Porter’s Five Forces In Action: Sample Analysis of Coca-Cola
Since its introduction in 1979, Michael Porter’s Five Forces has become the de facto framework for industry analysis. The five forces measure the competitiveness of the market deriving its attractiveness. The analyst uses conclusions derived from the analysis to determine the company’s risk from in its industry (current or potential). The five forces are (1) Threat of New Entrants, (2) Threat of Substitute Products or Services, (3) Bargaining Power of Buyers, (4) Bargaining Power of Suppliers, (5) Competitive Rivalry Among Existing Firms. The following is a Five Forces analysis of The Coca-Cola Company in relationship to its Coca-Cola brand.
Threat of New Entrants/Potential Competitors: Median Pressure
• Entry barriers are relatively low for beverage industry: ...view middle of the document...
Coca-cola doesn’t really have a special flavor. In a blind taste test, people couldn’t tell the difference between Coca-Cola coke and Pepsi coke.
The Bargaining Power of Buyers: Low pressure
• The individual buyer has little to no pressure on Coca-Cola
• The main competitor, Pepsi is priced almost the same as Coca-Cola.
• Consumer could buy those new and less popular beverages with lower price but the flavor is different and the quality is not guaranteed.
• Large retailers, like Wal-Mart, have bargaining power because of the large order quantity, but the bargaining power is lessened because of the end consumer brand loyalty.
• There are many kinds of energy drink and soda products in the market. Coca-cola doesn’t really have a special flavor. In a blind taste test, people couldn’t tell the difference between Coca-Cola coke and Pepsi coke.
• People are getting concerns of negative effects of carbonated beverages. Increasing number of consumers begin to drink fruit juice, lemonade and tea instead of soda products.
The Bargaining Power of Suppliers: Low pressure
• The main ingredients for soft drink include carbonated water, phosphoric acid, sweetener, and caffeine. The suppliers are not concentrated or differentiated.
• Any supplier would not want to lose a huge customer like Coca-Cola.
Rivalry Among Existing Firms: High Pressure
• Currently, the main competitor is Pepsi which also has a wide range of beverage products under its brand. Both Coca-Cola and Pepsi are the predominant carbonated beverages and commit heavily to sponsoring outdoor festivals and activities. As Coca-Cola has a longer history, it is advertised in a more classical approach while Pepsi tried to attract younger generation by using pop stars as brand ambassadors. Currently Coca-Cola slightly topped Pepsi as the possessor of the most U.S market share.
• There are other soda brands in the market that become popular, like Dr. Pepper, because of their unique flavors.