Coca Cola Porter's Five Forces Analysis

External Environment- Porter’s Five Forces

Porter’s Five Forces model can be used as the framework for the industry analysis and development of business strategy. Three of the five forces refer to rivalry from external sources and the other forces are from internal threats. The five forces are the threat of new entrants, the bargaining power of buyers, the bargaining power of suppliers, the threat of substitute of products and services, and the intensity of rivalry among competitors in an industry (Dess, Lumpkin, Eisner, & McNamara, 2014, pg. 49).

Threat of new entrants. The threat of new entry of competitors will always be a concern for companies, especially in the beverage industry. Pepsi and Coca-Cola are the main competitors in the soft drink market. Marketing and advertising is important for a company and need large amounts of money to spend on marketing and advertising. The average advertisement expenditure per point of market was $8.3 million, which makes it very difficult for a new competitor to deal with the current market and expand (Porter’s Five Forces Model of Coca-Cola, 2010). Coca-Cola has invested huge amounts of money on advertising and marketing since their existence, launching campaigns to attract customers. The reward for their marketing and advertisement efforts has resulted in higher bran equity and a strong, loyal customer base all around the world. Thus, making is difficult for a new competitor to counterpart this aspect in the soft drink industry. The soft drink industry provides margins to retailers. Many retailers get 15-20% while others receive 10-30% margins. The margins are reasonable enough for retailers to satisfy the existing participators. The already established margins would make it very diffi...

... middle of paper ...

...del of Coca-Cola, 2010).

Intensity of competitive rivalry. The soft drink industry is dominated by Coca-Cola and Pepsi, sometimes referred as a duopoly. Competition is low to result any turmoil of industry structure. The main competition for Coca-Cola is Pepsi and are not competing on prices, but on advertising. This resulted in higher profits and the pricing war became prevalent in the global expansion strategies (Porter’s Five Forces Model of Coca-Cola, 2010). The scope of competition is globally, since Coca-Cola is present in about 200 countries. The soft drink industry will most likely not see growth in the future, as they have steadied out. Market and product differentiation has become more significant. Coca-Cola advertises based on conditions and have their name recognition around the world, establishing loyalty (Porter’s Five Forces Model of Coca-Cola, 2010).