How Intense Is Pricing Rivalry Among Firms in the Industry? Why?

- How intense is pricing rivalry among firms in the industry? Why?

Pricing rivalry between Coca-Cola and Pepsi is intense on all production, distribution, and sales channels with each company either trying to replicate or undercut the other to secure greater market share. Historically, Pepsi focused on retail outlets while Coke focused on fountain sales and competition for national fountain accounts became intense with profitability frequently at stake. Rebates of up to 20-25% were often offered to large franchisees in order to secure use of either product. Pricing rivalry became especially heated when either company challenged the other in a historically dominant market. For example, when Pepsi conducted a blind taste test in the Coke-dominated Dallas market to show that Pepsi was preferred, Coke included rebates, price cuts and a targeted series of ads to counter the claim.

CSD beverages have low switching costs from the retail distribution channel. Consumers that do not have specific allegiance to either brand can switch between both easily. The consumer's choice is based on price, availability, and product awareness resulting in strong price competition. As Coca-Cola and Pepsi diversified into other segments, industry rivalry became even more volatility as each tried to achieve success in bottled water and other non-CSD beverages. Each firm placed great importance, in light of the health warnings regarding obesity, on achieving success in the bottled water market in order to advance its overall corporate strategy.

The entrance of Wal-Mart as a dominant player in the grocery market also contributes to increased pricing rivalry. Wal-Mart represented 14% of all of Pepsi-Co revenue and its scale allowed them to re-negotiate long-standing distribution and shelving arrangements with each company. Considering Wal-Mart is the largest supermarket in the country and 33% of all CSD sales are through the supermarket channel, Coca-Cola and Pepsi would need to continue trying to better each other's terms with the retailer to gain better market positioning.

- What are the barriers to entry in this industry and how important is each? Use quantitative evidence in your answer wherever possible.

Each component of the CSD industry, concentrate producer, bottler, retail channel, and concentrate supplier has structural complexities that create