Five Force Analysis Essay
Five Force Analysis
The Bible says in Philippians 2:3-4 “Do nothing from rivalry or conceit, but in humility count others more significant than yourselves. Let each of you look not only to his own interests, but also to the interest of others”. The industry-based view of strategy is underpinned by the five forces framework, first advocated by Michael Porter, it was later strengthen by others. The five forces strategy forms the backbone of the industry-based view of strategy. Since its introduction in 1979, has become the framework for industry analysis. The five forces measure the competitiveness of the market deriving its attractiveness (Peng, 2009). Soft drink industry needs huge amount of money to spend on advertisement and marketing. In 2000, Pepsi, Coke and their bottler’s invested approximately $2.58 billion. This makes exceptionally hard for a new competitor to struggle with current market and expand visibility. (MBA lectures, 2010).
The Coca Cola Company has little worries when it comes to threats of potential entry. The beverage industry there is no consumer switching cost and zero capital requirement. Coca Cola is a beverage but it is also seen as a brand. Coke has held a significant market share for a long and their customers are loyal trying new brands are not likely. Actions indicative of a high degree of rivalry include frequent price wars, proliferation of new products, intense advertising campaigns and high cost competitive actions and reactions (Peng, 2009). The intensity of the rival threatens firms by reducing profits. Currently, the main competitor Coca Cola has is Pepsi. Pepsi has a wide range of beverage products under its brand. Coca-Cola and Pepsi are the predominant carbonated beverages and committed heavily to sponsoring outdoor events and activities. The market have other soda brands that are popular such as Dr. Pepper because of its unique flavors. The other brands haven’t been as successful as Pepsi or Coca Cola. Threat of existing rival is high among Coca Cola and Pepsi.
Coke and Pepsi are primarily competing on advertising and differentiation rather than on pricing. Substitutes are products of different industries that satisfy customer needs currently met by the focal industry (Peng, 2009). Microeconomic teaches the more substitutes a product has, the demand for the product becomes elastic. Pepsi is not a substitute for Coke because they are in the same industry. Tea, coffee, juice, and water are substitutes because they are beverages but are in a different product category. There are many kinds of energy drink, soda, and juice product in the market Coke doesn’t really have a unique taste it’s hard for many people to tell in a taste test which one is which. All the suppliers of these substitutes need massive advertising, brand equity, brand loyalty and making sure that their brands are effortlessly accessible to consumers (MBA Lectures, 2010). The bargaining power of buyers weather corporate or individual, firms in the focal industry are essentially supplies.
A small number of buyers leads to strong bargaining power. Buyers may enhance their bargaining power if products of an industry do not clearly produce cost saving or enhance the quality of life for buyers. Buyers may have strong bargaining power if they purchase standard, commodity products from suppliers. Buyers are just like suppliers they may enhance their bargaining power by entering the focal industry through backward integration (Peng, 2009). The most important buyers for the Soft Drink industry are fast food fountain, vending, convenience stores, restaurants, college canteens and other in the categorize of market share (MBA Lectures, 2010). The bargaining power of buyers for Coca Cola has low pressure. The individual has no pressure on Coca Cola. The consumer brand loyalty helps Coca Cola when it comes large retailers like Wal-Mart. Wal-Mart have power in bargaining because of the large order quantity.
Bargaining power of suppliers are low for Coca Cola. Suppliers are organization that provide inputs, such as materials, services, and manpower, to firms in the focal industry. The bargaining power of suppliers refers to their ability to raise and reduce quality of goods and services. If the supplier industry is dominated by a few firms, they may gain an upper hand (Peng, 2009). The main ingredient for soft drink are carbonated water, phosphoric acid, sweetener, and caffeine. The supplier are not concentrated. Coca Cola is the largest customer for these suppliers. Supplier’s products are important input for the manufactures in this industry because these product are not substituted.
Peng, M.W. (2009). Global Strategy (3rd. ed.) Mason, Ohio: South-Western Cengage Learning Porter’s Five Forces Model of Coca Cola. Nov 25, 2010