Pepsi And Coke : The Soft Drink Industry Essay

808 Words Sep 10th, 2014 4 Pages
1. Why, historically, has the soft drink industry been so profitable?
a. The soft drink industry has been so profitable because of various reasons. One is because both Pepsi and Coke have been able to take advantage of niche markets where there was a higher per capita. These were areas where people were drinking the most soda and it allowed both companies to produce at high volumes, increasing the profitability. There has also been such a high demand for soft drinks and sales topped those of any alternatives. The substitutes available like coffee, water, and other drinks don’t sell in volumes like soft drinks do. Both Pepsi and Coke also has the ability to hold majority share of the market as barriers to entry were so high. They controlled bottling and concentrate operations and had strong networks throughout the country. They also have so many different channels to reach customers such as retail stores, convenience stores, restaurants, warehouse stores, vending machines, and fast foods. They are able to reach all customers in every channel. In the soft drink industry, branding and loyalty also play a big part and both Pepsi and Coke have spent large sums of money in advertising and creating that loyalty base. Another reason for profitability is the materials used. They are mostly basic raw materials such as color, sugar, and other natural and artificial flavorings. These in total do not cost either company a large amount of money.
2. Compare the economics of the…

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