FIVE COMPETITIVE FORCES 1

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Five Competitive Forces

(University Affiliation)

Introduction

To begin with, it is worth noting that the theory of Porter’s Five Competitive Forces was established with the sole purpose of determining the competitive intensity as well as well as the intensity of the market environment. Developed by Michael Porter (2008) in 1979, the Five Forces concept is a useful tool in understanding the present competitive position as well as the strength of the of company hence helping the organization to improve its strategy. In effect, this paper will analyze Coca-Cola Company with regard to how the five forces can improve its strategy. In addition, the paper will also delineate the effluence of Information Technology on the Five Competitive Forces Concept.

Supplier Power

According to Porter (2008), the supplier power is an analysis of how easy or difficult it is for the suppliers to burgeon their prices. Looking at Coca-Cola Company, the primary ingredients that are used to prepare the soft drink comprises of carbonated water, caffeine, phosphoric acid as well as sweetener. The suppliers of these products are not differentiated or concentrated. Moreover, as studies indicate, Coca-Cola is the largest customer of these supplies hence has a controlling power over the prices. The suppliers depend much on the Coca-Cola’s success hence the bargaining power of the suppliers is somewhat low or is at low pressure. Therefore, using this force, the company is certain of its supplier’s price thus strategically sticking with them.

Buyer Power

The buyer power aspect is associated with how easy it can be for the potential customers to push the prices down. Some of the drivers here could be the number of potential patrons in the market and cost to the client, if he or she switches to another company’s products. Accordingly, Coca-Cola enjoys consumer brand loyalty and as such, there is low pressure with regards to the bargaining power of the buyers. Therefore strategically, it would maintain or increase its prices if need be.

Competitive Rivalry

The Key driver is the capability as well as the number of competitors in the market environment. Studies indicate that with several competitors in the market offering undifferentiated goods as well as services, the market attractiveness will automatically be reduced (It, 2004). Looking at Coca-Cola Company, it is most notable that the firm’s closest competitor is Pepsi, which also offers various beverages. Research indicates that both Coca-Cola and Pepsi brands are the dominant players with regard to the production of carbonated beverages as well as sponsoring outdoor activities as well as events. This indicates that rivalry among the present firms offering carbonated beverages is high thus Coca-Cola must continue offering differentiated products with added value as well as an increase in its marketing strategy to outdo Pepsi and other upcoming companies in the market.

Threat of Substitution

Whenever there are substitute products in the market environment, the likelihood of consumers switching to alternatives is often high when a product’s price is increased. Thus, this will usually decrease the power of the attractiveness of the market as well as the power of the suppliers. As far as Coca-Cola is concerned, the aspect of the threat of substitute goods is currently between medium and high pressure. There are various types of energy drinks, juice, or even soda products in the current industry and Coca-Cola does not have an exclusively unique flavor. This is because, in a blind test, one cannot tell the difference between Coke-cola and Pepsi. With this analysis, the company can now come up with unique flavors to overcome this aspect.

Threat of New Entry

As McMillan (2010) asserts, profitable markets often attract new entrants, which in turn can erode the profitability of a dominant company. Thus, unless the dominant companies have durable as well as strong barriers to entry, for instance, capital requirements and patents, then the profitability is likely to decrease to a competitive rate. The threat of potential competitors in Coca-Cola’s case is at medium pressure. Evidently, various brands are appearing in the carbonated beverages market and are also offering similar or lower prices than Coke products. The entry barriers are somewhat low as there is no customer switching cost. However, Coca-Cola is perceived as a strong brand which holds a considerable market share and its loyal customers are not likely shift to a new brand. Thus, with this analysis the company is able to position itself more strongly in the market.

Having analyzed the five competitive forces that impact Coca-Cola Company, it can be concluded that the company has an advantage in all the five forces thus, can use them to come up with new marketing strategies in order to continue dominating the market.

The use Information Technology on the Five Competitive Forces Concept

The development as well the extensive use of information technologies (IT) has been found to have a significant impact on the five competitive forces (Turban et al., 2008). For instance, with regards to the aspect of rivalry among the existing competitors, Coca-Cola Company can use online bulk ordering system hence obtaining the first mover’s competitive advantage through IT. As far as the threat for substitute products aspect is concerned, the Coca-Cola company can use computer integrated manufacturing system to significantly enhance its agility as well as production hence making the product features added expediently thus reducing the threat of substitutes. Besides, consumers can access many consumers on the internet in order to make a quick decision with regards to buying products (Laudon, & Laudon, 2004). Ultimately, companies can use automated order processing system to gather a significant amount of information regarding the purchase frequency, as well as preference changes of consumers hence, adjust their strategies accordingly.

References

It, W. R. (2004). Competitive strategy: Techniques for analyzing industries and competitors.

Laudon, K. C., & Laudon, J. P. (2004). Management information systems: managing the digital firm. New Jersey, 8.

McMillan, C. (2010). Five competitive forces of effective leadership and innovation. Journal of Business Strategy, 31(1), 11-22.

Porter, M. E. (2008). The five competitive forces that shape strategy.

Turban, E., Leidner, D., McLean, E., & Wetherbe, J. (2008). INFORMATION TECHNOLOGY FOR MANAGEMENT, (With CD). John Wiley & Sons.