Cola Wars: Porters 5 Forces
Michael Porter developed five different forces in a framework he felt influenced industries. This framework was designed to help companies find ways to off-set a rival company and to help develop a more solid business plan. It has been known over the years a rivalry has existed been two of the biggest soda companies, Coca Cola and Pepsi. Three of Porter’s forces that are exemplified in this “coke war” are buyer power, barriers to entry, and rivalry which will be explained and elaborated on in the following essay.
Buyer Power The retailers have a low to moderate buyer power over the consumer soft drink industry, due to the producer’s ability to forward integrate, the sheer number of buyers, and the buyer’s ability to forward integrate. Buyer power is the degree of influence customers have on the producing agent. Soft drink companies such as Coca Cola and Pepsi have used forward integration to take over their channels of distribution. They created contracts that gave them the ability to set concentrate prices for their bottlers; in turn bottlers would respond to price fulgurations by adjusting retail pricing. In 2000, when Coca Cola raised concentrate prices by 7.6%, bottlers raised the retail prices by 6 to 7%. This demonstrates that buyers have limited control over the price changes. Coca Cola has also made great efforts to take over the bottling of their product, by establishing the independent subsidiary Coca Cola Enterprises. They began by acquiring bottlers to produce one third of their volume during 1986 which increased to 80% in 2004. This gave Coca Cola more control over retail pricing, and distribution of their products to retail stores. Since there are so many retail stores that carry products that consumer soft drink, CSD, companies make, it is hard for buyers to create a collaborative effort to resist price increases. Buyer power also suffers if retailers are fragmented and are not concentrated to a single type. Almost any type of store will
Buyer Power The retailers have a low to moderate buyer power over the consumer soft drink industry, due to the producer’s ability to forward integrate, the sheer number of buyers, and the buyer’s ability to forward integrate. Buyer power is the degree of influence customers have on the producing agent. Soft drink companies such as Coca Cola and Pepsi have used forward integration to take over their channels of distribution. They created contracts that gave them the ability to set concentrate prices for their bottlers; in turn bottlers would respond to price fulgurations by adjusting retail pricing. In 2000, when Coca Cola raised concentrate prices by 7.6%, bottlers raised the retail prices by 6 to 7%. This demonstrates that buyers have limited control over the price changes. Coca Cola has also made great efforts to take over the bottling of their product, by establishing the independent subsidiary Coca Cola Enterprises. They began by acquiring bottlers to produce one third of their volume during 1986 which increased to 80% in 2004. This gave Coca Cola more control over retail pricing, and distribution of their products to retail stores. Since there are so many retail stores that carry products that consumer soft drink, CSD, companies make, it is hard for buyers to create a collaborative effort to resist price increases. Buyer power also suffers if retailers are fragmented and are not concentrated to a single type. Almost any type of store will