Buying coke Sannes

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Buying coke Sannes

Coke Vending Machine - Price Differentiation. This case deals with the incident of the new Coke vending machine which had caused a huge uproar around Coke was playing around with the concept of a time based price variance in its vending machine. However an untimely media leak, made Coke look like a greedy price gouger. Synopsis: October It was reported that Coke was secretly working on a vending machine that could change prices according to the weather. Douglas Ivester gave an explanation that Coke should be able to charge a higher price when the demand was higher. In the supermarkets, the prices of Coke and Pepsi were driven down due to price wars. However, the vending machines were not part of the price wars and Coke was looking to extract maximum profits from their most profitable channel. When the news became public that Coke might be looking to charge higher prices in summer months it caused huge public uproar. Basically, Coke was thinking about this idea of charging different prices in different seasons to maximise economic profit. The economic principle considered here was price discrimination, which means selling the same good at different prices to different groups of customers. However, an important aspect that Coke did not take into account was the buyers perspective and the image dilution that such an act would have on the Coke brand. Eventually Coke had to give up on the idea and issue a public statement mentioning that it would not introduce such a vending machine. Differentiated Pricing: In first degree of price discrimination, a seller charges a separate price to each customer depending on the intensity of his demand. In the second degree, seller charges different prices based on volume bought. In the third degree of price discrimination, the seller charges different amounts to different classes of buyers. There are different kinds of third degree of price discrimination: 1. Customer segment pricing: Different customer groups are charged different pricing for the same products e. Museums charging different prices to students 2. Product form pricing: Different alternatives of quality, style for the same product. For example, Levis sells many vari eties of jeans at its stores for various prices. Image pricing: Pricing the same product at two different levels based on image differences. Channel pricing: A product is sold at different prices depending on whether you buy at a restaurant or vending machine 5. Location pricing: Products are priced differently at different locations. Time pricing: Prices are varied by season, day or hour. For example electricity companies charge different rates at different hours. Airlines industry use yield pricing where they use discounted early purchases. The prices change by the time of the day, day of the week and season of the year as well. Although this phenomenon is exploding, it is extremely tricky where consumer relationships are concerned. This works best where there is no bond between buyer and seller. For example in this case there is a symbolic value attached to the brand and if the company tries to take advantage of this relationship by charging different prices on different days, there is bound to be anger and resentment towards this idea. While passing the price increases to the customer the company must avoid looking like a price gouger. Buyers Perspective: What makes the buyers view a certain price as fair or unfair? There are contradictions galore; the Kahnemann survey Kahnemann et all Vancouver tends to suggest that when given an option of buying tickets using different methodologies as listed below a Auctions b Lotteries c Standing in queues. People tend to perceive prices received by standing in queues as the most fair and auctions as least fair. However, the Fairness heuristic theory turns this logic on its head; it says that once consumers have established fairness judgments, those judgments serve as heuristics for evaluating new experiences Van den Bos et al. If consumers judge a particular pricing rule as fair, subsequent transactions using similar rules will also be perceived as fair. When consumers participate in setting the price, the onus is more directly on them to ensure price acceptability and they are more likely to make internal attributions regarding the price determination. Therefore, consumers are less likely to perceive a price as unfair, even if evidence exists to the contrary, when they are involved in the price-setting process So what factors contribute to the fairness perception? What really happened in case of Coke? We have tried using the combination of following theories to explain what really happened Equity Theory As per this theory the buyer tends to compare the price he gets in a certain transactions with another referent transaction. The reference can be a separate transaction that the buyer himself had at a previous point in time or it can be a transaction made by an acquaintance. If the buyer feels that the price that he got is more as compared to his referent transaction the buyer feels that the price is unfair and feels let down. Dual Entitlement DE - As per the proponents of this theory a supplier may examine the fairness of its intended pricing tactic as judged by community standards. If it is not fair, the supplier will be less likely to go ahead with its planned pricing tactic. Moreover, these researchers propose that the constraining motive could be primarily moral, and at times, dominate the purely economic motives of avoiding loss of customer goodwill and jeopardizing long-term profits. The DE principle implies that it is not fair for sellers to increase the price to the buyer in order to exploit increased market power such as when demand increases. Similarly, if there is increased supply, it is not fair for prices to be lower to the consumer because it would violate the terms of the reference transaction. Fairness Heuristics- As per this theory people tend to judge situations on the basis of most relevant information. If the most relevant information is not available they take the most available information to judge others which leads to establishment of procedural justice as procedural information is the most available information. Theory of Distributed Justice- The principle of distributive justice maintains that people, in an exchange relationship with others, are entitled to receive a reward that is proportional to what they have invested in the relationship Homans Purchase Context and Situation Norms The purchase context and the situation norms also play a major role in the judgment of fairness. For example during the initial stages of a buyer seller relationship a buyer may. So a breach of trust in the initial stages is taken as less unfair than a breach of trust in the second stage. Similarly once norms are formed change in norms are considered to be more unfair. All these theories can be interconnected in a way in the following model:. As per this particular framework once a customer perceives a particular pricing as unfair based on the different theories discussed earlier he might resort to a number of activities based on the intensity of his negative emotions, the perceived cost of action and his relative power as compared to the buyer. No Action: When buyers are slightly disadvantaged, there may be some decrease in perceived value and feelings of disappointment. If so, buyers either are not motivated to take action or believe it is not worthwhile to take action because of the cost of complaining or switching to another seller. Urbany, Madden, and Dickson In addition, they may search for additional information to assess the potential switching costs or to assess their power to renegotiate with the seller. Revenge: When a strong negative emotion, such as anger or outrage, occurs with a perception of price unfairness, customers leaving the relationship or complaining may not be sufficient to address the perceived inequity. Correlating Buyer's perspective with the Conceptual Framework of Price Fairness: 1 Referent Transaction: A Coke buyer would treat buying a Coke as a similar transaction to one done during the past summer. Keeping other factors constant, per the equity theory, he tries to compare the amount spent for this new time based pricing transaction with the extra amount he has to shell in a hot summer month. Especially being a national brand, customer trust is an integral part of their product strategy. Even though the new vending machine was not launched, the news spread like wildfire and dented Cokes brand value. The satirical article by Jeff Brown published in the Philadelphia Inquirer is just one example of how people started venting out their frustration. Trust was inevitably shaken. Lot of consumers know. Few examples indicated in the case discuss why hard cover books are priced higher than paperback editions, or why matinee show prices for movies are cheaper than other shows. In this particular case, changing prices according to weather was not a generally accepted norm. Coke was clearly violating this basic DE principle 5 One sided views: May be the customers only looked at one aspect Coke priced higher in summer months. No one looked at the other side - on cold days it would be priced lower. This clearly explains one of the ways in which marketing communications comes into play and how Coke couldve done better on this front Facing flak from everywhere, Coke eventually did not introduce the new vending machine. Through mere expression of withdrawal from making such expensive purchases and negative word -of-mouth publicity, Coke buyers forced the company to shun this strategy. In hindsight, had Coke done this while engaging its customers the ending could have been vastly different Conclusion: We have tried to use Lens theory to summarize the key concepts associated with this case. From a buyers perspective, differentiated product features shape perceived relative benefits and influence preferences or perceived value of a product. A seller can affect perceived relative benefits and preferences or perceived value of a product by advertising etc. In order to understand the right price of a product 3 Ps namely product, promotion and place and 5 Cs customers, competitors, company skills, collaborators, context play a key role. It helps in driving perceived value and perceived prices. In this Coca Colas New Vending Machine case, information leaked much earlier in media, this lead to a lot of rumours, uproar, conspiracy theories and analysis. Improper handling of media by Mr. Douglas Ivester further complicated the issues. This is definitely not the best way a company would like to introduce its differential pricing to the customers. Things didnt go the way Coke would have planned. A key question arises- What would have happened if things went as per Cokes plans? We tried to analyse this question in light of the earlier mentioned concepts present, market information available about Coke and the events that unfolded when new Coke was introduced in We were not able to come to any definite conclusion whether New Vending Machine would have been a success or a failure. Bibliography: Daniel Kahneman, Jack L. Cox , The Price Is Unfair! Haws, William O. Dickson, Joel E. Open navigation menu. Close suggestions Search Search. User Settings. Uploaded by Subrata Dass. An analysis of why the New Coke Vending machine , which tried to differentiate prices based on climate changes, failed. Document Information click to expand document information An analysis of why the New Coke Vending machine , which tried to differentiate prices based on climate changes, failed. Did you find this document useful? Is this content inappropriate? Download now. Jump to Page. Search inside document. There are contradictions galore; the Kahnemann survey Kahnemann et all Vancouver tends to suggest that when given an option of buying tickets using different methodologies as listed below a Auctions b Lotteries c Standing in queues People tend to perceive prices received by standing in queues as the most fair and auctions as least fair. 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Buying coke Sannes

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Buying coke Sannes