Cola Wars

Cola Wars Assignment Questions

1. Using Porter’s Five-Factor Model of Market Profitability (Aaker, p. 67), explain why the major concentrate producers have historically been so profitable.

The five factors in Porter’s model are competition intensity, potential competitors, substitute products, bargaining power of customers, and the bargaining power of suppliers.

Competition.

The two important pieces here are the Concentrate Producer and the Bottling industry. The Bottling industry would take a large capital investment to enter the market, which is a large deterrent. There is also great difficulty entering into the Concentrate Producer market therefore the threat of new entrants has a lower risk. This is because they have great brand presence and have relationships built with their distribution channels and retail channels. This gives the current major players of Pepsi and Coke a lot of power and leverage. Another barrier is the large advertising and marketing funds that Coke and Pepsi spend and their brand loyalty with consumers.

Potential Competitors

Although there is competition between Coke and Pepsi, they both realize that they need each other or at least they are better because of one another. They worked together to create the environment for them even though they compete. It is almost impossible for a new competitor to actually compete with these giants.

Substitute Products

There are other substitute products that have been entering the market. Juice and sport drinks along with tea and dairy drinks, but the biggest would be bottled water. This has grown tremendously and that is why both Pepsi and Coke entered the market.

Bargaining Power of Customer:

The main channels are Fountain, Vending, Merchandisers, Food Stores, and convenience stores. Bottlers have theirs sale operations and manufacturing contracts in geographical areas with rights granted in perpetuity. This can only be terminated owning by...