Angel L. Lombardi

Economics of Organizational Architecture and Strategy

Assignment week two: “Cola Wars Continue: Coke vs. Pepsi in the 1990s”

Professor: Orlando Rivero D.B.A.

April, 3, 2008
Cola Wars Continue: Coke vs. Pepsi in the 1990s
Overview
This paper will explore Porter's Five Forces ( Porte 6) and Branderburger and Nalebuff’s Value Net to answer this questionnaire and describe soft drinks industry characteristics. The soft drink industry is concentrated with the three major players, Coca-Cola, Pepsi, and Cadbury Schweppes Plc., making up 90 percent of the $52 billion dollar a year domestic soft drink market. This market is a mature one with annual growth of 4-5% causing intense rivalry among brands for market share …show more content…

Furthermore, consumers expected to pay less through this channel, so prices were lower, resulting in somewhat lower profitability.

New Entrants:
Strong barriers to new entrants in the soft drink industry: It is very difficult to a new Concentrate Producer to enter the market. Coke and Pepsi are the first movers in the industry and have more than 100 years of existence in the market. They have both kept their formula as a trade secret and built a strong brand image. It is also difficult for a new bottler to enter the CSD industry due the amount of capital investment required, the interdependence that exists between concentrate producers and bottlers, the exclusivity of territories in which bottlers distribute products, and the access to retail channels, with which Coke and Pepsi sustained favorable and long term relationships.
Economies of Scale
Size is a crucial factor in reducing operating expenses and being able to make strategic capital outlays. By consolidating the fragmented bottling side of the industry, operating expenses may be spread over a larger sales base, which reduces the per-case cost of production.
Capital Requirements
The requirements within this industry are very high. Production and distribution systems are extensive and necessary to compete with the industry leaders.
The magnitude of these expenditures causes this to be a high barrier to entry.
Proprietary Product Differences
Each firm has brands that are