Sunteți pe pagina 1din 4

Cola War: Assignment Questions 1. Why the soft drink industry have been so profitable? 2.

Compare the economics of the concentrate business to that of the bottlers. Do a five force analysis for both the Concentrate Manufacturers and Bottlers. 3. How has the competition between Coke and Pepsi affected the industrys profit? 4. How can Coke and Pepsi sustain their profit in the wake of flattening profit and the growing popularity of non-CSDs? 5. Do a relevant analysis of the strategy adopted by Coke in terms of the concepts covered in Strategy class including value chain analysis, business, corporate level and international strategies, competency mapping, etc.

Question 2: Concentrate business is highly profitable compared to the bottling business. The reasons for this are: Higher number of bottlers when compared to the concentrate producers which fosters competition and reduces margins in the bottling business Huge capital costs to set up an efficient plant for the bottlers while the capital costs in concentrate business are minimal Costs for distribution and production account for around 65% of sales for bottlers while in the concentrate business its around 17% Most of the brand equity created in the business remains with concentrate Porters analysis- concentrate producers: New ENTRANTS Low: Its hard for new entrants to market, because they need a lot of resources and distribution channels and the industry are dominated by previous concentrate producers. Threat of SUBSTITUTES Low: Two concentrate producers (Coke and Pepsi) have dominated the market. Bargaining power of SUPPLIERS Low: Concentrate producers have established long term relationship with suppliers. Switching cost of suppliers is low. Concentrate producers often maintained relationships with more than one supplier.

Bargaining power of buyer-Low: Two main buyers are Bottler and Fountain. Concentrate producers have cooperative merchandising agreements with bottlers. The number of bottlers had fallen continuously. Some of big food chain stores, such as Pizza hut and Kentucky Fried Chicken were obtained by concentrate producers Level of rivalry-High: Between two big player Pepsi and Coke PORTER analysis- Bottle BUYERS High: The CSD market in U.S. Seems to be saturated. Switching cost is somewhat low. Rivalry between Coca-cola and Pepsi is heavily severe. But the retail price of CSD has increased a little or been maintained. ENTRANTS Low: Bottlers profit is low. Making new distribution channels is hard and expensive. The number of bottlers is decreasing continuously. The market growth of CSD is low or decreased. SUBSTITUTES - Low: Bottlers cannot be easily replaced by other marketing channels. Selling soft drinks through bottlers still has a big portion of Concentrates sales. SUPPLIERS - Medium Concentrate producers have obtained small bottlers. Bottlers have maintained relationship with more than suppliers. Concentrate producers often maintained relationships with more than one supplier. Question 3:

During the 1960s and 70s Coke and Pepsi concentrated on a differentiation and advertising strategy. The Pepsi Challenge in 1974 was a prime example of this strategy where blind taste were hosted by Pepsi in order to differentiate itself as a better tasting product from Coke. However during the early 1990s bottlers of Coke and Pepsi employed low priced strategies in the supermarket channel in order to compete with store brands, This had a negative effect on the profitability of the bottlers. Net profit as a percentage of sales for bottlers during this period was in the low single digits (-2.1-2.9% Exhibit 4) Pepsi and Coke were however able to maintain the profitability through sustained growth in Frito Lay and International sales respectively. The bottling companies however in the late90s decided to abandon the price war, which was not doing industry any good by raising the prices. Coke was more successful internationally compared to Pepsi due to its early lead as Pepsi had failed to concentrate on its international business after the world war and prior to the 70s. Pepsi however sought to correct this mistake by entering emerging markets where it was not at a competitive disadvantage with respect to Coke as it failed to make any heady way in the European market

Question 4: Coke and Pepsi have been in the business long enough to accumulate great amount of brand equity which can sustain them for a long time and allow them to use the brand equity when they diversify their business Globalization has provided a boost to the people from the emerging economies to move up the economic ladder. This opens up huge opportunity for these firms Per capita consumption in the emerging economies is very small compared to the US market so there is huge potential for growth. Coke and Pepsi can diversify into noncarbonated drinks to counter the flattening demand in the carbonated drinks. This will provide diversification options and provide an opportunity to grow

Question 1:

According to the 2003 Global Soft Drinks Report from leading drinks consultancyZenith International, Soft drinks has been worlds leading beverage sector. Global consumptionof Soft drinks is rising by 5% a year, well ahead of all other beverage categories. An industryanalysis through Porters Five Forces reveals that market forces are favorable for profitability. Defining the industry: Both concentrate producers (CP) and bottlers are profitable. These two parts of the industry are extremely interdependent, sharing costs in procurement, production,marketing and distribution. Many of their functions overlap; for instance, CPs do some bottling,and bottlers conduct many promotional activities. The industry is already vertically integratedto some extent. They also deal with similar suppliers and buyers. Entry into the industry wouldinvolve developing operations in either or both disciplines. Rivalry: Revenues are extremely concentrated in this industry, with Coke and Pepsi, together with their associated bottlers, commanding 73% of the case market in 1994. Adding in the nexttier of soft drink companies, the top six controlled 89% of the market. In fact, one couldcharacterize the soft drink market as an oligopoly, or

even a duopoly between Coke and Pepsi,resulting in positive economic profits. To be sure, there was tough competition between Cokeand Pepsi for market share, and this occasionally hampered profitability. For example, pricewars resulted in weak brand loyalty and eroded margins for both companies in the 1980s. ThePepsi Challenge, meanwhile, affected market share without hampering per case profitability, asPepsi was able to compete on attributes other than price. Substitutes: Through the early 1960s, soft drinks were synonymous with colas in the mind of consumers. Over time, however, other beverages, from bottled water to teas, became more popular, especially in the 1980s and 1990s. Coke and Pepsi responded by expanding their offerings, through alliances (e.g. Coke and Nestea), acquisitions (e.g. Coke and Minute Maid),and internal product innovation (e.g. Pepsi creating Orange Slice), capturing the value of increasingly popular substitutes internally. Power of buyers: The soft drink industry sold to consumers through five principal channels: food stores, convenience and gas, fountain, vending, and mass merchandisers. Barriers to Entry: It would be nearly impossible for either a new CP or a new bottler to enter the industry. New CPs would need to overcome the tremendous marketing muscle and market presence of Coke, Pepsi, and a few others, who had established brand names that were as much as a century old

S-ar putea să vă placă și