Coca-Cola has been focusing on selling more 7.5-ounce cans in displays near supermarket checkout lines. Previously, Coke had relied more heavily on 20-ounce bottles displayed in the beverage sections of supermarkets. An article in the Wall Street Journal noted that, "The smaller
7.5 ounce mini-cans are typically priced at five to seven cents an ounce, compared with three or four cents an ounce for 12-ounce cans." It quoted a Coca-Cola executive as arguing that consumers "don't care about the price. They will pick it up if you put Coke within arm's reach."
a. What is the Coca-Cola executive assuming about the price elasticity of demand for Coke? Briefly explain.
b. If the executive is correct, what will the effect of this marketing strategy be on the firm's revenues from selling Coke? Briefly explain.
c. Why did the executive believe that having the cans "within arm's reach" in the checkout line was important? Could this positioning have an effect on the price elasticity of demand? Briefly explain.