Porters Five Forces Model, as the name suggests, was named after Michael Porter and was introduced back in 1979 (Onoren, Arar & Yurdakul, 2017). It has since been embraced in the corporate world as the effective framework for industry analysis. Analysts are able to determine the risk exposure of a particular company within the industry it operates. In that regard, the five forces serve to assess the competitiveness of the market stemming its attractiveness. The said Porters Five Forces include: threat arising from new entrants, threat of substitute products/services, bargaining power of suppliers, bargaining power of buyers, and competitive rivalry among the existing firms. My Fortune 500 organization of choice is the Coca-Cola Company and discussed below is the analysis of the Five Forces in relation to Coca-Cola brand.
Threat of New Entrants
There have been some incidences of new entrants in the soda industry at local level. However, sustaining competition with giant companies like Coca Cola, which has established its reputation globally, is not a walk in the park. The are numerous factors that discourage new entrants in the beverage industry. Growing a competitive brand requires heavy capital outlay and proficient human resources (Yuvaraju, Subramanyam & Rao, 2014). Additionally, potential customers are so much informed of the industry and are hard to convince, thus new entrants need to invest heavily in marketing. Building customer loyalty also takes time. For the reasons cited above, Coca Cola has little threat to worry about on the new entrants in the industry.
Bargaining Power of Suppliers
Many market studies on Coca Cola have reported that the company enjoys weak bargaining power of its suppliers. This is because there is a high number of suppliers available and ready to provide the necessary raw materials for production (Yuvaraju, Subramanyam & Rao, 2014). The large number of suppliers gives Coca Cola Company a wide range of alternatives to opt for, hence it can switch from one supplier to another depending on the cheapest party to deal with. On the contrary, the suppliers are disadvantaged since they have limited (or almost no) options; they cannot switch from Coca Cola. Therefore, the suppliers have no choice but to put up with the low bargaining power.
Bargaining Power of Customers/Buyers
As of the case of suppliers, the bargaining power of customers is also low. Generally, the consumer behavior of the buyers for Coca Cola products is characterized by purchasing in small volumes and the customers are not concentrated in particular markets. Moreover, Coca Cola and Pepsi are slightly differentiated and their flavors are almost similar they both enjoy high brand loyalty and their switching cost is not significant. Coca Cola customers are generally not price sensitive, thus backward integration is impossible. The overall customer bargaining power is weak (Yuvaraju, Subramanyam & Rao, 2014).
Threat of Substitutes
There is a high number of substitutes of Coca Cola products which are mainly the beverages produced by Pepsi. Also, there various kinds of fruit juices and beverages in the market and the switching cost for the customers is pretty low. Besides, it is reported that these substitutes also have good quality. Therefore, the availability of such substitutes in the market poses a strong threat to the Coca Cola Company.
Competitive Rivalry between the existing players.
There are only two giant players (which have intense rivalry) in the soda industry Coca Cola and Pepsi. However, there are also some other smaller companies but their threat is insignificantly felt. The two major players are relatively of the same size and are slightly differentiated hence their price competition is very high (Yuvaraju, Subramanyam & Rao, 2014). In other words, there is a stronger competitive force of rivalry among the existing firms.
Onoren, M., Arar, T., & Yurdakul, G. (2017). Developing Competitive Strategies Based on SWOT Analysis in Porter s Five Forces Model by DANP. Journal Of Business Research - Turk, 9(2), 511-528. http://dx.doi.org/10.20491/isarder.2017.282
Yuvaraju, D., Subramanyam, D., & Rao, P. (2014). Advertising Strategy of Coca-Cola at Coca-Cola Beverages Pvt.Ltd. IOSR Journal Of Business And Management, 16(6), 122-131. http://dx.doi.org/10.9790/487x-1662122131
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