External Environment

a. Porter’s five forces

Porter’s Five (5) Forces is a framework for assessing and evaluating the competitive strength and
position of a business organization.

1. Supplier Power

The bargaining power of suppliers of Coca Cola is weak. It is so because the number of suppliers is high
and the switching costs for Coca Cola low. While Coca Cola can easily switch from one supplier to
another, it is not possible for any supplier to switch away from Coca Cola as easily. That can lead to
losses for any of the suppliers. While there are several suppliers, the size of individual suppliers is small
or moderately large. Moreover, forward integration is a distant possibility for most of its suppliers. Even
if there are no substitutes for raw materials like sugar, the number of suppliers is still high. So, the main
factors that have come to light regarding the bargaining power of suppliers are:

 Large number of suppliers

 Small to moderately large size of individual suppliers.
 Forward integration difficult for the suppliers.
 Switching costs for Coca Cola not so high.

2. Buyer Power

The bargaining power of individual customers in case of Coca Cola is low. Individual customers generally
buy small volumes and they are not concentrated in specific Markets either. However, the level of
differentiation between Pepsi and Coca cola is low. Mostly they sell similar flavor’s. Switching costs are
not high for customers and still the two brands enjoy high brand loyalty. The customers of coca cola are
not price sensitive. Backward integration is not a possibility for the customers whether it is an individual
customer or a large retailer. If a retailer acquires some bargaining power then it is only because it buys
in large volumes. Still, overall the customers’ bargaining power is weak

3. Competitive Rivalry

There are two major players in the soda industry and they are Coca Cola and Pepsi. There is intense
rivalry between the two major players. There are a few smaller players too but they do not pose a major
competitive threat. The two main players are nearly of the same size and they have similar products and
strategies. The level of differentiation between the two brands is also low and therefore the price
competition is intense. People have already heard of the Cola wars. So, the level of competitive rivalry
between the existing firms is a strong force.

4. Threat of substitution
Main substitutes of Coca Cola products are the beverages made by Pepsi, fruit juices, and other hot and
cold beverages. The number of substitutes of Coca Cola products is high. There are several juices and
other kinds of hot and cold beverages in the market. The switching costs are low for the customers.
Apart from it, the quality of the substitute products is also generally good. So, based on these factors the
threat from substitutes is strong.

5. Threat of new entrants

In the beverages industry there are several factors that discourage new brands from entering. Growing a
brand overnight is impossible. There are significant investments to be made. From operations to
marketing every part requires a large investment. Some local brands may start it at smaller scale and still
marketing and hiring qualified staff requires generous investment. The level of customer loyalty in the
industry is moderate and for any brand to build customer loyalty it will take some time. So, while new
entrants can compete with brands like Coca Cola at a smaller or local level, to build a brand as big is a
mammoth task requiring both capital and skilled human resources.

Reference:

https://www.google.com/url?sa=t&source=web&rct=j&url=https://mmsi.binus.ac.id/2020/06/30/
porter-five-forces-analysis-on-coca-cola/
&ved=2ahUKEwjcpd69lYX_AhUc7zgGHRrHAMEQFnoECA4QAQ&usg=AOvVaw3JpgoDN_tQ07ckSEXtRaQf