Case_In_Point_7th_Edition_Page001_183_2

+ Coke ®
Case 4: Coca-Cola® is trying to boost profitability domestically by raising its prices. It’s
focusing on the grocery store market, where the volume is high but the margin is low. What
are the economics of raising the prices, and is this a good idea?
So, Coke plans to increase profitability by raising prices. They want to know if that’s a good
idea.
– That’s right.
I know that raising profitability is their main objective. Are there other objectives that I should
be aware of?
– They don’t want to lose market share.
Are we just focusing on Coke and not any of its other brands?
– You can think of all Coke products as one product, Coke. What’s Coke’s current market
share?
– Not relevant to the question.
How much does it cost to make a can of Coke?
– Not relevant to the question.
How many cans does Coke sell to US grocery stores and at what price?
– Coke sold 100 million cans at 23 cents each to grocery stores last year. If prices remain stable,
they expect volume growth of 6%. They want to raise the price to 27 cents per can and they forecast
volume growth of only 1%.
So even though they would be selling 5 million fewer cans of Coke, they’d be making more of
a profit, about 3 million dollars more.
– Profitability would be boosted by what percent?