100 Mistakes That Changed History: Backfires and Blunders That Collapsed Empires, Crashed Economies, and Altered the Course of Our World

94. INCOMPLETE RESEARCH

In 1985, Coca-Cola created what many consider to be one of the biggest marketing fiascos in history by replacing the old Coca-Cola formula with a new version of Coke to compete with a sweeter-tasting Pepsi. Public outrage was so great that Coca-Cola was forced to reintroduce the old version just seventy-nine days later. Six months after New Coke was launched, Coke was back on top, with sales increasing at more than twice the rate of Pepsi’s. So was it really a colossal marketing failure or a stroke of marketing genius?

Right after World War II, Coca-Cola enjoyed a 52 percent share of the cola market. But in the fifteen years before the introduction of New Coke, sales were slipping, while Pepsi’s continued to grow. By the early 1980s, Coke’s market share had dwindled to 24 percent, primarily because Pepsi was beginning to outsell Coke in supermarkets and other venues. In the 1960s, Pepsi had successfully targeted the youth market, which seemed to prefer its sweeter taste. Executives at Coca-Cola were convinced they had to take drastic action to stay ahead of the competition. So in 1983, Coca-Cola launched Project Kansas (named after a famous photo of a Kansas journalist sipping a Coke) to come up with a sweeter, better-tasting formula. They began conducting top-secret research and taste tests.

Why would Coca-Cola tinker with the legendary secret formula that had been so successful for almost 100 years? It primarily came down to the perception that Pepsi tasted better than Coke. Taste tests conducted by both cola rivals showed that most people preferred the taste of Pepsi. And later taste-test results went even further to validate the idea that Coca-Cola should reformulate its flagship beverage. Not only did consumers express a preference for Pepsi over Coke in those taste tests, but they also preferred the New Coke formula (dubbed Kansas) over both old Coke and Pepsi.

However, three serious research and marketing problems emerged, which were not fully understood by the company until after New Coke was launched. The first problem had to do with the taste tests themselves. The tests used small samples the participants were supposed to sip. While many people preferred the sweeter taste of Pepsi in small amounts, they didn’t care for the soda in larger amounts, like those found in a typical can. In fact Coke is often preferred in larger volumes because it is less sweet.

The second problem is what is called “sensation transference.” First coined in the late 1940s, the phrase is used to describe the phenomenon of tasters unconsciously responding to the drink’s packaging, and that product packaging can change the perceived taste. In the case of Coke, people responded to the red color of the can with its distinctive script when tasting the beverage. Many marketing experts think it may be impossible to separate the taste of the product from its brand name and distinctive package.

The third problem was that the company underestimated the sentimental value attached to the original Coca-Cola, which many people considered an integral part of American culture and tradition. When the initial taste-test results came back favorable toward New Coke, the executives decided to conduct surveys and focus groups to help decide if they should get rid of old Coke altogether or keep both old and new formulas. However, because of the intense secrecy surrounding the prelaunch marketing research, they never asked a key question: Do you want us to replace the old Coke with a new version of Coke? Instead, they asked people if they would purchase and drink Kansas if it were called Coke instead. Only a small percentage of people completing the survey said they would not purchase the Kansas drink if it were renamed Coke. However, the executives chose to ignore 11 percent of those in focus groups who stated that they would stop drinking Coke altogether if the Kansas choice was called Coke. And this segment of the focus group population was an exceedingly vocal and angry minority, ultimately influencing others in those Kansas test groups indirectly and causing the negatives to jump way up.

The executives ultimately decided that keeping both the old and new Cokes would divide their own share of the soda market and the result would be that Coke would no longer be the number-one-selling cola in the United States. Pepsi could then claim not only that more people prefer the taste of Pepsi over Coke but that more people drink Pepsi than Coke. The last thing the company wanted was to wage a cola war between two competing versions of Coke. Fearing a marketing nightmare, Coca-Cola replaced old Coke with New Coke, instead of introducing New Coke as another soda option.

They timed the release of New Coke with much fanfare and to coincide with the company’s hundredth birthday. New Coke was launched on April 23, 1985, and production of the original version was halted that same week. Sweeter and smoother, New Coke tasted much more like Pepsi than an improved version of the original Coke.

The public backlash was immediate. People began hoarding old Coke. Many likened it to trampling the American flag. Protest groups were formed, such as Old Cola Drinkers of America, which boasted more than 100,000 recruits trying to bring back old Coke. Even Coke bottlers were concerned. They wondered how to promote a drink that had always been marketed as “The Real Thing” now that it had been so dramatically changed. There was noise made that the bottlers themselves might follow consumers and boycott the product. But public protests, boycotts, and the dumping of bottles into city streets were just some of the company’s problems. Company headquarters was bombarded with more than 400,000 calls and letters. Coca-Cola hired a psychiatrist to listen in on phone calls to the hotline. The doctor reported to executives that some of the callers were so distraught over losing their beloved old Coke it was as if they were talking about the death of a family member.

On July 11, the company announced the return of old Coke to store shelves. The news was so big it made the front page of every major newspaper in the United States, and two major networks interrupted their regular programming to break the news as it occurred. Some likened it to “the second coming.” Phone calls and letters again flooded headquarters, this time expressing profound gratitude. “You would have thought we cured cancer,” one company executive said, describing the joyous response. The company president, Donald Keough, explained the entire fiasco this way: “We did not understand the deep emotions of so many of our customers for Coca-Cola.”

The crucial failing on Coca-Cola’s part was that they never asked Coke drinkers themselves if they wanted a new version of their beloved soft drink at the expense of losing the old, familiar drink. Their mistake at least changed the soda-drinking habits of millions all over the world. Coca-Cola ended the fiasco having lost several percentage points of the soda market when people, avoiding New Coke, found other flavors from other companies that they liked. That was tens of millions of shoppers putting something else in their carts all over the world.

As for the theory that Coca-Cola orchestrated a brilliant tactical move by temporarily pulling old Coke to generate overwhelming demand, Donald Keogh may have put it best: “Some critics will say Coca-Cola made a marketing mistake. Some cynics will say that we planned the whole thing. The truth is we are not that dumb, and we are not that smart.”