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Current Market Conditions Competitive Analysis

ECO 365 Week 3 – Current Market Conditions Competitive Analysis
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Current Market Conditions Competitive Analysis

Understanding the competitive forces within a market is essential for the successful rollout of a new product. The following paper will perform a competitive market analysis to determine the product’s potential success. Our team has selected the Coca-Cola and its new stevia sweetened cola product for this analysis. Stevia is a natural zero-calorie sweetener that has become popular among heath food consumers. Coca-Cola has already experimented with this product in overseas markets with an expected release in the United States soon. Using what we have learned about microeconomic concepts so far in ECO/365, we will analyze the fundamental market forces that will influence this product’s success in relation to the existing competition.

Factors That Affect Demand, Supply, and Equilibrium Prices

Supply and demand are forces that are always working to reach an equilibrium point in a competitive market. The soft drink industry is highly competitive and there are numerous firms seeking to gain market share. The two largest firms in the market are Coca-Cola and PepsiCo, which collectively dominate the vast majority of the market. These two firms have built exceptional brand loyalty and have contracted with fast food chains to serve their products exclusively.

The main force effecting demand for this product will be consumer sentiment about stevia-sweetened products. At this point in time, the sweetener has not had a long history of use in the Western world and potential health drawbacks are not well understood. If research shows that the sweetener is a healthier alternative to cane sugar is will cause demand to rise significantly. On the other side of the equation, if the sweetener is shown to have negative heath effects it will quickly drive down demand.

Supply for stevia sweetened Coke is largely determined by the harvesting of the Stevia plant. Currently, the plant is primarily grown in South America and is not considered a staple crop. If global demand suddenly surges, it could create a supply shortage for the raw ingredients needed to produce the product. The company will need to monitor supply closely and have a mitigation plan if raw materials become unavailable.

Issues and Opportunities the Organization Faces

The growth in popularity of stevia-sweetened products presents a massive opportunity for the Coca-Cola Company. Many Americans are looking to improve their diets to combat the persistent obesity problem plaguing the country. As a more healthy option than full sugar and diet soft drinks, stevia could help the company retain customers that are seeking better lifestyle choices. The direction of this market is unlikely to change due the fact that many government initiatives have been aimed at fixing the dietary choices of Americans.

A major threat facing Coca-Cola is a growing number of niche soft drink brands that are becoming more popular with consumers. If these brands grow rapidly through social media they could greatly reduce Coke’s brand equity. The company will need to monitor these startups and take steps to acquire them if they start experiencing rapid growth.

Price Elasticity of Demand

Price elasticity of demand can be summed up with the following formula: Price Elasticity of Demand = Change in Quantity demanded / Change in Price. In other words, if a good is perfectly inelastic, the demand will NOT change when the price changes. If a good is perfectly elastic, the demand will change equally to the percent change in price. In the soft drink market, goods are considered very elastic. Consumers have many alternatives to choose from and can easily find substitute goods when necessary. For instance, if Coca-Cola decided to raise it prices by 25%, this would likely create a large decrease in demand. Consumers would simply switch to other soft drink brands that offer lower prices for highly similar products. This same concept is true for the stevia-sweetened products and Coca-Cola will need to maintain prices that are fall near the middle of the market.

Technological Innovation

Ultimately, Coke is attempting to create an innovative soft drink that will solve the obesity crisis in America. The company should monitor other alternative sweeteners that give consumers sugary satisfaction without the negative health effectives. This longstanding brand has a massive amount of capital that can be invested into these groundbreaking markets. If the company can gain confidence with consumers about a healthy soft drink product it could lead the massive growth in revenue in this emerging sector.

The Relationship between the Amounts of Labor & Capital Employed

Capital employed can be summed up with the following formula: Capital Employed = Total Assets – Total Liabilities. This is the total value of shares that are vested into the company’s ownership structure. The amount of labor can be represented by the human capital that the firm needs to function properly. In order for Coca-Cola to launch a new product it will need to increase the amount of labor to manufacture this new product. If shareholders approve of this direction for the company, the capital employed may be reinvested into expenditures to meet this goal. As the amount of labor increases, the capital employed will decrease. The occurs because a higher amount of working capital is needed to fund the salaries and benefits of workers.