Overall performance is closely linked to a company’s operations and how they meet objectives to obtain certain outcomes. The story of Coors’ performance is told in Exhibits 9-10 in the Strategic Management textbook; despite increased capacity, operating income as a percent of sales declined by 11% in 1985. Even more telling are the changes in pure operating income across the industry. From 1977 to 1985 Coors declined by 14. 7%, while others like Heileman increased 168% and Anheuser-Busch increased 358%.
Other factors come into play like Coors having low growth in net revenue and the number barrels sold, but possibly the most influential change is Coors advertising expense, which is approximately twice their competitors in 1985, whereas it was almost nonexistent in 1977. These figures represent the truth of Coors performance decline in 1985, which stems from the poor use of vision and company/ industry assessment. A differentiated product is distinctive and perceived as such throughout an industry.
Coors tries to achieve differentiation by using “pure Rocky Mountain spring water,” when in reality they follow a cost leadership strategy by being able to sell at a lower cost from the efficiency of a single plant. This, combined with the plans of national expansion, creates several inconsistencies from their organizational strategy and can be seen in a valuechain analysis of the company. One of Coors’ main problems of national expansion is the expansion itself. The other analyzed brewers sell their products n all fifty states, so Coors was at a disadvantage of not doing the same.
Because controlling production and operating a higher capacity than competitors maintains Coors’ current strategy of cost leadership, expanding makes it harder to stay at those high levels. The demand for beer in 1985 was flat and capacity exceeded expected sales numbers; Coors would have to see an increase in demand to order to keep up with capacity and maintain low costs. Another problem stems from the marketing plan of Coors, or perhaps the seemingly lack of one.
Coors has networking, such as with celebrities, but does not use it as a foundation for further marketing. Advertisements should be used as a tool to reach different demographics and enchant consumers with the products. During this time, many marketing outlets such as TV, radio, and print, are available and should be taken advantage of in a more efficient manner. A company can’t use advertisement to try achieving differentiation when it has to use it as a tool to stay on par with competitors.
It’s difficult to use the “Rocky Mountain spring water” as advertising when distributing across the country, closely tying Coors’ marketing concerns with their distribution ones. With the nationwide rollout, the average transportation distance increased from 800 miles to 1500 miles, causing costs to increase dramatically. Coors does not pasteurize their beers, meaning they have to be refrigerated and have a shorter shelf life, creating tension with wholesalers and making it challenging to guarantee freshness and authenticity.
Other concerns within Coors are their use of backward integration and their production processes. Coors uses backward integration as a tool to smooth over the availability of necessary raw materials and they miss out on taking advantage of economies of scale. Furthermore, their production processes are very elaborate, requiring aging of the beer approximately 45 days longer than other brewers and costs 21% higher than Anheuser-Busch and 72% more than Heileman. These problems are only symptoms of a larger virus -lack of a specific future vision for the Coors Brewing Company.
Coors has been successful over their business life, but the absence of future vision left them vulnerable to new entrants into their regional area, forcing them to expand nationally and creating the complications above. Historically, Coors has relied on charging lower costs by operating close to full capacity and by having fast processing lines, not adjusting with growth and change in the brewing industry. However, competitors such as Anheuser-Busch have become more efficient, while selling nationally, also being able to offer beer at a lower cost.
If Coors had formulated an aggressive, adaptable vision for their company at an earlier time, the operational issues and low performance in 1985 would have been eliminated or contained. Coors must first decide on, and define, their company strategy – differentiation or cost-leadership being the most likely options. Then the brewery can objectively model their primary and support activities to fit the desired strategy: marketing, processing, and distribution plans should all be reevaluated.
If Coors selects to continue with a cost-leadership strategy, they must drastically reduce costs and further increase efficiency, more than competitors. This would entail changing to lower quality ingredients, having very little advertising costs, adopting economies of scale, improving employee relationships, and adjusting distribution. To achieve these, Coors should begin pasteurizing their beer to allow prolonged shelf life and stop limiting the company to special ingredients like “Rocky Mountain” water.
Additionally, by removing the backward integration, Coors can focus on the primary portion of their business, brewing, and continue to lower production costs. If Coors takes these steps then they will be protected against competitors eroding profits and allowed more flexibility when dealing with buyers and suppliers. If choosing to go with a differentiated product, the main focus should be to change consumer notions of Coors. The high quality and uniqueness of the ingredients already exist, however customers are buying the beer based off the lower costs.
If Coors wants to use differentiation and the same ingredients, they must create a high level of cost parity to ensure high revenues and reduce all costs not directly related to differentiation, such as in severely reducing the number of packaging lines (320). It would be best if Coors condensed their advertising costs and instead focused on producing creative and innovative ads in place of a high quantity. The connections with wholesalers and important customers should be strengthened through public relations and used to promote a luxurious perception of Coors beer.
Furthermore, the plans for buying the production plant in Virginia would still be valid, along with the plans for railway and road transportation. Another possible solution, which would perhaps be the highest performing for Coors, is to combine elements of both the cost and differentiation strategies. This would allow Coors to differentiate their product in a new way, while minimizing associated costs. Coors would still be required to integrate economies of scale and adjust “Rocky Mountain” water to be more inclusive—”Pure American Spring Water.
By using a new marketing slogan and using “locally supplied” ingredients, Coors could continue differentiating as a proud product using high quality ingredients and processes, only at a lower distribution cost. Keeping qualities of a differentiation strategy establishes higher entry barriers from customer loyalty and provides a cushion for profit margins. This would also help decrease supplier power from the integration of economies of scale and remove the associated operational risks. A combined strategy will allow Coors to adapt and grow in the future, helping to ensure the survival of the brewery.
In 1985 the Coors Brewing Company experienced such changes from a lack of a specific industry analysis and strategy for the future that simultaneously would have allowed for flexibility. The lowered stock price and their financial information show operational issues are happening; the numbers don’t lie and investors will continue to react negatively to Coors unless their problems are mitigated. To develop a competitive advantage, a company must have superior resources and capabilities compared to competitors, which Coors can achieve by incorporating a combination of differentiation and cost strategies.
