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Sse Cola Wars Group 2
- 4. Effects of the competition between Coke and Pepsi Increased profitability Difficulty to enter the market
- 6. Substitutes (juice, coffee, bottled water)
- 7. Competition
- 8. Political factors (Possible taxes on soda)
Editor's Notes
- Is the concentrate industry profitable? Porters five forces model is trying to describe that the company faces competitions in several levels. Besides the rivalry within the industry, the company faces competition substitute and new entrants as well as verically in the value chain with suppliers and buyers that wants to have a larger share of the profit pie. When analyzing the concentrate business with porters five forces model, we find that the different forces represent different powers and different influence on the companies. When analysing new entrants as a competetetive threat, there are two main issues to deal with. Firstly, what entry barriers that exists and that are strong. Secondly, if heavy retaliation is expected from the companies that faces the new entrants. The barriers that are strong in this case is the strong loyalty to the brands already existing in the concentrate industry. PepsiCo and the Coca Cola Company invest heavy in marketing and bradning activities every year to strenghten their position on the market. These brands are worth billions (!), and that is only the value of the brand. In other words, when valuing the coca cola company – if all tangible assets are excluded, such as factories, cans and staff, the value of the company is still several millions. Also, it is hard for a new entrant to access the distribution channels since they are largely controlled by contracts with the concentrate industry. From what we’ve seen so far, when new coke brands enter the market, pepsi and coke answers with heavy retaliation in the form of marketing efforts, with a size and impact that a new entrant cannot compete with. Therefore it leaves no room for the entrants to enter the premium segment in the coke business. The new entrants mainly are positioned into low cost and generic brands. Furthermore, moving down in the model to the substitutes we have seen a trend the latest years that people should invest in their health and well being. This leaves a room for substitutes such as green teas, bottled water and different juices to take market shares from the Carbon Soft Drink products. Pepsi and Coke are trying to outrival these by firstly acquire other beverage companies. Other strategies are to add a more heatly image of the own brand. A recent example is the new coke “coca cola light plus” with added vitamins and minerals. The suppliers power are weak due to that it is a product that is easy to switch. The buyers are not powerful either due to heavy contracts that are favourable for the concentrate idustry. The conclusion is therefore that the main influencers are new entrats, substitutes and rivalry. The suppliers and buyers power are so weak, partly due to their smaller size compared to the MNC’s coca cola and Pepsi. The profit potential is hence not determined by buyers and suppliers power, rather by rivalry, substitutes and new entrants. For coca cola company and pepsi this is a attractive market since they have a high relative power in the value chain.
- How do they compare?- Suppliers are much more powerful due to strong brands and big share of earnings, Coke and Pepsi can dictate rules for the bottlers- Fewer barriers of entry, with less risk (if you have a powerful supplier like Coke or Pepsi) and limited profits, due to more standardized productsWhich is more attractive?Concentrate!Higher levels of entry associated with more risk but higher potential earnings. Unique products