UTS_22319_Practice_mid_semester_exam_autumn_2005___solutions

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1、Autumn2005PracticeMidsemesterexam–suggestedsolutionsQuestion1–[10marks]–IndustryandstrategyanalysisPartA:Coca-ColaandPepsiarebothveryprofitablesoftdrinks.Inputsfortheseproductsincludesugar,bottles/cans,andsoftdrinksyrup.Coca-ColaandPepsiproducethesyrupthemselvesandpurchasetheotherinputs

2、.Theyenterintoexclusivecontractswithindependentbottlerstoproducetheirproducts.UsethefiveforcesframeworkandyourknowledgeofthesoftdrinkindustrytoexplainhowCoca-ColaandPepsiareabletoretainmostoftheprofitsinthisindustry.(5marks)(Onlyneed5to6goodpointsfor5marks–thefollowinggivesafewpossiblep

3、ointsthatcouldbemade)Coca-ColaandPepsicompeteprimarilyonbrandimageratherthanonprice.Theyselltheirsyruptoindependentbottlerswhohaveexclusivecontractstodistributesoftdrinksandothercompanyproductswithinaspecificgeographicarea.Giventhelargenumberofcompetingformsofcontainersforsoftdrinks(gla

4、ssbottles,plasticbottles,aluminumcans,etc.),itisdifficultforbottlerstoearnanymorethananormalreturnontheirinvestment.Consequently,CokeandPepsicanwriteexclusivecontractswithbottlersprohibitingthemfromsimultaneouslybottlingforacompetitor.ItisalsodifficultforindependentbottlerstoswitchfromC

5、oketoPepsiproducts,sincethereislikelytobeanexistingPepsibottlerinthesamegeographicarea.Consequently,independentbottlershavelittlebargainingpowerandCokeandPepsiareabletochargethemrelativelyhighpricesforsyrup.Thethreatofnewentrantsatthesyruplevelisrestrictedbylimitedaccesstoadequatedistri

6、butionchannelsandbythevaluablebrandnamesthathavebeen1createdbybothCokeandPepsi.Whilesodasyrupisrelativelyinexpensiveandeasytomake,anewsyrupproducerwouldhavedifficultyfindingadistributorthatcouldgetitsproductstoretailstoresandplacedindesirableshelfspace.ThehighlevelsofadvertisingbyCokean

7、dPepsihavecreatedhighlyvalued,universallyrecognizedbrands,whichwouldbedifficultforapotentialcompetitortoreplicate.Themainingredientsofsyruparesugarandflavoring,andthemarketsfortheseinputsaregenerallycompetitive.Asaresult,CokeandPepsiexertconsiderableinfluenceovertheirsuppliers.