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Coca-Cola &  The “Smart” Vending Machines   <ul><li>A Case Analysis by:  </li></ul><ul><li>  Mark-Eleven </li></ul><ul><li...
About Coke  -- A regular and inexpensive soft drink available everywhere around the world, especially popular among childr...
<ul><li>Vending machine… </li></ul><ul><li>Facilitates Micro-marketing and understanding the local customers </li></ul><ul...
Coke Smart Vending Machine :  Coke decided to extend existing technology through smart vending machines which could automa...
        Rationale Behind…  Justification from CEO :  In a final summer championship, when people meet in a stadium to have...
Normal Vending Machine:    Number of cans sold equals to 200.  - Demand Function When temperature is high:  Q(high)= 300 -...
    Price Difference Calculation…..Contd Normal Vending Machine:    Expected Price is 70 cents per can.  Expected profit i...
  Price Difference Calculation…..Contd Incremental Profit per day per machine:  = 14900 – 14000 = 900 cents Assuming  50,0...
What went wrong…. <ul><li>Coke extended temporal price discrimination at its vending machines- </li></ul><ul><li>While tem...
What went wrong…. <ul><li>-- Communication-  Coke based its strategy purely on demand and supply. They did not communicate...
What went wrong…. <ul><li>--  Competition-  </li></ul><ul><li>Most of the purchases in CDS segment are impulsive in nature...
Pricing Strategy <ul><li>Difference in Location </li></ul><ul><ul><li>Differentiated pricing of coke successful in Japan  ...
Pricing Strategy <ul><li>Promotion </li></ul><ul><ul><li>Perception of benefit in the eyes of consumer </li></ul></ul><ul>...
Other Issues <ul><li>Competitor </li></ul><ul><ul><li>Pepsi could have taken advantage </li></ul></ul>
What Coke could have done better <ul><li>Correct promotion strategy instead of sudden public announcement </li></ul><ul><l...
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Case Study CokeSmart Machine

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Case-Analysis on Coke Smart Vending Machine

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Case Study CokeSmart Machine

  1. 1. Coca-Cola & The “Smart” Vending Machines <ul><li>A Case Analysis by: </li></ul><ul><li> Mark-Eleven </li></ul><ul><li> 1. Bharat (G09005) </li></ul><ul><li> 2. Pranit (G09023) </li></ul><ul><li> 3. Sachin (G09029) </li></ul><ul><li> 4. Sandip (G09031) </li></ul>
  2. 2. About Coke -- A regular and inexpensive soft drink available everywhere around the world, especially popular among children. -- One of the best recognizable brands in the world. -- Established in 1886 -- Operational Reach 200+ countries
  3. 3. <ul><li>Vending machine… </li></ul><ul><li>Facilitates Micro-marketing and understanding the local customers </li></ul><ul><li>Learning and insight developed in one market can be replicated in similar geography </li></ul><ul><li>Helps customer by making available the product when he needs it. </li></ul><ul><li>Helps companies in managing logistics and capture real time data for analysis. </li></ul><ul><li>Higher profits as it has been untouched by discount war. </li></ul>More and more companies are using real time data analysis to profile customers and offer customized value proposition.
  4. 4. Coke Smart Vending Machine : Coke decided to extend existing technology through smart vending machines which could automatically adjust prices as per the weather/climate conditions. -- If the temperature is high then price will be high. -- If temperature is low then price will be low. The move backfires…..
  5. 5. Rationale Behind… Justification from CEO : In a final summer championship, when people meet in a stadium to have fun, the utility of a cold Coca-Cola is very high. So it is fair that it should be more expensive. The machine will simply make this process automatic. What is Differentiated Pricing : - First Level ( theoretical, depends on Customer willingness to pay ) - Second Level ( e.g. Price on Sachet and Bigger Pack ) - Third Level -- Customer Segment Pricing ( e.g. Museums Tickets ) -- Product Form Pricing ( e.g. Big Bazaar Men’s Shirts ) -- Channel/Location Pricing ( e.g. Theatre Tickets, Restaurants ) -- Time Pricing ( e.g. Happy Hour, Early Bird Offer ) Economic Rationale: Higher Price (Hot)  Higher Price Lower price (cold) induces sales  Higher profit
  6. 6. Normal Vending Machine: Number of cans sold equals to 200. - Demand Function When temperature is high: Q(high)= 300 -2p , where p is the price - Demand Function When temperature is low: Q(low)= 180 -2p Price Difference Calculation Assumption: 1. High/Low Temperature is Equally-likely. 2. The marginal cost of temperature variation be 15 cents. 3. Lastly, Coke is assumed to be risk-neutral.
  7. 7. Price Difference Calculation…..Contd Normal Vending Machine: Expected Price is 70 cents per can. Expected profit is 200 x 70 = 14000 cents Smart Vending Machine: Price during HOT weather is 85 cents per can. Price during COLD weather is 55 cents per can. Expected profit per machine is 14900 cents. (=85 X 130 + 55 X 70 cents)
  8. 8. Price Difference Calculation…..Contd Incremental Profit per day per machine: = 14900 – 14000 = 900 cents Assuming 50,000 Smart Vending Machine: Annual Increment Profit = 900 x 50,000 x 365 days = $ 164.25 Million
  9. 9. What went wrong…. <ul><li>Coke extended temporal price discrimination at its vending machines- </li></ul><ul><li>While temporal price discrimination is quite common in certain products/services like airlines, toll bridge, its acceptance in many other situation like this one has been unfavorable. </li></ul><ul><li>-- Value proposition- Customers pay higher price for a chilled can of coke but in this case can of coke coming out from a vending machine was the same irrespective of temperature difference. </li></ul>
  10. 10. What went wrong…. <ul><li>-- Communication- Coke based its strategy purely on demand and supply. They did not communicate to customer that there was a benefit attached with higher priced coke. </li></ul>-- Perceived price- For a staple product like coke people have an intuitive idea about its price hence any upward movement without proper justification has negative effect. -- Emotional Bonding- Coke had been an iconic brand with very strong emotional attachment.
  11. 11. What went wrong…. <ul><li>-- Competition- </li></ul><ul><li>Most of the purchases in CDS segment are impulsive in nature. CDS is not an exclusive product by nature. Pepsi and other competitors would have en-cashed customer resentment. Also CDS </li></ul>-- Placement of vending machine- Location selection would have been a major concern for Coke. In exclusive locations like theater and other common places customers were already paying higher price.
  12. 12. Pricing Strategy <ul><li>Difference in Location </li></ul><ul><ul><li>Differentiated pricing of coke successful in Japan </li></ul></ul><ul><ul><li>US is a different market </li></ul></ul><ul><ul><li>Conscious consumer and place of coke </li></ul></ul><ul><li>Product </li></ul><ul><ul><li>Type of product </li></ul></ul><ul><ul><li>Airlines ticket </li></ul></ul><ul><ul><li>Perception of customer as regards price </li></ul></ul><ul><ul><ul><li>Product Dependent on supply </li></ul></ul></ul>
  13. 13. Pricing Strategy <ul><li>Promotion </li></ul><ul><ul><li>Perception of benefit in the eyes of consumer </li></ul></ul><ul><ul><li>Consumer felt discriminated </li></ul></ul><ul><li>Differentiated pricing in airlines </li></ul><ul><ul><li>Free tickets- discounted but limited early purchases </li></ul></ul><ul><ul><li>Customer </li></ul></ul>
  14. 14. Other Issues <ul><li>Competitor </li></ul><ul><ul><li>Pepsi could have taken advantage </li></ul></ul>
  15. 15. What Coke could have done better <ul><li>Correct promotion strategy instead of sudden public announcement </li></ul><ul><li>Emphasis that coke will be cheaper in cold weather </li></ul><ul><li>Instead of mass launch coke should have selectively launched its new vending machine in areas where </li></ul><ul><ul><li>Low repeat purchases like tourist spots </li></ul></ul><ul><li>Design and launched interactive vending machine which would increase perceived value of the product for customer and charge more. </li></ul>
  16. 16. Thank You

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