The Influence of the Six Forces in Each of the Value Chain Components

Industry Analysis
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Industry Analysis
Introduction
The soft drinks industry is extremely profitable particularly for concentrate producers. The forces in the industry are responsible for the high profitability of the concentrate producers. Pepsi and Coke have been at war for more than a century. Through advertising and prices adjustments, the cola companies have been competing for market share. The brand image of the companies as well as their marketing strategies has helped them maintain a dominant position in the soft drink industry. The key components of the value chain in the soft drinks industry are bottlers, concentrate producers, and retailers. The industry is structured in such a way that the cola firms purchase raw materials of sweeteners, flavorings, and sugars from many suppliers then turn them into syrup. The firms are joined by botlers who sell the branded products to retailers. This paper examines the influence of the six forces in each of the value chain components.
Concentrate Producers
Assessment of the competitiveness of an industry is important for business strategy. According to Lessard (2003), Porter’s five forces is a framework that can be used to analyze the industry competitiveness. In the soft drink industry, the two dominant players are PepsiCo and Coca-Cola. The forces can help in understanding how the two companies maintain their position in the industry. Coca-Cola and PepsiCo are the concentrate producers, and the forces can help in understanding their profitability.
There are strong barriers to entry in the industry. PepsiCo and Coca-Cola have in place agreements with bottlers that prevent them from dealing with new entrants that sell competing products. The concentrate producers also spend heavily on advertising. The heavy advertising means the companies are able to maintain their brand image and command heavy customer loyalty. The products also occupy a significant portion of spaces on retailer shelves, and this makes it hard for new entrants to enter the market. Therefore, there are many barriers that prevent new firms from entering the industry.
The supplier power for the concentrate producers is weak because the raw materials required to produce the concentrates are basic commodities like sugar, color, flavor, and sweeteners. With there being many suppliers of these products, their power is weak. Coca-cola, therefore, has higher power the suppliers of the raw materials.
The bottlers make the buyers of the company and have low power because of the agreements they have entered into with the concentrate producers. Also, the power of the buyers for the concentrate producers depends on the channel through which the products are sold. The products of the company are sold through vending, convenient stores, fountain, and food stores. For food stores, the buyer has high power since they offer shelf space. The convenient stores have relatively low power because of their fragmentation. The large purchases made by fast food fountain means they have higher power over Coca-Cola. As such, when sold through fountain and food stores, the power of Coca-Cola is reduced and the buyer’s increased.
There is the low threat of substitutes because of...