Coca Cola was considering implementing interactive vending machines that would raise prices during hot weather. This strategy was criticized for exploiting customers based on climate rather than adding value. As Coke operates in an oligopolistic market with Pepsi as a close substitute, such price discrimination could cause customers to switch to Pepsi. Instead of focusing solely on profits, Coke should introduce pricing strategies gradually and demonstrate value to customers.

1. COCA COLA PRICING STRATEGY
Team Decoits
1

2. Team Decoits
2
Saketh Vishal Vishnu
Hemant Raj

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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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