Five Forces of Competition on Energy Drinks Industry Free Essay Example

There are already many brands in the energy drinks industry. Simultaneously, existing beverage producers are coming up different products to capture increasing the size of the market for alternative beverages by extending existing product lines and developing altogether new products. Increasing marketing strategies The competition among producers becomes more and more fierce. Because many Sellers put active and aggressive efforts on establishing consumer brand loyalty and strong emphasis on advertising, sales promotions and endorsements. Therefore, we conclude that rivalry in this industry is strong.

Potential New Entrants Powerful big company existing There are many global brands (such as Coca Cola, PepsiCo, Red Bull, Hansens Natural) with stronger product differentiation, greater distribution channel and brand loyalty. For new entrants, it is difficult to seize market share from these big companies. High initial cost Another barrier to entry is high fixed costs for warehouses, trucks, equipment and labor. New comers cannot compete in price without economies of scale. High saturation rate According to this case, saturation rate for all types of beverages was high in developed countries.

Indeed, sales of sports drinks and vitamin-enhanced water had declined between 2008 and 2009. Restrictive government policies (FDA Regulatory) As we known, high caffeine content of energy drinks is not good for heart. U. S. Food and Drug Administration regulate strictly the caffeine content of energy drinks. Some company have been removed the caffeine product from drinks in government’s force. Therefore, we conclude all above make it extremely difficult for companies to enter energy drinks industry. New entrants are weak competitive force.

Competition from substitutes There are many substitutes in the market.

All soft drink, fruit juices, sodas and various caffeinated products are available in the market. Consumers have many choices to fulfill their need of caffeine or energy. For example, coffee and tea are competitive substitutes because they provide caffeine. Therefore, pressure due to substitutes is high because there are many alternate products in the market and the switching cost is very cheap for consumers. Bargaining Power of Suppliers The packages of drinks are simply such as cans, plastic bottle, label printers, caps, etc. They are easily available and any company may produce them easily.

The numerous suppliers of secondary packaging materials aggressively competed for the business of large alternative beverage producers. Also, there are many supplier ingredients and they fight to sell the products. Some rare ingredients providers had a moderate amount of leverage in negotiations with energy drink producers. The producers are important customers of suppliers and buy in large quantities. Therefore, suppliers for the energy are weaker which do not hold much competitive pressure. Barging of power of buyers Easy to access Consumers can obtain the products easily and well informed.

People can easily buy any kind of beverage from grocers, supermarkets, discount stores, vending machines, restaurants, etc. Low switching costs The energy drinks have high sizes of the regional markets for alternative beverages. Customers can freely shift their preferences from brand to brand if they would like. They do not need to pay any additional fees on their switch. Therefore, we conclude the bargaining power of the buyers is very strong. To sum up all of the five forces, we conclude that in the energy drinks industry rivalry including suppliers are weak and customers are strong.

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