Cola Wars

Five Forces  Examination of the Cola Wars

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Five Forces  Examination of the Cola Wars

By and large, the soft drink industry leaders bulkpost high profits every year. Concentrate producers realize higher profits than bottlers in the industry generally (Daft & Marcic, 2001; Wilkinson & Kannan, 2013). That comes off as odd given than the commodities they sell can be generated rather easily (Louis & Yazijian, 1980; Yoffie & Harvard University, 2002). The high profits can be best explained through a Five Forces appraisal, which shows how the varied forces affect the industry’s profitability. The forces are entry barriers, suppliers, rivalry, buyers, and substitute threats.

New players find it rather challenging to enter the market owing to the extant bottling network agreements, high advertisement costs, the brand images of Pepsi and Coca Cola, and retailer shelf space considerations. Regarding the network, Pepsi and Coca Cola run franchisee contracts with own bottlers (Daft & Marcic, 2001; Louis & Yazijian, 1980). The bottlers have perpetual rights in specific geographical regions. The contracts bar the bottlers from taking on other brands competing with those of Pepsi or Coca Cola (Enrico & Kornbluth, 1986; Kourdi, 2015). It is rather difficulty for other businesses to get bottlers who can distribute the products they have.

The advertising expenditure between Pepsi, Coca Cola and own bottlers is so high that new entrants to the industry find themselves unable to compete with them. The new entrants are unable to gain considerable visibility (Enrico & Kornbluth, 1986; Kourdi, 2015; Louis & Yazijian, 1980). The long-running and heavy advertising expenditure defining Pepsi, Coca Cola and own bottlers have helped them cultivate marked brand equity and large bases of loyal customers that new entrants cannot match. The Pepsi and Coca Cola retailers enjoy marked margins that new entrants may find challenging to afford them (Daft & Marcic, 2001; Wilkinson & Kannan, 2013).

Notably, most of the suppliers in the industry supply materials that are necessary in the production of concentrates (Daft & Marcic, 2001; Yoffie & Harvard University, 2002). The materials include elementary commodities such as packaging, additives such as caffeine, sugar, flavor, and color (Daft & Marcic, 2001). By and large, these commodities are elementary. That means that the suppliers have limited or even no power or influence over pricing. The suppliers are distinctively weak (Enrico & Kornbluth, 1986; Kourdi, 2015).

The principal buyer channels in the industry are convenience stores, vending, fast-food joints or fountains, and food stores. The food store buyers are considerably consolidated: with numerous supermarkets and chain stores. Given that they provide shelf spaces that are premium, they command depressed, or lower, prices (Enrico & Kornbluth, 1986; Kourdi, 2015 Louis & Yazijian, 1980).

The convenience store buyers are markedly fragmented and thus pay heightened, or higher, prices (Daft & Marcic, 2001). The fountain buyers bulkpost the least profits since they make the largest purchases. That permits them a considerable room for negotiation. Pepsi, as well as Coca Cola, elementarily take the fountain buyers as being in a paid sampling segment whose margins are low. The vending channel offers products to customers directly. Thus, the offers the businesses no influence, or power, over the customers (Daft & Marcic, 2001; Wilkinson & Kannan, 2013).

There are many soft drinks, including juices, coffee, and water than are available to the same customers targeted by Pepsi, Coca Cola, and related businesses (Enrico & Kornbluth, 1986; Kourdi, 2015). Concentrate producers counter the substitute challenge through spending heavily on advertisements, ensuring that customers access their products easily, and growing branding equity. The majority of the businesses with the substitutes cannot match these measures (Daft & Marcic, 2001). As well, the concentrate producers have in recent times diversified their businesses by producing a number of the substitutes to their core products to keep competition at bay.

Regarding rivalry, the industry is largely a duopoly one as its principal competing businesses are only two: Pepsi and Coca Cola (Enrico & Kornbluth, 1986; Kourdi, 2015). Their other competitors’ market shares are too insignificant to affect the principal competitors’ structures and pricing or even the industry’s structures (Yoffie & Harvard University, 2002). Over a long period, the main competitors have challenged each other on the advertising and differentiation fronts as opposed to pricing (Daft & Marcic, 2001; Louis & Yazijian, 1980; Wilkinson & Kannan, 2013). That has ensured that they do not dent their profit margins largely. Even then, a protracted price war between them may be in the offing if they embark fully on own global expansion strategies.

Coca Cola should continue investing so heavily on advertising that new entrants to the industry find themselves unable to compete it and gain considerable visibility. Coca Cola should focus on growing its supplies to food stores. As noted earlier, the food store buyers are considerably consolidated: with numerous supermarkets and chain stores. Given that they provide shelf spaces that are premium, they command depressed, or lower, prices. Coca should be more aggressive in investing in the production of substitutes such juices, coffee, and water in addition to its core products. It should continue challenging its main competitor, Pepsi, on the advertising and differentiation fronts as opposed to pricing regimes.

References

Daft, R. L. & Marcic, D. (2001). Understanding management. Fort Worth: Harcourt College

Publ.

Enrico, R. & Kornbluth, J. (1986). The other guy blinked: How Pepsi won the cola wars.

Tononto: Bantam.

Kourdi, J. (2015). The Economist: A guide to effective decision-making. London: Profile Books.

Louis, J. C. & Yazijian, H. (1980). The cola wars. New York: Everest House.

Wilkinson, T. J. & Kannan, V. R. (2013). Strategic management in the 21st century. Santa

Barbara, Calif: Praeger.

Yoffie, D. S. & Harvard University. (2002). Cola wars continue: Coke and Pepsi in the twenty

-first century. Boston, MA: Harvard Business School Pub. Corp.