Monday, May 10, 2010

Customized Coke

Today's Wall Street Journal reports on the design and testing of Coca-Cola's new Freestyle machine. This new high-tech soda fountain enables the customer to design their own drink. For instance, as the article mentions, you can create a Caffeine-Free Diet Raspberry Coke if you wish.

The technology has been difficult to develop, but the early tests show promise. According to Coca-Cola, beverage sales at the Firehouse Subs restaurants in Atlanta, where the machine is being tested, have risen 13%. Overall revenue is up 7.6%. The Freestyle machine offers an important opportunity for Coca-Cola, since soft drink sales in the United States have been decreasing for the past five years.

The article brings to mind an important strategic issue for a firm such as Coca-Cola. In many instances, when a firm's core business begins to erode due to societal trends, company leaders look to diversification to address their woes. For Coke, that might mean selling more waters and other healthier beverages given concerns about the caloric content of its soft drinks. However, companies need to be careful not to accelerate the demise of their core business through inattention. Moreover, innovative firms do not simply accept a decline due to societal trends. They find ways to rekindle demand. The Freestyle machine may be just one of those innovations that helps revitalize the firm's core soft drink business.

One thing to note: The article mentions that the Freestyle machine costs 30% more than traditional fountains. However, Coca-Cola may wish to reduce the price premium that they are commanding for the high-tech fountain if they indeed find that the machines generate double-digit increases in soda revenue. Why not discount the "hardware" to sell more "software" after all?

No comments: