Porter's Case Analysis: Summary Of Coke And Pepsi

Register to read the introduction… The competitive structure of the industry has allowed Coke and Pepsi to sustain high profits. The industry is essentially an oligopoly, with Coke and Pepsi dominating the market. The firms are hurt by having similar products that are relatively undifferentiated. However, diversification of product lines into carbonated and non-carbonated beverages has created some product differences. High industry growth from 1975 to 1995 also provided a reprieve from the competitor pressure. Franchising and long-term contracts created higher switching costs, historically limiting the effects of rivalry on the two firms.

Porter’s third force is the bargaining power of buyers. This has always been low in the …show more content…
Coke and Pepsi have always set their price. Bottlers were forced to buy concentrate at set prices, usually negotiated in the favor of Coke and Pepsi. The small number of suppliers limited alternatives that could provide the necessary concentrate to bottling groups. Coke and Pepsi have continuously renegotiated contract terms to decrease their costs and enhance profitability. These contracts eventually eliminated marketing cost obligations for concentrate producers as well. Suppliers became so powerful that they eventually bought their own bottling plants.

Porter’s fifth force is the threat of substitutes. Initially, other products that could fulfill the same objective of soft drinks (quench thirst) were very weak. According to exhibit 1, carbonated soft drinks were the most-consumed beverage in America through the 1970s and 1980s. Since then, bottled water has become increasingly powerful, cutting into U.S. consumption. A growing health awareness has led to higher demand for non-carbonated soft drinks. Coke and Pepsi have largely met this threat by diversifying into other product lines such as water, juice, tea, and sports