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Coke

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Anne Vitug-Boese

on 6 January 2015

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Transcript of Coke

V. Insights Discovered:
Recommendation: Option B
Marketing Implementation
P
Product
P
Promotion
P
Price
P
Place
Main strategy:

Develop multiple flavors of energy drink, to broad customers’ choice.
Reduce the production of low profitable products, for example Vanilla Coke and Cherry Coke.
Advocate recyclable materials to produce the coke bottle, and create diverse size and packaging for different product.
Main strategy:
Tend to offer customer quality product and reasonable price to match consumer’s perceivable value on Coke product.
Continuous set competitive price to competitors, however, set slightly high price for new launched product.
Provide discount the price during some special occasions, e.g. Christmas, The Fathers’ Day.
Main strategy:
Demonstrate the product in the small convenient stores and supermarkets that easy for customers to get the product.
Increase the distribution of vending machine to reach to some specific nearby areas e.g. office building, campus, gym and beach
Celebrity endorsement, e.g. invite Rugby player Nick Cummins to endorse sport product of Coke.
Deliver free samples during the sales period e.g. sponsor school open days.
Utilize social media to continues communicate with consumers, to track their satisfaction and establish trust on brand, e.g. raise a topic on Tweet “# Coke” to boost discussion on funny moment with Coke.
TV and Bus advertising to increase brand recognition and deliver the sense of happiness of having coke product.
Main strategy:
Background of the Case
Media Reactions
Solution 2: Distribution
Coca-Cola’s New Vending Machine (A): Pricing to Capture Value, or Not?
Effect of Price Change on Stakeholders


1. Public Relations Disasters
• The way in which Coke disclosed about their vending machines was not proper.

• Coke abruptly disclosed that they have invented a new vending machine that fluctuates prices according to the temperature.

• They should have known that no consumer would accept this reality.

• Their customer relationship can be damaged.

2. Temperature Reading Technology

3. Pricing and Promotional Matters Involved with this New Technology:
• Price discrimination is also a main area of concern in this case. Price discrimination is generic but it is the first thing that gets to the consumers’ mind. It means selling the same product to different groups of buyers at different prices. Here, the Coca-Cola Company segmented groups of buyers by the outside temperature. In other words, “Hot” day versus “Cold” day prices. While temporal price discrimination is quite common in certain products/services like airlines, toll bridge, its acceptance in many other situations like this one with coke has been unfavorable.

Background of the Case
PART 2 marketing plan
Company Background

I
. Background on Coke
:

• The
Coca-Cola Company
is an American multinational beverage corporation. It is not only a manufacturer but also a distributor and a marketer of many other non-alcoholic beverage concentrates and syrups.

• Coca-Cola, the renowned beverage is a flagship product of the Coca-Cola Company.

• Coca-Cola was invented by pharmacist, John Stith Pemberton in 1886

• The Coca-Cola formula and brand was bought in 1889 by Asa Candler who incorporated it in The Coca-Cola Company in 1892.

• Besides its namesake, Coca-Cola beverage, Coca-Cola offers more than 500 brands in over 200 countries

• Originally, Pemberton only sold 9 glasses each day and now The Coca-Cola Company now sells more than 1.6 billion cans each day.

• Coca-Cola means much more to its customers than being just a soft drink. It is a preferred drink during summers and social gatherings, and so has become an integral and essential part of each one’s life.

• It’s one of the best recognizable brands in the world

• But lately, Coca-Cola has been under a tremendous amount of media scrutiny.

• On December 17, 1999, The Wall Street Journal ran a front page story headline “Tone Deaf: Investor has got all skills of a CEO but One: Ear of Political Nuance.” This shows Ivestor’s inability to tackle critical issues.
• Coca-Cola Chairman and CEO, M. Douglas Ivester responded to Brazilian newsmagazine, “Cola-Cola is a product whose utility varies from moment to moment”, he said. “In a final summer championship, when people meet in a stadium to have fun, the utility of a cold Coca-Cola is very high. So it is fair that it should be more expensive. The machine will simply make this process automatic.”
• The New York Times reported about Coke’s interactive vending machines that could raise prices in hot weather.
• Coca-Cola released a press statement clarifying the customers that it is not introducing interactive vending machines.
• The article in The Philadelphia Inquirer lampooned the move by Coca-Cola and resulted in national and international controversy.

“A cynical ploy to exploit the thirst of faithful customers”

(San Francisco Chronicle)

“Lunk-headed idea”
(Honolulu Star-Bulletin)
“Soda jerks”
(Miami Herald)
"Latest evidence that the world is going to hell in a handbasket”
(Philadelphia Inquirer)
III. Statement of the Problem:
The way in which the Chairman & CEO M. Douglas Ivester disclosed about the new vending machines was inappropriate.
Coke’s testing of vending machines that could change price according to the weather. The smart vending machine could automatically adjust prices.

 If the temperature is high, then price will be high

 If the temperature is low, then price will be low

Coca-Cola would have earned $328.5 million annually if they sold cans at 85 cents on HOT days and 55 cents during the colder days.
Price Difference Calculation
Normal Vending Machine:
Number of cans sold equals to 200.

- Demand Function when temperature is high:
Q (high) = 300 – 2 p, where p is the price

- Demand Function when temperature is low:
Q (low) = 180 – 2p

- Expected Price is 70 cents per can.

- Expected Profit is 200 x 70 = 14,000 cents

Smart Vending Machine:

Price during HOT weather is 85 cents per can.

Price during COLD weather is 55 cents per can.

Expected profit per machine is 14,900 cents,
( = 85 x 130 + 55 x 70 cents)
Incremental Profit per day per machine:
= 14900 – 14000 = 900 cents
Assuming 100,000 Smart Vending Machine:
Annual Increment Profit
= 900 x 100,000 x 365 days

= $ 328.5 Million


Mechanics of Coke’s Strategy


 Price Discrimination
Selling the same product to different groups of buyers at different prices


Economic Rational
Higher price (hot) higher profit
Lower price (cold) induces sales higher profit
This rampant price discrimination had angered the consumers, since Coca-Cola was taking undue advantage of their necessity.
If the customer relations team dealt with the situation properly, then this problem would not arise.
In Short run:
★ Loyals : Does not have any impact

★ Switchers: These are the people coke is going to lose in tropical regions because of the price hike as there is availability of substitute product Pepsi at a lower cost.

★ Pepsi Loyals: Does not have a major impact as Pepsi has not raised its price.

In Long Run:

★ Coke is going to lose its loyal customer base in long run as the price hike may force the customers to switch to other brands, most likely Pepsi


After an analysis of the case, four (4) issues arose:

Chairman Ivester had described how the demand increases during the sports championship finals held in the summer heat to which Ivester quoted “The machine will make this process automatic” which will alter the net income for the company.

• Is this computer chip dependable and reliable?

• Who sets the minimum and maximum temperatures in each market?

• These sort of questions need to be answered for this technology to work.

• There might be better alternatives to increasing profit margin for vending machines than by changing prices with the weather.



T
h
e
value of each product
is directly related to the term value, and this term value cannot be based on any single set criteria.


The
ideal price
for any product or service is one that is acceptable to both buyer and seller. Whereas, “Coca-Cola had taken full advantage of the Law of supply and demand and quietly began testing the weather sensitive vending machine”, as quoted in New York Times, which was aimed to make profits from consumers’ money.

• Value proposition –
Customers pay higher price for a chilled can of coke but in this case, a can of coke coming out from a vending was the same irrespective of temperature difference. Coke was also not able to show the value of its product to the consumers with this new growth strategy.

• Perceived price:
For product like
coke, people have an idea about
its price.


4. Brand Image
• How will Coke’s brand image be affected or affect this strategy?

• According to the report presented by Interbrand, a brand consultancy company, the image of Coca-Cola Co. was overall the most valuable for eight years in a row.

• It has been around for over 100 years and is known for its top- notch marketing and social responsibility.

Brand Image
• So, when creating a strategy for increasing profit margins in vending machines, Coke must make sure to keep its precious brand image intact.

• Emotional Bonding: Coke being an iconic brand has a very strong emotional attachment.

• It must also take into account how this growth strategy fits in line with the overall brand strategy.

• Coca-Cola wouldn't have played with its million-dollar brand value. Brand value is the amount that a brand is worth in terms of income, potential income, reputation, prestige, and market value. Brands with a high value are regarded as considerable assets to a company, so that when a company is sold, a brand with a high value may be worth more than any other consideration.
PRESENTS
Coca-Cola Co., the world's largest beverage company is facing a public relation nightmare, which can ultimately put their brand image at stake
The core problem is not if the vending machine should be brought to market but WHEN and what the public relations/ marketing strategy should be in the midst of the current media scrutiny to rebuild loyalty with avid coke drinkers and Coke's image.
IV. Critical Factors
• Increasing the vending machine profit, which has been the main profit resource for the company, serves the purpose of the new technology.
• Sale of soft drinks are on the rise. Last year, about 11.9% of soft drinks worldwide derived from vending machines.
• Intelligent vending has already begun in Japan using the same technology.
• Price discrimination is popular in many industries for both products and services such as airline companies (using temporal pricing strategy), movie theaters and many more. However, customers are likely to respond negatively when it comes to Coca-Cola because of many reasons:
° First, customers could feel that it is immoral that the company exploits their thirst. Therefore, they may feel betrayed by the company. It is true that customers may pay more for a cold can of Coke, but they already know that the vending machine will produce cold cans regardless of outside temperature.
Second, customers know that the company’s strategy is based solely on supply and demand, and therefore, reacted negatively especially if they don’t find proper justification for the increase in the price. Also, customers could assess the utility they get from soft drinks much easier than other products or services who are subject to frequent change in pricing, which makes it harder for Coke to solely apply supply and demand like others.
Third, Coca-Cola is strongly
attached to people.
Coca-Cola for some
customers is a
necessity rather
than a complementary
product. In other
words, Coca-Cola’s
brand is strong and
sensitive to people,
and hence, it is difficult to implement or test some pricing strategies.
Fourth, people may have intuitive sense in knowing how much a soda would cost while it’s trickier when it comes to airline ticket because of the more benefits the latter provides.

Lastly, Coca-Cola’s arch rival, Pepsi, may take advantage from this move and increase market share.

VI. Alternative Solutions with Advantages & Disadvantages:
OPTION A
OPTION B
Option A:
Eliminate any option of introducing the interactive vending machines to the public in the near future and create a new public relations and marketing strategy focusing on Coke's loyalty to its customers to include re-establishing the value of drinking coke during extreme hot and cold temperatures.


Pros
: Build trust with consumers; on the same level with competitors regarding technology


Cons
: This alternative does not coincide with the company's marketing plan to pump more sales of the flagship coke into the market, most likely utilizing the heat sensitive vending machine as one of the core tactics to increase revenues.


Proceed with a plan to implement the intelligent vending machines at a later date than originally planned, while working to develop a new public relations and marketing strategy to curtail the current media damage, focusing on Coke's loyalty to its customers and re-establish the value of drinking coke during any weather conditions.
OPTION B
Pros:
Technology availability and costs to implement the new vending machines is inexpensive due to falling prices of the temperature sensors and computer chips.

Internet connectivity associated with the technology makes it very easy to tract daily and hourly demand based on fluctuations thus making it easy to determine the price point offered in any region

The new public relations and marketing campaign will slowly educate the consumer of the inevitable
Increase profitability during the peak season due to lower costs compared to competitors

This new technology will help to predict sales revenues and take the guesswork out of customers' wants and needs and it will also allow Coca-Cola to always stay ahead of the competition and remain the leader in the industry.

Cons:
Run the risk of losing loyal customers due to the price gaps urging many consumers to search for lower price from the competitor's vending machine.

Largest competitor,
PepsiCo
announced they did not have any plans to introduce the new technology.

Corrective measures must take place to implement a strategy of price changes. Coke must improve their public image with a well - executed public relations and marketing strategy.
Possible solutions in Option B implementing a strategy of price changes are the following:

Solution 1: Special Cold Weather Pricing
This alternative simply has to do with starting with a higher price in the warmer months and then offering a “special” cold weather price. For example, if the everyday price is $1, then offer discount during cold weather months (maybe only $.75).
Advantages
Disadvantages
Advantage
– This will make the consumer think that he or she is getting a better value for their money.

- This will stress that coke will be cheaper at cold weather, making it appear less exploiting to their thirst and allowing them to apply cost- benefit analysis to themselves.

Disadvantage

- This will usually mean that Coke must raise vending machine prices across the board to be able to offer the special pricing while still receiving its higher margins.


Another way to increase Coke’s profit margin and sales in vending machines is to increase the number of vending machines. This will allow Coke to use its great distribution network to deliver the product more efficiently. Higher demand creates lower operating costs and therefore higher margins.
Advantage
Disadvantage
Advantage
- This will be in line with Coke’s mission statement, which is to have a Coke at arms reach of every person in the world.


Disadvantage
- The key disadvantage to this is the risk of flooding the market. If there are Coke vending machines on every street corner, then the supply is definitely greater than the demand and no growth will occur.
However, the new
technology will not be
used here.

Solution 3: Promotional Pricing
This alternative is to offer other types of discounts. The discounts we came up with were based on either time of day or location. This is in contrast to discounting based on weather, where Coke is giving its competition an opportunity in colder markets
Advantage
Advantage
- By discounting product based on time of day, for instance, Coke is taking advantage of its market research and consumer behavior knowledge.
VII. Final Solution
After carefully considering all the alternatives, we have decided to choose
Option B, Solution 3 – Promotional Pricing.

This alternative will allow Coke to grow its vending market and keep its higher margins. And for creating a strategy for increasing profit margins in vending machines, Coke must make sure to keep its precious brand image intact.

• Find out more about customers' value. The value that Coca-Cola has built is that Coke is inexpensive and available anywhere. Coca-Cola's role should be to identify how much each of the customers is worth, and compare that to their planned pricing strategy.
• Assess how higher prices will affect the low-income people, a segment that Coca-Cola intend to have touching their product.

• Come up with a promotion strategy instead of sudden public announcement. For example, informing customers through advertisements or by sponsoring some events to increase public awareness, demand, and differentiation.

• Instead of Coca-Cola launching its smart vending machines everywhere, it should begin with areas where low but repeat purchases may take place. In this case, it can test its strategy without harming its loyal customers.

• Coca-Cola should disclose the economic reasoning behind the decision and show that the mutual benefit is between the customers and the company. By doing so, more transparency would have been built and customer relationship would increase leading to lessening the shock associated with upcoming higher prices.

• To implement this final solution, strategy would be to start collecting extensive market research regarding time of day vending machine purchases. Some of this information might seem obvious; for example, higher sales during lunch and dinnertime. However, a full market assessment is needed to proceed. This will be followed by separating the day into 3 categories: High Traffic, Medium Traffic and Low Traffic

• To make strategic decisions for discounting during periods and using a test market. This test market will allow immediate feedback from consumers.

IX. Action Plan
The action plan starts with coming up with a Promotional Pricing as Test Market based on the market research results.
Market research results:
Low traffic – morning and late night
Medium traffic – dinner
High traffic – lunch and “merienda”

Promotional Pricing: Test Market
A. Time of Day

Low traffic – discounted price by offering 2 plus 1

Medium traffic and high traffic – normal price

B. Location

Plan is to introduce a few vending machines with personalized names at no additional price in areas where sales is low or not frequently visited. Example - buildings, theater, malls. Close monitoring shall be done on the sales output.

• The consumer feedback can be used to improve the process before a national launch. Additionally, a marketing campaign must follow in the footsteps of this change. This marketing campaign should align the vending machine business strategy with the overall brand strategy to ensure that a
Coke “is always within arms reach.”

The goal in mind for the campaign is to continue to establish Coke as the number one thirst quencher regardless of the weather.
X. Monitoring and Controls:
Monitoring and controlling allows the business to check for variance in the budget and actual. This is important because it allows Coca-Cola to take the necessary actions to meet the marketing objectives. There are three tools:
1. Sales Analysis
• The sales analysis breaks down total business sales by market segments to identify strengths and weaknesses in the different areas of sales. Sellers of Coca-Cola products vary from major retail supermarkets to small corner stores to vending machines. This gives its products maximum exposure to customers at their convenience.

2. Market Share Analysis
• Market share analysis compares Coca-Cola’s business sales performance with that of its competitors. Coca-Cola looks to increase its market share by over 60%. With the changes Coca-Cola is currently undergoing, they aim to regain an iron fist control of the market.

3. Marketing Profitability Analysis
• This analysis looks at the cost side of marketing and the profitability of products, sales territories, market segments and sales people. There are three ratios to monitor marketing profitability:

° Market research to sales
° Advertising to sales
° Sales representative to sales

The results of these three tools can help Coca-Cola determine any emerging trends, such as the need for a different product. Comparing these results with actual results gives the business an idea on when to change.
Thank you for watching...
VIII. Strategy
Product:
• The goal in mind for the campaign strategy is to continue to establish Coke as the number one thirst quencher regardless of the weather.

People:
• Find out more about customers' value. The value that Coca-Cola has built is that Coke is inexpensive and available anywhere. Coca-Cola's role should be to identify how much each of the customers is worth, and compare that to their planned pricing strategy.

Place:
• Instead of Coca-Cola launching its smart vending machines everywhere, it should begin with areas where low but repeat purchases may take place. In this case, it can test its strategy without harming its loyal customers.

Price:
• Coca-Cola should disclose the economic reasoning behind the decision and show that the mutual benefit is between the customers and the company. By doing so, more transparency would have been built and customer relationship would increase leading to lessening the shock associated with upcoming higher prices.

• Assess how higher prices will affect the low-income people, a segment that Coca-Cola intend to have touching their product.

Promotion:
• Come up with a promotion strategy instead of sudden public announcement. For example, informing customers through advertisements or by sponsoring some events to increase public awareness, demand, and differentiation.
• To implement this final solution, strategy would be to start collecting extensive market research regarding time of day vending machine purchases. Some of this information might seem obvious; for example, higher sales during lunch and dinnertime. However, a full market assessment is needed to proceed. This will be followed by separating the day into 3 categories: High Traffic, Medium Traffic and Low Traffic
• To make strategic decisions for discounting during periods and using a test market. This test market will allow immediate feedback from consumers.
Full transcript