Oligopoly Market of Soft Drink

Given your assessment of the competitive situation, what are the pros and cons of (a) continuing the present market targeting and positioning strategy and (b) adopting the recommendation made by Foote, Cone & Belding? (make a comparison table of pros and cons for each approach).

Essentially, all risk in price fluctuations in the raw materials market is transferred and paid for by the bottling business. Supplier power of the concentrate business is also exerted over the bottling business by the threat of acquisition and vertical integration – the concentrate business supports its bottling business through providing suggestions for operational improvement. While this support can be viewed positively, both Coca-Cola and Pepsi have acquired its bottling franchises due to their dissatisfaction over the operational effectiveness of its bottling business. Through the last few decades, Coca-Cola and Pepsi have oscillated between acquiring and re-franchising its partner bottling businesses.

Oligopolies are a type of market structure evident in Australia, which is comprised of 2 or more firms having a significant share of the market. In an oligopoly the few firms sell similar but differentiated or homogenous products and is characterised by a large number of buyers making it a form of imperfect competition. This market structure is evident through the Big Four Banks, Phone Industry - Vodafone, Optus and Telstra.

Coca Cola and Pepsi are the brands with the highest brand equities. Both, Coca Cola and Pepsi have gone through the highs and lows of their business to reach that position. Coca Cola’s marketing has been changing over time with more and more products being added every day, while Pepsi has implemented several smart marketing strategies to improve its turnover and profits. So, let’s see what were the marketing strategies implemented by Coca Cola and Pepsi.

Oligopoly has been derived from Greek implying "few sellers". According to Sloman & Sutcliffe (2001) oligopolies are a type of imperfect market wherein a few firms share a huge proportion of the industry. Therefore industries such as oligopolies have dominance of small number of manufacturers which may produce either differentiated or almost similar products. Nevertheless there are differences between perfect oligopolies and imperfect oligopolies. While perfect oligopolies are characterized by firms that produce almost identical products like tea or CDs, imperfect oligopolies differentiate themselves through niche products such as motor cars and aircrafts. Oligopolies are marked by interdependence of firms operating in the market which either collude or compete among themselves. In collusion, firms consent to avoid competition amongst them. A formal collusion is a cartel wherein firms act like a monopolist and earn maximum profits. (Wellmann, 2004, pp: 1-2)

While a monopoly usually involves one firm with significant control on the market, an oligopoly contains a few firms. An oligopoly is a market structure where a few companies selling identical or differentiated products control the marketplace. The few players in an industry are usually quite large compared to the market for the product, thus giving these few players an advantage at market control. There are barriers to entry in oligopolies that include patents or government grants, ownership of resources, cost prohibitive barriers, brand equity and diminishing average cost.

The several factors that make it very difficult for the competition to enter the soft drink market include:

As mention before, Coca-cola has 47.3 percent market share in the country’s cola market versus Pepsi which hold 44.5 percent. Coca-cola is also the brand known around the worlds, which are the largest producer and distributor of ark colas in the world. Even in the current monetary crisis, the company continues to expand and the financial position shows that Coca-cola has a strong cash position in compare to PepsiCo which the long term debt of PepsiCo is so high.

In an industry dominated by two heavyweight contenders, Coke and Pepsi, in fact, between 1996 and 2004 per capita consumption of carbonated soft drinks (CSD) remained between 52 to 54 gallons per year. Consumption grew by an average of 3% per year over the next three decades. Fueling this growth were the increasing availability of CSD, the introduction of diet and flavored varieties, and brand extensions. There is couple of reasons why the industry is so profitable such as market share, availability and diversity and brand name and world class marketing.

This research paper pinpoints the financial analysis of Pepsi Co, Inc., namely its profitability; liquidity; solvency and operating outcome with respect to its competitors, Coca-Cola Inc., and Dr. Pepper Snapple Group. The upshot of Pepsi’s financial breakdown will assist the soda drink maker to improve its production approach and keep its flagship brand aggressive and competitive.

The case explains the economics of the soft drink industry. There activities that add value to consumer at nearly every stage of the value chain of the soft drink industry. The war is primarily fought between Coca-Cola and PepsiCo as market leaders in this industry; who combined have roughly a ninety percent market share in their industry. The impact of globalization on competition has allowed both of these major players to find new markets to tap which has allowed each continued growth potential.

“Coca-Cola brands are available to consumers throughout the world. Today they account for 1.7 billion servings of all beverages consumed worldwide daily. Coca-Cola has the edge in the market and because they are first to capitalize on new consumer trends. They continue to focus on continuous operating improvements, and they are ever changing to meet market demands. Pepsi Co satisfies the needs of its customers with the wide variety of products offered. They also have the different type of beverage or snack and its brands can substitute for each other. Coco-Cola and Pepsi Co is known as the top 100 most valuable brands in the world.

Coca-Cola is the number one non-alcoholic beverage in the world and is also the golden standard in the beverage industry. Over the pass decade carbonated beverage sales has decrease which has lead Coca-Cola to seek for new opportunity and investor. Contribution of US soda sales in Coca-Cola’s revenue could decline to less than 15% by 2020. By the end of 2017 Coca-Cola is looking to refranchise two-thirds of its bottling territories in North America. The outcome of Coca-Cola refranchise two-third of its bottling territories will reduce the revenue to Coca-Cola sales of its products, however the operating margin will increase. Also, this could reduce the percentage contribution by the U.S to Coca-Cola overall revenue.

Moreover, Pepsi attempted to differentiate its products from Coke's by targeting a different category of consumers, as Pepsi focused on the teen's market segment. The competition goes beyond the domestic market. Coke and Pepsi have fought over international markets in order to increase sales and profitability as the US market becomes more mature, with a slowing growth rate.

The non-alcoholic beverages industry requires significant levels of infrastructure and technology, as well as large capital investments, in order to successfully compete in the market. As a result, it is considered as an industry with high barriers to entry that are difficult to overcome for new entrants. Additionally, the dominant position of the industry’s key players - Coca Cola and Pepsi - lower the threat of entry on the market as new entrants do not have the resources or capabilities to compete with these