Porter’s 5 Forces Analysis of Soft

Drinks/ Aerated Drinks Industry

Strategic Management - I

Siddhant Singh
2015IPM107 Section F
 Siddhant Singh, 2015IPM107, Section F 1

Approach used:
 The five forces have been broken down into sub factors decisive in determining the
impact of the force in terms of “threat” or “bargaining power”
 Each sub factor has been assigned a key question which describes the essence of the
sub factor’s impact
 Each such question has been answered in yes or no, and further scored on a scale of
1 to 5, 1 denoting favourable conditions and 5 denoting highly unfavourable / risky
conditions
 Finally a Pros & Cons percentage has been calculated as an objective score of the
respective force.
 A decisive porter score has been calculated as the sum of above mentioned
individual scores of 1 to 5 divided by the total number of sub factors. (i.e., equal
weightage has been assumed for all the sub factors.

Summary Plot:
The following summary chart is prepared from the individual analysis that follows in
subsequent pages:

Number of Porter
Score table Pros Con Score Risk
questions Score
Existing Competitive Rivalry 12 42% 58% 49.00 4.08 High
Threat of New Entrants 12 83% 17% 22.00 1.83 Low
Threat of Substitutes 3 33% 67% 10.00 3.33 Medium
Bargaining Power of Suppliers 8 88% 13% 13.00 1.62 Low
Bargaining Power of Buyers 13 62% 38% 29.00 2.23 Low

Porter's Five Forces Analysis for

Aerated Drinks Industry
Force 1: Rivalry
Determinants
5
4
3
Force 5 : Determinants 2
Force 2: Entry Barriers
of Buyer Power
1
0

Force 4: Determinants Force 3: Determinants

of Supplier Power of Substitution Threats

Porter’s 5 Forces Analysis of Soft Drinks/ Aerated Drinks Industry SM-I

Siddhant Singh, 2015IPM107, Section F 2

Force 1: Competitive Rivalry Among Existing Firms

 Currently, the leaders are Pepsi & Coca Cola
 Both have a wide range of beverage products
 Both Coca-Cola and Pepsi are the predominant carbonated beverages and committed heavily to
sponsoring outdoor events and activities
 There are other smaller soda brands in the market that become popular, like Boat, Leh Berry,
Bisleri, because of their unique flavours.
 These other brands have failed to reach the success that Pepsi or Coke have enjoyed.

Force 1: Rivalry Key Question Yes No Score

Determinants
Industry growth Is your market growing? In a growing market, firms are able to grow 1 3
revenues simply because of the expanding market. In a stagnant or
declining market, companies often fight intensely for a smaller and
smaller market.
Concentration and Is there a small number of competitors? Often the greater the number 1 5
of players, the more intense the rivalry. However, rivalry can
balance occasionally be intense when one or more firms are vying for market
leader positions.
Market Share of Is there a clear leader in your market? Rivalry intensifies if companies 1 5
have similar shares of the market, leading to a struggle for market
leader(s) leadership.
Intermittent Can you store your product to sell at the best times? High storage costs 1 3
or perishable products result in a situation where firms must sell product
overcapacity as soon as possible, increasing rivalry among firms.

Product differences Is your product unique? Firms that produce products that are very 1 5
similar will compete mostly on price, so rivalry is expected to be high.

Brand identity Is your brand an important purchase decision for your clients? If brands 1 3
are valuable in your industry (reducing the chance that customers
switch), it has a negative influence on rivalry. Building brand and
changing perceptions takes a long time.

Switching costs Is it difficult for customers to switch between your product and your 1 5
competitors’ products? If customers can easily switch, the market will be
more competitive and rivalry is expected to be high as firms vie for each
customer’s business.

Fixed (or storage) Do you have low fixed costs? With high fixed costs, companies must sell 1 5
more products to cover these high costs.
costs/value added
Informational Are your customers not well informed about your products and market? 1 5
If the product and the market are complicated or hard to understand,
overcomplexity the level of rivalry is lower.

Diversity of Do you know your competitors? Do you share their backgrounds? The 1 2
lower the diversity of competitors the less chance of "consensus
competitors breaking" behaviour.

Corporate stakes Are your competitors pursuing a low growth strategy? You will have 1 3
more intense rivalries if your competitors are more aggressive. In
contrast, if your competitors are following a strategy of milking profits in
a mature market, you will enjoy less rivalry.
Exit barriers Is it easy for competitors to abandon their product? If exit costs are high, 1 5
a company may remain in business even if it is not profitable.

Score 5 7 49

Porter’s 5 Forces Analysis of Soft Drinks/ Aerated Drinks Industry SM-I

Siddhant Singh, 2015IPM107, Section F 3

Force 1: Rivalry Determinants in Aerated

Drinks Industry

Industry growth
5 Concentration and
Exit barriers
4 balance

3 Market Share of
Corporate stakes
leader(s)
2

1
Diversity of Intermittent
0
competitors overcapacity

Informational
Product differences
overcomplexity

Fixed (or storage)

Brand identity
costs/value added
Switching costs

Conclusion : High Pressure

Force 2 : Threat of New Entrants

 Entry barriers are of relatively low pressure for the beverage industry:
 While is no consumer switching cost, a significant capital requirement exists to enter
 There is an increasing amount of new brands appearing in the market with similar prices
than Coke/Pepsi products
 Coca-Cola & Pepsi are seen not only as beverages but also as brands. They hold a very
significant market share for a long time and loyal customers are not very likely to try a
new brand.

Entry Barriers key question yes no

Economies of Would it be difficult for a new entrant to have enough resources to compete 1 1
efficiently? For every product, there is a cost-efficient level of production. If
scale challengers can’t achieve that level of production, they won’t be competitive
and therefore won’t enter the industry.

Proprietary Do you have a unique process that has been protected? For example, if you 1 1
are a technology-based company with patent protection for your research
product investments, you enjoy some barriers to entry.
differences
Brand identity Are customers loyal to your brand? If your customers are loyal to your brand, 1 2
a new product, even if identical, would face a formidable battle to win over
loyal customers.

Porter’s 5 Forces Analysis of Soft Drinks/ Aerated Drinks Industry SM-I

Siddhant Singh, 2015IPM107, Section F 4

Switching costs Are the assets needed to run your business unique? Others will be more 1 3
reluctant to enter the market if the technology or equipment cannot be
converted into other uses if the venture fails.

Capital Were there high up-front (risky) costs to start your business? The greater the 1 1
capital requirements, the lower the threat of new competition.
requirements
Access to Will a new competitor have any difficulty acquiring/obtaining customers? If 1 1
current distribution channels make it difficult or legally restricted for a new
distribution business to acquire/obtain new customers, you will enjoy a barrier to entry.

Absolute cost Are there scale-independent cost advantages such as patents, lisences, 1 2
experienced staff, subsidies, etc.? If so, than these reduce the change of new
advantages companies entering your industry.

Proprietary Is there a process or procedure critical to your business? The more difficult it 1 2
is to learn the business, the greater the entry barrier.
learning curve
Access to Will a new competitor have difficulty acquiring/obtaining needed inputs? 1 2
Current distribution channels may make it difficult for a new business to
necessary acquire/obtain inputs as readily as existing businesses.
inputs
Proprietary low- Is there a product design that provides a defendable low cost advantage? 1 3
cost product
design
Government Are regulatory policies set by the government applicable to your market? Do 1 3
these restrictions limit market access? If so, than it is harder to enter a
policy market, reducing competition.

Expected Do you expect that the chance is high that existing players in the industry will 1 1
retaliate? If so, than newcomers expect it is harder to enter a market,
retaliation reducing competition.

Score 10 2 22

Force 2: Entry Barriers

Economies of scale
5 Proprietary product
Expected retaliation
4 differences
3
Government policy Brand identity
2
1
Proprietary low-cost
0 Switching costs
product design

Access to necessary
Capital requirements
inputs
Proprietary learning
Access to distribution
curve
Absolute cost
advantages

Conclusion : Low Pressure

Porter’s 5 Forces Analysis of Soft Drinks/ Aerated Drinks Industry SM-I

Siddhant Singh, 2015IPM107, Section F 5

Force 3 : Threat of Substitutes

 There are many kinds of energy drink s/soda/juice products in the market.
 Coca-cola doesn’t really have an entirely unique flavor.
 In a blind taste test, people can’t tell the difference between Coca-Cola and Pepsi.

Determinants of key question yes no

Substitution Threats
Relative price Does your product compare favourably to possible 1 2
substitutes? If another (new) product offers more features or
performance of benefits to customers, or if its price is significantly lower,
substitutes customers may decide that the other product is of better
value.
Switching costs Is it costly for your customers to switch to another product? 1 4
When customers experience a loss of productivity if they
switch to another product, the threat of substitutes is weaker.

Buyer propensity to Are customers loyal to existing products? Even if switching 1 4

costs are low, customers may have allegiance to a particular
substitute brand. If your customers have high brand loyalty to your
product you enjoy a weak threat of substitutes.
Score 1 2 10

Relative price
performance of
substitutes
5
4
3
2
1
0

Buyer propensity to
Switching costs
substitute

Force 3: Determinants of Substitution Threats

Conclusion : Medium Pressure

Porter’s 5 Forces Analysis of Soft Drinks/ Aerated Drinks Industry SM-I

Siddhant Singh, 2015IPM107, Section F 6

Force 4 : The Bargaining Power of Buyers

 The individual buyer no pressure on Coca-Cola
 Large retailers, like Wal-Mart, have bargaining power because of the large order
quantity, but the bargaining power is lessened because of the end consumer brand
loyalty.

Determinants of key question yes no

Buyer Power
A. Bargaining leverage
Buyer concentration Is there no clear leader in the market you are serving? Are there many 1 2
customers? Your bargaining power is less if you face a large (potential)
client.
Buyer volume Do you have enough customers such that losing one isn’t critical to your 1 2
success? The smaller the number of customers, the more dependent you
are on each one of them.
Buyer switching Is it difficult for customer to switch from your product to your competitors’ 1 3
products? If it is relatively easy for your customers to switch, you will have
costs relative to firm less negotiating power with your customers.
switching costs
Buyer information Are customers uninformed about your product and market? If your market 1 3
is complicated or hard to understand, buyers have less control.

Ability to backward Would it be difficult for buyers to integrate backward in the supply chain, 1 1
purchase a competitor providing the products you provide, and compete
integrate directly with you? The less likely a customer will enter your industry, the
more bargaining power you have.
Substitute products Is your product unique? If your product is homogenous or the same as your 1 4
competitors’, buyers have more bargaining power.

Pull-through The buyer power of wholesalers and retailers is determined by the same 1 1
rules, with one important addition. Can retailers influence consumers'
purchasing decisions and thus gain significant bargaining power over
manufacturers? Can wholesalers influence the purchase decisions of the
retailers or other firms to which they sell? If brand identity is important in
this industry then pull-through most likely exists.
B. Price sensitivity
Price / total Does your product represent a small expense for your customers? If your 1 1
product is a relatively large expense for your customers, they’ll expend
purchases more effort negotiating with you to lower price or improve product
features.
Product differences Provides your product your customer with unique benefits? If so, your 1 3
bargaining position is better.

Brand identity Is your customer's brand not important to you or your competitors clients? 1 2
If brands are not valuable in your customer's industry, it has a positive
influence on your bargaining position.

Impact on quality / Provides your product your customer with less cost for quality control given 1 2
the same performance as competitors' products? If so, your bargaining
performance position is better.
Buyers profits Are the profits your customers make relatively high? If so, your bargaining 1 2
power is bigger. Cost will be less of decision making factor.

Decision makers' Is the purchase decision based on a large extend on incentives provided to 1 3
decision makers? If so, your bargaining power is bigger.
incentives
Score 8 5 29

Porter’s 5 Forces Analysis of Soft Drinks/ Aerated Drinks Industry SM-I

Siddhant Singh, 2015IPM107, Section F 7

Force 4 : Determinants of Buyer Power

Buyer concentration
Decision makers' 5
Buyer volume
incentives 4
Buyer switching costs
Buyers profits 3
relative to firm…
2
Impact on quality / 1
Buyer information
performance
0

Ability to backward
Brand identity
integrate

Product differences Substitute products

Price / total purchases Pull-through

Conclusion : Low Pressure

Force 5 : The Bargaining Power of Suppliers

 The main ingredients for soft drink include carbonated water, phosphoric acid,
sweetener, and caffeine.
 The suppliers are not concentrated or differentiated.
 Coca-Cola is likely a large, or the largest customer of any of these suppliers.

Determinants of key question yes no

Supplier Power
Differentiation of
inputs
Switching costs of
suppliers and firms in
the industry
Presence of substitute
inputs
Supplier concentration
* have.
Importance of volume
to supplier
Cost relative to total
purchases in the
industry
Are the products that you need to purchase for your business ordinary? 1 3
You have more control when the products you need from a supplier are
not unique.
Can you easily switch to substitute products from other suppliers? If it is 1 1
relatively easy to switch to substitute products, you will have more
negotiating room with your suppliers.
Are substitute inputs readily available in high enough quantities at an 1 1
agreeable price? If so, your bargaining power is higher.
Are there a large number of potential input suppliers? The greater 1 1
number of suppliers of your needed inputs, the more control you will
Do your purchases from suppliers represent a large portion of their 1 2
business? If your purchases are a relatively large portion of your
supplier’s business, you will have more power to lower costs or improve
product features.
Does the product you seek make up a low percentage of your total 1 3
purchases? If so, your bargaining power is higher.

Porter’s 5 Forces Analysis of Soft Drinks/ Aerated Drinks Industry SM-I

Siddhant Singh, 2015IPM107, Section F 8

Impact of inputs on Is the product you seek non-essential to maintain your stratgic position? 1 1
If so, your bargaining power is higher.
cost or differentiation
Threat of forward Would it be difficult for your suppliers to enter your business, sell 1 1
directly to your customers, and become your direct competitor? The
integration* easier it is to start a new business, the more likely it is that you will have
competitors.
Score 7 1 13

Force 5: Determinants of Supplier Power

Differentiation of
inputs
5
Threat of forward 4 Switching costs of
integration* 3 suppliers and firms…
2
1
Impact of inputs on Presence of substitute
0
cost or differentiation inputs

Cost relative to total Supplier concentration

purchases in the… *
Importance of volume
to supplier

Conclusion : Low Pressure

References:
1. Questions based on Porter M.E. (2008), The Five Competitive Forces That Shape Strategy,
HBR January 2008 Issue

2. Analysis Sheet based on Strategy Excel Spreadsheet by Greg Marbais,

www.gregmarbais.com/Analysis%20Spreadsheet%20v2.1.xltm, referenced on 2nd November
2018

Porter’s 5 Forces Analysis of Soft Drinks/ Aerated Drinks Industry SM-I