Problem

Our client is Coca-Cola. Their main product line is Coke, Diet Coke, and C2. Coca-Cola wants to know if they should switch from aluminium cans to plastic bottles. Is this a good idea?

Solution

(Note: The client's / interviewer's words are in italics, and the consulant's words are in bold.)

Consultant: Is the objective for coke to increase profits?

Client: Yes.

Consultant: Is there any other objective?

Client: Yes, to increase market share, along with an increase in profits, if you will.

Do you have any data on Coca-Cola’s current market share?

Yes, currently, they own 40% of the market, Pepsi owns 35% of the market, and other smaller brands own 25%. Out of 40%, Coke, Diet Coke, and C2 take up 25%, and the other coke brands like Dr. Pepper take up the other 15%.

So Coke, Diet Coke and C2 constitute a quarter of the market. Is this the worldwide market or the US market?

Before I proceed, would you like to give any more data, such as what percent of the consumption is caffeinated, and what percentage is decaffeinated?

Sure, let’s assume the 80-20 rule. 80% of the coke consumption is caffeinated.

Does C2 come in a decaffeinated variety?

No, it does not. But I don’t see where you are going with this caffeinated vs. decaffeinated analysis. For the time being, let’s assume that if coke switches completely to bottles from cans, there will be no change to the 80-20 rule.

OK, I will ignore the caffeine equation for this case. Is there any break up available on what percent is coke, what percent is diet coke, and what percent is C2?

Let’s just assume that whatever decision coke takes will affect all the three brands, and their mutual ratios with each other will stay the same.

OK, good. Do we have data on what percent of current packaging is in cans and what percent is in plastic bottles?

Currently, 60% of the liquid is sold in bottles, and only 40% in cans?

And coke wants to switch the other 40% to bottles?

Yes, that is the case? Is it a good idea?

Before we proceed, is it not true that the cans come in two sizes, 8 and 12 oz?

Yes, currently that is the case. But coke also has 8 and 12 oz bottles. So, switching cans to bottles would mean that they will be able to serve the customer segment which buys cans to drink 8 oz or 12 oz.

Thanks. Since coke also sells 20 oz bottles, the decision to switch completely to bottles will help them to segment the market from 8 to 12 oz to one which drinks 8 to 20 oz. Before we get into all this, I would like to segment the market and calculate how big the market is using pen and paper on different age groups. Is that OK?

Sure!

OK, considering that most people drink soda to quench thirst, and for the buzz they get from caffeine, let’s segment the US population of 300 million into four groups:  0 to 15 year olds who have somewhat lower need of caffeine and would prefer to drink a Capri-sun or root beer over coke; 15 to 50 year olds who drink a lot of coke since they have a heavy need for caffeine; 50 to 75 year olds who have a moderate need of caffeine, and 75 year to 100 year olds who have a low need of caffeine.

Next, I would multiply 25 % to calculate the number of coke drinkers for each age group.

Next, I would assume that the 0 to 15 age group drinks at the age of 0.5 drinks per day, or one 12 oz drink every two days; the 15 to 50 age group drinks 3 drinks per day,  the 50 to 75 age group drinks 2 drinks per day, and the 75 to 100 age group drinks 1 drink per day.

Multiplying the # of drinks per day with the # of persons per age groups results in the table as follows.

So, assuming the market price of 50 cents per drink, we get the daily market in millions of dollars as follows:

So, for calculation purposes, Coke / C2 / Diet Coke is a 70 million dollar daily market. Multiplying by 365 days in a year results in 70 * 365 = $25.55 or approximately $25 billion coke market in US.

Good job, the market is indeed $25 billion for coke, diet coke, and C2. Now, as I said, 40% of this market is served through cans, or $10 billion. The rest is served in bottles anyway, and will not be affected by the switch to cans. Now, let’s move on to the remainder of the case.

... Continued on Canning Coke Cans - Solved Case Part II