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coca cola porter`s force model

MGT 657 Strategy Management Case Study
by

khairy alhabshee

on 6 April 2013

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Transcript of coca cola porter`s force model

The threat of the entry of new competitors Advertising and Marketing Soft drink industry needs huge amount of money to spend on advertisement and marketing. In 2000, Coke and it bottler’s invested approximately $2.58 billion. In 2000, the average advertisement expenditure per point of market share was $8.3 million. This makes it exceptionally hard for a new competitor to struggle with the current market and expand visibility. Retail Distribution This industry provides significant margins to retailers. For example, some retailers get 15-20% while others enjoy 20-30% margins. These margins are reasonably enough for retailers to entertain the existing players. This makes it very difficult for new players to persuade retailers to carry their new products or substitute products for Coke. Fear of Retaliation It is very difficult to enter into a market place where already well-established players are present such as Coke in this industry. Coke will not allow any new entrants to easily enter the market and Coke will give tough time to new entrants which could result into price wars, new product line, etc in order to influences the new comers. Customer Loyalty/ Brand Image Coke have been investing huge amount on advertisement and marketing throughout their existence. This has resulted in higher brand equity and strong loyal customers’ base all over the globe. Therefore, it becomes nearly unfeasible for a new comer to counterpart this level in soft drink industry. The intensity of competitive rivalry Composition of Competitors Scope of Competition Degree of differentiation The industry is almost dominated by the Coke. This industry is well known as a Duopoly with Coke and Pepsi as the companies competing. These both players have the majority of the market share and rest of the players have very low market share. Except the Coke and Pepsi other competitors are of unequal size especially in local markets. Coke and Pepsi both players have the majority of the market share and rest of the players have very low market share. Scope of competition in this industry is generally global; Coke is approximately presents in 200 countries. Marketing and Product differentiation have become more significant. Coke and Pepsi mainly are competing on advertising and differentiation rather than on pricing. Coke has diverse advertisement campaigns according to conditions. Coca-Cola is recognized as the best-known brand name in the globe. More prominently, its consumers would not do without it, and have established a loyalty. The threat of substitute products There are many kinds of substitutes for Coca Cola products. They are bottled water, sports drink, coffee and tea. So, the threat for Coca Cola substitutes product are respectively high due to consumers more concern healthier drink. Aggressiveness of substitute products in promotion Switching Cost Switching cost of the substitute products is very low so consumers can easily shift towards the substitute products. Beside Healthier that have become trend, Blend coffee are also becoming more popular with the increasingly number of coffee stores, e.g. Starbucks, which offer many different flavors for different consumer markets. The bargaining power of Customers The buyers of coca cola are mainly convenience stores, food stores, restaurants, college canteens and others in the categorize of market share. The profitability in each of these segments obviously demonstrates the bargaining power of the buyers is high due to buyers pay at different prices. Vending Machines Convenience Stores Food Stores Mohd Khairi Bin Mohd Fauzi 2011393375 Vending Machines provide products to the customers in a straight line with enormously no power with the buyer. This segment is tremendously fragmented and has no bargaining power due to which it has to pay superior prices. This segment of buyers’ is fairly merged with few local supermarkets and numerous chain stores. Since this segment presents best shelf space it demands lower prices. The bargaining power of Suppliers Most of the raw materials desirable to manufacture soft drink are basic merchandise such as flavor, color, caffeine, sugar, and packaging etc. The suppliers of these commodities have no bargaining power over the pricing due to which the suppliers in soft drink industry are relatively weak. Number of important Suppliers Switching cost Importance of buyer industry to suppliers Suppliers’ product an important input to the buyer’s All the raw material ingredients are basic merchandize and easily accessible to manufacturers. Switching cost to the suppliers is very low; manufactures can easily shift towards the other suppliers. Raw materials for soft drink are basic commodities which are easily available to every producer and have low cost which makes no difference for any supplier. Soft drink industry is very important to the suppliers because buyers purchase larger amount of raw material. This encourages suppliers to remain in good contact with buyers. Product of the suppliers is very important input for the manufacturers in this industry because these products do not have any substitute. The threat of new entrance is relatively low due to:
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