Page 18 - CIMA MCS Workbook November 2018 - Day 1 Suggested Solutions

CIMA NOVEMBER 2018 – MANAGEMENT CASE STUDY

etc., and while traditionally customers were not likely to go for substitutes because brand
name loyalty is a very strong competitive pressure in this industry, this has now changed
give the pressure from health lobbyists. So as a result, the threat of substitutes is slightly
intensified in that context

 Power of buyers – (high threat) in the USA the soft drink market is the largest group in the
larger beverage industry. The global carbonated soft drinks market size was worth USD
392.6 billion in 2016. In the United States three firms control 89% soft drink sales so it is
hard to gain market share. Because the soft drink industry is very competitive, switching
suppliers is relatively easy and the price difference is rather small. The buyer is not aware
of the need for additional information because all the information that is needed is
provided. There are no steps to using the product and all nutrition facts and ingredients are
listed on the label. Customers are highly sensitive to the price of soft drinks and are willing
to change brands if one becomes much more expensive than the other. Soft drinks are not
a need and people won’t pay any price for it.

Products are very unique in the soft drink industry and people are very brand loyal to the
drink of their choice, many of the drinks are similar in type and they have distinct tastes.
Firms often provide incentives to customers on the buyer side, for example in the form of
contests such as win tickets to the major sporting events super bowl or deals such as get
20% off admission to a local theme park. These deals can often sway customers to choose a
particular brand. Based on the overall picture their bargaining power is moderately
strong. Brands such as GRAPPLE have generated customer loyalty by quality, reputation and
by offering value for money based on these aspects to combat the threat.

 Power of suppliers – (relatively weak) the inputs specifically the materials are extremely
differentiated as every firm is trying to create the best product. Each firm has a different
formula, colour, and flavour for their soft drink. No two products are typically exactly alike.
Product innovation is necessary to fill the buyers need for a variety of tastes. Firms can
switch between suppliers very quickly and easily. Suppliers for the soft drink industry do
not hold much competitive pressure. Suppliers to the industry are bottling equipment
manufacturers and secondary packaging suppliers. In terms of equipment manufacturers,
the suppliers are generally providing the same products. The number of equipment
suppliers is not in short supply, so it is fairly easy for a company to switch suppliers. This
takes away much of suppliers’ bargaining power. It is fairly easy to become a supplier within
the industry and thus they would not find it difficult if they wanted to enter. The companies
will choose the suppliers that do the best job and have the best price. If another supplier
does the same job but is cheaper, the firm can switch without much issue. There are many
current and potential suppliers in this industry, companies are willing to switch suppliers
whenever is necessary. Business is extremely important to the suppliers as the soft drink
industry is an enormously profitable market. The main revenue for these supply companies
comes from delivering the soft drink beverages and equipment for the firms to the
customers. The bargaining power of suppliers in the industry is relatively weak

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