Coca Cola Case

Numerous economic studies have affirmed that different industries can sustain different level of profitability; part of this difference is explained by industry structure. Michael Porter provided a framework that models an industry as being influenced by five forces. A strategic business manager seeking to develop an edge over rival firms can use this model to better understand the industry context in which the firm operates.

In this paper I will use the five force model, as a Coca-Cola Company Business Manager to understand the Cola industry and try and develop an edge over rival firms. We will discuss each of the models individually and develop an understanding of where Coca Cola stands.

Threat of New Entrants: Penetrating the soft drink industry is hard because of the established name of Coca-Cola and the other following reasons:

Brand Image: Coca Cola invests enormous amount of money in marketing and advertising which has led to customer loyalty all over the world. People might not recognize Bill Gates or Warren Buffett if they are on a television show, but even a child who cannot read will recognize Coca Cola on television. We ran into a similar situation in the class room when the professor recognized a can of Coca Cola without even looking at the name printed on it. This makes it next to impossible for a new entrant to get in the market and compete with Coca Cola.

Advertising: As mentioned above Coca Cola spend enormous amount of money on marketing and advertising, in 2011 alone the company spent $3.3 billion which makes it exceptionally hard for a new competitor to compete and gain visibility in the market.

Retail and Global Distribution: Coca Cola in combination with its bottling partners has an extraordinary global distribution network, with that the advantage of economies of scale creates a barrier which is very hard for a new entrant to make an impact. Coca Cola also has long term relation with their retailers and they receive margins anywhere from 15% to 30%.

Substantial Investment: We already talked about the substantial investment of advertising that Coca Cola does in addition to that there are other investments like bottling plant, labor, distribution, packing and creating the winning formula and taste that people like and stay loyal to it.

Power of Buyers: Bargaining power of the buyers varies widely and depends on the marketing channel used.

Vending Machines: Vending machines provide products to the customers where there is no power with the buyer.

Convenience Stores: Convenience stores are considered fragmented and thus have no bargaining power, so they have to pay higher prices.

Large Restaurant Chains: As large chain restaurants usually carry a single type of Cola Beverage, usually Coca Cola or Pepsi, in their restaurants, large restaurants chains have a highest amount