Country Notebook Cocacola(1)

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Internati onal Marketin g Manage mentTeammates: Chen Shabo Han Jing Feng Huimin Jiao Yucong Tang Shenlan Yang Chao Soweb Salehin Country NOTEBOOK Professor Graff Jens

Marketing Plan--Exporting Bubble Buzz in China

Executive SummaryThe following marketing plan forms the basis for the introduction of an innovative new product by the Coca-Cola Company to the Chinese market. With the fastest growth of GDP in the global economic recession background, China is now attracting more and more foreign investment. The rising purchase power of middle-class Chinese is slowly emerging as the most desirable target market in the international arena. Our analysis will allow us to outline the best strategies for the achievement of the companys strategic goals in the biggest country in the Far East. Bubble Buzz will be marketed as a unique functional drink while striving to reinforce the companys status as the leader in innovation and successful product launches. The marketing strategies will enable to reach a market size of an estimated 8,688,300 people (targeted) with a forecasted sales growth prospect of 7.3% over the next 4 years ($243,029.47 profits), while satisfying the needs of the still-unserved Chinese market for ready-todrink bubble tea. Success will be reflected by a sizeable capture of market shares within this market, while strategically carrying the company up to the top spot as the market leader in the functional drinks segment of soft drinks.

Cultural AnalysisI. Introduction For centuries China stood as a leading civilization, outpacing the rest of the world in the arts and sciences, but in the 19th and early 20th centuries, the country was beset by civil unrest, major famines, military defeats, and foreign occupation. After World War II, the Communists under MAO Zedong established an autocratic socialist system that, while ensuring China's sovereignty, imposed strict controls over everyday life and cost the lives of tens of millions of people. After 1978, MAO's successor DENG Xiaoping and other leaders focused on marketoriented economic development and by 2000 output had quadrupled. For much of the population, living standards have improved dramatically and the room for personal choice has expanded, yet political controls remain tight. II. Geographical Setting

A. Location: Eastern Asia, bordering the East China Sea, Korea Bay, Yellow Sea, and South China Sea, between North Korea and Vietnam B. Climate: extremely diverse; tropical in south to subarctic in north C. Topography world's fourth largest country (after Russia, Canada, and US); Mount Everest on the border with Nepal is the world's tallest peak

I.

Social Institutions

A. Family Family is the most important institution in China. Family consists of nuclear family unit in urban areas and extensive forms in rural places B. Education

Literacy rate: Total population: 90.9% Male: 95.1% Female: 86.5% (2000 census) Education expenditures: 1.9% of GDP (1999) C. Political System Chinese Communist Party or CCP [HU Jintao]; eight registered small parties controlled by CCP Chief of state: President HU Jintao (since 15 March 2003); Vice President XI Jinping (since 15 March 2008) Head of government: Premier WEN Jiabao (since 16 March 2003); Executive Vice Premier LI Keqiang (17 March 2008), Vice Premier HUI Liangyu (since 17 March 2003), Vice Premier ZHANG Deijiang (since 17 March 2008), and Vice Premier WANG Qishan (since 17 March 2008) Cabinet: State Council appointed by National People's Congress Elections: president and vice president elected by National People's Congress for a five-year term (eligible for a second term); elections last held 15-17 March 2008 (next to be held in mid-March 2013); premier nominated by president, confirmed by National People's Congress Election results: HU Jintao elected president by National People's Congress with a total of 2,963 votes; XI Jinping elected vice president with a total of 2,919 votes D. Legal System Based on civil law system; derived from Soviet and continental civil code legal principles; legislature retains power to interpret statutes; constitution ambiguous on judicial review of legislation; has not accepted compulsory ICJ jurisdiction Religion and Aesthetics

I.

A. Religion and other belief systems Daoist (Taoist), Buddhist, Christian 3%-4%, Muslim 1%-2% B. Aesthetics Traditional Chinese art including painting, dancing, music, calligraphy and paper cutting art

I.

Living Conditions

A. Diet and Nutrition Regional cultural differences vary greatly within China, giving rise to the different styles of food across the nation. Traditionally there are eight main regional cuisines, or Eight Great Traditions Anhui, Cantonese, Fujian, Hunan, Jiangsu, Shandong, Sichuan and Zhejiang. Sometimes four of the Eight Great Traditions are given greater emphasis, and are considered to be the dominating culinary heritage of China. They are notably defined along geographical lines: Sichuan (Western China), Cantonese (Southern China), Shandong (Northern China), as well as Huaiyang Cuisine (Eastern China), a major style derived from Jiangsu cuisine and even viewed as the representation of that region's cooking. In modern times, Beijing cuisine and Shanghai cuisine on occasion are also cited along with the classical eight regional styles as the Ten Great Traditions. There are also featured Chinese Buddhist cuisine and Muslim sub-cuisines within the greater Chinese cuisine, with an emphasis on vegetarian and halal-based diets respectively. B. Clothing Traditional Chinese clothing is broadly referred to as hanfu with many variations such as traditional Chinese academic dress. Depending on one's status in society, each social class had a different sense of fashion. Most Chinese men wore Chinese black cotton shoes, but wealthy higher class people would where tough black leather shoes for formal occasions. Very rich and wealthy men would wear very bright, beautiful silk shoes sometimes having leather on the inside. Women would wear bright, silk coated Lotus Shoes under their foot bound feet. Men shoes were mostly less elaborate then women's. C. Recreation, sports, and other leisure activities Martial arts and Taichi are the most popular activities in China. You can always enjoy the centuries-old culture of ancient cities as Xian, Beijing or the vitality of metropolis such as Shanghai and Guangzhou. Ping pong ball is the national sports of Chinese, inside street parks, on campus, or even in peoples private houses, you will see table tennis facilities everywhere. I. Language

A. Official Language Standard Chinese or Mandarin (Putonghua, based on the Beijing dialect)

B. Spoken versus written languages Yue (Cantonese), Wu (Shanghainese), Minbei (Fuzhou), Minnan (Hokkien-Taiwanese), Xiang, Gan, Hakka dialects, minority languages (see Ethnic groups entry)

ECONOMIC ANALYSISI. Introduction China's economy during the past 30 years has changed from a centrally planned system that was largely closed to international trade to a more market-oriented economy that has a rapidly growing private sector and is a major player in the global economy. Reforms started in the late 1970s with the phasing out of collectivized agriculture, and expanded to include the gradual liberalization of prices, fiscal decentralization, increased autonomy for state enterprises, the foundation of a diversified banking system, the development of stock markets, the rapid growth of the non-state sector, and the opening to foreign trade and investment. Annual inflows of foreign direct investment rose to nearly $84 billion in 2007. China has generally implemented reforms in a gradualist or piecemeal fashion. In recent years, China has re-invigorated its support for leading state-owned enterprises in sectors it considers important to "economic security," explicitly looking to foster globally competitive national champions. After keeping its currency tightly linked to the US dollar for years, China in July 2005 revalued its currency by 2.1% against the US dollar and moved to an exchange rate system that references a basket of currencies. Cumulative appreciation of the renminbi against the US dollar since the end of the dollar peg was more than 20% by late 2008, but the exchange rate has changed little since the onset of the global financial crisis. The restructuring of the economy and resulting efficiency gains have contributed to a more than tenfold increase in GDP since 1978. Measured on a purchasing power parity (PPP) basis that adjusts for price differences, China in 2008 stood as the secondlargest economy in the world after the US, although in per capita terms the country is still lower middle-income. The Chinese government faces numerous economic development challenges, including: (a) strengthening its social safety net, including pension and health system reform, to counteract a high domestic savings rate and

correspondingly low domestic demand; (b) sustaining adequate job growth for tens of millions of migrants, new entrants to the work force, and workers laid off from state-owned enterprises deemed not worth saving; (c) reducing corruption and other economic crimes; and (d) containing environmental damage and social strife related to the economy's rapid transformation. Economic development has been more rapid in coastal provinces than in the interior, and approximately 200 million rural laborers and their dependents have relocated to urban areas to find work - in recent years many have returned to their villages. One demographic consequence of the "one child" policy is that China is now one of the most rapidly aging countries in the world. Deterioration in the environment - notably air pollution, soil erosion, and the steady fall of the water table, especially in the north - is another long-term problem. China continues to lose arable land because of erosion and economic development. In 2007 China intensified government efforts to improve environmental conditions, tying the evaluation of local officials to environmental targets, publishing a national climate change policy, and establishing a high level leading group on climate change, headed by Premier WEN Jiabao. The Chinese government seeks to add energy production capacity from sources other than coal and oil. In late 2008, as China commemorated the 30th anniversary of its historic economic reforms, the global economic downturn began to slow foreign demand for Chinese exports for the first time in many years. The government vowed to continue reforming the economy and emphasized the need to increase domestic consumption in order to make China less dependent on foreign exports for GDP growth in the future. II. Population

A. Total Population 1,338,612,968 (July 2009 est.) B. Population Growth Rate 0.655% (2009 est.) I. Economic statistics and activity

A. GNP or GDP

GDP (purchasing power parity): $7.992 trillion (2008 est.) Country comparison to the world: 3 $7.332 trillion (2007 est.) $6.489 trillion (2006 est.) note: data are in 2008 US dollars

GDP (official exchange rate): $4.327 trillion (2008 est.)

GDP - real growth rate: 9% (2008 est.) Country comparison to the world: 17 13% (2007 est.) 11.6% (2006 est.)

GDP - per capita (PPP): $6,000 (2008 est.) Country comparison to the world: 133 $5,500 (2007 est.) $4,900 (2006 est.) note: data are in 2008 US dollars

GDP - composition by sector: Agriculture: 11.3% Industry: 48.6% Services: 40.1% (2008 est.)

B. Surface Transportation

Airports: 482 (2009) Country comparison to the world: 15

Pipelines: Gas 28,132 km; oil 20,204 km; refined products 9,746 km (2008)

Railways: Total: 77,834 km Country comparison to the world: 3 Standard gauge: 77,084 km 1.435-m gauge (24,433 km electrified) Narrow gauge: 750 km 0.750-m gauge (2008)

Roadways: Total: 1,930,544 km Country comparison to the world: 3 Paved: 1,575,571 km (includes 41,005 km of expressways) Unpaved: 354,973 km (2005)

Waterways: 110,000 km navigable (2008) Country comparison to the world: 1

Merchant marine:

C. Inflation rate

5.9% (2008 est.) Country comparison to the world: 99 4.8% (2007 est.) D. Principal Industries Mining and ore processing, iron, steel, aluminum, and other metals, coal; machine building; armaments; textiles and apparel; petroleum; cement; chemicals; fertilizers; consumer products, including footwear, toys, and electronics; food processing; transportation equipment, including automobiles, rail cars and locomotives, ships, and aircraft; telecommunications equipment, commercial space launch vehicles, satellites E. Foreign Investment 40.5% of GDP (2008 est.) Country comparison to the world: 4 F. International Trade Statistics

Current account balance: $426.1 billion (2008 est.) country comparison to the world: 1 $371.8 billion (2007 est.) Exports: $1.435 trillion (2008 est.) Country comparison to the world: 3 $1.22 trillion (2007 est.)

Exports - commodities: Electrical and other machinery, including data processing equipment, apparel, textiles, iron and steel, optical and medical equipment Exports - partners: US 17.7%, Hong Kong 13.3%, Japan 8.1%, South Korea 5.2%, Germany 4.1% (2008) Imports: $1.074 trillion (2008 est.) country comparison to the world: 4 $904.6 billion (2007 est.) Imports - commodities: Electrical and other machinery, oil and mineral fuels, optical and medical equipment, metal ores, plastics, organic chemicals Imports - partners: Japan 13.3%, South Korea 9.9%, US 7.2%, Germany 4.9% (2008) Reserves of foreign exchange and gold: $1.955 trillion (31 December 2008 est.) country comparison to the world: 1 $1.534 trillion (31 December 2007 est.)

G. Exchange Rate Renminbi yuan (RMB) per US dollar - 6.9385 (2008 est.), 7.61 (2007), 7.97 (2006), 8.1943 (2005), 8.2768 (2004) H. Labor Force Agriculture: 43% Industry: 25% Services: 32% (2006 est.) Unemployment Rate 4% (2008 est.) Country comparison to the world: 46 4% (2007 est.) note: official data for urban areas only; including migrants may boost total unemployment to 9%; substantial unemployment and underemployment in rural areas

I.

Marketing Plan

Brief description of the company The Coca-Cola Companys core

undertaking is to benefit and refresh everyone it reaches. Founded in 1886, we are the worlds leading manufacturer, marketer, and distributor of non-alcoholic beverage

concentrates and syrups, which are used to produce nearly 400 beverage brands that make up for our wide portfolio. Our corporate headquarters are established in Atlanta, and we are holding local operations in over 200 countries around the world. Our activities cover all sectors of the beverage industry. We are the second leading player in functional and

Asian specialty drinks, while ranking number one in value for the ready-todrink tea sector New product & strategic role in the future position of the company

Bubble Buzz will be a bottled beverage and will be positioned as the only ready-to-drink Bubble Tea product available on the market. The beverage will have a green tea base with enhanced fruit flavors (passion fruit, strawberry and lime) as well as tapioca pearls. It will bring an

entirely unique drinking experience to its consumers. It will present itself as a funky and unusual alternative to traditional tea while providing the great taste of authentic fruit juice in an attractive and convenient packaging. The strategic role of Bubble Buzz for The CocaCola Company is centered on three objectives: To stay at the forefront as the market leader in innovative product introductions and successful product launches; To strengthen and satisfy the needs of the more adventurous Generation Y consumers with a new eye-catching and Functional product; To become the market leader in the functional drinks segment with increased market shares.

The objectives of the marketing plan are strategically centered around 3 criteria: to create a strong consumer awareness towards a completely new bubble tea product from Coca-Cola in Chinese market, to establish a wide brand recognition through the capture of market shares in the functional drinks segment, and to become the top market leader in China within the forecasted sales figures.

PRODUCT STRATEGY The core Bubble Tea beverage in a pre-bottled, ready-to-drink format. The actual product

Packaging and labeling: see figure below Branding: colorful, aspect of play, round shaped, prominent Bubble Buzz logo written in modern font, catchphrases such as Think outside the Bubble and Get Your Buzz. Trade name: Bubble Buzz, a Coca-Cola product Brand personality: energy, funky, cool, functional, original, funny, healthy, etc. Brand equity: Coca-Cola provides a quality, consistent, innovative and accessible soft drink reputation.

Augmented product Nutritional information, Status (social drink), Features promoting the website, Health benefit of a green tea base (ref.17) Marketing considerations

Product life cycle: Bubble Buzz is a low-learning product. With a strong marketing campaign, sales [will] begin immediately and the benefits of the purchase are readily understood. Since Bubble Buzz is prone to product imitation, Coca-Colas strategy is to broaden distribution quickly, which is currently feasible thanks to the companys high manufacturing capacity.

Product class: Food & beverage Soft Drinks Functional Drinks (refer to Appendix D2 for a break-down of the functional drinks market).

Bubble Buzz follows the practice of product modification: Coca-Cola is introducing an existing beverage (bubble tea) but redefines the drink with a new, more convenient package. Bubble Tea will now become a widely available drink in multiple retailing (distribution) channels.

PRICE STRATEGY The price strategy that will be undertaken should consider the following aspects: 1. Consumer demand 2. The product lifecycle 3. Potential substitutes

Customer demand Customer demand is a crucial factor which is driven by tastes, income and availability of others similar products at a different price (mentioned later in the potential substitutes section). For a lot of consumers, value and price are highly related: the higher the price, the higher the value. Consequently, Coca-Colas intention to position Bubble Buzz as a unique, innovative and attractive product gives it a certain control over Bubble Buzz price. To be able to implement higher pricing though, the minimization of the non-monetary costs to customers should also be include along with awareness of the product (notably by

advertising) and value (benefits) . The product lifecycle The company should take advantage also to the fact that the newer the product and the earlier in its lifecycle the higher the price can usually be. It ensures a high profit margin as the early adopters buy the product and the firm seeks to recoup development costs quickly and it also brings a certain prestige to the product. Potential substitutes Coca-Cola is constrained by the monopolistic market in which it competes. The main characteristic however is product differentiation.

PROMOTION STRATEGY Objectives:

To initiate strong awareness about the launch of Bubble Buzz throughout the Chinese consumers age 15-29 which is generally referred to as after 80s, as well as their parents.

To win market shares over our top functional drinks competitor, PepsiCo.

Message: The promotional outputs will convey the clear message that Bubble Buzz is a healthy drink for sporty and young people who simply enjoy taking care of their body and life. Concepts:

Think outside the bubble: Be Bold, Be Original, Be Different, Be Yourself. A good spirit in a good body. For the out-of-the-ordinary individuals who like to challenge themselves.

Media selection: Before choosing the appropriate Medias, it is important to note that after 80s consumers only give partial attention to media. However, they can be reached through integrated programs. They are typically using more than one communication media at a time; a behaviour that is often called multitasking. This group of consumers doesnt give its full attention to one single message, but rather uses continuous partial attention to scan the media. Marketers can still communicate with Generation after 80sby

using a variety of targeted promotional tools. Another important tactic to reach our target market is through Viral or Buzz marketing, which Coca-Cola will heavily use in this campaign (campus, contests). Advertising: Output Television Radio Magazines Examples CCTV, Much Music, HuNan TV Transportation Radio, During music program, Universities Radio Station For girls: Modern world of singers, Women Magazine For boys: Sports Illustrated (or Kids edition);Football weekly; Video Games Magazines Internet Banners on select websites (gaming, sports, etc.) Official promotional www.BubbleBuzz.cn Outdoors Billboards including: and prints in website: select areas

Others Personal selling Public relations Publicity

Campuses, transportation (bus, metro, stations) Tourist areas in high seasonal periods Outskirts of key cities in geographical reach Not relevant Direct contact with retailers, sales kit strategies to be explained later in the text. Stands or special displays and events in schools, malls, sports events (i.e. 2009 Shanghai World Expo), sponsorship activities Conferences, press releases (print and online), buzz marketing through TV coverage

Promotional Mix: Consumer oriented:

Contests: Win another Bubble Buzz flavour, Uncover a secret code underneath the bottle cap and win sporting goods and electronics by logging on the website, Win a trip for the 2010 Shanghai World Expo. (Arguments: It will increase consumer purchases and encourage consumer involvement with the product).

Samples: distributed in supermarkets, school/universities. Samples are a way to avoid product resistance since people are not used to find bubbles in their drinks. Arguments: It will encourage new product purchases and it represents low risk for consumers since they get it for free. They have nothing to lose by trying it.

Point-of-purchase: in supermarkets (to reach the parents of after 80s). Arguments: It is also a mean to increase product trial and provides a good product visibility.

Others: In subsequent years, engage in product placement in TV shows or movies.

Trade oriented:

Allowances and discounts: case allowance (Arguments: The free goods approach will be used so it can encourage retailers to buy more of the product to get a certain amount for free).

Cooperative advertising: to encourage retailers to buy our product and to maintain our high level of advertisement that consumers expect from Coca-Cola.

Other considerations:

Scheduling of the advertising: Pulse scheduling (promotional presence year-round, but emphasized and intensified before and during summer).

IMC (integrated marketing communication)

Target Audience:

Intermediary: personal selling will be more often used Ultimate consumer: Coca-Cola will use more of mass media because the amount of potential buyers is large.

PLACE (DISTRIBUTION STRATEGY) Bubble Buzz will be distributed through these channels: supermarkets, convenience stores, independent food stores, discount stores, multiple grocers, vending machines, direct sales.

Projected Financial Performance Revenues $ 597,124.0 0 214,964.64 382,159.36 Based on sales @ different channels price Based on weighted average percentage in past data Revenues - COGS

Cost Of Goods Sold Contribution Margin Fixed Costs : SG&A cost : Capital expenditures : Profits

113,453.56 25,676.33 243,029.4 7

Half of the O/H costs estimated, based on past data 4.3% of revenue, based on past data CM SG&A Capital expenditures

Requirement for success analysis: C.M. per bottle = 382,159.36 / 328,000 = $1.17 Break-even: (113,453.56+25,676.33) / 1.17 = 118,914 (bottles) Market share: 118,914 / 1,000,000 = 11.9%

In one year, if Coca-cola can sell 118,914 bottles of Bubble Buzz, or in other words achieve 11.9% of the functional drink market share, it will break even. After this point, every bottle Coca cola sells will generate average $1.17 towards the profits. The potential profits can up to $1,030,770.001 based on our target market.

Expected Costs: COGS: $597,124 * 36% = $214,964.64 O/H: $597,124* 38% = $226,907.12

Expected Revenues (total) = $597,124

Summary:After the comprehensive analysis of the country notebook of China, CocaCola Company is more acquainted with this most populated country in the world. The cultural and economic descriptions offer us an outline of consuming patterns and capabilities of the targeted market. Once we understands the country better, we make our marketing mix which contains products, pricing, place and promotion plans accurate and in a timely fashion. All these analysis and suggestions will contribute to the achievement of our final marketing objectivewhich can be simplified as becoming a successful exporter of bubble tea in the Chinese market.

1 $1.17*(1-11.9%)*1,000,000 = $1,030,770

Appendix & Reference

APPENDIX 1

APPENDIX 2 A Chinese menu of bubble series Sample board of bubble tea prices in China (with price range from $10 to $15).

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