Cola Wars Continue: Coke and Pepsi in 2010 Essay
The CSD market in the US (approx. $74 billion) is dominated by two concentrate manufacturers – namely Coke and Pepsi –. Both companies have been competing intensely since the 1970s, yet have thrived from this competition and have grown the business very profitably, as both have benefitted from the CSD market growth rates of around 10% p.a. until the early 2000s, when domestic consumption started to decline and in 2009 fell back to levels of 19901: 1990 2000 2009 22.7 46.9 53.0 46.0 1990 2000 2009e In order to understand the strategic issues of the concentrate manufacturers in the US market, an analysis of the CSD industry structure appears necessary.
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A practical tool for assessing strategic issues is Porter’s Five Forces, as this tool supports analyses of competition, as strategy is fundamentally about competition2. The model of Porter is an outside-in business unit strategy tool that analyses the attractiveness (value) of an industry structure, capturing the key elements of industry competition.
Source: HBS case study ‘Cola Wars Continue: Coke and Pepsi in 2010′ May 26, 2011, Exhibit 1 Source: Porter, ‘Competitive Strategy’ Figure 1: Porter’s Five Forces Analysis Summary on figure 1 Barriers to entry are very high due to the following key factors: (1) anybody trying to break into the CSD market must compete with Coke’s and Pepsi’s combined market share of >73%; (2) the industry leaders have got – above decades – built up logically critical source, production and sales channels, which will require enormous investments for followers to copy and (3) the solid brand identification in the market largely developed with the cumulative effect of long-time advertising and marketing and the physical availability of many. Understanding the CSD industry as well as competitive landscape and – given that the overarching goal of the concentrate manufacturers is always to secure rewarding growth – the primary proper issue (central problem) to get the completely focus manufacturers is a declining demand for CSDs, mainly because these manufacturers possess built their particular strategy within the decades upon large volume level production and distribution involving high numbers of investments (fixed assets) which are now (1) underutilized and (2) are not designed for substitute products (‘non-carb’). (b) Macro-environmental factors surrounding the US CSD industry Considering that the early 2000s several macro-environmental factors have got started re-shaping the US CSD industry.
To obtain a full photo of the potential macro-environmental effect on this market, I used the PESTLE framework. PESTLE stands for – Political, Economic, Sociological, Technical, Legal and Environmental. This framework can be described as tool for identifying, checking, projecting and assessing macro-environmental trends and patterns which will helps decision-making and to arrange for future events.
Figure 2: PESTLE Examination Summary on figure a couple of Based on the PESTLE examination, 4 significant trends which have already molded respectively will certainly continue to form the current US CSD market and impact the charm of this sector are: (1) Shift in consumption patterns toward healthier diet (non-carbs just like juices and juice drinks, sports and energy drinks and tea-based drinks but also bottled water) causing the CSD to fizzle (2) ALL OF US Government struggling the US #1 health problem overweight by tightened nutrition guidelines and imposing taxes about CSDs (3) Increasing costs power of rising mass-merchandisers (e. g. Wal-Mart) posing a fresh threat to profitability pertaining to Coke, Pepsi and their bottlers (4) Non-carb market is ready to accept new industry entrants, since it is a more robust fragmented market not dominated by the ‘classical’ CSD corporations (Coke, Pepsi, DPS, and so forth ) The PESTLE research also uncovers that the enhancements made on the US CSD industry is definitely not a one-timeimpact but rather a continuing process: 2000s (early): commence of a decreasing domestic consumption of CSDs 2005: new federal rules to battle obesity 2010: already 29 states launched a ‘soda tax’ (c) Future attractiveness of the US CSD sector The US CSD industry will continue to be a very attractive market pertaining to the established players alone considering the scale the market as well as the strong position in the market of these players. The 3 A’s (Advertising, Addiction, Availability) continue to be the primary purchasing criteria for consumers.
Still these kinds of players will have to adapt their strategies to keep market levels for CSDs. Possible tactical moves to action / respond on the styles stated over should be based on the conclusions of the Five Forces Examination and the PESTLE Analysis and may include: (1) Development of (approved by the ALL OF US F&D Admin. ) alternative sweeteners to lessen obesitycausing sugar (2) Be competitive on availableness (through all their impressive physical reach) (3) Create a fragmented bottling network but provide territorial exclusivity to bottlers as motivation to ‘grow the pie’ and make use of the bottling network as a competitive firewall (especially against massmerchandisers) (4) Turn advertising spending to keep out entry Even more market analysis can be carried out by using proven tools such as ‘Ansoff’s Growth Approach Matrix’ (market present versus market upcoming / product present vs . product future) or the manufacturer analysis (brand strength sama dengan differentiation + relevance or brand size = understanding + esteem) but that i have not referred to in this statement.
The competition in the CSD market is a stronghold between Cola and Soft drink with a few slight players with each other holding around. 25% market share. Coke and Pepsi leveraging their good market position and build upon economies of scale crowding out smaller players or perhaps – if possible – get them. Competition between Coke and Pepsi is testing, with both addressing each other’s strategy changes.
Most prominent were the development of diet plan and flavoured varieties of CSDs. To further support the research of the future charm of the US CSD sector, the following Force Field Analysis is useful, as it also reveals potential ‘restraining forces’ of change. Since figure three or more shows, especially the market interruptions coming from home consumption of CSDs continuously declining possess caught – to a certain extent – the ‘classical’ CSD companies by surprise, because they cannot respond to this advancement by normal measures – such as raising advertisement or bringing fresh CSDs to the market – but are today facing a strength change in the beverage marketplace with an uncertain final result.
Figure three or more: Force Discipline Analysis The Force Field Analysis – as explained in literary works – is very useful to identify “resistance to change”, offering a systematized platform that facilitates identify elements that impede change (restraining forces) and factors that support transform (driving forces). Kurt Lewin developed the principle, which is a significant contribution to the fields of cultural science, company development, process management, and change management. (d) Potential effects of the four pressures (industry dynamics, the positive effect, risk and ethics) within the future elegance of the ALL OF US CSD industry The ideas gained from your analyses carried out under 1(a), 1(b) and 1(c) summarize the potential impact of the several pressures the following: (1) Market dynamics (defined as understanding how industries and companies change over time and understand their very own drivers of these changes): The planet in which CSD companies have been operating until the early 2000s was 5 characterized by competition but the sector dynamics very ‘evolutionary’.
The PESTLE research has shown, that since that time, industry dynamics include dramatically found and several long lasting disruptive adjustments (e. g. introduction of your ‘soda tax’) have took place. Subsequently this has had an effect on top and bottom line from the CSD sector (‘Cola Wars’ business case, Exhibit 3a). (2) Globalization (defined while when an market globalizes, it undergoes structural shifts, so that the organizations within just it realize that their location in one nation is substantially affected by their particular position in another country): Even if the aforementioned analyses are was executed to the US CSD industry, your data provided by the truth study discloses that Coke’s share people business in % of total global business is about 20% although Pepsi’s reveal is around 50 percent.
The intercontinental business – in contrast to america market – has been growing nicely provided the strong population expansion in growing countries as well as the establishment of a ‘middle class’ in significant nations including India and China that may now afford CSDs. Coke has more robust benefitted using this growth because Pepsi features.
This should offer Coke further more potential for economies of range which should gain bottom line significantly. (3) Risk (defined while the evaluation of numbers of risk and reward attached with each potential business opportunity): The direct exposure of risk in the CSD industry – given that specifically Coke and Pepsi (a) have a tremendous share of business in the single largest CSD market worldwide, which is the US and (b) depend on the success of just one type of item (carbonated soft drink) – is large. Impacts received from macro-environmental elements – as shown in the PESTLE research – could be game changing for this industry, as previously happening considering that the early 2000s. (4) Integrity (defined as a set of ideals and philosophy that do transcend cultures, as well as economic conditions): Again stressing PESTLE, environmental protection has become one of these values that have damaged the CSD industry and possess at least forced the CSD companies to re-think their the labels strategy and in consequence potential changes in the development and bottling process.
From the aforementioned I would draw, that industry aspect has the significant impact on the near future attractiveness of the US CSD industry. The task left for each corporation is always to understand, select and put into practice the ideas, methods and tools that best suit their particular purpose. This involves experienced managers and authorities that are capable of making make use of theory to improve practice. 1 ) Module strategy I: Porter’s Five Pushes Strategy is definitely fundamentally about competition. Competition comes from a large number of places.
Therefore it is essential to carry out an ‘environmental scan’ in a systematic method. Porter Five Forces model is a tested outside-in organization unit technique tool that analyses the attractiveness (value) of an market structure, capturing the key portions of industry competition. (a) Talents of the framework Porter refers to these forces as the micro environment or line-of-business industry level (those causes that are close to the company and this drive the business). If perhaps changes happen in one of such forces, the organization should re-assess their proper position and – if perhaps required – take corrective action.
Plus it provides beneficial input pertaining to performing a SWOT (Strengths, Weaknesses, Opportunities and Threats) analysis. (b) Limitations of the framework The framework would not look at approach from the inside-out. Consequently the view outside the window on main competencies on a company are ignored. I might have located it helpful to understand wherever Coke is rolling out a competitive advantage or Pepsi and vice-versa. Consequently a SWOT analysis should always complement the Five Pushes Analysis.
One more critique I would personally make towards the framework is the fact, that the four forces (1) entrants, (2) substitutes, (3) customers and (4) suppliers only connect with the center (competitors) but usually do not ‘interact’ between themselves. Inside the ‘Cola Wars’ e. g. the discussion between alternatives and clients would have been of interest. Previous I would criticize the platform is not too useful for surroundings that are seen as rapid, systemic and major change which usually requires more flexible or aufstrebend approaches to technique formulation (this often going on with industrial sectors where disruptive innovation is usually foreseeable).
This is also true for disruptions that give the likelihood to create brand-new markets (how to create easy market space and associated with competition irrelevant)3. 2 . Component concept 2: PESTLE construction The PESTLE framework is a powerful instrument and I used it to weigh up the broad variety of factors within an organization’s environment that will impact on its technique. Reading through the ‘Cola Wars’ business case it quickly became apparent, that it is not just one but a lot of factors which might be influencing america CSD industry. PESTLE very much serves as a checklist of macro-environmental factors that can effect strategy.
I personally prefer making use of the PESTLE structure in combination with the Force Field Analysis?nternet site believe that PESTLE covers well the ‘driving forces’ of change nevertheless does not address the ‘restraining forces’. This becomes especially evident in the research carried out underneath 1(c). (a) Strengths in the framework Similar to the Risk Management Program, PESTLE supplies a comprehensive ‘checklist’ of macro-environmental factors to make certain, that all ‘dimensions’ have been thought of and have been recorded systematically. Also these elements can be categorized as opportunities and risks in the SWOT analysis as well as a risk register.
Finally, PESTLE is not hard to use and adaptable to the business. (b) Limitations with the framework Apart from the mentioned under 2 ., I have certainly not identified any major restrictions of the structure, making it an instrument I prefer dealing with. 3. Module concept 3: Lewin’s Forces Field Examination Even if the Push Field Research looks simple at a primary glance, the next benefits are built into the program: (a) Advantages of the framework The Power Field Examination complements the PESTLE platform as PESTLE covers well the ‘driving forces’ of change nevertheless does not address the ‘restraining forces’ within a structured or perhaps transparent manner. It is easy to employ and versatile to many circumstances in business.
Especially I would like to highlight, that one must put him self in the shoes and boots of the other to understand drivers and restrainers intended for change. This can make a difference in outlining a strategy. (b) Constraints of the platform The Push Field Evaluation is – different to at the. g. a Risk Management Program – certainly not so sophistically developed. 1 generally begins the research on a white colored piece of paper with only few supporting rules. ‘Checklists’ to stop omissions of major drivers / restrainers are not seen to me.
