Essay Sample on Coca-Cola and Oligopoly

Market structure refers to the organization pf a market in combination with other market characteristics (Titus, 2018). Market characteristics influence the nature of competition and the pricing of commodities. There are four significant types of market structures which include perfect competition, imperfect competition, monopoly, and oligopoly. Oligopoly refers to a market structure where a small number of companies where none of companies can keep others from having significant influence (Head & Spencer, 2017). There are several companies practicing oligopoly. This paper will analyze Coca-Cola as a company that operates under the oligopoly market structure.

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Coca-Cola is one of the companies that operate in an oligopolistic market. Market structure defines the competitive settings in which an organization operates. Market characteristics play a significant role in the competitive tactics and strategies applied by a firm. There are several reasons why coca-cola can be regarded as an oligopoly. One is the first two companies control the more significant portion of the market (Grasset, 2015). They include Pepsi and Coca-Cola. There are also smaller firms in the market, but their market stake is lower compared to the two leading companies. The other reason is that many barriers restrict firms from entering the industry. It can be attributed to the high level of investment needed to establish a firm in the broad market. The high operation cost restricts many firms from entering the soft drink industry.

Price elasticity of Coca-Cola

Coca-Cola operates under an elastic price. Price elasticity refers to the measure of how the cost of a commodity change with change in the quantity supplied or the demand for a product (Grasset, 2015). In the elastic markets, decreasing the price of commodity results in an increase in profits. In the inelastic market, increasing rates result in an improvement in profits. One of the reasons as to why the company has excellent price elasticity is due to consumer loyalty the firm enjoys. It enables them to raise their prices a little bit before loyal customers begin to buy less. The company has established a strong brand preference with its consumers. If Coca-Cola raises its rates, users will tend to buy less of their products instead of moving to other firms such as Pepsi (Octotutor, 2014). The firm has, however, invested a lot of money to build that kind of goodwill.

On the other hand, if there is a reduction in the price of coke, the demand for the product will be high. The market domination of coke has enabled it to raise its rates even when its rivals cannot. It also allows the company to say no to giving discounts when competing firms are providing discounts to customers.

Ways Coca-Cola prices its products

Currently, the firm rates its products according to geographic segment and market. It implies that each sub-brand of Coca-Cola applies different strategies of pricing. The pricing strategy of Coca-Cola also relies on the prices set by close competitors such as Pepsi. The costing approach of coke is also influenced by the fact that it is the world's most-used brand and is also available all over the globe (Bhasin, 2019). Their distribution system also influences the pricing strategy. The firm uses an FMCG distribution system which has helped eliminate small and middle-level players. The firm uses the market price strategy for pricing (Bhasin, 2019). The reason behind this pricing strategy is so as it can meet the opposition it faces from other players such as Pepsi. Its products are set around the same level set by rivals. Market price strategy implies that the price is not to be too high or too low from what competitors are charging.

Ways Coca-Cola can increase its revenue and profitability

There are several ways that Coca-Cola can raise its revenues and profits for it to remain competitive in the soft drink industry. One of the best strategies that the company can apply to gain more benefits and increase their revenue is by using promotional pricing. Promotional pricing is where a company offers promotional prices to its customers as regularly as probable (Jindal, 2017). It is done by frequently reducing the cost of products below the standard selling price to create short-run deals. It is a strategy that Coca-Cola can use to attract more customers to its products. Promotional pricing can be done on occasions such as Ramadhan. The low pricing creates a sense of criticalness, which makes customers buy more of the product as the low prices attract them. The promotional cost can also be done to retailers and intermediaries by offering them free purge bottles and examples. By doing this, the retailers are motivated to push the coke products into the market. It will result to more people buying the items, which will increase the company's revenue and profits.

Conclusion

Coca-Cola is a soft drink company that operates under an oligopoly market structure. The firm dominates the industry with its wide range of items. The company works under an elastic price whereby the reduction of its product prices results in more profit and revenue. The company, however, enjoys an excellent price elasticity whereby an increase in the cost of its items does not make it lose its loyal customers. It only makes the consumers buy less of coke products. The company can use the promotional pricing strategy to raise its revenues and profits.

References

Titus, P. A. (2018). Exploring creative marketing thought: Divergent ideation processes and outcomes. Psychology & Marketing, 35(3), 237-248.

Head, K., & Spencer, B. J. (2017). Oligopoly in international trade: Rise, fall, and resurgence. Canadian Journal of Economics/Revue Canadienne d'economique, 50(5), 1414-1444.

Jindal, S. (2017). Coca Cola Pricing Strategy. Retrieved 4 August 2019, from https://www.linkedin.com/pulse/coca-cola-pricing-strategy-shashank-jindal

Bhasin, H. (2019). Marketing mix of Coca Cola - 4 P's of Coca-cola - Coca-cola 4 Ps explained. Retrieved 4 August 2019, from https://www.marketing91.com/marketing-mix-coca-cola/

Octotutor. (2014). The Market Structure of the Coca-Cola Company | Octotutor. Retrieved 4 August 2019, from https://octotutor.com/the-market-structure-of-the-coca-cola-company/

Grasset, G. (2015). Price Elasticity of Demand - Illustrated for Commerce - Lokad. Retrieved 4 August 2019, from https://www.lokad.com/price-elasticity-of-demand-definition