New Coke Fiasco


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  • New CokeOn April 23, 1985, Executives from the Coca-Cola Company announced the reformulation of their flagship soft drink, Coke. The new formulation, most often referred to as New Coke, was a sweeter version of Coca-Cola. Coke also announced that the original formulation of their flagship drink would no longer be available.On July 11, 1985, Coke Executives announced it would bring back the original formulation as Coca-Cola Classic. Coke also announced that New Coke would continue as the flagship product—while Coca-Cola Classic would be an alternative for those who wanted the option (Coca-Cola Company, 2012). Coke’s decision to bring back the original formula came just 77 days after its announcement that the original formula had been retired.This presentation will detail the circumstances that lead to Coke’s decision to scrap its best-selling product. This presentation will also explore the problems with Coke’s decision-making process—and what could have been done differently. It also details the outcomes of and the lessons learned from the New Coke incident.
  • CircumstancesMany circumstances lead Coca-Cola executives to make the decision to reformulate their flagship soft drink. In the mid-1970s, Pepsi, Coke’s biggest competitor, began conducting blind taste tests with Pepsi and its rival, Coke soft drinks. The results of Pepsi’s taste tests showed that a majority of participants liked the taste of Pepsi better than the taste of Coca-Cola. Pepsi launched an advertising campaign touting the taste test results. The advertising campaign was known as the Pepsi Challenge. Advertisements asked consumers to take the Pepsi Challenge. For doing so, consumers would receive a free t-shirt. Coca-Cola’s market share had been in steady decline over the previous several years. Pepsi had overtaken Coke in food store sales by 1977 (Shindler, 1992).
  • Coke’s StrategyCoke’s executives were highly troubled by Pepsi’s gain in market shares. Coke’s own internal market research confirmed Pepsi’s taste test results that a majority of people tested liked the taste of Pepsi over the taste of Coke. Pepsi was marketing to the baby-boomer generation and using celebrities such as Michael Jackson—Coke though Michael Jackson was not patriotic enough for its advertising (Cassels, 2010).Coke executives wanted to modernize its image. Coke desperately wanted to reverse its loss of market share. Doing so, meant it had to beat Pepsi. Coke executives needed a way to save the company. Coke executives met in a top-secret meeting at their advertising agency in New York City. At this meeting, Coke’s Vice President made the shocking announcement that the company would replace Coke with a new Coke (Cassels, 2010).
  • Project KansasCoke’s market research into the possibility of reformulating Coke was known as Project Kansas. Coke spent four million dollars over two years on the project. The research consisted of using focus groups and blind taste tests. Some 200,000 people participated in the blind taste tests. Coke researchers tested the current formulation of Coke—along with Pepsi and several different new formulations for Coke. Coke’s research confirmed Pepsi’s results that a majority of cola drinkers liked the taste of Pepsi better than Coke (Gelb & Gelb, 1986).Only a small percentage of Coke’s taste test participants were given the formulation for the new Coke that would eventually become the official New Coke. Only a small percentage of taste test participants were told of Coke’s plan to reformulate Coke. A small but vocal minority of participants who were told of Coke’s plan to reformulate the drink voiced disagreement with Coke’s plan (Gelb & Gelb, 1986). 
  • Coke’s DecisionThe results of Coke’s marketing research showed cola drinkers preferred the taste of one of the new formulations for Coke to that of the current version of Coke—or even Pepsi. These results and the successful launch of Diet Coke three years earlier gave Coke executives confidence that reformulating the cola was the best way to go. The new formulation would be sweetened with a high-fructose corn sweetener—that made it noticeably sweeter than the original Coke and sweeter than Pepsi (Coca-Cola Company, 2012).Coke would also change the packaging for the new formulation. Coke would remove the script Coca-Cola and replace it with a block-style Coke. The packaging would replace the white in the packaging with silver—as to make the new Coke distinctively different from the old Coke. To reach out to a younger audience, Coke hired the actor, Bill Cosby to star in its new advertisements (Coca-Cola Company, 2012). 
  • The AnnouncementCoke officials announced the reformulation of Coke on April 23, 1985. During the press conference, Coke officials announced that the decision to make the change was one of the best decisions ever made by Coke. A beverage analyst for Smith Barney stated that the change in Coke’s formulation would not make a big difference. The trade magazine, Beverage Digest, did not think the change would affect local Coca-Cola bottlers. Pepsi officials criticized Coke for using a new sweetener that had a higher caloric content—after knocking Pepsi for being too sweet (Shiver, 1985). It was estimated that 81 percent of the American population knew about the reformulation of Coke within 24 hours (Demott, Kane, & Pelton, 1985).
  • Public BacklashNegative press coverage began almost immediately after the Coke’s announcement that it was reformulating Coke and the original formula would no longer be available. Coke loyalists were very unhappy with Coke’s decision. Coca-Cola deliverymen, and anyone who worked for Coke or one of its bottlers, were blamed and ridiculed. Some Coke employees were afraid to tell anyone where they worked—for fear of the public backlash. Some Coke deliverymen were even harassed by grocery shoppers—being held responsible for Coke’s decision to change Coke (Koten & Kilman, 1985). The announcement that the original formulation of Coke would no longer be available led to hoarding and the creation of a black market. Some people were reported to have purchased hundreds of cases to store in their basements. There were many reports of people selling cases of the original formulation of Coke on the black market—some getting thirty dollars per case for the drink (Demott, Kane, & Pelton, 1985). 
  • Coke’s Framing BiasCoke’s executives suffered from a framing bias when making the decision to reformulate Coke and remove the original formula from circulation. A framing bias happens when decision-makers fail to see the big picture when making a decision (CSU, 2013). Coke’s executives were singularly focused on Pepsi’s blind taste tests results that showed Pepsi tasted better than Coke. Coke executives did not focus on Coca-Cola as a brand or what that brand might mean to Americans.Coke spent great resources on its own market research to confirm Pepsi tasted better than Coke—but that Coke could make a drink that tasted better than Pepsi. Coke executives did not research what could be done to reposition Coke in the market—or to make Coke more appealing to consumers. Coke executives had no concerns for anything but making a version of Coke that would beat Pepsi.
  • GroupthinkCoke executives seem to have been suffering from groupthink. Groupthink occurs when members of a group do not want to go against the majority—preferring group harmony instead (CSU, 2013). Junior executives at Coke were not involved with the initial decision to make the formulation change. Sixteen Coke executives attended a secret meeting at the offices of the Coca-Cola Company’s advertising agency in New York City. Only two senior executives knew the reason for the meeting. They announced that Coke would change the formulation of Coke. It seems that the fourteen other executives present at the meeting did not voice any concerns (Cassels, 2010).During the market research of Project Kansas, a small percentage of participants who were told of Coke’s possible plan to change Coke’s formulation, voiced their opposition. Coke executives ignored these concerns (Gelb & Gelb, 1986).
  • Bring Back the Old CokePublic backlash resulting from Coke’s decision to reformulate Coke became more intense. Coke received hundreds of calls per day and tens of thousands of letters complaining about New Coke and pleading for the old formula to be brought back. Southern bottlers were most affected by the retirement of the original Coke. A group of southern Coca-Cola bottlers submitted a petition to Coke executives—asking that the original formulation be resurrected (Zmuda, 2011).Coke executives decided they needed to bring the old formula back to placate Coke loyalists and consumers who wanted that option. Coke officials began working on the re-introduction of the original formula just eleven days after the launch of New Coke. Coke officials wrestled with what to call the old formulation when it was once again made available to the public. The name Coca-Cola Classic was chosen just two days before the announcement of its return—so soon that a phony paper label had to be applied to the can for the first advertisements (Zmuda, 2011).
  • Coca-Cola ClassicThe Coca-Cola Company introduced Coca-Cola Classic to the public on July 11, 1985. The return of the old formulation of Coke came just 77 days after the introduction of New Coke. Coke’s intention was for Coca-Cola Classic to be a flanker brand to its flagship New Coke. Coca-Cola Classic was introduced to placate the vocal minority of Coke loyalists who were unhappy with the cola’s change (Koten & Kilman, 1985).Coke’s plan was for New Coke to remain its flagship product. Coke predicted Coca-Cola Classic would have a small market share and would be frugal with its advertising campaign so as to not overshadow New Coke. Coca-Cola Company stock surged with the announcement of the introduction of the Coca-Cola Classic (Koten & Kilman, 1985)
  • Public RejoicingThe news that Coke was bringing back the old formula was very well received by the American public. ABC News Anchor, Peter Jennings, interrupted General Hospital with a special report to announce the return of the original Coke formulation. The return of the original Coke was covered by all three television networks on the day of the announcement. Arkansas Senator, David Pryor called Coke’s decision to bring back the original formula, “a meaningful moment in U.S. history” (Spitznagel, 2013, para 5).
  • Old Overtakes NewWhen Coca-Classic was introduced in July of 1985, many bottlers—especially southern bottlers gave the new drink prominent shelf space that was supposed to be reserved for New Coke. By March of 1986, Coca-Cola Classic was outselling New Coke by a three to one margin nationwide. Coca-Cola Classic’s lead in New York, Dallas, and Minneapolis was eight to one over New Coke. Coca-Cola Company stock was up over fifty percent from the day Coke announced the introduction of Coca-Cola Classic (Altaner, 1986)
  • Coke’s Confirmation BiasCoke brought back the original formulation for Coca-Cola in the form of Coca-Cola Classic. The newly named old formulation was intended to be flanker brand to the Coke’s flagship product, New Coke. Coke had bowed to public pressure to bring back the old drink but Coke suffered from a confirmation bias. A confirmation bias involves seeking out evidence that confirms the initial decision (CSU, 2013). Coke executives still believed New Coke would be the company’s savior. Coke executives seemed to only seek out evidence that confirmed their decision to reformulate Coca-Cola (Koten & Kilman, 1985).However, Coca-Cola Classic took its place as the unauthorized flagship as it began outselling the official flagship New Coke by a wide margin. Coke’s lineup of products, including its diet drinks and Cherry Coke, began outselling Pepsi’s lineup of drinks (Altaner, 1986).
  • New Coke FailedCoke continued with its two colas until it became very evident that New Coke was never going to be its best-selling product. New Coke’s name was changed to Coke II in 1990. Coke II held an insignificant market share and was later discontinued in the United States. Coke continued with Coca-Cola Classic as its flagship product (Shindler, 1992). Bringing the New Coke debacle to final closure, the Coca-Cola Company quietly removed the word “Classic” from its packaging in 2009 (Zmuda, 2011).
  • Alternative Option 1It is obvious that Coke executives made some bad decisions back in 1985. The Pepsi Challenge blind taste tests and subsequent advertising campaign caught Coke officials by surprise. In their shock, they succumbed to groupthink and several biases when making decisions about what to do. One alternative would have been take the results from Project Kansas and release the new cola to the public with a different name—while keeping the original Coke unchanged. Coke could have marketed the new cola to compete directly with Pepsi. Coke would have had two colas—just as they had with New Coke and Coca-Cola Classic. But this time, they would have had the untapped Pepsi market with their new cola as well as the traditional Coke market.
  • Alternative Option 2Another option for Coke would have been to re-energize the Coca-Cola brand. Coke spent four million dollars on reformulating Coca-Cola. Coke could have used that budget to undertake research on how to reposition Coca-Cola in the market. Coke could have embarked on a new advertising campaign to market Coca-Cola to a wider audience—including Pepsi drinkers.
  • Lessons LearnedClinical Behavioral Specialist, R. Balle-Mason, MS, creates behavioral change programs for the Colorado Department of Human Services. She explained how people are generally resistant to change. She describes that when people are not involved in the change process and have change forced upon them, they tend to rebel and not cooperate. If people are asked to participate in the change process, they tend to cooperate and the change succeeds more often than not (personal communication, August 24, 2013). Coke did not involve its customers in its decision to change the formulation of Coke. Coke never asked anyone if they wanted a new Coke formulation (Ross, 2005). Coke executives overlooked the symbolic meaning of Coke and relied solely on taste test results (Gelb & Gelb, 1986).Coke should have conducted thorough market research to determine the impact of changing the formulation of Coca-Cola. Coke ignored the impact of the media and social influences on consumers (Shindler, 1992). The New Coke incident happened in the days before the proliferation of social media. The public backlash would probably have been much greater if such a decision were to be made in the present.
  • New Coke Fiasco

    1. 1. Running head: NEW COKE 1 New Coke James Balle ORG525 – Leadership and Decision Theory Colorado State University – Global Campus James Ondracek August 26, 2013
    2. 2. NEW COKE 2 New Coke • April 23, 1985 – Coca-Cola announced the reformulation of Coke • July 11, 1985 – Coca-Cola announced it would bring back the original formulation of Coke as Coca-Cola Classic and continue with both New Coke and Coca-Cola Classic (Coca-Cola Company, 2012)
    3. 3. NEW COKE 3 Circumstances • Pepsi’s Pepsi Challenge Advertising – Pepsi conducted blind taste tests and determined that more people like the taste of Pepsi than Coke • Coke was losing market share – Coke’s overall sales lead was diminishing – Coke sales in supermarkets fell below Pepsi (Shindler, 1992)
    4. 4. NEW COKE 4 Coke’s Strategy • Reverse loss of market share • Beat Pepsi • Modernize (Cassels, 2010)
    5. 5. NEW COKE 5 Project Kansas • Research New Coke formulation – Focus Groups • • • • $4 Million spent over 2 years 200,000 participants Only small percentage tasted final new formulation Only small percentage told about reformulating Coke – Tests confirmed Pepsi’s taste test results • Pepsi better tasting than original Coke • New Coke better tasting than Pepsi (Gelb & Gelb, 1986)
    6. 6. NEW COKE 6 Coke’s Decision • New formulation • New packaging • New advertising campaign (Coca-Cola Company, 2012)
    7. 7. NEW COKE 7 The Announcement • Coke executives confident • Beverage analysts believed change would cause little impact • Pepsi criticized Coke for using new sweetener with higher caloric content (Shiver, 1985)
    8. 8. NEW COKE 8 Public Backlash • Negative press coverage (Koten & Kilman, 1985) • Coke deliverymen blamed and ridiculed (Koten & Kilman, 1985) • Hoarding of and black market for original Coke (Demott, Kane, & Pelton, 1985)
    9. 9. NEW COKE 9 Coke’s Framing Bias • Change Coke to beat Pepsi – Coke executives were singularly focused on Pepsi’s taste test results – Creating a better tasting Coke was the only thing that mattered – No concerns for anything else
    10. 10. NEW COKE 10 Groupthink • Some taste test participants, told of the possibility of replacing Coke, expressed dislike for the idea—executives ignored their concerns (Gelb & Gelb, 1986) • Junior executives at Coke seemed to not want to go against senior executives (Cassels, 2010)
    11. 11. NEW COKE 11 Bring Back the Old Coke • Coke executives began working on bringing the old Coke back 11 days after New Coke was introduced • The new name for the old Coke was decided just 2 days before the announcement was made (Zmuda, 2011)
    12. 12. NEW COKE 12 Coca-Cola Classic • Introduced 77 days after New Coke debuted • Coke executives brought back old formulation to placate loyalists • New Coke would still be flagship • Coca-Classic would have small market share (Koten & Kilman, 1985)
    13. 13. NEW COKE 13 Public Rejoicing • News Coverage – Peter Jennings interrupted General Hospital to make announcement (Zmuda, 2011) – News of Coke’s decision was covered by all three television networks (Zmuda, 2011) • Announced on the floor of the United States Senate (Spitznagel, 2013)
    14. 14. NEW COKE 14 Old Overtakes New • Coca-Cola Classic began outselling New Coke by a wide margin • Many bottlers gave Coca-Classic prominent shelf positioning over New Coke (Altaner, 1986)
    15. 15. NEW COKE 15 Coke’s Confirmation Bias • Coke executives still believed in New Coke (Koten & Kilman, 1985) • Coca-Cola Classic took its place as flagship (Koten & Kilman, 1985) • Coca-Cola Classic began outselling New Coke and Coke’s lineup began outselling Pepsi’s lineup (Altaner, 1986)
    16. 16. NEW COKE 16 New Coke Failed • New Coke changed to Coke II in 1990 (Shindler, 1992) • New Coke discontinued in United States (Shindler, 1992) • Coca-Cola Classic became Coca-Cola in 2009 (Zmuda, 2011)
    17. 17. NEW COKE 17 Alternative Option 1 • Release New Coke with a different name while keeping original Coke • Market new product to compete directly with Pepsi
    18. 18. NEW COKE 18 Alternative Option 2 • Re-energize Coca-Cola brand • New advertising • Reposition Coca-Cola in the market
    19. 19. NEW COKE 19 Lessons Learned • People are resistant to change (personal communication, August 24, 2013) • Conduct more thorough market research • Impact of media and social influences (Shindler, 1992)
    20. 20. References Altaner, D. (1986). Old, new or classic, Coke still number one now that marketing confusion has calmed, the old recipe outsells the new three to one. Sun Sentinel, March 30, 1986. Coca-Cola Company. (2012). The real story of New Coke. Retrieved from Cassels, P. (2010). When image became everything: The New Coke fiasco at 25. Retrieved from Colorado State University-Global Campus. (2013). Module 4 – Managing group dynamics in a decision environment. [Blackboard ecourse]. In ORG 525 – Leadership and decision theory, (p3). Greenwood Village, CO: Author. Colorado State University-Global Campus. (2013). Module 5 – Managing biases, and emotional influences in decision making. [Blackboard ecourse]. In ORG 525 – Leadership and decision theory, (p2). Greenwood Village, CO: Author. DeMott, J. S., Kane, J. J., & Pelton, C. (1985). All afizz over the New Coke: Some hate the taste, but sales have never been better. Time, 125(25), 60-60. Gelb, B. D., & Gelb, G. M. (1986). SMR Forum: New Coke’s fizzle lessons for the rest of us: New Coke fizzles understanding consumer resistance how better research can help what does the product do for the buyer? Applying the research references. Sloan Management Review, 28(1), 71-77.
    21. 21. Koten, J., & Kilman, S. (1985). Coca-Cola faces tough marketing task in attempting to sell old and New Coke. Wall Street Journal, Eastern Edition, July 12, 1985. Koten, J., & Kilman, S. (1985). Marketing classic: How Coke’s decision to offer 2 colas undid 4 1/2 years of planning --- after a successful Introduction of New Coke, firm began to see market slip away --- which one will be flagship? Wall Street Journal, Eastern Edition, July 15, 1985. Ross, M. E. (2005). It seemed like a good idea at the time: New Coke, 20 years later, and other marketing fiascoes. Retrieved from Schindler, R. M., (1992). The real lesson of New Coke: The value of focus groups for predicting the effects of social influence. Marketing Research, (4)4, 22-27. Shiver, Jr, J. (1985). Coca-Cola will soon taste sweeter, report says. Los Angeles Times, April 23, 1985. Spitnagel, E. (2013). From Coke to Netflix: Consumers drive brands into retreat. Retrieved from Zmuda, N. (2011). Inside the framework—and fallout—behind New Coke. Advertising Age, 82(18), 14-14.