Assignment of Marketing Management: Topic: Porters 5 Forces Analysis For Soft Drink Industry
Assignment of Marketing Management: Topic: Porters 5 Forces Analysis For Soft Drink Industry
1. Threat of Competitors: Soft drink consumption has a market share of 46.8% within the
non-alcoholic drink industry. The soft drink industry is very competitive for all
corporations involved, with the greatest competition being that from rival sellers within
the industry. The two examples for soft drink industry (Non cola products) are Coca
Cola and Pepsi co.
Coca-Cola, Pepsi Co., are the largest competitors in this industry, which are globally
established.
Coke is dominant company of the soft drink industry and boasts a global market share
of around 44%. The Coca-Cola Company dominates the market by owning four of the
global top five soft-drink brands: Coca-Cola, Diet Coke, Fanta and Sprite. Its main
activity consists on producing syrup concentrate which is then sold to various
bottlers throughout the world who hold a Coca-Cola franchise. Coca-Cola faces
competitive pressure from rival sellers in the soft drink industry.
PepsiCo boasts global market share of about 31%. Pepsi Co., is the biggest snack
maker and the second biggest soft-drinks maker in the world. The company
manufactures markets and sells beverages and snacks in approximately 200 countries.
Brand name loyalty is another competitive pressure. Diet Pepsi ranked 17th and Diet
Coke ranked 36th as having the most loyal customers to their brands.
The new competition between rival sellers is to create new varieties of soft drinks,
such as vanilla and cherry, in order to keep increasing sales and enticing new
customers.
Exit barriers are high for bottlers with expensive equipment, moderate for
concentrate producers. Advertising budgets are high and customers are influenced by
brand perceptions.
2. Threat of new entrants: The threat of entry depends on the presence of entry barriers and
the reaction that can be expected from existing competitors Saturation
and small growth of Soft drink industry makes it very difficult for new entrants to
start competing against the existing firms.
Another entry barrier is the high fixed costs for warehouses, trucks, and labor, and
economies of scale. New Entrants cannot compete in price without economies of scale.
Coca-Cola and Pepsi Co dominate the industry with their strong brand name and great
distribution channels and market saturation makes them difficult to enter the soft drink
industry and become strong competitive force.
Bottling Network: Both Coke and PepsiCo have franchisee agreements with their
existing bottler’s that have rights in a certain geographic area in perpetuity. These
agreements prohibit bottler’s from taking on new competing brands for similar products.
3. Threat of Substitute:
Substitute products are those products that appear to be different but can satisfy the same
need as another product. Substitute products are those competitors that are not in the soft
drink industry. In case of Substitutes for products of soft drink industries like Coca Cola
and Pepsi, are bottled water, sports drinks, coffee, and tea, non cola drinks like
orange, mango etc.
Bottled water and sports drinks are increasingly popular among those consumers who are
health conscious. These water and sports drinks are healthier than soft drinks.
Coffee and tea are competitive substitutes because they provide caffeine. The consumers
who purchase a lot of soft drinks may substitute coffee if they want to keep the caffeine
and lose the sugar and carbonation.
It is also very cheap for consumers to switch to these substitutes making the threat of
substitute products very strong.
4. Bargaining power of Suppliers: It is low, because there are many suppliers in this
industry and there are substitute firms in the industry. Suppliers for the soft drink industry
do not hold much competitive pressure.
Coca-Cola and Pepsi are among the metal can industry’s largest customers and maintain
relationships with more than one supplier, giving these suppliers less bargaining power
due to the availability of alternative suppliers.
Restaurants have less bargaining power because they do not order a large volume.
However, with the number of people are drinking less soft drinks, the bargaining power of
buyers could start increasing due to decreasing buyer demand.