Almost forty years ago one of the most iconic companies in the world made a huge blunder—Coca Cola ditched Coke. The irony is that the decision was based upon sound analysis!
Today it appears that analytics (and increasingly AI) is seen as the solution to every problem. Don't get me wrong I am great fan of analysis - I like nothing more than curling up with a warm spreadsheet. However, even sound analysis can be fatally flawed; this is where the story of New Coke comes in. Read on...
The battle for supremacy in the cola wars has been going on for decades as Coca-Cola and PepsiCo have slugged it out for every point of market share. This was a heavyweight fight that made the “Rumble in the Jungle” seem like a little local skirmish. By 1985, Coca-Cola, while still the overall market leader, had seen its market share decline for fifteen straight years. Pepsi had taken the lead in supermarket sales in the 1970s and was closing the gap in overall sales. If Pepsi could persuade one large customer, such as McDonald’s, to switch to its products, it would take the top spot.
Pepsi’s success came on the back of an aggressive marketing program that positioned Pepsi as a more youthful and cooler product for “The Pepsi Generation.” Integral to the marketing campaign was The Pepsi Challenge, a blind taste test that consistently demonstrated that customers preferred the taste of Pepsi to that of Coke.
Coca-Cola had a problem, but CEO Robert Goizueta had a solution—a new formula for Coke. A series of three-way taste tests in twenty markets showed the new formula soundly beating Pepsi with the 99-year-old original Coke trailing in last place. The potential market share gains from the new formula were estimated to be worth $760 million in additional sales (in 1985 $ that was lot).
The data was convincing so the decision was made—New Coke would launch on April 23, 1985, replacing the iconic original. As news of the launch leaked, Pepsi responded by taking out full-page newspaper advertisements with the mocking headline, “The Other Guy Just Blinked.”
Coke was not deterred and the launch went ahead, but a backlash was building. Within weeks, the company had received 400,000 complaints; call volume on Coke’s customer service hotline rose from 400 a day to 1,500 a day, and one angry customer formed a group called Old Cola Drinkers of America to campaign for the return of the original formula.
In the face of mounting pressure and lackluster sales, the company announced on July 10 that the original formula would be brought back—only 79 days after New Coke’s launch.
Coke admitted it was wrong; one of America’s most successful companies led by one of its most admired CEOs had the courage to admit that one of the biggest bets in consumer marketing history had spectacularly failed.
Rather than a marketing disaster as many have concluded, the story of New Coke illustrates two very important points regarding the effective use of analytics. Forty years on the lessons remain as relevant today as they did in 1985!
Sound analysis does not always lead to the correct decision. All the data supported the assertion that Coke was losing the cola wars to Pepsi. All the pre-launch data showed that consumers preferred New Coke to both Pepsi and Old Coke.
Managers need to have the courage to admit that they made the wrong decision and take corrective action rapidly. Coke did and by the end of 1985 original Coke was outselling Pepsi again, a position it has maintained ever since.
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