Data from Exhibit 5 As the above table indicates concentrate business is highly profitable compared to the bottling business. The reasons for this are: They could offer attractive packaging to the end consumer. To preempt new competition from entering business if they control the bottling.
The case readings were presented here: Simply email Aldridge56 aol. First we should look at industry structure. Selling bulky and heavy beverages lends itself to regional economies of scale advantages. The soda companies cannot operate successfully unless their bottlers and distributors are profitable and content whether company-owned or franchised.
The existence of barriers to entry indicates that the incumbents enjoy competitive advantages that potential entrants cannot match. In the soft drink world, the sources of these advantages are easy to identify.
First, on the demand side, there is the kind of customer loyalty that network executives, beer brewers and car manufacturers only dream about. People who drink sodas drink them frequently habit formationand they relish a constancy of experience that keeps them ordering the same brand, no matter the circumstances.
Developing new products and advertising existing ones are fixed costs, unrelated to the number of cases sold.
Equally important, the distribution of soda to the consumer benefits from regional scale economies. The more customers there are in a given region, the more economical the distribution. Why did they help raise profitability? Note the stability of market share and ROE. ROE dipped in and as Pepsi and Coke waged a price war.
Yet, market shares did not change as a result of the price war—both companies were worse off. Pepsi gained market share in the late s versus Coke. Coke was slow and clumsy to respond. Price wars between two elephants in an industry with barriers to entry tend to flatten a lot of grass and make customers happy.
They hardly ever result in a dead elephant. Still, there are better and worse ways of initiating a price contest. Coke chose the worst. This tactic ensured that for every dollar of revenue Pepsi gave up, Coke would surrender four dollars.
They made visible moves to signal the other side that they intended to cooperate. Coca-Cola initiated the new era with a major corporate reorganization. With so much debt to service, Coca-Cola Enterprises had to concentrate on the tangible requirements of cash flow rather than the chimera of gaining great hunks of market share from Pepsi.
PepsiCo responded by dropping the Pepsi Challenge, toning down its aggressive advertising and thus signaling that it accepted the truce. Pepsi gain was less dramatic but also substantial. Both companies focused on ROE rather than market share and sales growth.Barriers Of Entry Coke And Pepsi.
Antonio Cesaro - Strategic Management - Section 1 – Coke and Pepsi’s Case I pledge that I have neither received nor given unauthorized assistance for the completion of . Soft drinks-Coke and Pepsi. Barrier to entry-distribution system and advertising.
Rivalry-when Coke (or Pepsi) comes up with a new product (like Diet Coke or Diet Pepsi) the other firm does the same%(2). If Coca Cola decides to increase most of their product by a $ increase, it would be very likely, consumers would buy Pepsi products.
Coke can lose its profits margin and can have a major impact on the trademark itself if they increase prices. The barriers to entry are high, and therefore the threat of entry is categorized as a high risk in the industry. The value -chain activity of the . COLA WARS: COKE AND PEPSI IN THE 21ST CENTURY” INTRODUCTION "Cola Wars Continue: Coke and Pepsi in the 21st Century” explains the economics of the soft drink industry and its relation with profits, taking into account all stages of the value chain of the soft drink industry.
Examples of oligopoly. Soft drinks-Coke and Pepsi. Barrier to entry-distribution system and advertising. Rivalry-when Coke (or Pepsi) comes up with a new product (like Diet Coke or Diet Pepsi) the other firm does the same.
Beer-AnheuserBusch Inbev, Miller, Coors have something like 90% of the domestic market share. Barrier to entry- 50%(2).