Cola Wars (Porter’s Five Forces)
Barriers to entry
The barriers to entry are high for new companies; therefore, the threats of new entrants are low. For example, retailers enjoy significant margins for their bottom-line. This makes it tough for the new entrants to convince retailers to substitute their new products for Coke and Pepsi. There are an economy of scale, high required investment, high costs for advertising and marketing promotion, high channels of distribution, and high products differentiation from the new entries. Capital requirement for an efficient new plant could range as much as $75 million. Both Coke and Pepsi pursued a backward integration strategy, buying significant percent of bottling companies, and then creating independent bottling subsidiaries such as Coca-Cola Enterprises (CCE) and Pepsi Bottling group (PBG). Thus it is very difficult for a new concentrate producer entering the market to find any bottler who will distribute their product. Industry Rivalry
The CSD is an oligopoly/duopoly environment. From the high concentration ratio indicated by the high concentration of market share held by the largest firms, rivalry within industry is low, yet the rivalry between Pepsi and Coke is at high level competition based on price and brand loyalty. The competition is pretty intensive due to similarities of established companies and the similarities of their major offerings. Evidence includes the frequent price competition and advertising campaigns, the “Pepsi Challenge”, etc. Supplier Power
Suppliers of the CSD companies include coloring, phosphoric or citric acid, natural flavors, and caffeine. The power of suppliers is low as Coke and Pepsi are the largest buyers and maintain relationships with more than one supplier, which results a low buyer switching costs and thus pushes price down, and also makes suppliers have litter power over pricing. Buyer Power
Buyers of CSDs were the bottlers. The bargaining power of buyers is...
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