March 12, 1894 A Marketing Blunder for the Ages

Early focus group results were favorable, but for a minority of 10 to 12 percent. Angry and alienated at the very thought of a “new Coke”, these people insisted they’d stop drinking Coke products, altogether.  The way things turned out, the company should’ve listened to this group a little more carefully.

By the Colonial era, Europeans had long believed that natural mineral waters held medicinal qualities, and favored the beverages over often polluted common drinking water.  British chemist Joseph Priestley invented a means of carbonating water in 1772.  Jacob Schweppe’s Geneva, Switzerland company was bottling the stuff by the 1780s. The first soda water manufacturer in the US was Yale University chemist Benjamin Silliman in 1807, though it was Joseph Hawkins of Baltimore who secured the first US patent in 1809.

PembertonAt first sold for their therapeutic value, consumers increasingly bought carbonated beverages for refreshment.

By the time of the Civil War, “soft drinks” were flavored with ginger, vanilla, fruits, roots, herbs, and countless other flavorings. The first cola drink appeared in 1881.

In 1865, Confederate Cavalry officer John Stith Pemberton was wounded by a saber slash across the chest at the Battle of Columbus, Georgia. Like many wounded veterans, Pemberton became addicted to the morphine given him to control the pain.  Unlike many wounded veterans, he possessed the means to do something about it.

A chemist in civil life, Pemberton experimented with painkillers to take the place of opiates, landing in 1886 on a combination of the coca plant and kola nut. Vicksburg, Mississippi pharmacist Joseph Biedenharn installed bottling equipment in the back of his soda fountain, selling the first bottles of Coca Cola on March 12, 1894.

coca-cola-bottle-historyThe most famous rivalry in the soft drink business began in the 1930s, when Pepsi offered a 12oz bottle for the same 5¢ as Coca Cola’s six ounces.

The Coca Cola Company’s flagship brand had a 60% share by the end of WWII, but that declined to less than 24% by the early 1980s, most of the difference lost to Pepsi and their “Pepsi challenge” blind taste test promotions of the late ’70s.

1221499-coke_vs_pepsiBy the ’80s, market analysts believed that aging baby boomers were likely to switch to diet drinks and any growth in the full calorie segment was going to come from younger consumers, who preferred the sweeter taste of Pepsi.

Roberto Goizueta came to Coca Cola Company as CEO in 1980, saying that there would be “no sacred cows” among their products.  He meant it. Before long, the company launched the top secret “Project Kansas”, to test and perfect the flavor for a new version of Coke. The company’s marketing department fanned out, holding taste tests, surveys, and focus groups.

Early results were favorable, the newer, sweeter mixture overwhelmingly beating both Pepsi and Coke itself. Most tasters said they would buy the product, but a minority of 10 to 12 percent were angry and alienated at the very thought of it. This small percentage was adamant. These people would stop drinking Coke products altogether.  So determined were they that this small splinter group often swayed other members of their focus groups.

The way things turned out, the company should have listened to this group a little more carefully.

Redhead woman holding soda refreshment with angry face, negative sign showing dislike with thumbs down, rejection conceptOn an April Friday in 1985, Coke let the media know that a major announcement was coming the following Tuesday. Coca Cola officials spent a busy weekend preparing for the re-launch, while Pepsi Executives announced a company-wide holiday, taking out a full page ad in the New York Times, crowing that “Pepsi had Won the Cola Wars”.

Skepticism was high on the day of the Big Announcement. Reporters were fed questions by Pepsi officials, and Goizueta fumbled the ball, refusing to state the reason for the change. He certainly wasn’t going to give Pepsi any credit for their performance in taste tests and his explanation hardly met the standards for “the Real Thing’.  “[It’s] smoother”, he said, “uh, uh, rounder yet, uh, yet bolder…a more harmonious flavor”.

Yeah.  That’s the ticket.

Goz, Keough
Coca-Cola CEO Roberto Goizueta, left; New Coke, center; and President Don Keough, right. Source: Bettmann, via Getty Images, H/T Bloomberg News

The backlash was ferocious, closely tracking results from those earlier focus groups.  Atlanta based Coca Cola’s southern customers described the change as another surrender to the “Yankees”.  More than 400,000 calls and letters came into company headquarters, including one addressed to “Chief Dodo, The Coca-Cola Company”.  Another letter asked for Goizueta’s autograph, since the signature of “one of the dumbest executives in American business history” would surely become a valuable collector’s item. One psychiatrist hired by Coke to listen in on phone calls, told executives some people sounded as if they were discussing the death of a family member.

Newcoke_maxheadroomNot even Max Headroom and his stuttering “C-c-c-catch the wave!” could save the company.

Ads for “New Coke” were booed at the Houston Astrodome while Pepsi ran ads in which a smiling first-time Pepsi drinker exclaimed “Now I know why Coke did it!”

Even Fidel Castro weighed in, calling the change a sign of capitalist decadence.

Company President Donald Keough realized it was over on a visit to the Mediterranean Principality of Monaco.   Coming to the diner’s table, the small restaurant owner proudly proclaimed that he had “the real thing, it’s a real Coke,” offering Keough’s party a bottle of the old stuff.

images (62)So it was that, in 1985, Coca Cola announced they’d bring back the 91-year old formula.  One reporter asked Keough if the whole thing had been a publicity stunt. Keough’s answer should be taught in business schools the world over, if it isn’t already. “We’re not that dumb,” he said, “and we’re not that smart”.