Do this make sense regarding How did the Ananos family decide to make and market Kola Real? What business strategy did this start-up company adopt? Was it successful? Explain. What motivated Kola Real to expand into Mexico? Who are its major competitors? How have those competitors been affected by Kola Real? Why could competition hurt the profitability of Pepsi and Coca-Cola even if the two companies were able to maintain their market share? Compare and contrast Kola Real's distribution strategy, advertising, and its relationship with retailers as compared to Pepsi and Coca-Cola. How is Kola Real's brand image perceived in comparison with Pepsi and Coke? Sometimes companies face barriers to entry in marketing and manufacturing a product. Why was the use of glass bottles a significant barrier to entry? How can exclusive contracts with distributors act as a barrier to entry? Are there any other barriers to entry illustrated in the article? How did Kola Real benefit when some of the barriers to entry were removed? Despite its lean operation, what challenges does Kola Real face as it tries to compete with Pepsi and Coca-Cola? Do you think the major company should be worried? Explain. Be sure to provide a detailed analysis and critique about Kola Real's management's strategy and their effectiveness using what you have learned in the course.

Understanding Business

12th Edition

ISBN:9781259929434

Author:William Nickels

Publisher:William Nickels

Chapter1: Taking Risks And Making Profits Within The Dynamic Business Environment

Section: Chapter Questions

Problem 1CE

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Hi. Do this make sense regarding How did the Ananos family decide to make and market Kola Real? What business strategy did this start-up company adopt? Was it successful? Explain. What motivated Kola Real to expand into Mexico? Who are its major competitors? How have those competitors been affected by Kola Real? Why could competition hurt the profitability of Pepsi and Coca-Cola even if the two companies were able to maintain their market share? Compare and contrast Kola Real's distribution strategy, advertising, and its relationship with retailers as compared to Pepsi and Coca-Cola. How is Kola Real's brand image perceived in comparison with Pepsi and Coke? Sometimes companies face barriers to entry in marketing and manufacturing a product. Why was the use of glass bottles a significant barrier to entry? How can exclusive contracts with distributors act as a barrier to entry? Are there any other barriers to entry illustrated in the article? How did Kola Real benefit when some of the barriers to entry were removed? Despite its lean operation, what challenges does Kola Real face as it tries to compete with Pepsi and Coca-Cola? Do you think the major company should be worried? Explain. Be sure to provide a detailed analysis and critique about Kola Real's management's strategy and their effectiveness using what you have learned in the course.

Transcribed Image Text:The Ananos family's decision to create Kola Real emerged from the challenging circumstances brought about by Shining Path guerrillas in Peru. Faced with the destruction of their farm, the family identified an opportunity and began producing cola locally. With an initial investment of $30,000, the family adopted a business strategy characterized by low prices, cost-saving measures, and a grassroots approach to distribution. The focus was on providing affordable options to price-sensitive consumers. This strategy involved using old beer bottles, pasting labels by hand, and reinvesting profits for gradual growth. The success of Kola Real in Peru prompted its expansion into Mexico, a market dominated by Coca-Cola. The company's motivation for entering the Mexican market was to tap into the significant soft drink industry, the world's second-largest. The introduction of "Big Cola" in Mexico marked a strategic adaptation to local conditions, emphasizing the company's agility in responding to market dynamics. Within two years, Big Cola captured approximately 4% of the Mexican market, prompting responses from major competitors, Coca-Cola and Pepsi. The impact on major competitors was notable, especially for Pepsi, as Kola Real competed directly with it as a lower-cost alternative. Both Coca-Cola and Pepsi responded to the price competition by cutting their prices, affecting their profit margins. The price war highlighted the vulnerability of major players, showcasing that competition, even if maintaining market share, could hurt profitability due to reduced profit margins and intensified pricing pressure. Comparing Kola Real's distribution strategy, advertising, and relationship with retailers to Pepsi and Coca-Cola reveals distinct differences. Kola Real's distribution strategy involved hiring third parties for deliveries, even individuals with dented pickup trucks, in contrast to the dedicated fleets maintained by Coke and Pepsi bottlers. Advertising for Kola Real was minimal, relying on word-of-mouth, while major competitors invested significantly in extensive advertising campaigns. The relationship with retailers was also different, with allegations of anticompetitive practices by Coke, including threats to retailers stocking Big Cola. Kola Real's brand image positioned it as a budget-friendly alternative, appealing to price- sensitive consumers, while Pepsi and Coke maintained a more established and premium image. Barriers to entry in the soft drink industry were illustrated in various ways. The use of glass bottles was a significant historical barrier due to higher manufacturing costs and fragility. However, the shift to plastic bottles in the 1990s lowered these barriers, allowing for easier entry by new competitors. Exclusive contracts with distributors acted as barriers by limiting access to key distribution channels, making it difficult for new entrants to secure shelf space. Kola Real benefited when some of these barriers were removed, particularly as it gained access to distribution channels, allowing for greater market entry and competition. Other barriers to entry highlighted in the article include the established brand recognition of Coke and Pepsi. Despite its lean operation, Kola Real faces challenges in competing with established giants like Pepsi and Coca-Cola. The increased competition in Mexico poses a threat to Coca-Cola's historically significant profits in the country. Challenges include the need to maintain market share and profitability amid intense price competition and potential anticompetitive practices from major competitors. While Kola Real's success demonstrates the potential for disruptive forces in the beverage industry, the major companies should indeed be concerned. The challenges lie in sustaining the innovative and cost-effective approach amid competition, adapting to changing market conditions, and navigating potential retaliatory actions from major players. A detailed critique of Kola Real's management strategy reveals both strengths and weaknesses. The focus on cost leadership and providing ultralow prices has been a key strength, allowing the company to appeal to price-sensitive consumers and gain market share. The adaptability showcased through the introduction of "Big Cola" in Mexico demonstrates the company's agility in responding to local market conditions. However, there are weaknesses, such as the minimal investment in advertising. While word-of-mouth can be effective, a more robust advertising strategy could enhance brand visibility and customer awareness, potentially accelerating market penetration. Furthermore, the dependence on price competition poses a risk of margin squeeze, limiting long-term sustainability. The company has opportunities to explore new markets and diversify its product offerings to ensure sustained growth. Embracing digital marketing channels could enhance brand visibility and engagement at a lower cost, addressing the weakness of minimal advertising. The major threat lies in the intense competition faced by Kola Real. As the company expands, it will face increased competition and potential retaliation from major industry players. The company needs to carefully navigate these challenges, maintaining its cost-effective approach while strategically expanding into new markets. Supply chain risks associated with depending on third-party deliveries should also be addressed to ensure consistent product availability. In conclusion, Kola Real's management strategy has been effective in capturing market share and challenging major players in the soft drink industry. The company's success demonstrates the potential for disruptive strategies to reshape the competitive landscape, necessitating adaptation by major companies to remain competitive. The effectiveness of Kola Real's strategy will depend on its ability to navigate challenges, sustain its innovative and cost-effective approach, and continue responding dynamically to changing market conditions. In assessing Kola Real's international business strategy, the framework proposed by Donald C. Hambrick and James W. Fredrickson, encompassing arenas, differentiators, vehicles, staging and pacing, and economic logic, proves instrumental. This analysis aims to evaluate the effectiveness of Kola Real's strategy based on these elements and draw insights from the course material. Kola Real's selection of arenas involves not only

preferences, and regulatory landscapes is crucial for effective arena selection. Kola Real's emphasis on ultralow prices positions it as a
differentiator, offering a competitive advantage by standing out from its rivals. The company's ability to provide quality products at lower prices is
a key differentiator, appealing to price-sensitive consumers. Critique: While cost leadership is a strong differentiator, Kola Real should diversify its
differentiators to include aspects like branding, innovation, or sustainability. Over-reliance on low prices may limit long-term profitability. The
choice of vehicles refers to how a company enters a new market. Kola Real's use of unconventional methods, such as third-party deliveries and
acquisitions of abandoned plants, reflects an organic growth approach. This aligns with the course's discussion of entry modes. Critique: While
the unconventional approach has proven effective, Kola Real should evaluate the scalability of these methods. Consideration of partnerships, joint
ventures, or franchising could provide additional avenues for growth. The speed at which a company makes strategic moves, or staging and
pacing, is crucial for success. Kola Real's gradual expansion and strategic market entries, such as the move into Mexico, showcase a well-
thought-out approach. Critique: To maintain a competitive edge, Kola Real should continuously evaluate the timing of its strategic moves. Agility
and responsiveness to market dynamics are essential to stay ahead of competitors.Kola Real's economic logic revolves around offering products
at lower costs, attracting a large consumer base. The company's focus on maintaining profitability while keeping prices low is aligned with sound
economic principles.Critique: Kola Real should continue to innovate its economic logic. Exploring cost-cutting measures and operational efficiency
without compromising product quality will ensure sustained profitability. Understanding the importance of culture is evident in Kola Real's strategy.
The company's ability to adapt its offerings to local preferences, as seen in the success of Big Cola in Mexico, reflects cultural sensitivity.
However, there may be challenges in navigating cultural nuances as the company expands into diverse markets.Ethics are implicit in Kola Real's
strategy, particularly in its commitment to providing affordable products. The ethical considerations of fair pricing and accessibility to a broader
consumer base align with principles discussed in the course. In conclusion, Kola Real's international business strategy aligns well with the
elements proposed by Hambrick and Fredrickson. The company has effectively identified arenas, leveraged differentiators, chosen suitable
vehicles, managed staging and pacing, and established a sound economic logic. The emphasis on understanding and adapting to different
cultures is evident, though ongoing cultural intelligence is essential for sustained success. Kola Real's commitment to ethics, coupled with
strategic decision-making, positions the company as a formidable player in the competitive beverage industry. Continuous evaluation, innovation,
and cultural adaptability will be key to the company's future success on the international stage.

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