http://www.marketwatch.com/story/glass-bottles-give-soda-makers-pop-in-down-mark
ID: 2741072 • Letter: H
Question
http://www.marketwatch.com/story/glass-bottles-give-soda-makers-pop-in-down-market-2013-06-20-144854056
SUMMARY: Soda sold in glass bottles, a package generally phased out decades ago, is providing a rare spot of growth in a declining soft-drink industry. Today, glass bottles account for just 2% of the $21.2 billion in soft-drink sales, but glass bottles serve a strategic purpose. They appeal to key demographic groups like millennials, baby-boomers and Hispanics. Above all, soda in glass bottles sells for a steep premium compared with other packages, providing a boost to profits.
CLASSROOM APPLICATION: The real strategy question, here, is: what does it all mean? Why, exactly, are soda makers able to charge a premium for glass bottles and what is the strategy lesson involved? Is the issue a scarcity factor, like for certain luxury goods? Are certain consumer groups less stingy when comparing prices? Or should soda makers simply view the facts as facts and not try to draw any general lessons?
QUESTIONS:
1. Do you drink a lot of carbonated soda? Do you like to drink carbonated soda in glass bottles? Why or why not?
2. What is the appeal of glass bottles? Who do they appeal to? Why?
3. Why is the premium higher for glass bottles, in your view? Why can soda makers charge more for them? What is the general principle at work?
4. Can you think of analogies in other product markets? Why are some small segments more profitable than the large segments? Can these small segments be grown a lot more or are they doomed to remain comparatively small? Can glass bottle save the soda industry, in your view?
Explanation / Answer
1. Although i do not drink a lot of carbonated soda but whenever i drink it, i prefer drinking it in a glass bottle. I prefer a glass bottle ove aluminium can or a plastic bottle as glass bottles have a more appealing factor compared to cans or plastic bottle. Glass bottles are able to create a sense of association due to the nostalgia that it evokes. I first saw a cola in a glass bottle and consumed a cola in glass bottles during my formative years. Thus I associate a carbonated soda with glass bottles and this strong association leads me prefer glass bottles over can or plastic bottles.
2. The appeal of glass bottles lies in its history. As mentioned in the article, soda was first introduced in glass bottles. The appeal of the glass bottles lies in the fact that consumers associate a carbonated soda more in a glass bottle than in a can or a plastic bottle. This is because glass bottle creates a strong sense of association. Many people have the image of a cola in a glass bottle in their memory and this subconscious image causes a strong association.
Glass bottles appeal to millennials, baby-boomers and Hispanics. Glass bottles appeal to the millenials as they consider the glass bottles to be having a trendy or a 'cool' factor. The glass bottles provide a refreshing change for them from the other usual packagings. For baby boomers, glass bottles evoke strong sense of nostalgia. Hispanics like glass bottles as carbonated sodas are largely sold in glass bottles in countries like Mexico and other Latin American countries.
3. As the demand for glass bottles is rising, companies are charging a premium to leverage and capitalize on the opportunity and increase their profit levels and margins. The demand is rising and due to the unique appeal of the glass bottles the manufacturers are able to charge a premium. The general principle at work is that consumers see more value when they consume soda in a glass bottle. This notion of the glass bottles offering higher value to the consumers enables the manufacturers to charge a premium.
4. In terms of analogies in other product markets, think of the automobile industry. Cars like Fiat 500 sell for a premium as they evoke a string sense of nostalgia among many buyers. Several young buyers find the design of a car like Fiat 500 to be different and a refreshing change. The segment is more profitable as Fiat is able to charge a premium on this car as consumers see a value (either in terms of nostalgia for the baby boomers or in terms of being a refreshing change for the young buyers). The small segments will, by and large, remain comparatively small. This is because over the long run, when the emotional purpose of the product is fulfilled, majority of consumers go back to buying more practical and less expensive products.
No, glass bottles cannot save the soda industry. They can merely arrest the decline to some extent. However, sales will decline giving the rising health awareness worldwide.
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