Numerous economic studies have affirmed that different industries can sustain different level of profitability; part of this

difference is explained by industry structure. Michael Porter provided a framework that models an industry as being influenced by five forces. A strategic business manager seeking to develop an edge over rival firms can use this model to better understand the industry context in which the firm operates. In this paper I will use the five force model, as a Coca-Cola Company Business Manager to understand the Cola industry and try and develop an edge over rival firms. We will discuss each of the models individually and develop an understanding of where Coca Cola stands. Threat of New Entrants: Penetrating the soft drink industry is hard because of the established name of Coca-Cola and the other following reasons: Brand Image: Coca Cola invests enormous amount of money in marketing and advertising which has led to customer loyalty all over the world. People might not recognize Bill Gates or Warren Buffett if they are on a television show, but even a child who cannot read will recognize Coca Cola on television. We ran into a similar situation in the class room when the professor recognized a can of Coca Cola without even looking at the name printed on it. This makes it next to impossible for a new entrant to get in the market and compete with Coca Cola. Advertising: As mentioned above Coca Cola spend enormous amount of money on marketing and advertising, in 2011 alone the company spent $3.3 billion which makes it exceptionally hard for a new competitor to compete and gain visibility in the market. Retail and Global Distribution: Coca Cola in combination with its bottling partners has an extraordinary global distribution network, with that the advantage of economies of scale creates a barrier which is very hard for a new entrant to make an impact. Coca Cola also has long term relation with their retailers and they receive margins anywhere from 15% to 30%.

Substantial Investment: We already talked about the substantial investment of advertising that Coca Cola does in addition to that there are other investments like bottling plant, labor, distribution, packing and creating the winning formula and taste that people like and stay loyal to it. Power of Buyers: Bargaining power of the buyers varies widely and depends on the marketing channel used. Vending Machines: Vending machines provide products to the customers where there is no power with the buyer. Convenience Stores: Convenience stores are considered fragmented and thus have no bargaining power, so they have to pay higher prices. Large Restaurant Chains: As large chain restaurants usually carry a single type of Cola Beverage, usually Coca Cola or Pepsi, in their restaurants, large restaurants chains have a highest amount of bargaining power. Large Grocery Chains: Grocery chains typically carry multiple brands of the same product, but they still buy in large volume, have a considerable bargaining power but less than large restaurant chains. Power of Suppliers: The suppliers of Coca Cola have no bargaining power as raw materials for the companys beverage are generally readily available. Commodities ingredients: Most of the raw materials needed to produce the concentrate are basic commodities like flavor, color, packing and sugar. These are easily available through any suppliers. Cost: The cost of switching suppliers is very low for Coca Cola, giving it an upper hand over its suppliers. Threat of Substitute Products: Substitutes and easily available in market for e.g. Water, beer, Coffee Milk, health drinks etc. Although it is easy for customers to switch drinks as people are becoming more health conscience Coca Colas operating margin is still healthy. Promotion and advertising: Although there are a lot of other beverages which compete with Coca Cola, the company still does not show sign of any declining sales. Sales for 2009, 2010 and 2011 were

$34,292, $38,663 and $42,472 (in Millions) respectively. The credit for these increasing sales mainly goes to the advertising and marketing department of Coca Cola, which actively keeps the brand fresh in the mind of its consumers. New products: Coca Cola is consistently coming up with new products to stay in competition. Coca Cola introduced Coke Zero in 2007 to compete with sugar free drinks. October 2011 Coca Cola introduced new Minute Maid Pure Squeezed Juices. Coca Cola also expanded its product stream into juices, sports drinks and bottled water. Intensity of Competitive Rivalry: The Cola industry is dominated by mainly 2 big players, Coca Cola Company and Pepsi Co. Globalization has also played a major role in the competitive rivalry. Even with Pepsi and other small competitors in the market Coca Cola remains the industry leader. Industry Leader: Coca Cola had intense competition from Pepsi and of course other small companies which threatened the market share of the company. Coca Cola still kept its sales up by advertising aggressively and making sure that there is brand awareness in the market. As of February 2011, Coke brands commanded 41.9% of the total market last year compared to Pepsi Co. at 29.9%. Globalization: Coca Cola along with other competitors are in approximately 200 countries. With globalization the volume growth will and is increasing continuously. This keeps rivalry controlled, as companies are able to grow the volume without growing market share. Coca Colas historical performance indicates that it possesses a strong competitive advantage. And Coca Colas strong financial strength and its brand awareness mean that the company is well positioned to withstand competition and economic shocks.