RS 9 Coke for a nickel

     In this podcast by Planet money they discussed how Coca Cola's price of five cents per can lasted seventy years.  From 1886 to the 1950's Coca Cola never changed in price because of a deal that was made to companies that bottled it.  The deal was that Coca Cola would sell a certain amount of syrup to the bottling company whenever they needed it a certain price. The problem was that the contract had no expiration date so it never ended.  

     With Coca Cola stuck in this contract they had no leverage over companies to change their prices.  So Coca Cola took the jam they were in and made it a profit through several strategies they put in place.  They started off by advertising everywhere, with the five cent per bottle ad.  Doing this in my eyes showed to the population that Coca Cola was an affordable drink and that it was made for anyone to have.  And the consistency of the price showed to the customers that it was a stable product that was worth investing in.  

     Coca Cola then began to use the vending machine to sell their product where still the price was five cents.  The company had hundreds of thousands of vending machines dispensing their product.  Coca Cola then finally created new contracts with the bottling companies allowing them to change the price of the syrup but they continued to stay at five cents per bottle of coke.  To me this was a smart move by the company because not only did they gain control of the contract to price as they please but they kept the price the same because it was working so well but gave them the ability to increase the price if they needed when they needed to.

     When it came to the point where Coca Cola needed to raise the price because the price of the ingredients was increasing they found themselves in a small predicament.  All of their merchandise was advertised everywhere for five cents so they didn't want to double it and make it ten cents. So the company went to the president of the United States and asked him for a coin that would be worth seven and a half cents because vending machines were not capable of making change.  The plan was shot down so the company had to go back to drawing board.  They came to the idea that for every ten bottles they put in the vending machine, one of them would be empty. Doing so would make that one unlucky person put in another five cents. This did not last very long because of the obvious system they were using.  Besides it barely generated any profit by doing so, it increased the profit by not even a single cent.  Doing this was clever but not very rational because in a way they were scamming people, which could have possibly been illegal.  Like I said previously this system lasted not very long.  Soon after Coca Cola had to increase the price of their product because they were losing money. The price didn’t dramatically increase, it only went up to six or seven cents per bottle.  People thought the company would fold over.  If you look at where the company is now I would say it was just a small bump in the road because Coca Cola is a product sold worldwide.