Cola Wars Continue: Coke and Pepsi in 2010 Essay

abridgment of the US carbonated soft drinks (CSD) perseverance(a) Strategic issuesThe CSD commercialiseplace place in the US (approx. $74 billion) is dominate by two concentrate manufacturers namely reverse and Pepsi . Both companies swallow been competing intensely since the 1970s, yet yield thrived from this competition and have grown the wrinkle precise profitably, as both have benefitted from the CSD market ripening rates of around 10% p.a. until the early 2000s, when domestic consumption started to dec eminence and in 2009 fell covering fire to levels of 19901U.S. Liquid consumption Trends (gallons/capita)1970Carbonated soft drinks19902000200922.746.953.046.0U.S. Soft Drink Market Sh atomic number 18 (Unit Case record book %)1970Coca-genus skunk Comp bothPepsiCo, Inc199020002009e34.719.841.132.444.131.441.929.9In order to attend the strategic issues of the concentrate manufacturers in the US market, an analysis of the CSD industry structure appears necessary. A practical scratch for assessing strategic issues is porters quin rives, as this mechanism nurses analyses of competition, as scheme is fundamentally ab kayoed competition2. The model of Porter is an outside-in business unit outline tool that analyses the attractor (value) of an industry structure, capturing the key elements of industry competition.Source HBS case study Cola Wars Continue modify state and Pepsi in 2010 May 26, 2011, Exhibit 1 Source Porter, Competitive StrategyFigure 1 Porters Five ferocitys abbreviationSummary on issue 1Barriers to entry are very high due to the following key factors (1) anybody trying to break into the CSD market must compete with gusts and Pepsis combined market look at of 75% (2) the market leaders have over decades make up strategically critical supply, production and sales channels, which would require enormous investments for followers to copy and (3) the inviolate brand recognition in the market mainly developed via the c umulative effect of long-time advertising and the geographic availability of their products.Understanding the CSD industry and its competitive landscape and given that the overarching goal of the concentrate manufacturers is to secure economic growth the primary strategic issue (central problem) for the concentrate manufacturers is the declining demand for CSDs, as these manufacturers have built their scheme over the decades on large volume production and distri exactlyion involving high amounts of investments (fixed as determineds) which are now (1) underutilized and (2) are non designed for alternative products (non-carb).(b) Macro-environmental factors shaping the US CSD industry Since the early 2000s several macro-environmental factors have started re-shaping the US CSD industry. To obtain a full picture of the potential macro-environmental concern on this industry, I utilise the comminute mannequin. PESTLE stands for Political, Economic, Sociological, Technological, L egal and Environmental. This framework is a tool for identifying, tracking, projecting and assessing macro-environmental trends and patterns which helps decision-making and to plan for future events.Figure 2 PESTLE AnalysisSummary on figure 2Based on the PESTLE analysis, 4 major trends that have already shaped respectively will continue to shape the current US CSD industry and make the attractiveness of this industry are (1) Shift in consumptionpatterns towards healthier fare (non-carbs such as juices and juice drinks, sports and energy drinks and tea-establish drinks simply also bottled water) causing the CSD to fizzle(2) US governance fighting the US 1 health problem obesity by tightened nutrition guidelines and imposing taxes on CSDs(3) Increasing pricing power of emerging mass-merchandisers (e.g. Wal-Mart) posing a new threat to profitability for setback, Pepsi and their bottlers(4) Non-carb market is open to new market entrants, as it is a stronger fragmented market non dominated by the classical CSD companies (Coke, Pepsi, DPS, etc.) The PESTLE analysis also reveals that the change in the US CSD industry is not a 1-timeimpact but rather an ongoing process 2000s (early) start of a declining domestic consumption of CSDs 2005 new national guidelines to fight obesity2010 already 29 states introduced a carbonated water tax(c) Future attractiveness of the US CSD industryThe US CSD industry will continue to be a very attractive market for the established players alone considering the size of the market and the strong redact in the market of these players. The 3 As (Advertising, Addiction, Availability) continue to be the main purchasing criteria for consumers. Still these players will have to adapt their strategies to celebrate market levels for CSDs. Possible strategic moves to act / react on the trends stated above should be based on the findings of the Five Forces Analysis and the PESTLE Analysis and could include (1) Development of (approved by the US F&D Admin.) alternative sweeteners to reduce obesitycausing sugars (2) Compete on availability (through their impressive geographical reach) (3) Create a fragmented bottling profit but give territorial exclusivity to bottlers as incentive to grow the pie and use the bottling network as a competitive firewall ( particularly against massmerchandisers) (4) Escalate advertising spending to keep out entry that market analysis can be carried out by using proved tools such as Ansoffs Growth Strategy Matrix (market present vs. market future / product present vs. product future) or the brand analysis (brand strength = differentiation + relevance vs. brand stature = knowledge + esteem) but which I have not described in this report.The competition in the CSD industry is a secureness between Coke and Pepsi with a hardly a(prenominal) minor players together holding approx. 25% market character. Coke and Pepsi leverage their strong market position and build on economies of scale crowd ing out smaller players or if necessary acquire them. Competition between Coke and Pepsi is reciprocal, with both responding to each others outline shifts. Most prominent were the development of diet and flavored varieties of CSDs.To further support the analysis of the future attractiveness of the US CSD industry, the following Force theatre of operations Analysis is reusable, as it also reveals potential restraining forces of change. As figure 3 shows, especially the market disruptions coming from domestic consumption of CSDs continuously declining have caught to a real extent the classical CSD companies by surprise, as they cannot respond to this development by standard measures such as increasing advertisement or bringing new CSDs to the market but are now face a structural change in the beverage market with an uncertain outcome.Figure 3 Force eye socket AnalysisThe Force Field Analysis as described in literature is especially profitable to identify resistance to change, providing a frameatized framework that supports identify factors that hinder change (restraining forces) and factors that support change (driving forces). Kurt Lewin developed the principle, which is a significant contribution to the fields of social science, organizational development, process circumspection, and changemanagement.(d) Potential impact of the four pressures (industry dynamics, globalization, risk and ethics) on the future attractiveness of the US CSD industryThe insights gained from the analyses carried out under 1(a), 1(b) and 1(c) summarize the potential impact of the four pressures as follows(1) Industry dynamics (defined as appreciation how industries and companies change over time and understand their drivers of these changes)The environment in which CSD companies have been operating until the early 2000s was 5characterized by competition but the industry dynamics tended to be evolutionary. The PESTLE analysis has shown, that since that time, market d ynamics have dramatically picked up and several lasting disruptive changes (e.g. introduction of a soda tax) have come to passed. Subsequently this has had an impact on top and bottom line of the CSD industry (Cola Wars business case, Exhibit 3a).(2) Globalization (defined as when an industry globalizes, it undergoes structural shifts, so that the organizations within it find that their position in one country is significantly affected by their position in another country) still if the aforementioned analyses are aimed to the US CSD industry, the data provided by the case study reveals that Cokes share of US business in % of total global business is around 20% while Pepsis share is around 50%. The international business in contrast to the US market has been ontogeny nicely given the strong population growth in emerging countries and the establishment of a marrow class in large nations such as India and China that can now afford CSDs. Coke has stronger benefitted from this growt h as Pepsi has. This should give Coke further potential for economies of scale which should benefit bottom line considerably.(3) gamble (defined as the evaluation of levels of risk and reward attached to each potential business opportunity)The impression of risk in the CSD industry given that especially Coke and Pepsi (a) have a significant share of business in the ace largest CSD market worldwide, which is the US and (b) rely on the success of a single type of product (carbonated soft drink) is high. Impacts coming from macro-environmental factors as shown in the PESTLE analysis can be game changing for this industry, as already happening since the early 2000s. (4) Ethics (defined as a set of values and beliefs that do transcend cultures, time and economic conditions)Again stressing PESTLE, environmental protection has become one of these values that have affected the CSD industry and have at least forced the CSD companies to re-think their packaging strategy and in conseque nce potential changes in the production and bottling process.From the aforementioned I would draw, that industry dynamics has the major impact on the future attractiveness of the US CSD industry.General observations on using module ideals act with theory and applying this to day-to-day business life has many a(prenominal) advantages of which I would highlightbest quality proven conceptsefficiency not to re-invent the wheelfor free applying theory in daily business life is from an reason property stand point basically not linked to any cost except costs for implementationThe contend left for every corporation is to understand, select and implement the theories, methods and tools that best suit their purpose. This requires experienced managers and experts that are loose of making use of theory to change practice.1. Module concept I Porters Five ForcesStrategy is fundamentally about competition. Competition comes from many places. Therefore it is essential to carry out an enviro nmental scan in a systematic bureau. Porter Five Forces model is a proven outside-in business unit strategy tool that analyses the attractiveness (value) of an industry structure, capturing the key elements of industry competition.(a) Strengths of the frameworkPorter refers to these forces as the micro environment or line-of-business industry level (those forces that are close to the company and that drive the business). If changes happen in one of these forces, the company should re-assess their strategic position and if required take corrective action. Also it provides useful input for performing a SWOT (Strengths, Weaknesses, Opportunities and Threats) analysis.(b) Limitations of the frameworkThe framework does not look at strategy from the inside-out. Consequently the view on core competencies on a company are ignored. I would have found it useful to understand where Coke has developed a competitive advantage vs. Pepsi and vice-versa. Therefore a SWOT analysis should always c omplement the Five Forces Analysis.Another critique I would make to the framework is the fact, that the 4 forces (1) entrants, (2) substitutes, (3) customers and (4) suppliers only relate to the center (competitors) but do not interact among themselves. In the Cola Wars e.g. the interaction between substitutes and customers would have been of interest.Last I would criticize the framework is not very useful for environments that are characterized by rapid, systemic and radical change which requires more flexible or emergent approaches to strategy formulation (this often happening with industries where disruptive innovation is foreseeable). This is also true for disruptions that give the possibility to perform completely new markets (how to create uncontested market space and make the competition irrelevant)3.2. Module concept II PESTLE frameworkThe PESTLE framework is a powerful tool and I used it to weigh up the wide range of factors in an organizations environment that will impact on its strategy. Reading through the Cola Wars business case it quickly became evident, that it is not one but several factors that are influencing the US CSD industry. PESTLE very much serves as a checklist of macro-environmental factors that can influence strategy. I personally prefer using the PESTLE framework in combination with the Force Field Analysis as I believe that PESTLE covers wholesome the driving forces of change but does not address the restraining forces. This becomes particularly evident in the analysis carried out under 1(c).(a) Strengths of the frameworkSimilar to the Risk Management System, PESTLE provides a comprehensive checklist of macro-environmental factors to make sure, that all dimensions have been thought of and have been enter systematically. Also these factors can be classified as opportunitiesand risks in the SWOT analysis as well as a risk register. Last but not least, PESTLE is easy to use and pliable to any business.(b) Limitations of the framew orkExcept for the stated under 2., I have not identified any major limitations of the framework, making it a tool I prefer working with.3. Module concept tierce Lewins Forces Field AnalysisLewins Force Field Analysis belongs to the great change management tools. He saw the drivers for and against change as a moving equilibrium and developed a way to analyse these drivers, giving birth to what he called a force field analysis. By sharp the driving and restraining forces of change, strategies can be developed to reduce the impact of the restraining forcesand strengthen the driving forces.Even if the Force Field Analysis looks simple at a first glance, the following benefits are built into the systemDynamics on action vs. reactionAllows different perspectivesHighlights most critical matters (size of the arrow)(a) Strengths of the frameworkThe Force Field Analysis complements the PESTLE framework as PESTLE covers well the driving forces of change but does not address the restraining f orces in a structured or transparent manner. It is easy to use and adaptable to many situations in business. Especially I would like to highlight, that one has to put himself in the shoes of the other to understand drivers and restrainers for change. This can make a difference in outlining a strategy.(b) Limitations of the frameworkThe Force Field Analysis is different to e.g. a Risk Management System by far not so sophistically developed. unmatched generally starts the analysis on a white piece of paper with only very few supporting guidelines. Checklists to avoid omissions of major drivers / restrainers are not known to me.