Wednesday, April 8, 2009

Coca-Cola's Pricing and Distribution

Pricing:

To first determine it's price, I believe Coca-Cola used a cost-based pricing system for it's Original Coke. They first designed the product, the original coke, determined the costs for the product (product costs, capital costs, and operational costs), set a price based on the cost of Coke, and finally convinced the consumers of the soda's value. From there, I think that Coke chose to use market-penetration pricing for it's price. Here, they set low initial prices in order to attract a large number of buyers quickly, to gain a large market share.

Coca-Cola uses the following pricing strategies for Original Coke:
  • Coca-Cola uses the psychological pricing strategy for their Original Coke. For instance, on April 8, the price of a 2-liter bottle of Original Coke was $2.49 (http://shop.netgrocer.com/shop.aspx?&sid=28580561&sid_guid=93f0e5bc-1c27-4eb6-a3dd-e8fd84d5ae82&strid=2D462&sc=wwwNG_D1A024EE&strtab=Grocery&catL0=570&catL1=-1&catL2=-1&catL3=-1&HasProducts=0&ForceMenu=1&shopurl=browse.aspx&ns=1). They set the price to end in a 9, because this makes customers think the price is less than $2.50, to appeal to the customer.
  • Coke also uses the promotional pricing strategy. In store that cell Coca-Cola, prices are often temporarily priced below the list price to increase short-run sales. It gives the product a sense of urgency and customers purchase the product because of the lower price.
  • Coke uses the segmented pricing strategy for its Original Coke. For instance, Coca-Cola offers liter bottles, 6-pack cans, 6-pack bottles, and 12-pack cans of the same product, all for seperate prices. By their product in different sizes and at different costs, they get to increase their revenue, because there is not much difference in the costs required to produce the products.
  • Coke also uses the international pricing strategy. For instance, the price of a 2-liter bottle of Coke in the United States is different from the price of the same product in China. This has to do with the difference in economic conditions, competitive situations, and laws.

I think Coca-Cola's pricing strategy is working well. Based on financial reports (http://www.thecoca-colacompany.com/presscenter/earnings04212004.html), Coca-Cola has increased profits and income, which means that customers are purchasing more of the products, and because of this, seem to be generally satisfied with the pricing. If they were not satisfied, they would choose another brand over Coca-Cola.

Distribution:

Coca-Cola has a strong distribution system. It's shelf-space is extensive, giving it an advantage over much competition. Along with having wide shelf-space, Coca-Cola also has intensive distribution. Coke is found in as many stores as possible. Coca-Cola is available to consumers when and where they want them, giving Coke maximum brand exposure. This means that Coke also has many marketing intermediaries involved in the process of delivering a superior product to consumers. For this reason, inventory management and good dealer relationships are difficult to maintain. I believe that this form of distribution works well for Coca-Cola. Coke's brand is so large, that they would be forced to downsize if they wanted a more close-knit distribution system. Also, they would not be able to enjoy such extensive shelf-space and brand exposure.

Coca-Cola has such an expansive distribution system, that the company is beginning to formulate ways how the company can do more positive things with it's system. Coca-Cola is beginning to use part of its large distribution system to carry life-saving medicines to parts of Africa. More information about the project can be found at: http://www.worldchanging.com/archives/008319.html




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