God, What a Blunder," the New Coke Story

"God, What a Blunder," The New Coke Story

By Michael Bastedo Angela Davis

(c) December 17, 1993

True Cokeaholics know the mystic ritual well. Only one source of the murky brown elixir is acceptable: the traditional, 6 1/2-ounce bottle. No cans, please, and certainly none of those plastic jugs. The bottle is refrigerated for at least two hours and a wide-mouthed glass is filled with ice--preferably five full-sized cubes. The bottle is uncapped slowly, reverently, its contents allowed to trickle gently over the ice until the glass is filled: too much foam squanders carbonation. The glass is lifted and--eureka!--the tongue rejoices at the familiar, hearty, tingly, raspy, 99-year-old taste--neither sweet nor tart, a taste that is both complex and unique. And all too soon, as the last desperately hoarded supplies of Old Coke disappear, it is a taste that will tickle American palates no more. (1)

In what Pepsi Cola-USA president Roger Enrico called, "the Edsel of the 80's," (2) the introduction of New Coke represents one of the greatest marketing debacles of the 1980's. How did this happen, and why?

The Story

Coke began with Dr. John Pemberton and his three-legged brass pot all the way back in 1886; by 1985, Coke was closing in fast on its centennial anniversary. Coke (and Coke chairman Roberto Goizueta) had witnessed a remarkable set of accomplishments during the 1980's: the acquisition of Columbia Pictures in January 1982 and the introduction of diet Coke later that August were foremost among them.

There were some creeping problems, however. Most distressing of these was the fact that Coke was losing market share to its biggest competitor, Pepsi. Coke's lead had dropped from a better than two to one margin to a mere 4.9 percent lead by 1984. In supermarkets, Coke was now trailing by 1.7 percent. (3) Coke was clearly in danger of becoming the Number-Two soft drink.

This was despite the fact that Coke was far outspending Pepsi on advertising, by upwards of $100 million per year. One major problem was that Pepsi's advertising was simply more effective. The Pepsi Challenge had been fabulously successful: Pepsi's share jumped 8 points almost immediately. (4) Even worse, the tests were true: in blind taste-tests, Coke drinkers preferred Pepsi. At first Coke ads tried to laugh off the Challenge: "They called our product 'Q' and their product 'M' and you know people like the letter 'M' better." When that didn't work, the philosophy changed to, "One sip is not enough." Apparently, Coke tasted better only when you drank a full glassful. (The whole is greater than the sum of its parts in Cokeland.) Finally, Coke was forced to conduct taste tests of its own, but here they clearly identified the two colas. Coke won. (5)

Coke's lead in the cola market was tenuous at best. As we said before, Coke was trailing in supermarkets by 1.7 percent, which represented a third of Coke's total sales.

Coke's domination was largely continued by its greater availability. Thedifference in share, according to Coke's own market research department, was that if someone

wanted Pepsi, she might only find Coke. Essentially, Coke's market share was being saved by McDonald's and Hardee's. "Everyone at Coca-Cola knew that in the coming years that situation would change, and the result was too shocking to imagine." (6)

There was a turning tide in the upper echelons of Coca-Cola management. Roy Stout, head of market research for Coca-Cola USA, put it this way:"If we have twice as many vending machines, dominate fountain, have more shelf space, spend more on advertising, and are competitively priced, why are we losing share? You look at the Pepsi Challenge, and you have to begin asking about taste." (7)

rian Dyson, president of Coca-Cola USA, was swayed. "Maybe the principal characteristics that made Coke distinctive, like its bite, consumers now describe as harsh...[m]aybe the way we assuage our thirst has changed." (8) By the fall of 1983, the top brass allowed Dyson and Stout "to explore the possibility of a reformulation." (9) Dyson chose Sergio Zyman, senior vice-president of marketing of Coca-Cola USA, to head the project.

Much of the market research conducted between 1983 and 1985 on a the possibility of a new Coke was discouraging. One set of focus groups said that Pepsi could improve its formula, but the answer to a Coke reformulation was a resounding NO. "It was like saying you were going to make the flag prettier," said Zyman. (10) In other focus groups, there was another problem. When asked, "What is your favorite drink?" most people said, "Coke!" When asked, "What do you drink?" the response was shocking: sometimes Coke, sometimes Pepsi, sometimes even a generic if it was on sale. As Thomas Oliver puts it, "There appeared to be a disturbing gap between what people said and what they did." (11)

But in September 1984, they thought they had found the answer. The technical division had brewed a formula of Coke that beat Pepsi in blind taste- tests, by as much as 6 to 8 points. Before, Pepsi had beaten Coke by anywhere from 10 to 15 points. This was an 18-point swing. "The minute we had the product, Coca-Cola USA said let's set it in motion," said Dyson. (12) All discouraging market research was tossed into the rectangular file.

On April 23, 1985, New Coke was released to a great deal of fanfare. By the middle of June, people were "Saying 'No' to New Coke." (13) Reaction to New Coke was swift and humiliating. The taste of New Coke was likened to "sewer water," "furniture polish," "Coke for wimps," and, most disheartening to Coca-Cola management, "two-day-old Pepsi." (14) "I miss the battery acid tang," said one.

Cokeaholics began stockpiling Old Coke in their homes. Black marketeers sold Old Coke for upwards of $30 a case and were looking for ways to import it from abroad. Some desperate addicts had the drink shipped to them from Montreal by FedEx. One Hollywood producer rented a $1,200 wine cellar to hold his 100 cases of Old Coke. The Old Coke Drinkers of America logged 60,000 calls to their national headquarters. (15)

The mere idea of changing Coke provoked some of the more virulent responses. Here's a sample:

* "like spitting on the flag" (16)