SSE_ ColaWars_Group3a_2011


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SSE_ ColaWars_Group3a_2011

  1. 1. Case solving: Cola Wars Continue: Coke and Pepsi in the Twenty-First Century<br />Course 2304: Media Management <br />Group 3a<br />Andreas Kreidenweiss<br />Lina Höglund<br />Ziyi Xiong<br />Josefine Bengtsson<br />Jessica Wennerstein<br />
  2. 2. Group 3a<br />PORTER ANALYSIS: Concentrate Producers<br />
  3. 3. Suppliers<br /><ul><li>Raw material ingredients (except from sugar/high fructose corn syrup and carbonated water)</li></ul>Bargaining Power of Suppliers – LOW<br /><ul><li>More supplies than buyers
  4. 4. Coke and Pepsi help their CP’s to negotiate advantantageous purchasing
  5. 5. Excess supply of raw material ingredients
  6. 6. Low switching cost
  7. 7. Undifferentiated raw material ingredients</li></li></ul><li>Buyers<br /><ul><li>Bottlers
  8. 8. Users of fountain outlets</li></ul>Bargaining Power of Buyers - LOW<br /><ul><li>Industry product is very differentiated
  9. 9. Few vendors compared to number of buyers
  10. 10. High switching costs due to extensive integration with vendor organization
  11. 11. No possibilities to integrate backwards</li></li></ul><li>Barriers to Entry<br />Threat of Entry - HIGH<br /><ul><li>Strong brands/ market power of industry actors
  12. 12. Strong presence of EOS
  13. 13. Extensive mutual adaption
  14. 14. Long-term contract agreements with buyers and distribution channels
  15. 15. (Not capital-intensive)</li></li></ul><li>Substitutes<br /><ul><li>Other beverages</li></ul>Threat of Substitutes - LOW<br /><ul><li>Great efforts to diversify within the category have been made</li></li></ul><li>Level of Rivalry<br /><ul><li>High rivalry between the two big actors – but few competitors within the concentrate produce
  16. 16. Actors are highly committed to become market leaders
  17. 17. Equal in market share
  18. 18. Slow/negative industry growth</li></li></ul><li>Group 3a<br />PORTER ANALYSIS: Bottlers<br />
  19. 19. Suppliers<br /><ul><li>Concentrate
  20. 20. Sugar
  21. 21. Packaging</li></ul>Bargaining Power of Suppliers - LOW<br /><ul><li>Coke and Pepsi negotiate on behalf of Bottlers
  22. 22. Metalcansviewedas a commodity
  23. 23. Manysuppliers in themarket
  24. 24. Usuallymorethan 1 supplier</li></li></ul><li>Buyers<br /><ul><li>Supermarkets
  25. 25. Foodstores
  26. 26. Fountain Outlets
  27. 27. Vending Machines
  28. 28. Convenience Stores
  29. 29. Others</li></ul>Bargaining Power of Buyers – MEDIUM-LARGE<br /><ul><li>CSD‘srepresent a large</li></ul>percentageofsupermarket‘sbusiness<br /><ul><li>Supermarkets arehighlyfragmentedindustry
  30. 30. However, intenseshelfspacepressure
  31. 31. Thread of private labels
  32. 32. Fountain Outlets important distribution channel (sales + awareness)</li></li></ul><li>Barriers to Entry<br /><ul><li>Relationships
  33. 33. Contracts
  34. 34. Territory policy
  35. 35. High cost</li></ul>Barriers to Entry - HIGH<br /><ul><li>Long-term relationships with customers
  36. 36. Long-term relationships with CP’s
  37. 37. Long-term contracts
  38. 38. Territory exclusivity
  39. 39. Entering would require substantion capital investment</li></li></ul><li>Substitutes<br /><ul><li>Fountain Outlets
  40. 40. Vertical Integration</li></ul>Threat of Substitutes - LOW<br /><ul><li>Vertical integration was tried before by both Coke and Pepsi but both exited
  41. 41. Fountain Outlets are of minor importance and least profitable</li></li></ul><li>Rivalry<br /><ul><li>Other Bottlers striving to expand</li></ul>Rivalry within the bottling industry - LOW<br /><ul><li>Established industry
  42. 42. Exclusive territories prevent competition</li></li></ul><li>Comparison of Profitability<br /><ul><li>Bottlers have significantly lower profitability than the CP‘s
  43. 43. This is due to very different industry conditions and bargaining power
  44. 44. The fundamental difference is the added value which is much lower for Bottlers compared to CPs
  45. 45. No branded products or unique formulas
  46. 46. Bottlers‘ added valuestems from relationships with CPs and customers
  47. 47. Bottlers face price pressure from their buyers while CPs are able to even charge higher prices
  48. 48. Bottlers have no bargaining power with suppliers
  49. 49. Bottlers have high fixed costs in relation to operations which CP‘s avoid</li></li></ul><li>What challenges face these companies today?<br />The Porter analysis set the frame for the factor affecting the industry profit:<br />Entry Barriers: <br /><ul><li>Duopol situation on the market with very strong etablished brand
  50. 50. Strong brand loyalty among consumers
  51. 51. Established relationships within distribution and production</li></ul>Substitutes: <br /><ul><li>Extensive diversification by concentrate producers reducing the threat of substitutes</li></ul>Suppliers:<br /><ul><li>More suppliers than buyers (duopol market)
  52. 52. Suppliers are largely controlled/internalized by Coke & Pepsi</li></li></ul><li>What challenges face these companies today?<br />Buyers: <br /><ul><li>Supermarkets, convenience stores, gas stations, fountains, vending machines and mass merchandisers have low bargaining power as they need to stock up to meed the demand from the consumers
  53. 53. Food outlets have some influence however they stand for a relatively low share of profits </li></ul>Rivalry:<br /><ul><li>The duopol situation is the most influencial situation on industry profitability. In the past, they used to compete on price however nowadays they compete with other attributes (brands etc.)</li></li></ul><li>What challenges face these companies today?<br /><ul><li>Both companies’ brand image as producers of premium products are their key barrier to entry for other producers and preservation of this is essential also in the future
  54. 54. Current markets are not likely to be their future areas of growth – instead they should try to acquire successful non-carbonated soft drink producers
  55. 55. Possible future areas for expansion are the Middle East (Pepsi) and the Latin America (Coke)</li></li></ul><li>References: <br />Porter, M.E., "What is Strategy?", HBR, 1996. <br />Porter, M.E., “The Five Competitive Forces that Shape Competitive Strategy”, HBR, 2008. <br />Yoffie, D.B. “Cola Wars Continue:Coke and Pepsi in the Twenty-First Century” HBS, 2004<br />