Competition in the Bottled Water Industry in 2006 Essay Example

a large quantity of raw materials at a time which means they can reduce price per units. However, the small producers were having a hard time completed with those big companies because they don’t have enough budgets to achieve economic of scale like the big companies do. Buyer needs and requirement The buyers have been satisfied with the bottle water because its purity comparing to soft drinks which isn’t healthy and tap water which is not pure.The statistics had shown the number of people who infected by disease that involve in tap water contaminating has increased percentages in United States and also some other part of the world. As a result, buyers tend to buy bottled water more than last decades.

Degree of product differentiation Pepsi Co. and Coca Cola try to prove that their own water products like AQUAFINA and DASANI, are on the same level of purity and health concern. Thus, PepsiCo had alternatively produced functional water like PROPLE fitness water, which has been responded very well by its market.Supply /Demand condition The industry has a high demand and high supply. So the producers have to develop their bottling system. For example, if they don’t have their own water spring machine, they have to lease for the high fixed cost per month.

However, the leading bottled water company has more bargain power with supplier in term of High volume for a lower price. For instance, the companies produced film and paper labels for water bottle have to complete with each other to get the contract to become a leading supplier.Technological change has played an important role in the industry no matter the initiative

process that seeks the water sources to the bottling facilities. 2.

What is competition like in the bottled water industry? The producers have to compete with each other in placing their products in the shelves. The companies that have a low scope and economies of scale tend to have a lower position to compete with price strategies comparing to leading companies in industry.For instance, the new entrants or low-scope companies has to compete on bargaining power with suppliers and slotting fees, as these are the types of cost that have been burdened, or even they have cost of securing their distributors brands in the convenience store . The disadvantage of the small companies which are not well known by the consumers is that they have to pay massive costs to market their products comparing to the large bottled water corporations.

Porter ‘S Five Forces Model SuppliersAccording to those companies, who own Bottled Water Company; either produce and manufacture their own along with the exit company which will help them penetrate through the mass market in the water industry and its own bottling facilities that use to utilize the same needs of the soft drinks which has more benefits to the corporation than those kind of company that hasn’t their own spring water companies and has to lease their bottling facilities. It can purchase PET bottle in low price per unit which compared to the small company that purchase a small quantities at one time.In fact, the large bottlers are gain more competitive advantage over its competitors, because their bargaining power in negotiation with the supplier; and even they try to reduce their cost by purchased

tap water from municipal water system, which will help them safe their variable cost too. Rivals For rival, there are many serious big competitors out there in the market arena, such as PEPSICO, COCA COLA, NESTLE, DANONE, and etc. Altogether, these companies are competing with each other, in many ways aggressively.For instance, the major firms attempt to cut down the production cost and seek to achieve economy of scale, in order to eliminate the small companies which are unable to follow such strategies due to their reduced amount of resources and capabilities.

In addition, the leading bottled water companies (PEPSICO, COCA COLA, NESTLE, DANONE) have very strong, worldwide, channels of distribution which give provide them key advantage on smaller player. Firm that substitute productThe customer can purchase tap water through municipal system. Also, customer can choose soft drink, juices, milk, and etc. instead of bottled water. Moreover, there are many other beverage companies in the market in which the customer can easily find substitution products. Buyers The Buyers in this market has more bargaining power.

If the company increases the price slightly, the customer can switch to other bottled water company easily, since most of the lower-cost products’ qualities are roughly similar. Potential new entrantsThere are some percentages of possibilities for the newcomers, but they have to persevere to adjust their own strategies with their distributors, buyers, and suppliers, to gain more scope and economies of scale while competing with other bottled water ventures. However, the percentage is low, as it will be hard for the newcomers to enter the market if they don’t have a top effective marketing plan, strong distribution channel, and most

importantly, massive amount of capital to invest. Besides, the existing companies already have everything necessary to keep up their market shares, and they are ready to beat the potential new entrants down. .

Which strategic groups do you think are in the best or worst position? The best positions on the graph are the one situated on the right side of the horizontal axe, as it correspond to the highest degree of market shares acquired, usually through cost leadership and product availability, and/or the one which are at the top of the vertical axe which imply the degree of differentiation achieved. Here the market shares are usually lower, but the margins are much higher. Obviously, a combination of both mentioned positions would be the ideal spot.However, In this case, the best company for each situation is Nestle as they have more market shares and similar quality then Coke or PepsiCo, and Voss as they offer the best differentiated product with the best market share for such strategy.

Notice: The following strategic group map has been drawn according to the case study’s data and information. The map corresponds to an average of volume of sales and market shares, within the US and globally, relatively with the Price and Quality of each bottled water companies.The lack of additional information, such as price and volume details as well as the overlapping position of certain groups, reduces themap’saccuracy Strategic group map of the bottled water industry 4. What are the successful key factors in bottled water industries? It has to be negotiating with their buyers like the convenience store for price – negotiation strategies such as slotting fees. Some

big convenience store has available shelves just for leading brand of bottled water, and in some case if small brands are allowed, they are facing high slotting fees from convenience store.

In this case the first key successful factor is the negotiation power with buyers and suppliers for reducing cost per unit. Another successful key factor is an efficient distribution system or distributors. The producers have to negotiate with distributors for their deliveries on time to save the cost. They should maximize the number of deliveries per driver because distribution included high fixed costs, for example, warehouses, trucks, handheld inventory, tracking devices, and labor.Also the company needs to have a stronger bond with many distributors and distribution channel. Products positioning is an essential key aspect to create advantage to the bottled water producers and optimize their benefits.

Convenience stores aim to place the leading brand, which the consumer usually prefers, in the middle of the shelves, or at the same level of the people eyes. If the companies’ products are placed inappropriately on shelves, it can lead to critical results and consequently dramatically affect their businesses.Innovation is also the key factor for success that producers should introduced variation of products to enhance waters and functional such as flavoring, vitamins, carbohydrates, electrolytes, and other supplements. Packaging innovation is also important that producers should differentiate, for example, Nestle developed a bubble-shaped bottle that was designed to appeal children. 5.

What recommendation would you make to Coca-Cola to improve its competitiveness in the global bottled water industry?Although Coca-Cola was a very well-known brand for nonalcoholic beverage and its brand could aided the sell the company to get high market

share for many kinds of soft drink. But for the bottled water, Coca-Cola’s market share was still remained a high gap from Nestle Waters. This may because of customer loyalty for Nestle and the convenient in term of shelf space or HOD of other brands and etc. So we do recommend that Cola-Cola should make some new strategies to compete in the globalization such as: Renew their brand position for bottled water by making proactive MPR (marketing public relation).

This plan can help the company to reduce some costs (for example selling, general, and administrative costs) which is considering high compared with Nestle and Pepsi and also can remind consumer of their strong image. The company could write MPR planning and management first to indicate their objects and customer regions. Do making a clear differentiation image between its soft drinks and bottled water. Because the consumers may believe that bottled water of Nestle sounds healthier than Coca-Cola brand since Nestle tend to emphasize their image on healthy food products.

Then do market test for new taste, new packaging, or new innovation according to each regions, and especially for Europe, the company should launch the new one to replace Dasani image in order to seize their market shares. They may renew all nutrients and packaging. Finally Coca-Cola should continue its joint ventures with the regional companies in order to protect their products from barriers to entry both international trade restrictions and distribution channels. Furthermore, joint venture with local brand is a long term contract guarantee to make it easier for HOD to a specific region.