External Environment Analysis of Coca-Cola
Both companies have invested hundreds of millions of dollars over the years to create brand loyalty, and both have made huge strides around the world, gaining millions of new customers outside of the United States. (Manta, Inc. , 2012) Most new entrants would find it difficult to provide significant enough margins to retailers. If a new entrant began gaining ground, Coca-Cola could simply raise margins enough to buy all of the available shelf space until the new entrant was out of business.
If the product were viable enough, Coca-Cola has more than enough financial means to purchase the newcomer and the rights to its product line. Bargaining Power of Suppliers (low threat): There are a large number of suppliers for the ingredients that go into Coca-Cola’s products, and those commodities are inexpensive. Coloring, sugar, high-fructose corn syrup, caramel color, vanilla, lime extract and most of the other ingredients are readily available from several large suppliers.
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The one exception to this is the artificial sweeteners that go into most of the diet products; these are available from only a few suppliers and this gives them more leverage than distributors of the other ingredients. (Sheth & Sisodia, 2002) (Manta, Inc. , 2012) Although the ingredients themselves are extremely important to Coca-Cola’s secret formula, ingredient substitutes are easy to come by because of the similarity of the raw materials, and the switching cost would be fairly low if Coca-Cola decided to change suppliers.
Coca-Cola’s business is very important to the suppliers because of the extremely large volume of product that Coca-Cola purchases; therefore, most of the suppliers have no real leverage. (Merrett, 2008) Bargaining Power of Customers (low threat): Coca-Cola utilizes authorized bottlers who purchase concentrated formulas in very high volumes, but since the Company is usually the largest or the only customer of these bottlers, their margins are quite high. These customers have very little bargaining power. (Gaudet, 2009)