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Competition between Coke and Pepsi
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The cut-throat completion between Coke and Pepsi called for an intensified marketing, advertising and promotion programs as well as development of new low cost products to the liking of their targeted consumers. Similarly, both the company adopted various price reduction strategies to ensure they outdid one another in offering low prices for products to their clients. Taking into consideration the high costs of these marketing and promotion programs coupled with the impacts of the widespread retail price discounting, the profit margins realized within the soft drink industry was reduced significantly. Furthermore, parts of the accrued profits were rechanneled by the two companies to upgrade their production plants and equipment and to support the launching of new products. As such, these companies increase their capital requirements and in turn lower their profit margins tremendously.
Considering the diminishing yet dwindling demands for the CSD and other related bottled products in the global beverage market, it is not authentic that Coke and Pepsi will sustain their profits in the wake of flattening demand and growing popularity of non-carbonated soft drinks. Profitability of the industry will be a subject to some external forces described by the Michael Porter in his model of a perfect competition. In his five forces analysis model that represents a model of a perfect competition in an industrial economics, Porter elaborates that the real forces that affect the completion within the carbonated soft drink industry include threats of new entrants , the rivalry between the existing firms, threat of substitutes, the bargaining power of suppliers and the bargaining power of customers. Pepsi and Coke could therefore sustain profitability or not depending on the extent of pressure exerted by these factors on the beverage market.