Fia Tx1

Essay text:

Inputs for the products include sugar, bottles/cans, and soft drink syrup. Coca-Cola and Pepsi produce the syrup themselves and purchase the other inputs. They then enter into exclusive contracts with independent bottlers to produce their products. Use the five forces framework and your knowledge of the soft drink industry to explain how Coca-Cola and Pepsi are able to retain most of the profits in the industry. • Coca-Cola and Pepsi have segmented the soft drink industry into two industries: production of soft drink syrup and manufacturing/distribution of the soft drinks at the retail level; • Coca-Cola and Pepsi have chosen to operate primarily in the production of soft drink syrup while leaving independent bottlers with the more competitive segment of the industry; Analysis of the production of soft drink syrup industry: • Coca-Cola and Pepsi sell their syrup to independent bottlers who have exclusive contracts to distribute soft drinks and other company products who have exclusive contracts to distribute soft drinks and other company products within a specific geographic area: ­ Coca-Cola and Pepsi write exclusive contracts with bottlers prohibiting them from simultaneously bottling for a competitor; ­ It is also difficult for independent bottlers to switch from Coke to Pepsi products since there is likely to be an established Pepsi bottler in the same geographic area; ­ Given the large number of competing forms of containers for soft drinks (glass bottles, plastic bottles, aluminum cans), it is difficult for bottlers to earn any more than a normal rate of return on their investment; ? Independent bottlers have little bargaining power and Coca-Cola and Pepsi are able to charge them relatively high prices for syrup; • The threat of new entrants is restricted by limited access to adequate distribution channels and by valuable brand names that have been created by both Coca-Cola and Pepsi; ? Barriers to entry are high; • The main ingredients of syrup are sugar and flavoring, and the markets for these inputs are generally competitive; ? Both Coca-Cola and Pepsi exert considerable influence over their suppliers; Question 7 In the early 1980s, United, Delta, and American Airlines each started frequent flier programs as a way to differentiate themselves in response to excess capacity in the industry...