Coca-Cola: crisp, refreshing
and, just to be clear, not an NPR corporate sponsor.
We swear, they didn't pay us.
It's also a bizarre economics aberration.
From 1886 to the 1950s —
through continued industrialization,
several wars involving the U.S.,
and prohibition — a Coca-Cola cost 5 cents,
and frankly, that is really weird.
Ask and any economics expert and they'll tell you,
Prices usually change over time.
So how did Coke keep their price the same for so long?
Well, it has to do with two lawyers from Chattanooga.
In 1899, those lawyers pay a visit
to the president of Coca-Cola,
a guy named Asa Candler.
And they tell him,
"We're interested in this new thing."
"Selling drinks in bottles."
They want to buy the bottling rights.
The way the story goes is Candler just said, "You're out of your mind,
it's not going to work.
Coke is a soda fountain business."
And they said, "Well, look, you know.
Give us the rights anyway."
And, so, he said, "Yeah, OK, I'll sell you the syrup at, uhh, 90 cents a gallon."
In agreeing to do that, Candler did something that companies never do.
He agreed to sell his product, the syrup, to bottlers for a fixed price forever.
The contract had no end date.
Now, this was about to be a problem for the Coca-Cola company because now any increase in
price down at the corner store, that doesn't help them.
The profit goes to the bottlers and the retailers.
In fact, if they raise the price, it hurts Coke.
If Coke goes up to a dime, fewer people are going to buy Coke,
and Coke sells less syrup.
So, if you're Coca-Cola, you want somehow to keep the price down at 5 cents.
What do you do?
Well, one thing you do is you blanket the entire country with ads for 5-cent Coke.
This was like, so clutch.
Coca-Cola is taking control of pricing away from the bottlers and the corner stores and
anyone selling a bottle of Coke for more than 5 cents was just going to look like a jerk.
Coca-Cola was finally able to renegotiate their contract with the bottlers in 1921,
and they might have changed the price then, but they couldn't.
They were trapped.
Coca-Cola said early on, "A Coke costs a nickel."
It put it on billboards and ads and painted it on buildings, and people got used to it.
It felt like a promise.
In a way, all prices kind of feel like a promise.
Once we see a price on something we have this feeling
that it's some innate property of the thing.
That it shouldn't change.
And so the ads that Coke had run so prominently ended up trapping them.
The thing that finally undid the nickel Coke was inflation.
The price of ingredients started to go up.
But to this day, people feel very strongly about a fixed price for Coke.
Back in 1999, the CEO suggested charging more for vending machine Coke on hot days
and was met with widespread outrage.
Whether it's a nickel or a dollar, people have a way of getting used to their prices.