Cola Wars Case Essays

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Cola Wars Case

Threat of new entrants: Medium
The entry barriers for new entrants are relatively low, since there are no switching costs and capital requirements are relatively low. As mentioned in the case, a typical concentrate manufacturing plant that could cover the region of the entire United States cost between $50-100 million to build. However, Coca Cola and Pepsi have a significant brand advantage, and have claimed 72% of the US CSD market share. Consumers have developed brand loyalty and will be unlikely to switch to an unfamiliar brand.

Threat of substitute products: High
There is nothing propriety or unique about how concentrate is produced. Both Coca-Cola and Pepsi use the same inputs—caramel coloring, phosphoric acid, natural flavors, and caffeine—and these inputs can easily be copied by other brands. As shown by the “Pepsi Challenge”, blind taste tests showed that consumers preferred Pepsi to Coke, even though Coke had a larger market share at the time. This proved that customers were more loyal to the brand name than the actual taste of the product. Finally, consumption patterns have shifted over time, and the correlation between CSD products and obesity has led juices, sports drinks, and tea-based drinks to enter the market and corrode Coca Cola and Pepsi’s market share.

Bargaining Power of Suppliers: Low
The main input ingredients for concentrate are caramel coloring, phosphoric acid, natural flavors, and caffeine. The suppliers for these ingredients would have struggle differentiating themselves since they are commodities and readily available in the market. Further, Coca Cola and Pepsi are most likely the largest customer for these suppliers, and both companies have low switching costs between suppliers.

Rivalry Among Existing Firms: High
Coca-Cola and Pepsi are the dominant carbonated beverage players and each has a strong brand name and fiercely protected trademarks. Because Pepsi and Coke held 72% of the market share in 2009, both competitors are equally sized and committed and aim to be the
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