Wednesday, April 1, 2015

The Cola War and Porter's Five Forces Framework

Drinking Coka Cola will make your tongue fall out. As a child this is what I believed; my father and grandfather both worked for Pepsi for over 35 years each. My grandfather got my dad a job there loading trucks at the age of 14 and he retired from there 39 years later after working his way up to management. The cola wars is something I lived daily. We were always aware or talking about what Coke was doing vs. Pepsi. 

It was interesting to read and reminisce through this article. This is probable the most competitive companies that most Americans are aware of. These are two companies that have gone head to head for over 100 years. Others have tried to break into the competition but with two incredibly strong companies with very deep pockets, it was impossible. 

As we read in Competitor Analysis: Understanding your Opponents, knowing how your competitors are going to react to your strategic moves is key to really knowing your competitors. In the cola wars case, I feel that Pepsi and Coke knew exactly what the other was about and every time one made a move, the other followed suit. In most cases, Coke seemed to play first and Pepsi would follow suit. There were times that Pepsi made the first move but it seemed to happen more recently than in earlier years. 

I found it interesting when looking at Porter’s Five Forces Framework and applying it to the competitive war between Coke and Pepsi. I feel that most of them almost do not apply in this certain competitive analysis. With only two major competitors that enormous compared to any possible threat, they have almost eliminated the possibility of new entrants. When they felt that there would be a threat of any possible substitute produce or service (such as bottle water and juice), they bought and started bottling their own which eliminated this fear. They did this same thing with suppliers. When bottling companies started to get competitive and bargained rates, they just started buying those as well and both started their own bottling companies. The one that is at the forefront of this competition is the bargaining power of customers. Customers can switch easily, I know myself at some point in my life, and probably on more than one occasion, have had a Pepsi and Coke (or another product of theirs) in the same day. It is always the challenge, what do you prefer, Coke or Pepsi which faces them every day. As for jockeying for position, they have both had their turn at number 1 over the other. 

As the Porter said, “The collective strength of these forces determines the ultimate profit potential of an industry”. I feel that both own these forces and therefore, have made this competitive war what it is: a war between two giants in the industry where the front runner at any time is the one who seems to take that first strategic move before the other thinks of it.

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