Coca-Cola Case

No one could fault with Coca-Cola for testing vending machine technology that would automatically change pricing according to outside temperatures. From a shareholder’s standpoint, the company was genius for thinking ahead and leveraging a profitable area of opportunity (vending machines); their fault was with the way in which they “introduced” their new technology to the public. Business should make the shareholders as well as the consumers happy, and while Coca-Cola was trying to maximize their profits to appease the stockholders, their public relations events left the consumers disgruntled and resentful.

Coca-Cola had to think of price elasticity and competition when deciding on pricing for these vending machines. Individual vending machines are essentially company monopolies, as are the venues in which they are placed. Suppliers have contracts to place their machines and products in public areas, such as concert and sporting arenas, theaters, hotels, theme parks, etc. This means Coke will only stock Coca-Cola Classic, Diet Coke, Dasani water and other Coke family products in its vending machines. Therefore, there is minimal immediate competition for vending machine business and it can price its products within a reasonable range that consumers are willing to pay. If a customer is in a theater that only sells Coke products, he or she is forced to choose that company if he or she wants a beverage.

Coke could have successfully introduced the new vending machines into the market as long as they did it quietly, with little hype or attention brought to the switch. If the general public did find out that prices increased in hot weather, Coke should have only emphasized the lower prices of products in the cooler weather.

Conditions of elasticity of demand emphasize my beliefs that a quiet introduction of the machines would have had little backlash from consumers and maximized profits. Coke needed an inelastic demand that wouldn’t decrease if they raised prices according to the weather. The following conditions predict less elasticity of demand when price changes: lack of substitutes or competition, public does not notice a higher price, public is slow to change buying habits and they believe the price is justified.

As discussed above, there is little competition in most vending machines; therefore consumers would have no other alternative but to buy the Coke products at the stated price. Secondly, consumers might not have noticed the technology and would have settled for the stated price; they would have been less resentful if they were not expecting a price increase. Consumers are used to price discrimination and paying higher prices for products in different areas (ex. bottled water in bars as opposed to food markets)