Coca colas 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?
Argument in Favor

There is nothing new here. Interactive

machines are very common in countries like
Japan. So why not in US?
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
Argument in Favor

If it can be done for the other product and

service categories i.e. airlines, then why not
for soda
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
Argument Against

This goes against customer expectations. It is

against the very core of what Coke stands for:
Value, 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 Cokes profitability significantly
Argument Against

Changing price if cost goes up is justifiable,

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, temperature is exogenous
variable and can not be used as a
reason for raising prices
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

Id 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

 Where, how, and for whom does this
technology create / destroy value? for
example, loyal Coke customers,
switchers among Coke products, loyal Pepsi
customers etc?
 Identifying that whether the interactive
vending machines are about creating greater
customer value , or selectively extracting a
greater part of the value (for consumer
surplus) created, or a combination of the two
 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?
Done right

The firm has not yet launched the product.

The hue and cry is more about what Ivester
did or said than about what the company has
done
Done right

The focus is enhancing the consumes

consumption experience, not on changing
prices. Changing temperature is only the
beginning. Coca Cola can easily extend its
technology to customize other attributes to
individual consumers. 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 companys business
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. Framing
the issue would have gone a long way
towards toning down the negative reactions
Done Wrong

The press release posted by the firm was not

sufficient to undo the negative publicity
generated by Ivesters 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