Assessing Industry Attractiveness: Porter's 5 Forces
Porter’s five forces model is a great tool to determine industry attractiveness. The use of this model makes companies to step back, and see what is important. By stepping back and using the five forces, a company can get a broader view about what is significant to know on the industry they are in. The main thing in the five forces is to know where the power lies in the industry. This tool will become more effective by help knowing the strength of the competitors, and the strength of the position in which the company would like to move to. This tool can also help to take advantage in some situations, and improve weakness in others. The effectiveness of the five forces is not only on how to drive the company, but it also uses strategic planning for future products, and new rivals which is very important component in the market’s competition.
The Soft Drinks Industry Attractiveness- Porter’s Five Forces
Threats of entry posed by new or potential competitors:
Pepsi, and Coca Cola are controlling the industry, and the entry is difficult for reasons of the size and strong brand identity that this two main players have in the market. Bottling will be another barrier to entry since it requires capital investment, which might prevent entry.
Attractiveness level-Low
Rivalry among existing firms:
Pepsi and Coca Cola are controlling more than 70% of the industry in the U.S, and the top six controls about 90% of the market. Therefore the rivalry is less than if there were many small or equal size players in the market. Pepsi and Coke focusing more on rivalry in advertising, promotion and new products, rather than price since their buyers are characterize as brand loyal.
Attractiveness level- Medium
Bargaining power of suppliers:
Suppliers have little power over the industry, since the input of the biggest players in the market is primarily sugar, cans, and bottles. Sugar can be purchase easily in the market, and some times when sugar price is increase a sweet corn can be a cheap substitute. Aluminum is inexpensive material, and there are many suppliers that compete for a contract, therefore can dealers also have little supplier bargaining power.
Attractiveness level-LOW
Bargaining power of buyers:
In this industry consumers are brand- loyal, and in most cases they don’t base their purchase choice on price. Moreover, the stores see the soft drink industry as one that generates consumer traffic to the store, and therefore they find themselves obligate to hold variety of products from both Pepsi and Coke. The leading power buyer of this industry among all is the fast food network which buys in very low prices from Pepsi and Coke. By doing so Pepsi and Coke are trying to build brand recognition and loyalty, and use this avenue as an important channel to the customers through the fast food chains.
Attractiveness level-Low/ Medium
Closeness of substitute products:
Soft Drinks are unique and other drinks such as water and juices do not have the same taste, but they do have in common similar refreshing qualities that might make them a suitable substitute. Hot drinks and alcohol can’t be a substitute to soft drinks since they are not desirable or proper to the time when soft drink is needed.
Attractiveness level-Low/ Medium
By using the five forces analysis I will recap and say that the soft drink industry is profitable for the exiting firms. New firms will find it hard and in most times unprofitable market to go in.