Case Study: Cola Wars Continue

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Cola Wars Continue: Coke and Pepsi in 2010 1. Why, historically has soft-drink industry been so profitable? “Strategic Management” by Hitt, Ireland and Hoskisson (2008) states that the interaction between the elements of the industry environment determines an industry’s profit potential (38). Therefore, In order to determine why the soft-drink industry has been so profitable, we should conduct an analysis of the industry environment forces: threat of new entrants, the power of suppliers and buyers, the threat of product substitutes, and the intensity of rivalry among competitors. Threat of New Entrants Both Coca-Cola and Pepsi-Cola has a high percentage of the market shares, respectively 15.3% and 8.8%, according to Exhibit 8. Exhibit 8 also shows their advertising spending, Coca-Cola with $234,000,000 and Pepsi-Cola with $136,000,000, both numbers from 2009. I believe this creates a huge barrier to new entrants, as Coca-Cola and Pepsi-Cola (now referred to as CC and PC) owns such a big share of the market and spends enormous amounts of money to keep their market shares. New cola products on the market will therefore be overshadowed by the reputation of CC and PC, and never gain enough market shares to survive amongst the “big players”. Product differentiation is a major part of new entrant’s struggle to gain market shares, much because of CC and PC’s strong brand name and consumers brand awareness. Other barriers to entry are also present, such as the incremental efficiency improvements CC and PC has made after being long-time, major market shareowners. Limited access to distribution channels can also keep new entrants from growing, as both CC and PC has built strong relationships with concentrate producers, bottlers, retail channels, and suppliers. Power of Suppliers First, we need to have a look at what the suppliers provide, which in this case is plastic

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