Coke and Pepsi Cola War Hbs Case

Case Assignment #5: Coke and Pepsi

Q. Why, historically, has the soft drink industry been so profitable? (Use the five forces model.)

Soft drink industry has historically been favorable for positive profitability. In this market, CP, concentrate producers, and bottlers are core benefiters. They are interdependent in terms of operation, marketing, and distribution. Financial outcomes of big companies like Coke and Pepsi easily prove that this market is profitable. Through Porter’s five forces model, we can further explain why this industry is so profitable.

Threat of new entrants

Entering bottling would require established brand name and substantial capital investment, which would make it nearly impossible for a new CP or a new bottler to enter. New entrants will have to face huge obstacles in overcoming other well established soft drink companies including Coke and Pepsi and their marketing strategies. Even more, through DSD practices, these companies had built positive relationships with distribution channels which can result in price leadership or differentiation tactics. This also can grant advantages to those existing companies in terms of economies of scale.

Bargaining power of buyers

Switching cost between brands in soft drink industry is relatively low. That means, companies have to compete for making those volatile customers into loyal ones. Also, consumers purchase the product through five core channels: food stores, convenience, fountain, vending, and others. This means it is important for companies to develop strategies for each core channel. However, for Coke and Pepsi, there are large amount of loyal customers by which are less affected.

Threat of substitute products

Many kinds of different beverages overflowing in the market can be the substitute for soft drinks such as juice, tea, water, and so on. However, threat of substitute is not that strong in two reasons. First, every different beverage is consumed under certain occasions....