Cola Wars Assignment

COLA WARS ASSIGNMENT

Based on HBR case study: ‘Cola Wars Continue: Coke and Pepsi in 2006’

This case examines the industry structure and competitive strategy of Coca-cola and Pepsi over 100 years of competitive battles. For over a century, Coca-Cola and Pepsi-Cola had vied for the “throat share” of the world’s beverage market. The most intense battles of the cola wars were fought over the $60 billion industry in the United States, where the average American consumes 53 gallons of carbonated soft drinks (CSD) per year. From 1975 to 1995 both Coke and Pepsi had achieved average annual growth of around 10% as both U.S. and worldwide CSD consumption consistently rose. The case allows for an analysis of power on the value chain and competitive interactions between two of its most powerful players. Why has the CSD business remained so profitable for so long? What is the role of industry structure and firm strategy in shaping the strong performance of the top two players?

1. Mapping the industry On the attached page, map the value chain of the soft drink industry with the concentrate producers (Coke, Pepsi and others) as the focal industry. Identify buyer groups and supplier groups, as many as apply from the case. Once you have drawn the value chain, add to your figure by showing substitutes and potential entrants. Then, include some company names where possible to illustrate the kinds of companies operating in each stage (don’t worry if you don’t have examples for all stages, e.g. some commodities).

In mapping the value chain, follow these guidelines;

  • Show each stage of the value chain as separate and independent, even if some firms have backward or forward integrated into multiple stages at different times in the industry’s history. In other words, ignore vertical integration for the purposes of drawing the value chain and draw each stage as a separate business.
  • “Follow the money”: indicate the monetary flows between the different businesses on the value chain.

2. Five Forces Analysis. Using the sheets provided, assess the power of each of the five forces with respect to the concentrate manufacturers: High, Medium, Low. (note: if the power of a force is “high” it is a represents a threat to the focal business). When you are finished, answer the questions that follow.

Follow these guidelines:

  • Again, ignore vertical integration in your analysis and assess each stage of the value chain as a separate force.
  • Focus on the most important groups in a particular business, e.g. if there are many different suppliers or buyers focus your discussion/analysis on those which you think are more important in terms of power on the value chain. Discuss as many as you feel are important. Your overall assessment should capture the aggregate power of that stage of the value chain.
  • Support your assessment with a discussion of the five forces model, supported by facts from the case.
  • Type your answers in the attached worksheet. You may write up to one page (single spaced) for each answer, not including tables or graphs.

THE VALUE CHAIN IN SOFT DRINKS

Five forces analysis

1. POWER OF SUPPLIERS

2. POWER OF BUYERS

3. POWER OF SUBSTITUTES

4. ENTRY BARRIERS

5. RIVALRY

Additional questions:

Guidelines; Use additional pages to answer the following questions. Your answers should not exceed 1 page, double spaced, not including graphs. Add sheets as needed.

  1. Why is the concentrate business so profitable? Summarize and synthesize key points from your industry analysis to answer this; do not repeat what you have already written.
  2. Draw a stacked bar chart with costs expressed as a percentage of revenue that compares the cost structure of the bottlers and concentrate manufacturers, then draw a third stacked bar that estimates what the combined cost structure would be if they merged. Use color in your graphs if possible. Then answer the following: What accounts for the stark profit differences between bottlers and concentrate manufacturers? Given this difference – does it make sense for Coke and Pepsi to vertically integrate into bottling? Consider both economic (profit maximizing) and well as strategic reasons for why would they want to take ownership of bottling operations. Which do you think is driving these moves?
  3. How important is price competition among concentrate producers? Graph prices over time to support your answer.
  4. Who is winning the Cola Wars in the United States? Graph market shares over time to support your answer.

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