Coca Cola Porter’s Five Forces Analysis
Porter’s Five Forces analytical framework developed by Michael Porter (1979)[1] represents five individual forces that shape the overall extent of competition in the industry. These forces are represented in figure below:
Threat of new entrants in the industry is insignificant. This is because the global market of carbonated drinks is highly saturated and new entrants cannot benefits from the economies of scale extensively exploited by existing market players. Moreover, there is a substantial knowledge barrier in terms of being able to develop soft drinks that could successfully compete with industry leaders such as Coca Cola and Pepsi and the relevance of technological barrier can be assessed as substantial as well.
Bargaining power of buyers is great and this power is fuelled by the availability of great choice of cola beverages. Moreover, there is no switching costs for customers and the price elasticity of products further increases buyer purchasing power. At the same time, the issue of Coca Cola addiction has surfaced in the media a number of times, addiction of Peter Lawrie, a professional golfer being a noteworthy exampe[2]. Accordingly, it can be argued that bargaining power of small segment of buyers who can be classified as ‘Coke addicts’ is not significant.
Bargaining power of suppliers varies according to the type of supplier. There are few suppliers with great bargaining power such as Ajinomoto Co., Inc. and SinoSweet Co., Ltd suppliers of spartame, a non-nutritive sweetener and Nutrinova Nutrition Specialties & Food Ingredients GmbH, supplier of acesulfame potassium. Coca Cola operates Supplier Diversity Program that promotes diversity among suppliers for reportedly noble reasons, at the same time decreasing the bargaining power of each individual supplier. As it is illustrated in figure below, the volume of investment on supplier diversity has been consistently increasing for the last four years….
Coca Cola spending on supplier diversity program (figures in millions)[3]
Coca Cola Company Report contains more comprehensive application of the framework of Porter’s Five Forces. Moreover, the report illustrates the application of SWOT, PESTEL and Value-Chain analytical frameworks and discusses Coca Cola’s marketing strategy and company’s approach towards Corporate Social Responsibility (CSR).
[1] Porter, M. (1979) “How Competitive Forces Shape Strategy” Harvard Business Review
[2] Wallop, H. (2015) The Telegraph, Available at: http://www.telegraph.co.uk/foodanddrink/11420170/Are-you-addicted-to-Coca-Cola.html
[3] Supplier Diversity (2015) Coca Cola Company, Available at: http://www.coca-colacompany.com/our-company/suppliers/supplier-diversity