Hard Lessons for a Soft Drink

What the "New Coke" failure teaches us about innovation

As innovation junkies, we spend a lot of time studying success stories. Which got us to thinking recently about the flip side — the blunders, and what we learn from them. 

We wondered about the train of decisions that led to the failure.  And in more than one case, we questioned, too, if the blunder might have been averted altogether in the current environment, where consumers interact daily with product makers and are often instrumental in crafting and perpetuating true brands.

It’s been more than a quarter century since we witnessed one of the most spectacular innovation failures in history. Business schools are still mining this product development and marketing debacle for lessons learned.  Indeed, “New Coke” was a disaster of unimaginable proportions. After a multimillion-dollar rollout and a promotional campaign that featured one of the nation’s most beloved pitchmen at the time, Bill Cosby, the product survived less than three months in the marketplace.

How did one of America’s most venerable companies make such a colossal miscalculation?  Business commentator Steve Strauss attributed the failure to “fear, hubris and lack of planning.”

FEAR VS. REASON
Still the industry leader with a third of the total market, Coca-Cola was watching Pepsi make gains against its eponymous soft drink.  But it reacted with fear rather than reasoning. The “Pepsi Challenge” taste tests may have revealed there was space on the shelves for a sweeter cola, but they didn’t actually indicate there was anything wrong with Coke. As New York University professor Sam Craig astutely pointed out at the time: “(Coke) didn’t ask the critical question of Coke users:  Do you want a new Coke?”

By re-engineering the product, Coke affirmed Pepsi’s assertion that the two were interchangeable drinks with only taste as a differentiator.  The irony lost on Coca-Cola was that its own brand was largely a result of decades of extraordinarily successful marketing.  We’d all shared “A Coke and a Smile” and just a few years before had watched misty eyed as the company assembled hundreds on hilltops to teach the world to sing – and buy a Coke.  The company built a juggernaut of a brand by associating their product with happiness – it’s not just about the taste, stupid.  

IGNORING THE MINORITY
Enter hubris.  Company President Roberto Goizueta rejected sacred cows from the moment he took the helm four years before the reformulation. Goizueta began his tenure by transitioning the Coke formula from cane sugar to high-fructose corn syrup.  That bit of tinkering didn’t meet with loud consumer resistance (it wasn’t announced), but it did leave Goizueta unprepared for consumers’ emotional push-back when he began tinkering with the brand, itself.

Coke did test market the new product and conducted extensive taste tests with focus groups. What they didn’t do was 1) test market the product in markets where they replaced their own Coke product exclusively with the new one; and 2) listen to the push-back.

In tests against its own product and Pepsi, “New Coke” won every time.  Yet when they asked the tasters how they felt about this being the new taste of Coke, a small but vocal minority in each group became downright hostile.  Even though many of them actually preferred the new taste, they clearly didn’t want a Coke replacement and ultimately wielded significant influence over the others. The take-away from these sessions should have been an affirmation of Coke’s brand – to have intense emotional loyalty to a soft drink is a marketing achievement not to be taken lightly.  Yet Coke focused on the taste-test win among the majority rather than on the brand loyalty and vociferous consumer hostility of the minority.

COULD IT HAPPEN TODAY?
Coke also failed to consult with the independent bottlers who comprised the delivery chain. They weren’t pleased about the new costs associated with making the change. And they, too, were loyal to — and acutely aware of — the brand’s emotional value. Some sued.

Consumers rebelled. Fights broke out in grocery stores. Bill Cosby quit as spokesman, saying the New Coke fiasco had damaged his credibility.

Ultimately, Coke regained market share when it rescinded the “New” formula and Americans renewed their loyalty to the time-honored favorite. Still, the blunder continues to serves as a reminder of the political nature of the marketplace, where a vocal and intransigent few can alter the course of history. It also begs the question:  what if this had happened now, when social networks enable brands to closely monitor consumer loyalties and even include them in product decisions. That vocal minority might have convinced Coke of the value of its core brand before it headed down a wrong path.

After three months of telling America “You’re gonna love it,” Coke conceded we loved our “Classic” Coke more. Coke has since expanded its brands rather than replacing the flagship’s taste. Its current portfolio includes some 450 brands, and 1.7 billion drinks a day.  You gotta love it.

View this article online at SmartCEO.