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CASE-STUDY
THE NEW COKE Battered by competition from the sweeter Pepsi-Cola, Coca-Cola decided in 1985 toreplace its old formula with a sweeter variation, dubbed the “New Coke”. Coca-Colaspent $4 million on market research. Blind taste tests showed that Coke drinkers preferred the new, sweet formula, but thelaunch of New Coke provoked a national uproar. Market researchers had measured thetaste but had failed to measure the emotional attachment consumers had to Coca-Cola. There were angry letters, formal protests and even lawsuit threats, to force the retentionof “The Real Thing”. Ten weeks later, the company withdrew New Coke andreintroduced its century-old formula as “Classical Coke”, giving the old formula evenstronger status in the marketplace. Questions: 1. Managers try to stimulate sales by modifying the four-Ps --- Analyze.2. Customers are not always willing to accept an improved product --- Comment.
HISTORY
1985 - The Coca-Cola Company made what has been known as one of the biggestmarketing blunder. They stumbled onto a new formula in efforts to produce diet Coke.They put forth 4 million dollars of research to come up with the new formula.The decision to change their formula and pull the old Coke off the market came about because taste tests showed a distinct preference for the new formula. The new formulawas a sweeter variation with less tang, it was also slightly smoother. Robert Woodruff'sdeath was a large contributor to the change because he stated that he would never changeCoca-Cola's formula. Another factor that influenced the change was that Coke's marketshare fell 2.5 percent in four years. Each percentage point lost or gain meant 200 milliondollars. This was the first flavor change since the existence of the Coca-Cola company.The change was announced April 23, 1985 at the Vivian Beaumont Theater at the LincolnCenter. Some two hundred TV and newspaper reporters attended this very glitzyannouncement. It included a question and answer session, and a history of Coca-Cola.The debut was accompanied by an advertising campaign that revived the Coca-Colatheme song of the early 1970s, "I'd Like to Buy the World a Coke"The change to the world's best selling soft drink was heard by 81 percent of the UnitedStates population within twenty-four hours of the announcement. Within a week of thechange, one thousand calls a day were flooding the company's eight hundred number.Most of the callers were shocked and/or outraged, many said that they were consideringswitching to Pepsi. Within six weeks, the eight hundred number was being jammed by sixthousand calls a day. The company also fielded over forty thousand letters, which wereall answered and each person got a coupon for the new Coke. Many American consumersof Coca-Cola asked if they would have the final say. When Pepsi heard that the Coca-Cola company was changing its secret formula they said that it was a decision that Pepsitastes better. Roger Enrico, the president and CEO of Pepsi-Cola wrote a letter to everymajor newspaper in the U.S. to declare the victory.Coca-Cola management had to decide: Do nothing or "buy the world a new Coke". Theydecided to develop the new formula. 1985 - July 10, eighty-seven days after the new Coke was introduced, the oldCoke was brought back in addition to the new one. This was greatly due to droppingmarket share and consumer protest. The market share fell from a high of 15 percent to alow of 1.4 percent. This was said to be a classic marketing retreat. Coca-Cola executivesadmitted that they had goofed by taking the old Coke off the market. The Coca-Colacompany's eight hundred number received eighteen thousand calls of gratitude. Onecaller said they felt like a lost friend had returned home. The comeback of old Coke drovestock prices to the highest level in twelve years. This was said to be the only way toregain the lead on the cola wars.
New coke: an innovation case study
There was a report today of Coke employees selling trade secrets, which reminded me of the New coke saga, a tale of failed innovation.Most who were around in 1985 recall this as a huge fiasco, where a bad drink wasrejected by the public. But the details are much more interesting, as Coke did manythings right from an “innovation as strategy” perspective.What went right:* Coke chose to move forward in response to real market pressure, rather thandefending their existing products.* They had their best R&D & flavor people design the new product.* Extensive taste testing and veteran approval were sought, and all pointed to themhaving a better product.* They put big $$$ behind a major rollout campaign.What went wrong:* The press conference (April ‘85) was a disaster. Coke failed to explain why theymade the change and did not acknowledge Pepsi taste test, or any taste testing done byCoke in R&D.* Pepsi attacked with counter-ads, including a full page ad in the New York Times.* According to Gladwell’s Blink and other sources, the successful taste tests of Newcoke didn’t suggest people wanted an entire 12 oz. portion of the new formula.The result:* There was initial acceptance and the product did well it’s first weeks, sales up 8%compared to previous year.* However public outrage grew, with groups protesting New Coke (especially strong inthe south).* By June ‘85 there was enough public pressure and complaints from bottling suppliersthat Coke execs were under pressure.* In July ‘85 Coke brought Classic Coke back to the market.It’s a great story of the risks of innovation. Coke did many things right - their greatestmistake was underestimating their customers lack of interest in innovation: they weresurprisingly happy with how things were.(See wikipedia’s excellent entry on the New Coke saga).
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