Relationship Marketing – Coca-Cola

in India

Pharmacist produced in 1866 a syrup that if mixed with carbonated waste would
produce a delightful drink that later became known as Coca-Cola through the leadership
of Asa Candler (Polk, 2008). Coca-Cola Company is well-known for its cola drink Coke
although the company has 400 non-alcoholic beverages distributed around the world
supported with operations in 200 countries (Holcomb, 2008). Coca-Cola brand strength is
supported by its worldwide distribution and availability (Peter & Donnelly, 2006). In
August 2006, Coca-Cola Company stated that their products are tested using European
standards and did not break any laws in India. However, Coke was found containing
pesticides 24 times higher than the European standard by an Indian laboratory that Coca-
Cola discredit (Burnett & Welford, 2007). Coca-Cola has many bottling plants which are
in different locations in India sharing large quantities of water to local farmers especially
during seasonal droughts (Burnett & Welford, 2007).

The purpose of this qualitative study is to find, through

secondary data review the relationship between Coca-Cola leadership in Indian market
and the effects of its wrongdoing on its marketing effort. The literature review and
secondary data collected will identify the effect of Coca-Cola relationship marketing
mistakes and recommend an international relationship marketing plan for its foreign
markets especially India and the surrounding countries. The following case study will
attempt to answer the following questions:

1. What kind of relationship marketing strategy is required to replicate the business

model in an international market?
2. What will be the best course of action when the international business deviate
from the company’s values?
 3. What would be the best marketing relations strategy between two different
cultures?

What was the Problem

Coca-Cola and its main competitor, PepsiCo had

saturated the local U. S. A. and Europe markets. Coca-Cola found India to be a good
market for its products because of the large population and the low-cost labor to operate
its bottling plants. International markets are usually different from the local market,
which necessitates different marketing strategy and stronger relationship building effort.
Coca-Cola had difficulty in handling the protesters around its bottling plants although
nearby breweries are consuming similar water quantities and produce equivalent waste
(Burnett & Welford, 2007). Protesters targeted the Coca-Cola’s fully owned and
operated plants but the licensed plants did not have the same difficulties.

Market needs the long-term relationship between the buyer and seller to maintain growth
(Bejou, 1997). Zikmund, Mcleod, and Gilbert (2003) used the term “one-to-one
marketing” to describe relationship marketing theory because of the business owner’s
tailored marketing to individuals. The customers are loyal to sellers with high product
quality if they equate the product price with its value.

The relationship marketing theory revolves around

three aspects. According to Zikmund, Mcleod, and Gilbert (2003), the first aspect is
financial incentives, in which the customer receives rewards or discounts in exchange for
their repeated business. The second aspect is social bonding between the company and
the customer. The third aspect is structural interaction. The relationship marketing
importance resides in the strong bonding between the company and the customers which
result in long-term relationship that allows the business owner to plan, stock and provide
products wanted repeatedly by the loyal customers (Hair, Bush, & Ortinau, 2003). Coca-
Cola target customers who will benefit from its products in exchange for their profitable
and repeated purchase (Peck, Payne, Christopher, & Clark, 1999). Coca-Cola built
bottling plants in India to strengthen its relationship with the Indian customers in
exchange to their loyalty. However, Coca-Cola had malpractices that seriously affected
its relation with the Indian consumers. The problem is Coca-Cola plants in India consume
water when it is a scarce resource, pollute the underground water resources and dump
hazardous materials like lead and cadmium while bottling a drink that contains pesticides
(Burnett & Welford, 2007). Indian states banned the sale of Coca-Cola in governmental
institutions and Pollutions Control Board of Kerala closed a bottling plant after a lengthy
protest by the villagers. Coca-Cola acknowledges their safety standard violation by
failing to take toxicity test on one of their dumping sites.

Significance of the Study

Coca-Cola Company had difficult challenges in India and was not treated similarly to the
local businesses. Coca-Cola faults and wrongdoings are documented and approved,
which obliged the company to react according to international norms and business ethics.
Coca-Cola’s values call for a leadership that have “the courage to shape a better future”
and an integrity to “be real” (“Our Company,” 2009). Coca-Cola Company had a
leadership challenge when one of its employees filed a suit accusing Coca-Cola of
inflating Burger King’s study in 2002 (Polk, 2008). The results of the study were
exaggerated to show higher profits from soft drink test. Coca-Cola fired several
executives and paid $21 million to Burger King (Polk, 2008).

Coca-Cola Company had situations in India that

clearly contradict with its mission and values. These situations require the right
leadership to acknowledge them, responsibly act to correct the wrongdoings and set up
measures to prevent its reoccurrence. The study will produce a set of recommendations to
achieve the above requirement and recommend that Coca-Cola either pay to remedy the
damages or recuperate the harm done in India.

Committed customers would forgive the seller if the mistakes or harm are minor but the
same committed customers would be increasingly dissatisfied if the level of perceived
wrongdoing increases (Ingram, Skinner, & Taylor, 2005). Regular customer would not
tolerate wrongdoing and will not forgive the sellers for mistakes although they committed
with the good intention. Customers may retaliate by boycotting the seller or organize an
offensive campaign to state their objection (Baxter, 2007). One of the best customer
disobedience examples started in the 1960s like dolphin killing by tuna fisherman,
unethical treatment of animals and the anti-fur campaigns (Baxter, 2007). Most of these
campaigns are still holding strong and have large and effective base of supporters.
Ingram, Skinner and Taylor (2005) recommend that sellers like Coca-Cola should have a
contingency plan in case unintentional wrongdoing take place to recover from the impact
of the situation.

Literature Review Analysis

Coca-Cola is a non-alcoholic drink that is

marketed as a joyful and refreshing drink for all age groups. Coca-Cola Company’s
mission statement is to refresh the world, inspire moments of optimism and create value
(“Our Company,” 2009). Coca-Cola’s values include leadership, collaborations, integrity
and accountability but Coca-Cola’s practices have serious implications that contradict its
values. Prospect theory gives marketers the chance to use the customers’ risk-averse
behavior to steer their decision toward a profitable choice for the company. Company
practices are legal and ethical because the choice was made by the customers who build it
on their internal risk-averse behavior (Novemsky & Kahneman, 2005).

Coca-Cola Company has more than 400 non-alcoholic beverages that include Coke, with
distribution and bottling operations in 200 countries (Holcomb, 2008). Coca-Cola brand
strength is supported by its worldwide distribution and availability (Peter & Donnelly,
2006). Coke is the most famous soft drink produced by Coca-Cola Company and is
consumed around the world. Coca-Cola Company stated that their products are tested
using European standards and did not break any laws in India. However, Coke was found
containing pesticides 24 times higher than the European standard by an Indian laboratory,
which Coca-Cola discredit (Burnett & Welford, 2007). The Indian bottling plants
consume large quantities of water, which is much needed by the farmers especially
during seasonal droughts (Burnett & Welford, 2007).
 The principle “let the buyer beware” is
opposite to the relationship marketing principle in which the seller seeks long-lasting
relationship with the customer. The relationship is maintained by stating the facts and
giving the necessary information to the customer. Relationship marketing takes part of
the risk to prevent any risk that the buyer may encounter from the selling and buying
experience. “The relationship marketing strategies are concerned with the development
and enhancement of relationships with a number of key markets” (Šimberová, 2007, p.
207). Marketers should not subscribe to the caveat emptor principal because it makes the
relationship between the seller and the buyer deteriorate. Inks, Avila and Chapman
(2004) found that buyers are more ethically sensitive to unethical behavior. Buyers have
stronger negative reaction to lying when this lying was from the seller; however, the
buyers were less sensitive to their deceit (lying) because they justify it with the resulting
low price.

Companies seek customer’s commitment by deferent means; however customer

commitment can result from satisfying the customer by offering him or her good product
or service in exchange for his or her money. Satisfaction comes from product quality and
service quality, which is supported by price fairness (Worrall, Parkes & Cooper, 2004).
Polk (2008) state that managers should be accountable for the company’s innovations and
the change it leads to successfully. Managers should abandon old ideas when they
become a threat to the organization but learn that failures are opportunities to learn. Peter
Drucker stated that the organizations profit is necessary to supply capital for future
innovation and expansion (Drucker, 2004).

Chiung-
Ju and Wen-Hung (2008) listed different tactics the retailers use to enhance customer
loyalty that branch from financial, social and structural bonding activities. Financial
bonding includes discounts and interest rate. Social bonding is the relationship created
between the two parties during a business interaction and follow up interactions (Chiung-
Ju & Wen-Hung, 2008). The final tactic is structural in which the organization set up
rules, policies and procedures to structure its relationship with the customers.

Survey of 205 companies reported that more than 50% of surveyed companies are
generating 75% of their sale from the existing customers (Carter, 2008). Customer loyalty
is important because almost all of the companies had lost a top customer to a competitor
in the last three years (Carter, 2008). The surveyed companies measure their customers
retention that indicates the company’s awareness of the customer retention importance
(Carter, 2008). The most important finding of Carter (2008) survey was the strong link
between customer retention and customer satisfaction. Companies would benefit of
generating 75% of their sale from a satisfied and retained customer. On the contrary,
East, Hammond, and Gendall (2006) state that customer retention importance is
overvalued and companies should target customer acquisition strategy. Customer
retention strategy gains are less than customer acquisition according to East, Hammond,
and Gendall (2006).

Palmatier et al. (2009) state that loyal customers will

experience strong pressure to reciprocate the benefits they received from others when
they receive good service. People take the gratitude role when they receive benefits and
suffer the guilt of not repaying the favor to the other party so the at least remain loyal to
the favor maker. Roehm and Brady (2007) state that half of the researched customers
switched brands because of a service failure or inappropriate response from the.
Relationship marketing strengthen the relation with the customers but these customers
have higher desire to revenge the brand when their complains are not addressed
appropriately (Grégoire, Tripp, & Legoux, 2009).

Customer Relationship Management (CRM) main function is to increase the profitable

customers’ retention effectively by building and maintaining positive relationships
(Payne & Frow, 2006). One of the main functions of CRM is to provide the organization
with a single view of the customer, in which view the information may be split into
different disciplines and categories (Tuck, 2008). Payne and Frow (2006) research on
implementing a successful CRM resulted in identifying four elements that start with
assessing the organization’s readiness for a CRM initiative to estimate the effort needed
to establish CRM; and help in the next step of managing the change wanted for the
organization to adopted and implement CRM project. CRM implementations should be
treated as a project and managed as a project that necessitates employees’ engagement
(Payne & Frow, 2006).

Tuck (2008) state that CRM should be managing

customer relationship but lately CRM became associated with software packages and the
difficulty of setting one up. Tuck (2008) claims that CRM projects shifted the
organizational focus to deploying and operating the software package instead of targeting
business processes that would deliver the segmented information in a useful way to the
organization.

Crosby and Caroll III (2008) realized the difficulty in the customer management and
suggested the following guidelines to help the organization better manage its customers:

1. Stated customer goal: state customers expectations or what they would like to
receive from their relationship with the organization, and match them with the
organizations internal goals.
2. Set clear customer strategy to better serve the customer. The organizations can
excel in “operational excellence” like Southwest airline does or “product
leadership” like Apple’s innovative products or “customer intimacy” in the way
Ritz-Carlton treat their customers. These strategies would help serve and retain
the customers.
3. Define customer governance by appointing a chief customer officer with a team
and resources to govern the customer’s needs.
4. Create roadmap for the customer’s external and internal goals and support them
with a strategy that ensures an adequate budget to the communication and
motivation plans.

The three articles discuss the ease in losing the CRM focus to other unrelated issues like
setting up the CRM software package or forcing the CRM program into an organization
although it is not ready for the change required for CRM program.

Discussion
Coca-Cola’s values include leadership, collaborations, integrity and accountability but
Coca-Cola’s practices have serious implications that contradict its values. Coca-Cola
acknowledges their safety standard violation by failing to take toxicity test on one of their
dumping sites. International markets are usually different from the local market, which
necessitates different marketing strategy and stronger relationship building effort. Indian
protesters targeted the Coca-Cola’s fully owned and operated plants but the licensed
plants did not have the same difficulties. The purpose of this case study is to identify key
leadership factors to build a strong international relationship marketing plan for foreign
markets.

Coca-Cola
followed the caveat emptor principle or “let the buyer beware” that is opposite to the
relationship marketing principle in which the seller seeks long-lasting relationship with
the customer. Indian customers are consuming beverages that contained harmful
substances without the knowledge of such contamination. Coca-Cola selected not to do
the standard tests and when the tests were done the results were not published to the
customers. The bottling plants are consuming scarce resources and contaminating the
surrounding agricultural land.

Coca-Cola implemented its bottling and distribution model in India with good success but
while damaging its brand name, at least locally, and losing many customers to the local
competitors. Coca-Cola should implement a well structured customer relationship
management to polish its brand name and act ethically similar to the way it does its
bottling and distribution in U. S. A. and Europe. The suggested relationship management
effort should be customized to the Indian culture and address the political and religious
differences in the local area.

The research limitations were its dependence on secondary data only without conducting
structured interviews with the local customers. However, the research finding may be
applicable to the neighboring countries if a soft drink company wishes to start a business
in India and surrounding countries.

References
(2009, November 9). Our company. Retrieved November 9, 2009, from The Coca-Cola
Company Web site: http://www.thecoca-colacompany.com/ourcompany/
mission_vision_values.html

Baxter, S. (2007). Is it worth the cost? Marketing to negatively perceived consumer

groups. Global Journal of Business Research, 1(2), 87-96.

Burnett, M., & Welford, R. (2007). Case study: Coca-Cola and water in India: episode 2.
Corporate Social Responsibility and Environmental Management, 14(5), 298-304.

Carter, T. (2008). Customer engagement and behavioral considerations. Journal of

Strategic Marketing, 16(1), 21-26.

Chiung-Ju, L., & Wen-Hung, W. (2008). Do loyal and more involved customers
reciprocate retailer’s relationship efforts? Journal of Services Research, 8(1), 63-90.

Crosby, L., & Carroll III, J. (2008). Weather the storms. Marketing Management, 17(1),
14-15.

East, R., Hammond, K., & Gendall, P. (2006). Fact and fallacy in retention marketing.
Journal of Marketing Management, 22(1/2), 5-23.

Grégoire, Y., Tripp, T., & Legoux, R. (2009). When customer love turns into lasting hate:
The effects of relationship strength and time on customer revenge and avoidance. Journal
of Marketing, 73(6), 18-32.

Hair, J. F., Bush, R. P., & Ortinau, D. J. (2003). Marketing research: Within a changing
information environment. Boston: McGraw-Hill.

Holcomb, J. (2008). Environmentalism and the internet: Corporate greenwashers and

environmental groups. Contemporary Justice Review, 11(3), 203-211.

Holcomb, J. (2008). Environmentalism and the internet: Corporate green washers and
environmental groups. Contemporary Justice Review, 11(3), 203-211.

Ingram, R., Skinner, S., & Taylor, V. (2005). Consumers’ evaluation of unethical
marketing behaviors: The cole of customer commitment. Journal of Business Ethics,
62(3), 237-252.

Inks, S., Avila, R., & Chapman, J. (2004). A comparison of buyers’ and sellers’
perceptions of ethical behaviors within the byer-seller dyad. Marketing Management
Journal, 14(1), 117-128.

Novemsky, N., & Kahneman, D. (2005). The boundaries of loss aversion. Journal of
Marketing Research, 42(2), 119-128.
Palmatier, R., Jarvis, C., Bechkoff, J., & Kardes, F. (2009). The Role of Customer
Gratitude in Relationship Marketing. Journal of Marketing, 73(5), 1-18.

Payne, A., & Frow, P. (2006). Customer relationship management: From strategy to
implementation. Journal of Marketing Management, 22(1/2), 135-168.

Peck, H., Payne, A., Christopher, M., & Clark, M. (1999). Relationship marketing:
Strategy and Implementation. Boston: Butterworth Heinemann.

Peter, J., & Donnelly, J. (2006). A preface to Marketing Management (10th ed.). New
York: McGraw-Hill/Irwin.

Polk, X. (2008). Coca-Cola: Long term innovation (a case study). Consortium Journal of
Hospitality & Tourism, 13(2), 61-78.

Roehm, M., & Brady, M. (2007). Consumer responses to performance failures by high-
equity brands. Journal of Consumer Research, 34(4), 537-545.

Šimberová, I. (2007). Internal marketing as a part of marketing culture supporting value

for external customer. Economics & Management, 12, 470-280.

Tuck, S. (2008). Is MDM the route to the holy grail? Journal of Database Marketing &
Customer Strategy Management, 15(4), 218-220.

Worrall, L., Parkes, C., & Cooper, C. (2004). The impact of organizational change on the
perceptions of UK managers. European Journal of Work & Organizational Psychology,
13(2), 139-163.

Zikmund, W., Mcleod, R., & Gilbert, F. (2003). Customer relationship management:
Integrating marketing strategy and information technology. Hoboken, NJ: Wiley.

1 Votes

2 Responses to Relationship Marketing – Coca-Cola in India

1. ajju says:

April 26, 2010 at 7:22 pm

dear sir, i want to literature of review on coca cola india distribution system.
for purpose of, complete my project report .

please help me..

Ajju
mail- ajju80@indiatimes.com
 0

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2. Sami Malallah says:

April 27, 2010 at 12:13 am

Dear Ajju,
I could not make out what do you mean by your comment above. DO you need a
literature review on Coca Cola distribution system? or do you need to use the
information in this post for as part of your literature review?

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