Porter's Five Forces Sample Analysis

Porter’s Five Forces Sample Analysis

Coca-Cola

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Porter’s Five Forces Model is a framework for the analysis of an industry and how a business can implement strategies to gain market value. The model includes threats of new entrants, threats of substitute products, bargaining power of the buyer, bargaining power of the supplier, and competitor rivalry. In this case, the model is being utilized to analyze the global beverage industry from Coca-Cola’s perspective.

Threats of New Entrants

The level of new entrants is measured by multiple factors including: brand loyalty, advertising ability, access of distribution channels, and supplier availability. These factors create a low to moderate threat of new entrants.

• Customer and brand loyalty make it very problematic for new competitors to enter into the beverage industry. Coca-Cola is the most known beverage brand throughout the world, which has been made possible through advertising and marketing.

• Advertising and marketing are a key component for a new company to gain recognition from consumers. However, both these components require large amounts of funding to produce broad scale marketing campaigns that will gain the recognition needed to compete with industry leaders, such as Coca-Cola.

• Access to distributing channels is an important factor when entering into a new market. It can be tiresome for new entrants to find retailers that will carry their product before they are established. Shelf space will rarely be made for products that cannot prove they have consumers to regularly buy their product.

• Coca-Cola and other industry leaders have strict bottling contracts in all of their sales areas. These contracts block the bottling company from doing business with companies producing a similar product. One of the only alternatives for the new company is to do the bottling themselves, which requires high amounts of capital.8

Threats of Substitute Products

In the beverage industry there are many substitutes for each category of beverage. This allows the consumer to help shape what the retailers put on the shelves. Examples of these substitute products compared to Coca-Cola are: Pepsi products, beer, wine, tea, coffee, energy drinks, etc. The substitute products create a moderate threat in the industry.

• Marketing and advertising, again, have a major impact on the substitute products. If the consumers do not know about a particular product, then retailers do not want to stock that product.

• The switching cost for retailers is fairly low, so retailers can easily switch to more popular products. This can create an advantage for the retailer from a cost standpoint and for the producers of the substitute product.

• Throughout the beverage industry, product lines are very similar in price between competing companies. Differentiation techniques are taken so consumers will choose their product. This can give substitute products the opportunity to use promotional influences to gain consumers’ favor.

Bargaining Power of Buyers

Buyers make up an important aspect of the beverage industry. Some of these buyers include: fast food fountain, vending, convenience stores, and super markets. The bargaining power of the buyer is low to moderate.

• Fast food chains have the highest bargaining power out of the other buyers, simply because they buy in bulk. This method of purchasing provides the least profit for Coca-Cola due to small margins. It is more for the customer to sample the product and grow a loyalty toward the brand name.

• Vending machines provide a straight line approach from getting the product directly into the hands of the consumer. There is literally no bargaining power for the buyer.

• Convenience stores, like vending machines, have no bargaining power. The reason for this low bargaining power is because convenience stores pay inflated prices for the products since they are buying smaller quantities.

• Super markets have low bargaining power. The power they possess is best shelf space, but consumers usually make the final decision of the most popular products.8

Bargaining Power of Suppliers

The bargaining power of the suppliers, in the beverage industry, is very low because the ingredients used to create these beverages are readily available.

• The basic materials used to make Coca-Cola products are easily found with many suppliers. This ease of access gives a huge advantage to Coca-Cola because the company can set their own prices with the suppliers.

• Switching costs are also very low, so the ability for manufacturers to change suppliers is easily done.

• There is great emphasis put on the buyer industry to suppliers. The industry utilizes large quantities of raw materials the suppliers must remain in good standing with the buyers.

Competitor Rivalry

The intensity of rivalry among competitors differs by the industry. In the beverage industry the level of rivalry is relatively moderate. The main reason for this is the number of major players controlling the market share. These players are Coca-Cola and PepsiCo.

• Brand loyalty is a determinant of the rivalry between competitors. In the end the consumers chooses the product, so the rivalry comes in the form of advertising and marketing strategies to gain market value.

• Products in the industry are easily differentiated. This differentiation lowers the level of rivalry because each company is trying to create the next product that will have high consumer reviews.

• The ability for consumers to control the market greatly boosts competitor rivalry. Because stores stock their shelves with the most popular products, competitors are always fighting for their product to be the most popular and easiest to recognize.

• Expansion opportunities are one of the major factors affecting rivalry. The best way to gain market share is to enter into a market that is not already occupied by strong competitors.

SWOT Sample Analysis

Coca-Cola

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SWOT Analysis

The following table outlines an analysis of the strengths, weaknesses, opportunities, and threats of The Coca-Cola Company. This SWOT