Porter's Five Fources

Strategic Thinking and Analytical Decision Making
Catherine Bradfield

Problem Set #1 - Cola Wars Industry Analysis and Business Model Analysis

1. Conduct a Porter's Five Forces Analysis on the soft drink industry and pull out strategic implications for each of the five forces.

In his January, 2008, Harvard Business Review article, "The Five Competitive Forces that Shape Strategy", Michael Porter identifies the following forces as critical to effective strategy:

Figure 1: Porter's five competitive forces – Investopedia.com |

Using Porter’s model, the following describes the impact of the forces on the soft drink industry.

Competitive Rivalry within Industry:
Coca Cola and Pepsi have long dominated the once fragmented soft drink industry and both have enjoyed sustained profitability. While the similarity of their products originally created little room for differentiation, the diversification of product lines has resulted in distinguishing product features. The rivalry between Coca Cola and Pepsi has been limited by the introduction of franchising and the pre-existence long-term contracts.

Bargaining Power of Suppliers:
The specific pressure that suppliers can place on the soft drinks industry business can be substantial and can greatly affect company volume and margins. If a supplier receives incentives for using a specific buyer or has an exiting loyalty to a major brand/brands, this can result in higher fixed costs, and or a scarcity of resources. The high cost of switching companies adds further leverage to suppliers.
    *   * Bargaining Power of Buyers:   * Customers with a large enough impact can yield significant power over a company’s profit margins and production. Limited suppliers of current products and or comparable substitute results in a weakened negotiating position for buyers. As indicated in Exhibit 1 included with the case, carbonated soft drinks have attained and consistently maintained an approximate...