Industry Analysis, Porter's Five Forces Analysis, Barriers To Entry (Research Paper Sample)

Industry analysis
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The soft drink industry concerns the manufacture of such products as mineral waters, and syrups and concentrates utilized in production of carbonated beverage. It is a very profitable industry not only to the retailers, but also the bottlers and concentrate producers. According to the cola war case study, Coca-Cola and Pepsi Cola are the primary players, not giving room for other smaller brands to get into the market due to their adequate bottling and distribution channels. The report addresses how Porter’s five forces influence the industry’s value chain components like the retailers, bottlers, and concentrate producers as well as Coca-Cola’s position in the market.
Porter’s five forces analysis
Barriers to entry
There exist many factors that make it difficult for new competitors to enter the soft drink industry, thus making the threat of new entry considerably low. The concentrate producers’ long history of heavy advertising has enabled them to earn customer’s loyalty and brand equity that a new entrant cannot match. That notwithstanding, they also have franchise agreements with the bottlers which prohibits the bottlers from agreeing to work with any competing brand. The initial cost of setting up a bottling company as well as advertising is also very high, hence making it impossible for new entrants to get into the industry. The final retailers do not stock many of the competitor products on the shelves because most of the customers are loyal to either Coca-Cola or Pepsi products (Allender & Richards, 2012).
Power of suppliers
The soft drink industry’s suppliers have no power in the industry because the raw materials required for the production of concentrates are such popular commodities as sugar, additives or caffeine, flavor, and color (Baah & Bohaker, 2015). Therefore, concentrate producers have no pricing power, making them weak as the suppliers. Similarly, the vast market number of the bottlers, who are the suppliers to the retailers, make them weak in the determination of retailer shelf space prices. The retailers have a significant bargaining power over the many desperate bottlers in the market who are in search of retailers to whom they can distribute their products to for sale.
Power of buyers
The bargaining power of the bottlers on the concentrate producers is very minimal because of the low switching power they possess. The bottlers are the buyers in this case and cannot switch to another concentrate producer because of the franchise agreement as well as geographical constraints. The retailers, who are also the buyers, have high bargaining power over the bottlers who distribute them the final products and can command lower prices for providing the bottlers with shelf space in their stores.
Threat of substitutes
The soft drink industry has a very high substitute threat that comes from juices, coffee, beer, water, milk, and tea. However, concentrate producers have managed to counter them through brand equity, heavy advertising, making their products readily available to the final consumers as well as diversifying their business to produce substitute products (Barney, 2012). Similarly, exclusive franchise agreements make it hard to replace the bottlers. Depending on the cost of shelf space, the retailers are free to switch or retain the brands.
Rivalry
The two concentrate producers, Pepsi and Coca-Cola, are the firms with the most intense competition in the industry. They compete in different strategies like extensive marketing, price discounts, bottling plants as well as differentiation (Barney, 2012). Competition is also high among the bottlers given that there are many people in the market who can bottle for the concentrate producers. Retailers are also in competition to stock most of the products from Pepsi or Coca-Cola. Given that most of the customers are loyal to Pepsi or Coca-Cola products, retailers compete among themselves in creating shelf space for the products.
The positioning of Coca-Cola in the market
According to Nair and Selover (2012), Pepsi and Coca-Cola had 31.1% and 42.8% respectively, domination of the industry. Coca-Cola continues to dominate the soft drink industry because of the following strategies its management has taken as per Porter’s five forces discussed above. In response to the barriers of entry, its administration created bottling subsidies and acquired some bottlers to increase its control over distribution networks. Given the threats posed by the substitutes on the company, Baah and Bohaker (2015) assert that Coca-Cola diversified its brand holdings to include non-carbonated drinks as well as acquiring such brands as Dasani to increase its profitability and market share.
Nevertheless, the firm also responds to intense rivalry by spending its resources on promoting their products, offering commercial promotions and discounts, and marketing campaigns to help it remain competitive. When the buyers changed their cons...