Cola Wars: Porters 5 Forces

1836 WordsMar 21, 20138 Pages
Michael Porter developed five different forces in a framework he felt influenced industries. This framework was designed to help companies find ways to off-set a rival company and to help develop a more solid business plan. It has been known over the years a rivalry has existed been two of the biggest soda companies, Coca Cola and Pepsi. Three of Porter’s forces that are exemplified in this “coke war” are buyer power, barriers to entry, and rivalry which will be explained and elaborated on in the following essay. Buyer Power The retailers have a low to moderate buyer power over the consumer soft drink industry, due to the producer’s ability to forward integrate, the sheer number of buyers, and the buyer’s ability to forward…show more content…
Manufacturing facilities cost around $25 million, and $50 million including machinery, overhead, and labor. For established companies with separate revenue streams, generating this kind of money could be fairly reasonable, especially since one of these plants can serve the entire country. Coca Cola and Pepsi operate around 100 plants each for adequate distribution of their product. New entrants would have a hard time investing enough capital that would be required to keep up with Coke and Pepsi’s distribution. Advertising and promotion costs are also high in 2004; Coca Cola spent $246,243 just on advertising their cola product. This shows that in order to compete in this industry, entrants are forced to spend large sums of money on advertising, packaging, proliferation, and widespread retail price discounting. The high capital investment also translates to lowers profit margins, which makes entry even more unappealing. Another factor that creates a barrier to entry is the unequal access to distribution channels. Coke and Pepsi created agreements with their franchised bottlers that prevent them from handling competing brands of other concentrate producers. This prevents companies from entering an industry and using a Coca Cola bottler to get their product on the market. Also as Coca Cola and Pepsi grow in size so does the shelf space they require. As stated previously Coca Cola and Pepsi
Open Document