The Economics Behind Chota Coke – Coca-Cola India’s Rs. 5 Gamble
The Chota Coke initiative was based on offering 200 ml Coca-Cola bottles at a highly affordable price of Rs. 5, especially targeting non-urban consumers. This was meant to replicate the sachet model of FMCG products, making the brand accessible to the masses.
Here's how the cost structure breaks down:
| Cost Element | Amount (Rs.) | % of Retail Price |
|---|---|---|
| Retailer’s Margin | 1.00 | 20% |
| Coca-Cola’s Margin | 1.00 | 20% |
| Operating Cost (Opex) | 3.00 | 60% |
| Total Selling Price | 5.00 | 100% |
Implication:
- The net margin for Coca-Cola is just Rs. 1 per bottle.
- Any increase in costs (raw material, logistics, inflation at 10%, etc.) could further compress this margin.
- The packaging cost for a small bottle (33%) is double that of the larger bottle (16%).
⤷ Comparative Pricing: Chota Coke vs. Bada Coke
| Product | Volume (ml) | Price (Rs.) | Price per 100 ml |
|---|---|---|---|
| Chota Coke | 200 ml | Rs. 5 | Rs. 2.50 |
| Bada Coke | 300 ml | Rs. 7 | Rs. 2.33 |
| Bada Coke (offer) | 300 ml | Rs. 6 | Rs. 2.00 |
Observation:
- Chota Coke is the most expensive per ml, despite being the cheapest product in absolute terms.
- Economies of scale make Bada Coke a better value offering per unit volume.
⤷ Step-by-Step Calculation Process
1. Total Retail Price: Rs. 5
2. Retailer’s Margin: Rs. 1
Coca-Cola gives Rs. 1 to the retailer to ensure motivation and product push.
3. Coca-Cola’s Margin: Rs. 1
What remains with Coca-Cola after paying the retailer and deducting operational cost.
4. Operating Costs (Opex): Rs. 3
This includes:
- Manufacturing
- Packaging (33% of retail price for small bottles)
- Distribution
- Advertising (e.g., Aamir Khan campaigns)
5. Effect of Inflation (10%)
If input costs rise by 10%, the Rs. 3 operational cost becomes Rs. 3.30:
- New total cost = Rs. 1 (retailer) + Rs. 3.30 = Rs. 4.30
- Margin left for Coke = Rs. 0.70 (↓30%)
- Profitability becomes unviable without increasing price or reducing costs.
⤷ Strategic Dilemma for Atul Singh
Core Dilemma:
How to balance volume growth with sustainable profitability?
⤷ Options Available:
-
Increase the Price
- Risk: Losing the psychological advantage of the Rs. 5 price anchor.
-
Exit the Chota Coke Product
- Risk: Lose rural market penetration and consumer base expansion.
-
Continue at Rs. 5 and Bear the Loss
- Risk: Unsustainable in the long term with rising costs and low margins.
-
Reduce the Volume to Maintain Price
- E.g., Offer 180 ml instead of 200 ml for Rs. 5.
- Risk: Consumer backlash or perception of reduced value.
⤷ Why Did Coke Introduce Chota Coke?
- Inspired by FMCG sachet strategy to penetrate rural markets.
- Rs. 5 was a psychologically sweet spot—affordable, simple (coin denomination), and accessible.
-
Aimed to:
- Increase visibility in rural/semi-urban areas.
- Build brand loyalty early.
- Fight competition from local/Pepsi brands.
⤷ Final Takeaways
- Coca-Cola’s Rs. 5 strategy won the market temporarily but sacrificed long-term profitability.
- A balanced approach involving price restructuring, cost optimization, and product redesign may be required.
- The sustainability of low-margin strategies in price-sensitive markets depends on volume scalability and cost control.
