Cola Case Study

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Market analysis: what are the sources of the profitability of the soft drink industry?

* Duopoly industry: large and relatively stable market shares

* Barriers to entry:
* Informal: compete with the established brand names (trademarks), distribution channels, and high capital investment * Technical barriers: amount of capital investment require, exclusive territories in distribution channel, access to retail channels * Exit barriers: leaving this industry would be difficult with the significant loss of money from the fixed costs, binding contracts with distribution channels, and advertisements used to create the strong brand images.

* High competition between competitors that drives:
1) innovation: targeting specific markets (diet sodas, energy drinks, etc), finding new recipes (cherry coke) and packaging (fridge pack), adapting the value chain, etc. 2) marketing efforts (Both PepsiCo and Coca-Cola stood amongst the 6 brands that had the most innovative marketing programs in 2004: Pepsi = 14.7% and Coca-Cola =13.4% (of respondents who ranked the brand first, second or third) * Innovation and diversification: new energy drink product line, high growth of the non-carbonated beverage industry, snacks or other beverage items. The soft drinks market is now in the matured stage of the life cycle. Maintaining the ability to adjust with the changing market. * Market size (consumer goods, mass market) and market growth rate (increase in share of soft drink consumption with respect to other beverages increased from 12.4% in 1970 to 28.7% in 2004) * Even if the soft drink industry market has been growing since the 70s, it is important to notice a sharp slowdown in consumption growth (only 1.6% between 1988 and 2004 in the US with negative growth between 2000 and 2004). It seems that US consumption has reached a “plateau”. * Economies of scale: Expansion overseas helps to amortize their innovation...
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