Coca-Cola Wars
Michael Porter’s “5-Forces Analysis” is a comprehensive way of determining organizations profitability as compared to its competitors in the same industry by looking at 5 forces of stress. Coca-Cola deals with a lot of pressure in the concentrate business, most specifically with Pepsi. I will analyze the 5 forces model to determine Coca-Colas overall profitability.
The 5 forces model begins by looking at rivalry between established competitors. Coca-Cola has a direct rivalry with Pepsi in the fact that they make and distribute an almost identical product used for the same purposes. Because the concentrate industry, or the CSD (carbonated soft drink) industry, is dominated by Coke and Pepsi, their prices tend to be alike and the competition tends to focus more strongly on advertising, promotion and product development. Due to the similarity between both Coca-Cola and Pepsi products, the minimal product differentiation creates willingness from consumers for substitution and causes the company to force price cuts to increase sales. This was very obvious by Coca-Cola and Pepsi’s pricing wars and very heavy advertising and promotion expenses.
The next force I took a look at was the threat of new entrants into the business. It is very hard for a new entrant to come into the concentrate industry and expect to compete with Coke and Pepsi. This is due in part to the barriers to enter the industry. The costs alone to set up a new concentrate company are extremely expensive with R&D, fixed costs with production and manufacturing as well as other general start up costs. Another problem that new entrants face is the issue with economies of scale. A new company would be forced to enter at a very small scale (compared to Coke and Pepsi) and accept high unit costs, or enter at a large scale and take on the costs of underutilized capacity. This is especially difficult when facing competitors such as Coke and Pepsi whose ability to set prices very low would create
The 5 forces model begins by looking at rivalry between established competitors. Coca-Cola has a direct rivalry with Pepsi in the fact that they make and distribute an almost identical product used for the same purposes. Because the concentrate industry, or the CSD (carbonated soft drink) industry, is dominated by Coke and Pepsi, their prices tend to be alike and the competition tends to focus more strongly on advertising, promotion and product development. Due to the similarity between both Coca-Cola and Pepsi products, the minimal product differentiation creates willingness from consumers for substitution and causes the company to force price cuts to increase sales. This was very obvious by Coca-Cola and Pepsi’s pricing wars and very heavy advertising and promotion expenses.
The next force I took a look at was the threat of new entrants into the business. It is very hard for a new entrant to come into the concentrate industry and expect to compete with Coke and Pepsi. This is due in part to the barriers to enter the industry. The costs alone to set up a new concentrate company are extremely expensive with R&D, fixed costs with production and manufacturing as well as other general start up costs. Another problem that new entrants face is the issue with economies of scale. A new company would be forced to enter at a very small scale (compared to Coke and Pepsi) and accept high unit costs, or enter at a large scale and take on the costs of underutilized capacity. This is especially difficult when facing competitors such as Coke and Pepsi whose ability to set prices very low would create