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Superiority
by WealthEffect Staff
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What is the company's advantage?
 
  How strong?  
  How sustainable?  
 
1.

A great deal has already been said about competitive advantage, and how it relates to our example, The Coca-Cola Company. Although the desirability of Coke doesn't need much more debate, it is interesting to note that it wasn't the first fountain drink. There were several hundred others when it was introduced. It wasn't even the first created from a unique formula. Hires Root Beer was created ten years earlier.

Coke's competitive advantage is the result of 113 years of execution, a combination of product, promotion, price and place (distribution) — the four Ps which define marketing. Coke is a superior product, and it doesn't matter whether that superiority is real or perceived. After a century of spreading its gospel, perception is reality.

The company's sharp focus on its business also gives it a cost advantage. Although Coke earned less than five cents per 8oz serving last year, it did manage to sell about 380 billion servings! That kind of volume has advantages.

This year, Coke is estimated to show an operating margin above 26% (operating profits of more than 26 cents for each dollar of revenue) vs. an estimated 19% for Pepsi's soft-drink business vs. 3% for Cott.

 
 
2.

The strength of Coke's competitive advantage is easily answered: it is a part of everyday life in nearly 200 countries. Two percent of all beverages consumed each day (including water!) are Coca-Cola. And that percentage is growing.
 
 
3.

The sustainability argument is not much different here from the strength argument. This is not a technology company, where market dominance today can be decimated by a new invention tomorrow.

Competitive advantages among consumer product companies are slow to develop and slow to disappear. Changes are evolutionary, not revolutionary. In Coke's case, the likelihood is that their advantage will improve. Relative to their competitors, it has a cost advantage: on an absolute basis, it will benefit in emerging countries as it reaches critical mass, as it reaches its goal of always being "within arm's reach of desire."

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