Recommendations
To increase future production of the coca cola company, the company needs to devise critical strategies that would ensure the sales of each product records profit in each year. This can be achieved by evaluating and performing data analysis from the annual sales return to forecast increased production.
Coca Cola Company has an online platform within its customer care portal, which will act as a proxy of channeling the suggested recommendation to the relevant department. This channel will prevent the information from leaking to the top competitors of Coca Cola Company.
Success can be attributed by computerized accounting software that keeps data of the demand and price elasticity of the company. With the software in place, data can be analyzed annually after every income and loss statement of the company to determine if the company has achieved its goals.

References
Bondesson, P., & Liss, S. (2016). Lean Production & Sustainable Supply Chains in the Fast Moving Consumer Goods Industry.
Coca-Cola Reports Strong Results for Fourth Quarter and Full Year 2018 (Feb 14, 2019). Retrieved from https://www.coca-colacompany.com/press-center/press-releases/coca-cola-reports-strong-results-for-fourth-quarter-and-full-year-2018
Hovhannisyan, V., & Bozic, M. (2016). The effects of retail concentration on retail dairy product prices in the United States. Journal of dairy science, 99(6), 4928-4938.
Serôdio, P. M., McKee, M., & Stuckler, D. (2018). Coca-Cola–a model of transparency in research partnerships? A network analysis of Coca-Cola’s research funding (2008–2016). Public health nutrition, 21(9), 1594-1607.
Voleti, S., & Sethuraman, R. (2015). Are National Brands More Promotion Elastic Than Store Brands?. In Advances in National Brand and Private Label Marketing (pp. 63-70). Springer, Cham.
Wells, C. W. (2016). Citizen Coke: The Making of Coca-Cola Capitalism. ByBartow J. Elmore. New York: WW Norton & Company, 2015. 416 pp. Photographs, illustrations, figures, bibliography, notes, index. Cloth, $27.95. ISBN: 978-0-393-24112-9. Business History Review, 90(1), 134-136.

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Impact of Microeconomics Principle in Maintaining Sustainability of Coca Cola Company was first posted on January 25, 2020 at 4:59 pm.
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