Cola Wars Continue: Coke vs. Pepsi in the 1990s (Cola Wars)

1918 Words Mar 6th, 2004 8 Pages
Question 1

The concentration producing industry has one buyer and through its value chain. Instead, costs for advertising, promotion, market research, and bottler relations were significant. On the other hand, bottling industry is the mid-way player in the soft drink industry. There are two suppliers and one buyer involved in its value chain (Exhibit 1).

Whether two industries are profitable depends on soft drink consumption, which had increased for more than 20 years and plateaued in the 1990s.

The economics of the CP and bottling is very different from each other in terms of number and size of rivals, and the scope of competitive rivalry. There are two giants competing head to head on the CP industry, smaller national producers, such
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Also, franchise agreement between CPs and bottlers has been becoming more favorable to CPs. So it is safe to say that bottlers have been affiliated to CPs to a deeper degree than CPs to bottlers. Finally, the bottling industry does not have giants who are able to penetrate into the CP industry. On the other hand, the CP industry has Pepsi and Coke to integrate bottlers.

Threat of new entrants is the second weakest force for the CP industry. One of the major reasons is that it is difficult to access a bottler since like Pepsi and Coke are taking control of most of the packagers. Another reason is, although capital required to establish a soft drink concentrate plant with the capacity of serving the entire US market is low, costs for advertising, promotion, market research and bottler relations are a heavy burden and specialized know-how, such as brand management, is a natural barrier to penetrators. However, the fact that customers' loyalty is becoming weaker makes the force not as weak as bargaining power of buyers.

The bargaining power of suppliers to CPs also seems weak in the case since, as the advent of diet soft drinks, the expiration of the patent to aspartame, and oversupply of aluminum on the world market, suppliers to CPs are losing bargaining power. However, there is no detail of suppliers industry given to provide us with confidence to say that it is the
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