Coca Cola: Porter Five Forces Analysis - Case Study Example

Coca Cola: Porter Five Forces Analysis Name Institution Name Coca Cola is a company that produces carbonated soft drinks that are sold across the world. The product was introduced as a patent medicine in the 19th century and in 1944 was registered in Atlanta, Georgia (Coca Cola, 2014). Coca Cola usually produces concentrates that are later sold to Coca Cola bottlers across the world. The regional companies’ produces have exclusive contracts and are responsible for producing the finished products. The concentrates are mixed with sweeteners and filtered water. In addition, Coca Cola produces different soft drinks (Coca Cola, 2014). Therefore, Coca Cola operates in soft drink industry, and their core business is producing the concentrates for soft drinks that are distributed across the world and also manages the contracts. The Coca Cola vision is premised in people, portfolio, partners, planet, profit and productivity; it forms the components of the vision statement. The mission statement is based on three components which are “to refresh the world”, “to inspire moments of optimism and happiness”, and “to create value and make a difference” (Coca Cola, 2014). In addition, the values that Coca Cola champion include quality, diversity, passion, accountability, integrity, collaboration and leadership (Coca Cola, 2014). The aim of this essay is to discuss Coca Cola based on five forces model. Moreover, the essay discusses competitive environment and macro environment factors that may influence the soft drink industry. The Porter five forces analysis is a model that is employed to understand the competition level within a given industry and provide means of business strategy development (Porter, 2003). It is used to determine whether the market is attractive or unattractive (Baker & Hart, 2008). Porter five forces usually analyses micro environment forces since the forces affect the way an organization operates and how revenues are generated (Michael, 2008). The five forces are intensity of competitive rivalry, bargaining power of suppliers and threat of new entrants (Sahaf, 2008). Others include bargaining power of customers and threat of substitute services or products. The first force is the threat of new entrants. Those industries or markets that have high yields mostly attract new companies (Evans & Wurster, 2000). Introduction of new entrants means that the profitability would be affected for all the firms within a given industry (Drummond, Ensor & Ashford, 2010). Some of the factors that determine the extent of new entrants threat include existing barriers such as rights, government policy, economies of scale, product differentiation, access to distribution, expected retaliation and industry profitably (Hill & Jones, 2011). These are some of the factors that new entrants employ to gauge the market (Baker & Hart, 2008). The second force is a threat of substitute services or products (Drummond, Ensor & Ashford, 2010). Presences of any product that is not within the realm of the current product may make the customers seek for alternative products (Baker & Hart, 2008). For example, some consumers make not take Coke rather consume water as an alternative (Baker & Hart, 2008). Advisements and any other promotional strategies employed by Coke similar competitor grow the market of the soft drink while marketing by the water company shrinks the market for both Coke and other competitive players (Hagel & Brown, 2001). Some potential factors include substandard product, ease of substitution, quality depreciation and buyer switching costs (Drummond, Ensor & Ashford, 2010). The third component is bargaining power of customers or the buyers (Baker & Hart, 2008). This is the market of outputs. The customers may exert pressure on an organization forcing the organization to reduce the price (Baker & Hart, 2008). However, organization implements strategies such as loyalty program to reduce customer power (Hill, Jones & Schilling, 2014). In the case there are numerous alternatives; the buyer usually has high power (Drummond, Ensor & Ashford, 2010). Some potential factors of this force include forcing down the prices, buyer price sensitivity and availability of information to the customer. The forth force is bargaining power of suppliers (Birkenmaier, 2001). This is the market of inputs because it incorporates labor, components, raw materials and other important that ensures a business operates smoothly. When view substitutes exist, the organization has the power (Drummond, Ensor & Ashford, 2010). For example, if there is a single firm selling flour for bread and there are numerous bread producers, all the producers would purchase the flour from the only supplier. Through such powers, a firm may decline selling the raw materials or the firm dictates new process (Drummond, Ensor & Ashford, 2010). Some of the potential factors raising such situations include degree of differentiation of inputs, employee solidarity and presence of substitute inputs (Baker & Hart, 2008). The fifth and last force is intensity of competitive rivalry. Competition is the major component of moist business (Drummond, Ensor & Ashford, 2010). Some of the potential factors include firm concentration ration, level of advertising expense, sustainable competitive advantage and degree of transparency (Drummond, Ensor & Ashford, 2010). In the case of Coca Cola, the threat of the entry of new competitors is average; for the purpose of discussion, threat levels would be low, average and high (Kevin & Somu, 1996). The soft drink industry is capital demanding because of the infrastructure and other supporting requirements (Drummond, Ensor & Ashford, 2010). In addition, resources are required for marketing and advertising, which new firms may not afford. Another issue is brand image and customer loyalty since Coca Cola is not only a drink, but has surpassed to be a brand (Baker & Hart, 2008). Moreover, distribution of soft drink is demanding and attracting distributions is a major concern for any entrant (West, Ford & Ibrahim, 2010). In addition, the intensity of competitive rivalry is very high. The major direct competition of Coca Cola is Pepsi. Most of their products are similar in taste. Moreover, Coca Cola produces a variety of tastes similar to Pepsi (Drummond, Ensor & Ashford, 2010). Apart from Pepsi, there are regional soft drink producers especially those dealing with carbonated soft drinks (Baker & Hart, 2008). The threat of substitute products may be viewed as lying between media and high (Baker & Hart, 2008). It is attributed to numerous soft drinks include juice, soda and energy drinks that are available in the market (Baker & Hart, 2008). In addition, Coca Cola products do not have unique taste or flavor and other producers can easily produce similar drinks (West, Ford & Ibrahim, 2010). Moreover, competitive producers can become aggressive in promoting leading in lose of consumers (Lussier, 2011). The competitors may reduce the price or view the value of the soft drink in a manner that results in switching to alternative products (Drummond, Ensor & Ashford, 2010). The bargaining power of buyers is very low (Porter, 1980). The large retailers control the market because they determine the quantity but the buyer power is lessened because of customer’s loyalty of the brand (Palepu & Healy, 2007). Moreover, Coca Cola products are available in most food stores, fast food fountain and convenience stores meaning the consumers would be forced to purchase them (Drummond, Ensor & Ashford, 2010). The bargaining power of suppliers is very low (West, Ford & Ibrahim, 2010). Most of the raw materials used in the production of Coca Cola products include caffeine, sweetener, phosphoric acid and carbonated water. In addition, the suppliers are not differentiated or concentrated (Nijssen & Frambach, 2001). Nevertheless, Coca Cola is among the largest consumers of the raw materials from the suppliers. Therefore, the suppliers do not have bargaining powers since Coca Cola may decide to choose another supplier (Drummond, Ensor & Ashford, 2010). According to the analysis of soft drink industry, it is evident that the industry is very competitive (Drummond, Ensor & Ashford, 2010). Manufactures and producers have to utilize large resources to attract and retain consumers (Ghemawat et al., 2001). Moreover, substitute products are many and consumers can purchase substitute products (West, Ford & Ibrahim, 2010). In addition, it is difficult to start a business because of large capital outlays and additional resources required to sustain the operations of the business (Baker & Hart, 2008). The two macro-environment factors are social and environmental (Drummond, Ensor & Ashford, 2010). These two macro-economic factors would affect negatively the operations of soft drink industry (Baker & Hart, 2008). Socially, consumers appreciate the importance of health eating and health lifestyle. Consumers have knowledge of nutritional information especially on fact content and sugar. The customers tend to purchase those products that encourage healthy lifestyles (Drummond, Ensor & Ashford, 2010). Environmentally, soft drink industry is encouraged to utilize environmental friendly and sustainable products for their packaging. In addition, soft drink is encouraged to educate the customers of the importance of recycling cans and bottles after consumption of the drink (Baker & Hart, 2008). The soft drink firms would be forced to either produce health drinks or invest in educating consumers to recycle the containers: cans and bottles. Fulfilling these requirements means that the soft drink firms should invest (resource wise) to achieve their respective goals. References Baker, M., & Hart, S. (2008). The marketing book, 6th Ed. London: Routledge Publishers Birkenmaier, J. (2001). The practice of generalist social work. New York, NY: Routledge. Coca Cola. (2014). Our company. Retrieved from http://www.coca-colacompany.com/our-company/mission-vision-values Drummond, G., Ensor, J., & Ashford, R. (2010). Strategic marketing, 3rd Ed. London: Routledge Publishers Evans, P., & Wurster, T. (2000). Blown to bits: How the new economics of information transforms strategy. Cambridge, MA: Harvard Business School Press Ghemawat, P., Collis, D.J., Pisano, G.P. and Rivkin, J.W. (2001). Strategy and the business landscape: Core concepts. 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