Last time you bought a Coke, did you look at the price, or did you just grab one off the shelf and pay for it? Coke is available in more packaging options than any other drink. Until recently I never paid much attention to the price, my decision was based on whether I wanted a big or small bottle or a box of cans. I grab what I want and pay at the check out.
This kind of impulse buying is known as 'price indifference'. The price does not play a role in my decision of how I buy my coke, but perhaps it should! I was recently buying coke in my local supermarket, and I noticed that in smaller print below the price tag, is a 'price per litre'. It got me thinking, what if I had a streetonomic look at buying coke from my supermarket. This streetonomic study was conducted on a Saturday night in a major supermarket chain located in Sydney Australia.
I walked up and down the coke section of the soft drink aisle, and took note of the packaging options and their price per litre. We can not comment on how the supermarket decides to set their prices. This 'study' should not be taken as a reflection on either the supermarket or the coca cola company. My findings are shown in the table below:
On this particular night, it was possible to buy the same drink at prices ranging from $1 per litre, all the way up to $7.40 per litre. Not only was it the same drink, but it was being sold in the same super market, in the same aisle, and all the packages were on shelves right next to each other! It should not be possible, but some people are being charged 740% more than others (per drink) for the same drink, just because they chose the wrong bottle size!
The first thing I wanted to do was put together an arbitrage strategy using supermarket coca-cola. A 740% risk free return is something I'd happily do all day. Obviously you can't repackage and resell the coke (at least not legally), so alas my dreams of instant wealth are still on hold.
I understand that there is a convenience factor so we pay more when we buy in smaller bottles, but this does not explain the pricing of cans. Why would anyone pay $12 for a pack of 10 cans, when they can buy 2 6 packs and get 12 cans for $10. The fact that the supermarket is able to sell in this way shows that I am not the only one who is price indifferent when buying coke.
The supermarket has shown me that we are either indifferent to price, or are willing to pay a hefty premium for the coke to be in a glass bottle. To s00ee if we are truly price indifferent, I decided to look at how much different shops charge for the identical coke product. I decided to look at the 600 ml bottle (served out of fridge so it's ready to drink). This is what I usually buy on impulse for an instant fix of sugar and caffeine.
This part of the study was conducted in a part of Sydney known as Bondi Junction. It is a very small area consisting of a large number of shops. It took about an hour to walk through the junction and visit a few shops to look at the prices, my findings are shown below:
On the same day, within 10 minutes walking distance, you could buy the identical product for anywhere ranging from $3.00 to $4.50 (and that is based on the 4 locations I decided to visit). My hypothetical arbitrage opportunity to make 150% would require the petrol station to buy coke from me, at $4.50, after I've bought it from the discount store for $3.00. I didn't try this, so if you discover it is possible, please let me know.
According to my streetonomic study, we are price indifferent when it comes to buying coca cola, or this would not be possible. If people cared about the price they were being charged, the only place that would make any sales would be the discount store. The other shops would not be able to make any sales until they lowered their price to $3.00
If I am filling up the car, and I buy a bottle of coke at the same time, I'll just pay the extra $1.50, I'm not going to go out of my way to the discount store to save it. So I will remain price indifferent because of the convenience and impulse factors
If I am in the supermarket, I will pay attention to the price per litre. On the night I conducted the supermarket study, I originally took two 1.25 litre bottles off the shelf. They fit in the fridge easily and 2 bottles would be enough for 6 people (we had visitors coming over that night). After looking at the price per litre, I replaced them with one 2 litre bottle. I was not paying more than double the price per litre, even if it did fit in my fridge a little easier.
What do you think? Will you pay attention to the price or are you going to grab whatever package seems best at the time?