"God, What a Blunder: The New Coke
Story By Michael Bastedo Angela Davis
(c) December 17,
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?
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."
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)
- "At first I was numb. Then I was
shocked. Then I started to yell and
scream and run up and down." (17)
- "I couldn't have been more surprised
if someone had told me that I was gay,"
said one husband and father of two. (18)
- "Changing Coke is like God making the
grass purple or putting toes on our
ears or teeth on our knees." (19)
- "When they took Old Coke off the market,
they violated my freedom of
choice. It's as basic as the Magna
Charta, the Declaration of Independence.
We went to was in Japan over that freedom."
- "There are only two things in my life:
God and Coca-Cola. Now you have
taken one of those things away from me."
- "Next week, they'll be chiseling Teddy
Roosevelt off the side of Mount
The Mistakes: If it ain't broken, don't fix
In a country dedicated to consumption, Coca-Cola has been the most
successful product in history, the undisputed leader of the $25 billion
soft-drink industry. (23) A number of adjustments have been made in Coke's
proportions of sugar and caffeine since 1886. But its secret flavoring formula
never before had been changed. Unlike almost every other product ever built or
brought, the one thing it never was was new. Overhauling the ingredients of a
popular product "happens all the time, whenever you see 'New and Improved' on a
label," noted Montgomery Security analyst Emanuel Goldman. "The difference with
Coke is that this is one of the most successful products in the history of the
The company took the gamble because Coke's market share fell from
24.3 in 1980 to 21.8 in 1984. The drop stemmed from the popularity of
low-calorie drinks, including Diet Coke, and the "Pepsi Generation" campaigns
made to America's youth. "With aging baby boomers increasingly concerned about
their weight and turning to nonsugar drinkers, most growth in the sugar segment
was expected to come from the teen drinkers. Coke needed to increase its appeal
to the young." (25) Coke decided to court teen-agers by sweetening the recipe
and calling it "new" Coke. Essentially, Coke got boxed in. Pepsi had
positioned itself as the "leading edge" soft drink and called its consumers the
"Pepsi Generation." As Pepsi USA President Roger Enrico explains, "For twenty
years, we've used this Pepsi Generation campaign to reach out not just to the
young but to all people who look forward, who are curious about the next think,
who want more out of life." (26) Coke represented the past, nostalgia, small
towns, parades, picnics, American values. "There are still a lot of people in
Coke's America. But their numbers aren't growing." (27) The problem was that
this image would not necessarily appeal to the younger constituency of soft
drinkers who would dominate the market.
Were there less drastic alternatives? It could have simply
changed its campaigns to give Coke a younger image. Image is probably more
important than taste in selling soda pop. If Coke was determined to change the
recipe, it could have done it without letting anyone know. Alternatively, a New
Coke could have been introduced without knocking out Old Coke off the shelves.
But the company considered, and rejected, plans to keep the old-formula drink in
circulation under the name Coke 100 or "original" Coke. Why did they make the
most drastic move?
The one central mistake in Coca-Cola's decision to change the
formula was maximization. When Goizueta became chairman in 1981, he was
determined to be the chairman of change. He promised there would be "no sacred
cow in the way we manage our business, including the formulation of any or all
of our products." (28) His aggressive attitude helped reinvigorate what had
become a sluggish company. Goizueta started shattering tradition early in his
tenure. Putting the sacred Coke name on a new product for the first time, he
introduced diet Coke in 1982. In early 1985 he put the Coke name on another new
product, Cherry Coke. Goizueta had moved the company aggressively and
successfully into new fields, buying Columbia Pictures in 1982. "He has
breathed new life into the company," says William Meyers. "They needed that,
but now...they are tinkering too much." (29) Goizueta and the other executives
were getting caught up in the success of their previous changes and decided to
make one grand decisive move to recapture the soft-drink market they were losing
An American Institution
The taste question was crucial to Coke. But what Coca-Cola
executives fail to realize is that "there's more to marketing soft drinks than
winning taste tests. More than any other product...consumers have an emotional
attachment to their soft drink brand..." (30) Even Gay Mullins, the Seattle man
who formed Old Coke Drinkers of America, failed repeatedly to identify or prefer
Old Coke in taste tastes. For most people, Coca-Cola was the quintessential
representation of Americana. "Baseball, hamburgers, Coke --they're all the
fabric of America." (31) When Coca-Cola announced that it would bring back Old
Coke, Democratic Senator David Pryor of Arkansas, called Coke's capitulation "a
very meaningful moment in the history of America. It shows that some national
institutions cannot be changed." (32) As Coke discovered fiddling with the
formula of the 99-year-old beverage was an assault to patriotic pride; something
akin to burning the flag. "We did not understand the deep emotions of so many
of our customers for Coca-Cola," said President Donald R. Keough. "It is not
only a function of culture or upbringing or inherited brand loyalty. It is a
wonderful American mystery. A lovely American enigma. And you cannot measure it
any more than you can measure love, pride or patriotism." (33) Coca-Cola
executives should have known that they were playing a very tricky game in
changing Coke. When the firm first came out with 10-oz, king size bottles in
the mid-1950s, many drinkers were beside themselves. "People raised hell with
me and said it didn't taste the same," said Crawford Johnson, president of
Birmingham's Coca-Cola Bottling Co. United. 'I told them, 'We put the same
ingredients in it that we put in the little bottle.'" (34)
One Rotten Apple Spoils The Whole Bunch!
Coke's market research on the reformulation was one of the most
exhaustive market research projects in the history; it cost $4 million and
included interviews with almost 200,000 consumers. Coke's management made sure
that the taste test results were checked and corroborated in every major market
in the country. What went wrong? The particular question which most
frequently has arisen is why Coke's extensive market research was unable to
provide management with better guidance in the reformulation decision. When
announcing the reintroduction of old Coke in July 1985, Coca-Cola executives
suggested that research is not capable of measuring the types of consumer
feelings that resulted from the attempted reformulation. However, most
observers did not attribute the failure of Coke's research in this instance to
an intrinsic limitation of the capabilities of marketing research. Rather, they
judged that the research was conducted or interpreted incorrectly. Although
some have argued that Coke's research error was to overgeneralize from inexact
taste results, the vast majority of people believe Coke's research efforts went
wrong with what has been called the "wrong question explanation." (35) This
explanation argues that the reason that Coke's marketing research did not detect
the consumer outcry which resulted from the reformulation was that they did not
make it clear to the taste-test respondents that if most people chose the new
Coke flavor, then the traditional Coke flavor would no longer be available.
Since the intense publicity has died down, some further details of
the research behind the new Coke decision have come to light. Specifically, it
is now known that Coca-Cola's market research department did indeed ask the
right question. In fact, considerable attention was devoted to testing consumer
reactions to the idea of changing Coke's flavor. Coca-Cola consumers were asked
a long series of questions about what their reactions to such a change would
be. Would you be upset? Would you try the new drink? Would you switch brands
immediately? "We estimated from the response that 10%-12% of exclusive Coke
drinkers would be upset, and that half of those would get over it, but half
wouldn't." (36) To center in on the debate, Coca-Cola's research department
used focused groups, a favorite marketing tool. "While the interviews pointed
to people's willingness to try a new Coke many people just didn't believe anyone
could or should tamper with the king of colas." (37)
For the most part, Coca-Cola followed standard market research
procedure for the development of a new product or the modification of an
existing one. Begin with focus group testing of the product concept, and then
a survey would be conducted, using individual interviews with a large
representative sample of consumers, to verify and quantify the results of the
focus groups. Coke's only deviation from this standard sequence is that the
quantitative survey of individuals appears to have been done before rather than
after the focus groups. But this is a minor point. The problem was that the
focus group phase and the survey conflicted. "Although both the focus group and
the survey provided indications that there would be consumer dissatisfaction,
the survey results indicated that this dissatisfaction would be limited to a
small segment of the market; the focus groups suggested the dissatisfaction
would be widespread." (38) However, it is standard market research practice to
trust survey research over focus groups. Moreover, Coke's research did a pretty
good of predicting consumer response, at least initially. When the
reformulation was first introduced, the consumer response was favorable. But by
the end of May 1985, it had begun to change. It was this that Coca-Cola had not
anticipated. They were well aware that they might alienate some faithful Coke
drinkers as mentioned earlier, but the company expected that alienation to
fade. It was completely unprepared for how it would spread and deepen in the
two months following the debut of the new Coke. "It is this change in consumer
opinion, and only this change, that Coke's market research had failed to
The conflict between the focus group and the survey of individuals
is crucial. As it turned out, one can see that both procedures had provided
important information. "When New Coke was first introduced, people made
individual decisions on it, and most at least acquiesced to the change. But over
time, as the majority of the population had the opportunity to be stimulated by
the media reports and other social interactions with angry Coke loyalists, most
changed their minds." (40) This is what was predicted by the focus groups.
Given the 10%-12% figure from the quantitative survey, a typical eight-to twelve
focus group is likely to have at least one angry loyalist as a member. The
focus group results showed that, in this situation, exposure to the views of
angry Coke loyalists is likely to sway the others in the group to their
position. "By July 1985, Coke executives had sensed that this social
interaction was a major factor in causing their problems; it was reported in
Advertising Age that Coke officials were blaming the press for " fanning public
discontent." Of course, by then it was too late. Coke had already ignored the
research that told them how the market would respond to a flavor change carried
out in a public context." (41)
Why not two Cokes?
There were a number of reasons for this. First of all, the
bottlers let it be known that they were not interested in adding another product
to an already bloated line. Coke had just added Diet Coke, Caffeine-Free Diet
Coke, Caffeine-Free Coke and Cherry Coke. The top brass was also pushing for
the addition of Diet Cherry Coke and Minute Maid Orange Soda. These new
products increased bottler costs tremendously.
Coca-Cola management was also worried about the interplay between
two flagship brands. They were worried that a new Coke would simply cannibalize
the sales of old Coke, which would in turn allow Pepsi to become America's
Number-One Cola. A new Coke would invite "invidious comparison" between the two
Cokes in the media and the public that would ultimately hurt the sales of both
brands. And which brand would McDonald's choose? What problems could this
cause? Ultimately, Goizueta decided that the costs of two Cokes far outweighed
the benefits and steeled himself to the fact that old Coke was going to have to
Why wasn't anyone fired?
This is a very intriguing question. Even after the consequences
and repercussions of this blunder were analyzed, no one at Coke was reprimanded,
much less fired. The same top management team of Goizueta, Keough, and Dyson
continued for a number of years until Dyson moved on to head Coca-Cola's
company-owned bottling operations. Why was no one held accountable?
There are a number of reasons. First of all, the fact is that
Coke did not lose money as a result of this fiasco. In fact, the stock price
jumped from 61.875 to 84.500, a 35.5% increase. By early 1986, the stock had
reached an all-time high of $110 million. Goizueta was rewarded with $1.7
million for 1985 in salary and bonuses, and was additionally awarded with almost
$5 million in bonus for the increase in stock price. President Keough's wage
was potentially more than $3 million. (42) According to Coca-Cola's 1986 proxy
statement, these awards were given for:
"singular courage, wisdom and commitment in making certain
decisions in 1985 which entailed considerable business risks, the net result of
which has been, and will continue to be, extremely beneficial to the
shareholders of the company."
Herbert A. Allen, president of Allen & Co. and chairman of
Coke's compensation committee said that, "They had the courage to put their jobs
on the line, and that's rarely done today at major American companies." (43)
(Apparently the quality of their decisions is irrelevant.) Roger Enrico argues
that a mass firing would essentially put everyone at Coca-Cola on notice that
risk-taking is punished; worse performance would certainly result.
The top brass were also helped by a system of diffuse
responsibility. While Zyman and Dyson were set up to head "Project Kansas," as
the New Coke fiasco was called, everyone, including Goizueta and Keough, was
involved in the decision-making. By no means did Dyson or Zyman go off on their
own without the express consent and encouragement of the CEO. Even Robert
Woodruff, the patriarch of Coke and its president for over two decades agreed to
the reformulation. Essentially, Coca-Cola management had no one to blame but
Coca-Cola's marketing disaster of attempting to change the formula
of its flagship brand has some important lessons for the making of public
policy. First, constituency analysis is extremely important because you never
want to alienate or abandon your base. When Coca-Cola did its market research
it knew that it would alienate 10%-12% of its faithful drinkers. But they
figured that the alienation would fade away. What they did not count on was
that this alienated core would stir discontent that would lead them to have to
reintroduce Old Coke. So when making public policies you never want to alienate
your base, lest they bite off your toes.
Second, some things cannot be measured by taste tests, opinion
polls, or market research. Whether its Coca-Cola or some cherished public
policy, if it becomes ingrained as an American institution it will be very
difficult to almost impossible to try to change it. For example, back in 1987,
President Reagan offered a new insurance program to help the eldery pay for the
devasting costs of acute illness. Congress quickly embraced Reagan's proposal.
Lawmakers tacked on even more benefits which were to be paid for with a surtax
on all senior citizens and passed what became known as the 1988 Medicare
Castastrophic Coverage Act. The law seemed to please everyone, Democrats and
Republicans took pride in improving health care coverage for an important
constituency. Everyone was happy. Everyone, that is, except the seniors.
Many didn't want the new benefits and few wanted to pay for them. And so after
so quickly enacting the law in 1988, Congress spent 1989 in retreat, trying to
manage an avalanche of protest from wealthier retirees who resented the
surtax. Congress finally voted to repeal the law on November 22, 1989, only
sixteen months after Reagan had signed it into law.
Coca-Cola had an essential and demanding problem as it entered the
1980's: declining market share. What should Coke have done to fix its
problem? Luckily, Coke had the data it needed. They knew that their product
was competitively priced, universally distributed and well-advertised. The
intuitive response would be that Coke did not have an image problem, it had a
substance problem (read: taste). However, the research was also telling them
that they absolutely could not change the taste of Coke and live to see the
light of the following day. What was the solution?
Coke had image AND substance problems. First of all, they knew
that people were saying they loved Coke, and yet they didn't always buy it.
America's Favorite Drink was being taken for granted. Yet it was still true
that people, in blind taste-tests, simply liked Pepsi better. Which was the
easier problem to solve? Image. How did Coke solve it? By working on
It would be nice to think that Coca-Cola management had been smart
enough to realize that a blunder of massive proportions was in order. Alas, it
was just a happy accident. For one summer, Coke made headlines all across the
country. People organized to save their "favorite" drink. They even tried to
file a class-action suit. Best of all, people were reminded what they favorite
drink was and that it could go away.
Ultimately, Coke won the Cola Wars with a megabrand strategy that
Pepsi couldn't beat. Pepsi's flagship brand might be Number-One, but Coke was
still rolling in more dough. Coke still has more shelf space, more fountain
outlets and more advertising. Coke's stock price shot through the roof in a big
payoff for shareholders and executives. Thank God for happy accidents.
1 Newsweek 24 June 1985 : 32.
2 Time 22 July 1985: 48.
3 Thomas Oliver, The Real Coke, The Real Story, (New York: Random House,
4 Oliver, 47.
5 Oliver, 48.
6 Oliver, 97.
9 Oliver, 100.
10 Oliver, 104.
12 Oliver, 105.
13 Newsweek 24 June 1985 : 32.
14 Ibid., 33.
15 Ibid., 32.
17 Time 22 July 1985: 48.
19 Time 22 July 1985: 49.
20 Newsweek 24 June 1985 : 33.
Time 22 July 1985: 49.
22 Oliver, pg. 144.
23 Newsweek, 6 May 1985:
24 U.S. News and World Report, 6 May 1985: 14.
25 Newsweek, 22
July 1985: 40.
26 Roger Enrico and Jesse Kornbluth, The Other Guy
Blinked: How Pepsi Won the Cola Wars, (New York: Bantam Books, 1986) 16.
28 Newsweek, 22 July 1985: 39.
29 Ibid., 40.
Enrico and Kornbluth, 198.
31 Newsweek, 24 June 1985: 32.
32 Time, 22
July 1985: 48.
33 Ibid., 49.
34 Newsweek, 22 July 1985: 51.
Robert M. Schindler, "The Real Lesson of New Coke: The Value of Focus Groups
for Predicting the Effects of Social Influence," Marketing Research, December
36 Schindler, 26.
37 Schindler, 28.
38 Schindler, 27.
39 Schindler, 32.
40 Schindler, 28.
41 Schindler, 29.
43 Enrico and Kornbluth, 240.