Coca-Cola didn’t/couldn’t raise their prices for over 70 years. Egad, the horror!

Going all the way back to the beginning of 1886 and Dr. Pemberton, Coca Cola launched at a price of five cents.  This was a competitive ploy, marketed as a more affordable option.  Most of the alternatives and competitors such as fruit-flavored sodas were about 7-8 cents a glass.  You never want price to be your competitive advantage, and it didn’t last as the competitors went to 5 cents, too.  But Pemberton was also about quality, and the business took off.

However, for over 60 years, Coca-Cola was stuck at the same price.  That’s right – from 1886 to the mid-1950s (and maybe as late as 1959), it was locked in at 5￠.  Why did they get hemmed in, and what can we learn from it to apply to your business?

Here are 3 reasons:

• A legal problem.  Today, Coca-Cola sells two billion bottles of Coca-Cola products per day.  Bottling Coca-Cola became a bigger business than the fountain as early as 1928.   But prior to 1900, it was all about the fountain drinks.  Pemberton didn’t think much of bottling Coca-Cola.  In 1899, two lawyers asked him about buying syrup to bottle Coke.  Famously (at least to 1st-year law students) he wrote a supplier contract that had a price with no end date.  Nor did it have any kind of reclaim other than an ability to end the contract if they ever sold an "inferior product."  Oops – no forethought and a contract with no price upticks, no service level agreements (SLAs), and no end date.  
• A marketing problem. Coca Cola spent $18B on advertising last year.  Back in the early 20th Century, most marketing expenditures were on hard, permanent fixtures on materials that were designed to last a long time – tin store signs, store refrigerators, and vending machines.  They all said “Coca Cola 5￠” on them.   Coca-Cola was nicknamed “the nickel Coke.”  Oops – they led with the price.
• A technology problem.   Vending machines back then were built to only handle a single coin and no change given.  It could also handle only a single bottle type and size.  Coca-Cola owned most of the vending machines in the United States.  Perhaps as much as $1B worth of machines in today’s dollars.  That’s a lot of retrofitting, and even then the technology solutions would be limited. The next step up would have been to double their price to 10 cents and make it fit a dime which was untenable at the time.   Their next best idea?  In 1953, they asked the US Treasury to mint a 7.5 cent coin!  Their next best idea after that? Put an empty bottle in where once every 9 bottles it sent out an empty.  Imagine the customer’s ire that they paid 5 cents, but got an empty and had to pay for another one! Oops -- no future-proofing!

What do these all have in common?  They all have a lack of planning and strategy about where the business was going.  In the case of the contract, Pemberton didn’t think about the customers wanting Coca-Cola anywhere else but a fountain. He didn’t think about his customers, their needs, and their wants.   In the case of his marketing people, they led with price and didn’t think about where they were going to take the brand – just where they were today, which was to print 5￠ materials. Finally, in the case of technology, they didn’t think about the future – just built machines to handle the present.

To be fair, there wasn’t much inflation during this time, so the idea of constantly raising prices isn’t as obvious as it would be today.  In fact, that was the downfall of why they finally had to give into higher prices. After WWII, soldiers returned home and there was an era of prosperity that drove up demand. Combined with new monetary policies like the ending of the gold standard, Coca-Cola had no choice but to give up because of cost. To a business owner who should focus on providing value -- cost is the last thing you want to force your hand.

What about your business?  Are you thinking ahead? Back then, Coca-Cola wasn’t this crazy big business it is today.  It was a small business with dreams of going big.  Sounds like you, right?  So… Are you looking to where things are going, or where they are today?  Are you asking your customers about their needs and wants?  Are you educating yourself on other trends that are evolving?  You won't have a crystal ball, but I’m certain that as a business owner, you have a better idea than anyone – except maybe your competition.  And if you don’t move forward, they will – without you.

Happy strategizing!

This is another in a series of Linkedin articles that delves into the mystical and magical world of product and pricing and their impact on profits. I welcome your comments and feedback. Let's get a dialog going -- do you have a good story to share? Please do so!

I work as a consultant helping companies maximize profits through better marketing, selling, and pricing. If your sales and profits are out of whack – or you don’t know where to begin - we should talk! I've worked with some of the biggest corporations and smallest individual businesses out there. I’m also a small business owner myself. Contact me on LinkedIn or at [email protected].  You can read more about my work at my LinkedIn profile or at my website: https://www.dukeofprofit.com