If Coca-Cola’s own marketing is to be believed,
few things are more satisfying than a cold drink on a hot day. Tacking on to a string of hilarious missteps
in the late 20th century (see: That Time Coca-Cola Spent $100 Million Intentionally Filling Coke
Cans With Water That Smelled Like Farts, That Time Coca-Cola Tried to Sell Bottled Tap Water
in the U.K. and the Hilarity That Ensued, and That Time Coca-Cola Decided to Stop Making
Their Best Selling Product, Coca-Cola), the company reportedly decided to try and take
full advantage of sweltering days making their product more desirable by attempting to introduce
vending machines that would charge more the hotter it was outside… The genesis of this story can be traced back
to an otherwise mundane interview given by the short-lived and wildly unsuccessful Coca-Cola
CEO Doug Ivester in 1999 to the Brazilian magazine, Veja. During the interview, Ivester opined that
“Coca Cola is a product whose utility varies from moment to moment” sagely explaining
that demand for ice-cold Coca-Cola spiked during especially hot weather and during certain
events. Ivester then reasoned that in such a situation,
“it is fair [Coca-Cola] should be more expensive” while no doubt simultaneously devouring his
own foot and grabbing a shovel and digging himself into a giant hole. When asked how Coca-Cola as a company planned
to take advantage of the amazing revelation that hot weather inexplicably also coincided
with an increased demand for cold drinks, Ivester stated that they’d been developing
a new line of vending machines that exploited this fact. Specifically, Ivester explained that Coca-Cola
had been experimenting with vending machines that contained a thermostat and simple software
that would raise the price of the products within the machine once a certain temperature
threshold had been reached. As Ivester himself would correctly point out
during the interview, neither the technology nor the idea of raising the price of a product
in times of great demand was a new concept, noting in regards to the latter that “the
machine will simply make this process automatic”. Early media reactions to Ivester’s comments
were relatively muted. The New York Times, for example, mused that
the idea was merely a natural extension of the concept of supply and demand and that
the advent of affordable computer chips could make the endeavour impossibly lucrative if
handled correctly. The paper also pointed out that while, yes
“the concept might seem unfair to a thirsty person”, variable pricing had already been
the norm for other industries, most notably airlines, for many years at this point. Indeed, such variable pricing can be seen
when we buy from restaurants, car dealerships, power companies, hotels, grocery and clothing
stores, online retailers such as amazon, etc. Of course, the variable pricing is generally
presented in such a way as to potentially save customers money, even though in many
cases that really just implies that the original price was more than needed to make a reasonable
profit, or with prices on other items set high enough to make up for the lower price
of a loss-leader product, etc. (More on this here: Why Coupons Sometimes
Say They’re Worth a Fraction of a Penny) On top of media reports mostly being indifferent
to the potential change, Coca-Cola stockholders were reportedly initially very happy to hear
the company had developed technology that would squeeze as much profit out of customers
as possible. As stock analyst Bill Pecoriello noted, vending
machines are “already the most profitable channel for the beverage companies, so any
effort to get higher profits when demand is higher obviously can enhance the profitability
of the system further”. A company spokesman called Rob Baskin later
quizzed on the matter seemed excited about the potential the idea had. In fact, Baskins revealed that at the time
the story broke variable pricing in vending machines was “something the Coca-Cola Company
has been looking at for more than a year”. Additionally, although Baskins also claimed
that Coca-Cola hadn’t yet trialled the technology in the real world, it would appear that preliminary
tests of vending machines that adjusted the price of their contents in relation to the
overall temperature had been conducted in Japan by the company. It’s unclear what the results of these tests
were, but given that Coca-Cola seemed happy to charge ahead with the plan, it’s safe
to say the results must have been promising. The problem was that while customers are generally
happy to accept variable pricing with little complaint in many instances, even often with
drinks at bars and the like, most companies who do this don’t blatantly broadcast to
the customers that the main purpose of the variable pricing is to squeeze every dime
possible out of said customers. Instead, these sorts of variable pricing schemes
are generally presented as a benefit to customers, even though the underlying goal is always
to maximize profits. For example, hotels don’t advertise that
they raise prices during peak times, they instead pitch it as lowering them in the off-season. Or, as David Leonhardt of the New York Times
notes of supermarket variable pricing, The supermarkets… used sales on those goods
to bring customers in their doors. They made the bulk of their profit from other
items that people bought while in the store. So even if the final bill was the same as
it would have been if the beer had been marked up, shoppers could walk out with both the
items they wanted and the sense that they were treated fairly. But with Coca-Cola’s CEO being so unabashedly
blatant that the purpose of the variable pricing was to maximize profits by milking the customers
for all they were worth and not spinning it as a benefit to anyone but Coca-Cola stockholders,
unsurprisingly public outrage over the plan didn’t take long to manifest. Furious Coke drinkers complained to Coca-Cola
in droves and the media, always keen on a bit of outrage for its ability to get eyeballs
watching and reading the news, decided to stoke the flames of the controversy by reaching
out to Pepsi for a comment. Naturally, while no doubt privately kicking
themselves that they hadn’t thought of it first, Pepsi publicly released many-a-scathing
statement condemning Coca-Cola’s avaricious attempts to nickel and dime customers. For example, Pepsi spokesman, Jeff Brown,
stated, We believe that machines that raise prices
in hot weather exploit consumers who live in warm climates. At Pepsi, we are focused on innovations that
make it easier for consumers to buy a soft drink, not harder. Pepsi’s sentiments were echoed by other
competitors in the beverage industry, with one unnamed executive being quoted as scoffing:
“What’s next? A machine that X-rays people’s pockets to
find out how much change they have and raises the price accordingly?” (In truth, in many industries, how wealthy
a person appears or what the wealth demographics of an area are often makes a difference on
what price products or services are listed at. In the early 2000s, there were even rumors,
though they denied it, that amazon was using such demographic data to dynamically adjust
prices for a given customer.) The real damage to Coca-Cola, though, came
from the bottlers the company so depends on (and who were already upset with Iverster
over things like his raising the price on the concentrate used for making the drinks,
with one unnamed bottling executive graphically stating Coca-Cola was “raping the bottlers”). As to why they’d be unhappy about this particular
snafu, you need look no further than one of the largest, CCE; after the media backlash
from this and other foibles under Iverster, they watched in horror as their stock price
nosedived from $37 to $18 per share in only about five months. Unsurprisingly, Coca-Cola would soon disavow
their CEO’s comments on these variably priced vending machines. The aforementioned Coca-Cola spokesman, Rob
Baskin, with his PR cap no doubt spinning fast enough to create a tornado during the
interview, now denied that the company had ever seriously planned to utilise the technology…
you know, even though he’d previously said Coca-Cola had been exploring how to best use
it for an entire year and that the company had already trialled them in Japan and was
very excited about the prospects here. Baskin then decided to intelligently explain
the variable pricing, now doing it the way pretty much every other industry who uses
variable pricing pitches it to customers- he noted that if Coca-Cola ever did decide
to introduce variable pricing vending machines, the company would almost certainly use them
to lower the price of its soda at off-peak times. (No doubt quietly raising the “normal”
price until the lowered price matched the old original price, assuming the potential
increase in sales wasn’t enough to at minimum cover the loss from lowering the price.) In the end, the public were woefully unimpressed
with Coca-Cola’s sputtering explanation and the company’s stock price took a notable
hit following the sustained negative coverage of their little scheme. Incidentally, Ivester only lasted about two
years as CEO before he decided to retire after a private meeting with Warren Buffett and
Herbert Allen (two of the largest stock holders in the company); the rumor was that they politely
told him to either step down as CEO voluntarily or they’d see to it his removal happened
anyway. Whatever was actually said, almost immediately
after the meeting, he very suddenly announced his retirement. For his “great” work during his tumultuous
and very brief time as Coca-Cola CEO, he was awarded a retirement package worth about $166
million (about $240 million in today’s dollars)…
Holy fuck what an awful and pointless video.
Coca-Cola tried vending machines that charged more on hot days. It didn't work. There, I saved you 11 minutes.
Someone went wait... it charges less on cold days? Just charge hot day price every day.