New Retail Strategies

Wharton School - University of Pennsylvania
Published: August 31, 2011

Retailers looking for growth in today's economy might pick up a lesson or two from Coca-Cola's Freestyle vending machines. First tested in 2009 and now rolling out full force nationwide, the futuristic touch-screen machines offer customers 125 different beverage choices, from flavored Dasani waters and sports drinks to Diet Cherry Coke. Customers can even create their own combinations -- Fanta Orange and vanilla cream soda, anyone? -- or try flavors unavailable elsewhere, like Raspberry Coke. This month, the company launched apps for Facebook and smart phones that let customers mix and name their own drink. Plans are that one day the apps will spit out a bar code for customers to scan at Freestyle machines and automatically dispense their own personalized blend.

Coca-Cola is dispensing more than just flavored water, says Wharton marketing professor Jerry Wind. The company is also creating excitement, tapping into social networks, giving people a chance to customize their own product and empowering customers in ways that a traditional vending machine can't match. Those are important retail strategies in today's economy, where one out of five people in the United States is either unemployed or underemployed and consumers remain reluctant to spend.

Since the recession began in 2008, retail in the U.S. has split into "two extremes," Wind notes. On one hand, there is the luxury market, which caters to a small segment of wealthy people unaffected by economic ups and downs. Aside from a drop-off at the beginning of the recession, when luxury spending seemed ungainly, this segment still spends. On the other hand are discount brands, which have grown their market share as consumers scrimp and trade down to cheaper products. Brands that fall between those two categories will continue to be squeezed, Wind says, and will need to create excitement to make their product stand out.

In many ways, it's a retail story that never changes, says Wharton marketing professor Leonard Lodish: "Retailers that really solve problems and delight consumers in ways that other retailers can't ... do very well." 

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