Indian School of Business

Competitive Strategy (CSTR)

Assignment 1

Section J; Study Group J2:

Student ID Student Name

62111004 Akshat Pawar

62111016 Arishma Datta

62110487 Kanika Gupta

62110749 Navdeep Bajaj

62110813 Prashaant Kalra

Answer 1 The concentrate industry is a more attractive industry than the bottlers. There are multiple
reasons for this and using Porter’s five forces analysis we can clearly demonstrate how each force
contributes to the profitability of the industry. In the below table, fields highlighted in green denotes
the pros and red denotes the cons of each industry for each of the forces.

Five Sub- Concentrator Industry/ Bottling Industry/

Forces category Comments Comments
For new entrants costs
Higher Volumes gives
Economies such as Marketing
High High companies more negotiating
of scale Expense are higher per
power
unit
Demand As shown by ‘Pepsi There is no brand value
side benefits High Challenge,’ people are Low associated with the bottling
of scale motivated by brands units
Concentrators have
Customer contracts with bottling Switching costs are non-
switching High companies that prevent Low existent as it depends on
cost them from moving to shelf visibility of the brands
competitor brands
Requires high speed
Involves relatively little
Threat Initial production lines, which are
capital investment in
of New Capital Low High interchangeable only for
machinery, overhead and
Entrant Requirement products of similar type and
labor
size.
Existing Incumbents like New entrants are equally
Incumbency
High Pepsi & Coke enjoy a Low likely to get contracts from
advantage
dominant Market position concentrators
Unequal Distribution channels are Large no. of channels
access to highly controlled available – fast food chains,
High Low
distribution (exclusive contracts) by vending, convenience store,
channels the dominant players. fountain etc.
Laws such as ‘Soft Drink
Restrictive Due to health concerns, Interbrand
Government High taxes are high for High Competition Act’ prevents
Policy concentrators bottling units from switching
concentrators
All beverages other than
The majority of U.S. CSDs
CSD beverages are
were packaged in metal cans
Threat of Substitutes High substitutes and CSD Low
(56%), plastic bottles (42%)
consumption per beverage
and glass bottles (2%).
is declining.
It is easier for
concentrator companies Price sensitivity is high
Power of Buyer Low High because similar substitutes
to switch among bottling
are readily available.
units.
 Concentrate business
requires basic Bottling units are highly
Power of Supplier Low commodities, hence its High dependent on concentrators
suppliers do not have contracts
much power
Intense competition High competition among
Existing Competition among the players to gain bottling companies for
High High
Rivalry higher market share hence contracts from top
high fear of retaliation concentrators.

Answer 2: Price undercutting, increased advertisement expenditure, rising legal fees, higher R&D
expenditure should have reduced profitability of the industry. However, consolidation of supply chain,
expansion to new and healthier product lines, venturing to newer markets, increased innovation and
overall increase in market size led to sharp rise in top line while simultaneous optimizing costs leading
to increased profitability.

The below timeline analysis of the Cola wars includes the key factors that led to an increase in industry
profits:

All these strategies helped Coca Cola increase its profitability for 9% in 1975 to 21.1% in 2005 and
Pepsi to increase its profitability from 4.6% in 1975 to 12.5% in 2005*. It also led to increase in the
market consumption from 26.3 gallons/capita in 1975 to 53 gallons/capita in 2000. The decrease post
that is due to the shift of consumer behavior towards healthy drinks.

*(Pepsi and Coke contribute approx. 75% of the market. Thus, they have been considered as proxy for the overall industry)