About Coca Cola

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New Coke, renamed Coke II in 1992, was the sweeter drink introduced in 1985 by The Coca-Cola Company to replace its flagship soda, Coca-Cola. Public reaction was devastating, and the new cola quickly entered the pantheon of major marketing flops.

However, the subsequent reintroduction of Coke's original formula led to a significant gain in sales, which some theorize was the original purpose all along.

History

A new leader, and a problem

The original drink's market share had been shrinking for decades, from 60 percent just after World War II to under 24 percent in 1983, in the face of fierce competition from archrival Pepsi-Cola. 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.

He proved that the next year when Diet Coke broke a longstanding company tradition that the brand would not be diluted and that no other product would also be called Coca-Cola. And instead of simply putting out Coke with an alternative sweetener (something the company only did with Coke Zero in 2005), Coca-Cola developed a newer, softer formula to go with the aspartame-sweetened drink.

Diet Coke was a runaway success, quickly becoming the fourth most popular soft drink in America, and eventually displacing 7-Up as the third.

While this may have sounded like great news for Goizueta and his team, it was not. Diet Coke's success was coming at the expense of regular Coke as more consumers showed a preference for sweeter drinks, whether sugared or not. And foremost among them was Pepsi, whose lead had narrowed to within a couple of percentage points of Coke. In the wake of its late 1970s "Pepsi Challenge" campaign, it had begun to outsell Coke in supermarkets, and it was only due to fountain sales at McDonald's and Hardees fast-food restaurants that Coke was maintaining its edge.

A possible solution

Coke's executives knew that situation wouldn't last forever. So they put the company's marketing department on to studying the problem.

The initial results were alarming. While most Pepsi drinkers strongly preferred Pepsi and rarely settled for others, Coke drinkers, although they preferred Coke, were more likely to buy and drink Pepsi, RC or a store brand if it was the only brand available.

That explained why Pepsi had actually been gaining customers despite an overall shrinkage of the sugared soft-drink market. And even worse, the Pepsi drinkers were generally a younger demographic, reflecting the success of the youth-oriented "Pepsi Generation" campaign the company had begun in the late 1960s.

Coca-Cola could have just tried to reposition the brand and woo the same younger drinkers. But they believed that their problem was one of substance (the nature of the product itself) rather than its image. As the success of Diet Coke showed, the market was leaning toward sweeter drinks. An image change would not work.

Appropriately, the development of Diet Coke had inadvertently offered a ready solution to this quandary. During that process, one chemist had experimentally sweetened the drink with high fructose corn syrup, with which some bottlers had already been flavoring regular Coke, instead of cane sugar (to some criticism from longtime Coke drinkers, who sometimes traveled to different areas to get their preferred mixture). It had proven to be popular with the development team.

Perhaps, management thought, this might be the answer.

The market research

The company's marketing department again went out into the field, this time armed with samples of the possible new drink for taste tests and focus groups and surveys.

The results of that were very positive — the HFCS mixture beat both regular Coke and Pepsi quite overwhelmingly. Then tasters were asked if they would buy and drink it if it was Coca-Cola.

Most said yes, they would, although it would take some getting used to. A small minority, about 10-12%, were very angry at the thought and alienated by it, saying that they might stop drinking Coke altogether. Their presence in focus groups tended to skew the results from that research in a more negative direction as they exerted indirect peer pressure on other participants.

The surveys, which standard marketing procedure at that time put more weight on, were less negative and were key in convincing management to move forward with a change in the formula for 1985 to coincide with the drink's centennial. But the focus groups had provided a clue as to how the change would play out in a public context, a data point that the company downplayed but was to prove important later.

Management also considered, but quickly rejected, an idea to simply make and sell the new flavor as yet another Coke variety, as the company's bottlers were already complaining about absorbing other recent additions to the product line in the wake of Diet Coke. A new variety of Coke in competition with the main variety could, if successful also cannibalize Coke’s existing sales and increase the proportion of Pepsi drinkers relative to Coke drinkers.

Rollout

New Coke was introduced on April 23 of that year, with the slogan "The Best Just Got Better." Production of the original formulation ended that same week.

At first the reaction went as the market research had predicted. After some reluctance, most Coke drinkers resumed buying the new drink at much the same level as they had the old one.

But the alienated 10% made noise and got media attention. Letters poured in to company headquarters in Atlanta expressing deep disappointment and anger at executives. Talk show hosts and comedians made light of the switch. Pepsi took advantage of the situation, running ads in which a first-time Pepsi drinker exclaimed "Now I know why Coke did it!" (which was, to be sure, the truth).

Gay Mullins, a Seattle retiree, formed the organization Old Cola Drinkers of America on May 28 to lobby Coca-Cola to either reintroduce the old formula or sell it to someone else. His organization eventually received over 60,000 phone calls. He also filed a class action lawsuit against the company.

By June, as warmer weather began to spur soft-drink sales, it was apparent that the situation was not working out the way the company had expected it to. News reports were beginning to come in of people trying to obtain old Coke from overseas, where the new formula had not yet been introduced.

Reversal

Humbled, Coca-Cola executives announced the return of the original formula, called "Coca-Cola Classic," on July 10, less than three months after New Coke's introduction. Many who tasted the hastily reintroduced classic formula were not convinced that the first batches really were the same formula that had supposedly been retired that spring.

"There is a twist to this story which will please every humanist and will probably keep Harvard professors puzzled for years," said Donald Keough, president and chief operating officer, at a press conference. "The simple fact is that all the time and money and skill poured into consumer research on the new Coca-Cola could not measure or reveal the deep and abiding emotional attachment to original Coca-Cola felt by so many people."

Conspiracy theories

This sudden reversal led to several urban legends and conspiracy theories that have circulated in the years since to explain how a company with the resources and experience of Coca-Cola could have made such an apparently colossal blunder.

The simplest was that the company had planned all along to reintroduce the old formula as a ploy to reinvigorate interest in the product. There have been apocryphal tales of employees seeing batches of the old formula continuing to be produced well after April, and others who say that long before July they saw the graphics for the Classic Coke containers (which Coke said at the time were hastily conceived and produced within a day, which raised some eyebrows as large corporations rarely do such momentous things with that much haste). The company denies this to this day.

Other explanations that have been proffered:

* The putative switch was to cover the change from sugar-sweetened Coke to high fructose corn syrup (HFCS), a theory that was supposedly given credence by the apparently different taste of Classic Coke when it first hit the market. However, as noted above, some Coke bottlers had been using HFCS for several years already, though it is true that eventually all bottlers would abandon cane sugar. Also, many of those who claimed the reintroduced Classic Coke tasted differently had not been able to sample the old drink for a couple of months and naturally their memories may have played a part in idealizing the taste.

* In another theory, it provided cover for the final removal of all coca derivatives from the product to placate the Drug Enforcement Administration, which was trying to eradicate the plant worldwide to combat an increase in cocaine trafficking and consumption. Coca plays (or played, if this theory were to be true) very little part in the flavor of Coke in any event; if one major buyer ceased using it, there would be that much less reason for farmers to grow it. However, the coca trade continued apace as sales for illegal usage continued to be highly profitable.

* Yet another theory agrees that the switch was meant ultimately to fail, but that it was not about providing cover for any substantive change in the product, instead a sort of pre-emptive flanking maneuver. Pepsi, this theory holds, had been developing and considering marketing a product called Pepsi Supreme which was to have tasted more like Coke as a way to increase its market share and attract yet more Coke drinkers to its product line. By pulling a similar move themselves, Coke guaranteed, it is believed, that any move by Pepsi would look like mere imitation and thus headed off a challenge to its flagship drink. (Pepsi supposedly had such a product in development at the time, and was going to introduce it if the combination of New Coke and Classic Coke had successfully cut into its market share; but since that never happened Pepsi Supreme never saw the light of day).

Goizueta provided the perfect answer to all these when he addressed both them and the marketing-blunder allegations by simply saying "We're not that dumb, and we're not that smart," as Classic Coke was reintroduced.

Aftermath

At first it looked as if Coke's worst fears had come to pass as Pepsi pulled into the lead. But by the end of the year, Classic Coke was substantially outselling both New Coke and Pepsi, putting the company back into the number-one position it has enjoyed ever since. New Coke, by contrast, had dwindled to a mere three percent in market share.

Coke spent a considerable amount of time trying to figure out where it had made a mistake, ultimately concluding that it had underestimated the public impact of the portion of the customer base that would be alienated by the switch. This narrative would not emerge for several years afterward, however, and in the meantime the public simply concluded that the company had, as Keough suggested, failed to consider the public's attachment to the idea of what Coke's old formula represented, and that has become conventional wisdom although it is hardly the case.

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. Allowing itself to be portrayed as a somewhat clueless large corporation forced to back off a big change by overwhelming public pressure flattered customers and added to the legend. Not coincidentally, the bottles and cans would bear the "Classic Coke" title for years afterwards, even when it had essentially displaced its erstwhile usurper as the main brand.

While in the short term the fiasco led Bill Cosby to end his advertising for Coke, saying his commercials that praised the superiority of the new formula had hurt his credibility, no one at Coca-Cola was fired or otherwise held responsible for what is still widely perceived as a misstep, for the simple reason that it ultimately wasn't (in contrast with Schlitz beer's disastrous change to a cheaper formula in the early 1970s, which was also based on market research into product taste) yet unquestionably detrimental to the company in the long term. When Goizueta died, still on the job, in 1997, the company's share price was at a level well above what it was when he had taken over 16 years earlier and its position as market leader even more firmly established. Even Roger Enrico, CEO of PepsiCo, who at the time had likened New Coke to the Edsel, admitted later that had people been fired or demoted over New Coke it would have sent a message that risk-taking was strongly discouraged at the company.

Coke II
Coke II can
Enlarge
Coke II can

Another ironic outcome was that New Coke did, briefly, become a second brand despite the original determination not to make it one.

In 1985, New Coke was sold only in North America, while the original formula continued to be sold in the rest of the world (although had the new version been a success it would presumably have been introduced worldwide). But New Coke was eventually returned to the company's product portfolio; it was test-marketed under the name Coke II in 1990 and officially renamed Coke II in 1992.

However, Coke, perhaps not wanting to get burned a second time, did little to promote or otherwise distinguish it, and 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 a year or so Coca-Cola II was largely off the American shelves again. By 1998 it could only be found in some scattered Midwestern markets, and by 2002 was gone from the U.S. altogether. However, it has found acceptance in some foreign markets.

Was it really necessary?

Although the reason for Coke's early-'80s loss of market share was originally thought by both companies and all observers to be Pepsi's sweeter taste, later research has suggested otherwise.

The real culprit, according to this, turned out to be the 1965 merger between Pepsi and Frito-Lay that created PepsiCo. The new company was able to take advantage of Frito-Lay's highly developed retail distribution system to leverage more shelf space at supermarkets and other food retailers. With more shelf space available, sale specials were common for Pepsi products. Price, not loyalty, was the motivating factor for most retail consumers, and Pepsi gained substantial market share as a result.

The taste-test conundrum

In talks, and his book Blink, author Malcolm Gladwell puts most of the blame for the failure of New Coke on the flawed nature of taste tests. First, most taste tests are subject to systemic biases, such as the drinks not always being tasted in the same order in each administration of the test.

Second, a person cannot tell if he really likes something from the small amounts used in taste tests. In very small portions, people will show a preference for the sweeter drink. But in the volumes people actually drink colas, many people will find that the sweet drink they had selected in the taste test to be overly cloying. When the same people who rated New Coke very highly in taste tests claim to like the original formula better outside of taste test, then, there is no reason to think them fickle or irrational. The only sure way to tell what drink a person prefers is to let him drink larger amounts over a longer period of time.

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