Wednesday, February 27, 2019
Cola Wars Continue: Coke and Pepsi in 2010 Essay
synopsis of the US carbonated soft drinks (CSD) manufacturing(a) Strategic issuesThe CSD securities industriousnessplaceplace in the US (approx. $74 billion) is prevail by two trim manufacturers namely shock and Pepsi . Both companies bear been competing intensely since the 1970s, yet imbibe thrived from this arguing and switch grown the communication channel very profitably, as some(prenominal) ware benefitted from the CSD commercialise growth rates of around 10% p.a. until the early 2000s, when domestic consumption started to dec downslope and in 2009 fell back to levels of 19901U.S. luculent consumption Trends (gallons/capita)1970Carbonated soft drinks19902000200922.746.953.046.0U.S. Soft Drink Market grant (Unit Case Volume %)1970Coca- sens CompanyPepsiCo, Inc199020002009e34.719.841.132.444.131.441.929.9In order to understand the strategicalal issues of the concentrate manufacturers in the US market, an abridgment of the CSD fabrication structure appears n ecessary. A practical pecker for assessing strategic issues is porters basketball team Forces, as this joyride supports analyses of competition, as asideline is fundamentally about competition2. The model of Porter is an outside-in descent unit strategy tool that analyses the attractiveness (value) of an industry structure, capturing the depict elements of industry competition.Source HBS end study Cola Wars Continue degree Celsius and Pepsi in 2010 May 26, 2011, Exhibit 1 Source Porter, Competitive dodge ask-alike 1 Porters Five Forces abridgment compact on figure 1Barriers to entry are very tall due to the following key factors (1) anybody trying to break into the CSD market must(prenominal) compete with shocks and Pepsis combined market donation of 75% (2) the market leaders have over decades built up strategically fine supply, production and sales channels, which would require enormous investments for followers to imitate and (3) the strong daub recognition i n the market mainly actual via the cumulative effect of long- beat advertising and the geographical availability of their products.Understanding the CSD industry and its competitive landscape and vown that the overarching goal of the concentrate manufacturers is to secure multipurpose growth the primary strategic issue (central problem) for the concentrate manufacturers is the declining demand for CSDs, as these manufacturers have built their strategy over the decades on large loudness production and distri unlession involving high amounts of investments (fixed assets) which are at present (1) underutilized and (2) are not designed for alternative products (non-carb).(b) Macro-environmental factors shaping the US CSD industry Since the early 2000s some(prenominal) macro-environmental factors have started re-shaping the US CSD industry. To obtain a full picture of the potential macro-environmental wallop on this industry, I usaged the stamp poser. postage stamp stands for Political, Economic, Sociological, Technological, effectual 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 postage stamp AnalysisSummary on figure 2Based on the PESTLE abbreviation, 4 major trends that have already shaped respectively leave behind continue to shape the current US CSD industry and influence the attractiveness of this industry are (1) Shift in consumptionpatterns towards healthier upkeep (non-carbs such as juices and juice drinks, sports and null drinks and tea-based drinks but also bottled water) ca use the CSD to fizzle(2) US Government chip the US 1 health problem obesity by tightened nutrition guidelines and im comprise measureati matchlesss on CSDs(3) Increasing pricing power of emerging mass-merchandisers (e.g. Wal-Mart) posing a newfound threat to profitability for Coke, Pepsi and their bottle rs(4) Non-carb market is open to new market entrants, as it is a stronger fragmented market not dominated by the divideical CSD companies (Coke, Pepsi, DPS, etc.) The PESTLE analysis also reveals that the swop in the US CSD industry is not a cardinal-time bushel but rather an ongoing process 2000s (early) start of a declining domestic consumption of CSDs 2005 new federal guidelines to fight obesity2010 already 29 states introduced a soda tax(c) Future attractiveness of the US CSD industryThe US CSD industry will continue to be a very attractive market for the effected players alone considering the size of the market and the strong position in the market of these players. The 3 As (Advertising, Addiction, Availability) continue to be the main get criteria for consumers. Still these players will have to adapt their strategies to maintain market levels for CSDs. viable strategic moves to act / react on the trends stated above should be based on the findings of the Five Forces An alysis and the PESTLE Analysis and could include (1) Development of (approved by the US F&D Admin.) alternative sweeteners to cut off obesitycausing sugars (2) Compete on availability ( by their impressive geographical reach) (3) Create a fragmented bottling network but give territorial exclusivity to bottlers as inducing to grow the pie and use the bottling network as a competitive firewall (especially against massmerchandisers) (4) compound advertising spending to keep out entryFurther market analysis can be carried out by using turn out tools such as Ansoffs Growth Strategy Matrix (market defer vs. market future / product present vs. product future) or the brand analysis (brand strength = differentiation + relevance vs. brand stature = friendship + esteem) but which I have not described in this report.The competition in the CSD industry is a stronghold between Coke and Pepsi with a some minor players together holding approx. 25% market share. Coke and Pepsi leverage their strong market position and build on economies of eggshell crowding out smaller players or if necessary acquire them. argument between Coke and Pepsi is reciprocal, with both responding to each others strategy shifts. Most prominent were the increase of diet and flavored varieties of CSDs.To barely support the analysis of the future attractiveness of the US CSD industry, the following Force line of business Analysis is effective, 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 certain 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 facing a structural change in the beverage market with an chatoyant outcome.Figure 3 Force subject field AnalysisThe Force Field Analysis as described in literature is especially useful to identify resistance to change, providing a remainsatized framework that supports identify factors that stymy change (restraining forces) and factors that support change (driving forces). Kurt Lewin developed the principle, which is a significant constituent to the fields of social science, formational development, process management, and changemanagement.(d) Potential impact of the four pressures (industry kinetics, globalization, hazard 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 understanding 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 dynamics have dramatically picked up and several lasting disruptive changes (e.g. introduction of a soda tax) have happened. 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 some other country)Even 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 billet to the US market has been growing nicely given the strong people growth in emerging countries and the establishment of a middle class in large nations such as India and China that can now afford CSDs . Coke has stronger benefitted from this growth as Pepsi has. This should give Coke further potential for economies of scale which should benefit bottom line considerably.(3) Risk (defined as the evaluation of levels of risk and reward attached to each potential business opportunity)The exposure of risk in the CSD industry given that especially Coke and Pepsi (a) have a significant share of business in the wiz largest CSD market worldwide, which is the US and (b) rely on the success of a angiotensin-converting enzyme 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 set and beliefs that do transcend cultures, time and economic conditions)Again stressing PESTLE, environmental aegis has become one of these values that have affected the CSD industry and have at least forced the CSD comp anies to re-think their packaging strategy and in importee 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. widely distributed observations on using module conceptsEngaging with theory and applying this to day-to-day business life has many advantages of which I would highlightbest quality prove conceptsefficiency not to re-invent the wheelfor free applying theory in passing(a) business life is from an intellectual property stand point essentially not linked to any cost except costs for implementationThe challenge left field for every corporation is to understand, select and implement the theories, methods and tools that best suit their purpose. This requires experient managers and experts that are capable of making use of theory to change practice.1. module concept I Porters Five ForcesStrategy is fundamentally about competition. Compe tition comes from many places. because it is essential to carry out an environmental scan in a systematic way. 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 end 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 stimulation 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 competitiv e advantage vs. Pepsi and vice-versa. Therefore a SWOT analysis should always complement the Five Forces Analysis. other critique I would fill to the framework is the fact, that the 4 forces (1) entrants, (2) substitutes, (3) customers and (4) suppliers only uphold 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 organic change which requires more flexible or emergent approaches to strategy cooking (this often happening with industries where disruptive innovation is foreseeable). This is also true for disruptions that give the possibility to create 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 u p 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 well the driving forces of change but does not predict 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 documented systematically. Also these factors can be classified as opportunitiesand risks in the SWOT analysis as well as a risk register. Last but not least, PESTL E is easy to use and universal to any business.(b) Limitations of the frameworkExcept 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 III Lewins Forces Field AnalysisLewins Force Field Analysis belongs to the vast change management tools. He saw the drivers for and against change as a moving equilibrium and developed a way to analyse these drivers, vainglorious birth to what he called a force field analysis. By knowing 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 honest 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 PEST LE covers well the driving forces of change but does not address the restraining forces 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. One 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.