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Business
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Cola industry leaders, Coca-Cola and Pepsi, should practice game theory to better
understand their competitive market environment (See Exhibit 3)
Exhibit One â An Analysis of the Cola Industry Using Porterâs Five Forces Model (p 80)
Potential Competitors:
?? Companies that have a door to door distribution channel in place like snack companies
could choose to diversify into soda industry
?? Switching costs are low for consumers who risk very little by trying new brands or
beverages
?? Barriers to entry are relatively high, though, with large advertising budgets and
competitive brand loyalty to big players like Coca-Cola and Pepsi
?? The drinks with high growth and high hype are non-carbonated beverages such as juice
drinks, sports drinks, tea-based drinks, dairy-based drinks, and especially bottled water
The Bargaining Power of Suppliers:
?? Concentrate producers (CPs) negotiate directly with bottlersâ major suppliers â
particularly sweetener and packaging suppliers â to encourage reliable supply, faster
delivery, and lower prices
?? Coca-Cola and Pepsi are among the metal can industryâs largest customers and
maintain relationships with more than one supplier, giving these suppliers less
bargaining power due to the availability of alternative suppliers
?? Metal cans make up the majority of the bottlersâ packaged product (60%), followed by
plastic bottles (38%) and glass bottles (2%)
The Bargaining Power of Buyers:
?? Bottlers own a manufacturing and sales operation in an exclusive geographic territory,
with rights granted in perpetuity by the franchiser, subject to termination only in the event
of default by the bottler
?? 1980 Soft Drink Interbrand Competition Act preserved the right of CPs to grant exclusive
territories to their bottlers, giving less bargaining power to Bottlerâs buyers because there
is no alternative supplier
?? Bottlers are locked into contracts that grant CPs the right to set prices and other terms of
sale
?? Bottlers are allowed to handle the non-cola brands of other Cps at their discretion
?? Bottlers are also given freedom in choosing whether or not to carry new beverages
introduced by the CPs but cannot carry directly competitive brands
?? Competition for brand shelf space in retail channels gives some bargaining power back
to buyers
Threat of Substitute Products:
?? Threat from substitute products are probably second in importance to the cola industry
only to the rivalry among established firms: coffee cafes, tap water, milkshakes, fruit
juice, hot tea, hot chocolate, chocolate milk and so on
Rivalry Among Established Companies:
?? Industry is largely consolidated with two major players and a few smaller competitors like
Cadbury Schweppes, making the companies interdependent
?? International demand for carbonated soft drinks is growing, but domestic demand is
slowing down substantially
?? Exit barriers are high for bottlers with expensive equipment, moderate for concentrate
producers
?? Advertising budgets are high, customers are influenced by brand perceptions
Source: Hill, Charles W...
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and Gareth R. Jones. Strategic Management Theory. Boston:
Houghton Mifflin Company, 2001
âCola Wars Continue: Coke and Pepsi in the Twenty-First Century.â Harvard Business School,
July 30, 2002
Exhibit Two â Macroenvironment Analysis (p 92)
Technological Environment:
?? Innovations in computerized technology could affect the bottling process, which involves
specialized, high-speed lines
?? Hot-fill, reverse-osmosis, or other specialized equipment is necessary to bottle the noncarbonated
beverages that have higher profit margins than the carbonated soft drinks
(CSD)
Social Environment:
?? Consumer trends shifting away from original product lines for health reasonsâ from diet
soda, to lemon-line, to tea-based drinks, to other popular non-carbonated beverages
?? An increasing trend in teen consumption of CSDs
?? Metal and Plastic containers commonly used by bottlers are recyclable are viewed as
environmentally friendly
?? Cultural differences across international markets are challenging when it comes to daily
operations and marketing cola industry products
Demographic Environment:
?? Explosive population growth in foreign countries like China translates into explosive
growth potential for those markets
?? Aging baby boomer population in United States may lead to a decrease in cola product
demand
Political and Legal Environment:
?? Soft Drink Interbrand Competition Act of 1980 secured the right of Concentrate
Producers (CPs) to grant exclusive territories to bottlers
?? Anti-trust legal suit against Coca-Cola by Pepsi over fountain drink monopolization in the
domestic market was dismissed in 2000
?? Pressure from the scientific community for the FDA to research the affects of caffeine
consumption and to enforce caffeine labels warning of the dangers of caffeine
consumption
?? Obstacles in international operations included political instability, regulations, price
controls, advertising restrictions, foreign exchange controls and lack of infrastructure
âCola Wars Continue: Coke and Pepsi in the Twenty-First Century...
Essay fragment
General points of the essay
Bargaining Power Of Suppliers
Coca Cola And Pepsi
Coca-Cola Brand Management Analysis
Coca-Cola Competitive Analysis
Coca-Cola Versus Pepsi
Coca-Cola vs Pepsi
Coca-cola vs. Pepsi
Financial Analysis Of Coca Cola Beverages
Power of Suppliers and Power of Buyers
Procedures Used By Pepsi-Bottlers Australia
Strategic Analysis Of Pepsi And Coca Cola
Swot - Pepsi And Coca Cola
The Coca Cola Company, a threat for competition?
Coca-Cola or Pepsi: The True King of Pop
Value Chain of Coca Cola and Pepsi
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