Essay on Cola Wars Continue: Coke vs. Pepsi in the 1990s

2404 Words Sep 19th, 2008 10 Pages
Angel L. Lombardi

Economics of Organizational Architecture and Strategy

Assignment week two: “Cola Wars Continue: Coke vs. Pepsi in the 1990s”

Professor: Orlando Rivero D.B.A.

April, 3, 2008
Cola Wars Continue: Coke vs. Pepsi in the 1990s
This paper will explore Porter's Five Forces ( Porte 6) and Branderburger and Nalebuff’s Value Net to answer this questionnaire and describe soft drinks industry characteristics. The soft drink industry is concentrated with the three major players, Coca-Cola, Pepsi, and Cadbury Schweppes Plc., making up 90 percent of the $52 billion dollar a year domestic soft drink market. This market is a mature one with annual growth of 4-5% causing intense rivalry among brands for market share
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Differentiation of Inputs
Sugar is commonly available while Nutrasweet is patented. There is no differentiation for sugar and only one choice in Nutrasweet. As far as the other chemicals and inputs, they are commodity items, and it does not matter who supplies them. This makes suppliers have little power over the soft drink industry.
Different levels of bargaining power exist among the groups of buyers: The retail channels basically include food stores, convenience stores, fountain outlets, and vending. Vending is the most profitable distribution channels for the soft drink industry. Concentrate Producers can sell their products directly to consumers via vending machines where there is no buyer bargaining power.
Buyer Concentration versus Industry Concentration
Buyers for the soft drink industry are members of a large network of bottlers and distributors that represent the major soft drink companies at the local level. Distributors purchase the finished, packaged product from the soft drink companies while bottlers purchase the major ingredients. With the consolidation that has occurred within the industry, there is little difference between the two.

Buyer Information
Distributors are very informed about the product that they are distributing. Supermarkets, the principal customer for soft drink makers, were a highly fragmented industry. Stores did not have much bargaining power. Their only power was control over premium
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