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Coca-Cola India Crisis Case Study Analysis

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Coca-Cola India Crisis Case Study Analysis

  1. 1. Crisis Case Study Analysis By: Catharine Harris Laura Wilson Ryan Hiraki Angela Young
  2. 2. Crisis background On August 5, 2003, The Center for Science and the Environment (CSE) issued a vilifyingnews release which stated that “12 major cold drink brands sold in and around Delhi contain adeadly cocktail of pesticide residues.”1 The CSE, a New Delhi based research and advocacy group that lobbies for sustainablegrowth, based its accusation on tests conducted by the Pollution Monitoring Laboratory betweenApril and August 2003. 2 The tests found that three samples of 12 PepsiCo and Coca-Cola brandsacross the city contained pesticide residues that surpassed global standards by 30-36 times. Thepesticides – lindane, DDT, malathion, and chlorpyrifos – can cause cancer, damage to thenervous and reproductive systems, birth defects, and severe disruption of the immune system.3 The CSE report struck fear among residents of the impoverished country where almost 60infants per 1,000 died before their first birthday.4 Coke products in the United States did notcontain similar pollutants. Despite the huge popularity of the soft drink in India, the companyoften is viewed as a symbol of Western cultural imperialism.5 Coke accounts for 60 percent ofthe $1.6 billion soft drink market in India.6 The Indian government eventually banned all Coke and Pepsi products in Parliament, andschools soon followed suit. State governments also sent several soft drink samples to labs fortesting.7                                                                                                                          1  Jennifer Kaye, “Coca-Cola India,” Corporate Communication, 2009, p. 284.  2 Center for Science and Environment, Overview, http://www.cseindia.org/cseaboutus/overview_new.htm.3 Center for Science and Environment, press release, “Hard Truths about Soft Drinks.” Aug. 5, 2003.4 Index Mundi, India Infant Mortality Rate, http://www.indexmundi.com/india/infant_mortality_rate.html.5 New York Times, “Coke and Pepsi Try to Reassure India That Drinks Are Safe,” Aug. 8, 2006.6 New York Times, “For 2 Giants of Soft Drinks, A Crisis in a Crucial Market,” Aug. 23, 2006.7 Kaye, 284.  
  3. 3. Coca-Cola India president and CEO Sanjiv Gupta argued the science was flawed. He andhis colleagues called the CSE’s allegations baseless and questioned the testing method. The CSEcountered that it followed proper procedure and the U.S. Environmental Protection Agencysupported its testing methods, and the psyches of millions of his customers were transformed. A survey conducted in Delhi a few days after the announcement about the pesticide-lacedsoft drinks found that a majority of consumers believed the findings were correct and supportedParliament’s decision to ban the sale of the soft drinks.8 The dispute lasted more than three years.Analysis Scientists have argued that pesticides, a byproduct of India’s agriculture industry, hadseeped into groundwater that Coca-Cola used. Though most products in India are required tomeet guidelines on acceptable levels of pesticides, there was no legislation regulating the softdrink industry at the time of the CSE’s allegations against Coca-Cola. The Indian governmentsubsequently responded by adopting the European Union’s standard for bottled water, to beeffective on Jan. 1, 2004, however, they still did not require soft drink manufacturers to testfinished products. In response to the pesticide predicament, however, the government did test Coca-Colaproducts. On August 21, 2003, Minister of Health and Family Welfare Sushma Swarajannounced that the 12 samples did not contain unsafe levels of pesticides.9 Sunita Narain, director of the Center for Science and Environment, disputed the testing.“Both results cannot be right,” he said.10                                                                                                                          8 Kaye, 284.9 New York Times, “India Tries to Contain Tempest Over Soft Drink Safety,” Aug. 23, 2003.10 “India Tries to Contain Tempest…”  
  4. 4. Two years later, Coca-Cola hiked prices in India by 10-15 percent after announcing thatunit case volume in the country decreased 22 percent during the third quarter. “Price increases tocover rising raw material and distribution costs and the lingering effects of the false pesticideallegations drove the declines,” a company statement read.11 The uproar over the pesticides later crossed the Pacific, to the United States. In late 2005,the University of Michigan became the 10th college to stop selling Coca-Cola products, partlybecause of the crisis in India. 12 The university had a non-exclusive, $1.4 million contract withCoke.13 New York University, Rutgers University in New Jersey and Santa Clara University inCalifornia were already part of the boycott. Back in India the next year, Coca-Cola, which had teamed with PepsiCo on a campaignto prove their products were safe, issued a joint statement with its partner in crisis through theIndian Soft Drinks Manufacturers Association. They declared customer safety was paramount:“The soft drinks manufactured in India comply with stringent international norms and allapplicable national regulations.”14 Coke was under pressure from protesters, who poured the products down the throats ofdonkeys, smashed cola bottles and attacked Delhi shops that sold the drinks.15 They were alsobeing pushed by the Indian Supreme Court, which demanded that Coca-Cola reveal its secretrecipe, guarded for 120 years, so more testing could verify allegations of high pesticide levels.16 The states of Gujarat and Madhya Pradesh, which banned Coca-Cola sales in schools andgovernment offices, and the Bharatiya Janata Party, were also calling for a nationwide ban.17                                                                                                                          11 Economic Times, “Pepsi, Coke to hike prices by 10 to 15 percent,” Nov. 18, 2005.12 New York Times, “U. of Michigan Becomes 10th College to Join Boycott of Coke,” Dec. 31, 2005.13 “U. of Michigan…”14 “Coke and Pepsi Try to Reassure India…”15 “Coke and Pepsi Try to Reassure India…”16 “Coke and Pepsi Try to Reassure India…”  17 “Coke and Pepsi Try to Reassure India…”
  5. 5. Sales had dropped 30 to 40 percent18. The Coca-Cola Bottling Company stock dipped $5on the New York Stock Exchange, $55 to $5019. And this came after a 75 percent five-yeargrowth trajectory and a 25 to 30 percent year-to-date growth.20 This caused arguably the biggestcrisis the company has had in India since the Janta Party came to power in 1977 and tried toforce Coca-Cola to reveal its secret recipe.21 (Coca-Cola left the country before returning in1991.) Coke’s strategy was to argue the scientific technicalities of the pesticide charges, insteadof focusing on winning back the support of their customers. It backfired, said Richard S. Levick,president and chief executive officer of Levick Strategic Communications, a U.S. advisingbusiness that specializes in crisis management. “They got behind the curve, and now they arechasing the crisis,” he said.22Objectives Coca-Cola’s number one priority is to restore the company’s reputation as a strongcorporate entity that values not only financial success but also social responsibility. Restoringthat reputation is essential to recruiting and retaining employees, increasing sales, protecting thecompany’s image should future crises arise, and creating confidence among investors, supportersand former customers. This includes a five-step process: 1. Win back former customers. Before the CSE news release, year-to-date sales growth ranged from 25 to 30 percent. Achieving that level of growth again within the next                                                                                                                          18 “Toxic Effect: Coke Sales Fall by a Sharp 30-40%,” Economic Times, Aug. 13, 2003, p. 1.19 “No Standards for World-Wide Pesticide Residues in Soft-Drinks,” Business Line (New Delhi), Oct. 3, 2003, p. 9.20 “Controversy-Ridden Year for Soft Drinks,” Business Line (New Delhi), Dec. 30, 2003, p. 6.21 Kaye, 289.22 “For 2 Giants of Soft Drinks…”  
  6. 6. two years will make a strong statement that Coca-Cola India has recovered from the pesticide crisis. 2. Satisfy investors. This starts with winning back customers, which in turn fuels sales, which increases stock prices. Coca-Cola India wants to help Coca-Cola Bottling Company return to $55 on the New York Stock Exchange within a year. 3. Cut salaries by 10 percent for all Coca-Cola India employees making $150,000 per year. This will contribute to a new $2 million budget initiative to support social and environmental causes. Success in this campaign will allow raises that restore salaries or increase them even further. 4. Gain notoriety as a champion of social service and environmental protection. The goal is to get positive coverage and reviews in the media, with advocacy organizations such as the Adarsha Rural Development and the Center for Science and the Environment, and with the Indian government. 5. Create a foundation that fuels future growth. Within five years, Coca-Cola India hopes to increase its share of the country’s soft drink market from 60 percent to at least 65 percent, to boost annual sales growth to 35 to 40 percent, and to help Coca- Cola Bottling Company push stock prices to $75 or more. The National Statistical Office of India projects the country’s population to rise from 1.2 billion today to 1.61 billion in 2050.23 That means India will continue to grow on its way to becoming the world’s most populous country, surpassing China, which is projected to have a population of 1.42 billion in 2050.24 Coca-Cola India wants to grow with the country and its economy.                                                                                                                          23 BBC Worldwide Monitoring, “South Korea said to lose 6.4m people by 2050,” July 11, 2009.24 “South Korea said to lose 6.4m…”
  7. 7. Strategy Background: Prior to the Center for Science and Environment’s report, strategies were put into place toprotect the value of the corporation and establish Coca-Cola as a brand leader among soft-drinkcorporations in India. These strategies allowed Coca-Cola to develop a strong reputation whichwould help to protect it in times of crisis. In 2001, Coca-Cola India introduced the mantra of “think local, act local” to capitalizeon growth potential in the Indian market.25 This strategy recognized that there are two separateaudiences in India: the rural and the urban. It became the heart of Coca-Cola India’s subsequentpublic relations and marketing campaigns. Soft drinks were customarily considered drinks of the wealthy urban elite. However, thelower, middle, and upper-middle classes living in the rural areas represented 96 percent of theIndian population. These communities considered Coca-Cola a luxury, not a necessity or areward, so Coca-Cola India devised a comprehensive plan to broaden brand positioning andincrease awareness of the trustworthy brand within the rural population. The company increasedsales in the rural population and began to more successfully compete with more traditional drinkssuch as tea, juice, and lassi, by developing a smaller bottle of Coke that was available for half theprice. By 2003, 91 percent of sales were made to the lower, middle, and upper-middle classes.With that, Coca-Cola became the first corporation to make soft drinks accessible to the ruralclasses in India.26                                                                                                                          25 Argenti, Paul. Corporate Communication, 5th Edition. (2009). Boston: McGraw-Hill Irwin. P. 291.26 Argenti, p. 290.  
  8. 8. Coca-Cola India also appealed to the needs of the rural population by adopting themessage “thanda matlab Coca-Cola,” which literally translates “Coke means refreshment.” Thismessage successfully branded Coca-Cola as a product which both fulfilled the need of thirstquenching and allowed the rural population to feel as though they were enjoying a luxuryproduct. In fact, this campaign won the corporation “Advertiser of the Year” and “Campaign ofthe year” in 2003, and the success continued. The company experienced a 37 percent growth ratein 2003, and consumption doubled since 2001.27 Though the urban population represented only four percent of the Indian population, andtherefore receives less marketing attention, Coca-Cola realized the importance of maintainingthis consumer base. The strategy implemented in urban areas was “life ho to aisi,” whichtranslates to “life as it should be.” This successful branding strategy contained an emotionalappeal by representing the benefits of increasing social and economic freedoms and remindingwealthy consumers why Coke products were their drink of choice.28 Celebrate with Coke, you’veearned it after all. Reputation management In the past, Coca-Cola has held itself to a high standard of social responsibility, whichhas helped it to develop a reputation which we believe will help it overcome this crisis. The“Coca-Cola Promise,” for instance, states that “The Coca-Cola company exists to benefit andrefresh everyone who is touched by our business.” Coca-Cola has worked to improve communities by addressing water, climate change, andwaste management initiatives; provided jobs for 7,000 individuals, and indirectly creatingemployment for 125,000 others through its procurement, supply, and distribution networks;                                                                                                                          27 Argenti, p. 292.28 Argenti, p. 292.  
  9. 9. worked with the government and non-governmental organizations (NGOs) to combat the spreadof HIV/AIDS; and created the Coca-Cola Foundation which focuses on higher education as avehicle to build strong communities and advance individual opportunity.29 The good reputation Coca-Cola India has developed will help us to overcome the currentcrisis, but we find it imperative to continue our involvement in these areas, increasing publicitywhere needed, while embarking on new strategies.Recommendations: We hope the following strategies will help to rebuild Coca-Cola India’s reputation inorder to increase sales, improve ratings of Coca-Cola products, and remove the government banon the products. Internal strategies: Coca-Cola India wants the public to understand that we are dedicated to offering healthy,refreshing products of the highest quality. Thus, our first priority will be to re-assess our qualitytesting facilities and implement an updated water purification system throughout all Coca-Colaplants in India. We believe that our employees are our best spokespeople and will be confronted withquestions and concerns from their friends, family, and neighbors. As a result, we will ensure thatall employees are continuously updated on how the crisis is being managed. We want to presenta united image as a corporation and we will implement mandatory bi-monthly meetings that willaddress lab results, new policies and procedures, proactive grassroots efforts, and the opportunityfor employees to get involved. We will also use e-mail communications and other viral media                                                                                                                          29 Argenti, pp. 290-293.
  10. 10. techniques to make certain employees are continuously updated on how the crisis is beingmanaged. We will create a toll-free 800-number which customers can call to get the latestinformation or to ask customer service operators any questions they might have. Additional staffwill be hired on a temporary basis to help receive calls and reduce wait times. In order toaccommodate for this increase in cost, the salaries of executives making an equivalent of morethan 150,000 U.S.D. will be temporarily reduced by 10 percent. Salaries will be reassessed andadjusted after the crisis has been resolved.External Recommendations News Conference: Immediately upon the CSE’s announcement of high pesticide levels in Coca-Colaproducts, Sanjiv Gupta, president and CEO of Coca-Cola India, and an upper-level spokesmanfor the corporation will hold a news conference addressing the issue upfront and assuring ourpublics that Coca-Cola India is committed to offering a high-quality product. Coca-Cola India’sindependent tests have revealed that all products comply with the European EconomicCommission (EEC) standards, so our officials must be careful not to admit guilt, but rather toassure our customers that Coke is committed to public safety and is dedicated to constantlyimproving all products. President Gupta will also announce Coca-Cola India’s decision to increase transparencyby making the results of a variety of quality control tests available to customers on its Web siteevery month. The tests, which were previously conducted by Coca-Cola’s independentlaboratory, will now be verified by international and governmental laboratories as well. Tests
  11. 11. will monitor the contamination levels of pesticides, metals, and other foreign substances in ourproducts. Environmental and Public Health- based Strategies Quality Control Board: We will create a Quality Control Board comprised of Coca-Cola officials, members ofthe Center for Science and Environment, government officials, and scientists. The board will beresponsible for holding Coca-Cola to stricter quality control standards, and will conduct regularquality control tests at all factories in the country. It will also work with the 11 other beveragecorporations accused of having high levels of pesticides in an attempt to establish itself as aleader within the industry. This board will also work with the Indian government to update the Food ProcessingOrder (1955), which requires that the main ingredient used in soft drinks be “potable water,” butfails to define the term and sets no standards for pesticide levels in water.30 Because the Indian government banned products in Parliament, getting the ban lifted inorder to return our sales to normal will be a top priority. Once we have implementedmanufacturing changes and proven that we meet EEC standards, the Quality Control Board willimmediately appeal to the government and the Center for Science Environment to lift the bansplaced on our products throughout India. We hope the end result of the lift is an increase in salesand stocks. “Coke Cares” Grassroots Campaign                                                                                                                          30 Argenti, p. 297
  12. 12. We plan to establish healthier, cleaner communities in both rural and urban areas. Bycampaigning for a cleaner India, we can restore faith in Coca-Cola as a brand that cares about itsconsumers’ quality of life. We believe the “Coke Cares” program will help rebrand our companyas an environmentally responsible corporation that responds to the needs of its customers. Agrassroots team will provide incentives to people who care about their community because“Coke Cares.” To achieve this goal, Coca-Cola India will become actively committed to improving thewater quality throughout India by purchasing land to use as filter marshes that remove pollutants.The company will strive to put wells in rural areas, so people can have clean drinking water. Itwill also work with prominent environmental groups to create a grass roots initiative to clean uprivers, ponds, and lakes throughout the country. We will create partnerships with the followingorganizations: • The Bharatiya Agro Industries Foundation (BAIF). Coca-Cola India will spartner with BAIF to promote environmental awareness among children.31 • UN- Habitat. Coca-Cola India will work with UN-HABITAT to develop clean water and sanitation projects in several Indian states.32 • SOS Children’s Villages of India. This partnership will create harvesting structures in 40 SOS villages across the country, which will provide a sustainable source of water for the village and teach children about water conservation.33 Coca-Cola will also investigate alternative pesticide options that could be standardizedthroughout India in order to ensure that the problem of pesticides in ground water does not get                                                                                                                          31 Coca-Cola India. Some of our Select NGO Partners. Retrieved October 15, 2009 from http://www.coca- colaindia.com/csr-ngo.aspx.32 http://www.coca-colaindia.com/csr-ngo.aspx.33 http://www.coca-colaindia.com/csr-ngo.aspx.  
  13. 13. worse. This program will create a safer environment for Indians living in both urban and ruralareas and will also create more jobs. Corporate Logo and Outreach Coca-Cola India will create a “green” logo to be stamped on all products manufacturedunder the new program. Once the new program has been established, consumers will be able tofeel confident that when they purchase Coke products stamped with the logo, the product is notonly safe for consumption, but was also created in a way that did not harm the environment. As part of the campaign, we will host regular taste tests in urban and rural communities,allowing people to decide for themselves that Coke is a quality refreshment. At every taste testwe will recruit people to join our efforts in creating a cleaner India. We want to engage ourpublics in community service tasks such as cleaning trash out of ponds, rivers, and lakes, boilingtheir groundwater for personal use, and reducing litter. We hope that once the improvements in manufacturing have been made, the public willwork on our behalf to restore a good reputation while we continuously show our commitment toimprove the public’s quality of living in India. New Media: Web site We will use the Coca-Cola India Web site, www.coca-colaindia.com, as our primarymeans of disseminating information. Though an 800-number will be available for our customers,we will encourage them to find answers to their questions on the site or to e-mail a customerservice representative. Customers will be able to find answers through the following pages:
  14. 14. • Coca-Cola and the Environment o Here, customers can find information on the organizations Coca-Cola has selected to work with, as well as what they can do to get involved. o The page will reiterate Coca-Cola’s commitment to improving the quality of life for our customers in an attempt to boost our reputation.• Coca-Cola’s commitment to Public Safety o We will send our products to the Central Science Laboratory in the United Kingdom, and Covance Laboratory in the United States, for regular testing to ensure they continue to comply with all regulations. On the site, Customers will find the results of all quality control tests, updated on a monthly basis. The site will encourage consumers that our products are safe to consume in an effort to rebuild sales and increase the price of our stocks world-wide. o A “Truth vs. Myth” section will be added to page to directly confront the allegations made against Coca-Cola and clear up any false-impressions that have been made. Though our independent tests revealed that Coca-Cola products comply with EEC standards, we must face the fact that most Indian citizens have accepted the allegations as fact. This page will attempt to clear up all misleading information. o All customer service agents will be required to compile a list of questions they have been asked via e-mail and the 800 number. The most commonly asked questions and their answers will then be compiled on an FAQ page that will be regularly updated to reflect our customer’s concerns.
  15. 15. o We will create a video capturing our new process of water purification and quality control testing that will be uploaded to the page. • Quality Control Board Blog o Members of the Quality Control Board will regularly update consumers on the status of Coca-Cola products and the actions that the board is taking to constantly improve the quality of all products. Social Networking In addition to the Web site, we will implement social networking sites as part of ouroutreach efforts. The company will establish a facebook page to stay connected with consumers,increase sales and inform the public about events, incentives and new developments with Coca-Cola India. We will also have a page on Orkut, a popular social networking site in India, to connectwith our consumer base. These sites will be used to post photos of events, charities and conteststhat Coca-Cola hosts, allow consumers to connect with each other and encourage the success ofthe corporation as a leader in world class service.Monitoring/measuring We believe that implementing these strategies will restore Coca-Cola India’s reputationas a trusted and popular brand in India. We plan on determining the effectiveness of ourstrategies through monitoring sales projections and accrual, stocks, and public opinion polls. Atevery taste test we will conduct polls of public thought on our progress and general quality of theproducts. By publishing the results of the public opinion polls, we hope to see a rise inconsumerism, proving greater success of our strategies.
  16. 16. When the Quality Control Board has been established and the Indian government haslifted the ban, we will know our efforts have been successful. Once we provide concreteevidence that our products comply with government standards and contain minimal to nopesticides, we will have proven ourselves a leader in social responsibility. We will also implement a weekly monitoring and analysis on the stock rates of Coca-Cola products in India. This will allow us to determine which aspects of our campaign aresuccessful and which need improvement. Conclusion: We are confident that by applying these strategies, Coca-Cola India will prove itself to bea socially and environmentally responsible corporation which provides a safe and deliciousproduct. The crisis has taught us that we cannot take commodities such as clean drinking waterfor granted, and we must constantly investigate the quality of all our products world-wide.