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UA ACCT 200 - Case Notes Cola Wars

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Colin Rowe MGMT 471 Case 1 Notes – Cola Wars Q1: Why is the soft-drink industry so profitable?The buyers of the concentrate producers Coca-Cola and PepsiCo are bottlers, who distribute the finished product to multiple different outlets, and consumers who buy the finished product. The suppliers of the soft drink industry provide the basic commodities like sugar, color, additives and other materials to the concentrate producers that are included in their secret formula. The buyers have a lot of power over the concentrate producers because there is large number of bottlers and consumers, they are both price sensitive, and they can switch to a competitor without incurring a high switching cost. Suppliers do not have much power in the soft drink industry. There are also a large number of suppliers meaning switching costs are low.. The soft drink industry is so profitable because the weaker forces outweigh the stronger forces. The barriers of entry are high in this industry thus Coca-Cola and PepsiCo do not have to worry about new threats to their market share. Substitute products also has the potential to harm their profits, however over the years Coca-Cola and PepsiCo have bought and started to produce their own substitutes. The low power of suppliers allows the concentrate producers to have a consistent supply. Finally, the power of the buyers also has some benefits for the concentrate producers. Coca-Cola and PepsiCo have a unique product and it is hard to duplicate making them the only source. They also have agreements with the bottlers that provide mutual benefit and consumers are brand loyal who will buy the product no matter the price. Q2: How has the competition between Coke and Pepsi affected the industry’s profits?The competition between Coke and Pepsi has forced them to take measure in purchasing bottlers and creating their own distribution channels forcing the smaller independent firms to go out of business hurting the overall profit of the industry. By branching out into other beverages it has forced other companies to do the same lowering the overall productivity and efficiency of the other concentrate producers. Because the competition is so intense the barriers to entry keep other companies away limiting the potential growth of the

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