RS9 Have a Coke and a Smile

I hate soda. I think the carbonation in any type of soda is absolutely horrifying when it is guzzled down your throat stinging your stomach when swallowed. But, for a nickel a pop, I think I would've made myself a fan of Coca Cola.

In our economics class, we discuss about how prices go up and down because costs change and because supply and demand changes. But this podcast from Planet Money on National Public Radio fights against this theory of prices getting higher or getting lower, at least for Coca Cola soda products for 70 years.

In 1886, Coca Cola was born. A soda syrup soon became a hit popular beverage and over a century later is still one of the most drank sodas in the world. When the soda was first produced, company executives decided to sell it for only 5 cents a piece. The glass of soda would cost five cents no matter where you bought it, and the company did their best to control that promise. Years after the company began, two lawyers coining a bottle came to the president of Coca Cola begging for him to allow his product to be sold in their bottles. To get them out of his office and away from him with their crazy ideas, the president promised to sell the Coca Cola syrup to them for an extremely low fixed cost, forever! (Man, was he feeling the secondary effects of that decision later...) Once the soda became bottled, people everywhere went wild for the 5 cent soda. It was marketed as the cheapest, but best quality, soda there was, and Coca Cola made sure to control it's serving size at all venues that sold it's product by providing companies with specific sized glasses and bottles. The soda remained at 5 cents for 70 years.

From an economics viewpoint, this seems unreasonable and frankly crazy. The fact that Coca Cola was sold at the same price for 70 years absolutely obliterates the law of demand. The law of demand is concerned with the inverse relationship between price and quantity demanded. If the price of an item never changes, then who cares about the quantity demanded of that item as long as they are breaking even? 

One note in the podcast that absolutely boggled my mind was regarding Coca Cola's "ninth bottle objective."Every ninth bottle of soda in a vending machine was empty, so that the customer would put in another nickel to buy a full bottle...assuming the next bottle would be full! From a marketing perspective, I ask this question. Is it not the duty of a company to satisfy the customer and bring them happiness through their product? If I was EVER a ninth bottle customer, I would be livid and boycott the product immediately...but maybe that's just me! When this objective was put in place, but not for long, the average price of the bottle of Coca Cola rose to 6.25 cents and did gain the company some small revenues. 

Ultimately, I think it was a great marketing scheme for Coca Cola to hold their price at 5 cents per bottle for such a long time. They created a brand and a name for themselves in the years before the gold standard was gone, and their long standing customer basis is what allows them to continuously thrive as a major soda company today. So for consistency and smart marketing, bravo to you Coca Cola. But, for making economists happy, you lose.