Coke and Pepsi Case Study

Zach Paro

Coke and Pepsi Case Study

The soft drink industry has been historically has been extremely profitable, although, the soft drink is a commodity and easy to replicate.  Using a five force analysis we can explain why Coke and Pepsi are able to continue to make such a large profit.

First we will take a look at threat of entry and how Coke and Pepsi are able to control this issue.  Coke and Pepsi have deals with all of their bottling distributors that prohibit them from working for with any competition.  Also recently Coke and Pepsi have been buying all the bottle distributes making it hard for new competition to find a company willing to bottle their product.

Second we look at the supplier power, in this case the suppler has almost zero power.  This is because the materials need for a soft drink are all basic commodities such as Color, flavor, caffeine etc.  Since all the suppliers are weak Coke and Pepsi can control the prices.

Third we take a look at the buyers which have four main outlets Food Stores, Convenience Stores, Fountain, and Vending.   Food Stores use the best store space allowing them to charge lower prices since the product is promptly placed.  Next is convenience store this section is extremely spread out so they are charger a much higher price.  Fountain is the least profitable because they aren’t actual using the bottles or cans, but a syrup that then mixes with carbonated water which causes for extremely low margins.  Last we have vending machines which serve customers directly so the buy has no power so Coke and Pepsi are able to charge the largest margin.

 Fourth we take a look at possible substitutes of Coke and Pepsi.  There are many alternatives to drinking soft drinks such as water, coffee, beer, etc.. However, many of those companies cannot compete with the advertising of Coke and Pepsi they spend a lot more to have the brand seen everywhere.  Also Coke and Pepsi offer substitutes of their own product such as Diet, Mountain Dew, Dr. Pepper, and many more they do this to protect themselves from alternatives.

Fifth we take a look at Competitive Rivalry this is almost nonexistent is this industry because Coke and Pepsi have something called a Duopoly.   The other companies in the industry have too small of a market share to create any pricing issues in the industry. Coke and Pepsi more compete over their advertising then in pricing so prices stay relatively the same compared to each other.