Why Variable Pricing Fails at the Vending Machines

The New York Times (free registration required) ran a piece on variable pricing today called Why Variable Pricing Fails at the Vending Machines. The article centers on Coca Cola’s infamous proposal to vary vending machine prices with temperature back in 1999, and asks why we accept variable pricing on airline tickets but not soda (even though we’ll pay much more per fluid ounce at the cinema or convenience store than at the supermarket for the same beverage). The author makes the interesting point that the edition of Newsweek that covered the Pope’s death and funeral cost the same as the recent edition with a “slow-news-week” T-Rex cover story.

Part of the problem with variable pricing in vending machines is that Coke’s ubiquity strategy has been so successful that very few people are truly tied to one vending machine (or to vending machines at all). Coke’s whole strategy has been to put its products within easy reach of anyone, anywhere, anytime, which necessarily decreases its power to alter price in one channel. After all, if there were effectively infinite airline capacity between 2 cities, there would be no way to extract big premiums for last minutes fliers.

Coke has played some pricing cards like introducing new packaging (or re-using the old curvy glass bottle, at a distinct premium), and has complex relationships with its channel partners. If they want to pull more pricing levers with consumers, they must use alternate brands, some of which occupy a lower price point, to compete with store brands, and some to occupy a higher price point, like Red Bull or speciality ice teas. (The Coca Cola Company actually offers hundreds of brands– I’d love to be a fly on the wall when they coordinate pricing.)