Saturday, 16 June 2012

Porter's Five Forces Model of Coca Cola

Bargaining Power of Suppliers

Most of the ingredients needed for beverages and snacks are basic commodities such as potatoes, flavor, color, caffeine sugar, packaging etc. So the producers of these commodities have no bargaining power over the pricing for this reason; the suppliers in this industry are weak.

Bargaining Power of Buyers 

Buyers in this industry have the bargaining power, because main source of the revenue and market share in beverage and food industry are fast food fountain, convenience stores food stores vending etc. The profit margins in each of these segments noticeably demonstrate the buyer power and how special buyers pay diverse prices based on their power to bargain.

Threat of New Entrant

There are many factors that make it hard for new player to enter the beverage industry some of important factors are brand image and loyalty, advertising expense, bottling network, retail distribution fear of retaliation and global supply chain.

Brand Image / Loyalty

Pepsi and Coke continuously focusing on increasing their biggest beverage and food products, they has built some of the globe’s strongest brands that are loved by consumers throughout the world. Innovative Marketing has leveraged their worldwide brand-building strength to attach with consumers in significant ways and impel the growth globally. These all campaign results in higher amount of loyal customer’s and strong brand equity throughout the world. In 2011, Coca-cola was declared the world’s most valuable brand according to Interbrand’s best global brand. This makes it impossible for new entrance to enter the beverage industry easily.     

Advertising Spend
Cock and Pepsi has very effective advertising campaign, their advertising also represent the cultures of different countries. They also sponsor different games and teams and also featured in countless television programs and films. The marketing and advertising expense was approximately $ 15 billion. This makes landscape very harder for new players to succeed.        

Bottling Network

Pepsi and Coca cola have live and exclusive contracts with bottler’s that have privileges in all over the world. These franchise agreements or contracts forbid bottler’s from keeping competitor’s brands. Coke has the world's largest beverage distribution network; consuming in more than 200 countries enjoys the Coke’s beverages at an average of nearly 1.6 billion servings a day. Coca-Cola is sold in restaurants, vending machine and stores in more than 200 countries. PepsiCo has adopted the globe’s most powerful “go-to-market systems”, serving more than 10 million outlets a week by operating greater than 100,000 different routes, and producing more than $300 million in retail sales per day. They have also purchased some of the bottlers, this makes difficult for new players to get bottler contracts or to build their bottling plants.    

Retail Distribution

Coke and Pepsi offers 16 to 21 percent margins to retailers for the space they present. These margins are substantial for retailers and this makes it very hard for the new player to persuade retailer’s to carry their products.

Fear of Retaliation

It is very difficult for new player to enter in this industry because; they will be highly retaliating by local players in local markets and in global scenario they have to face the duopoly of Coke and Pepsi. This ultimately could result in price war which affects the new player.
Global Supply Chain    

Cock Bill & Melinda Gates Foundation and nonprofit TechnoServe initiated a partnership to facilitate more than 50,000 small fruit farmers in Kenya Uganda to increase their productivity and double their incomes by 2014. Coke has significant opportunities within global supply chain to encourage and develop more sustainable practices to benefit consumers, customers and suppliers. While; it is still in the premature stages of exploring these opportunities and dedicated to the economic vitality and health of the farming communities our supply chain engages. Pepsi promotes and support sustainable agriculture not only because it makes good business sense, it purchase million tons of potatoes and fruits.

Threat of Substitute Products

Large numbers of substitutes are available in the market such as water, tea, juices coffee etc. But firms counter them with innovative marketing and massive advertising which build growth for their brands by highlighting their benefits. Players also differentiate themselves by well-known global trade marks, brand equity and availability of the products which most of the substitute products can not contest.  To protect themselves from competition players in soft drink industry offer Diversify products such as such as Pepsi offers soft drinks (Pepsi, Slice, Mountain Dew), beverages (Tropicana Juices, Dole Juices, Lipton tea, Aquafina bottled water, Sport drinks, Tropicana Juices), Snacks (Rold Gold pretzels and Frito-Lay). Coke also offers most diversified range of products such as Cola-Cola Cherry, Coca-Cola Vanilla, Diet Coke, Diet Coke Caffeine-Free, Caffeine-Free Coca-Cola and range of lime or coffee and lemon.

Competitive Rivalry within an Industry 

Beverage industry competition can be classified as a Duopoly with Pepsi and Coca Cola. The market share of other competitors is too low to encourage any price wars. Cola-Cola gets competitive advantage through the well-known global trade marks by achieving the premium prices. It means Cola-Cola have something that their competitors do not have. While Pepsi has leveraged its worldwide brand-building strength to attach with consumers in significant ways and impel the growth globally


  1. this is sooo amazing you saved me from my assignment in uni

  2. It's pretty easy to understand, which is not the case with most of examples related to porter's five forces. Well done!