Industrial analysis of the cola industry-A coca cola perspective

Coca cola is the largest beverage producing company in the world. Whenever we hear the word “Cola” we instantly associate this carbonated soft drink with “Coke” which is the registered trademark name under the Coca Cola Company. Such strong is its brand association builds over decades.

Porters Five Forces:

Industrial analysis of the cola industry-A coca cola perspective
Coca cola is the largest beverage producing company in the world. Whenever we hear the word “Cola” we instantly associate this carbonated soft drink with “Coke” which is the registered trademark name under the Coca Cola Company. Such strong is its brand association build over decades. Assignment:02 Page 1

Conclusion: Coca cola has good bargaining power over its suppliers. The next competitor is RC Assignment:02 Page 2 . Is Coca cola’s closest competitor in the soft drink industry. phosphoric acid and caramel color.So Coca Cola’s profit margins are low in this case. that is suppliers have low bargaining power. Very large restaurant chains have the highest amount of bargaining power over coca cola since they carry only one type of cola beverage(either a Pepsi or Coke). sugar. Conclusion: Buyers have high bargaining power over Coca Cola Analysis of Coca Cola and its competitors: Pepsi. This is where it makes the highest profit margin. the flagship product of PepsiCo. These raw materials are easily available so this gives coca cola good bargaining power over suppliers. natural flavorings. This happens because for many bottlers Coca Cola is often their largest customer.So what makes Coca Cola a market leader in its field? The industrial analysis of Coca Cola is described as follows: Analysis of Coca Cola and its suppliers: The raw materials generally used for producing Coca Cola are carbonated water. However it comes second to coke in sales. caffeine. Coca Cola manufactures concentrates and sales it to authorized bottlers. Coca cola enjoys a very high and stable gross margin of about 65% and this minimizes the risky effects of supplier bargaining power over their profitability. Analysis of Coca Cola and its buyers: The bargaining power of buyers have wide variations. Bargaining power of buyers has been high all in all allowing coca cola to realize a 28% ten year average operating margin.

This helps to reduce competitive rivalry. Moreover the economic growth of developing countries would allow the company’s penetration of many emerging markets to approach that of developed countries. Conclusion: Competitive rivalry has been medium to high for Coca Cola but it has managed to hold its position as market leader Categories High Moderate Low Bargaining power of suppliers ✓ ✓ ✓ ✓ Bargaining power of buyers Competitive rivalry Assignment:02 Page 3 . As a result volume growth will likely exceed global GDP growth over the next several decades. This could help in keeping competitive rivalry under control as companies would be able to grow volume without gaining market share.cola owned by Dr Pepper Snapple group. Being the market leader in the cola industry coca cola has earned strong reputation for its brands.

The several factors that make it very difficult for the competition to enter the soft drink market include: Barriers to Entry: Bottling Network: Coke has franchisee agreements with their existing bottlers like Abdul Monem Ltd. Also with the recent alliance among the bottler’s and the backward integration with both Coke buying significant percent of bottling companies. it is very difficult for a firm entering to find bottler’s willing to distribute their product. the brand is currently having some competitive advantages in Bangladesh:    Coca-Cola enjoys significant economies of scale. Currently. Cost of Establishment: Due to high capital intensive requirement to establish new bottling plant in Bangladesh. who has rights in a certain geographic area in perpetuity. investors cannot entry into the market. This financial barrier can be a major barrier for new entrants. Coca-Cola has tremendous brand loyalty. These agreements prohibit bottler’s from taking on new competing brands for similar products.Threats of New Entrants The popularity of Coca-Cola in Bangladesh is significantly high. Coca-Cola has huge market share. These factors minimize the threat of new entrants into the soft drinks industry of Bangladesh. Assignment:02 Page 4 .

Brand Image and Loyalty Coca cola is another oldest brand in Bangladesh. Retailer Shelf Space and Retail Distribution Channel: Abdul Monem Limited has a strong distribution channel to distribute their Coca Cola. are maintained very securely. This makes it virtually impossible for a new entrant to match this scale in this market place. They choose standard banner and color to advertise. etc. This makes it tough for the new entrants to convince retailers to carry and substitute their new products for Coke. Coke has a long history of heavy advertising and this has earned them huge amount of brand equity and loyal customer’s all over the world. Their transport facilities. coverage area. channels of distribution. From the last 50 year Coca cola hasbeen marketing its products through local representatives of Bangladesh. They make Coca Cola easy to get and available to the customer everywhere through their expert distributors channel. Assignment:02 Page 5 .Advertising Expenses Abdul Monem Limited spends about $51 million in five years to frequently advertise Coca Cola products through mass media. Fear of Retaliation To enter into a market with entrenched rivals like Coca-Cola is not easy as it could lead to price wars which affect the new comer.This makes it extremely difficult for an entrant to compete with the incumbents and gain any visibility.

we can say that due to the high barriers. The industry is enriched with enormous statistics of substitutes such as: tea. advertising expenses. the risk of new entrants in the industry is low for Coca-Cola. cost of establishment. brand image and loyalty. water. coffee. fear of retaliation in the beverage industry of Bangladesh. juice. retailer shelf space and retail distribution channel. Switching cost: Switching cost of the substitute products is very low. Threats of Substitutes of Coke: This measures the ease with which buyers can switch to another product that does the same thing. Assignment:02 Page 6 . Reasons behind threats of substitutes Aggressiveness of substitute products in promotion: Soft drinks industry companies spend huge amount of money to promote their products. energy drinks presented to the end-consumers.Barriers to Entry Bottling Network Cost of Establishment: Advertising Expenses Brand Image and Loyalty of Coke Fear of Retaliation High Moderate Low ✓ ✓ ✓ ✓ ✓ Considering the bottling network. differentiate them and making a brand loyalty. So customers can easily switch to substitute products. beer.

To consider the possible threats of substitutes of Coke that may be rated as low. There is no possible threat of technological development for Coca Cola    Positive Brand Loyality Neutral Negative ✓ ✓ ✓ ✓ Product Differentiation Promotion Technological Threat So customer’s attached to differentiating attributes reducing the threat of substitutes. Second. same for Bangladesh. Coca Cola has an enviable track record and there are countless millions of costumers the world over.Perceived price value: Perceived price value in this industry is very low because all products comparatively same and most of the times differentiated by promotional activities. Coke has a loyal base of customer here in Bangladesh. Coke has its own unique taste. There are quite a few reasons why the threat of substitute is low – particularly against Coca Cola. Assignment:02 Page 7 . bill boards and on shop merchandise.  The foremost of them is brand loyalty. Another reason that differentiate Coca Cola from other soft drinks. Coca Cola yet spend a huge amounts on promotional activities such as: television commercial. who would never abandon coke.

By applying these strengths in either a broad or narrow scope. and focus. These strategies are applied at the business unit level.D. an important secondary determinant is its position within that industry. The following table illustrates Porter's generic strategies: Porter's Generic Strategies Advantage Target Scope Low Cost Product Uniqueness Broad (Industry Wide) Cost Leadership Strategy Differentiation Strategy Narrow (Market Segment) Focus Strategy (low cost) Focus Strategy (differentiation) (Knowledge to power your business.) Assignment:02 Page 8 . three generic strategies result: cost leadership.Porter's Generic Strategies If the primary determinant of a firm's profitability is the attractiveness of the industry in which it operates. differentiation. N. They are called generic strategies because they are not firm or industry dependent. a firm that is optimally positioned can generate superior returns. Even though an industry may have below-average profitability. A firm positions itself by leveraging its strengths. Michael Porter has argued that a firm's strengths ultimately fall into one of two headings: cost advantage and differentiation.

entrants. Ability to cut price Customer loyalty can Entry in retaliation deters discourage potential Barriers potential entrants. Can use low price Threat of to defend against Substitutes substitutes. Customer's become attached to differentiating attributes. but a differentiationsupplier price increases to focused firm is better able to pass customers.Generic Strategies and Industry Forces These generic strategies each have attributes that can serve to defend against competitive forces. Better insulated Supplier from powerful Power suppliers. reducing threat of substitutes. alternatives. on supplier price increases. Generic Strategies and Industry Forces Generic Strategies Industry Force Cost Leadership Differentiation Focus Focusing develops core competencies that can act as an entry barrier. Assignment:02 Page 9 . Brand loyalty to keep customers from rivals. Rivalry Better able to compete on price. Suppliers have power because of Better able to pass on low volumes. Large buyers have less Large buyers have less power to power to negotiate because negotiate because of few of few close alternatives. The following table compares some characteristics of the generic strategies in the context of the Porter's five forces. Specialized products & core competency protect against substitutes. Buyer Power Ability to offer lower price to powerful buyers. Rivals cannot meet differentiationfocused customer needs.

(cost leadership)  Large buyers have less power to negotiate because coca cola has few close alternatives (differentiator)  Coca cola offer mass marketing.Coca cola’s strategy analysis:  Researches shows that Coca cola consumers have strong customer loyalty the market was sufficiently large for some Coke drinkers to accept a different but cheaper Cola drink its strong customer loyalty discourage potential entrants. Differentiation strategy involves making a unique product which features that are excellent value for its customer. 2011) Overall evaluation and conclusion: Coca cola adopt both cost leadership and differentiator. high market share. Assignment:02 Page 10 . (Cost leadership)  Coca cola offer superior profit through lower cost. 2011). Coca Cola spends large a large amount of money in advertising to differentiate and create a unique image for their products which gives the company and advantage over competitors. Worldwide coca cola has over 20 million outlet in more 200 countries ( cost leader)  The Coca Cola Company uses the differentiation strategy. Not only India or US soft drinks market.( BBC NEWs. This will make the customer become more loyal to the brand. coca cola has huge market share in world market. coca-cola has gained economic of scale. Coca Cola has proven to have loyal customers buy the way they continue to be the world’s largest distributor. coca cola offered standard product at lower price coca cola gain market advantage as a consequence of selling high volumes at low margins as opposed to high margins. Coca-Cola has close to a 58% share of the market. 2012). low cost. (differentiator)  Coca cola hold 42% market share in US soft drink market ( Mike. So coca cola follow both strategy. According to industry estimates. it offers unique brand and consumer has strong brand loyalty on the other hand like cost leader strategy it offer economic of scale. ( Jeremiason.

(2011.. Coca-cola Differentiation Strategy.June27).com/article/SB1000142405274870381820457620665325980 5970.html Porter..quickmba. Retrieved from: http://www. Pepsi Thirsty for a Comeback. (2012. (2012). Retrieved from: http://www.March3). Michael E.thecoca-colacompany. (2011.Reference: BBC NEWS.International Strategic Management.blogspot. Coca-Cola plans $5bn India investment to boost growth.. The Wall Street Journal.wsj.html Assignment:02 Page 11 .bbc. E. Retrieved from: http://jeremiasonstrategicmanagement.pdf Jeremiason. Refreshing A Thirsty Competitive Strategy: Techniques for Analyzing Industries and Competitors retrieved from: http://www. March11 ). retrieved from: http://online.shtml Fayard.

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