The first thing that the Coca-Cola company must do is select the pricing objective they believe will be most effective in distributing their brand to consumers. Coca-Cola uses market-skimming pricing to do this. They use marketing-skimming as there is a sufficient number of buyers that have a current high demand. The unit costs of producing a small volume are not so high that they cancel the advantage of charging what the traffic will bear; the high initial price does not attract more competitors to the market, and the high price communicates the image of a superior product. Coca-Cola aims to be the product-quality leader in the market, its nearest competitor being Pepsi.
The price of Coca-Cola is quite inelastic to demand as there is a large degree of consumer sovereignty towards the product. However, there are many competitors in the market so a substantial increase or decrease in price will have an effect, but not a huge one. Coca-Cola is a "market leader" so a slight increase in price won't have a huge impact on consumer demand because there is a fair amount of loyalty to the company. Other factors associated with lower price sensitivity of Coca-Cola:.
1. The product is distinctive.
2. Buyers cannot easily compare the quality of substitutes.
3. The expenditure is a smaller part of the consumer's total income.
4. The product is assumed to have more quality, prestige, or exclusiveness.
Coca-Cola makes some attempt to measure their demand curves by statistically analyzing past prices; quantities sold and other factors to estimate their relationships. The information is either longitudinal or cross-sectional. Coca-Cola analyses its main competitor's costs, prices and offers, that being Pepsi. Often you will see Coca-Cola and Pepsi using similar commercials, often with celebrities to promote their product. Regarding cost, Coca-Cola and Pepsi are both fairly evenly priced in the market, Coca-Cola often just a little bit more due to its popularity and the assumption that it has more quality and prestige.
