Hammad Ali

Issue

USA has seen a decrease in demand of CSD and increase in demand of non-carbonated soft drink. Federal
government guidelines and a push towards healthy diet is having the population think about health and avoid
CSD’s as they are not good for health. The threat of new tax on CSD by serval states is a reason to worry for
Cola industry. Cola industry has suffered a huge loss regarding their market share and profitability. Both major
Cola competitors are losing the market share.

Analysis

The soft drink industry was dominated by two major players, who owned majority of the market share. These
rivals compete on differentiation rather than pricing, disallowing profit losses and keeping them very profitable.
The competition between these two companies is not harmful to each other, they focus on non-price factors in
their rivalry; marketing, production and innovation. The threat of new entrants is low due to high entry barriers.
Huge amount of capital is required in order to enter the CSD industry. Industry being highly competitive in
bottling process, having capital-intensive activities involving high-speed production and significant cost
required for advertising, promotion, market-research and bottler support. Strategy of secret cola formula by both
leaders; make imitation harder and block new entrants. Customer loyalty and brand recognition to Coke/Pepsi
products, which was built up over decades. New trend of non-CSD drinks which makes it un-attractive for
entrants. The CSD industry has large number of substitutes, since many alternatives to CSD exist. These are
coffee, milk, beer, tea, juices, water, energy-drinks and superstore brand CSD. The popularity of non-CSD is
continuing to grow, because consumers are being more conscious about health, linkage of CSDs to health issues
like obesity and mal-nutrition. The cost of switching to substitutes is low, Coke/Pepsi are trying to lower this
threat by investing in non-carb drinks market. Buyers power in the CSD industry has multiple players. The
bottlers are divided and have limited negotiation power with the concentrate producers. Coke/Pepsi’s bottler
agreements have restricted buyer’s power, as determine the price of the concentrate. They have contracts with
bottlers stopping them from taking new orders for similar products. Coke/Pepsi own the significant amount of
bottling industry. They account for largest national fountain-business, by owning multiple fast-food chains in
USA. The consumer market is large and extremely fragmented, advertisement can attract more consumers. The
supplier power is low, the most valuable material in the process of CSD is concentrate, provided by Coke/Pepsi
to the bottlers. The materials sweetener, flavor, caffeine, carbonated water and packing, are required
commodities and easily available in the market. There are large number of bottler suppliers and commodities
suppliers, making the supplier bargaining power low. It is not costly to switch the suppliers in our case, basic
commodities are readily available.

Recommendation

In conclusion of analysis and current problem, I recommend using discovery by experiment approach. Coke and
Pepsi invest in the new non-carb drinks. Supporting my recommendation by exhibit 7, showing a clear drop in
market share of CSD and an increase in the shares of non-carb drink makers. Introduction of non-carb drinks
like energy drinks, sports drinks, cold-teas, natural bottled-water and flavoured-water, as new offered
alternatives. Advertisement campaign should run under the brand names. The cost should be kept low by using
key metrics currently available; that being strong hold on bottling industry in our case, which must be used for
creation of new non-carbs drinks. Loyalty of consumers to the brands will help sales, due to brand recognition
that was created with decades of hard work. Competition’s focus should be on non-profit factors.