Coca-cola and High Customer Loyalty Essay

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Cola Wars

Threat of New Competition

There are very high barriers to entry because the manufacturing process for this product involves high capital investment in labor, overhead, machinery, and advertising. There are also big brand names with high customer loyalty like Coke and PepsiCo. Finally the relationship with bottlers by Cole and Pepsico consists of franchise agreements. There is also high margins for retailers(15-20%) on soft drinks making it tough for new entrants to gain shelf space.

Supplier Power

In this market there are many suppliers.The raw materials needed to produce concentrate are basic ingredients like caffeine,color,flavor,etc. The products of these suppliers can also be easily substituted which grants them a non high supplier power.

Buyer Power

The major retailers for this industry consist of food stores, convenience stores , fast food fountains , and vending machines. Food stores offer the best shelf spaces and therefore are able offer lower prices for these products($0.23 Net operating profit before tax)). Convenience stores offer these products at higher prices which gives them a higher profit for the product ($0.69 NOPBT). Fast food fountain are least profitable due to the high amount of purchases made which gives the buyers more negotiation room ($0.09 NOPBT).Vending is a type of product that works directly with the buyers and therefore gives the buyer no power ($0.97 NOPBT). Bottlers have low price sensitivity towards the prices.

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