Soft drinks, such as Coca-Cola, Pepsi Cola and Dr. Pepper, have been embraced by consumers around the world. The soft drink industry has expanded to include different flavors, healthier options and smaller manufacturers. However, numerous factors can affect the overall demand for soft drinks. While many of these factors are out of the control of the soft drink manufacturers, these companies must understand and adapt to these factors to maintain their profit margins.
As with most goods, demand for soft drinks moves according to price. The higher the price, the lower the demand and vice versa. When soft drink companies face higher prices for their ingredients, such as sugar, high-fructose corn syrup or flavoring agents, they may choose to raise their prices to maintain their profit margins. However, the higher prices may force consumers to reduce their demand for those soft drinks. If the companies choose to hold steady on their prices, they must sell higher quantities to maintain the same profit margins.
Consumer preferences can change due to a wide range of reasons, including the average age of the consumer population, changes in societal trends, seasonal cycles or economic fluctuations. The success of any soft drink manufacturer hinges on that company's capability to anticipate these consumer tendencies and plan accordingly. Companies that fail to adapt to these changes can see reduced profits, lower market share and increased probability of crippling business failure.
The increased awareness of health-related issues, such as high blood pressure, obesity and diabetes, has raised concerns among consumers about the ingredients in many soft drinks. Soft drink manufacturers have adapted to these changes by introducing healthier options, such as sugar-free drinks, caffeine-free drinks, fruit juice-based drinks, sports drinks and bottled water. These options allow soft drink manufacturers to maintain and increase their market shares, while presenting an image of providing more than just "fizzy sugar water" to their customers.
While these three factors are among the most obvious influences on the demand for soft drinks, several other events can also sway customer demand. Government regulations, such as the ban in New York City on soft drink servings larger than 16 ounces -- a law that was later ruled unconstitutional -- can curb customer demand. Manufacturers can also suffer damage to their reputations, based on news about product defects or corporate malfeasance, which can harm the demand for their products. Companies can increase demand for their drinks by introducing them into overseas markets or targeting different demographic groups.
- SlideShare: Demand, Supply and Elasticity of Coca-Cola
- ChangeLab Solutions: Breaking Down the Chain - A Guide to the Soft Drink Industry
- American Journal of Public Health: The Impact of Food Prices on Consumption - A Systematic Review of Research on the Price Elasticity of Demand for Food
- PepsiCo: Our Business Risks
- Forbes: Goodbye Big Gulps In Mayor Bloomberg's New York, Hello Big Government
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