Coca Cola Vending Machines

Scott Morrow

MGT 531

Case #1

1/31/08

Coca-Cola's New Vending Machine

Statement of Problem

Coca Cola, the world's largest beverage company, has been under a tremendous amount of media scrutiny lately. Word got out that Coke is testing a new vending machine technology that changes price based on weather conditions. It charges a higher price during warmer temperatures and a lower price during colder times. Coke wants to increase its vending machine business with higher margins, but isn't sure this new temperature technology is the way of the future.

Issue Analysis

After carefully analyzing the case, I've discovered three key issues that this problem, and its solution, must address. The first issue is the temperature reading technology itself. 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. I also think that there might be better alternatives to increasing profit margin for vending machines than by changing prices with the weather. Those alternatives will be discussed later.

The second issue here is the actual pricing and promotional matters involved with this new technology. The most important thing to remember in pricing issues is the term value. Value is something different for everyone and is not based upon any set criteria. Coke must be able to show the value of its product to the consumer with this new growth strategy. Additionally, after the public relations mess that went along with this story, will consumers have a bad taste in their mouths already or will they not care...

The last issue is a difficult one to measure and predict. How will Coke's brand image be affected or affect this strategy? Year in and year out Coke is one of the top 5 brands in the world. It has been around for over 100 years and is known for its top notch marketing and social responsibility. So, when creating a strategy for increasing profit margins in vending machines, Coke must make sure to keep its precious brand image in tact. It must also take into account how this growth strategy fits in line with the overall brand strategy.

Discussion of Alternatives

The following are the three alternatives that I discussed regarding this issue:

Alternative 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 a discount during cold weather months (maybe only $.75). The advantage to this is that it makes the consumer think that he or she is getting a better value for their money. However, 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.

Alternative 2 - Distribution

Another way to increase Coke's profit margin