Q1. a) Assumption: Now that CPs and bottlers have vertically integrated themselves, they can no longer distinguish themselves as different services/products as they both now provide the exact same products/services. For instance, CPs now bottle in-house and bottlers now produce their own concentrates. To understand the soft drink industry’s attractiveness, now that the CPs and bottlers have vertically integrated, Michael Porter’s five forces has been utilized. Barriers to entry are now moderate because there is still no government regulation (ex: soda tax) to sway entrants from entering the highly profitable industry. However with vertical integration this leave less distribution channels (vending machines, fountains, restaurant partnerships, etc.) and shelf space for new entrants to capture. Additionally, in the past there was a highly skewed operating income margin for the concentrate producers versus the bottler, but now with vertical integration the operating income will be closer to 10-25% due to the CPs unable to pass off all costs to the bottlers, which will entice new entrants to enter. Intensity of rivalry among established companies will stay the same because the two large soda companies will still make up more than 70% of the market share. Vertically integrating the CPs and bottlers just means that Coke and Pepsi will now be able to save on some costs by only have one supplier for their entire product instead of a fragmented supply chain. Additionally, as prices of the product are fairly stable, a price war in the future is not likely. The bargaining power of buyers will now eliminate the CPs ability to pass on 50% of their costs thus making this force low. This integration will make the master bottling agreements ineffective and most likely prompt the creation of full production agreements with Coke and Pepsi. This will have no effect on the end consumers as advertising will not be affected nor will the current convenience change. The bargaining power of suppliers will be the most affected as this will increase. As the bottlers and CPs become vertically integrated they will fight for the same suppliers, which will give them the power to control the prices of the raw inputs as in the law of economics states, an increase in demand causes an increase in prices (all else held constant). Threat of substitutes will stay the same as what was considered a substitute before will continue to be a substitute in this industry (ex: water, tea, coffee, juice, etc.) IF THERE IS NO PRICE WAR, THEN RIVALRY SHOULD BE LOW OR MODERATE Overall the industry’s attractiveness will stay the same. The profitability of this industry will entice new entrants, but the high cost of capital to compete will fully integrated companies will deter most. The rivalry, buyers and substitutes will stay the same, with only the suppliers gaining an upper hand as their demand will increase. b) There are four weaknesses of Porter’s Five forces frameworks. ...

1. Q1.
a)
Assumption: Now that CPs and bottlers have vertically
integrated themselves, they can no longer distinguish
themselves as different services/products as they both now
provide the exact same products/services. For instance, CPs
now bottle in-house and bottlers now produce their own
concentrates.
To understand the soft drink industry’s attractiveness, now that
the CPs and bottlers have vertically integrated, Michael Porter’s
five forces has been utilized. Barriers to entry are now
moderate because there is still no government regulation (ex:
soda tax) to sway entrants from entering the highly profitable
industry. However with vertical integration this leave less
distribution channels (vending machines, fountains, restaurant
partnerships, etc.) and shelf space for new entrants to capture.
Additionally, in the past there was a highly skewed operating
income margin for the concentrate producers versus the bottler,
but now with vertical integration the operating income will be
closer to 10-25% due to the CPs unable to pass off all costs to
the bottlers, which will entice new entrants to enter. Intensity
of rivalry among established companies will stay the same
because the two large soda companies will still make up more
than 70% of the market share. Vertically integrating the CPs
and bottlers just means that Coke and Pepsi will now be able to
save on some costs by only have one supplier for their entire
product instead of a fragmented supply chain. Additionally, as
prices of the product are fairly stable, a price war in the future
is not likely. The bargaining power of buyers will now
eliminate the CPs ability to pass on 50% of their costs thus
making this force low. This integration will make the master

2. bottling agreements ineffective and most likely prompt the
creation of full production agreements with Coke and Pepsi.
This will have no effect on the end consumers as advertising
will not be affected nor will the current convenience change.
The bargaining power of suppliers will be the most affected as
this will increase. As the bottlers and CPs become vertically
integrated they will fight for the same suppliers, which will
give them the power to control the prices of the raw inputs as in
the law of economics states, an increase in demand causes an
increase in prices (all else held constant). Threat of substitutes
will stay the same as what was considered a substitute before
will continue to be a substitute in this industry (ex: water, tea,
coffee, juice, etc.) IF THERE IS NO PRICE WAR, THEN
RIVALRY SHOULD BE LOW OR MODERATE
Overall the industry’s attractiveness will stay the same. The
profitability of this industry will entice new entrants, but the
high cost of capital to compete will fully integrated companies
will deter most. The rivalry, buyers and substitutes will stay
the same, with only the suppliers gaining an upper hand as their
demand will increase.
b)
There are four weaknesses of Porter’s Five forces frameworks.
The first includes the inability to identify a company’s
strengths, weaknesses, internal environment (or basically
anything at the company level) because Porter’s five forces
focuses on the industry level, thus only analyzing an industry
for their attractiveness/economics and profitability. In order to
understand a company at an internal level a VRIO framework
must be utilized. The second is its inability to provide more
than just a static picture of an industry (analysis is shown a
point in time, in which technological innovation can change any
if not all the forces in a matter of moments). Another includes
the generalization of what an industry’s’ life cycle looks like.
Porter’s model follows a specific curve of the industry’s life
cycle, but that does not mean that all industry’s follow along

3. (take for instance Apple and the technology industry; they did
not have an embryonic stage, they burst to growth and still
continue to produce innovations to move them away from
shakeout, maturity and decline).
Another is the missing attention to ‘Digitalization’,
‘Globalization’, and ‘Deregulation’. Those three factors are one
reason why the industry structures changed during the last
decades, and complementors, can benefit or hurt the firms
competing in an industry, depending on the circumstances. If
business is booming for the complementors, this could
positively affect the business of the firms in the given industry.
On the other hand, if business is slow for the complementors,
this could adversely affect the business of the firms in the given
industry. So, complementors and complementary goods do not
necessarily increase or decrease the competitiveness of an
industry, they merely add another layer to the structural
complexity of the competitive environment.
Lastly the framework shows that all industries will be
profitable if hey follow along and combat these forces, however
a company can be unprofitable even if it is in an attractive
industry.
c)
Assumption: The change in consumer preferences towards
healthier alternatives( using sugar cines instead of real sugar )
(non-CSDs) has altered the industry’s attractiveness because it
no longer deemed an industry of just soft drinks but one of
drinks overall. This can be seen in the diversification of drinks
offered by Coke and Pepsi (the two largest companies in the
current soft drink industry), such as energy drinks, sports
drinks, teas etc.
This change in consumer preferences towards healthier

4. alternatives (non-CSDs) can be further illustrated through the
following two Porter’s Fiver Forces (the threat of substitutes
and the intensity of rivalry among established companies) which
have changed for the CPs because of the macro-environment
shift in consumer preferences. As the nation continues to move
towards obesity and as sugar prices rise Porter’s five forces
have changed for CPs. This shift is due to an increase in
consumer health consciousness and endorsements from many
celebrities and companies for a healthier way of life. This
healthier preference from consumers has increased the threat of
substitutes because more and more companies are entering this
industry. In the past soda was dominant, however as tastes
change drinks such as teas, juices, water, sports drinks and even
healthy snacks have taken a large market share from Coke and
Pepsi. Companies such as kombucha (whom specialize in
healthy, organic and culture based drinks) have come to interest
as well as the promotion of teas (seen through the increase the
availability in retail stores such as Starbucks and prompting
soda companies to purchase and add teas to their offerings as
Dr. Pepper did with Snapple). These substitutes have been very
influential because if you look at the shelf space of these
alternative drinks compared to sodas they are basically stocked
at a one to one ratio. This ties into the intensity of rivalry
among established companies because they can see that the
macro-environment has changed and their consumer are calling
for healthier alternatives, thus forcing them to adapt. This slow
adaptation by the bigger producers has allowed smaller
independent firms (like the Honest company) to steal their
market share. This has forced the bigger companies to make
speedy decisions and for the most part purchase multiple other
alternative companies in order to stay relevant and competitive
in the industry. This proves that they have had a slow growth in
product innovation and shows their loss of ability to keep their
customers satisfied. The change in preference has only made
this industry more attractive to new entrants and will continue
to do so until it is no longer profitable.

5. Q2.
a)
Distinctive competency is when a company has a specific
strength that allows them to differentiate their product/services
to achieve lower costs and higher revenues than their
competitors and thus attain a sustainable competitive advantage
Can pursue. Function-level strategies can build resources and
capabilities to enhance a company’s distinctive competencies.
The source of the Holy Grail is called distinctive competencies
. For instance, this can be seen through an organization’s
resources and capabilities such as; financial assets, physical
assets, technological innovations and assets or skills and
processes, which enable them to become competitively
advantageous. Additionally, in order to analyze a company’s
distinctive competencies a VRIO framework is utilized.
b)
Assumption: Competitors can imitate seven only after a long
period of time and through a lot of capital invested.
Two resources that seven for All Mankind has that allow them
to contribute to value creation and ultimately lower costs for the
company include their brand’s reputation and most recently
(after the 2007 purchase by VF Corporation) they now have
additional capital to grow. Seven’s brand reputation is one of
their resources because consumers are already aware of their
name. They have a reputation for making good quality jeans
that are not just trendy, but jeans that actually will last as a
staple in one’s closet. Thus allowing them to charge a premium
for their products. They are able to differentiate themselves
from the niche premium brands such as True Religion and
Affliction because they do not only target fashion trends that
are popular now. This static design has also allowed them to

6. lower their costs as they are not constantly sourcing new
materials or designers. The current designs they have now only
need to be tweaked somewhat to be introduced as a new season,
which saves them costs that other companies are constantly
incurring.
The other resource is their influx of capital. When powerhouse,
VF Corporation, purchased Seven and brought them under their
parent company this gave Seven multiple advantages. Not only
did they gain capital in the form of monies but they also gained
capital from future predicted sales. VF Corporation utilizes a
highly complex point of sale inventory management system that
allows them to gather individual store information to see current
sales and expected revenues. With this system at their disposal
Seven is able to gauge which designs are profitable and work
from there. This allows them to capture all profitability in the
current season as well as to view what will be popular in the
next season. This will enable them to increase their sales and
overall value. When working down the VRIO framework both
of these resources supply value to the company because they
both increase the company’s revenue and lowers their costs.
They are rare because their competitors do not possess the same
brand recognition or amount of capital at their disposal. They
are not imitable because it will be very costly to imitate Seven’s
brand. They will have to build up a big consumer base that will
buy from them instead of Seven, which means tremendous costs
in Marketing and costs of manufacturing to reverse engineer
Seven’s products to imitate. Lastly, the brand’s reputation and
capital both flow into successful organization of the company.
Seven has excellent leadership, which has enabled them to
weather the economic crisis and still remain a viable luxury
brand. Additionally, the culture that they have created is hard
to copy at other companies (if not Seven would not be as
relevant as it is today, take for instance Ed Hardy, which has
gone bankrupt). Therefore these two resources are part of the
firm’s distinctive competencies and thus sources of their
sustainable competitive advantage.

7. c)
In order for True Religion to achieve a sustainable competitive
advantage, they need to be able to have specific resources and
capabilities will provide them their distinctive competency. The
resources and capabilities that True Religion currently has,
(known brand name/reputation, experienced management and
successful vertical integration of retail and management stores
Analyzing the valuable true religion jeans though relatively
expensive than the other brands have always won the market
share. Therefor value of such a product is usually highly rated,
create a lifestyle brand and wins profound consumer loyalty.
company avoid a catastrophic sales during the recession period.
The sales in fact increased by 21% between 2007 and 2009.
The Firm gross margin from 2007 to 2010 increased from 57%
to 63.4%
74% of its sales are driven from denim sales in 2010, With
regards to the design team, which was originally Lubell’s sense
of fashion and later Ziahaad Wells, the former Levi Strauss
Europe designer, I would say that the firm’s ability to
find/create attractive designs for the premium denim market is
indeed valuable and that the firm’s sales are evidence of this. I
also think it is fair to say that this capability is rare, as there are
not many people on this earth who can predict or create fashion
trends on a continual basis.& Rareness the materials that are
used are not rare, its used in a broad range of jeans company’s
the premium jeans ranged from the traditional 100% cotton but
the brand image that it created is rare Partnering with
international alliances to increase share marked and still be able
to control the brand image globally, company-owned stores, and
celebrity marketing campaigns.
True religion distinguish it self by the tag Made in the USA that
gives the idea of the ultimate American life style with the
cowboys from the old wild west and the hippie Coachella idea
that its basically international and people will pay a lot of
money for that, this is difficult to imitate

8. Organization true religion owns its store, gets free celebrity
endorsement and capturing a big share of the jeans market
Therefor it has a sustainable competitive advantage for the
brand image as True religion but the product its self the jeans of
true religion is not competitive
In turning to the Value Chain analysis of the firm’s proprietary
store network as a source of insight to answer this question, I
would say the firm rates high on marketing and sales with
regards to its primary activities. However, considering that the
firm’s long-standing strategy was
to outsource everything except design and marketing, but
marketing is consider moderate since TR receives for denim
receive free celebrity endorsements because celebrities are
photographs wearing various brands of jeans , so the cost of
manufacturing is low and deign is high and marketing is high as
well in cost as for the value its high as well with brand loyalty
the value and marketing is consider high since people recognize
the horse shoe symbol on the jeans pocket and marketing value
is as well , own store in 2006 they owned there store because
TR wanted to introduce boarder range of apparel but the cost
was high , in retailor store it was the lowest denim with shelf
space so basially the value was low , great customer services
since it was sold in department store so it basically fall under
the department store jurisdiction
Bonus:
1)
The exit barrier that prevents firms from leaving the horse
industry is the emotional attachment. Entering the industry is
relatively easy since purchasing a horse and training them to
run is not too complex, however to exit the industry one needs
to either sell the horse or give it to animal services (in which
most will likely be euthanized). Knowing the end stage of
where your horse will be is a big deterrent to many in the
industry. Most do not enter to make monies (it is not very

9. profitable), most enter because they have a love of horses and
an interest in the industry. This interest is further strengthened
by the bond one creates with their horse. For many this bond is
such that of what a dog owner would experience, thus to sell
your horse/give away to die (just to exit the industry) is not
something many people can physically do, thus making it a
difficult exit barrier to overcome.