Coke pricing startegy draft2


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Coke pricing startegy draft2

  2. 2. Team Decoits 2 Saketh Vishal Vishnu Hemant Raj
  3. 3.   About Coke & what it means to its customers  Market – Oligopolistic & Substitution effect with Pepsi  Time Pricing Segmentation & Fig. 10.1  Brand loyalty – Variety seeking, Habitual customers, etc [Fig. 5.4 Pg 129]  Indifference curve & Budget Line  Example calculations  Price inc. –> Buyer’s Reaction – Price Gouging – Cost effective to inc. profits instead [Pg 279]  Recommendations  - Product Bundle Pricing  - Ivester’s comments  - Interactive vending machine, pros & cons  - Existing Japanese presence, selective market introduction of vending machine
  4. 4. CASE BACKGROUND  Wall Street Journal ran a front page story about Coca-cola’s chairman and CEO M.Douglas Ivestor’s inability to tackle critical issues  The New York Times reported about Coke’s interactive vending machines that could raise prices in hot weather  Coca cola released a press statement clarifying the customers that it is not introducing interactive vending machines  The article in The Philadelphia Inquirer lampooned the move by Coca-cola and resulted in national and International controversy
  5. 5. WHAT IS COKE TO AN AVERAGE CUSTOMER  Convenience product  Customer usually buys frequently, immediately & with minimum comparison & buying effort  Availability plays the key and it can be enhanced through efficient distribution  Vending machine is one such key move to increase the availability
  6. 6. VENDING MACHINES  Way to micro marketing and understand the local consumers  Coca cola had spend significantly on setting up the vending machines, refrigerated display cases, coolers and other equipment.  Very high amount spent on the support activities and maintenance. ( Table 1 shows the data)
  7. 7. VENDING MACHINES Activity Amount spent vending machines, refrigerated display cases, coolers and other equipment $ 1.8 billion On employees who monitor and service the equipment $ 324 million Table - 1 About 1.2 billion cases of soft drinks constituting to 11.9 % of the soft drink sales were from Vending machines which imply the significant market for vending machines in the US.
  8. 8. INTERACTIVE VENDING MACHINES  Interactive vending machines which increases the cost of coke during high temperature and reduces it during low temperatures using wireless modem  Bad idea as it is exploiting the customers based on the climatic conditions and no value addition to the customers for the increased cost  Purely motivated by profit  Customers living in cold climate pays less amount and customers living in tropical climate pays higher amount always
  9. 9. COKE’S PRICING STRATEGY  Coke’s strategy was to implement Segmented pricing technique and to be more precise, time pricing  Time pricing : Price varies by season , month , day or even hour  Leading to Price Discrimination
  10. 10. PRICE DISCRIMINATION  Practice of selling the same good to different group of buyers at different prices  Companies charging high price to those who places a high value on the good while charging less to those who do not.  In a theoretical market with perfect information, perfect substitutes, and no transaction costs or prohibition on secondary exchange (or re-selling) to prevent arbitrage, price discrimination can only be a feature of monopolistic and oligopolistic markets,  Internet boom bolstered price discrimination through data analysis .Companies studied the consumer tastes and based on the needs and wants each consumer is charged a different price at a different time (E.g. :Flight tickets)
  11. 11. EFFECT OF PRICE CHANGE ON STAKEHOLDERS In Short run :  Loyals : Does not have any impact  Switchers : These are the people coke is going to lose in tropical regions because of the price hike as there is availability of substitute product Pepsi at a lower cost  Pepsi Loyals : Does not have a major impact as Pepsi has not raised its price.
  12. 12. EFFECT OF PRICE CHANGE ON STAKEHOLDERS In Long Run : Coke is going to lose its loyal customer base in long run as the price hike may force the customers to switch to other brands
  13. 13. BUYER DECISION BEHAVIOR Complex Buying Behavior Variety Seeking Buying Behavior Dissonance reducing buying behavior Habitual buying behavior High involvement Low involvement Significant difference between brands Few difference between brands COKE PEPSI
  14. 14. IS IT A RIGHT MOVE BY COCA COLA  Going by the concept of price discrimination, the strategy by coke is not correct.  Coke is not operating in monopolistic or oligopolistic market  Have a close competitor whose product is a perfect substitute  Slight change in the price of coke results in the increase in the demand for Pepsi ( concept of cross price elasticity)  No value addition to the customer with the increase in price which cannot persuade the buyer to pay more price for same good
  15. 15. RIGHT WAY ...  Pitch in the price variation by a tag line “Now coke is cheaper in a colder climate”  This will send a positive signal to the consumers and the market sources  Introduce the price hike in the countries like Japan where this concept already exists.  Study the consumer reaction and rollout the process phase by phase in different areas  If profit making is the only motto behind the cost variation, strengthen the back ward integration and reduce the costs by implementing efficient manufacturing methods