Porter's five forces - Case Study Example

Porter’s Five Forces and the Coca Cola Company Porter’s five forces are applied by different industries to find a position where they can defend themselves against competitors or competitive forces. This study analyses Porter’s five forces in relation to the Coca Cola Company. The company manufactures, markets and sells non-alcoholic soft drink products. One of the companies competing with the Coca Cola Company is Pepsi Company. They both make and sell similar products. The next paragraphs provide analysis of Coca Cola Company using Porter’s five forces (Hill and Jones 43).

Low Threat of New EntrantsThe entry of new competitors to the industry is not easy, meaning that the threat of new entrants is low. Start up of soft drink industry requires high financial capital, labor, marketing, warehousing and advertising. The situation makes it difficult for a competitor to enter into the industry and expand. Additionally, Coca Cola Company has made huge investments in their advertisements which resulted to brand loyalty with its customers throughout the world. For example, Coca Cola Company’s advertising strategy made it attain a larger market share in 2011 than its rival Pepsi.

The market of Coca Cola was at 41.9%, the market share for its rival Pepsi was at 29.9%. The advantage was driven by huge investment Coca Cola Company makes in advertising (Russell).Strong Threat of SubstitutesThe main substitutes of Coca Cola products are bottled water, tea, coffee and sport drinks. Consumers are currently more concern about their health. They have begun cutting down on the demand of sodas because of the view that they contribute highly to obesity due to its high caloric content.

Additionally, tea and coffee are a threat to Coca Cola products because they have caffeine and customers can decide to buy it. This makes the substitute products stronger and a threat to the Coca Cola Company (Russell).Low Treats of SuppliersRaw materials essential for manufacturing Coca Cola products are basic raw materials such as sugar, flavor, color and packaging materials. The suppliers of the above materials have low bargaining power because materials are easy to obtain and there are many suppliers in the market.

However, with recent inflation of the price of goods, cost of materials such as sugar and packaging increased. This affects the profits of Coca Cola Company (Hill and Jones 44).Bargaining Power of BuyersThe Coca Cola Company and any other company distribute their soft drinks to convenience stores, restaurants, supermarkets and large grocers for resale directly to customers. They are the buyers of Coca Cola products, and they buy the products in large quantities for resale directly to customers.

However, because they buy the product in large quantity, they have bargaining power and can obtain the products from the company at lower prices. Additionally, increasing fears of customers buying fewer sodas because of unhealthy situations relating to products can be used by buyers. The buyers can negotiate for lower prices (Hill and Jones 44).Strong Competitive RivalryThe Coca Cola Company is facing high competition from its long term rival Pepsi Company. Pepsi Company is currently ranked number two after the Coca Cola Company.

The two companies have had intense competition. For example, in 2011, Pepsi Company made 38% more revenue than Coca Cola. However, Coca Cola Company made sales of $28 billion, while the Pepsi Company made sales of $12 billion. This made Pepsi Company consider other products such as Tropicana, Fricto Lay and Quaker to raise its revenue. The competition of the two companies with high investment in advertising and marketing strategies has made it difficult for other companies to join the market (Russell).

Works CitedHill, Charles and Jones, Gareth. Strategic Management Theory: An Integrated Approach, 2009. U.S.A: Cengage Learning.Russell, Mallory. How Pepsi Went From Cokes Greatest Rival to an Also-Ran in the Cola Wars, 2012. Web. May 12, 2014.