How Competitive Forces Shape Strategy

For instance, the competition between the steel companies and the aluminum companies to sell to the can industry checks the power of each supplier. The government can limit or even foreclose entry to industries with such controls as license requirements and limits on access to raw materials. Regulated industries like trucking, liquor retailing, and freight forwarding are noticeable examples; more subtle government restrictions operate in fields like ski-area development and coal mining. The government also can play a major indirect role by affecting entry barriers through controls such as air and water pollution standards and safety regulations. If more than one strong company is building its strategy on the experience curve, the consequences can be nearly fatal. By the time only one rival is left pursuing such a strategy, industry growth may have stopped and the prospects of reaping the spoils of victory long since evaporated.

Porter defined this threat as one of the forces that affect competitive structure within an industry. It is an important factor because it affects company and industry profitability. A low threat from substitutes means that there will be less competition among the existing firms and there will be more potential to earn higher profits.

Coca Cola

The potential of an industry determines the new businesses entering in the market. Apart from the growth prospects, the barriers to entry and exit are key factors that affect the market entry decisions of firms. In case of the beverage industry, the barriers to entry are low owing to the low cost of setting up a production unit and marketing expenses to make the product available to the target market. There are small scale companies entering in the beverage industry which suggests the ease of market entry for new firms . Since Coca-Cola is a globally recognized brand that is consumed in more than 200 countries, the presence of small scale players and new entrants has no significant impact on the operations of Coca-Cola. Companies such as Coca-Cola can benefit from the market dynamics by using its strong market presence to expand its portfolio and further penetrate into new markets .

Partnering with Monster will prove to be a profitable venture and Coca-Cola will be able to cement their position in the rapidly developing energy beverage industry . The individual buyer has little to no pressure on Coca-Cola The main competitor, Pepsi is priced almost the same as Coca-Cola. Consumer could buy those new and less popular beverages with lower price but the flavor is different and the quality is not guaranteed. Large retailers, like Wal-Mart, have bargaining power because of the large order quantity, but the bargaining power is lessened because of the end consumer brand loyalty. In a blind taste test, people couldn’t tell the difference between Coca-Cola coke and Pepsi coke. Increasing number of consumers begin to drink fruit juice, lemonade and tea instead of soda products. Coca-Cola can also pursue differentiation strategy based on the Beverages industry forces.

Introduction To Porter Five Forces

The company experiences moderate pressure from the potential entrants because of the low switching costs. Although there are many substitute products, Coca-Cola’s brand loyalty and decades of services to customers has always put it above others.

Nevertheless, the company lessens the burden of their bargaining power because of the brand loyalty of the end consumers . Furthermore, employees of the organization contribute extraordinarily to the Coca-Cola’s prosperity. To meet their long-term goals, Coca-Cola effectively develops an assorted workforce and builds up the business culture that cultivates learning, advancement, and value creation every day.

Competitive Analysis Of Coca

These materials relative to the raw materials that go into the syrup are much heavier and have small profit margins. On the other hand, the concentrated syrup provider does invest heavily in brand image and advertising as well as provide financial support for bottlers. The profit margin for selling concentrated syrup to the bottlers is much higher than the profit margin for selling a final product to a retailer. The concentrate provider can price set contracts with the bottlers as well as the product is much cheaper to produce and transport and sold well above the price of raw materials. In contrast, the bottler needs to seek retail stores’ opportunities with a more expensive per unit product. In cost leadership, Coca-Cola can set out to become the low cost producer in the iBeverages industry.

With only a few retail outlets selling the product type, it is easy for any new entrant to get its product on the shelves. All of these factors make the threat of new entrants a strong force within this industry. Bargaining power of buyers of Coca Cola – If the buyers have strong bargaining power then they usually tend to drive price down thus limiting the potential of the Coca Cola to earn sustainable profits.

A massive recall was issued for the products from shelves and then the product was tested costing the company many billions of dollars upon the tests as India is a very major market. The framework is designed to apply to specific parts of the economy – for instance, supermarkets. By applying Porters 5 forces, both existing firms and new entrants can develop a strategic understanding to assist with their profitability. Essentially, the weaker the forces, the greater the opportunity for high profits.

Bargaining Power Of Suppliers

It does so by looking at five main factors – threat of substitutes, threat of new entrants, bargaining power of buyers, bargaining power of suppliers, and competitive rivalry. Brand identification creates a barrier by forcing entrants to spend heavily to overcome customer loyalty. Advertising, customer service, being first in the industry, and product differences are among the factors fostering brand identification.

• The number of suppliers in the industry in which The Coca-Cola Company operates is a lot compared to the buyers.
• The Company’s waters include Ciel, Dasani, Ice Dew, Bonaqua / Bonaqa and Kinley.
• So, to embrace success and maintain or improve your market position, examine Porter’s Five Forces within your industry.
• The risk of entry for the company Pepsi in the market is of the raising competition level.
• But when we consider the threat of alternatives, the beverage industry in 1999 was completely different from the current beverage industry.

In fact, this is the epitome of a monopoly – it has unrivaled market power both up and down the supply chain. Coca-Cola for instance has been facing increasing pressure from low-sugar beverages – taking away more health-conscious consumers. The very few substitutes available are of high quality but are way more expensive. Comparatively, firms producing within the industry in which Coca-Cola Bottling operates sell at a lower price than substitutes, with adequate quality. This means that the threat of substitute products is weak within the industry. The product differentiation within the industry is high, which means that the buyers are not able to find alternative firms producing a particular product. This difficulty in switching makes the bargaining power of buyers a weaker force within the industry.

Substitute Products

Since the concentrated syrup provider is such a high power supplier to their bottlers, the parent company can negotiate favorable deals and set prices with bottlers, increasing profits. Alternates or substitutes can include water or even coffee or tea as sources of caffeine. Threat of substitute product must be the threat that’ll have or has a huge affect on an existing company. Substitute would usually mean the very similar product that will do the job just all right but with the lesser price.

PepsiCo’s Five Forces analysis indicates that competition, the bargaining power of customers, and the threat of substitution are the issues most significant to the company. PepsiCo can improve competitiveness through aggressive marketing combined with product innovation. In such product innovation, PepsiCo must consider current market trends, such as environmentalism and healthy lifestyles. The organizations’ vision for 2020 is to create long-term goals and provide a course of action that will propel the organization ahead of its competitors.

For the purpose of this paper Coca-Cola Bottling does mostly its business in Beverages industry. porter five forces coca cola Apart from Pepsi, there are some more competitors of Coca Cola including Red Bull.

Economies of scale can also act as hurdles in distribution, utilization of the sales force, financing, and nearly any other part of a business. There have been many kinds of energy drinks or soda or juice or any kind of beverage products in the market, which means Coca-Cola doesn’t really have an entirely unique flavor. There is a good example for that one, if customers are given both Coca-Cola and Pepsi to taste without telling them which one is which, they wouldn’t be able to tell a difference. Coca-Cola works in a very regulated market, and the government reduces competition, though the company has very few competitors, which means it faces little or no competition. Bottlers purchase concentrate, add carbonated water and high-fructose corn syrup, bottle the resulting CSD product and deliver it to customer accounts.

More About Coca Cola Porter’s Five Forces Analysis

It will impact the potential of Coca-Cola to maintain above average profits in Beverages industry. Bargaining power of suppliers in Beverages – If suppliers have strong bargaining power then they will extract higher price from the Coca-Cola Bottling. It will impact the potential of Coca-Cola Bottling to maintain above average profits in Beverages industry. Thus, price sensitivity in this industry is significant and should be taken into consideration. As Yoffie and Renee point out, competitive rivalry in the industry can be extremely severe and high. Because companies try to present new and innovative products along with aggressive marketing to attract consumers, only a few manufacturers can actually stay competitive.

It owns Coca-Cola refreshments anchor bottler,situated in North America . The company manufactures, retail and market over500 beverage brands in more than 200 countries, but its main product is Coca-Cola. The company is the leading inmanufacture and distribution of beverages globally. Coca-Cola is the largest publicly ownedcompany in the united states with its stock listed in NYSE, S&P 100 and 500 indexes.The company sells its nonalcoholic beverages and syrups to retailers, wholesalers ordistributors. All of these factors make the threat of substitute products a weaker force within the industry. The industry in which The Coca-Cola Company operates is an important customer for its suppliers. This means that the industry’s profits are closely tied to that of the suppliers.

Here, we utilize the Five-Forces Model of Competition to assess the nature and the strength of each of the five competitive forces as it relates to Coke’s Vision for 2020. Like humans, products have life cycles, from their introductory stage to their decline stage.

PepsiCo also needs to continually adjust its strategies to effectively respond to the external factors significant in the food and beverage industry environment. Compare costs and profits of soft drink concentrate providers versus bottlers. The costs incurred for the bottlers are much higher compared to the concentrated syrup provider, as it is much more capital intensive. The two primary raw materials in bottling are water and glass, which are very heavy and costly to transport.

The model has three horizontal competitive forces and two vertical forces . This aspect not only led to low production for the company, but it also led to low sales and low profit, making water shortage an issue . Strategies that can be used to curb scarcity of water include water stewardship, recycling wastewater, and replenishing used water. Water forms ninety-nine per cent of Coca-Cola products with the remaining percentage occupied by the additives.

Those who are trying to sell know that they are one of many, and those who are buying know there are many other options. In industries such as oil and gas extraction, or even banking – there are significant start-up costs. Even then, success is not guaranteed – which makes it extremely difficult to obtain financial backing. New entrants are therefore limited to an existing business that has significant levels of capital and is looking to diversify into new industries.

It goes into the nature of competition, examines the external threats and identifies the opportunities cash flow to achieve competitive advantage. Intensity of Existing Rivalry The first aspect was the low business rivalry.

Simply put, still beverages are growing to the point that it dominates the overall beverage market. Combining Coca-Cola’s diversified product portfolio with the rapid growth of the overall stills market and it is almost certain that Coca-Cola’s stills segment will be an important part of their growth moving forward. Coca-Cola’s fundamental target is to create value and increase organic growth of the organization through better control over its operations. Coca-Cola’s central capabilities that effectively push the firm forward are established in organizational strategy, quality, innovation, and prevalent marketing skills (The Coca-Cola Company, 2015). To accomplish this objective Coca-Cola utilizes their prevalent promoting and marketing skills, consumer loyalty, and capacity to effectively build external partnerships. Currently, the main competitor is Pepsi which also has a wide range of beverage products under its brand. Both Coca-Cola and Pepsi are the predominant carbonated beverages and commit heavily to sponsoring outdoor festivals and activities.

These both players have the majority of the market share and rest of the players have very low market share. Otherwise; competition is comparatively low to result any turmoil of industry structure.

The growth rate of the CSD industry is slow, which makes the rivalry even more complicated. The presence of highly recognizable brands that are distributed globally is a serious factor that makes it challenging for other companies to compete. Moreover, almost the whole industry is divided into three major representatives, although other brands also exist or are regularly established. The difference in options and buying power creates a weak negotiating position for suppliers. Even though there are thousands of other coffee shops – none have the same buying power as Starbucks. So a supplier may get custom elsewhere, but will not get the same quantity of orders – putting pressure on its fixed and unit costs. Starbucks sources coffee beans and machines as well as a number of other ingredients.