Cola Wars Case
"Cola Wars Continue: Coke and Pepsi in 2010"
Read and Apply: Michael E. Porter (2008), “The Five Competitive Forces that Shape Strategy”,
Harvard Business Review, (January 2008), pp. 2-17 Assignment Questions (AQ)
(a) Why has the soft drink industry been so profitable for concentrate producers? Compare the economics of the concentrate business to the bottling business: why is the profitability so different? [50% points]
The soft drink industry has been extremely profitable for Concentrate producers. When we study the 5 forces analysis, we come to a conclusion that almost all the forces have contributed significantly in this massive profit generating mechanism.
Threat of new entrants is low and there are multiple high barriers to entry. Despite the low cost of establishing a concentrate production plant, the producers have to develop exclusive relations with bottling plants and support them in marketing research, advertising and setting up distribution channels which is difficult for new entrants and require huge capital infusion.
Bargaining power of Buyers used to be negligible as concentrate producers used to make bottlers abide by fixed price contracts which made them operate on razor thin margins. After adoption of incidence pricing, the bottling plants renegotiated for different distribution channels and different product ranges as the bargaining power shifted and the prices were increased based on consumer price index and inflation. But this bargaining power was kept in check since concentrate producers did not allow a bottling plant to gain significant market influence and they regularly bought out bottling plants to maintain their control.(Exhibit 3b) Bargaining power of suppliers was minuscule since all products are basic commodities like sweetener, caffeine and color with multiple suppliers who do not hold much bargaining power with a large corporation.
Threat of substitute product is suppose to be high since there are a variety of
Read and Apply: Michael E. Porter (2008), “The Five Competitive Forces that Shape Strategy”,
Harvard Business Review, (January 2008), pp. 2-17 Assignment Questions (AQ)
(a) Why has the soft drink industry been so profitable for concentrate producers? Compare the economics of the concentrate business to the bottling business: why is the profitability so different? [50% points]
The soft drink industry has been extremely profitable for Concentrate producers. When we study the 5 forces analysis, we come to a conclusion that almost all the forces have contributed significantly in this massive profit generating mechanism.
Threat of new entrants is low and there are multiple high barriers to entry. Despite the low cost of establishing a concentrate production plant, the producers have to develop exclusive relations with bottling plants and support them in marketing research, advertising and setting up distribution channels which is difficult for new entrants and require huge capital infusion.
Bargaining power of Buyers used to be negligible as concentrate producers used to make bottlers abide by fixed price contracts which made them operate on razor thin margins. After adoption of incidence pricing, the bottling plants renegotiated for different distribution channels and different product ranges as the bargaining power shifted and the prices were increased based on consumer price index and inflation. But this bargaining power was kept in check since concentrate producers did not allow a bottling plant to gain significant market influence and they regularly bought out bottling plants to maintain their control.(Exhibit 3b) Bargaining power of suppliers was minuscule since all products are basic commodities like sweetener, caffeine and color with multiple suppliers who do not hold much bargaining power with a large corporation.
Threat of substitute product is suppose to be high since there are a variety of