This website uses cookies to ensure you have the best experience. Learn more

Cola Wars Essay

1020 words - 4 pages

1. Why is the soft drink industry so profitable?The soft drink industry is worth $60 billion in the US and its major players Coca-Cola and PepsiCo both achieved an average annual growth of 10% between 1975 and 1995. While per capita consumption of soft drinks seems to have reached its limit in the US and Canada (only 2% annual growth between 1992 and 1999), emerging countries, such as Brazil (12% annual per capita consumption growth) and Philippines (9% annual per capita consumption growth), along with the overall growth of the world population, show that the global market is far from saturation. Such an attractive industry should attract many new investors, which in the long-run would limit the industry's profitability. However, a closer look at the market structure reveals the reasons why the soft drink industry is highly profitable for the established firms, while it is mainly inaccessible for new entrant firms.The profitability of an industry is mainly determined by three factors : the value of the product to the customers, the intensity of competition and the bargaining power of the producers relative to their suppliers. These criteria can be specified by using Michael Porter's "forces of competition framework" :* Limited Threat by Substitute Products:The more substitute products are available, the more elastic will the demand be with respect to price; that is the more sensitive will customers be to price increases. A profitable industry would ideally have a demand totally inelastic to price increases. Since the soft drink industry (including water and other non-carborated drinks) satisfies a very basic human need, few substitute products are available and demand is therefore relatively inelastic. Within the soft drink industry, however, over 30 different substitute brands exist for the customer. It is therefore relatively easy for a customer to switch to an alternative substitute brand. Notwithstanding, the market is basically an oligopoly of 3 major companies. Therefore, whenever e.g. a Coca-Cola customer decides to switch the brand of his drink, the probability that he chooses a brand from the same company is almost 50%.* Limited Threat by New Entry Competitors:The profitability of the soft drink industry is mainly a result of its high entry barriers for new firms. In the soft drink industry, capital requirements for concentrate producers are relatively low (costs of one concentrate manufacturing plant: $25 million to $50 million, with a capacity to serve the entire US), which typically allows a gross profit margin of 83%. However, the bottling process is much more capital-intensive (to serve the US market, 85 highly specialized plants with a total cost of $6.375 billion are required) and gross profit will normally not exceed 35%. In addition, the access to channels of distribution is largely controlled by Coke and PepsiCo, which sets a high entry barrier for entrant firms.Furthermore, product expansion is quite costly, as new products,...

Find Another Essay On Cola wars

'The Cola Wars Continues: Coke and Pepsi in the 21st Century': Competitive Strategy Case Study

4581 words - 18 pages ;………………………………………..16References………………………………………………………………..…………19Executive SummaryThe Cola Wars between the two industry giants Coca-Cola Company and

Cola Wars Continue: Coke versus Pepsi in the 21st Century. Industry Structure and Competitive Interaction

1123 words - 4 pages prices and other contract terms2. How has the competition between Coke and Pepsi affected the industry's profits?For over a century, intense rivalry between duopoly Coke and Pepsi shaped the soft drink industry (combined 73% market share). The most intense battles of the cola wars were fought over the $60 billion industry in the United States, where the average American consumes 53 gallons of carbonated soft drinks (CSD) per year. In a carefully waged

This is a five forces analysis for the "Cola Wars" Harvard Business School case

746 words - 3 pages Untitled 5) The Cola Wars have been raging for many years, mainly between Pepsi and Coca-Cola. There have been, and are, minor players in the game, who are able to exist, but none of these have a share of the carbonated soft drink (CSD) market that comes close to equaling Pepsi or Coke. To evaluate the CSD industry, I will use Porter's Five Forces Model. First, one must look at the center of the model, which talks about the

Cola Wars Continue: Coke vs. Pepsi in the 1990s (Cola Wars)

1934 words - 8 pages ten times more than that of CPs, and a good will that is roughly 45 times more, which means that bottlers have to deduct more depreciation from gross profit than CPs do.One of the reasons why bottlers are backward integrated by CPs is that, as the Cola-war heating up, small bottlers were no longer able to handle CPs' goals and thus they would not be chosen as Pepsi and Coke's partners. Most of them were merged or driven out of the market by larger

Coca-Cola vs PepsiCo

1044 words - 5 pages gambled on sugar prices, believing that they would continue to rise, but they fell instead and left Bradham with an overpriced sugar inventory. Pepsi went bankrupt in 1923. Charles G. Guth, the President of Loft Candy Company, then bought Pepsi Cola. He reformulated it and after years of struggling, finally made a success of it (Bellis). The term “Cola Wars” refers to the rivalry of soft drink manufacturers, the two major ones are Coca-Cola and

The Coca-Cola Company - Overview

1030 words - 4 pages marketplace. In case you don't recall, this ghastly miscalculation on The Coca-Cola Company's part resulted in a blizzard of discontent among faithful Coke consumers resulting in the company reverting to the traditional formula three months later. Even through the Cola Wars with Pepsi, The Coca-Cola Company has remained the leader in this industry.The CompetitionThe Coca-Cola Company has two main competitors in the soft drink industry, Pepsi and

SWOT Analysis: The Coca-Cola Company

1828 words - 8 pages Works Cited Bloomberg TV. (2012). Coca-Cola’s marketing strategy [Video file]. Retrieved from http://www.bloomberg.com/video/82514598-coca-cola-s-marketing-strategy.html. Bozzo, S. (Producer, Director). (2008). Blue gold: World water wars (Motion picture). United States: Purple Turtle Films. BusinessDictionary (2014). Value creation. Retrieved from http://www.businessdictionary.com/definition/value-creation.html. The Coca-Cola Company

Competitive Study Between Leading Brands: PEPSI vs COKE

4800 words - 19 pages PREFACECola wars is the term used to describe the campaign of mutually-targeted television advertisements in the 1980s between Coca-Cola and Pepsi-Cola. They first began showing people doing blind taste tests in which they preferred one product over the other, then they began hiring more and more popular spokespersons to promote their products.They focused particularly on rock stars; notable soft drink promoters included Michael Jackson (for

Analysis of Competitors within the Softdrink Industry

1123 words - 4 pages -Cola as market growth slows and market share becomes the key determinant of profitability. In foreign markets the product life cycle is in more of a growth trend. Coke's advantage in this area is mainly due to its establishment of strong branding and is now able to use this area of stable profitability to subsidize the domestic "Cola Wars".Pepsi's success on the other hand, is attributable to its experienced management team, a competitive product

Coca-Cola and its Evolution

1927 words - 8 pages company's eight hundred number received eighteen thousand calls of gratitude. One caller said theyfelt like a lost friend had returned home. The comeback of old Coke drove stock prices to the highest levelin twelve years. This was said to be the only way to regain the lead on the cola wars(Classic comeback ofan old champ 12).In 1979, fifteen hundred employees moved to the new corporate headquarters in Atlanta locatedon North Avenue. The new

Cola War

1058 words - 4 pages into purchasing their products, both companies have successfully publicized their drinks. As a result they have become the two leading soft drink brands in the nation. The competition between Pepsi and Coke will not only prolong the greatly known cola wars, but will also allow new advertising techniques to be aired on television. Pepsi uses excellent marketing strategies, such as celebrity appearances and contemporary product packaging, to sell their product, whereas Coca-Cola's realistic approach has placed them at the top of the soft drink industry. Although Pepsi is "simply irresistible", according to the soda loving customers, it is "always Coca-Cola, Yeah".

Similar Essays

Cola Wars Essay

1585 words - 6 pages persuade people into purchasing their products, both companies have successfully publicized their drinks. As a result they have become the two leading soft drink brands in the nation. The competition between Pepsi and Coke will not only prolong the greatly known cola wars, but will also allow new advertising techniques to be aired on television. Pepsi uses excellent marketing strategies, such as celebrity appearances and contemporary product

Problem Set Cola Wars Essay

1049 words - 4 pages only competitive force on CSD industry profitability. At the very beginning of cola wars, Coke initiated a strategy by not reacting. When Pepsi began a campaign outlining the cheap cost of their product, Coke maintained a premium price strategy, although their market share began to be affected. This is a tradeoff that they were willing to make at the time. Because Coke established a "dominant postwar market shares in most European and Asian

Cola Wars Essay

1038 words - 5 pages Errors Pepsi: most imitators is that inimitably At Coca-Cola, and indeed , there is much to learn in sales promotion and advertising products. Few basic ingredients of success of this company - identified experts Masterforex-V: - Mythology . A mystery to be not only a woman , but in the carbonated beverage . Something which, as the myths and mysteries surrounding Cola during its existence created enough. Worth at least its supposedly secret

Cola Wars Case Study

619 words - 2 pages , the soft drink industry is an profitable industry due to:1) its high concentration ratio: the top three companies account for 90% of total market share while Coca Cola and Pepsi along account for about 75%, forming approximate duopoly market pattern. 2) high entry barrier caused by patent and trade market protection for concentrate producers and extensive capital investment for bottlers. 3) high degree vertical integration. 4) economies of scale