...Buyer Information 16 Threat of Backward Integration 16 Pull Through 16 Brand Identity of Buyers 17 Price Sensitivity 17 Impact on Quality and Performance 17 Substitute Products 18 Relative price/performance relationship of Substitutes 18 Buyer Propensity to Substitute 18 Rivalry 18 Industry Growth Rate 20 Fixed Costs 21 Product Differentiation 21 Brand Identity 21 Informational Complexity 22 Corporate Stakes 22 Conclusion 23 Critical Success Factors 23 Prognosis 24 Bibliography 26 Appendix 27 Key Industry Ratios 27 Introduction Description The soft drink industry is concentrated with the three major players, Coca-Cola Co., PepsiCo Inc., and Cadbury Schweppes Plc., making up 90 percent of the $52 billion dollar a year domestic soft drink market (Santa, 1996). The soft drink market is a relatively mature market with annual growth of 4-5% causing intense rivalry...
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...average profitability has been very low. Using the industry analysis framework, list all the potential factors that might explain this apparent contradiction. Concentration and Balance of Competitors • The concentration of the memory chip market is relatively low; • There are many players competing on a global basis, none of which has a dominant share of the market; ← Frequent price wars as individual firms lower prices to gain market share; Degree of differentiation and Switching Costs • In general, memory chips are a commodity product characterized by little product differentiation; • While some product differentiation occurs as chip makers squeeze more memory on a single chip or design specific memory chips to meet manufacturers’ specific power and/or size requirements, these differences are typically short-lived and have not significantly reduced the level of competition within the industry; • Because memory chips are typically interchangeable, switching costs for users of memory chips are very low, encouraging buyers to look for the lowest price for memory chips; Scale/Learning Economies and the Ratio of Fixed to Variable Costs • Scale and learning economies are both important to the memory chip market; • Memory chip production requires significant investment in clean production environments • Moreover, the yield of acceptable chips goes up as employees learn the intricacies of the extremely complicated and sensitive manufacturing process; ...
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...Yet the average profitability has been very low. Using the industry analysis framework, list all the potential factors that might explain this apparent contradiction. Concentration and Balance of Competitors • The concentration of the memory chip market is relatively low; • There are many players competing on a global basis, none of which has a dominant share of the market; ==> Frequent price wars as individual firms lower prices to gain market share; Degree of differentiation and Switching Costs • In general, memory chips are a commodity product characterized by little product differentiation; • While some product differentiation occurs as chip makers squeeze more memory on a single chip or design specific memory chips to meet manufacturers’ specific power and/or size requirements, these differences are typically short-lived and have not significantly reduced the level of competition within the industry; • Because memory chips are typically interchangeable, switching costs for users of memory chips are very low, encouraging buyers to look for the lowest price for memory chips; Scale/Learning Economies and the Ratio of Fixed to Variable Costs • Scale and learning economies are both important to the memory chip market; • Memory chip production requires significant investment in clean production environments • Moreover, the yield of acceptable chips goes up as employees learn the intricacies of the extremely complicated and sensitive manufacturing process; • Finally...
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...project on soft drink Industry in the first place. He showed us different ways to approach a research problem and the need to be persistent to accomplish any goal. Without his encouragement and constant guidance we could not able to finish the project. He was always there to meet and talk about any query. Last, but not least, we would like to thank all class mates and hostel mates who support us throughout the project. Introduction to Soft Drink Industry The main production of soft drink was stored in 1830’s & since then from those experimental beginning there was an evolution until in 1781, when the worlds first cola flavored beverage was introduced. These drinks were called soft drinks, only to separate them from hard alcoholic drinks. The drinks do not contains alcohol & broadly specifying this beverages, includes a variety of regulated companies that manufacture carbonated soft drinks, diet & caffeine free drinks, bottled water juices, juice drinks, sport drinks & even ready to drink tea/coffee packs. So we can say that soft drinks mean carbonated drinks. Today, soft drink is more favorite refreshment drink than tea, coffee, juice etc. Raw Materials used in Soft Drinks There are different types of raw materials used in different soft drinks. Most of the raw materials are as under: 1. Water The simple sweetened soft drink contains about 90% of water, while in diet drinks; it contains 95% of water. 2. Flavour Flavour is of great importance in soft...
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...MANAGERIAL RESPONSE TO THREATS Threat of new entrants Barriers to entry: It is very common that the existing company in a industry will set the barrier to the new entrants. Because these new entrants might become the strong potential competitors in the future and take away large profit from the existing company. For these new entrants, they will carry out pretty attractive competition and use better financial strength to seize current and potential market. These moves will lower the benefits of existing business and the return of investment. To prevent this situation happen, Coca-Cola will set different barriers to discourage the potential entrants. I will discuss other enter barriers. Product differentiation One of the most important factors to determine whether a business can be successful is whether they have the compared advantages. It is very important to use the differentiation strategy to make your products known by the customers. Products that easy to remember and recognize by the customers are different from others. This difference can be the service of the company, the high quality, the name of brand. All of these characteristics will set up the customers loyalty in the market. Under the advantage of differentiation strategy, even though the new entrants maybe try their best to attract the customers with lower prices or other things, they may still suffer a loss in profit because the loyalty of the customers. Capital requirement Whenever and wherever people decide...
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...the soft drink industry as dominating players and have remained market leaders for a long time. The key competencies of Coke and Pepsi range from the product, supply chain and distribution, marketing and customer loyalty. Each of them has developed operating procedure. The supply chain forms a major component or a competency that helps these companies form a competitive advantage for themselves (Wheelen & Hunger Page Ref: 332-335). Training of human resources also forms an important element as it helps strengthen the human resource. The main objectives of the training and the requirements are to be communicated to the employees along with details about when and where it has been organized. Several arrangements for the tainting session to be conducted, including the overhead projectors and stationary are to be arranged for in the office of Pepsi and Coke which leads to the strengthening of the human resources as an organizational resource (Page Ref: 246-247) The differences between resources important for competitive advantage and those that should be disinvested from industry/positioning perspective. The most important elements in this industry include the economics, market and competitive factors. The economic factors relate to the global economics conditions as the greatly impact the demand and consumption of soft drinks. This leads to there being a need for the marketers of the soft drink industry to ensure that the economics conditions of the markets that...
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...explains the economics of the soft drink industry and its relation with profits, taking into account all stages of the value chain of the soft drink industry. By focusing on the war between Coca-Cola and PepsiCo as market leaders in this industry – with a 90% market share in carbonated beverages – the study analyses the different stages of the value chain (concentrate producers, bottlers, retail channels, suppliers) and the impact of the modern times and globalisation on competition and interaction in the industry. Throughout this analysis, I will assess how the strategic interaction between the two players allowed the creation of a “healthy" competition, where both companies need each other in order to remain competitive. Afterwards, I will go on to analyse the way that pricing and output decisions have affected the industry’s profits. Finally, I will discuss how Coca-Cola and PepsiCo could sustain their leadership in a market increasingly dominated by non-carbonated drinks. WHY IS THE SOFT DRINK INDUSTRY SO PROFITABLE? The soft drink industry refers to all drinks which do not contain alcohol. However, the original definition referred to carbonated and non-carbonated drinks made from concentrate. In this case discussion, I will take into consideration the US market, where the three major players – PepsiCo, Coca-Cola and Cadbury Schweppes – represent 90% of the market, with PepsiCo and Coca-Cola holding the largest share. In the soft drink industry, the distribution and...
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...Barriers to entry One of the 5 forces that shape the soft drink industry is barriers to entry. The Coca Cola company says on its website it is facing strong competition from well-established global companies and many local participants. For this particular industry, the competitive forces are benign, (favorable). Most of the companies in the soft drink industry are profitable. The Coca Cola Company's main competitors are Dr.Pepper, Nestle and PepsiCo. These companies definitely have the advantage over there competitors. In porters 5 forces, Porter refers to supply-side economies of scale, where firms such as the CCC and PepsiCo can produce at large volumes enjoy lower costs per unit because they can spread fixed costs over more units, employ more efficient technology, or command better terms from suppliers. According to Porter's article, supply-side scale economies deter entry by forcing the aspiring entrant either to come in the industry on a large scale, which requires dislodging entrenched competitors. How does a newcomer circumvent the barriers to soft drink industry? Perhaps create new distribution channels of their own. Creating a niche market for their drink in the form of marketing to a certain segment in the soft drink industry Rivalry Among Existing Players * The industry is not growing rapidly. The growth rate for the industry is not rapid; it is in fact relatively small. This makes it very difficult for new entrants to compete with the already thriving...
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...1. Why is the soft drink industry so profitable? An industry analysis through Porter’s 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 integrated to some extent. They also deal with similar suppliers and buyers. Entry into the industry would involve developing operations in either or both disciplines. Beverage substitutes would threaten both CPs and their associated bottlers. Because of operational overlap and similarities in their market environment, we can include both CPs and bottlers in our definition of the soft drink industry. In 1993, CPs earned 29% pretax profits on their sales, while bottlers earned 9% profits on their sales, for a total industry profitability of 14% (Exhibit 1). This industry as a whole generates positive economic profits. 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 next tier of soft drink companies, the top six controlled 89% of the market. In fact, one could characterize the soft drink market as an oligopoly, or even a duopoly...
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...INTRODUCTION The modern world That we live in has become very competitive as every organization seeks to capture a higher margin of the available market in their industry. As a result, it is an open secret that every industry has a well noted market leader who usually dictates the market movements. In Ghana, we can mention the MTN in the telecommunication industry, Coca Cola Company in the soft drinks industry, Voltic in the bottled water industry and so on. For the few examples given above, it stands to reason that there is something these companies did right or are doing right that makes them better than other companies in the same industry. When it happens like that, it said that the company has a competitive advantage over others. What makes them better competitor could be attributed to the fact that they might have access to special resources that others do not, or they are able to use commonly available resources more efficiently, usually because of superior knowledge and information assets. Whatever be the case, they able to do better in terms of revenue growth, profitability, or productivity growth (efficiency), all of which ultimately in the long run translate into higher stock market valuations than their competitors. But why do some firms do better than others and how do they achieve competitive advantage? How can you analyze a business and identify its strategic advantages? How can you develop a strategic advantage for your own business? And how do information...
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...continue to cause a decline in demand for soft drinks. This paper will utilize Porter's Five Forces Model and the PEST analysis to determine whether or not these external pressures have created an attractive industry (NAICS) and what barriers exist. According to Beverage Digest, the industry continues to consolidate as companies compete for fewer sales. This is a long-term positive for the industry as it decreases competition and gives the larger players a stronger hold as industry leaders (CNBC.com, 2010). However, even these companies, along with all of the others within the soft drink industry face barriers associated with the changing nature and desires of its buyers, geographic and nationalistic trends and tastes and decreasing market share available. Brand identity is a very powerful force within the soft drink industry. It takes an extensive period of time to develop a brand that has recognition and customer loyalty. A well recognized brand will foster customer loyalty and create the opportunity for real market share growth, price flexibility, and above average profitability. It is no surprise that the most recognizable brands within the global economy hold the lion-share of the soft drink market. 29.9% of the market (CNBC.com, 2010). This duopoly holds a stranglehold on the market which is a fierce detractor for entrants. Currently, the biggest threat of entry faced by major competitors within the soft drink industry may be from private label manufacturers...
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...pricing, and brand strategies. They looked to emerging international markets to fuel growth and broaden their brand portfolios to include noncarbonated beverages like tea, juice, sports drinks, and bottled water. For over a century, Coca-Cola and Pepsi-Cola had vied for the "throat share" of the world's beverage market. The most intense battles of the cola wars were fought over the $60 billion industry in the United States, where the average American consumes 53 gallons of carbonated soft drinks (CSD) per year. In a "carefully waged competitive struggle," from 1975 to 1995 both Coke and Pepsi had achieved average annual growth of around 10% as both U.S. and worldwide CSD consumption consistently rose. This cozy situation was threatened in the late 1990s, however, when U.S. CSD consumption dropped for two consecutive years and worldwide shipments slowed for both Coke and Pepsi. The case considers whether Coke's and Pepsi's era of sustained growth and profitability was coming to a close or whether this apparent slowdown was just another blip in the course of a century of enviable performance. A rewritten version of an earlier case by Michael E. Porter and David B. Yoffie. Essay: The case study “Cola Wars Continue: Coke and Pepsi in the Twenty-First Century” focuses on describing Coke and Pepsi within the CSD industry by providing detailed statements about the companies’ accounts and strategies to increase their market share. Furthermore, the case also focuses on the Coke vs. Pepsi...
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...historically, has the soft drink industry been so profitable? Coca Cola was formulated in 1886 by a pharmacist in Atlanta who started to sell it in drug stores as a ‟portion for mental and physical disorders.“ Five years later the Asa Candler acquired the formula for Coca-Cola syrup which was a well-protected secret of the company. He also granted the first bottling franchise which grew qucikly. In the following years a lot of imitations were fight agressively by court for protecting their carbonated soft-drink (CSD) with its special flavour. Later on Coca Cola was advertised as a ‟lifestyle“ product and the international business began to develop. Pepsi was founded in 1893 and they also adopted a franchise bottling system which built up a big network very quickly. About 20 years later Pepsi went bankrupt and later on they declared bankrupcy the second time. However business went on and Pepsi built up a marketing strategy ‟Twice as much for a nickel, too.“ Pepsi step for step gained market shares and became the second behind Coca Cola. The competition in the soft drink industry began to grow. The soft drink industry consists of bottlers and suppliers. One fact which supports the profitability of the soft drink industry is that there are only two relevant players Coca Cola and Pepsi who have enough power for setting rules. The rivalry between both can be seen as a copmpetitive advantage for the major players. They created a hugh barrier for new market entries while controlling...
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...Introduction of soft drink industry: Soft drinks introduced in seventeenth century. These were known as non carbonated soft drinks and prepared by mixing honey and lemon with water and this soft drink was sold in Paris in small plastic cups. Later on it was produced in large scale John Mathew invented an equipment which is capable of producing carbonated water in large scale. The first flavoured drink was prepared by Doctor Philip Sing Physic in 1807. Later on it was liked as health drink and liked by customers as well and ordered to be carried at home. After this demanded by peoples then it leads to manufacturing industries of bottle plants. This was an interesting phenomenon that soft drinks were coming on bottles and this increased the sales of soft drinks also. It was for the first time that the bottle was containing water with bubbles. For the first time Michael Ovens had started the glass blowing machine which were used in automatic production of bottles. With use of these machines 69000 bottles were produced in place of 1500 bottles which were hand-made. After all these efforts the Soft drink industry started centuries ago. In the present time soft drinks is a very large industry and it is known as cold drinks now. Now in India there are only two major competitors Pepsi and Coke. This industry comes in beverages industry in India and it is growing industry because everyone likes to have cold drinks but it is seasonal the sales of cold drinks are in boom mainly in...
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...stressing on every possible resources to meet continuing rising demands of market and consumers. The prime aim for the current organizations is to render best services to their customers and increasing the market share. The current globalization scenario also provides ample opportunity for an organization to interact and present them globally. The integration with global economies allows them to sell their product and services on global platform. This also brings modernization and industrialization. Coca-Cola was established in 1886 originally as a coca wine to serve as “potion for mental and physical disorders”. In year 1891 the brand advertisement for Coca-Cola was developed and went in market / broad consumer range under established sales force. By leveraging and pushing the pool of bottlers under them, the company went public and emphasized on the opportunity to put the beverage “in arm’s reach of desire”. To fulfill their desire to top the world as leading beverage suppliers, they won 4 of the world’s top 5 nonalcoholic beverage brands and they have setup operations in more than 200 countries all over the world with a strong portfolio of more than 2,800 products in these countries. On the hand, Pepsi Cola was founded in 1893. Following footsteps of coke, Pepsi also adopted franchise bottling system. Overcoming financial and legal hurdles around 1940’s Pepsi became second largest selling carbonated soft drink brand. In 1965 PepsiCo was formed through the merger of Pepsi and snack...
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