|Cola Prices Pop Up|
|Subject||Assumptions, strategy, and equilibrium|
|Key Words||Price, marketing, strategy, profitability, volume, consumers, demand, consolidation|
PepsiCo is following Coca-Cola in raising the price of concentrate to bottlers by 7 percent in 2000. This is double the normal increase. However, PepsiCo will give greater marketing support payments to bottlers.
This strategy is new. Recently, the companies have been foregoing profit to increase volume. Now they are trying to increase profitability, but also volume. The price of a can of Pepsi is expected to rise by a penny on average, although supermarkets may raise the price of a twelve-pack from as low as $1.99 to $2.49 or $2.79. The question is how will consumers react? Coke and Pepsi both experienced a fall in demand in the spring of 1999 when retailers raised prices, although demand has since bounced back. What happens in 2000 will depend much on the marketing program.
Some believe that the higher concentrate prices may cause some bottlers to sell their businesses. The industry could well become more consolidated.
(Updated January 1, 2000)
|Source||Constance L. Hays, "Following Coke, Pepsi Will Raise Prices," The New York Times, November 22, 1999.|
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