RS 9: Why The Price
Of Coke Didn't Change For 70 Years
Everyone knows the infamous soda drink company Coca
Cola. Coca Cola has been around since
1886, and within that time they managed to keep hold of a secret recipe that
makes their soda different from all other competitors. Although that seems pretty interesting, the
most interesting thing about this company is that they did not change the price
of coke for 70 years. This is rare
because in a normal economy prices are supposed to fluctuate depending one what
is available, how many people want it, and how much it costs to produce the
product. The fact that Coke got away
with selling its soda for the same price of five cents for 70 years is
economically very interesting.
From 1886 to 1959, Coca Cola was able to sell its product
for only one nickel. Today that sounds
outrageous because an average 20 ounce bottle of Coke costs on average $1.50. So how did this nickel trend start, and how
did it manage to last for seventy years?
That question was answered by Daniel Levy, an Economics professor at
Emory University, after he toured the World of Coca Cola Museum. When he was there he found it interesting
that during times of economic depression, war, prohibition, and many laws being
enacted that Coca Cola was able to maintain its cost at a nickel. So he went to the Coca Cola archives where he
got all of his answers.
The five-cent Coca Cola started as an attempt to attract
customers. The nickel Coke was a
competitive advantage for Coca Cola because at that time most fountain drink
soda companies were selling for seven or eight cents. By marketing itself as an affordable soda,
Coca Cola was set for success. In 1898,
two lawyers from Tennessee were trying to buy bottling rights from Coca
Cola. In this contract, Coca Cola had to
charge the bottlers a fixed rate for the rights to bottle Coke. This meant that even though the prices of
ingredients could increase, Coca Cola could not charge the bottlers any more for
the syrup. Technically this was not a
good move on Coca Cola’s part because they could possibly lose money with deal.
In an attempt to cover up their contract mistake, Coca
Cola decided to use advertising to its advantage. By constantly advertising Coke as five cents,
Coca Cola prevented the bottlers from raising coke to any other price. This also allowed for Coca Cola to establish
brand loyalty with consumers. This
allowed for current consumers to continue purchasing the soda, as well as
attracting new consumers. Even though
prices for ingredients were increasing, the advertising campaign was so
successful that the higher costs of ingredients did not matter. Coke was still selling at five cents, and
Coca Cola still managed to make profits.
The next thing that continued to trap Coca Cola in their
five-cent price was the invention of the vending machine. Vending machines were great because they made
Coke more readily available for consumers.
The only problem with the machines was that they could not create
change; therefore the price of Coke had to remain at five cents. In an attempt to create more of a profit and
raise prices without having to change the 400,000 Coca Cola vending machines,
Coca Cola asked President Eisenhower to create a seven and a half cent coin.
Clearly that idea was never successful.
However, what Coca Cola did end up doing was make every ninth bottle in
the vending machine empty, so that person would have to put in another nickel
in order get a full bottle of soda. On
average, a person would pay more than a nickel for a bottle of soda.
During the 1940s inflation was inevitable because the US
decided to go off of the gold standard.
As the amount of money continued to rise, prices had to increase. This meant that Coca Cola would not be able
to keep the five-cent Coke for much longer.
By 1947, Coke began to go on sale for six or seven cents. By 1959 there were no more nickel Cokes.
Prices vary, and it is normal that they do so. When prices become constant for so long, we
get stuck within them. Coca Cola could
have increased their prices many times however they didn’t because it was their
promise to their customers. Prices are a
psychological promise. When a customer
sees a product sell for one price and then a couple of months later the price
is higher, they think that they are guaranteed to the lower price. Companies will choose to shrink a price
before they raise their prices because of this psychological promise. Today, the nickel coke is still around, just
in bigger bottles.
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