WEEK 6 Pleas help, Price elasticity of demand for Coca Cola and its pricing stra
ID: 2806820 • Letter: W
Question
WEEK 6
Pleas help,
Price elasticity of demand for Coca Cola and its pricing strategy. Coca-Cola has been focusing on selling more 7.5-ounce (222 ml) cans in displays near supermarket checkout lines. Previously, Coke had relied more heavily on 20 ounce (592 ml) bottles displayed in the beverage sections of supermarkets. An article in the Wall Street Journal noted that, "The smaller 7.5 ounce mini-cans are typically priced at five to seven cents an ounce, compared with three or four cents an ounce for 12-ounce cans." It quoted a Coca-Cola executive as arguing that consumers "don't care about the price. They will pick it up if you put Coke within arm's reach." 1. What is the Coca-Cola executive assuming about the price elasticity of demand for Coke? Briefly explain. 2. If the executive is correct, what will the effect of this marketing strategy be on the firm's revenues from selling Coke? Briefly explain. 3. Why did the executive believe that having the cans "within arm's reach" in the checkout line was important? Could this positioning have an effect on the price elasticity of demand? Briefly explain.Explanation / Answer
1. As the Coca-Cola executive says that consumers don't care about the price and they will pick the Coke if it is within arm’s reach means he is assuming that the demand for Coke is inelastic where demand for a product does not increase or decrease with the increase or decrease in its price.
2. If the Coca-Cola executive is correct, the effect of this marketing strategy should increase the firm’s revenue from selling the Coke. The revenue a firm is comes from quantity sold multiplied by price of the product therefore if the price of the Coke is constant and number of quantity sold has increased then it will definitely increase the revenue of the company.
3. The executive believed that having the cans “within arm’s reach" in the checkout line was important because it will increase the visibility of the product to its consumers and it can trigger a desire to buy the product. This positioning strategy will have an effect on the price elasticity of demand which can be verified by increasing and decreasing the prices of product at same position and looking at the corresponding changes in the quantity of sale of the product.
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