Pricing Decisions Coca Cola Product

Pricing Decisions
Describe the strategic implications that would need to be considered in setting a price for that product
The public company selected for this analysis is Coca Cola Company. The identified product of the company is the Coca-Cola 20 fl oz bottle, which can be typically obtained from a convenient store, vending machine as well as super market. There are strategic implications that would need to be taken into consideration in setting the price of this particular product, which include the following:
1. Competition in the market
Rivals in the market have a significant impact on pricing decisions. Imperatively, the comparative market shares of market rivals impacts whether an organization can set prices independently or whether such decisions take into account the direction taken by competitors. In this case, Coca Cola Company faces intense competition from brands such as Pepsi and Dr. Pepper who have also unveiled similar products. Despite its dominance in the market, the pricing decisions for this products is determined by the direction taken by competitors because the consumers might opt for the substitute products (Schindler and Schindler, 2011). For instance, the competition between Coca Cola and Pepsi is intense and one that has prevailed for several years. The companies manufacture beverage products that are similar and therefore the pricing decision to set the price of such a product has to consider the direction taken by the rival in order to ensure that it does not have an adverse impact on the company.
2. Costs
Another strategic implication to consider is cost. It is important to note that a business cannot disregard the cost of production or purchasing a product with respect to setting the product selling price. This is largely for the reason that in the long run, Coca Cola may experience losses or even failure if it sells the product for a lesser price than the cost incurred for production or if the gross profit generate is unable to cater to the fixed expenses (Schindler and Schindler, 2011).
3. The position of the market for the product
Strategically, the market state of affairs of the market for the product also makes a determination for the product pricing decision. This is in the sense that if the product has a high demand level in the market, but there is a short supply of such similar products, them the price set by the company can be relatively high (Schindler, 2011).
4. The bargaining power of consumers in the targeted market
The pricing decision of the product is also affected by the consumer bargaining power. It is imperative to consider the purchasers of the product and whether they have any bargaining power over the price that is set. If the consumers can easily purchase similar beverages in the market, then they have bargaining power (Schindler, 2011).
Determine whether a market-based pricing approach or a cost-based pricing approach to setting the product price
Cost-based pricing encompasses the calculation of the cost of the product and thereafter including a percentage mark-up to make a determination of the product price. It can either be full cost pricing or direct cost pricing. This is a pricing approach used by corporations to maximize their profits. On the other hand, market-based pricing approach also referred to as competition-based pricing takes into account instances where a corporation sets a product price for its goods on the basis of what competitors are retailing a similar product for. If market rivals are pricing their products at a price that is lower, then the decision lies with the company on whether to price their products at a higher or lower price, reliant on what they purpose to accomplish. A key benefit of this approach is that it evades price competition that may be detrimental to the company (Paul, 2008). In this case, the pricing approach selected for the Coca-Cola 20 fl oz bottle is the market-based approach.
Explain the rationale behind choosing the pricing approach
The rationale for setting this pricing approach is associated to the fact that Coca Cola Company makes use of market situation to price its different product items in order to meet the competition and contenders against major players such as Pepsi and Dr. Pepper. Therefore, the company values and sets prices for products around an equivalent level of competition. In this manner, the essential approach taken by Coca Cola is market price owing to the reason that the company trusts that the costs incurred ought not to be exceedingly low nor exceedingly high than the value the rivals in the market are charging from (Jindal, 2017).Furthermore, there is also the rationale that owing to the availability of a wide range of similar products, the pricing is done in accordance to the market and also the geographical segment. The pricing strategy is centered on competitors’ pricing such as Pepsi, which is the direct competitor to Coke. Furthermore, the beverage market in which Coca Cola operates in is deemed to be an oligopoly market, in that there are few sellers and numerous buyers, and this they form agreements to ascertain mutual balance in pricing between sellers (Bhasin, 2017).
Identify the costs that the group thinks would be considered in setting the product price and come up with a sample cost structure for the product (make it as realistic as possible)
A comprehension of cost ascertainment is pivotal to make certain that these decisions are founded on sound and reliable estimates and approximations of cost. These estimates have to be sensibly precise if a business venture is to attain success through the products or services in the market. In accordance to Shamar (2006), the component of cost can be incorporated to provide the following kinds of cost. First, there is prime cost which is delineated as the accumulation of direct material, direct labor and direct expenses. The second aspect is the factory cost, which is attained by the summation of the prime costs and the factory expenses. Lastly, there is the manufacturing cost, which is obtained by the combination of the factory costs and the administrative expenses. Taking this into consideration, the total cost is computed by adding the prime costs, the factory costs and the manufacturing costs (Shamar, 2006). The following are the costs that we have identified that we deemed need to be taken into consideration while in the process of setting the price of the product. These costs are as follows:
Direct materials – This includes the costs of the components contained in the coca cola drink, which are sodium, carbohydrates, and sugar. It also includes the price of the bottle and the cap and also the wrapper for the wrapper.
Direct labor – This is the costs incurred in paying employees who partake in the production of the soda and the packaging.
Manufacturing costs – These are the costs incurred by the company in the factory for the production of the products, such as utilities, and equipment costs.

The following is a sample cost structure for the product in question. The assumptions made have attempted to be as realistic as possible.
Total Costs = Direct Materials + Direct Labor + Direct manufacturing expense
Calculate a price for the product
Item
Cost

Cap cost
$0.10

Bottle cost
$0.20

Label cost
$0.05

Production cost
$0.65

Ingredient costs
$0.25

Total Cost (excluding labor, marketing and tax)
1.25

Selling Cost
$2.45



Defend your product price and related cost structure
The cost structure included in this calculation is sensible owing to the fact that the total costs incurred by Coca Cola in the production of its products takes into account the direct costs incurred for the product, which includes the direct material and the direct labor of the personnel partaking in the production of the soda. In addition, there are direct expenses in the form of manufacturing costs, which includes the utilities such as electricity used in soda production. The total cost given for the Coca-Cola 20 fl oz bottle is $1.25. This takes into account the direct material costs such as the cost of the cap, the cost of the bottle, the cost of the wrapper label, and the costs of the ingredients such as sugar and sodium. It also includes direct expenses in terms of production costs. It is imperative to note that some costs have not been included and these comprise of direct labor, marketing and tax. Imperatively, these are costs that are incurred as part of the retailing of the product. It is impossible to ascertain the precise labor cost for one particular bottle of soda as they are manufactured in bulk. The same case applies for the marketing costs and the tax costs, which apply for the bulk production as a whole.



References
Jindal, S. (2017). Coca Cola Pricing Strategy. Linked In. Retrieved 25 September, 2018 from: https://www.linkedin.com/pulse/coca-cola-pricing-strategy-shashank-jindal
Paul, J. (2008). International marketing: text and cases (Vol. 2). New York: Tata McGraw-Hill Education.
Schindler, R. M., & Schindler, R. (2011). Pricing strategies: a marketing approach. New York: Sage.
Shamar, P. C. (2006). A Textbook of Production Engineering: S. Chand & Company Ltd. Ram Nagar, New Delhi.