Coca Cola's New Vending Machine

1. Case Summary:

In October 1999, Coca Cola was reported to be investing and working on developing a smart vending machine, based on computer chip technology that would allow dispensing of coke based on varying prices as per the weather in the environment that the machine could sense. The CEO, M. Douglas made a statement in media which led to immense customer dissatisfaction and shaking of the brand trust among customers in which they felt that the discriminating prices were a form of cheating the customers out of money by discriminating the pricing based on demand. From a business point of view, this strategy was a fair way to maximize profits from the vending machine market given the fact that products sold through supermarket outlets were standard and subject to price wars. However, this reduced trust and controversy would lead to tarnishing of the Coca Cola brand among loyal customers as well as the masses that could lead to severe decline in the product sales. Hence, the following case discusses the validity of this particular pricing strategy and whether it should have been implemented.

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

From a business and economics perspective, it is not a bad idea considering the fact that such a pricing based on supply and demand would lead to maximum profits through vending machines as well as allow Coke a good alternative to sell some products outside the pricing war experienced through supermarkets. Furthermore, it would lead to a new form of transactions based on data of user preferences and demand while allowing discounted pricing to customers in cold weathers. However, the idea has to be introduced in a subtle manner to the masses, while simultaneously being supplemented with good marketing and public relation practices.

1. What is Coca Cola, and what does it mean to the average consumer?

Coca Cola is an old brand that in a bigger picture represents the Western culture and sells a product that appeals to the masses including people of all age groups such as children. It is a big corporate enterprise and has thereby been subject to judgements and prejudices of such businesses that deal with consumer products.

1. Where, how, and for whom does this technology create or destroy value?

This technology does create value for the Coca Cola company themselves based on basic economic principles, by allowing to maximize profits obtained from the vending machines. From a customer standpoint, this technology creates value for people geographically located in regions with cold weathers by providing significant discounts. On the other hand, it destroys value for customers that are geographically located in warmer temperature areas.

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

Considering basic economic principles and the relevant price discriminations strategy, the firm is bound to have additional profits given the sustained demand of the product. However, image dilution and customer dissatisfaction due to bad press or branding could lead to severe pricing issues to the firm due to a severe decline in the product demand.

1. What did Coca Cola do right? Wrong? How would you have done it differently?

Coca Cola came up with a brilliant pricing strategy to maximize their profits through vending machines. However, they let the news get out very early and did not manage the press and public relations well, as evident from the CEO’s statement. I would have put a skilled marketing team in place that focus on the positives and long-term benefits that such an interactive vending technology would offer to the customers along with the discounted perks for buyer’s during colder weathers. Furthermore, I would have educated the masses regarding the fact that standardized pricing for Coke would still be available if the buyer choses to opt for supermarkets.

1. What is price discrimination, and when does it work?

Price discrimination basically means the act of selling the same goods at different prices to different groups of customers. In first degree of price discrimination, a seller charges a separate price to each customer depending on the intensity of his demand. In the second degree, seller charges different prices based on volume bought. In the third degree of price discrimination, the seller charges different amounts to different classes of buyers. There are different kinds of third degree of price discrimination: