Coca cola’s New Vending

Machines (A):
Pricing to Capture Value or not?
Prof. Prem P. Dewani
Fellow: IIM Ahmedabad

Assistant Prof. IIM Lucknow

Agenda of the Case
How firms can leverage power of internet to
translate better information of customers
needs into greater customer value?

Price Discrimination and Dynamic Pricing

Whether it makes sense for Coca Cola to use
interactive vending machines to sell Coke and how
it should do so.
Were it to proceed with the plan?

How firms can leverage the internet to gather
more information about customers, customize
product for individual tastes, create unique (and
enhanced customer value, and subsequently
extract higher prices using dynamic pricing models
that permit prices to vary across purchase
occasions and customer

Is selling coke through interactive vending machines a good idea ? Why? .

So why not in US? .Argument in Favor There is nothing new here. Interactive machines are very common in countries like Japan.

Argument in Favor Fewer Stock out. availability of the product to those who value more Increased social welfare from interactive technology? It gets a limited supply of the product to customers that value is most .

Argument in Favor Dynamic pricing would be norm in most markets. Coca cola would be better off if it were ahead of others on this front .

e. then why not for soda .Argument in Favor If it can be done for the other product and service categories i. airlines.

Argument in Favor Although the price on a hot day might be higher but average price across multiple purchases occasions might not change (or could even go down Average customer is able to understand that? .

Argument in Favor Different prices at different places are already we pay? .

Argument in Favor There is always a negative reaction to any radical change. It is a question of customers getting used to new way of doing business .

It is against the very core of what Coke stands for: Value.Argument Against This goes against customer expectations. . ubiquity and affordability.

.Argument Against Breaks and exploits the relationships with the customers the coke has made.

Argument Against Consumer will feel betrayed by such opportunistic behavior and stop buying Coke .

Argument Against Price Unfairness .

Argument Against Consumer market is not ready for dynamic pricing of routinely purchased products such as Coke .

Argument Against Not advisable to change the most profitable channel with this paradigm shift. Failure may erode Coke’s profitability significantly .

Argument Against Changing price if cost goes up is justifiable. temperature is exogenous variable and can not be used as a reason for raising prices . but changing price if temperature goes up is not. It has hard to believe that cost of the product goes up because of the temperature Further.

Argument Against Competitors view is negative in this regard so there are chances that Coke would lose out .

What is Coke? What does Coke mean to the average consumer? .

What is a brand? For God Country and Coca cola: The unauthorized history of the great American soft drink and the company that makes it Secret Formula: How Brilliant Marketing and Relentless Salesmanship Made Coca Cola the Best known product in the world I’d like the world to buy a coke: Life and Leadership of Roberto Goizueta by David Greising Classic Cooking with Coca Cola .

Variegated View on Coke? Customer loyalty with culture/region .

how. and for whom does this technology create / destroy value? for example. switchers among Coke products.Where. loyal Coke customers. loyal Pepsi customers etc? .

Identifying that whether the interactive vending machines are about creating greater customer value . or a combination of the two . or selectively extracting a greater part of the value (for consumer surplus) created.

Customizing Price Customizing Product? how this would lead to .

Are there any pricing related issues that can adversely affect the firm? Price Fairness? Loyal Customers? .

What did Coca Cola do right? What did it do wrong? How would you have done it? .

The hue and cry is more about what Ivester did or said than about what the company has done .Done right The firm has not yet launched the product.

not on changing prices. Coca Cola can easily extend its technology to customize other attributes to individual consumers.Done right The focus is enhancing the consumes consumption experience. Changing temperature is only the beginning. It is the essence of relationship marketing .

Done right The firm has spent a lot of time perfecting the technology before its introduction .

Done right Interactivity is the wave of the future and Coke is clearly trying to be a leader in this area of marketing .

Done Wrong If coca cola is all about the Coke brand and image. the current actions could significantly erode its brand equity .

Done Wrong Ivesters ‘by the numbers’ approach to talking about the laws of supply and demand revel little understanding of the company’s business .

Framing the issue would have gone a long way towards toning down the negative reactions .Done Wrong The company should have clarified the prices will not only go up on warm or hot days but also go down on cool or cold days.

Done Wrong The press release posted by the firm was not sufficient to undo the negative publicity generated by Ivester’s comments .

What is price discrimination and when does it work? First Degree Price Discrimination Second Degree Price Discrimination Third Degree Price Discrimination .

How does the internet affect the ability of firms to price discriminate across consumers? .

What do you think of Ivester and his comments? .

Thanks .