Porter’s Five Forces Model of Coca Cola

Scope of Competition

Scope of competition in this industry is generally global; Coke and Pepsi are approximately presents in 200 countries.

Market Growth Rate

The soft drinks business will not see growth in near future, with the smoothie and bottled water sectors mainly hit by a decline in 2008, and across all sectors volume declined by 1.1 percent. 

Fixed Storage Cost

This industry needs huge manufacturing plants and contracts with bottling network companies. These contracts make sure that bottler’s must have standard manufacturing plant; these plants need huge capital and exertion. 

Degree of differentiation

Marketing and Product differentiation have become more significant. Coke and Pepsi mainly are competing on advertising and differentiation rather than on pricing. Coke has diverse advertisement campaigns according to conditions. Coca-Cola is recognized as the best-known brand name in the globe. More prominently, its consumers would not do without it, and have established a loyalty.

Strategic Stake

Coke’s core operation is the manufacturing and distribution both for itself and beneath franchise, of non-alcoholic beverages and related products. Because of the strategic stake the main brand of the Coke has been around for a lot of years.

The threat of substitute products

This industry is enriched with enormous statistics of substitutes such as: water, tea, beer, juices, coffee, etc presented to the end-consumers. But all the suppliers of these substitutes need massive advertising, brand equity, brand loyalty and making sure that their brands are effortlessly accessible to the consumers. Most of the substitutes cannot counterpart the existing players’ offers or diversify business by offering new product lines of the substitute products to safeguard themselves from rivalry.

Aggressiveness of substitute products in promotion

Soft drink industry companies spend huge amount of money on advertisement and marketing to differentiate their products from others and also create brand equity, base of loyal customers and increase visibility.

Switching Cost

Switching cost of the substitute products is very low so consumers can easily shift towards the substitute products.

Perceived price/ value

Perceived price/value in this industry is very low because all products are comparatively same and are only differentiated by promotional activities. 

The bargaining power of Customers (Buyers)

The most important buyers for the Soft Drink industry are fast food fountain, vending, convenience stores, food stores, restaurants, college canteens and others in the categorize of market share. The profitability/revenue in each of these segments obviously demonstrates the bargaining power of the buyers to pay different prices. 

Fast Food Fountain

Pepsi and Coke mainly regard this segment as “Paid Sampling” due to small margins. This division of buyer’s is the slightest profitable because of the high bargaining power of the buyers. The bargaining power of the buyers is high because they purchase in bulks. 

Vending Machines

Vending Machines provide products to the customers in a straight line with enormously no power with the buyer.

Convenience Stores

This segment is tremendously fragmented and has no bargaining power due to which it has to pay superior prices.

Food Stores

This segment of buyers’ is fairly merged with few local supermarkets and numerous chain stores. Since this segment presents best shelf space it demands lower prices.

The bargaining power of Suppliers

Most of the raw materials desirable to manufacture soft drink are basic merchandise such as flavor, color, caffeine, sugar, and packaging etc. The suppliers of these commodities have no bargaining power over the pricing due to which the suppliers in soft drink industry are relatively weak.

Number of important Suppliers

Raw materials for soft drink are basic commodities which are easily available to every producer and have low cost which makes no difference for any supplier.

Switching cost

All the raw material ingredients are basic merchandize and easily accessible to manufacturers. Switching cost to the suppliers is very low; manufactures can easily shift towards the other suppliers.

Availability of substitutes

Soft drink products have standard raw material ingredients which could not have any alternatives or used instead of the actual ingredients.

Threat of forward integration

Threat of forward integration is very low in this industry because manufacturers of the soft drinks need huge manufacturing plants, bottling network, strong distribution network and best shelf space.  Suppliers could not afford such kind of well-established network.

Importance of buyer industry to suppliers

Soft drink industry is very important to the suppliers because buyers purchase larger amount of raw material. This encourages suppliers to remain in good contact with buyers.  

Suppliers’ product an important input to the buyer’s

Product of the suppliers is very important input for the manufacturers in this industry because these products do not have any substitute.