Coke and Pepsi bottlers make the most margin from their sales at vending machines and convenience stores. These channels target the customers who are willing to trade in high price for convenience and immediacy in satisfying their want. The most common packaging option sold at convenience stores is the 20 Oz bottle sold at $1.29, more expensive that the 2 liter bottle pricing for the same brand in supermarkets.
WSJ reports that the bottlers are seeing a fall in sales in the convenience stores. The cited reasons include health concerns and softening economy. To stem falling sales, the bottlers have introduced multiple packaging, 12, 16 and 24 Oz bottles. The 16 oz Coke sells for $0.99 and 24 oz sells for $1.49.
The marginal cost per bottle is fairly independent of the size since the bigger cost component is packing and distribution. So the 30 cent pricing difference between 20 oz and 16 oz bottles is a bigger drop in margin to the bottler. Yet they chose to introduce new sizes instead of dropping the pricing on 20 oz bottles.
This indicates their understanding of consumer behavior and their reactions to economic weakness and health concerns. By replacing one size bottle with two new sizes and a large price differential ($0.99 vs $1.49), the Coca Cola bottlers are nudging the consumers to prefer the lower prices and smaller sized bottle. The price per oz for the consumer is the same on these two sizes and hence there is no rent to the consumer to pick the bigger size. They do not expect to sell many 24 oz bottle. The onl role of 24 oz bottle is to sell the 16 oz bottle.
Pepsi's tactic is slightly different from Coke's. Pepsi retained the 20 oz bottle and introduced 12 and 16 oz bottles. Between these two they cover the entire spectrum of packaging for studying market reaction. The two sure will be watching each other's sales results and will soon converge on the winning combination.
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