Intro
In this episode of Planet Money, titled “Why the price of Coke didn’t change for 70 years (classic),” the hosts delve into the mystery of why the price of Coca-Cola remained a nickel for an astounding 70 years. They explore the economic and marketing factors behind this unusual phenomenon and uncover the intriguing story behind it.
Main Takeaways
The Strategic Marketing Decision
- Coca-Cola’s price remained a nickel from 1886 to 1959, a total of 70 years, which is unusual for prices to remain constant for such a long time.
- This is despite the occurrence of significant economic events such as wars, prohibition, and lawsuits.
- The reason for this is not due to cost-cutting measures or innovations by Coca-Cola, but rather a much stranger story.
- Daniel Levy, an economist, discovered this mystery and sought the help of Andrew Young, a research assistant, to investigate it further.
- The Coca-Cola archives held the answer to this mystery, which was not due to the secret formula for Coke, but rather a strategic marketing decision by Coca-Cola.
The Origins of Coca-Cola’s Pricing
- Coca-Cola started as an affordable product to attract customers in the late 1800s.
- The first sale was in Atlanta in 1886 for five cents a glass as a soda fountain drink.
- Coke stayed a nickel for 70 years due to a contract with bottlers that fixed the price of syrup forever.
- Coca-Cola advertised heavily with “5 cents” prominently featured to keep the price down and take control over pricing away from bottlers and corner stores.
- Increasing the price would hurt Coca-Cola as it would result in fewer people buying it and the company selling less syrup.
The Challenges of Increasing the Price
- Coca-Cola was originally sold for 5 cents due to effective advertising campaigns that made it hard to increase the price.
- Soda fountains couldn’t charge more than a nickel, but could use smaller glasses or skimp on syrup to control how much people were getting for it.
- Coca-Cola renegotiated its contract in 1921 and could have raised the price, but didn’t due to advertising campaigns and vending machines that only took one coin (a nickel).
- Coca-Cola tried to get the US Treasury to issue a 7.5 cent coin to solve the problem, but it never happened.
- Coca-Cola came up with a “hair-brained” single coin plan to charge more without adjusting vending machines.
The End of the Nickel Coke Era
- Every 9th bottle in the vending machine would be an empty bottle, called an official blank.
- The unlucky 9th person would have to put in a second nickel.
- Inflation was the death knell for the nickel coke, after the US went off the gold standard.
- Nickel coke persisted for 70 years as the longest documented sticky price in modern history.
- Coca-Cola was forced to push volume to be more profitable as it couldn’t adjust its price.
The Price of Coke Today
- Coca-Cola bottling operations were present on every continent except Antarctica during World War II.
- Today, Coke costs a dollar or more at a vending machine.
- The original Nickel Coke can still be found in a two-liter bottle for $1.29.39 in the grocery store on sale.
- The price of Coke has changed even more since the publication of the episode in 2012.
Summary
Coca-Cola’s Strategic Marketing Decision
For 70 years, Coca-Cola maintained the price of its iconic beverage at a nickel, defying economic events and market forces. The reason behind this extraordinary price stability was not cost-cutting measures or innovations, but rather a strategic marketing decision by Coca-Cola. By fixing the price of syrup forever through a contract with bottlers, Coca-Cola took control over pricing away from bottlers and corner stores, ensuring the affordability and accessibility of its product.
The Challenges of Increasing the Price
Despite the desire to increase the price of Coca-Cola, various obstacles stood in the way. Effective advertising campaigns and the prominence of “5 cents” in Coca-Cola’s marketing made it difficult to raise the price. Soda fountains, which were a significant sales channel, were limited in their ability to charge more than a nickel. Coca-Cola even attempted to get the US Treasury to issue a 7.5 cent coin, but the plan never materialized. Ultimately, Coca-Cola resorted to a unique solution involving empty bottles and a second nickel to charge more without adjusting vending machines.
The End of the Nickel Coke Era
Inflation and the US going off the gold standard marked the end of the nickel coke era. The persistent price of a nickel for 70 years became unsustainable, and Coca-Cola had to focus on pushing volume to maintain profitability. Despite this change, Coca-Cola’s presence and popularity continued to grow, with bottling operations expanding globally, even during World War II.
The Price of Coke Today
In the present day, the price of Coke has increased significantly from a nickel. Vending machines now charge a dollar or more for a can of Coke, reflecting the changing economic landscape and inflation. However, the original Nickel Coke can still be found in a two-liter bottle for a discounted price at grocery stores. It’s worth noting that the price of Coke has continued to change since the episode’s publication in 2012.
Conclusion
The story of why Coca-Cola’s price remained a nickel for 70 years is a fascinating tale of strategic marketing decisions, advertising campaigns, and the challenges of adjusting prices in a changing economic landscape. Despite the end of the nickel coke era, Coca-Cola’s enduring popularity and global presence demonstrate the brand’s resilience and ability to adapt to evolving consumer preferences and market dynamics.