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Sample Case Analysis Question: Cola Wars Case Essay

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Question: Why is the concentrate manufacturing industry so profitable? Explain using a
Porter’s Five-Forces Analysis, where you describe what makes each force strong or weak
(explain at least two factors per force). Pay particular attention to the force of “Rivalry,” that is, the nature of competition between the two industry leaders as well as the history of their competition. Answer: Overall, the concentrate manufacturing industry is characterized by high barriers to entry, weak suppliers, weak buyers (and a fragmented final customer base), “smart” rivalry, substitutes that lack many of the attributes of soft drink products, and strong complementors.
These dynamics within the concentrate manufacturing industry have resulted in …show more content…

(Neither water nor high fructose syrup are provided by the suppliers but are added by the bottlers.)

Buyer Power:

Bottlers have had very little power (even when they were independent) because of high switching costs, lock-in through exclusive franchise agreements, the fact that concentrate constitutes 35% of their COGS to the bottler, and the fact that competitors are very concentrated and large relative to the bottling network. Since both Coke and Pepsi have vertically integrated into bottling, they both exercise direct control over the bottling network.

Threat of Substitutes:

Although there are many substitutes, such as water, sports drinks, fruit juice, etc., these substitutes are often not readily available. Moreover, drinking Coke or Pepsi is often a life style choice. Also, many purchases of Coke and Pepsi are impulse purchases; many people are addicted to the caffeine in Coke or Pepsi; and in some countries drinking Coke or Pepsi is seen as a status symbol.

Role of Complementors:

There are a number of complementors, whose consumption positively affects the demand for
Coke or Pepsi, including hamburgers, hot dogs, and other “all-American” foods.
Industry Rivalry:

Two competitors dominate over 70% of the market, and their interaction exemplifies “smart” competition. Despite the intense rivalry, both have carefully avoided a price war because both realize that an escalation of warfare would cut into their

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