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