New Coke Failure

Abstract
During the 1980’s Coca-Cola was faced with a potentially company killing problem. They were losing market share quickly to their competitors. Pepsi was stealing a portion of the younger generation with their advertising campaign, and they proved that consumers liked Pepsi better with the “Pepsi Challenge.” To combat their falling market share Coke decided to introduce a new formula. This formula was based on the fact that people preferred the sweeter taste of Pepsi. Once the new formula was finished, Coke conducted close to 200,000 taste tests to find out what consumers thought. New Coke outperformed both Pepsi and the original Coke in these taste tests. Coke then proceeded to release the new formula on April 23, 1985 based on the results of the taste test. There was public outrage at the release of the new formula. Even though the taste was better than both Pepsi and the original Coke, there was major public outcry and the new formula stayed on the market for 79 days and was pulled on July 11, 1985. This proved that Coca-Cola made a huge mistake with their research. They assumed that taste was the most important factor in choosing a soft drink. However, it turned out that Americans had a deep emotional connection to the Coca-Cola brand and they rejected the new formula causing them to pull it from the market.

History of New Coke

From 1945 to 1983 Coca-Cola’s market share had declined from 60% to below 24%. This major decline was due to the competition Coke had with Pepsi. Pepsi was easily outselling Coke in every market it was available. In 1975 Pepsi started the “Pepsi Challenge” which was a taste test where consumers were overwhelmingly choosing the taste of Pepsi to that of Coke. In response Coca-Cola began what they termed as “Project Kansas”(Klassen, 2010). This was a mission to reformulate Coke in order to taste more like Pepsi. After the development of a new formula, the company conducted about 200,000 nationwide taste tests at a cost of $4 million. On April 22, 1985 the announcement was made that Coke’s taste was about to change. The next day, Coca-Cola revealed the new formula to financial analyst and the media. Once Pepsi got wind of the formula change they began attacking Coke in the media, saying that they changed the taste to taste “more like” Pepsi. After admitting that the new formula would completely replace the original Coke, consumers began an outcry of rebellion. It took only 79 days for Coca-Cola to pull the new formula and return the original formula to the market, renaming it Coca-Cola Classic.

Coke’s Reasoning
Just after WWII, Coca-Cola held close to 60% market share, but through intense competition from Pepsi, market share dropped to 24% by 1983. Each percentage point that Coca-Cola lost cost the company roughly $200 million (Chandran, 2002). Much of this market share was going to Pepsi, which had a sweeter taste than Coke did. This slide was occurring despite the fact that Coke outspent Pepsi, their main competition, in advertising by close to $100 million (Chandran, 2002). The mid 70’s brought about the “Pepsi Challenge”. This was a taste test, put on by Pepsi, and held in public places that showed that 58% of consumers preferred Pepsi over Coke. This was the beginning of Pepsi positioning themselves as the choice for the younger generation. Dubbing this generation as the “Pepsi Generation”, Pepsi began to recruit stars of the times such as Don Johnson and Michael Jackson (Haig, 2005).

Coke’s first response to this assault was an advertising campaign that praised Coke for being less sweet than Pepsi. They even recruited Bill Cosby to be the front man for this campaign, someone who was obviously too old to be part of the so called “Pepsi Generation.” This tactic did not gain much traction with consumers and was quickly dropped. The only reasons that Coke was keeping its hold on the market share was its superior distribution and the greater number of vending machines and fountain vendors it had. Another reason Coke was worried was that when given the choice in supermarkets consumers were choosing Pepsi. These factors were all considered in the decision to dramatically change Coke’s formula, which had been around for 99 years.

The Research
After Pepsi began conducting taste tests, which were showing more and more people were beginning to like Pepsi, Coke decided that it was time for them to also conduct some market research and see if there was anything they could change in their formula. The marketing vice president along with the president of Coke decided to send a team of marketers out on “Project Kansas” and conduct a nation-wide taste test. With the help of two Atlanta based market research firms, MARC and Kenneth Hollander Associates, Coke tested their new product in over 30 cities (Fierman, 1985). The results were overwhelmingly in favor of new Coke, 55% chose the new Coke over the old and 52% chose it over Pepsi. Overall, Coke spent two years and around $4 million dollars researching the new Coke formula. They used a variety of methods for research, such as: interviewing of around two hundred thousand people; blind taste tests; focus groups; and surveys.

With the numerous methods used to test the new Coke formula, Coke was sure they had a winner with the new formula. During the blind taste tests consumers preferred the new, sweeter Coke. In the taste tests, 88% of people said they would buy and drink the new Coke, but it might take them a little while to get used to the taste. Then there were the so called “Angry 12%” (Lessons from New Coke, 2012). These were the people that would be considered die hard Coke drinkers, they were resentful of the changes being made and even said if Coke were to change the formula, they would be tempted to stop supporting the brand all together. During the taste tests, the only thing Coke was interested in was whether people liked the taste of the new formula. They never asked how consumers would feel if the new formula were to replace the old one. Because of the fact that consumers seemed to prefer the taste of new Coke, Coke decided to move forward with the launch of the new formula. Due to the extensive research they had performed, Coke was certain they had found a way to regain their lost market share. However, things did not go quite that smoothly and a few months after the launch of the new Coke, the company was receiving thousands of consumer complaints from consumers that wanted their old Coca-Cola back.

What went wrong?
After all the time and money spent in research, Coke had to be wondering where they went wrong. One flaw was the importance that researchers placed on the taste itself. They assumed that taste was the largest determining factor of what consumers look for in a soda, but they soon found that it was not the most important (Smith & Albaum, 2005). Emotions play a huge role in the choices people make and many consumers saw drinking a Coke as a social experience, and as part of their childhood (Fisher, 1985). In this case the emotional attachment consumers had to original Coke outweighed the better taste of new Coke. One angry Coke drinker said, “Changing Coke is like breaking the American dream,” to consumers with similar thinking, the tradition of Coke is paramount and the thought of changing the formula was offensive. Another reason this introduction failed was the target market of Coke drinkers. Pepsi had been focused on the younger generation, or the “Pepsi Generation” for years, and was keeping these consumers as they grew older, while Coke was left with the older, more traditional market (Cassels, 2010).

The problem was the younger generation was spending the most money on soft drinks, outpacing older consumers. This lead to Pepsi gaining market share quickly and was one factor in Coke’s decision to try a new formula.This leads to the question of whether or not Coke could have tried something more simple, rather than drastically changing their formula. Another issue that occurred while launching the new Coke, was the press conference in April when they revealed that they would be changing the formula of Coke. In this press conference, they did not mention why they were changing the old formula. They focused on the fact that they were making a change, but they did not mention that they had been looking into the taste tests by Pepsi. Lastly, the taste tests themselves were flawed. These taste tests were in fact sip tests where the samples were small and consumers only got small sips of the cola (Henning, 2009). Many consumers liked the sweet taste of Pepsi by the sip, yet when given the choice to drink it by the can their preference changed to Coke. This flaw would have skewed the research in favor of coming up with a sweeter formula, even though consumers really didn’t prefer drinking large amounts of the sweeter version.

Public reaction toward New Coke’s introduction.
In the first weeks of the new Coke introduction, the company saw sales growing. Before May 30, 53% of consumers said they liked the new formula. But, many people thought Coke was “ruining a good thing” (DeMott, Boyce, Kane, 1985). In June the vote began to swing the other way, with well over half of consumers saying they didn’t care for it (Fisher, 1985). This consumer outcry began to build in the Southeast, where Coke originated and was somewhat of a cultural symbol (Lessons from New Coke, 2012). There were several events that occurred across the country that showed consumer disdain for the new Coke. In Chicago, articles were published in the Chicago Tribune that made fun of the company for changing the formula. In Houston, fans booed the new Coke commercials when they appeared on the scoreboard at the Houston Astrodome. All across the south consumers were emptying bottles of new Coke into the street. The company even received over 400,000 angry phone calls and letters complaining over the change in formula (Lessons from New Coke, 2012). Even Coke salespeople were speaking out. One said ”We had taken away more than the product Coca-Cola.

We had taken away a little part of them and their past. They said, ‘You had no right to do that. Bring it back” (Fisher, 1985). Consumers had a deeply rooted family history with Coke and did not see the need for a change. By the time the company decided to go back to the old formula, only 30% of the 900 consumers that had been surveyed weekly said that they still like the new Coke (Fisher, 1985). Many outraged consumers actually began drinking Pepsi rather than the new Coke. Daniel Levine from the University of Texas Arlington used a neural network to explain why people did not like the changes and why they reacted in such an unexpected way. He believed that what Coke failed to realize was that buying a soft drink is not done solely based on taste alone. Rather, there is an experience factor. When someone buys a Coke product, they have certain expectations about what they will get. New Coke failed to fulfill these expectations (Anderson, 1993). Many consumers were not fully satisfied with the sweeter taste, many were in fact offended at the thought that Coke could change something that they had loved for close to 100 years.

Who should be blamed for New Coke’s failure?
The marketing team and all the people associated with the market research that went into developing the new Coke are mostly to blame for the failure. The right kind of research was not done to prove that people would in fact prefer a new sweeter version of Coke. Taste tests are not always the best form of research. You have to ask the right questions after performing taste tests. Taste alone is not sufficient, in this case Coke should have been asking if consumers would enjoy drinking a whole can of these sodas rather than just sips. They should have also been asking how the consumers would feel if this new sweeter Coke, replaced the Coke they knew and loved. One reason the Pepsi challenge was so successful was because it was a “sip test”, consumers preferred a quick sip of Pepsi over a quick sip of Coke. (Bastedo, Davis, 1993) The Coke taste tests produced flawed results because customers preferred a larger quantity of Coke over a small sample so the small sip in the taste test was not enough to gauge consumers true reactions to the new, sweeter formula. The researchers also underestimated the bond that consumers had to the hundred plus years of Coke taste. Even though Pepsi had caught the taste buds of the young generation, Coke had failed to realize they still had a loyal following in the older generation.

The chairman of the Coca-Cola company, Roberto Goizaeto, believed that the progressive introduction of new and different flavors to the Coke brand was necessary in order to compete with other companies. With the introduction on Diet Coke in 1982 and then the introduction of Cherry Coke in 1985, he believed that the success of those two would lead to a successful New Coke. He was so worried about maximizing the company and what they had to offer, he didn’t really consider the market research that took place. He was shocked that the New Coke had a negative impact on consumers. From this we concluded that the incorrect type of research was conducted and companies should also study the emotional connection that consumers have to a product. Coke failed to ask the right questions. Along with asking if the new formula tasted good, they should have asked how consumers would feel if it replaced the old formula; as well as the impact it would have on their soft drink buying decisions.

Theories of why Coke introduced a new formula
There are a few different theories from outsiders as to why Coca-Cola would introduce a New flavor of Coke. One theory is that Coke had brilliantly planned the whole thing. That they knew that the new formula would flop and raise demand for the old formula, thereby raising their market share. This would lead to increased profits, presumably enough to offset the losses incurred by the introduction of new Coke. Another theory, is that Coke orchestrated the change in formulas in order to slip a change from sugar cane to high fructose corn syrup past consumers due to its lower cost. However, when the switch was made from the sugar cane to the high fructose, nearly all consumers were unsatisfied. This was evidenced by the hundreds of thousands of negative emails and calls received by Coca-Cola after the change was made. A third theory is that Coke was using the switch to rid the formula of all use of coca (cocaine derivatives) in their product (Prendergast, 1994). By introducing a new formula and then going back to the old flavor, many consumers would be unable to catch the difference because they were simply overjoyed to have their old formula back.

So, when Coke decided after 79 days they would go back to the old formula, they were able to remove the coca without any media coverage. There is no evidence of the Drug Enforcement Agency ever threatening Coke to remove the coca from their product, so this theory holds little weight. The last theory was that of Joel Dubow, a marketing professor from St. Joseph University. He believed that Coca Cola could have changed the formula without consumers noticing if they simply began making small changes constantly released out a new coke without actually making a big debut. He conducted taste tests with a fellow researcher Nancy Childs and they concluded from their collected data that the slight changes wouldn’t be noticed by many consumers. This would have saved Coke the money from all the failed market research while also saving them the ridicule from the customers.

What did you learn from the New Coke’s failure?
In the end, the importance of conducting proper marketing research is evident in new Coke’s story. The amount of time and money spent on research is irrelevant if you are asking the wrong questions. In the case of Coke, what really mattered was how consumers felt about the brand, and because of consumer’s strong loyalty to the Coke brand, there could certainly have been a better way to draw in new consumers. By changing the formula completely Coke not only risked failing to entice new consumers, but they risked alienating their current, loyal following. New Coke’s failure also teaches us that the type of questions you ask when conducting research should be considered first. In order to get a good idea of what your consumers are feeling, there needs to be a mixture of open and closed ended questions. Another important lesson is, do not try to copy competitors. What works for them might not work for your company. Differentiation is what makes a company and their brand great. by becoming too much like a competitor the company nullifies whatever incentive consumers may have to buy their product. In the case of Coke, the new formula tasted a lot like Pepsi. At this point what is to stop consumers from switching between the brands without a second thought?

Hands on Component
This portion of the project consisted of a taste test given in class of three different types of Cola brands, none of which were Coke. Our classmates ate an unsalted cracker before tasting each of the three different brands. After tasting each Cola, they graded it on how tasty it was and then made a guess as to which Cola brand it was. The outcome of the taste test was shocking. Twenty one students in all took the taste test, yet there was not a single one who was able to correctly identify all three Cola brands. Furthermore, fifteen out of twenty one students said that they were able to differentiate between different brands, and fourteen said that Coke was their favorite brand of Cola. That is two thirds of the class that stated that Coke was their favorite Cola, however each student listed Coke as an answer to one option. This is strange because Coke was not one of the colas given in the taste test. This could be due to many reasons.

One reason is that the project was titled New Coke Failure so many students could have assumed that Coke had to be a choice given and therefore wrote Coke down as one of the three Cola brands. Another reason is that students believed they could differentiate between brands when in reality they are unable to taste differences in Colas. There were also some outliers in the data, with some student choosing Cherry Coke and Dr. Pepper. It is possible that a student could have wanted to taste a certain soda and therefore tasted what they wanted to, not what was actually there. This is why proper research is so important before a major decision is made. Consumers may believe one thing but when given a test, their answer may have no relation to their belief. Finding out what exactly ties consumers to certain brands is crucial and could mean the difference between a successful company and a failure, such as the failure of new Coke.

Conclusion
Overall, it appears that Coke made a huge mistake in the release of new Coke. They were under severe competitive pressure from Pepsi and had been losing market share very quickly for years. This caused the team at Coca-Cola to panic and rather than finding a way to differentiate their product and make consumers want it, they opted to try to copy their competitor. However, Coke thought they were being smart because they had conducted extensive research of their new formula. According to their research consumers overwhelmingly preferred the taste of new Coke to that of Pepsi or the original Coke. Coke failed to ask a critical question, “How did consumers feel about the formula to Coke being replaced?”

This did not turn out well for Coke, as a few short weeks after the release of the new formula consumers were nearly rioting in the streets. Coke was being made fun of in the newspapers, consumers were dumping the new Coke out into the street, and still others were boycotting the company all together. In total, Coke allowed the new Coke to replace the original for 79 days. Then they returned the original formula to the market and added the tag “classic.” This new formula was not quite the same though, high fructose corn syrup had replaced sugar cane. Consumers were generally so happy to get their Coke back, that this change went largely unnoticed. Was this change in formulas one of the biggest marketing blunders of all time? Or, was this a brilliant ploy to increase sentimentality for Coke and to increase market share in the long run. Either way Coke was able to survive the new Coke fiasco and came out stronger on the other side. .

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