Country Notebook Cocacola(1)

International Marketing ManagementTeammates: Chen Shabo Han Jing Feng Huimin Jiao Yucong Tang Shenlan Yang Chao Soweb Salehin

Country NOTEBOOK

Professor Jens Graff

Marketing Plan--Exporting Bubble Buzz in China

Executive Summary

The 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 company’s

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 company’s 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-to-drink 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 Analysis

I. 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 market-oriented 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

III. 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%

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 northC. Topography

world's fourth largest country (after Russia, Canada, and US); Mount Everest on the border with Nepal is the world's tallest peak

Male: 95.1%Female: 86.5% (2000 census)

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

El ections: 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

IV. Religion and Aesthetics

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

Education expenditures : 1.9% of GDP (1999)

V. 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 Xi’an, 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 people’s private houses, you will see table tennis facilities everywhere.

VI. 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 ANALYSIS

I. 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 second-largest 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.)

III. Economic statistics and activity

A. GNP or GDP

GDP (purchasing power parity) :

$7.992 trillion (2008 est.)

Country comparison to the world: 3



note: data are in 2008 US dollars

GDP (official exchange rate) :


GDP - real growth rate :

9% (2008 est.)


13% (2007 est.)

11.6% (2006 est.)

GDP - per capita (PPP) :

$6,000 (2008 est.)


$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)


Pipelines :

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

Railways :

Total: 77,834 km


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


Paved: 1,575,571 km (includes 41,005 km of expressways)

Unpaved: 354,973 km (2005)

Waterways :

110,000 km navigable (2008)


Merchant marine:

Total: 1,826


Ports and terminals :

Dalian, Guangzhou, Ningbo, Qingdao, Qinhuangdao, Shanghai, Shenzhen, Tianjin

C. Inflation r ate

5.9% (2008 est.)


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.)


F. International Trade Statistics

Current account balance :

$426.1 billion (2008 est.)

country comparison to the world: 1

$371.8 billion (2007 est.)

Exports :




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 :


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.)

I. 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

Marketing Plan

Brief description of the company

The Coca-Cola Company’s core undertaking is to

benefit and refresh everyone it reaches.

Founded in 1886, we are the world’s 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-to-drink 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 Coca-

Cola 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

o Bubble Tea beverage in a pre-bottled, ready-to-drink format.

The actual product

o Packaging and labeling: see figure below

o 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”.

o Trade name: Bubble Buzz™, a Coca-Cola product

o Brand personality: energy, funky, cool, functional, original, funny, healthy, etc.

o Brand equity: Coca-Cola provides a quality, consistent, innovative and accessible soft

drink reputation.

Augmented product

o Nutritional information, Status (social drink), Features promoting the website,

Health benefit of a green tea base (ref.17)

Marketing considerations

o 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-Cola’s

strategy is to broaden distribution quickly, which is currently feasible thanks to the

company’s high manufacturing capacity.

o Product class: Food & beverage Soft Drinks Functional Drinks (refer to

Appendix D2 for a break-down of the functional drinks market).

o 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 demand2. The product lifecycle3. 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-Cola’s 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 doesn’t

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 80s”by 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 Examples

Television CCTV, Much Music, HuNan TV

Radio Transportation Radio, During music program, Universities Radio Station

Magazines 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 website: www.BubbleBuzz.cn

Outdoors Billboards and prints in select areas including:

Campuses, transportation (bus, metro, stations) Tourist areas in high seasonal periods Outskirts of key cities in geographical reach

Others Not relevant

Personal selling

Direct contact with retailers, sales kit strategies to be explained later in the text.

Public relations

Stands or special displays and events in schools, malls, sports events (i.e. 2009 Shanghai World Expo), sponsorship activities

Publicity Conferences, press releases (print and online), buzz marketing through TV coverage

http://www.BubbleBuzz.cn/

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 $ 597,124.00 Based on sales @ different channel’s price

Cost Of Goods Sold 214,964.64 Based on weighted average percentage in past data

Contribution Margin 382,159.36 Revenues - COGS

Fixed Costs :

SG&A cost : 113,453.56 Half of the O/H costs estimated, based on past data

Capital expenditures : 25,676.33 4.3% of revenue, based on past data

Profits 243,029.47 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, Coca-Cola 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 objective—which can be simplified as becoming a successful exporter of bubble tea in the Chinese market.

Appendix & Reference

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

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).

REFERENCES

1. The Coca-Cola Co. (Company Profile) . Global Market Information Database

(Euromonitor). Jul 20, 2005. Accessed Feb 08, 2006.

2. Functional Drinks Off-trade Sales in Canada (Country Report) . Global Market

Information Database (Euromonitor). Oct 03, 2005. Accessed Feb 25, 2006.

3. Functional Drinks, Canada, Retail Volume (Statistics) . Global Market Information

Database (Euromonitor). Oct 03, 2005. Accessed Feb 25, 2006.

4. Soft Drinks in Canada (Industry Report) . Global Market Information Database

(Euromonitor). Oct 03, 2005. Accessed Feb 08, 2006.

5. Functional Drinks in the United States . Datamonitor. Dec 2005. Accessed Feb 08, 2006.

6. COSGROVE, Joanna. The 2005 Soft Drink Report. Beverage Industry. Mar 2005; 96; 3;

p.22. Accessed via ABI/INFORM Global. Feb 08, 2006.

7. THEODORE, Sarah. RTD coffee, tea create a buzz. Beverage Industry. Feb 2005; 96; 2;

p.16. Accessed via ABI/INFORM Global. Feb 08, 2006.

8. The Coca-Cola Company. (Company Profile). Datamonitor. Jun 2005. Accessed Feb 08,

2006.

9. HANNAFORD, Steve. Industry Brief, Beverages I. Oligopolywatch.

http://www.oligopolywatch.com/2003/04/21.html. Accessed Feb 07, 2006.

10. POPP, Jamie. Leading in a healthy direction. Beverage Industry. Dec 2004; 95; 12; p.22.

Accessed via ABI/INFORM Global. Feb 08, 2006.

11. BERKOWITZ, Eric N. CRANE, Frederick G. KERIN Roger A. HARTLEY, Steven W.

RUDELIUS, William. Marketing, 5 th Canadian Edition. McGraw-Hill Ryerson. 2003.

12. Consumer Lifestyles in Canada . Global Market Information Database (Euromonitor).

Feb 01, 2005. Accessed Feb 08, 2006.

13. Top 20 Global Brands, Ranked by Brand Value, 2004 & 2005 (in billions and as a %

increase/decrease vs. prior year). BusinessWeek; Interbrand. Jul 22, 2005. Accessed via

eMarketer. Feb 28, 2006.

14. Canadian Statistics – Population by Sex and Age Group . Statistics Canada.

http://www40.statcan.ca/101/cst01/demo10a.htm. Modified Oct 27, 2005. Accessed

Feb 28, 2006.

Country Notebook Cocacola(1)

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