Case-Analysis on Coke Smart Vending Machine

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

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. 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. 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. 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. 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

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