Cola Case Study - Pepsi vs Cola in 2010
2. Strategy Analysis
a. Discuss Porter’s 5 forces in this industry with respect to the profitability of bottlers. What are the keys?
The Five Forces Model establishes five forces that create the degree of rivalry-industry concentration and switching costs etc- in a certain industry inother words determining the profitability of that industry. The four constitutes thatlead to rivalry are barriers to entry- absolute cost advantage and governmentpolicy etc, supplier power- supplier concentration and differentiation of inputs etc-, buyer power- brand identity and threat of backward differentiation etc-, andlastly threat of substitutes- buyer inclination to substitute etc.The CSD industry is a very profitable industry and has a large presence inglobal markets. However, there are several factors that make it very difficult for the competition to enter the market. For example, both Coke and PepsiCo havefranchise agreement with their existing bottler¶s who have rights in a certaingeographic area. These franchise agreements strictly prohibit the bottler fromtaking on business from new competing brands. Furthermore, if a concentrateproducer wanted to build their own bottling plants due to the inability to bottlefrom the existing bottling plants as prohibited by Coke and Pepsi; the newbottling plant would require an extensive capital expenditure on advertising,building brand image and loyal customers, and paying retailer for shelf space asPepsi and Coke pay retailers 15-20% for putting their beverages in the front of the shelves.Second of all, suppliers have no power as compared to the CSD industrybecause most of the ingredients needed to produce the concentrate are basiccommodities such as sugar, carbonated water, caffeine etc. Suppliers don¶t havemuch pricing power over these commodities therefore making the suppliers inthis industry weak.Third of all, the major channels for the CSD industry are supermarkets,convenience stores, vending machines and fast food fountain. The
a. Discuss Porter’s 5 forces in this industry with respect to the profitability of bottlers. What are the keys?
The Five Forces Model establishes five forces that create the degree of rivalry-industry concentration and switching costs etc- in a certain industry inother words determining the profitability of that industry. The four constitutes thatlead to rivalry are barriers to entry- absolute cost advantage and governmentpolicy etc, supplier power- supplier concentration and differentiation of inputs etc-, buyer power- brand identity and threat of backward differentiation etc-, andlastly threat of substitutes- buyer inclination to substitute etc.The CSD industry is a very profitable industry and has a large presence inglobal markets. However, there are several factors that make it very difficult for the competition to enter the market. For example, both Coke and PepsiCo havefranchise agreement with their existing bottler¶s who have rights in a certaingeographic area. These franchise agreements strictly prohibit the bottler fromtaking on business from new competing brands. Furthermore, if a concentrateproducer wanted to build their own bottling plants due to the inability to bottlefrom the existing bottling plants as prohibited by Coke and Pepsi; the newbottling plant would require an extensive capital expenditure on advertising,building brand image and loyal customers, and paying retailer for shelf space asPepsi and Coke pay retailers 15-20% for putting their beverages in the front of the shelves.Second of all, suppliers have no power as compared to the CSD industrybecause most of the ingredients needed to produce the concentrate are basiccommodities such as sugar, carbonated water, caffeine etc. Suppliers don¶t havemuch pricing power over these commodities therefore making the suppliers inthis industry weak.Third of all, the major channels for the CSD industry are supermarkets,convenience stores, vending machines and fast food fountain. The