ASSIGNMENT-1

SUB: STRATEGIC MARKETING

TOPIC: PORTER’S 5 FORCE ANALYSIS OF
COCA-COLA

SUBMITTED TO, SUBMITTED BY,

ASST.PROF. KSHEMA MISS AKHIL.J

DATE:12/5/21 SNT19MBA01
 INDEX
SL.N TITLE PAGE
O NO:
1 INTRODUCTION 1

2 MEANING 2

3 PORTER’S 5 FORCE MODEL 3-6

4 COCA-COLA 5 FORCE 7-11

ANALYSIS

5 PURPOSE 12

CONCLUSION 13
6 &
REFERENCE 14 1

INTRODUCTION
Porter's Five Forces is a model that identifies and analyzes five
competitive forces that shape every industry and helps determine
an industry's weaknesses and strengths. Five Forces analysis is
frequently used to identify an industry's structure to determine
corporate strategy. Porter's model can be applied to
any segment of the economy to understand the level of
competition within the industry and enhance a company's long-
term profitability. The Five Forces model is named after
Harvard Business School professor, Michael E. Porter.

Porter's Five Forces is a business analysis model that helps to

explain why various industries are able to sustain different levels
of profitability. The model was published in Michael E. Porter's
book, "Competitive Strategy: Techniques for Analyzing
Industries and Competitors" in 1980.1 The Five Forces model is
widely used to analyze the industry structure of a company as
well as its corporate strategy. Porter identified five undeniable
forces that play a part in shaping every market and industry in
the world, with some caveats.
2

MEANING
Porter's Five Forces Framework is a method for
analysing competition of a business. It draws from industrial
organization (IO) economics to derive five forces that determine
the competitive intensity and, therefore, the attractiveness (or
lack thereof) of an industry in terms of its profitability. An
"unattractive" industry is one in which the effect of these five
forces reduces overall profitability. The most unattractive
industry would be one approaching "pure competition", in which
available profits for all firms are driven to normal profit levels.
Porter's Five Forces is a model that identifies and analyzes five
competitive forces that shape every industry and helps determine
an industry's weaknesses and strengths. Five Forces analysis is
frequently used to identify an industry's structure to determine
corporate strategy. Porter's model can be applied to
any segment of the economy to understand the level of
competition within the industry and enhance a company's long-
term profitability.

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 3

PORTERS 5 FORCE
MODEL
Porter's five forces are:

1. Competition in the industry

2. Potential of new entrants into the industry

3. Power of suppliers

4. Power of customers

5. Threat of substitute products

 4

Competition in the Industry

The first of the five forces refer to the number of competitors

and their ability to undercut a company. The larger the number
of competitors, along with the number of equivalent products
and services they offer, the lesser the power of a company.
Suppliers and buyers seek out a company's competition if they
are able to offer a better deal or lower prices. Conversely, when
competitive rivalry is low, a company has greater power to
charge higher prices and set the terms of deals to achieve higher
sales and profits.
Potential of New Entrants into an Industry
A company's power is also affected by the force of new entrants
into its market. The less time and money it cost for a competitor
to enter a company's market and be an effective competitor, the
more an established company's position could be significantly
weakened. An industry with strong barriers to entry is ideal for
existing companies within that industry since the company
would be able to charge higher prices and negotiate better terms.

Power of Suppliers
The next factor in the five forces model addresses how
easily suppliers can drive up the cost of inputs. It is affected by
the number of suppliers of key inputs of a good or service, how
unique these inputs are, and how much it would cost a company
to switch to another supplier. The fewer suppliers to an industry,
the more a company would depend on a supplier. As a result, the
supplier has more power and can drive up input costs and push
for other advantages in trade. On the other hand, when there are
many suppliers or low switching costs between rival suppliers, a
company can keep its input costs lower and enhance its profits.

Power of Customers 6

The ability that customers have to drive prices lower or their

level of power is one of the five forces. It is affected by how
many buyers or customers a company has, how significant each
customer is, and how much it would cost a company to find new
customers or markets for its output. A smaller and more
powerful client base means that each customer has more power
to negotiate for lower prices and better deals. A company that
has many, smaller, independent customers will have an easier
time charging higher prices to increase profitability.

Threat of Substitutes
The last of the five forces focuses on substitutes. Substitute
goods or services that can be used in place of a company's
products or services pose a threat. Companies that produce
goods or services for which there are no close substitutes will
have more power to increase prices and lock in favorable terms.
When close substitutes are available, customers will have the
option to forgo buying a company's product, and a company's
power can be weakened.

Understanding Porter's Five Forces and how they apply to an

industry, can enable a company to adjust its business strategy to
better use its resources to generate higher earnings for its
investors.

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Coca Cola Five Forces

Analysis
Porter’s five forces model, named after its developer Michael E
Porter, is a strategic analysis tool that helps to analyze some
critical forces affecting the level of competition in an industry.
This model has acquired great popularity and fame over time
and is used widely across the business world for evaluating the
profitability and attractiveness of various industries.

 The five forces that this model evaluates are a part of every
industry and every market. Managers can form strategies based
on an analysis of these forces to increase the profitability of their
business.
8

This is a Five Forces analysis of the soda giant Coca Cola. Coca

Cola is the leading brand in beverages sector and has a global
presence.  Its only major competitor is Pepsi.

1.Bargaining power of suppliers:

The bargaining power of suppliers of Coca Cola is weak. It is

so because the number of suppliers is high and the switching
costs for Coca Cola low. While Coca Cola can easily switch
from one supplier to another, it is not possible for any supplier
to switch away from Coca Cola as easily.

That can lead to losses for any of the suppliers. While there are
several suppliers, the size of individual suppliers is small or
moderately large. Moreover, forward integration is a distant
possibility for most of its suppliers.  

Even if there are no substitutes for raw materials like sugar, the
number of suppliers is still high. So, the main factors that have
come to light regarding the bargaining power of suppliers are:

Large number of suppliers

Small to moderately large size of individual suppliers.

Forward integration difficult for the suppliers.

Switching costs for Coca Cola not so high

2.Bargaining power of buyers/customers:

The bargaining power of individual customers in case of Coca
Cola is low. Individual customers generally buy small volumes
and they are not concentrated in specific markets either.
However, the level of differentiation between Pepsi and Coca
cola is low. Mostly they sell similar flavors. Switching costs are
not high for customers and still the two brands enjoy high brand
loyalty. The customers of coca cola are not price sensitive.
Backward integration is not a possibility for the customers
whether it is an individual customer or a large retailer. If a
retailer acquires some bargaining power then it is only because
it buys in large volumes. Still, overall the customers’ bargaining
power is weak.

10

3.Threat of new entrants:

In the beverages industry there are several factors that

discourage new brands from entering. Growing a brand
overnight is impossible. There are significant investments to be
made. From operations to marketing every part requires a large
investment. Some local brands may start it at smaller scale and
still marketing and hiring qualified staff requires generous
investment. The level of customer loyalty in the industry is
moderate and for any brand to build customer loyalty it will take
some time. So, while new entrants can compete with brands like
Coca Cola at a smaller or local level, to build a brand as big is a
mammoth task requiring both capital and skilled human
resources.

4.Threat of substitutes:

Main substitutes of Coca Cola products are the beverages made

by Pepsi, fruit juices, and other hot and cold beverages.  The
number of substitutes of Coca Cola products is high. There are
several juices and other kinds of hot and cold beverages in the
market. The switching costs are low for the customers.
11

Apart from it, the quality of the substitute products is also

generally good. So, based on these factors the threat from
substitutes is strong.

5.Competitive Rivalry between the existing

players:
There are two major players in the soda industry and they are
Coca Cola and Pepsi. There is intense rivalry between the two
major players. There are a few smaller players too but they do
not pose a major competitive threat.  The two main players are
nearly of the same size and they have similar products and
strategies. The level of differentiation between the two brands is
also low and therefore the price competition is intense. People
have already heard of the Cola wars. So, the level of competitive
rivalry between the existing firms is a strong force.

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12

PURPOSE
main purpose of Porter's five forces model

Porter's Five Forces Analysis is an important tool for

understanding the forces that shape competition within
an industry.
 It is also useful for helping you to adjust your strategy to
suit your competitive environment, and to improve your
potential profit.

13

CONCLUSION
Porter's Five Forces Framework is a method for
analyzing competition of a business. It draws from industrial
organization (IO) economics to derive five forces that determine
the competitive intensity and, therefore, the attractiveness (or
lack thereof) of an industry in terms of its profitability. An
"unattractive" industry is one in which the effect of these five
forces reduces overall profitability. The most unattractive
industry would be one approaching "pure competition", in which
available profits for all firms are driven to normal profit levels.
Porter refers to these forces as the microenvironment, to contrast
it with the more general term macroenvironment. They consist
of those forces close to a company that affect its ability to serve
its customers and make a profit. A change in any of the forces
normally requires a business unit to re-assess
the marketplace given the overall change in industry
information. The overall industry attractiveness does not imply
that every firm in the industry will return the same profitability.

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14

REFERENCE
1. Michael E. Porter, "How Competitive Forces Shape
Strategy", Harvard Business Review, May 1979 (Vol. 57,
No. 2), pp. 137–145.
2. ^ Michael Porter, Nicholas Argyres and Anita M.
McGahan, "An Interview with Michael Porter", The
Academy of Management Executive 16:2:44 at JSTOR
3. ^ "13. Building Social Strategy at XCard and Harvard
Business Review", A Social Strategy, Princeton: Princeton
University Press, pp. 220–248, 2014-12-31, ISBN 978-1-
4008-5002-0, retrieved 2020-11-08
4. ^ Fung, Han Ping (2014). "Using Porter Five Forces and
Technology Acceptance Model to Predict Cloud
Computing Adoption among IT Outsourcing Service
Providers". Internet Technologies and Applications
Research. 1 (2):
18. doi:10.12966/itar.09.02.2013. ISSN 2329-9398.

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