One

Marketing environment are the actors and forces that affect a company's capability to operate
effectively in providing products and services to its customers. The marketing environment
consists of microenvironment (customer, competitors, distributors, and suppliers) and the
macroenvironment (economic, social, political, legal, physical and technological forces). These
shape the character of the opportunities and the threats facing a company and yet are largely
uncontrollable.

The major microenvironment that Coca-Cola is facing is its competitor, PepsiCo. Competitors
have a major bearing on the performance of a company. It affects a company's capabilities to
operate effectively in its chosen markets. For example, Coca-Cola was once successful and was
the Wall Street favourite. It created a global brand and outperformed its arch-rival PepsiCo.
However, by December 2005, its competitor, PepsiCo, for the first time in the history of the
two companies, was valued more highly with a market capitalization of $98.4 billion against
Coca-Cola's $97.9 billion. Coca-cola's number one status was starting to look vulnerable. It
was losing market share to PepsiCo.

The major macroenvironment that Coca-Cola is facing is Social/cultural forces. Social/cultural

forces can have an impact on marketing decisions by changing demand patterns and creating
new opportunities and threats. With the increasing numbers of health-conscious consumers,
attitudes towards the demand for beverages are changing. The changes need to be monitored
and understood so that marketing management is aware of the changing tastes and behaviour
of consumers. Such changes can create demand shifts that can act as either opportunities or
threats. In contrast to Coca-cola, PepsiCo considered the change an opportunity for business
expansion. For example, PepsiCo diversified away from sugary fizzy drinks into a powerful
portfolio of non-carbonated products. It bought the fruit juice business Tropicana and Quaker
Oats. With these new businesses, the company has experienced double-digit growth, where as
Coca-cola cherish the status quo and resist change.

There are various ways companies can respond to the change in marketing environment, which
are: ignorance, delay, retrenchment, gradual strategic repositioning and radical strategic
repositioning.

The first response of Coca-Cola to the changing marketing environment before the arrival of
Mr Isdell to that of PepsiCo, is where Coca-Cola made no change to its strategy at the beginning
after the death of Roberto Goizueta. It continued as normal, ignore its competitor, PepsiCo,
which was threatening their existence. During that time, Coca-Cola was facing bungled
takeovers, disastrous product launches, contamination scares, and constant feuding between
factions within the management and boardroom. It still stayed put to Goizueta's philosophy,
that is, it was that nothing could beat the low cost, high-profit -margin business of producing
syrupy concentrate for bottlers, under licence. Between the competitions of the two companies,
it had made consumers more cola-conscious. However, Coca-Cola rarely saw it like that due
to the poor environment scanning. Coca-Cola appears to be internally orientated business, as it
did not monitor and seek to understand customers, research competitor and their brands to
understand theirs strengths, weaknesses, strategies and response patterns. Coca-Cola did not
realize that salient forces are affecting their future prospects.

Apart from the ignorant, Coca-Cola has delayed in their response to the marketing environment
change. This can be caused by bureaucratic nature of their decision-making. Marketing myopia
can slow response through management being product rather than customer focused. For
example, despite the change in consumer tastes, lifestyle and expectations, Coca-cola is still
focused on soft drinks where PepsiCo has already well diversified and even enter into snack
food business. The result is that PepsiCo generates about 23 per cent of its worldwide profits
from the stagnant carbonated drinks sector, while Coca-Cola relies on fizzy drinks for 80 per
cent of profits. PepsiCo's diversification programme and its branding-building expertise have
made it the world's fourth largest food and beverage company, ranking behind Nestle, Kraft
and Unilever. Its sales were more than $43 billion compared with Coca-cola's $32 billion in
2008.

Slowly, Coca-cola has looked into gradual strategic repositioning. This involves a gradual,
planned and continuous adaptation to the changing marketing environment. Coca-Cola has
slowly and continually repositioned itself in response to its strong competition and the changing
marketing environment. It has in fact gradually challenge its competitor by having launched
Minute Maid fruit juice to challenge Tropicana, Dasani to take on Aquafina and so on, even
though it seems to be playing catch-up.

Compare to Coca-Cola, PepsiCo has adopted the radical strategic repositioning where it took
part and involved by changing the direction of the business according to the change in
marketing environment. For example, PepsiCo developed and marketed better alternative,
more varieties and healthier beverages.