Competition in Soft Drinks

|
Cola Wars Continue: Coke and Pepsi in 2010 |


|

Question 1
Barriers to Entry
Historically, the cola industry has been so profitable due to the advantages created by Porter’s five forces.   The first reason for this profitability was high barriers to entering the carbonated soft drink (CSD) industry.   Barriers to entering the CSD industry began almost as soon as the industry itself, as courts barred imitations and counterfeit versions of Coca-Cola such as Coca-Kola, Koca-Nola, and Cold-Cola, under trademark infringement.   In 1916, courts barred 153 of these imitations, demonstrating the prevalence of the desire to enter the CSD industry, as well as the extreme difficulty to do so. (5)   This barrier to entry allowed Coca-Cola to dominate and almost single-handedly develop the CSD industry, and almost excluded Pepsi-Cola from the industry, until Pepsi-Cola won the 1941 trademark infringement suit that Coca-Cola had filed against it.
Historically, the second significant barrier to entry was brand loyalty, created largely by Robert Woodruff who began leading Coca-Cola in 1923.   Woodruff’s goal was to place a Coke “in arm’s reach of desire,” so he pushed for new channels through which to make Coke available, including open-top coolers in grocery stores, automatic fountain dispensers, and vending machines.   Woodruff coupled this mass availability of Coke with an advertising campaign that emphasized the role of Coke in a consumer’s life, the combination of which developed brand loyalty through increasing both the availability of and the desire for Coke.   Woodruff further developed brand loyalty, increasing the barrier to entering the CSD industry, through associating Coke with the United States military during World War II, promising that “every man in uniform gets a bottle of Coca-Cola for five cents wherever he is and whatever it costs the company.” (6)   Coca-Cola’s efforts to increase brand loyalty were so successful early on that in order to gain... [continues]

Read full essay