Michael E. Porter's Five Forces In Pepsi

Michael E. Porter's Five Forces In Pepsi

Length: 1756 words (5 double-spaced pages)

Rating: Excellent

Open Document

Essay Preview

More ↓
The model of the Five Competitive Forces was developed by Michael E. Porter in his book "Competitive Strategy: Techniques for Analyzing Industries and Competitors" in 1980. Since that time it has become an important tool for analyzing an organizations industry structure in strategic processes.  
Porters model is based on the insight that a corporate strategy should meet the opportunities and threats in the organizations external environment. Especially, competitive strategy should base on and understanding of industry structures and the way they change.
Porter has identified five competitive forces that shape every industry and every market. These forces determine the intensity of competition and hence the profitability and attractiveness of an industry. The objective of corporate strategy should be to modify these competitive forces in a way that improves the position of the organization. Porters model supports analysis of the driving forces in an industry. Based on the information derived from the Five Forces Analysis, management can decide how to influence or to exploit particular characteristics of their industry.

     The Five Competitive Forces

The Five Competitive Forces are typically described as follows:

1          Bargaining Power of Suppliers

The term 'suppliers' comprises all sources for inputs that are needed in order to provide goods or services.
Supplier bargaining power is likely to be high when: 
·       The market is dominated by a few large suppliers rather than a fragmented source of supply,
·       There are no substitutes for the particular input,
·       The suppliers customers are fragmented, so their bargaining power is low,
·       The switching costs from one supplier to another are high,
·       There is the possibility of the supplier integrating forwards in order to obtain higher prices and margins. This threat is especially high when
·       The buying industry has a higher profitability than the supplying industry,
·       Forward integration provides economies of scale for the supplier,
·       The buying industry hinders the supplying industry in their development (e.g. reluctance to accept new releases of products),
·       The buying industry has low barriers to entry.
In such situations, the buying industry often faces a high pressure on margins from their suppliers. The relationship to powerful suppliers can potentially reduce strategic options for the organization. 

2          Bargaining Power of Customers

Similarly, the bargaining power of customers determines how much customers can impose pressure on margins and volumes.
Customers bargaining power is likely to be high when
·       They buy large volumes, there is a concentration of buyers,
·       The supplying industry comprises a large number of small operators

How to Cite this Page

MLA Citation:
"Michael E. Porter's Five Forces In Pepsi." 123HelpMe.com. 14 Oct 2019

Need Writing Help?

Get feedback on grammar, clarity, concision and logic instantly.

Check your paper »

Essay on Analysis Of Porter 's Five Forces Analysis

- Strategy Analysis: Porter’s Five Forces Analysis While I am writing this article, many people like me are thinking that business competition is a war between two or more corporation for more sales or market share. But according to Harvard business prof. Michael E.Porter, competition or comparison is more complex. It is not about who is biggest, it’s all about who is most profitable. The Porter’s Five Forces Model reflects or illustrate how this competitive environment is in industry or corporation is reflected and they are: Supplier power, Threat of new entrants, Buying power, Threat of substitutes....   [tags: Coca-Cola, Soft drink, Competition, Marketing]

Research Papers
1424 words (4.1 pages)

Analysis Of Michael Porter 's Five Forces Model Essay

- Introduction Myra opened UMUC Haircuts in 1995 but has recently become aware of an increase in competition from numerous competitors. Lately, there has been news of a Hair Cuttery opening up within five miles making Myra anxious about how it might effect her business. She hopes her salon is able to remain and increase revenue by developing some aspect of her business. Five Forces Analysis The Five Forces Model, developed in 1979 by Michael Porter, is a useful business resource. It allows a business to determine if it can be profitable based on the industry and other competitors, in this case the competitor being Hair Cuttery....   [tags: Strategic management, Porter five forces analysis]

Research Papers
737 words (2.1 pages)

Porter 's Five Forces Model Essay

- 1. Describe Michael Porter’s model and its components. Pick an industry and describe how the different components of the model relate to the industry. Porter 's Five Forces model, it named after Michael E. Porter. He identifies and analyzes five competitive forces that structure every industry, helps to determine an industry 's weaknesses and strengths. There are five components of Porter 's five forces model i. Potential of new entry into the industry ii. Rivalry among existing firms iii....   [tags: Strategic management, Porter five forces analysis]

Research Papers
1090 words (3.1 pages)

Five Forces Model Essay

- Professor Michael Porter of the Harvard Business School developed a framework that aids in the development of an organizations competitive advantage. Porter identified five basic forces that act on the organization; I. The bargaining power of suppliers; II. The bargaining power of buyers; III. The threat of potential new entrants; IV. The threat of substitutes; V. The extent of competitive rivalry. The bargaining power of suppliers. Suppliers can exert bargaining power over participants in an industry by threatening to raise prices or reduce the quality of purchased goods or services....   [tags: Competetive Advantage Michael Porter Five Forces]

Research Papers
1485 words (4.2 pages)

Essay on Porter 's Five Forces Analysis

- Section – 1 D Competitive Environment Porter 's five forces Porter 's five forces The confectionery industry is very dynamic in its nature. Things have changed within this industry very frequently before. According to (Porter, pp 4, 1985) “the collective strength of these five competitive forces determine industry profitability because they influence the prices, costs, and required investment of firms in an industry”. This model is one of the best tools available for analytical evaluation the competitive nature of the industry....   [tags: Porter five forces analysis, Management]

Research Papers
954 words (2.7 pages)

Questions On The 's Five Forces Strategy Framework Essay

- Quiz-4 Part A (maximum 2 paragraphs) • Pick a strategy framework that is widely used (you may pick one from those mentioned earlier.) • Provide a brief description of the components, or a diagram, of the framework. • Briefly describe underlying assumptions of the framework (economic/ cognitive/statistical…) Stratergy Framework --->Porter’s Five Forces Model-: Introduced Porter 's 5 Forces Model. The Porter 's Five Forces strategy framework helps understand where power lies in the business. It not only helps us understand the current position but also the position of the future....   [tags: Strategic management, Porter five forces analysis]

Research Papers
1662 words (4.7 pages)

Essay on Lowes’ Porter's Five Forces Competitive Analysis

- Lowes’ Porter's Five Forces Competitive Analysis Michael Porter's Five Forces analyze the external and internal environment of a company to increase the awareness of threats and structure of the industry that company competes within. Thus, the Five Forces is an ideal tool which can help companies to maintain their competitiveness with a higher profitability. Porter’s Five Forces is defined as threats of new entrants, bargaining power of suppliers, power of buyers, the threat of substitutes and rivalry among existing competitors....   [tags: external, internal environment, competitive forces]

Research Papers
1086 words (3.1 pages)

Sears Holdings Corp. (SHLD) SWOT Analysis, Porter’s Five Forces Analysis and Recommendations

- Our recommendation is to take Sears Holdings Corp. (SHLD) private through a private equity buyout. After doing so, we recommend implementing a centralized management structure and recruiting retail-savvy executives for the upper management team. We then recommend focusing on increasing value by capitalizing on SHLD’s real estate holdings through leasing agreements and increasing partnerships with complementary enterprises. Also, we recommend improving employee retention rates and retaining exclusive rights to private brands....   [tags: Porter’s Five Forces Analysis]

Research Papers
3014 words (8.6 pages)

Management: THe Porter Five Forces Model Essay

- In my opinion, I think that the Porter five forces model is still relevant in today’s competitive environment. It is because porter’s five forces can give the managers in the corporate to analyse the current situation of their industry in a structured and understand easily way (Porter 2001). Based on the strategic management view, it is good for managers of any organization in the similar industry or sectors to understand the five competitive forces acting and between organizations in the similar industry or sector....   [tags: competitive environment, forces]

Free Essays
838 words (2.4 pages)

Michael Porter’s Five Forces Essay

- Porter’s 5-Force Analysis Michael Porter’s 5-forces can be used to analyze an industry and help shape and create a “competitive strategy” (Porter, 6). Understanding each of the five forces and how they interact with one another provides a clear picture of the degree of competition being faced within an industry, and therefore its relative attractiveness. The understanding cannot provide an advantage; it is what you do with the understanding. Without the understanding, a strategy can be at risk of being unrealistic....   [tags: Business Strategy Analysis]

Research Papers
1969 words (5.6 pages)

·       The supplying industry operates with high fixed costs,
·       The product is undifferentiated and can be replaces by substitutes,
·       Switching to an alternative product is relatively simple and is not related to high costs,
·       Customers have low margins and are price-sensitive,
·       Customers could produce the product themselves,
·       The product is not of strategical importance for the customer,
·       The customer knows about the production costs of the product
·       There is the possibility for the customer integrating backwards.

3          Threat of New Entrants

The competition in an industry will be the higher, the easier it is for other companies to enter this industry. In such a situation, new entrants could change major determinants of the market environment (e.g. market shares, prices, customer loyalty) at any time. There is always a latent pressure for reaction and adjustment for existing players in this industry.
The threat of new entries will depend on the extent to which there are barriers to entry. These are typically
·       Economies of scale (minimum size requirements for profitable operations),
·       High initial investments and fixed costs,
·       Cost advantages of existing players due to experience curve effects of operation with fully depreciated assets,
·       Brand loyalty of customers
·       Protected intellectual property like patents, licenses etc,
·       Scarcity of important resources, e.g. qualified expert staff
·       Access to raw materials is controlled by existing players,
·       Distribution channels are controlled by existing players,
·       Existing players have close customer relations, e.g. from long-term service contracts,
·       High switching costs for customers
·       Legislation and government action

4          Threat of Substitutes

A threat from substitutes exists if there are alternative products with lower prices of better performance parameters for the same purpose. They could potentially attract a significant proportion of market volume and hence reduce the potential sales volume for existing players. This category also relates to complementary products.
Similarly to the threat of new entrants, the treat of substitutes is determined by factors like
·       Brand loyalty of customers,
·       Close customer relationships,
·       Switching costs for customers,
·       The relative price for performance of substitutes,
·       Current trends.

5          Competitive Rivalry between Existing Players

This force describes the intensity of competition between existing players (companies) in an industry. High competitive pressure results in pressure on prices, margins, and hence, on profitability for every single company in the industry.
Competition between existing players is likely to be high when
·       There are many players of about the same size,
·       Players have similar strategies
·       There is not much differentiation between players and their products, hence, there is much price competition
·       Low market growth rates (growth of a particular company is possible only at the expense of a competitor),

Beverage Industry Vs. Pepsi

Earnings for major soft-drink companies showed substantial improvement in the
first three quarters of 2002, and full-year operating earnings increased 7% to 9on
average. Companies are still dealing with sluggish carbonated soft drink trends in theUnited States. However, despite higher levels of marketing and promotional spending, and economic weakness in many international markets, noncarbonated beverage products continue to drive growth. Operating profits for the beverage industry are projected to rise 9%-10% in 2003 reflecting 7%-8% higher North American profits, a strong 14%-15% increase in Gatorade/Tropicana profits and a 4%-5% increase for international beverages. Beverage profits should benefit from a favorably pricing environment. For 2003, modestly higher prices for soft drinks and other beverage products in U.S.
supermarkets should boost profits for manufacturers. Noncarbonated drinks should continue to show strong growth, while volume trends for carbonated beverages should continue to show improvement. In addition to marketing and promotions, aggressive new product introductions by the major manufacturers should also help to boost volume trends. The projected increases in operating profits for the beverage industry in 2003 will be driven by a further rise in per capita consumption in the United States and abroad, strong growth in sales of new products, lower advertising costs, and modest price increases. The consolidation of bottling networks by both the Coca-Cola Co. and PepsiCo has helped to reduce retail price competition; after several years of intense pressure, softdrink prices have risen steadily since mid-1999. While raw material costs appear more challenging than in recent years, most companies are not expecting substantial increases in their overall cost structure.
Year to date the S&P Soft Drink Index fell 3.8% versus a 1.4% rise in the S&P 1500. During 2002, the industry index significantly outperformed the broader market with a decline of 8.0% versus a 22.5% decrease in the S&P 1500. Performances in recent months has been affected by volatility in the shares of Coca-Cola as investors question whether drink volumes and earnings will resume their historical growth patterns. Shares of PepsiCo have also experienced some weakness on concerns of slowing growth. We however expect the industry to outperform the market in the near term with rebounds in growth and margin trends. Sales and earnings for PepsiCo in 2003 are expected to show positive gains, benefiting from favorable material costs and retail pricing in the U.S Domestic unit sales. Volumes in 2003 should benefit from increased penetration into non-traditional distribution channels and growing consumer demand for non- alcoholic beverage products (soft drinks, ready to drink teas, juices, bottled water and sport drinks) which should continue to raise non- alcoholic beverage consumption levels and margin per capita.

Michael Porter Method of Analysis
The use of the Michael Porter Method further analyzes PepsiCo’s competitive forces.

Rivalry - There are many aspects of the competitive force of rivalry. Rivalry is
the amount of direct companies in an industry. In most industries, such as the
food and beverage industry, corporations are mutually dependent. A move by one firm can be expected to have an effect on its competitors. Just as if Pepsi comes out with a new flavor, its competitor Coca-Cola may want to duplicate it so they won’t fall behind.

Threat of new entrants - Newcomers to an industry typically bring new capacity and a desire to gain market share. This is why they are a threat to an established corporation. An entry barrier is an obstacle that makes it difficult for a company
to enter an industry. There are various entry barriers in any industry. Some
possible entry barriers are:

1. Product Differentiation - In the food and beverage industry, the companies
have to have a good R&D so they can differentiate there products with new
flavors and looks. They need to be able to be ahead of their competition so
they can make their product look more appealing to the average consumer.
Just like Pepsi is planning to come out with a new, rived look this summer.

2. Economies of Scale - The larger the companies, the more of a chance they
will have for survival. This is why in the food and beverage industry only
companies with a large scale of production and sale can last. Therefore
companies such as PepsiCo make it hard for new entrants with low capital to

Threat of substitute products - Substitute products are those products that appear to be different but can satisfy the same need as another product. According to Porter, “Substitutes limit the potential returns of an industry by placing a ceiling on the prices firms in the industry can profitably charge.” A substitute product in the food and beverage industry can be high since there are so many various products out there. In this industry, the consumer will stick with a brand because they like the taste, and they will stick with that for a while.

Bargaining power of suppliers - The bargaining power of suppliers has various
characteristics affecting the industry. These characteristics are as follows:

• The industry is dominated by a few suppliers
• Suppliers are more concentrated than the buyers
• No substitutes in the industry
• The supplier has more important customers
• The supplier’s input is critical
• There is differentiation among products
• High switching costs
• Threat of forward integration

Bargaining power of buyer - The bargaining power of buyers’ characteristics are as follows:

• The industry is concentrated
• Buy in volume
• Big ticket items
• Standardization or undifferentiated products
• Low switching costs
• Low profit margins
• Threat of backward integration
• Purchase is not very important to buyer
• Buyer has all the relevant information.
Return to 123HelpMe.com