New Coke

coke ii

pepsi challange

New Coke was the reformulation of Coca-Cola introduced in 1985; it originally had no separate name of its own, and was simply known as ‘the new taste of Coca-Cola’ until 1992 when it was renamed Coca-Cola II. The American public’s reaction to the change was negative and the new cola was a major marketing failure.

The subsequent reintroduction of Coke’s original formula, re-branded as ‘Coca-Cola Classic,’ resulted in a significant gain in sales, leading to speculation that the introduction of the New Coke formula was just a marketing ploy.

Just after World War II, the market share for the Coca-Cola Company’s flagship beverage was 60%. By 1983, it had declined to under 24%, largely because of competition from Pepsi-Cola. Pepsi had begun to outsell Coke in supermarkets; Coke maintained its edge only through soda vending machines and fast food restaurants. Market analysts believed baby boomers were more likely to purchase diet drinks as they aged and remained health- and weight-conscious. Therefore, any future growth in the full-calorie segment had to come from younger drinkers, who at that time favored Pepsi and its sweetness by even more overwhelming margins than the market as a whole. When Roberto Goizueta took over as CEO in 1980, he pointedly told employees there would be no sacred cows in how the company did its business, including how it formulated its drinks.

Coca-Cola’s most senior executives commissioned a secret effort named ‘Project Kansas’ — headed by marketing vice president Sergio Zyman and Brian Dyson, president of Coca-Cola USA – to test and perfect the new flavor for Coke itself. It took its name from a famous photo of that state’s renowned journalist William Allen White drinking a Coke that had been used extensively in its advertising and hung on several executives’ walls. The company’s marketing department again went out into the field, this time armed with samples of the possible new drink for taste tests, surveys, and focus groups. The results of the taste tests were strong – the sweeter mixture overwhelmingly beat both regular Coke and Pepsi. Then tasters were asked if they would buy and drink it if it were Coca-Cola. Most said yes, they would, although it would take some getting used to. A small minority, about 10–12%, felt angry and alienated at the very thought, saying that they might stop drinking Coke altogether. Their presence in focus groups tended to skew results in a more negative direction as they exerted indirect peer pressure on other participants.

Management also considered, but quickly rejected, an idea to simply make and sell the new flavor as yet another Coke variety. The company’s bottlers were already complaining about absorbing other recent additions into the product line in the wake of Diet Coke. Also, a new variety of Coke in competition with the main variety could, if successful, also dilute Coke’s existing sales and increase the proportion of Pepsi drinkers relative to Coke drinkers. Early in his career with Coca-Cola, Goizueta had been in charge of the company’s Bahamian subsidiary. In that capacity, he had improved sales by tweaking the drink’s flavor slightly, so he was receptive to the idea that changes to the taste of Coke could lead to increased profits. He believed it would be ‘New Coke or no Coke,’ and the change must take place openly. He insisted that the containers carry the ‘NEW!’ label, which gave the drink its popular name.

Goizueta also made a visit to his mentor and predecessor as the company’s chief executive, the ailing Robert W. Woodruff, who had built Coke into an international brand following World War II. He claimed he had secured Woodruff’s blessing for the reformulation, but even many of Goizueta’s closest friends within the company doubt that Woodruff truly understood what Goizueta intended. Goizueta always said he had.

Coke let the media know on April 19, 1985, that a major announcement was planned for the following Tuesday, April 23, concerning a change in the product. While its press release did not explicitly say so, many recipients correctly guessed it meant a change in the flagship brand’s formulation. Officials at PepsiCo had expected a major move but not something so drastic. Despite a negative reaction by top Pepsi executives to a smuggled preview six-pack of the new flavor, they nevertheless concluded it was a serious threat. Roger Enrico, then director of North American operations, wasted no time taunting Pepsi’s older rival. He declared a company-wide holiday and took out a full-page ad in ‘The New York Times’ proclaiming that Pepsi had won the long-running ‘cola wars.’ Since Coke officials were preoccupied over the weekend with preparations for the big day, their Pepsi counterparts had time to cultivate skepticism among reporters, sounding themes that would later come into play in the public discourse over the changed drink.

The press conference at New York City’s Lincoln Center to introduce the new formula did not go over very well. Reporters present had already been fed questions by Pepsi, which was extremely worried that New Coke would erase all its gains. Also, Goizueta’s description of the new taste, given his background as one of the company’s flavor chemists, was less than impressive: ‘[It’s] smoother, uh, uh, rounder yet, uh, yet bolder… a more harmonious flavor.’

Goizueta defended the change by pointing out that the drink’s secret formula was not sacrosanct and inviolable. As far back as 1935, Coca-Cola sought kosher certification from an Atlanta rabbi, and made two changes to the formula so that the drink could be certified kosher for Passover (and incidentally halal and vegetarian). But Goizueta also refused to admit that taste tests had in any way led the company to make the change. The emphasis on the sweeter taste of the new flavor also ran contrary to previous Coke advertising, in which spokesman Bill Cosby had touted its less-sweet taste as a reason to prefer Coke over Pepsi.

However, the company’s stock rose, and initially Coke’s sales were on the rise. Most Coke drinkers resumed buying the new drink at much the same level as they had the old one. Surveys indicated, in fact, that a majority liked the new flavoring. Despite New Coke’s acceptance with a large number of Coca-Cola drinkers, a vocal minority of them resented the change in formula and were not shy about making that known. Many of these drinkers were Southerners, some of whom considered the drink a fundamental part of regional identity. They viewed the company’s decision to change the formula through the prism of the Civil War, as another surrender to the ‘Yankees.’

They were joined by some voices from outside the region. Chicago Tribune columnist Bob Greene wrote some widely reprinted pieces ridiculing the new flavor and damning Coke’s executives for having changed it. Talk show hosts and comedians mocked the switch. Ads for New Coke were booed heavily when they appeared on the scoreboard at the Houston Astrodome. Even Fidel Castro, a longtime Coke drinker, contributed to the backlash, calling New Coke a sign of American capitalist decadence. Goizueta’s own father expressed similar misgivings towards his son; the only time the younger man recalled him ever agreeing with Castro, the man whose revolution had driven him and his son, nearly penniless, to America a quarter-century before.

Pepsi took advantage of the situation, running ads in which a first-time Pepsi drinker exclaimed ‘Now I know why Coke did it!’ However, Pepsi actually gained very few converts over Coke’s switch, despite claiming a 14% sales increase over the same month the previous year, the largest sales growth in the company’s history. The most alienated customers simply refused to buy New Coke rather than switch to Pepsi, or purchased large amounts of remaining old Coke, including one Texan who spent $1,000 on his hoard of the old formula. Coca-Cola’s director of corporate communications, Carlton Curtis, realized over time that they were more upset about the withdrawal of the old formula than the taste of the new one.

The 20 bottlers still suing Coca-Cola made much of the change in their legal arguments. Coca-Cola had argued in its defense when the suit was originally filed that the formula’s uniqueness and difference from Diet Coke justified different pricing policies from the latter – but if the new formula was simply an HFCS-sweetened Diet Coke, Coca-Cola could not argue the formula was unique. Bottlers, particularly in the South, were also tired of facing personal opprobrium over the change. Many reported that some acquaintances had stopped speaking to them, or had expressed displeasure in other emotionally hurtful ways. On June 23, several of the bottlers took these complaints to Coca-Cola executives in a private meeting. With the company now fearing boycotts not only from its consumers but its bottlers, talks about reintroducing the old formula moved from ‘if’ to ‘when.’

Finally the board of Coca-Cola changed their mind and decided to bring back the old Coke. The president Donald Keough revealed years later in the 2002 documentary ‘The People vs Coke’ that they realized this was the only right thing to do when they visited a small restaurant in Monaco and the owner of the restaurant proudly said that they had ‘the real thing, it’s a real Coke’ offering them a bottle of old Coke. Coca-Cola executives announced the return of the original formula on July 10, less than three months after New Coke’s introduction.

The new product continued to be sold and retained the name Coca-Cola (until 1992, when it was officially renamed Coca-Cola II), so the old product was named Coca-Cola Classic, also called Coke Classic, later just Coke, and for a short period of time it was referred to by the public as Old Coke. Many who tasted the reintroduced formula were not convinced that the first batches really were the same formula that had supposedly been retired that spring. This was true for some regions because Coca-Cola Classic differed from the original formula in that all bottlers who hadn’t already done so were using high fructose corn syrup instead of cane sugar to sweeten the drink.

By the end of the year, Coke Classic was substantially outselling both New Coke and Pepsi. Six months after the rollout, Coke’s sales had increased at more than twice the rate of Pepsi’s. New Coke’s sales dwindled to a three percent share of the market, although it was doing quite well in Los Angeles and some other key markets. Later research, however, suggested that it was not the reintroduction of Classic Coke, but instead the less-heralded rollout of Cherry Coke, that can be credited with the company’s success that year.

This populist version of the story served Coke’s interests, however, as the whole episode did more to position and define Coca-Cola as a brand embodying values distinct from Pepsi than any deliberate effort to do so probably could have done. Allowing itself to be portrayed as a somewhat clueless large corporation forced to back off a big change by overwhelming public pressure flattered customers (as Keough put it, ‘We love any retreat which has us rushing toward our best customers with the product they love the most’). Bottles and cans continued to bear the ‘Coca-Cola Classic’ title until 2009 when the company announced that it would discontinue its use to avoid confusion with the younger generation.

In the short run, the reintroduction of old Coke saved Coke’s sales numbers and brought it back in the good graces of many customers and bottlers. Phone calls and letters to the company were as joyful and thankful as they had been angry and depressed (‘You would have thought we’d cured cancer,’ said one executive). But confusion reigned at the company’s marketing department, which had to come up with a plan to market two Cokes where such plans had been completely off the table mere months before. Classic Coke did not need much help, with a ‘Red, White and You’ campaign showcasing the American virtues many of those who had clamored for its reintroduction had pointedly reminded the company it embodied. But the company was at a loss to sell what was now just Coke. ‘The Best Just Got Better’ could no longer be used. Marketers fumbled for a strategy for the rest of the year. Matters were not helped when McDonald’s announced shortly after the reintroduction that it was switching over to Classic Coke at every store across the country.

At the beginning of 1986, however, Coke’s marketing team found a strategy by returning to their original motives for changing the drink: the youth market so beholden to Pepsi. Max Headroom, the purportedly computer-generated media personality played by Matt Frewer, was chosen to replace Cosby as the spokesman (of sorts) for Coke’s new ‘Catch the Wave’ campaign. A very stylish figure in his jacket and sunglasses, he was already known to much of the U.S. youth audience through appearances on MTV, where he had first appeared in the Art of Noise’s ‘Paranoimia’ video, and Cinemax. The campaign was launched with a memorable television commercial with Max saying in his trademark stutter, ‘C-c-c-catch the wave!’ and referring to his fellow ‘Cokeologists.’ In a riposte to Pepsi’s televisual teasings, one showed Headroom asking a Pepsi can he was ‘interviewing’ how it felt about more drinkers preferring the new Coke to it and then cut to the condensation forming on the can. ‘S-s-s-s-sweating?’ he asked. It was a huge success.

In 1985, New Coke was sold only in Canada, the United States, and US territories, while the original formula continued to be sold in the rest of the world (had the new version been a success it would presumably have been introduced worldwide). New Coke was eventually returned to the company’s product portfolio; it was test-marketed in certain U.S. cities under the name Coke II in 1990 and officially renamed Coke II in 1992, despite the company’s original intention not to create a second brand. Filmmaker Miranda July is said to have suggested the name of Coke II while working as a tastemaker for an ad agency.

However, Coca-Cola did little to promote or otherwise distinguish it. In a market already offering far more choice of drinks calling themselves ‘Coke’ in some fashion or another, the public saw little reason to embrace a product they had firmly rejected seven years earlier, and within about a year, Coke II was largely off the American shelves again. By 1998, it could only be found in some scattered Midwestern markets, and in 2002, Coke II was discontinued entirely.

In talks, and his book ‘Blink,’ author Malcolm Gladwell relates his conversations with market researchers in the food industry who put most of the blame for the failure of New Coke on the flawed nature of taste tests. They claim most are subject to systematic biases. Tests such as the Pepsi Challenge were what are called in the industry ‘sip tests,’ meaning that drinkers were given small samples (less than a can or bottle’s worth) to try out. Gladwell contends that what people say they like in these tests may not reflect what they will actually buy to sit at home and drink over a week or so. For example, although many consumers react positively to the sweeter taste of Pepsi when drinking it in small volumes, it may become unattractively sweet when drunk in quantity. Coke, on the other hand, may be more attractive for drinking in volume, precisely because it is less sweet. A more comprehensive testing regimen could possibly have revealed this, Gladwell’s sources believe.

Gladwell reports that other market researchers have criticized Coke for not realizing that much of its success as a brand came from what they call sensation transference, a phenomenon first described by marketer Louis Cheskin in the late 1940s: tasters unconsciously add their reactions to the drink’s packaging into their assessment of the taste. For example, one of the researchers told Gladwell that his firm’s research had found 7-Up drinkers offered a sample from a bottle with a distinctly more yellowish label believe the flavor to be more lemony, although it wasn’t.

In Coke’s case, it is alleged that buyers, subject to sensation transference, were ‘tasting’ the red color of the container and distinctive Coca-Cola script as much as the drink itself. It was thus, in their opinion, a mistake to focus solely on the product and its taste. ‘The mistake Coke made,’ said Darrel Rhea, an executive with the firm Cheskin founded, ‘was in attributing their loss in share entirely to the product.’ He points to Pepsi’s work in establishing a youth-oriented brand identity from the 1960s onward as having more bearing on its success.

Coke considered but rejected gradually changing the drink’s flavor incrementally, without announcing that they were doing so. Executives feared that the public would notice and exaggerate slight differences in taste. In 1998, Joel Dubow, a professor of food marketing at St. Joseph’s University, tested this ‘flavor balance hypothesis’ and argued that it was not true. He and fellow researcher Nancy Childs tested mixtures of classic Coke and Coca-Cola II and found that the gradual changes of taste were not noticed by a significant number of tasters. Coke, he said, would have succeeded had it chosen this strategy.

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