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The Fixed Price of Coca-Cola from 1886 to 1959 (wikipedia.org)
103 points by dpflan on Nov 23, 2015 | hide | past | favorite | 38 comments

This story is so interesting!

- Lawyers screwing up the Coca-Cola founder on bottling

- Founder strikes back by advertising low bottled prices

- Price stable for 30 years

- They then try to raise price to 6c

- Company discovers that 1-coin pricing boosts sales

- President tries to convince the US Treasury to mint a 7.5c coin (?!?!?)

- Company using alternative strategies to bring the price up like placing empty bottles that some customer has to pay for

- Finally Coca-Cola, company who owns like 80% of vending machines, basically invents a method to reliably deliver change on machines.

Overall, I found it a surprisingly "canonical" story on how startup founders face adversities, how they try to lobby the government, screw up customers, and finally reach a creative solution based on technology that establishes their product!

> President tries to convince the US Treasury to mint a 7.5c coin (?!?!?)

It was because at the time vending machines couldn't make change, and they wanted to raise the price, but doubling (from 5 to 10 cents) would be too much.

Instead they figured out how to make the vending machine make change.

Yes, and there lies the interesting story of National Rejectors, Inc., which for decades had a monopoly on fake coin detectors.[1] Even today, most vending machine coin mechanisms are clones of that design. In a mechanical unit about 4 inches square and an inch thick, coins are tested for size, holes, weight, resiliency, electrical conductivity, and magnetic properties. It's an elegant bit of engineering.

[1] http://rwatts.cdyn.com/download/slug%20rejectors/national%20...

Interesting. Is it cost-prohibitive to circumvent those test parameters, now (or since inception)?

edit: found an article [1] that answers my question.

[1] https://en.wikipedia.org/wiki/Slug_(coin)

Yes, the exclamation marks were more in the line of "WTF". However I need to give credit to them for trying a ... creative... solution

> President tries to convince the US Treasury to mint a 7.5c coin (?!?!?)

Shows you how much power the Coca-Cola company had at the time, that they would even consider trying to make this happen.

There's a funny reference to that in the movie 'Dr. Strangelove'. The one (US Army) guy tells the other (Peter Sellers, acting as an English representative to the US airforce) after he shoots up a Coca Cola vending machine to get a quarter he needs to call the US president to avoid a nuclear war: "Now you're in trouble with the Coca Cola company", all this in the middle of total carnage as if that's an escalation of affairs.

Almost, I believe that the line is "You're gonna have to answer to The Coca-Cola Company" [1]. Brilliant film, one of my all time favourites.

[1]: https://youtu.be/DUAK7t3Lf8s?t=1m49s

Ah right. Close enough... it's been a long time since I've seen it. I really should watch it again.

I wonder why Coca-Cola went with that ~supergenius~ idea instead of just minting their own "redeem for one Coca-Cola" vending machine tokens and selling rolls of 20 tokens for $1.50.

Then, if you need to raise prices to $0.08 each, you can raise the price of a roll to $1.60, or keep it at $1.50 and replace one of the regular tokens with a non-redeemable collectors' token. And you definitely wouldn't have to follow up with a request for an $0.0833333 coin, or a $0.0925 coin, or any other completely useless fractional denomination.

Because it's not about "tokens", it's about "I want a Coke and I have a nickel right now and want to give you that for a Coke". Impulse buyers don't buy rolls of tokens, especially not when $1.50 in 1935 is actually worth about $26 in today's dollars.

Think about how many people use real, actually-issued, legal-tender $2 bills, then think about whether a $0.075 coin would have promoted impulse purchases.

Now think about freemium mobile games. The games that price their in-game purchases in a separate currency make more money than those that price their micropurchases in the user's native currency. People are less apt to make impulse purchases with real money. But if the only thing this stupid token is good for is one bottle of Coke, why not redeem it now?

What if you sold the tokens for $0.08 each, and you sold the rolls at a discount of 6% off, at $1.50 for 20. Maybe you sold a box of 20 rolls for $24. You just made distributing Coke tokens into a profitable business, and broke the tie to the nickel.

Does that sound familiar in any way?

I am not sure if you are serious in your desire to elide how very different having to go to a store and buy tokens to get a drink when you're thirsty is to pressing a button on a phone.

My first point was that even if the Mint actually stamped out some $0.075 coins, there's no way in hell they would have ever survived in general circulation. They would have been useless, except to buy vending machine Coke bottles. Everyone making change would still be using nickels and pennies, and not pricing things with half cents at all, because there was no half cent coin. So no one would actually have one of those coins in any of their pockets, at any time.

I can't even imagine the thought process that might have led to believing that would ever work, at any step in the process.

I am merely describing one thing of the many, many possible things that would have been less colossally stupid, even though it still may be inferior to just dropping the outdated requirement that one coke equals one coin, and it can't be a dime (because that's too much) or a penny (because that's not enough).

If you knew you liked Cokes, you might buy tokens in advance, instead of on impulse, and pass them around as near-cash equivalents. Though I must admit that if I only bought one thing with real cash from a vending machine, it would still be a more frequent occurrence than buying virtual nothings in a freemium game, so it was just a bit insincere. If I had to use tokens, I'd probably never get any Cokes.

The tokens you're suggesting sound like sort of a precursor to today's gift cards. Coke would certainly have been making money on tokens purchased but not spent.

It's very possible that many people used the vending machines as impulse purchase vs planned purchase. My understanding is lots of effort goes into having people make impulse purchases (example: grocery store layout). They would not make as much money from a pre purchase system.

If all else fails, innovate!

    [they] briefly implemented a strategy where
    one in every nine vending machine bottles
    was empty ... this effectively raised the
    price to 5.625 cents.
Instead, charge $0.10 but 44% of the time you get your dime back along with the bottle. Effective price is the same 5.6 cents, but people are excited to get free bottles instead of mad and disappointed.

(This might be illegal, since, it's a lot like gambling, but both versions should be equally illegal.)

The problem was that the vending machines were not set up to take dimes at the time.


They were willing to lobby for a 7.5 cent coin and update their machines to recognize that, so it sounds like they could have handled dimes. The reason they didn't want to switch to dimes is that it was too big of a price jump.

I'm curious how they eventually handled the changeover. I seem to vaguely recall Cokes when they were a dime (in the mid-sixties or thereabouts) in the machine. I also don't ever recall vending machines taking pennies or giving change in pennies--though perhaps they did. I just also have some trouble believing that Coke vending machines pretty much doubled in price over a few years.

I don't think vending machines even now will give pennies in change.

"Levy says the folks at Coca-Cola thought about converting the vending machines to take a dime. But doubling the price was too much. They wanted something in between.

So they asked the U.S. Treasury to issue a 7.5-cent coin."

>In another attempt, The Coca-Cola Company briefly implemented a strategy where one in every nine vending machine bottles was empty.

That is an absurd strategy.

According to the planet money episode, Coke never actually implemented it. They just discussed the merits of it and if it would actually work.

Today they would call that "Growth Hacking". :)

Works for Valve and their crates ..

I wonder if they eventually would have run afoul of gambling laws.

And even more so by Levy and Young's 2004 paper: http://www.biu.ac.il/soc/ec/d_levy/publications/jmcb4.pdf

I love the idea of the blanks in the machine! It's an impressively awful idea. The problem of enraging your customers is obvious of course, but an even bigger issue would be if people could predict when the blanks would appear.

They'd have to randomize them. But then you might get several blanks in a row. But you could still count the total number of blanks in a particular machine like counting cards at blackjack and buy only when opportune. So you'd need to randomize them nationally. But then you'll get machines that are entirely empty and dispense only blanks on any given load!

You could randomize them subject to the constraint that you never have two blanks in a row. That probably would have been the responsibility of the person who loads the bottles into the machine.

Even so, I agree that it's an impressively awful idea. A lot of customers would have been kids who only had one nickel.

> ... an even bigger issue would be if people could predict when the blanks would appear.

Recall that old-fashioned vending machines typically did not have the see-though, glass front panel.

I just meant that if they do the obvious thing and load every ninth slot as a blank, customers will know when it's safe to buy by watching other customers. Nobody would want to be the first!

Here is the original paper, un-mediated by wikipedia.


Attempts to raise prices

The Coca-Cola Company sought ways to increase their prices, even approaching the U.S. Treasury Department in 1953 to ask that they mint a 7.5 cent coin.[1] The Treasury was unsympathetic. In another attempt, The Coca-Cola Company briefly implemented a strategy where one in every nine vending machine bottles was empty.[1] The empty bottle was called an "official blank".[2] This meant that, while most nickels inserted in a vending machine would yield cold drinks, one in eight patrons would have to insert two nickels in order to get a bottle. This effectively raised the price to 5.625 cents.[1] Coca-Cola never implemented this strategy on a national scale.

NPR: Planet Money has a good podcast on this topic

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