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The Five Porter Forces - Essay Example

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In the paper “The Five Porter Forces” the author provides an analysis on which a company should base the production techniques and shows a balance of forces that determine the profitability of an industry. For a firm to ensure maximum profits there is need to use Porter's model…
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The Five Porter Forces
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The Five Porter Forces
The Porter five forces provide an analysis on which a company should base the production techniques and shows a balance of forces that determine the profitability of an industry. For a firm to ensure maximum profits there is need to use the model to understand the industry context so as to develop an edge over the immediate rivals. The underlying five forces that were given by Porter include the supplier power, buyer power, threat of substitutes, rivalry and entry barriers or threats of new entrants to a market (Greenwald & Kahn 57). Michael Porter has provided that firms can sustain different levels of returns which are dependent on the industry structure but which can also be enhanced by the use and basic understanding of the model. This is thus applicable to the Coke and Pepsi industries who are major rivals in the production of carbonated soft drinks.
The structure of the concentrated producers is such that a blend of raw materials ingredients are produced, packaged in plastic canisters and taken to the bottlers. Concentrate producers add artificial sweeteners to carbonated drinks while the bottlers add sugar or high fructose thus making the process of the former to be less capital intensive than the latter. Production cost is low under the concentrate producers with little capital being used on machinery, labor and overheads and still ensuring that production can serve the whole of the United States (Greenwald & Kahn 91). Innovation and sophistication is a key goal in the firm with high investments awarded to marketing, advertising, research, promotion and bottler support. However, key emphasis is given to the development of customer development agreements with other advanced companies to promote marketing strategies and employment of many people to meet the production demand
Bottlers on the other hand add sugar, carbonated water, high fructose corn syrup to the concentrates and packed it ready for delivery to customers. The sales include maximization of space, positioning of brand, setting displays and points of sale and coming up with promotional activities. The process of the bottlers is capital intensive, involves high speed and high cost to produce packages that are of similar type and size. Much of the system is capital intensive with major investments being accounted for trucks and distribution process.
The industry structure of the concentrate producers is more attractive based on the model provided by Porter on industrial framework. The supplier power of the concentrate producers is higher than that of the bottler despite that they both use the same concentrate. This is because the producers have a high and advanced networking and even though they do this as a joint adventure with the bottlers, they largely implement and finance marketing programs. Secondly there i s low inclination to substitute for a different concentrate and since their product has low production process, the cost of obtaining the concentrate is low ensuring high buyer power.
The two industrial structures have however related in different ventures to reduce competition by ensuring that promotional and marketing activities of the drink are well and effectively conducted. This includes negotiations with major bottler suppliers to ensure the supplier power is maintained and that markets are kept easing off the competition (Greenwald & Kahn 116). Fast delivery and low prices has maintained consumer loyalty and improved the purchasing power of carbonated drinks which is enabled by the low production process of the concentrate producers. Therefore on the bases of the five Porter forces, the concentrate producers are more attractive than the bottlers where industrial positioning is considered.
Works Cited
Greenwald, Bruce & Kahn, Judd. Competition Demystified: A Radically Simplified Approach to
Business Strategy. New York: Prentice Hall. Read More
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