Michael E. Porter's Five Forces In Pepsi

Introduction
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 theopportunities 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. Theobjective 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 CompetitiveForces

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,
· Thereare 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 higherprofitability 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 theirsuppliers. 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
· 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,
· Customerscould 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 thisindustry. 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...