Case analysis: Coca Cola’s new vending machine
2 September, 2008
It’s about Coke’s new vending machines that are able to automatically change prices according to ambient temperature. How this works: the price of Coke goes up in hot weather where cold drinks are regarded more valuable to satisfy thirst than in cold days.
Coca Cola tried to maximize profit from these smart vending machines, after facing war price in supermarkets. This practice is called price discrimination, where a company is charging different prices for the same product to different consumer. In the Coke’s vending machine case, the differentiation is on how consumer values cold drinks in different weathers.
There are three types of price discrimination:
– First is when a product is sold at different prices to each individual consumer. Price level is set according to consumer willingness to pay for the product.
– Second type is when company charging lower price for consumer purchasing in higher quantities or in bulk.
– Third type is setting different price for different consumer groups, such as gender, senior citizen, or student.
Is price discrimination -in Coke’s case in particular- a “good” or “evil” practice?
Certainly we cannot judge it from a moral perspective otherwise we will fall into endless and pointless debate. I suggest that we analyze it in a marketing point of view. Marketing is about customer value, from identifying, creating, delivering, communicating, maintaining to rediscovering.
The same goes for price discrimination, it should bring value to customers although the word ‘discrimination’ have a negative tone. In short, value proposition is what the customer get for what the customer pays. Back to the three types of price discrimination, the second and third type are giving more values to compared to the first type.
Which type of price discrimination Coke’s vending machine fell into?
I think it’s the first one: price level is set according to consumer willingness to pay for the product. But not all first type price discrimination gives less value for consumers. Products such as handicrafts, arts, and collectible items are best priced according to consumer’s willingness to pay.