Coca Cola

The five forces analysis is a framework developed by Michael Porter of Harvard Business School in 1979. Inherent within the notion of strategy is the issue of competitiveness. In business this is about gaining advantage over competitors. As the diagram below shows, the forces in question relate to the microenvironment and how a change in any of the forces normally requires a company to re-assess the marketplace. When using the framework to understand competitive forces it is essential to consider that the five forces are not independent of each other, in that pressures from one direction can trigger off changes in another in a dynamic process of shifting sources of competition. Also competitive behaviour can disrupt the forces framework in that competition and their strategies can affect the industry.

For the purpose of this essay I am going to use Porter’s five forces framework to analyse the sources of competition in the soft drink industry with a specific focus from the aspect of Coca Cola, a company with a global share in the industry of around 50%. INSERT MORE ABOUT THE INDUSTRY/ COMPETITORS ETC

Barriers to Entry

• Barriers to entry are factors that need to be overcome by new entrants if they are to compete successfully.

• New entrants are not a strong competitive pressure for the soft drinks industry.

• Market fully saturated and growth is small вЂ" difficult for new/unknown entrants

• Coca Cola and Pepsi Co dominate the industry with;

o Strong Brand Name вЂ" advertising and marketing spend in industry is high. Difficult for an entrant to compete and gain any visibility. Established brand names and loyal customers impossible to match.

o Distribution Channels вЂ" Retailers enjoy high margins of 15-20% on these soft drinks for the space they offer. New entrants cannot convince retailers to substitute Coke/Pepsi for their new products.

o Bottling Network вЂ" Both firms have agreements with their existing bottlers that prohibit bottlers from taking on new competing brands for similar products. Also have % shares in bottling companies so this supplier doesn’t hold much bargaining power.

o Fear of Retaliation вЂ" Coke and Pepsi Co can win price wars вЂ" lowering prices to drive competition out.

Substitute Products

• Substitution reduces demand for a particular вЂ?class’ of products as customers switch to the alternatives.

• Substitutes for Coca Cola products are bottled water, sports drinks, coffee and tea. This has recently become more of an issue as attitudes and lifestyles are changing. People are becoming more concerned with a healthy life style and the energy drinks market is growing thus having a direct effect on the soft drinks market. Increases in coffee shops is another example where customer trends are changing, more customers want caffeine but without the sugar.

• It is very cheap for customers to switch to these substitutes making the threat of substitute products very strong in this industry.

• However by Coca Cola providing huge advertising and making their