“You can drink one of these at 9 o’clock, 11 o’clock, 5 o’clock... you can’t do this with an ice cream, oranges or any other food. There is no taste memory to a Coca-Cola”
-Warren Buffett
Despite the world wars, the great depression, competitive price wars and inflationary effects, the price of a Coca-Cola did not change for 70 years (1886-1959). How is that even possible? Did the company bear all the loss for it? Obviously not!
Coca-Cola was earlier sold at a price of 5 cents at soda fountains which were a very popular place to hang out at those times. The other carbonated beverages sold there were priced at 6-7 cents. Coca-Cola marketed itself as an affordable option by choosing a price of 5 cents.
In 1899, the president of Coca-Cola was approached by two lawyers who wanted selling rights to bottle Coca-Cola. The president didn’t like the idea and had the notion that it won’t work. He signed the contract for the bottling rights for just a dollar. Now this was probably the worst contract ever signed in history – the contract had no expiry date. He agreed to sell the syrup (at 5 cents- forever!!) and they could sell Coke in bottles (5 cents for a 6 ½ ounce bottle).
Unfortunately (or not!), the idea of bottling took off, and Coca-Cola was left in a dangerous situation which could hurt their profits. If the bottling operators increased the prices and sold Coke at a higher price (6-8 cents) in different soda fountains and retail outlets at a later stage, Coca-Cola couldn’t have done anything.
What Coca-Cola did was a masterstroke in marketing. They blanketed the entire country with nationwide promotions and advertising for a 5 cent Coke and tagline as “Drink Coca-Cola, 5 cents”. The positioning went viral and none of the bottling operators could raise their prices above 5 cents.
Coca-Cola did re-negotiate the contract in 1921 but due to re-branding efforts and public outrage, the prices could not be changed till 1950’s. The interesting part was that the vending machines accepted only 5 cents (a nickel coin). Even if the prices were to be changed, it would mean a rise of 100% (a dime coin). In 1953, Coca-Cola president Bob Woodruff even requested US president Eisenhower to influence US Treasury department to issue a 7.5 cent coin. This obviously was not consented by the US government.
The inflationary pressures did play their effect and ultimately made the nickel coke extinct. As to when the prices were increased, it isn’t possible to mark the exact date in history. Few retailers had began selling Coke at a higher price a bottle. The vending machines were reliably replaced by 1959. In 1950, Coca-Cola owned 85% of US vending machines amounting to US $400 – 900 million. This was the dollar value of these machines in 1992!
Unable to change the prices for so long, this is a major reason Coca-Cola was pushed to drive profits by volume sales. A big contributor to Coke being sold in large volumes worldwide and to the mammoth success of the company.