Answers to Case Preparation Questions

Answers to Case Preparation Questions - CLASS PREPARATION...

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CLASS PREPARATION QUESTION ANSWERS FOR BUSI 698 CASES Isin Guler Cola Wars (1 point for each question) 1. Why is the soft-drink industry so profitable? The industry is profitable because all five forces are favorable: The power of buyers is low (loyal customers, not price sensitive, no bargaining power), the power of suppliers is low (commodities have no pricing power), rivalry is low (virtual duopoly), threat of entry is low (barriers due to brand equity of incumbents, access to distribution channels), and threat of substitution is low (has been increasing recently with health trends, but substitutes still not catching up with soft drinks consumption). 2. How has the competition between Coke and Pepsi affected the industry’s profits? The rivalry has not hurt industry profits. Industry profits have increased in the last 30 years, due to increasing prices and increasing demand (The only net effect is a shift in market share from generic brands to Coke and Pepsi.) 3. Compare the economics of the concentrate business to the bottling business. (a) Why are the differences in profitability so stark? (0.5 points) The bottling industry is very unprofitable because of the power of suppliers. The power of suppliers is high because Coke and Pepsi are the main suppliers and they have pricing power. The other four forces (threat of entry, rivalry, substitutes and buyer power) are all low but the power of suppliers is so high that it makes the industry unfavorable. (b) What is causing concentrate producers to integrate vertically into bottling? (0.5 points) The concentrate producers are vertically integrating even though bottling industry is not favorable, because (1) they want to rationalize production by reducing the number of plants, (2) bottlers no longer have incentives to invest in their business, due to low profitability. 4. Will Coke and Pepsi sustain their profits? What would you recommend to Coke to ensure success in the future? To Pepsi? The challenge is slowing demand and an increase in the threat of substitutes. Any suggestion should address these two issues. The two important components of sustained profitability are: 1. Whether they can maintain sales growth through substitutes (Pepsi is better at this), 2. Whether they can successfully exploit growing markets outside the US (Coke has traditionally been better at this, although Pepsi seems to be catching up.) Matching Dell – Each question is worth 2 points 1. How and why did the PC industry come to have such low profits? The industry has low profits because of three competitive forces: Supplier power is very high due
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This document was uploaded on 11/04/2011 for the course BUSI 471 at UNC.

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Answers to Case Preparation Questions - CLASS PREPARATION...

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