Coca Cola Pricing Strategy Coca-Cola Does Not

Coca Cola Pricing Strategy

Coca-Cola does not have one price all over the world and the reason behind this pricing strategy can be encapsulated in two main arguments:

Not all countries in the world have a thriving economy

The currency exchange rate can make all the difference

Let us now understand what these arguments mean. If India ever followed the uniform pricing strategy all over the world, it would not only lose a large chunk of customers but also lose out seriously to its competitors in those local markets. Every country, regardless of its size and economy, does have local producers offering a vast or limited variety of refreshment drinks. These drinks are normally priced low since they are every-day drinks and need to be consumed often, sometimes more than once a day. If the local producers ignore the per capita income of the country, they would never be able to use a sensible pricing strategy and hence the income of its target market is highly important factor in deciding price for local drinks.

When Coca-Cola enters these markets, it has a very tough competition to reckon with. On the one hand, it must keep in mind the prices of similar drinks in the market, and on the other, it must not ignore other factors like per capita income, economic potential, recent market growth etc. Coca-Cola would thus adjust its price according to these factors and charge a different price in each region that it enters. While the price might appear more or less the same in western countries because of their higher economic power, this change dramatically as Coca-Cola enters developing markets.

Take the case of India for example. The country has a huge market and no company in its right mind would want to lose out of the revenues that can come from a market as rapidly growing as India's. The market is not only growing in terms of economic power but also in terms of sheer number of people. When Coca-Cola sets a pricing strategy in this country, it cannot ignore the fact that more than 70% of its people still live in rural areas where even a 5 rupee drink is not always an affordable option. In such a market, when Coca-Cola comes out with a higher priced product, it becomes a luxury drink that cannot compete with local major competitors like Thumps-up or Limca.

For this reason, Coca=cola has to alter its pricing strategy and instead of changing the price of the regular bottle from Rs.10 to something lower, it came out with a smaller bottle that was available for Rs. 5. This allowed the company to compete not only with local competitors but also with local homemade refreshment drinks like Lassi and Limo-pani.

To be able to accomplish the right price target, Coca-Cola first divides the entire population into segments according to their income and preferences. For example, when the same strategy was applied in India, the country was divided into two groups: India A and India B. "India B" included small towns and rural areas, comprising the other 96% of the nation's population. This segment's primary need was out-of-home thirst-quenching and the soft drink category was undifferentiated in the minds of rural consumers. Additionally, with an average Coke costing Rs. 10 and an average day's wages around Rs. 100, Coke was perceived as a luxury that few could afford. In an effort to make the price point of Coke within reach of this high-potential market, Coca-Cola launched the Accessibility Campaign, introducing a new 200ml bottle, smaller than the traditional 300ml bottle found in urban markets, and concurrently cutting the price in half, to Rs. 5. This pricing strategy closed the gap between Coke and basic refreshments like lemonade and tea, making soft drinks truly accessible for the first time. At the same time, Coke invested in distribution infrastructure to effectively serve a disbursed population and doubled the number of retail outlets in rural areas from 80,000 in 2001 to 160,000 in 2003, increasing market penetration from 13 to 25%." (Coca-Cola India)

The company understands that with one price option, it can lose out on many fronts and in order to stay at the top of its industry, it must have a flexible pricing strategy that would suit the budget and pocket of the people in its country of operation. For this reason, Coke has been successfully altering and adjusting its price wherever it goes and this appears to be the right strategy since it has helped Coke stay ahead of the local as well as international competition.