As it is shown above in Figure 1, Porter’s Five Forces Model of competitive analysis is a widely used approach for developing strategies in many industries. It provides a framework for analysing the nature and extent of the competition as well as company’s competitive position within an industry (Campbell & Stonehouse, 2002). “Threat of New Entrants” The pressure from new entrants to the CSD industry are not very strong because potential entrants can only be the companies with vast distribution systems that can compete with the current market players.
In addition, consumers are always brand loyalty in this market and this causes barriers of entry high. “Rivalry among Existing Firms” According to “2007 Annual Review” released by The Coca-Cola Company, in the US non-alcoholic beverage market, by volume, Coca-Cola covers 43% and Pepsi 31% of the market share. The rivalry between the two leaders is extremely high, but other players in the market stand no possibility in competing against the well established brands: Coca-Cola and PepsiCo. “Threats of Substitute Products”
Threats from substitutes of the CSD industry are high for every form of non-carbonated beverage could be regarded as possible substitute. Also, customer switching cost is low and therefore, the industry should pay more attention on providing consumer more added values. “Bargaining Power of Suppliers” Few commodities are needed for their production but they can be still attracted from various suppliers. Both of the two companies could handle the supply themselves. What’s more, they have negotiated with multiple suppliers and this results in suppliers’ less power.
“Bargaining Power of Buyers” Due to customer loyalty, the power of buyers is relatively low. Both the retail channel and the restaurant channel are bonded by contracts and customer demand. “Relative Power of Other Stakeholders” Environmental Protection Organizations in Maine, Michigan, Oregon and Iowa have successfully passed the regulations to receive fines for the containers cast off. The recovery of beverage bottles increases cost and brings negative impact on companies in the relative industry. Key Success Factors
As Wheelen & Hunger (2006, p91) argued: “Key success factors are variables that can significantly affect the overall competitive positions of companies within any particular industry”. The competitive success factors within the CSD industry derived from the above analyses are as follows: Firstly, constant product innovation is necessary. Both Coca-Cola and Pepsi need to recognize consumer wants and needs as well as be able to adjust with the changing market. Secondly, they should have the ability to negotiate with their limited supplier and carry out mass purchases which could lower their costs.
Thirdly, quality of products, price and brand image are vital to maintain brand loyalty and influence consumers’ decision making. Based on the identified key success factors and according to a survey operated by Puravankara, (2007) towards the sample colleagues at Coca-Cola, it is obvious that “differentiation strategy is the best strategy for Coca Cola and PepsiCo” (Puravankara, 2007, p30). Opportunities and Threats Opportunities for Coca-Cola and PepsiCo are to expand non-carbonated products and bottled water market.
Because of the consumption trend is turning to safety and health, bottled water would be another new segment of the world’s food and beverage market. Nowadays, the global bottled water market leader is Nestle with a great market share but there are still large market opportunities. Additionally, by the effect of rapid economic development, Brazil, China and Russia would become key rising markets for CSD industry (Dobson, et al 2004). For threats, the increasing cost of packaging and price of sugar would affect the value of CSD products; therefore, the profitability of this industry would become stressful.
Moreover, consumers begin to have more health conscious when making their drinking decisions and such trend leads to a shrink in the consumption of carbonated beverages. At last, Coca-Cola was lack of product innovation in the past few years while PepsiCo has well adjustments to consumer health trends. Recommendation for Further Development According to the opportunities and threats summarised above, recommendations will be given for Coca-Cola and PepsiCo respectively for their further development.
The key recommendation for Coca-Cola is to gain more market shares in bottled water and other non-carbonated drinks. It must change with the times to adapt the needs for new generations of consumers and health conscious consumers. It should also communicate well with its buyers and suppliers. The most important is it must have continuing product innovation. For PepsiCo, it should stick to its product differentiation strategy and maintain its market position in the non-carbonated drink market.
In addition, PepsiCo should focus on providing good pricing strategies. “From a channel perspective, Coca Cola is dominating Pepsi in fountain stations. For Pepsi, turning the tide in this channel is critical to long-term success” (Puravankara, 2007, p94) Conclusion Given the extreme competitive environment of the CSD industry and comparative analysis on competitive positions of Coca-Cola and PepsiCo, the slow growing market size, a company that is going to be successful must know well of the environment that they are engaged in.
In order for PepsiCo and Coca-Cola to protect their positions, they must recognize the existing opportunities and treats. For their further development, Coca-Cola should pay more attention in product innovation to facing health trend and changeable market. While for PepsiCo, it should stick to its product differentiation strategy and focus on gaining a pricing advantage and turning the tide in channel perspective.