Strategy and Management: Cola Wars Continue: Coke and Pepsi in the Twenty-First Centurygy Essay
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Strategy and management
Cola wars continue: Coke and Pepsi in the Twenty-first century
1. Why is the soft drink industry so profitable?
We could explain this profitability through making a short application of the five forces (Porter) and highlighting arguments that help understanding.
This industry is led by two main firms: Coke and Pepsi, which account for respectively 53% and 21% of the total market share worldwide (exhibit 9) and hold more than 10 other competitive brands each (exhibit 3).They almost act as a duopoly, as long as they have relationship-specific with their smaller competitors that allow them to exert a strong influence. Their main market of action is obviously the US one but they currently drive their strategy worldwide as it represents a huge reserve of profits.
What kind of competition?
Both Pepsi and Coke understood that it was better off not to erode their gross profit by playing on prices, even if the customers have showed price sensitiveness in the past history. They have no incentives to fight on prices as long as
• there are not many other sellers in the market
• prices can be adjusted quickly
• there is a history of cooperative pricing (except punctually) Preservation of overall industry profits by
Enter the soft drink market is quite risky given the high dominant position of Pepsi and Coke.
Hence, there is no real threat to see a new comer eroding the whole market profits by heating up internal rivalry.
• Performance in the soft drink industry is highly related to brand reputation and consumers highly value it and are mostly brand loyal. Entrants should heavily invest in advertising and merchandising to establish a strong brand awareness.
• Network externalities: Pepsi and Coke have a large installed base: they handle both concentrate production and bottling through their own