In 1985, the board of the Coca Cola Corporation perceived that they had a problem. They perceived that they were losing their long-running battle with arch rivals PepsiCo and that the market-leading position of Coca Cola as the world’s favourite soft drink was at stake. In the 1950’s Coke outsold Pepsi by a margin of five to one. By the mid-1980s Coke’s lead in the soft drinks market was down to a tiny fraction of that lead. Coke could not let their most prestigious brand lose its dominant position in terms of market share.
For many years, Pepsi had run a strong second marketing strategy. They were happy to allow Coke to be the market leader as long as they were in a close second place.
It is expensive to be the market leader; a star product in terms of the Boston Consulting Matrix; Coke had to spend its marketing budget to promote their brand but also to defend against attacks from competitors.
The soft drinks market was also mature. To grow market share is such a mature market, as market leader, meant an exponentially increasing marketing spend for each percentage point of market share gained.
Two major marketing campaigns had helped Pepsi close the market share gap with Coke. The first, started in the 1970s was the Pepsi Challenge. This was a blind taste test where consumers were asked to taste two unmarked soft drinks. Time after time, when the challenge was carried out, consumers preferred Pepsi to Coke.
The second was Pepsi’s decision in the early 1980’s to focus its marketing at young consumers. Pepsi used young celebrities such as Michael Jackson to advertise their product and asked consumers to join the ‘Pepsi Generation’. In comparison, Coke fronted their US advertising with the aging comedian Bill Cosby.
Pepsi also began to challenge Coke’s dominance in the soft drink syrup market. Syrups were sold to bars and restaurants for sale through soda siphons. Pepsi started to sign exclusive contracts with fast food and restaurant chains which had previously used Coke syrups. PepsiCo also launched competitor products to challenge Coke’s non-cola brands such as Fanta and Sprite.
Coke did some marketing research on sales of soft drinks in supermarkets. They found that when ‘housewives’ were offered a choice between Pepsi and Coke, they chose Pepsi. It seemed that the only thing that was maintaining Coke’s market lead was their superior distribution chain. For instance, there were far more vending machines dispensing Coke than those dispensing Pepsi.
The board of the Coca Cola Corporation decided to act and their focus was on the Pepsi Challenge. They believed the answer to their problem lay in beating Pepsi on taste and so they decided to reformulate their famous secret recipe: they were going to change the taste of Coca Cola. New Coke was born.
Coke carried out over 200,000 taste tests with consumers. Time after time, the new recipe got more favourable responses than both the old recipe and Pepsi. Coca Cola’s board was in no doubt, New Coke would be a massive hit. They announced that with immediate effect New Coke was to be placed on the market and the old recipe withdrawn.
The board got a nasty shock. Instead of being a huge hit, new Coke angered consumers and their was a huge public outcry. Some consumers started a campaign to boycott Coca Cola until the old recipe was restored to shop shelves.
So what went wrong?
- Coca Cola failed to appreciate the emotional bond that customers had with their brand. They had focused their market research on the products taste and not on the consumers perception of the brand. For many years, Coke had used the slogan ‘the real thing’. Now it appeared that they had been lying to consumers and were introducing a ‘new thing’. Coke’s 80’s advertising used the strap line ‘This is it’, now Coke was telling consumers that it really wasn’t ‘it’. It seemed Coke was treating loyal customers with contempt. One marketing academic compared the decision to change the recipe as like trying to replace God with a ‘new’ God.
- Coke didn’t properly analyse their product range when both analysing the reasons as to why Coke’s market share had fallen and when introducing new Coke. This was a huge error; they had not taken into account the effect that Diet Coke was having on soft drink sales. Diet Coke was launched in 1983 and in 18 months it had quickly developed into the third most popular soft drink with around 24% market share. Coca Cola’s board failed to recognise that they hadn’t been losing market share to Pepsi but to one of their own products. The combined sales of Coke and Diet Coke far outstripped Pepsi.
- New Coke had a very similar taste to Pepsi, It seemed Coke was abandoning the uniqueness of its brand and its points of differentiation in the market. it seemed rather than ‘leading’ the market, Coke was imitating its main rival.
- Coke focused on technical aspects of both their product and their recipe. They forgot to focus on what consumers loved about their product; those aspects of emotional attachment which led to customer retention.
Coke acted quickly to try to limit the damage the new recipe was having on their brand. Within weeks of the launch they had a press conference to say they had got it wrong with new Coke. The old recipe would be reintroduced under the brand name ‘Classic Coke’. New recipe Coke was gradually removed from the market. If there is one thing to be learnt from New Recipe Coke, it is not to be afraid to do a U-turn and to return to a well trusted strategy. In fact, by announcing Classic Coke, the board’s aim of increasing market share was actually achieved!
Coca Cola is a product well into the mature stage of its life-cycle. It was a worldwide brand. In terms of the Ansoff matrix, that made market penetration difficult as Coke would have to work hard to take market share from its competitors. As the brand already operated across the world and in all demographic segments, market expansion was difficult. That left two potential strategies, New product Development/Brand Extension and Diversification.
In recent years, these are the strategies Coca Cola Corporation has adopted to keep themselves in a dominant market position. They have launched new Coke products such as Coke Life and Coke Zero Sugar. Through acquisition, they have entered the fruit juice market and the spring/mineral water market. perhaps if New Recipe Coke had been launched as a brand derivative as opposed to a product replacement, it may have been more of a success.