HUMAN RESOURCES DEVELOPMENT PROGRAM Working Paper 06-Clardy-05 ______________________________________

The New Coke: Better than the Old Coke?

Alan Clardy Towson University

The attached paper is a working draft. This paper was created as a teaching note that documents an example of poor decision-making to be used as part of an instructional module on that same topic for a course in Industrial Psychology. This paper reports on published information relating to the decision to introduce “New Coke” in 1985. Factual background information is taken from the news reports listed in the references; unless specific quotes or specific studies are being covered in the test, exact citations are generally not provided. Statements in [brackets] are my questions or comments without specific reference to a particular citation.

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beat Pepsi by as much as 6-8 percentage points. undertook extensive market research. concerned about this erosion. the old Coke would be taken off the shelves and replaced by the new Coke. At that time. and also beat the old Coke formula by up to 10 points. began researching the possibility of reformulating Coca-Cola in response. a majority of consumers preferred the taste of Pepsi to that of Coke. Within six weeks. The managers at Coke.000. in blind taste tests. A 1% share represents $250. well aware of importance of the reformulation decision.and the flavor -. in blind taste tests. sweeter formula was aimed at largest market of cola-drinking youth. and by July of that year. These results were communicated through television advertisements and began an erosion of Coca-Cola's market share. Management at Coca-Cola. Coca-Cola announced its decision to change the almost century-old recipe -. In general. Within five years. sales of the new Coke were infinitesimal.of the company's flagship brand product. Pepsi had obtained a leading market share in grocery sales. and [was it eventually dropped?] This decision was later called the "marketing blunder of the decade". costing $4 million and interviews with almost 2 . How could a company known for its marketing savvy have so misread the market and made such a bad decision? The historical framework The context for this decision goes back to the mid-1970s. The new. however.The New Coke: Better than the Old Coke? In April 1985.5% in 1983. consumer researchers with Pepsi were discovering that. By 1984.000 in retail sales. market share declined from 27% of total sales (1980) to 24. widespread consumer protest was making the news. the company reversed itself and kept the old Coke in production and sales. researchers had developed a new formula for Coke which. By 1977.

Goizueta tipped his hand on Friday.000 consumers. April 23rd. complete with a new packaging image. Even though he had earlier signaled his willingness to reformulate any of coke products. 1985. On Tuesday. First.” 3 . though. Introduction and Response The decision to adopt the new recipe and abandon the old was made over the Christmas holidays in 1984. He wondered if it could not be called “Coke II” or given an entirely new name. if the brand identity for Coke was that it was to be the best. Simply changing the formula without any announcement would not go undetected. In surveys. and also indicated that it was scrapping the old formula. 12% of consumers said they would stay with the old Coke. how could they market a second product that was supposed to be better? A second product would divide Coke drinkers into two markets. It seemed there were constraints on marketing the new product. Pepsi had ads in the major national papers bragging that Coke was changing its flavor to meet the “Pepsi Challenge. when he invited the media to a press conference about the most significant development in the 100 year history of the cola industry. April 19. In spite of the rigid security surrounding the announcement. they would either have to lie or admit to changing their time-honored recipe. allowing Pepsi the opportunity to take the symbolic trophy of being number 1 in market share. Coke President Roberto Goizueta was leery of replacing the standard drink. Coke announced at a national media event the reformulation. The negative responses were several.200. once called on it. By Tuesday. of putting a new coke taste in the old Coke brand.

classic Coke outsold new Coke by more than eight to one. 40. Goizueta’s fear of dissension in the top ranks. classic Coke represented 70% of the sales of both products. coupled with a thin skin. the company announced it would bring back the old Coke formula as "classic Coca-Cola". One executive indicated it was a global decision from the outset.The response among the consuming public was mixed. By 1986. He often sent handwritten. and a dissident group of old Coke drinkers had formed under the banner of having the old secret recipe declared to be in the public domain. may have created a climate of “yes” men unable to challenge the prevailing corporate winds. On July 10th. By August.000 consumers complained directly to Coke’s Atlanta headquarters. Indeed. Some suggested that the recently configured international make-up of top executives were unable to appreciate the symbolic significance of the Coke brand and as a result. a basic focus throughout was trying to increase consumption internationally. Along those same lines. how could the extensive marketing research have failed so badly in this matter. Within 6 weeks. simply misread what would happen. The strength and persistence of adverse consumer reaction “flabbergasted” Coke President Roberto Goizueta. pedantic corrections to reporters about minor inaccuracies in their articles. What happened? In particular. By the end of September. By 1990. the sale of Classic Coke began to exceed that of the new Coke. Since more than half of Coke’s earnings come from sales overseas.6% and the company began marketing it under a new name (Coke II) and with slight image modifications. One explanation that became popular was that marketing research essentially asked 4 . there was a rising tide of consumer dissatisfaction and-publicity/news reporting. new Coke's share had dropped to .

while the marketing research concentrated on blind taste tests. Pendergast (1993) tells of one consumer. even if the product ultimately is better. [it's not clear that participants were aware of the ultimate decision being made] Through their research.they may believe that. According to this view. When the announcement was made. Specifically. 1986). despite the superiority of opposed new version. or just plain wrong" (Gelb and Gelb. they found that about 10% of Coke drinkers would react badly to the introduction of a new formula. In this line of thinking. advertising for Coca-cola had been directed to exactly that end. 1986. "consumers may not only become used to what they have . 360). The problem with this explanation is that the marketing research did consider consumer reactions to the new product. Indeed. The problem was in interpreting the conflicting results from the two methods. In this case. page 72). Coke’s market researchers never told their respondents that the “new formula would replace the old” (Pendergast. a San Antonio new reporter. the focus group results revealed negative customer reactions that were not seen in surveys of preferences. it was not poor marketing research that was at issue. For Schindler (1992). who drank nothing but ice-cold Coca-Cola – 15 a day. the purpose of some kinds of advertising is to create emotional ties to a product brand. to be exact – who skipped breakfast and lunch to offset any weight gain. Arguably. 1993. startling. indeed. a change would be impractical. p. respondents were not aware that their selection or preference for new Coke would lead to the abandonment of the classic product. he bought 110 cases of the old Coke. This explanation presumes that consumer emotional linkages to a brand create a situation where changes to that brand will generate resistance. This explanation relies heavily on the idea that a branded product embodies a complex set of beliefs and behaviors. the survey data were trusted 5 . he claimed that Coca-Cola followed standard marketing practice in using both focus groups and surveys.wrong questions (Gelb and Gelb.

while the company was aware of the likely disaffection among some faithful Coke drinkers. When responding as individuals to prompts (as in the case of surveys) where there is no other input from others. In particular. initial individual opinions that seemed generally favorable shifted to more polarized extremes after the views of others were heard. and consumers began hearing what others were thinking.more than focus groups information. it was that they were disparaged and minimized. company advertisements are the only voice consumers pay attention to and the messages are 6 . In this case. In the former representation. Its not that adverse consumer reactions were not expected. it does appear that consumer attitudes did change over time. In other words. what can happen--and apparently what happened in the case of new Coke--was that consumer attitudes can be swayed by the views of others. However. In general. though. attitudes changed. the explanation for what happened is that Coke failed to appreciate the kind of information that focus groups are uniquely able to provide. one-way v. the problem could be traced to the mental models of decision-makers regarding the nature of consumer purchasing behavior and how that behavior is influenced. When the news reports came out. [In effect. Survey data will not gather information about how attitudes change after interactions with others. Thus. it expected the alienation to fade over time. focus groups can. For Schindler. a multi-voiced dialogic model. the company was unprepared for the significant adverse reactions that resulted. consumers may voice a certain opinion. [This can be an illustration of the polarization effect that results when decisions occur in a group (or shared communication) context.] Schindler offers this explanation but without specific evidence about the process. their attitudes may change. This might be seen as a single voice. and not simply their own personal reactions. when other opinions are heard.

even competing voices. and so on. Pierce (1987) conducted blind-taste tests among 80 randomly selected shoppers at a shopping 7 .persuasive in shaping the buying decision. In the latter. I think what they really want are data from group discussions where there is interactions and communications among respondents prior to soliciting a final judgment. First. if a product is complex and therefore a purchase decision is complicated. when products are important. are likely to be objects of attention [Does importance refer to visible status objects?]. Second. beer.] Schindler suggests that there are three factors that may affect when consumers become more sensitive and susceptible to the opinions of others. such decisions are therefore very risky. clothing. consumers will likely seek out the opinions of others. like medical services or day care services. [This probably refers to products that are expensive and/or high stakes. where you only make one purchase that has substantial long-term consequences. like automobiles. consumers hear multiple voices and their decisions are shaped by the relative effectiveness of the various arguments heard. and/or difficult. consumer attitudes are an emergent and shifting outcome of messages from different. [In the pure sense. In the former. focus group data collects individual opinions in a group context. it is as if consumer attitudes about a product are at the predictable and desired end of the advertising terminus. highly visible products.] Testing explanations At least two studies were conducted to test possible explanations of consumer reactions.] Third. focus groups results are likely to yield data that are more predictive than survey data. they will likely seek out the opinions of others. Schindler concludes that when products are highly visible. This is because focus group data may be better at revealing the effects of the opinions of others on initial reactions. In the latter representation. important.

A 2 x 2 x 2 design was used. some respondents were given the old Coke and told it was the old Coke. Half admitted being regular Coke drinkers. based on actual product: opinions were basically the same regardless of whether the person tasted the old or new version. the anticipation of change was actually worse than its reality. regardless of what they actually tasted) more than the New Coke. though. this would not be surprising. consumers with neutral or negative attitudes about Coke liked the “New Coke” better. the three variables were current Coke usage (yes or no). There was an interaction effect between usage and product description. a similar procedure was used with New Coke samples. in Pierce’s account. not because of its taste. while others were told the old Coke they were given was in fact the New Coke.mall. It is as if the anticipation of change is sufficient to arouse adverse reaction. If true. 8 . In general. drinkers with positive attitudes about Coke liked the “Old Coke” more. There was no main effect. This finding suggests that consumers can react to product changes in ways similar to employee reactions to organizational change: with resistance. By contrast. That is. Current Coke drinkers had a more favorable opinion about the product sampled than did non-drinkers. Pierce concluded that current users had an established experience that they liked with the current product and reacted badly to the new option because it was new. this explanation suggests that the failure in decision-making may be traceable to a faulty understanding of consumer buying behavior. product type (old and new Coke). and product description. Among nonCoke drinkers. they liked the “New Coke” (regardless of what they actually tasted) more than the Old Coke. Indeed. regular Coke drinkers preferred Old Coke (again. Coke’s decision-makers did not have an adequate mental model of consumer behavior. That is. Participants then rated the sample they drank. and all were aware of advertisements about the new Coke.

These tests were held approximately every four-six weeks between late June. subjects either had no preference or preferred the new to the original Coke (in the last three of the six tests). However. Students rated their taste preference on a 1-100 scale. knowledge of imposed restrictions will lead to oppositional behaviors. Convenience samples of undergraduate business students (different samples with each pair of tests) were used. 1986. Specifically. These results approximated the findings from the 9 . According to reactance theory. whereby imposed restrictions and constraints lead individuals to reestablish their choices. It was hypothesized that. the new Coke would be preferred to the old Coke. The first pair of tests (blind and labeled) were conducted after the announcement for the New Coke and the elimination of the original. 1985. the predictions would be that as long as consumers were not aware of the products being tested. and consumers know that the original version is being eliminated [or their freedom reduced]. the new Coke would be preferred. Thus. standard formula. they will prefer the product identified as the old Coke. had overlooked the stubborn streak in many consumers who do not like being told what is good for them" (page 191). Once the original Coke was reintroduced so that it was still available. and February. consumer preferences for the new Coke will return to those levels obtained in the original marketing research. "it seemed apparent that the Coca-Cola Co. the explanation for the failure may be found in reactance theory. this triggered reactance behaviors. it actually increased. When Coke acted to remove the classic.Can the hypothesis of consumer resistance to changes in product offerings be tested? Ringold (1988) was able to carry out such a test on adverse consumer reaction. For Ringold. if products are identified. In fact. in all the blind tests. She conducted a series of blind and labeled taste tests at six different times over a period of eight months. in blind taste tests. Contrary to the expected decline in dissatisfaction.

a 10 . This has several facets. I would probably have said it was refined better with less impurities and sold at nicer and more reputable stations. a branded product probably carries more cognitive and affective linkages than commodities. branded products are meaningfully significant to their consumers. Exxon promote its gasoline with the phrase “put a tiger in your tank. However. New Coke either tied or was preferred. when that supply is threatened. However. believing that it was somehow inferior to that being pumped by Exxon or Gulf or Texaco. A number of years ago. In ways I was probably not even aware of. First. they will react adversely.market research conducted by Coca-Cola. according to reactance theory. Second. the data indicate that when consumers were not aware of what there were sampling. if asked. when respondents knew what they were tasting. consumers assume that certain products will be available to them in the manner to which they have become accustomed. Specifically. discount gasoline. when subjects at the same point in time knew which products they were evaluating. in labeled taste tests. results occurred as predicted and at generally highly levels of significance. Since subjects knew that the old formula Coke was under threat (most of the June sample were aware that the Old Coke was being withdrawn). First. Thus. In fact. this evidence supports the reactance theory explanation to consumer behavior. they consistently preferred the original. according to Ringold. Conclusions At least two conclusions can be drawn from this analysis. I assumed the brand-name produce was better. it was hypothesized that original Coca-Cola would be preferred to The New Coke. The advice for marketers would be that rather than replace a new product. it might be better to offer a complementary new product alongside the one already favored.” I remember for the longest time being adverse to buying cheap.

and perhaps most significantly. When decision-makers rely upon faulty or incomplete understanding of how markets and consumers will react. the second conclusion is that decision makers rely upon a mental model of their marketplace in general and the consumers therein in particular. buying a commodity means I’m getting less. 11 . But as the New Coke research found (and my experience buying off-brand gasoline indicated). how they define or make sense of their options and choices. this marketing blunder might have been prevented by more nuanced marketing research. In a mental experiment. But branding a product in the mind of the consumer is not without its pitfalls and traps. particularly in regard to branded products. a related issue may have been the resulting decision to replace the Old Coke rather than supplement it. differences are in the mind. not appreciating the relative values of different kinds of marketing research procedures. a better understanding of consumer psychology. it represents a level of quality the consumer expects. poor decisions are more probable. it means that changes to brands are more risky than changes to commodities. Thus. How consumers think about products. and offering consumers a choice rather than preventing one.branded product sets a standard for what should be expected in a product. can be decisive. Somehow or other. if that product were to be taken away. that would represent a diminishment in my quality of life. Third. simply not having an adequate understanding of how consumers make purchasing decisions. The battle for the consumer’s mind can is probably as important as the R&D battle over product features. there appeared to have been a string of such problems: inadequate structuring of the market research protocols. not the product. In the New Coke case. In particular. Decision-makers undertaking changes to brands can fail more easily.

22-27. WD. 48. S. Marketing Research. RM. June 24). (1985. A. p. Check. Schindler. 1. The real lesson of New Coke: the value of focus groups for predicting the effects of social influence. (1988). GM. 28. New coke wins round 1. For God. 56-61. country and Coca-cola. 1986. (1985. 3. Consumer response to produce withdrawal: the reformulation of Coca-cola. Coke’s man on the spot. 12 . and Frons. Psychology and Marketing. December. M. Scredon. Business Week. NY: Charles Schibner’s Sond. 60. 1992.lessons for the rest of us. S. M. 1985-86 book by Atlanta Constitution reporter Thomas Oliver on a company sanctioned book about the flavor change decision. The unauthorized history of the great American soft drink and the company that makes it. Which coke is it? Social influence in the marketplace. 190-210. but can it go the distance? Business Week. Pendergast. 5. DJ. 71-76. p. (1987). July 29). and Dunkin. Pierce. Ringold. and Gelb. (1993). New Coke's fizzle -. 279-286. BD. Sloan Management Review. Psychological Reports. Scredon.List of References Gelb.