market price is and thus‚ it prevents exploitation of the consumers as producers would not be able to charge unfair prices. This is because each firm produces an insignificant fraction of the total market supply and therefore is unable to affect price‚ it is for this reason that each firm in perfect competition is known as a price taker. There are no barriers to entry or exit in a perfectly competitive industry and thus‚ producers can enter or exit the market without any restrictions and thus‚ without
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Harvard Business Review‚ (January 2008)‚ pp. 2-17 Assignment Questions (AQ) (a) Why has the soft drink industry been so profitable for concentrate producers? Compare the economics of the concentrate business to the bottling business: why is the profitability so different? [50% points] The soft drink industry has been extremely profitable for Concentrate producers. When we study the 5 forces analysis‚ we come to a conclusion that almost all the forces have contributed significantly in this massive
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so‚ how much & why? The soft drink industry is very profitable. It is more profitable for the concentrate producers than for the bottlers. Exhibit 3 clearly indicates how much this industry is profitable to the concentrate producer as compared to the bottlers. This industry as a whole generates positive economic profits. The other reason why the soft drink industry is profitable is: * Bottling Network: Coke and Pepsi have agreements with existing bottlers which prevents it from taking on new
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enough to take away significant market share from Coke and Pepsi. Concentrate producers are more profitable than bottlers for many reasons. The concentrate process involves little capital investment whereas the bottling process is capital intensive and involves specialized‚ high-speed lines. Most costs in the concentrate industry are for advertising‚ promotion‚ market research‚ and bottler relations. Concentrate producers invest heavily in trademarks and innovative and sophisticated marketing
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Why is the concentrate business or industry so profitable? Soft drinks concentrate producers gross margins were more than 60% and an average return on assets of 17% between 1990 and 2000. There are many reasons for that: even if a new concentrate plant big enough to provide all the USA would cost less than $50 million‚ it is almost impossible for new investors to get into the soft drink industry ‚ basicly because the existence of high barriers as brand positioning‚ bottling and distribution
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Using your knowledge of industry structure (Porter’s five forces) do an analysis of the industry structure of the concentrate producers… Regarding the industry structure of the concentrate producers‚ the Porter’s five forces varied in each category: Industry Rivalry‚ suppliers‚ buyers‚ substitutes‚ and potential entrants. Of the five forces‚ competition is the highest weight between Pepsi and Coca-Cola. Industry Rivalry • Coca-Cola and Pepsi-Cola claim nearly 75% of the U.S. carbonated soft
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pricing policies‚ in order to face the reduction of the CSD consumption by diversifying the offer‚ conquering the customers’ loyalty and gaining new margins on the selling of concentrates to the bottlers. Despite the mentioned negative trends‚ the soft drink industry remained an attractive industry for both concentrate producers (CP) and bottlers. These two parts of the industry are extremely interdependent‚ sharing costs in procurement‚ production‚ marketing and distribution: so‚ because of operational
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Distribution of CSD involved 4 major players: Concentrate producers‚ bottlers‚ retail channels and suppliers Concentrate Producers They blended raw material ingredients‚ packaged the mixture in plastic canisters‚ and shipped those containers to bottler --> Required little capital - cost for advertising‚ promotion‚ market research and bottler support ==> Once fragmented --> Consolidated with Coke and Pepsi (72% of market sales) Bottlers They purchased concentrate‚ added carbonated water and high fructose
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CSDs consisted of a flavor base (called "concentrate")‚ a sweetener‚ and carbonated water. The production and distribution of CSDs involved four major participants: concentrate producers‚ bottlers‚ retail drannels‚ and suppliers.6 Concentrate Producers The concentrate producer blended raw material ingredients‚ packaged the mixfure in plastic canisters‚ and shipped those containers to the bottler. To make concentrate for diet CSDs‚ concentrate makers often added artificial sweetener; with
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specialists‚ who continue to see volume growth well in excess of the market average (Robinson ‘04). With the growth in volume‚ the average level of profitability of the soft drink industry remains quite high. First‚ the concentrate producers (CP’s) have become integrated with bottling companies‚ thereby reducing production costs. The CP’s and bottlers remain profitable through interdependence‚ sharing promotional and
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