Sample Research paper on Coca Cola vs ExxonMobil

Coca Cola vs ExxonMobil

The stock-investment decision is among the toughest choices for investors. With the hundreds of tradable companies in the market, investors find it hard to identify the most promising company that is viable for investment. Often, investors target to invest in firms that are stable, sustainable and promises high return on investment. However, it takes extensive background analysis for an individual investor to identify a company that meets these qualities. According to Barker et al., many investors tend to invest in companies’ stocks based on the market value of the stocks at the time of investment (207). However, Barker and others notes that there are several factors to be considered. For instance, a prospective investor should evaluate the companies’ products, the market structure, profit history, and future outlook, in comparison with other companies whose stick are in the market. The choice of which company to invest in is a relatively difficult decision, especially when comparing companies in different industries. This paper compares the market prospects of two international companies, Coca Cola Company and the ExxonMobil in beverages and Oil and Gas industries respectively. The aim of the paper is to evaluate which of the two companies are most suitable for investments, based on the companies’ products, internal and external factors as well as the market outlook.

Brief Over View

Coca Cola Company

The Coca-Cola Company is a multinational beverage manufacturer headquartered in Georgia, Untied States. It was founded in 1892 by Asa Griggs Candler as an exclusive nonalcoholic drinks manufacture (The Coca-Cola company, coca-colacompany.com). In the international spectrum, Coca-Cola operates a chain of franchised distribution, spread across the globe. The company manufactures the product syrups, which are then distributed to various bottlers. Today, Coca-Cola is a market giant in the beverage industry. It manufactures and sells more than 3,500 different brands of non-alcoholic drinks. Its products are distributed in approximately 200 countries worldwide.  According to the Harvard Business School, Coca-Cola controls more than 45% of the non-alcoholic drinks market in the world and enjoys strong customer loyalty across the globe (2).

The Coca-Cola stocks have been traded publicly in the American stock market since 1920. In 1919, businessmen Robert Woodruff and his son acquired the Coca-Cola Company from its initial owner and re-incorporated it as a Delaware business. Consequently, the Woodruff registered the company in the New York Stock (NYS) exchange at a cost of $40 for ordinary shares and $100 for preference shares. For the past decades, the value of the Coca-Cola stocks has been varying within the range of $30 to $70.  Although Coca-Cola is a market giant in the beverage industry, it has recorded a shrinking net income in the past years. For instance, the company’s net profit in 2014 was $7.1 billion, down from $8.6 billion in 2012 and $9.0 billion in 2012 (coca-colacompany.com).

ExxonMobil

Similar to Coca-Cola, ExxonMobil is an international company and a market leader in the oil and gas industry. It was incorporated in 1899 in Irving, Texas, as a reformed company of the former Standard Oil of New Jersey (ExxonMobil, exxonmobil.com), following a public cry over the faults of the company. As a result, the Standard Oil disintegrated into two sub companies, Exxon and Mobil, which later merged to form ExxonMobil. ExxonMobil’s main business is the exploration of crude oil. It manufactures transports and sells petroleum products, mainly oil and natural gas.

 Despite the negative public image of its predecessor, ExxonMobil have been performing relatively well in the eyes of the public. According to Cooper, Exxon is the largest public traded company in the oil and gas industry (3). However, the company has also recorded a declining net income in the past three years, similar to Coca-Cola. In 2014, for example, the company registered a $32.52 billion, down from 32.58 billion in 2013 and a whopping $44.88 billion in 2012.

Market Analysis

Market Structure

The two companies operate in very different market structures. Therefore, the modes of operations, including the marketing strategies, innovations, and investment decisions are different. Firstly, Coca-Cola operates in an oligopoly market. There are relatively few numbers of beverage producers, with Coca-Cola and its closest rival Pepsi appears as the only market player. Coca-Cola and Pepsi manufacture relatively similar products which a differentiated by minor features such as packaging, taste and color. In an oligopoly market, there is little or no competition in product prices. However, there are increased contests in innovation, product differentiation, and continuous rebranding. As thus, Coca-Cola spends a lot of money on innovation and marketing of new and existing products. Due to the nature of an oligopoly market, Coca-Cola’s rivals are aware of the company’s products. Therefore, new products are regularly replicated by the opponents. As a result, there is increased competition in innovation and marketing strategies as the market players constantly remind the customers of their products.

On the other hand, ExxonMobil operates in a monopolistic competitive market. In the oil industry, all the market players produce similar products and thus, compete by lowering the prices. Among the major competitors of the ExxonMobil includes the Royal Dutch Shell, Total, Chevron Corporation, British Petroleum, among others. Due to the similarity of the products in the market, ExxonMobil competes by lowering the prices and maintaining high quality of products, the company does not spend a lot of money on advertisement since the customers are already aware of the existence of the products. In a competitive market, a company has no control of prices and has to sell at the market prices as customers can always switch to opponents products. Therefore, ExxonMobil invests in ways of improving efficiency so as to lower their cost of production. They also strive to maintain high quality products so as to outsmart their rivals.

Competition and Availability of Substitutes

Both Coca-Cola and ExxonMobil face stiff competition from their rivals. Although Coca-Cola is a market giant, controlling over 40% of the soft drink market share, it is threatened by the Pepsi Company, which enjoys 30% of the market share (Harvard Business School 2). The rivalry between the two companies has been on for ages, since the time when Pepsi was registered, seven years after Coca-Cola’s incorporation. Pepsi and Coca-Cola have been struggling to outdo each other in creativity and customer’s satisfaction. However, scholars note that Coca-Cola has managed to remain ahead of Pepsi through innovation and marketing strategies. However, Pepsi products are close substitutes of the Coca-Cola products. Although Pepsi drinks are not a perfect match of the Coca-Cola products, the two companies manufacture relatively similar products. Therefore, customers choose from Pepsi and Coca-Cola’s products as substitute products.

On the other hand, ExxonMobil also faces competition from different companies in the oil and gust industry. Although the gasoline market is not as flooded as some other consumer goods market, there is still stringent competition among the market players. One of the closest rivals of the ExxonMobil is the Dutch Shell company. According, the products of the Dutch Shell serve as an immediate substitute of the ExxonMobil. Most of the ExxonMobil customers have held that they would as well consume Shell products. However, only the small-scale customers may be able to switch to competitors’ products in the oil industry. This is because it involves enormous expenses for an industrial consumer to change suppliers. However, even the small-scale customers contribute to the company’s gross returns.

Threat of New Market Entrant

Although both Coca-Cola and ExxonMobil operate in different markets, both companies face minimal threat of new market entrant. In the beverage industry for instance, the cost of starting up a manufacturing plant is relatively high. It also requires a well-established distribution chain to be able to reach the global market, which is a challenge for new investors. Additionally, new investors are discouraged by the changing trends in health as people turn to organic and natural products. As Nguyen and Nguyenexplain, modern generations are becoming exceedingly conscious of by their eating habits and are staying away from sugary products such as soft drinks (201). Therefore, new investors aren’t likely to be joining the industry.

Similarly, ExxonMobil faces a minimal threat of new market entrant owing to the high cost involved in the manufacturing and processing of petroleum products. As Cooper explains, new investors are also scared by the rigorous governments’ procedures involved in oil and gas licensing (2). In addition, it takes time and huge investments to establish the global oil distributorship system as prominent distributors avoid links with new companies. For these reasons, ExxonMobil deals with the present market competitors without the worry of market entrants.

Price and Income Elasticity of Demand

Price elasticity of demand is the degree of the changes in the consumption of a product in response to a change in price. As Nguyen and Nguyen explain, Coca-Cola products are facing a price inelastic demand (7). A rise or fall in the price of the Coca-Cola drinks results in a minimal change in total sale of the drinks. Coca-Cola enjoys a sufficient customer’s loyalty across the world (The Coca-Cola Company). Loyal customers continue to consume a product irrespective of price. However, the demand of Coca-Cola products is income elastic. According to Nguyen and Nguyen many people consume Coca-Cola products for leisure and refreshments (9). A decrease in levels of income results in a reduction in the amount channeled to leisure activities. Thus, the consumption of Coca-Cola drinks is dependent on the level of the consumers’ income.

Price Elasticity of demand (PED) = % change in quantity demanded/ % quantity demanded.

Therefore, for an inelastic demand, PED is less than one; thus, a huge change in price (from P1 to P2)results in a minimal change in quantity demanded (from Q1 to Q2) as shown below.

On the contrary, the demand of the products of the ExxonMobil is price elastic. If the company increases the price of its products above the competitors’ prices, consumers can easily switch to the competitors’ product. Additionally, lowering the price attracts more customers. However, the change in demand as a result of changes in prices is only short-term as suppliers eventually adjust to the prices of the competitors in the bid to retain their customers. In a competitive market, such as the oil and gas industry, consumers are fully informed about the market prices. They tend to buy from the supplier whose prices are low. Therefore, the demand curve for ExxonMobil takes the shape shown below. The PED, for ExxonMobil is greater than one; therefore, a slight change in price (from P1 to P2)corresponds to a huge change in quantity demanded (from Q1 to Q2).

Unlike the soft drink industry, however, the demand of gasoline products is income inelastic. People have no alternative to petroleum products such as car fuel and industry energies. Even when their income drops, people have to drive to the workplace and other important functions. Although they may reduce on unnecessary travels, the proportion of reduction in the cost of fuel is not proportional to the changes in income. Similarly, people cannot consume more petroleum products owing to the increase in income since gasoline is not a luxurious product. While they may increase on unnecessary travels, the increase in consumption of fuel is not proportional to the increase in income since there are other luxuries and much expenditure whose demand is more income elastic. Thus, the changes in the income of the population do not affect the rate of consumption of the ExxonMobil’s products.

Cross Price Elasticity of Demand

According to Barker et al. increase in prices of a substitute product increases the demand of a product (208). For example, an escalation in the price of Pepsi may result in an increase of demand of Coca-Cola as some Pepsi customers switch to Coca-Cola. Similarly, a rise in the prices of Coca-Cola may result in an increase in the sales of Pepsi drinks. Therefore, the cross price elasticity (CPE) of Pepsi and Coca-Cola products are negatively elastic. However, the CPE of demand of a product may not be real owing to strong customers’ loyalty. For instance, Coca-Cola is known to enjoy a sufficient customer’s loyalty across the world due to its consistency in products and increased advertising. As a result, variations in the price of Pepsi may not result in a significant change in the demand of Coca-Cola.

In the same way, ExxonMobil oils are easily substituted by the shell oil products. As thus, the CPE of demand of Shell and ExxonMobil products is negatively elastic. However, the cross elasticity of demand of Coca-Cola and ExxonMobil products is zero since the two sets of products are unrelated. There is no connection, whatsoever, between the consumption of soft drinks and gasoline. Therefore, the demand of Coca-Cola and ExxonMobil merchandises are uncorrelated.

Business Sustainability

The nature of a business determines the sustainability of its activities. According toBarker et al, a business may be offering high return on investments at the moment, but its line of business is may not be sustainable (2011). For this reason, prospective investors must evaluate the sustainability of a company and its impact on the environment when making an investment choice. For example, it is apparent that Coca-Cola’s business is sustainable and likely to provide a continuous flow of income. Firstly, Coca-Cola’s raw materials are water, sugar and preservatives. None of these products are likely to face depletion since they are all renewable. For instance, the production of sugarcane in different parts of the world is improving owing to the agricultural technological advancements. Additionally, the company is investing in environmental friendly ways of recycling water, in line with the world’s effort to tackle climate change (The Coca-Cola Company). For this reason, Coca-Cola’s business is sustainable and contributes to positive impact on the environment.

On the other hand, ExxonMobil relies on non-renewable raw materials, which face the risk of depletion. Although it is believed that the world’s oil deposit is sufficient, oil is a natural resource, which cannot be manufactured by any human technology. Therefore, the oil deposit can be depleted. Aside from depletion, petroleum energy is among the highest environmental pollutants. According to Cooper, oil spillage poses a severe health risk to human beings (3). It does not only pollute the air that they breathe, but also exposes them to the risk of fire. However, ExxonMobil has been involved in various oil spillage scandals, causing threats to the human population. Petroleum sources of energy are also expensive compared to other environmental friendly renewable sources. Although there are several renewable and sustainable sources of energy, ExxonMobil has not made any attempt to invest in alternative sources. Therefore, it is imperative that the company is not environmentally conscious.

Recommendation and Conclusion

Coca-Cola is a rather stable company to invest in. Coca-Cola has invested in its brand name over the years, through strategic marketing and product consistency. The company’s innovation and staff’s creativity have seen it remain ahead of its closest rival, Pepsi. Although Pepsi has been aware of the production activities and trends in Coca-Cola, due to the nature of oligopoly market, there is no likelihood that Pepsi may outshine Coca-Cola. Coca-Cola enjoys a strong customer loyalty, which makes the demand for its products price inelastic. Additionally, the company’s activities are environmental friendly, in line with the current climatic change.

On the other hand, ExxonMobil faces stiff competition from its rivals. Although the company is a market leader, it is not investing in ways of ensuring that it remains ahead of the competitors. Additionally, the company relies on unsustainable sources of energy. For the past few years, the world has been in the process of switching to sustainable sources of energy such as renewable solar energy so as to mitigate the impacts of climate change. As thus, the business of oil and gas industry may not be profitable in the years to come, owing to reduction of consumers. For these reasons, ExxonMobil is not a suitable investment partner for long-term goals.

In conclusion, this paper recommends Coca-Cola as the best company for investment over ExxonMobil. Even though ExxonMobil may be recording huge net profit than Coca-Cola at the moment, the oil and gas industry faces a magnificent risk than the soft drink industry. As thus, ExxonMobil’s over $30 billion may be short term as the company relies on natural resources. On the other hand, Coca-Cola is poised for improved returns since its sales turnover depends on creativity and marketing strategy. There is more room for expansion in Coca-Cola, which is not available in ExxonMobil. Since an investor should consider both the short-term and the longer-term gains, then Coca-Cola is suitable for investment than ExxonMobil.

Works Cited

Barker, Richard, et al. “Can company-fund manager meetings convey informational benefits? Exploring the rationalisation of equity investment decision making by UK fund managers. “Accounting, Organizations and Society 37.4 (2012): 207-222.

Cooper, George. “EXXON: Transforming Energy, 1973-2005.” East Texas Historical Journal 53.1 (2015): 12.Web. 27 May 2015.

ExxonMobil. “Learn about the History of ExxonMobil.” Web. 27 May 2015. http://corporate.exxonmobil.com/en/company/about-us/history/overview

Harvard Business School.Cola Wars continue: Cole vs. Pepsi in the 1990s. 2000 Web. 27 May 2015.

Nguyen, Thuan, and Thy Nguyen.”Factors that make a marketing cam-paign go viral: Case study: Campaign” Share a Coke” by Coca Cola in Vietnam.”(2015). Web. 27 May 2015. http://www.theseus.fi/handle/10024/92051

The Coca-Cola Company. “History- Overview.” Web. 27 May 2015. http://www.coca-colacompany.com/history/