4Porter 5 Forces Analysis of an Industry Five forces analysis: Technique for understanding an industry, by examining the interactions among:Competitors in an industryPotential new entrants to the industrySubstitutes for the industry’s offeringsSuppliers to the industryIndustry’s buyersPurpose of the analysis is to identify how much profit potential exists in an industry
6Soft Drinks – Porter 5 Forces  Threat of New Entrants/Potential Competitors: Median PressureEntry barriers are relatively low for beverage industry: there is almost 0 consumer switching cost and very low capital requirement. There are more and more new brands appearing in the market with usually lower price than Coke productsHowever Coca-Cola is seen not only as a beverage but also as a brand. It has a very significant market share for a long time and loyal customers are not very likely to try a new brand beverage.
7Soft Drinks – Porter 5 Forces  Threat of Substitute Products: Median to high pressureThere are many kinds of energy drink and soda products in the market. Coca-cola doesn’t really have a special flavor. In a blind taste test, people couldn’t tell the difference between Coca-Cola and Pepsi
8Soft Drinks – Porter 5 Forces  The Bargaining Power of Buyers: Low pressureThe individual buyer has little to no pressure on Coca-ColaThe main competitor, Pepsi is priced almost the same as Coca-Cola.Consumer could buy those new and less popular beverages with lower price but the flavor is different and the quality is not guaranteed.Large retailers, like Wal-Mart, have bargaining power because of the large order quantity, but the bargaining power is lessened because of the end consumer brand loyalty.There are many kinds of energy drink and soda products in the market. Coca-cola doesn’t really have a special flavor. In a blind taste test, people couldn’t tell the difference between Coca-Cola and Pepsi.People are getting concerns of negative effects of carbonated beverages. Increasing number of consumers begin to drink fruit juice, lemonade and tea instead of soda products.
9Soft Drinks – Porter 5 Forces  The Bargaining Power of Suppliers: Low pressureThe main ingredients for soft drink include carbonated water, phosphoric acid, sweetener, and caffeine. The suppliers are not concentrated or differentiated.No supplier would want to lose a huge customer like Coca-Cola.
10Soft Drinks – Porter 5 Forces  Rivalry Among Existing Firms: High PressureCurrently, the main competitor is Pepsi which also has a wide range of beverage products under its brand. Both Coca-Cola and Pepsi are the predominant carbonated beverages and commit heavily to sponsoring outdoor festivals and activities. As Coca-Cola has a longer history, it is advertised in a more classical approach while Pepsi tried to attract younger generation by using pop stars as brand ambassadors. Currently Coca-Cola slightly topped Pepsi as the possessor of the most U.S market share.There are other soda brands in the market that become popular, like Dr. Pepper, because of their unique flavors.
11Soft Drinks – Porter 5 Forces  So what do you think?Should we compete with Coca-Cola as a new entrant? As a Supplier going into their market? As a buyer going into their market?MediumHighLowMed/Hi
12DiscussionIs there an aspect industry activity that the five forces seems to leave out?Imagine that you are the president of UMass Lowell. Which of the five forces would be most important to you? Why?
13Today Attendance Discussion on Porter 5 Forces Industry Analysis Group workshop – create a 5 Forces chart for the industry that includes Starbucks, Dunkin Donuts and McDonaldsFor next class
14Today Attendance Discussion on Porter 5 Forces Industry Analysis Group workshop – create a 5 Forces chart for the industry that includes Starbucks, Dunkin Donuts and McDonaldsFor next class:Read chapter 3, section 3 on Porter 5 ForcesRead Chapter 4, Section 4.5 on SWOTFamiliarize yourself with SWOT hand out (see Wiki)#4 Duncan Donuts Case Study (Thursday)