Porter’s Five-Force Model

Rivalry condition is concentrated on two main actors – Coca-Cola and Pepsi Cola – thus, the emergence duopoly competition or the Cola wars. The term ‘Cola war’ was invented to describe the extent of campaigns of mutually-targeted advertisements between the two cola giants. Through these advertisements, the two companies attacked each other emerging in a tough competition that strategically hampered the profitability of each other.

A substitute product is wide and thick and substitute products for Coke reached the market where Coke has a strong presence. Apart from the primary rival (PepsiCo), Coke is finding intensified competitions from companies that sell tea, beer, milk, coffee, wine, energy drinks, juice, packaged water, sports drink and other refreshments causing a significant decline in Coke prices. To reduce threats, Coke embraced the idea of bottling and concentrated on product diversification. Penetrating the soft drink industry is hard because of the established name of Coke; hence, new entrants must first overcome the remarkable marketing muscle and marketing presence of Coke.

Barriers to new entrants are the direct-store-delivery (DSD) strategies and the soft drink Inter-Brand competition act of 1980. Coke has long-term relationships with their retailers and distributors making it possible for them to defend their position by means of discounts and other tactics. Government regulations make it impossible for new bottlers to enter areas where an existing bottler operates.

Bargaining power of suppliers is low due to two reasons. First, the main inputs are sugar and packaging material. Sources of sugar are in the open market which subsequently makes the production power of suppliers low. There are several suppliers for packaging material as well as the suppliers of inexpensive aluminum are also in abundance. Direct negotiations from concentrate producers to suppliers are being done by Coke - an initiative to encourage reliable supply, faster delivery at lower prices.

Bargaining power of buyers depends on the marketing channel used. For Coke, there are five core channels - food stores, convenient stores, fountains, vending machines and mass merchandisers. The bargaining power of buyer is high for fountain supermarkets and mass merchandising because of the low profitability and strong negotiation power of retail channels but for vending bargaining power is non-existing caused by high profitability.