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Problem Set Cola Wars Essay

1049 words - 4 pages

Question 1: Conduct a Porter's Five Forces Analysis on the soft drink industry and pull out strategic implications for each of the five forces. The threat of new entrants in the soft drink industry is relatively low. Barrier for entering the CSD industry is relatively high because the industry type is oligopoly, and consumers have high brand loyalty towards either Coke or Pepsi. The new entrants are facing large‐scale investment, or cost disadvantage, and the challenge of brand recognition.
The bargaining power of suppliers is low. ‐ "The concentrate for most cola consisted of caramel coloring, phosphoric or citric acid, natural
flavors, and caffeine." Coke and Pepsi have extremely low switching cost on these inputs. ‐ The two major inputs for bottlers are packaging and sweeteners. "The strategy toward can
manufacturers was typical of their supplier relationships. Coke and Pepsi even negotiated on behalf of their bottling networks, and were among the metal can industry's largest customers."
Coke and Pepsi face low switching cost, so the suppliers virtually have no bargaining power over pricing. The bargaining power of buyers (intermediate customers as bottlers and retail channels) is weak.
‐ Bottlers are locked into "franchise agreement" that give concentrate producers the right to determine concentrate price.
‐ Retail channels are highly fragmented, and the respective share of industry volume / index of bottling profitability vary from each other. Consequently, they don't have much power to reach a lower price with Cola or Pepsi.
The threat of substitutes such as bottled water, juice, and sports drinks is getting higher. The increasing challenge is due to the shift in consumption patterns. Even "Coke's 2009 annual report identified obesity and health concerns as the number one risk factor to its business". More and more "aware" consumers tend to buy non‐carbs drinks especially when there is very low switching cost. However, Coke and Pepsi started innovation on their own non‐cabs drinks and diet sodas to fight against this force. Rivalry among existing competitors is getting fierce. Coca‐Cola and Pepsi are two dominate players in the industry, and Pepsi keeps challenging Coke's leadership. The fact that these two companies almost share the whole market volume that keeps them staying profitable over the years, even though they both have ups and downs. Question 2: Using the Four Box Model, outline and analyze Coke's business model. Customer Value Proposition: "lifestyle" as the role that Coke played in consumer's life This CVP can be easily adjusted by consumers' demand or by Coke's prediction to create new demand. Profit formula: higher price to fit "premium brand" image; low Cost of Goods Sold; high Operating Income

Based on its CVP, Coke established premium brand with premium price image since day one. So Coke is always at advantage position whether to react to Pepsi's price attack or not. Thanks...

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