External and Process Environment, Research Paper Example

Porter’s Five Forces Model was utilized to determine the external threats present to Coca-Cola Company. Coca-Cola has a low threat of new entrants into the industry, which enhances their ability to be aware of the competition (Interbrand, 2010). The soda production industry requires a great amount of funds to participate at the same level as the major organizations. Coca-Cola currently has a standing in which it would be able to easily eliminate new competitors, allowing to remain prominent. In 2000, more than $2.6 billion was spent by soda production companies for marketing, which is a figure that new entrants into the industry would be unable to match. Furthermore, the cost of a new production plant costs more than $75 million, which would be a reasonable investment for existing companies but not for a new entrant. Coca-Cola’s major competitor is PepsiCo, but the two companies have staged agreements that provide them with certain geographical rights. In addition, retailers who sell one company’s product may not sell the product from the other company, and vice versa.

Despite the fact that there is a low risk of new competitors for Coca-Cola, there is a strong threat of substitutes. In addition to the wide variety of soft drink products available from competing companies, individuals have many different beverages to choose from including water, coffee, and tea (Food Quality News, 2004). These alternative choices are problematic for the soft drink industry because they are generally considered to be healthier options, causing many consumers to choose these beverages over soft drinks. Furthermore, many of these products are also offered for a smaller expense, which results in many individuals choosing these options.

The company also has a low threat of suppliers. The ingredients used to create these soft drink products are relatively simple, and include coloring, sugar, and caffeine. It is therefore very unlikely that the prices of these products will change significantly over a period of time and there is no significant need to remain loyal to one particular vendor to ensure that prices will be fair. An interesting business partnership is the fact that Coca-Cola does not bottle its own products. However, it owns a majority of the stock in the companies that perform these tasks, and this allows the soda to be distributed more quickly.

Buyers of Coca-Cola have a moderate bargaining power. The sale of Coca-Cola is dependent on the demand of product from individual consumers and large supermarkets. Individuals who wish to buy healthier products can therefore influence the price of Coca-Cola products in a manner that allows it to drop.

Coca-Cola’s major competitor is PepsiCo. While Coca-Cola sells the four most popular soft drinks in the United States, PepsiCo was able to get ahead of Coca-Cola in terms of sales. A major component of Coca-Cola’s competition that causes PepsiCo to remain ahead in terms of sales is that PepsiCo has managed to retain a greater extent of brand loyalty (Brand Keys, 2010). Therefore, since many people simply prefer to purchase PepsiCo products, it is challenging for Coca-Cola to make as profitable sales. While PepsiCo makes more profit from sales, the actual number of sales that Coca-Cola makes is higher. Thus, these two companies remain in a power struggle to determine who can retain a higher popularity.

References

Brand Keys. (2010). Brand Keys Customer Loyalty Leaders 2010. http://www.brandkeys.com/awards/leaders.cfm

Food Quality News. (2004).Coke Admits Defeat in Dasani Rollout. http://www.foodqualitynews.com/Public-Concerns/Coke-admits-defeat-in-Dasanirollout

Interbrand (2010). Best Global Brands 2010. http://www.interbrand.com/en/best-global-brands/best-global-brands-2008/bestglobal-brands-2010.aspx