WORKSHEET ON INDUSTRY STRUCTURE (Cola Wars)

1. Threat of new entrants :

Yes No Remarks
(+) (-)
1. Do large firms have a cost X Yes, Pepsi was repeatedly
or performance advantage in undercutting Coke because of cost
your segment of the industry? and volume advantage

2. Are there any proprietary X Yes, Lawsuits between Coke and

product differences in your Pepsi are a key representation that
industry? IP of products is well protected
and guarded.

3. Are there any established X Yes, for eg: There is a strong

brand identities in your brand presence: Coke has a strong
industry? brand presence: became a go to
product for shoppers etc., added
lifestyle participant and
identifiable by taste and
appearances.

4. Do your customers incur X As of now no: Because the

any significant costs in Concentrator are setting up bottler
switching suppliers? terms, similarly bottlers are
largely owned by Concentrators
so the costs are not explicitly
translated to consumers.

5. Is a lot of capital needed to X Concentrators are largely less

enter your industry? capital intensive , than bottlers ,
but a combined effect of both on
key market players seems like it is
an integrated effort into
diversified products : so yes :
bottling investment will push the
capital need for large scale dist –
either through integration or
franchising.

6. Is serviceable used X No information

equipment expensive?

7. Does the newcomer to your X Yes: Distribution channels are

industry face difficulty in bound to be more difficult to
accessing distribution access due to the extensive reach
channels? and competition in the retail and
fountain dist. ( extensive
acquisition by capital incentive
concentrators)
 8. Does experience help you
to continuously lower costs?
9. Does the newcomer have
any problems in obtaining the
necessary skilled people,
materials or suppliers?
10. Does your product or
service have any proprietary
features that give you lower
costs?
11. Are there any licenses,
insurances or qualifications
that are difficult to obtain?
12. Can the newcomers expect X
strong retaliation on entering
the market?
Note : High barriers to entry
Low barriers to entry
Overall rating
Exhibit TN-1 (continued)
2. Bargaining power of buyers : to what extent are your customers locked into your?
1. Is there a largo number of
buyers relative to the number of
firms in the business
2. Do you have a large number of
customers, each with relatively
small purchases?
3. Does the customers face any
X NO: Profitability and innovation
has driven the costs down.
X NO: There seems to be long-term
relationships with suppliers , but
difficult to manage.
X NO: all business strategies and
work structure can be copied and
followed.
X NO: no licenses but territorial and
business laws to be followed
strictly : more recently
contamination and health metrics
to be followed
YES : strong retaliation from big
players : either through
undercutting of cost or
acquisition.
= + factors (favorable to industry) +1 - a high barrier
= - factors (unfavorable to industry)
= Strongly favorable for the incumbents
Yes No Remarks
(+) (-)
X The soft drink industry is highly competitive, with
numerous players vying for market share. However,
Coca-Cola and Pepsi are the two largest and most
well-known brands in the industry, and together they
account for a significant share of the market.
X Yes, both Coca-Cola and Pepsi have a large number of
customers, each with relatively small purchases. As
carbonated soft drinks are a low-priced, high-volume
product, it's common for companies in this industry to
rely on a large customer base to drive sales.
Coca-Cola and Pepsi both have a global reach and
their products are available in numerous countries
around the world. They have built their businesses
around providing affordable, convenient products that
can be easily purchased by consumers at grocery
stores, convenience stores, and restaurants.
X In the Cola Wars between Coca-Cola and Pepsi,
significant costs in switching
suppliers?
4. Does the buyer need a lot of
important information?
5. Is the buyer aware of the need
for additional information?
6. Is there anything which
prevents your customers from
taking your function in house?
7. Your customers are not highly
sensitive to price?
8. Your product is unique to some X
degree or has accepted branding?
customers generally did not face significant costs in
switching suppliers. The two brands are widely
available and offer similar products at comparable
prices. As a result, customers could easily switch from
one brand to the other without incurring any
significant financial or logistical costs.
X In the Cola Wars between Coca-Cola and Pepsi,
buyers did not necessarily need a lot of important
information to make their purchasing decisions.
Carbonated soft drinks are generally perceived as a
low-risk, low-involvement product, and most
consumers have a basic understanding of the product
category and the brands available to them.
Coca-Cola and Pepsi are both well-established brands
with a long history of marketing and advertising,
which has helped to build their reputations and brand
awareness among consumers. This means that buyers
can rely on their existing perceptions and beliefs about
the two brands when making their purchasing
decisions, rather than needing to conduct extensive
research or gather a lot of information.
X In the Cola Wars between Coca-Cola and Pepsi,
buyers may not necessarily be aware of the need for
additional information. As carbonated soft drinks are
generally perceived as a low-risk, low-involvement
product, most consumers may not feel the need to
gather additional information before making their
purchasing decisions.
X Vast majority of customers are unlikely to take the
function in-house due to the significant costs and
logistical challenges involved. Producing soft drinks
in-house would require a significant upfront
investment in production facilities, which would be a
major barrier for most customers.
X Customers were not highly sensitive to price.
Carbonated soft drinks are generally considered to be
a low-cost, low-involvement product, and consumers
are not typically willing to pay a significant premium
for a particular brand.However, price competition did
play a role in the Cola Wars. Both Coca-Cola and
Pepsi engaged in price-cutting strategies to try to gain
market share and attract price-sensitive consumers.
However, the price competition was limited, as neither
company wanted to engage in a full-blown price war
that would erode their profitability and damage their
brands.
In the Cola Wars between Coca-Cola and Pepsi, both
products are unique to some degree and have widely
accepted branding. While both products are
carbonated soft drinks with similar flavor profiles,

9. Your customers businesses are
profitable?
10. You provide incentives to the
decision makers?
The above comparison was made between cola and pepsi.
Note : High barriers to entry
Low barriers to entry
Overall rating
Exhibit TN-1 (continued)
3. Threat of substitutes: ( some other products or services which perform the same
job as yours)
1. Substitutes have
performance limitations which
do not completely offset their
lowest price, or, their
performance advantage is not
justified by their higher price
2. The customer will incur
costs in switching to a
substitute
3. Your customer has no real
substitute.
4. Your customer is not likely X
to substitute.
Note : High barriers to entry
Low barriers to entry
Overall rating
they have distinct differences in taste, branding, and
marketing.
X The profitability of customers' businesses in the Cola
Wars between Coca-Cola and Pepsi varies depending
on the industry and market segment. Both Coca-Cola
and Pepsi have a diverse range of customers, including
grocery stores, restaurants, vending machine
operators, and convenience stores.
X both companies provided incentives to decision-
makers to try to influence their purchasing decisions.
For example, they offered volume discounts, rebates,
and promotional deals to retailers and other customers
who agreed to purchase a certain amount of their
products.
= + factors (favorable to industry)
= - factors (unfavorable to industry)
= Strongly favorable for the incumbents
Yes (+) No (-) Remarks
X While substitutes do not have
a lower price as such (prices
are almost same) the only
major difference is in taste.
X Similar prices
X Pepsi, Dr Pepper are some
substitutes
Given that taste is the major
differentiator, customer
would be loyal to the brand
for the taste
= + factors (favorable to industry)
= - factors (unfavorable to industry)
= Strongly favorable for the incumbents
 Exhibit TN-1 (continued)
4. Bargaining Power of Suppliers
1. My inputs (materials, labor,
supplies, services, etc). are
standard rather than unique or
differentiated.
2. I can switch between
suppliers quickly and cheaply.
3. My suppliers would find it
difficult to enter my business
or my customers would find it
difficult to perform my
function in house
4. I can substitute inputs
readily.
5. I have many potential
suppliers.
6. My business is important to
my suppliers.
7. My cost of purchases has
no significant influence on my
overall costs.
Note : High barriers to entry
Low barriers to entry
Overall rating
Yes No Remarks
(+) (-)
X Inputs for concentrate are caramel coloring,
phosphoric acid, natural flavors and caffeine
and bottlers are packaging inputs (cans, plastic
bottles,glass bottles) and sweeteners (high-
fructose corn syrup, sugar and artificial
sweeteners)
X Canning lines cost $4 million - $10 million for
bottlers
X Formula for Coca-Cola syrup remained a
secret and imitations were dealt with
infringement suits in court. It will be difficult
to perform my function in house and suppliers
will find it difficult to enter my business.
X For Bottlers, packaging accounted for 40 -
45% of cost of sales , sweeteners for 5% of
cost of sales. Majority of US CSDs were
packaged in metal cans(56%), plastic bottles
(42%). But, for sweeteners Coke switched
from sugar to high fructose corn syrup in
1980.
X Concentrate producers employ staff to
negotiate with bottlers’ major suppliers to
achieve low prices, which means that they
have high power over suppliers. Metal cans
were a commodity and often 2-3 can
manufacturers competed for contracts.
X Coke and Pepsi were the metal can industry's
largest customers. Metal cans were a
commodity and often 2-3 can manufacturers
competed for contracts..
X For Bottlers, packaging accounted for 40 -
45% of cost of sales , sweeteners for 5% of
cost of sales. Price of coke varied and was
adjusted according to the sweetener price.
= + factors (favorable to industry)
= - factors (unfavorable to industry)
= Strongly favorable for the incumbents
 Exhibit TN-1 (continued)
5. Determinants of rivalry among existing competitors
1. The industry is growing
rapidly.
2. The industry is not cyclical
with intermittent
overcapacity.
3. The fixed costs of the
business are a relatively low
portion of total costs.
4. There are significant
product differences and brand
identities between the
competitors.
5. The competitors are
diversified rather than
specialized.
6. It would not be hard to get
out of this business because
there are no specialized skills
and facilities or long-term
contract commitments etc.
7. My customers would incur
significant costs in switching
to a competitor.
8. My product is complex and
requires a detailed
understanding on the part of
my customer.
9. My competitors are all of
approximately the same size
as I am.
Yes No Remarks
(+) (-)
X U.S.demand for carbonated soft
drink consumption declined
slightly before reaching a plateau
as consumers have become more
health-conscious
X There is peak demand during the
summer months and lower
demand during the winter
months
X Costs of advertising, marketing
campaigns, establishing and
maintaining distribution and
bottling are significant, and these
costs are generally fixed in
nature.
X Coca-Cola's flagship product is
Coke, which is a classic cola
beverage. PepsiCo has a broader
product portfolio that includes
Pepsi, Mountain Dew, etc
X Coca-Cola and PepsiCo have
diversified their product
portfolios beyond carbonated
soft drinks
X Significant barriers to entry
consist of distribution channels,
brand recognition, and
economies of scale. There are
also long standing relationships
with retailers
X Given that taste is the major
differentiator, customers would
be loyal to the brand for the taste
X Soft drink products do not
require a detailed understanding
X Coke and Pepsi are dominant but
there are many other competitors
in the soft drink industry.
Note : High barriers to entry = + factors (favorable to industry)
Low barriers to entry = - factors (unfavorable to industry)
Overall rating = Strongly favorable for the incumbents

Exhibit TN-1 (continued)

Overall industry rating

Favorable Moderat Unfavorable

e
1. Threat of new 6 0 5 The high cost of
entrants capital involved
allows few players in
the industry. Also,
established brands and
economies of scale are
favorable to the
industry. So barriers to
entry are very strong
in the industry. Thus,
it can protect the
profitability for
incumbents.
2. Bargaining 5 2 3 Buyer power is
power of buyers relatively low,
Consumers are not
highly price sensitive.
3. Threat of 1 0 3 Substitutes are a
substitutes threat, but a smart
business overcomes
the threats by
maintaining quality
and taste.
4. Bargaining 3 2 2 Supplier power is
power of suppliers relatively low.
5. Intensity of 3 0 6 Strong focus on hotel
rivalry among business, minimal
competitors switching cost,
product characteristics
and size difference
reflect strong
competition among
hotel firms.