Coca Cola's New Vending Machine (A): Pricing to Capture Value, or Not Case Solution

1. Is selling Coke through interactive vending machines a good or bad idea? Why?

Using an interactive vending machine to sell Coke was not a bad idea at all, but the channel through which the news spread out in the media was not a good plan. The chief executive of the company first briefed the plan and later when it became the center of criticism it was retracted by the company. The company executives should have phrased it properly, rather than focusing on the price discrimination part, they should have promoted the low price idea for winters or cold days. This would have brought positive feedbacks rather than ridicule from the market.

The idea of price discrimination would not only have increased the efficiency of the market, but it would also have provided more control to the Coke for controlling their prices. From the economics point of view, there is no harm in increasing your profit margins when the demand is higher than the usual. Another benefit of using the interactive vending machine was that it would have increased the engagement level of customers. Moreover, the company would have had a new marketing technique to cater to customers who have been priced out of the market. Furthermore, the company would have an idea regarding the customer preferences in a particular neighborhood, and they could have used that knowledge for efficient marketing.

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

Coke, world’s biggest soft drink company, is not just a brand or flavor rather it’s the feeling that its consumers get while drinking it. Over the decades, Coke has evolved into a household brand by promising freedom, fun and refreshment to its customers. Through its strong sense of nostalgia, Coke has succeeded in uniting people across generations and building a connection between the brand and its customers. With its continuous commitment towards innovation and making brand accessible to its customers, the brand has adapted to the local taste in many countries and regions without damaging its legacy and image. In addition to this, by targeting everyone, everywhere and with its variety of product line, Coke has managed to become the most recognizable brand in the entire world. From a young child to an aged, Coke has become a symbol of happiness and fun for everyone.

3. Where, how and for whom does this technology create/destroy value? For example, loyal Coke customers, switchers amongst cola products, loyal Pepsi customers, etc.?

Whenever a company plans to introduce a new product or service, their aim is not only to create a higher value for its current and prospective customers, but also to derive higher economic value for the company itself. The idea behind this new interactive vending machine was to do the same, but the poor execution of the idea made it look distasteful in front of its customers. The media and the competition made Coke’s loyal customers feel that they are being exploited by their favorite brand, which was the reason behind the deterioration of brand image and brand value. For those customers who were done with Coke products, new vending machine was offering a low price can so as to attract them. This made Coke’s loyal customers feel that Coke is not offering any benefits for loyal customers rather its exploiting them. This machine not only played a critical role in destroying value for loyal customers, but also did not create enough value for prospective customers.

4. Are there any pricing related issues that can adversely affect the firm?

The top management of the Coke was right on their upfront assumption that the consumption of soft drinks including Coke is higher on hot days than on cold days, but their assumption that a customer would be willing to pay higher for the same product on a different day was abysmal. Though, the management was going forward on the basis of price discrimination theory, but there was no factual backing to it. Apparently, the top management ignored the fact that price discrimination is usually applicable on goods and services that have perceived additional value or benefit for the extra money charged. Since, Coke is a low value added product and customers are well aware of its price; therefore, this new pricing strategy would have affected the revenue considerably. In addition to this, Coke management did not even consider the presence of competition. There was a price war going on between Pepsi Co. and Coke and this strategy of increased prices on hot days would have benefitted Pepsi more than anyone as it would have given Coke loyal customers an opportunity to try Pepsi.