Coca-Cola India San Francisco State University        MKTG 432-02           Fall 2010 Professor Veronica A. Papyrina      ...
TABLE OF CONTENTS1. Problem Definition ......................................................................................
1. Problem Definition        1.1 Coca-Cola’s Problem        Coca-Cola, deemed the “#1 Brand in the World,” has been a succ...
NGOs have high instinctive credibility and reliance by the people, making it difficult for companies tocompete with such t...
growth. Financially, these allegations could lose Coke a significant amount of revenue. Taking action is anecessity agains...
From 1993-2003, the Coca-Cola company expensed $1 billion (US) in Coke India making themone of the country’s highest inves...
2.3 Opinions anchored by evidence from the case        The allegations against Coca-Cola were based on consumer confusion,...
3.1.2 Were other alternatives analyzed?      Instead of attacking the CSE, calling their findings “misleading and unaccred...
beverages contained pesticide residue. Another is the possibility that by agreeing to collaborate with theCSE and performi...
3.2 The Preferred AlternativeAlternatives                 Advantages                               Disadvantages          ...
3.3.1 Who, what, where, when, and how?      Before launching a similar PR campaign to regain customer loyalty, it’s very i...
will also help retain brand loyalty and should be widespread especially in lower-income areas. Thesepromotional activities...
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Coca-Cola India Case Study

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In our "Public Relations" course at SFSU my group and I analyzed Coca-Cola's problems with the CSE in 2003 and came up with an alternative to handle the situation.

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Coca-Cola India Case Study

  1. 1. Coca-Cola India San Francisco State University MKTG 432-02 Fall 2010 Professor Veronica A. Papyrina Group 3
  2. 2. TABLE OF CONTENTS1. Problem Definition .................................................................................................................................. 3 1.1 Coca-Cola’s Concerns ........................................................................................................................ 3 1.2 Coca-Cola’s Problem .......................................................................................................................... 3 1.3 Coca-Cola’s Decisions........................................................................................................................ 3 1.4 Company’s Challenges ....................................................................................................................... 4 1.5 Company’s Opportunities ................................................................................................................... 5
2. Data Analysis ........................................................................................................................................... 5 2.1 Who found out what, when and how? ................................................................................................ 5 2.2 Timeline and events that produced the current the situation .............................................................. 5 2.3 Opinions anchored by evidence from the case ................................................................................... 7
3. Solving the problem ................................................................................................................................ 7 3.1 Alternative Generation........................................................................................................................ 7 3.1.1 Where the causes of the problem identified properly? .................................................................... 7 3.1.2 Were other alternatives analyzed? ................................................................................................... 8 3.1.3 Was the decision implemented carefully? ....................................................................................... 8 3.1.4 Suggested Alternatives..................................................................................................................... 8 3.2 The Preferred Alternative ................................................................................................................. 10 3.3 Implementation Plan ......................................................................................................................... 10 3.3.1 Who, what, where, when, and how? .............................................................................................. 11 3.3.2 Short term and long term actions ................................................................................................... 12
4. References .............................................................................................................................................. 12
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  3. 3. 1. Problem Definition 1.1 Coca-Cola’s Problem Coca-Cola, deemed the “#1 Brand in the World,” has been a successor in the soft drink industryfor over 100 years. Along with their success they have incurred crises along the way. One in particular isthe Coca-Cola India Case Study. On August 5, 2003, Coca-Cola India was attacked by The Center forScience and Environment (CSE), an activist group of engineers, scientists, journalists andenvironmentalists in India, for unsafe products, said to contain pesticide residues which surpassed globalstandards. Coca-Cola India’s products were attacked in a press release stating: “Twelve major cold drinkbrands sold in and around Delhi contain a deadly cocktail of pesticide residues.” The tests done on threesamples of 12 PepsiCo and Coca-Cola brands were said to contain 30-36 times the global standards ofpesticide residue. The pesticides found were known to cause disease such as cancer, birth defects, andsevere disruption of the immune system, among other health conditions. 1.2 Coca-Cola’s Concerns As any company this accusation posed great fear and concern for Coca-Cola Company and theirfuture standing in India. After the discovery of the pesticide residue, the Indian Government banned Cokeand Pepsi products. Thus, Coca-Cola stock dipped $5 in the New York Stock Exchange. Pepsi and Coke’sresponse to the accusations were denying CSE’s validity. Pepsi conducted their own tests independentlyand results showed no detectable signs of pesticides. 1.3 Company’s Challenges Because of the attacks by the CSE and NGOs (Non-Governmental Organizations) on Coca-Cola,the brand faced many challenges. First, being the world’s most valuable brand whose value is greatlyinfluenced by the image of the company and its products, their primary problem was trying to rebuildingtheir image to the Indian public and regaining Indian consumers’ trust. This was a hard task because
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  4. 4. NGOs have high instinctive credibility and reliance by the people, making it difficult for companies tocompete with such trustworthiness given to NGOs. Another problem posed is the socially responsiblereputation of Coca-Cola as a corporate company in the U.S. The United States is a flourishing, developedcountry; yet, India is a developing nation with a different set of standards. Should Coca-Cola withholdtheir social responsibilities internationally? Is the company economically upheld to do so? 1.4 Coca-Cola’s Decisions Coca-Cola is faced with an enormous crisis so many decisions face them as well. Does actionneed to be taken? Is so, what type and how aggressive? The implications of these possible decisions areoutlined below. 1.5 Implications for profitability, corporate reputation and image Without a doubt, this issue is of great importance to the organization. These allegations are notonly threatening to Coca-Cola’s customers, but to the company’s reputation as well. The effects of thepesticides could be devastating to Coca-Cola’s customers. Coca-Cola’s advertising and marketingmessages have always given customers a reason to trust their products. “Can’t beat the real thing” was alongstanding message and is one that proclaims authenticity and authority. The pesticide claims goagainst everything Coca-Cola has advertised to their customers. If action was not taken, Coca Cola’scustomer base could diminish, the brand’s name tarnish and their reputation completely demolished.Revenue could decrease significantly if customers think Coca-Cola is not a reliable or safe product todrink. The pesticides contain chemicals which have devastating outcomes, including causing cancer. Ifcustomers begin to get ill, this will be a huge tragedy for Coca-Cola. The customer’s well-being is injeopardy, as well as the economic performance of the company. Just within a few days after the initialreports came out, Coca-Cola stock dipped by $5 on the New York Stock Exchange. Additionally, theirsales dropped 30-40% just within two weeks. Prior to the CSE reports, Coca-Cola boasted a 25-30%
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  5. 5. growth. Financially, these allegations could lose Coke a significant amount of revenue. Taking action is anecessity against the pesticide allegations.2. Data Analysis 2.1 Who found out what, when and how? August 5, 2003, CSE issued that three samples of 12 PepsiCo and Coca-Cola brands from acrossthe city were found to contain pesticide residues surpassing global standards by 30-36 times includinglindane, DDT, malathion and chlorpyrifos; pesticides known to cause cancer, damage to the nervous andreproductive systems, birth defects, and severe disruption of the immune systems. The results were basedon tests conducted by the Pollution Monitoring Laboratory (PML) of the CSE. In February this year, CSEhad blasted the bottled water industry’s claims of being ‘pure’ when its laboratory had found pesticideresidues in bottled water sold in Delhi and Mumbai. This time, it analyzed the contents of 12 cold drinkbrands sold in and around the capital. They were tested for organ chlorine and organ phosphoruspesticides and synthetic pyrethroids – all commonly used in India as insecticides. However, the process inwhich was used to determine these allegations were declared “baseless” by Coca-Cola. 2.2 Timeline and events that produced the current the situation Regulations on soft drinks were weak in India, and there were no standards to define ‘clean’ or‘portable’ water. An NGO such as the CSE called on the government to put in place legally enforceablewater standards and chastised the multi-nationals for taking advantage of the situation at the expense ofconsumer health and well-being. Moreover, The CSE turned to the United States and the European Unionfor “international norms”. However, Coca-Cola Company argued that: “There are no standards for soft drinks in the US, the EU, or India. In India, water used for beverage manufacture must conform to drinking water standards. The water used by Coca-Cola conforms to both [the Bureau of Indian Standards (BIS)] and EU standards for drinking water and our production protocols ensure this through a focus on process control and testing of the water used in our manufacturing process and the final product quality.”
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  6. 6. From 1993-2003, the Coca-Cola company expensed $1 billion (US) in Coke India making themone of the country’s highest investors. A large portion of this allowance was used to test quality of itsproducts. Over 400 tests were done to assure that the quality of Coca-Cola was nothing short of the best.The Coca-Cola Company uses the same state-of-the-art manufacturing facilities in India as they do in theUS. Though the company was in a public scare, it deeply expressed that the company is constantlymonitoring its ingredients. “We test for traces of pesticide in groundwater to the level of parts per billion. This is equivalent to one drop in a billion drops. For comparison’s sake, this would also be equivalent to measuring one second in 32 years, or less than one person in the entire population in India. These tests require specialized equipment at accredited labs to have accurate results. Even at these stringent miniscule levels we are well within the internationally accepted safety norms.” Despite Coca-Cola’s confidence, On August 20, 2003, President and CEO of Coca-Cola India,Sanjiv Gupta, had faced a period of crisis due to environment sustainability problems that issued a pressrelease stating, “Twelve major cold drink brands sold in and around Delhi contain a deadly cocktail ofpesticide residues”. In only two weeks, sales had dropped by 30-40 percent, because many leading clubs,retailers, restaurants, and college campuses across the country had stopped selling Coca-Cola. The initialresponse of Coke and Pepsi denied of the validity of the CSE’s claims, and the companies attacked thecredibility of the CSE and their lab results, citing regular testing t independent laboratories providing thesafety of their products. They promised to provide this data to the public, threatened legal action againstthe CSE while seeking a gag order, and contacted the United States Embassy in India for assistance. Inthe following days, the Delhi High Court asked the government to convene an expert committee to testand report on the safety of soft drinks within three weeks and to revise existing standards to includepesticide norms. Coca-Cola and Pepsi launched independent campaigns to reassure the public, taking outfull-page newspaper advertisements and directing consumers to their corporate Web sites to review testresults and safety protocol in greater detail.
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  7. 7. 2.3 Opinions anchored by evidence from the case The allegations against Coca-Cola were based on consumer confusion, and the labs that were saidto have done these tests on soft drink companies were internal unaccredited facilities, the PollutionMonitoring Laboratory. Coca-cola addressed that: “In India, as in the rest of the world, our plants use a multiple barrier system to remove potential contaminants and unwanted natural substances including iron, sulfur, heavy metals as well as pesticides. Our products in India are safe and are tested regularly to ensure that they meet the same rigorous standards we maintain across the world”,and provided “Myths and Facts from Coca-Cola India” on the Coca-Cola India Web site. Furthermore,Coca-Cola hired a public relations firm, Perfect Relations, to rebuild the company’s reputation, and thehead of communications for Coca-Cola Asia moved to India from Hong Kong to try to deal, in a PR way,with the growing resistance in 2004. After the time of the incident, the company launched Coca-ColaIndia eKO Management System, an initiative to translate environmental policy into action in dailyoperations, in order to regain public trust as well.3. Solving the problem 3.1 Alternative Generation 3.1.1 Were the causes of the problem identified properly? When the CSE issued their report on bottled drinking water, Coca-Cola faced image problems inboth Indian and American markets. In India, consumers lost their trust in the company after the reportdeclared that Coca-Cola’s bottled water was extremely dangerous. In the U.S., Coca-Cola risked losing itsreputation as a socially responsible corporate citizen. Coca-Cola, along with Pepsi, chose to attack theCSE’s credibility. Both companies did not realize the power of NGOs, something that they should haverecognized prior to attacking the CSE. Most NGOs have a high level of credibility around the world andthe general public often takes their side rather than that of a large multi-national organization.
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  8. 8. 3.1.2 Were other alternatives analyzed? Instead of attacking the CSE, calling their findings “misleading and unaccredited,” Coca-Colashould have identified the NGO’s power and chosen to collaborate with them. Coca-Cola did not analyzeother alternatives before attacking the CSE and denying their own liability. 3.1.3 Was the decision implemented carefully? When the CSE’s report was published, Coca-Cola was under pressure and decided to attack thefindings right away. Coca-Cola felt that they were wrongly accused of serving the Indian people a“deadly cocktail of pesticide residues.” Before aggressively stressing their innocence, Coca-Cola shouldhave thought more carefully about their options. Even though the company was in no doubt that the labresults were incorrect, they should have realized whom they were up against. 3.1.4 Suggested Alternatives Instead of attacking the CSE, other alternatives to handle the situation would be:- Alt. 1: Collaboration with the CSE: Instead of attacking the CSE, joining forces with them to solve theproblem, which could have prevented the loss of consumers’ trust. Coca-Cola could have proposed thatthe CSE have the tests performed by an independent third party. The company would have shownreduced offensiveness and consumers would believe that Coca-Cola took the report seriously and caredabout the public’s health. Coca-Cola would not state that the CSE’s findings were either correct orincorrect or make any apologies, but this alternative would have strengthened the company’s image. Iftests showed no signs of pesticide residues, Indian consumers would be likely to show even higher trust inCoca-Cola according to the Recovery Paradox (Papyrina, 2010). This conclusion might backfire though,which would be a disadvantage. It might also be hard to collaborate with the CSE if they resisted doingso. Though it would be in the CSE’s interest to protect consumers and solve the problem. There aredownsides to this alternative. One would be if the results from the second round of tests proved that
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  9. 9. beverages contained pesticide residue. Another is the possibility that by agreeing to collaborate with theCSE and performing a second round of tests, Coca-Cola could be perceived as admitting that the CSE’sreport was actually correct the first time.- Alt. 2: Status Quo: This alternative is denial through argument from ignorance and would entail Coca-Cola remaining silent and waiting for the buzz to go away. After all, Coca-Cola is a large organizationand is probably the target of many investigations by several NGOs. Coca-Cola is a powerful brandthough, and the company should deny the CSE’s claims by simply ignoring them. Indian consumers arelikely to forget about it after a while anyway. In fact, in rural areas consumers might not even hear aboutthe report. This alternative is easy to implement; Coca-Cola has to do nothing at all. Even so, there is arisk that this alternative will go wrong. Reporters like to criticize large, powerful corporations and arelikely to give the issue media attention. Also, NGOs might be small in size, but consumers tend to trustthem and this issue could turn out to be devastating for Coca-Cola’s brand. American consumers mightalso take the report seriously and see the company as another multi-national corporation that just wants tosell more products and does not care about consumers’ health. Eventually they might abandon Coca-Colain favor of competitors such as Pepsi.- Alt 3: PR campaign: Just as in Belgium a few years earlier, Coca-Cola could implement a PR-campaignto retain consumer loyalty. The PR campaign could include “vouchers and coupons for free productdelivered to [all households], sponsored [events], and significant television advertising.” This might havebeen successful in Belgium, but Belgium is a small country with 4.4 million households. India has apopulation of 1 billion and sending every household a coupon for free product would be impossible. Dueto both cultural and infrastructure differences, the same campaign could not be carried out in India. A PRcampaign could produce many benefits, but it would need to be tailored to meet the parameters of theIndian market. Another PR campaign in the US could inform the American public about Coca-Cola’sefforts as a global citizen who gives back to communities. This ingratiation strategy, an argument byexample, would show that Coca-Cola is not just a large, greedy corporation, and would demonstrate thecompany’s social and environmental responsibility.
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  10. 10. 3.2 The Preferred AlternativeAlternatives Advantages Disadvantages - Consumers like NGOs - CSE might not be willing to collaborateAlt 1:Collaboration with the - Image strengthened - Can be understood as an apology forCSE actually doing wrong - Reputation improvedReducing Offensiveness - Second round of pesticide tests are - Through the Recovery Paradox higher positiveRecovery Paradox trust for the brand will be built - Recovery paradox might backfire - Ease of implementation - Media attentionAlt 2:Status Quo - Incident quickly forgotten - Brand tarnishedDenial through Argument - Coca-Cola powerful - NGO powerfulfrom ignorance - Worked well in Belgium - India not comparable to BelgiumAlt 3:PR Campaign - Loyal consumers - Very expensiveIngratiation through - Chance to show Coca-Cola’s corporateArgument from example social responsibility (CSR) After analyzing the options outlined in the table above, it is recommended that collaboration withthe CSE, combined with a PR campaign (a modified version of the one used in Belgium), is the mostbeneficial strategic alternative for Coca-Cola. 3.3 Implementation Plan The implementation plan would be to collaborate with the CSE and launch a PR campaign, Coca-Cola must first gain the trust and the commitment of the CSE, convincing them that Coca-Cola has theconsumer’s best interest in mind. As for the PR campaign, Coca-Cola can utilize the successful aspects ofthe Belgium campaign and incorporate them in the India campaign.
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  11. 11. 3.3.1 Who, what, where, when, and how? Before launching a similar PR campaign to regain customer loyalty, it’s very important that Coca-Cola first works with the CSE to regain the trust of their customers. If the CSE released these reports withinaccurate information they are obligated to the public to correct their mistakes. The issue of the upmostimportance is getting the truth out to customers. CSE should conduct independent third party tests toensure their results are accurate. Assuming they are inaccurate as suspected, Coca-Cola’s marketing teamshould collaborate with CSE to issue an apology and/or retraction of the first study. This needs to be doneas soon as possible so it can be followed with promotional activities so business can pick up swiftly.These apology letters or corrected reports not only need to be issued immediately, but to trustedpublications throughout the country. These publications will need to be contacted and Coca-Cola’s PRteam needs to find top reporters to cover the apology story. If CSE is willing, they should even make apublic apology to Coca-Cola and make an in-person correct. Again, the apology would need to gain agreat deal of exposure in correction efforts. Coca-Cola would want to make sure they are saturating themarket with CSE apology notices. As the study indicated, the Indian public was very convinced by CSE’sinitial research and press release. Our preferred alternative is that CSE issues another press release withcorrected information as it was so convincing the second time. Also, for Coca-Cola, it’s crucial they workwith the media extensively to ensure there any allegations of conspiracy theory. Some citizens couldassume that CSE’s apology is insincere and is really coming from pressure from Coca-Cola. It would beessential to monitor coverage and do as much damage control as possible. The next thing Coca-Colaneeds to do is to implement a customer retention program, similar to what was done in Belgium. As Indiais a much larger country then Belgium it is essential that the PR campaign is extensive, and targets a widerange of citizens. Promotional activities, coupons, vouchers and even television advertisement should allbe components of this marketing plan. The promotional activities should include charity work, as wellhanding out free beverages at public events. Coca-Cola needs to rebuild their reputation and these willshow citizens Coca-Cola is still a very reputable company that has nothing to hide. Coupons and vouchers
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  12. 12. will also help retain brand loyalty and should be widespread especially in lower-income areas. Thesepromotional activities, combined with the collaboration with CSE will greatly contribute to rebuilding theCoca-Cola name throughout the country. 3.3.2 Short term and long term actions In the short term, the actions that need to taken are working with CSE and then saturating themarket with promotional activities and discounts. The efforts with CSE need to be immediate. The PRplan to regain customer loyalty should include a variety of activities and should continue for 1-2 years.It’s crucial these aggressive marketing efforts are long-terms to continue to rebuild the brand’s name.Then, they need to maintain this level of media presence to keep the Coca-Cola name as one of thecountry’s most powerful brands.4. ReferencesFraser P. Seitel (2010), The Practice of Public Relations, 11th Edition, Pearson Prentice Hall, UpperSaddle River, New JerseyKaye- Jennifer (2005), Tuck School of Business, Dartmouth College, Coca Cola India, Journal CaseStudy Competition in Corporate Communications


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