In an attempt to stave off challenges from primary rival Pepsi-Cola, the Coca-Cola Company reformulated Coke, setting off a firestorm of criticism.
Ever since the 1930’s, Coca-Cola had eyed its rivals with some disdain. In citrus-flavored drinks, 7-Up was the dominant force, but this was not a large category and did not pose much concern to Coca-Cola. Canada Dry put out a full line of offerings but was best known for its ginger ale. Dr. Brown had celery tonic, and Dr Pepper had a cherry-flavored drink. In the cola category, the Coca-Cola Company coexisted with Royal Crown and several other regional companies. In the 1930’s, the Pepsi-Cola Company
The rivalry heated up after World War II. Coke was still the world’s leading soft drink, but Pepsi was starting to move faster. It still trailed Coke in sales by a wide margin, but its supermarket sales were rising to the point that Coca-Cola began to take it seriously as a threat. Meanwhile, other soft drinks faded. Even when new products were introduced to the market and gained a temporary advantage over Coke and Pepsi, the two industry leaders were able to recover. In 1961, Royal Crown came out with Diet-Rite.
By the 1970’s, Coke and Pepsi were the only two major players in the industry. Pepsi’s Venezuelan bottler had successfully experimented with a sweeter version of the drink. On the basis of that success, Pepsi quietly reformulated its domestic product and saw its market share rise. The company then changed its advertising stance. Instead of featuring the drink in commercials and print ads, Pepsi stressed attractive young people who were members of “the Pepsi Generation,” implying that swigging a Pepsi all but guaranteed gratification and an energetic social life. “We painted an image of our consumer as active, vital, and young at heart,” said a proud Pepsi official. Inferentially, Coke was portrayed as the drink of older people. Coke responded with the “Things Go Better with Coca-Cola” advertising campaign, which did not have the impact of the Pepsi strategy.
Pepsi-Cola followed with the “Pepsi Challenge,” in which people were invited to drink two unmarked glasses of cola, one Pepsi, the other Coke. Respondents not only Pepsi’s own devotees but Coke fans as well preferred the taste of Pepsi more often than not. After its beginning in 1975, by the early 1980’s the Pepsi Challenge had become a nationwide event. At the same time, Pepsi continued to cut into Coke’s share of supermarket sales. In 1983, the company discontinued the Pepsi Challenge and replaced it with the campaign “Pepsi, the Choice of a New Generation,” which featured pop singer Michael Jackson.
In the years that followed, Pepsi sales rose more rapidly than those of Coke. Through a series of acquisitions, largely in restaurants, PepsiCo became an even larger company than Coca-Cola. Taking this as a sign of the need for diversification, Coca-Cola’s chief executive officer, J. Paul Austin, went into the market to purchase other companies. Into the Coke empire came Minute Maid orange juice, Maryland Club and Butter-Nut coffees and teas, and Hi-C fruit juices and powdered juice mixes. Coca-Cola also had interests in water treatment, wine, and shrimp farming; had a company that manufactured plastic cutlery, bags, and drinking straws; and owned Columbia Pictures.
Roberto C. Goizueta took over as president of Coca-Cola in 1980. He advanced to the chairmanship the following year, succeeding Austin. He sold off nonbeverage operations and introduced new products, including Diet Coke, which became the world’s third-best-selling soft drink (having passed 7-Up), and other Coke formulations. Goizueta chafed at Pepsi’s successes and vowed to counterattack forcefully.
Robert C. Goizueta (left), chairman of the board and CEO of the Coca Cola Compnay, toasts the New Coke in 1985 with Coca-Cola president Donald Keough.
In 1984, Pepsi’s market share rose by 1.5 percentage points while Coke’s declined by a point. In the light of all this, Coke’s decision to introduce a new cola was reasonable, if risky. The company began a $4 million research and experimentation program to create and test market the new drink. Taste tests showed that one version was preferred not only to Pepsi but also to Coke. The tests also showed, however, that about 12 percent of those who favored Coke said that they would be distressed if it were not available. Some people at Coke headquarters concluded that of that 12 percent, half would be lost as customers, but the other half eventually would become loyal to the new Coke. The Coke executives calculated that the losses would be made up by dissident Pepsi drinkers, who, the executives believed, would welcome the new drink.
The Coca-Cola executives did not realize that a hard core of Coke devotees were irate at the mere suggestion of change. Even some non-Coke drinkers were upset at the thought of the old Coke leaving the market; they did not want anyone to tamper with what had come to be seen as a symbol of America. Coca-Cola’s advertising agency asked participants in one focus group: “Suppose a new version of Product X had been introduced in a nearby town, where it achieved widespread acceptance. Now it was coming to your city. How would you feel about it?” The replies indicated that there would be no problem in such a scenario, but, as Coca-Cola later realized, the question was flawed. Apparently, many of those polled assumed that they were being asked to compare two drinks. They had not been told specifically that only one would be available that is, they did not realize that the new Coke would replace rather than supplement the old.
The next question was the matter of a name. Dozens of possibilities were suggested, with Coke Two and Coke 100 (to celebrate the company’s upcoming hundredth anniversary) among the favorites. Had Coca-Cola left the old Coke alone and introduced Coke 100 as a complementary drink, it is likely there would have been few protests.
Late in 1984, Goizueta decided to go ahead with the change in formulations, clearing it first with Robert W. Woodruff, the company’s patriarch who, more than anyone else, had made Coke the most recognized brand name in the world. There would not be a new addition to the Coke line; the new Coke would replace the old. The thinking was that since market tests had showed a strong preference for the new formula, there was no need to confuse customers with two drinks. This thinking ignored the 12 percent of Coke loyalists.
Coke executives’ attempts to keep the coming change secret included the creation of a flurry of activity at the company headquarters. In January, 1985, the company announced that it soon would market Coke in the Soviet Union, where Pepsi had been operating with a near monopoly. In March, company president Donald Keough called a press conference to announce the arrival of Cherry Coke. For the first time, Coke was adding another flavor to the drink, and at the time this seemed revolutionary.
Goizueta and Keough proceeded with the change to the new Coke. On April 19, 1985, they called a press conference for April 23, saying that they intended to make the most significant soft drink announcement in the company’s history. News of what would be revealed soon leaked, and on the day of the Coke press conference, PepsiCo’s president, Roger Enrico, had full-page advertisements in major newspapers. The ads took the form of an open letter to PepsiCo employees in which Enrico said that Pepsi had forced Coke into making changes in its drink. “The Other Guy Blinked,” the ad said, adding that the reason was that Coke conceded its need to make its drink taste more like Pepsi.
At the April 23 press conference, Goizueta announced that changes would be made that would make Coke “even better.” Keough told reporters that in blind taste tests the new Coke beat the old one by a margin of 55-45, and that the margin increased to 61-39 when the drinkers were told which was which. When asked how the new Coke differed from the old, Goizueta replied that it was smoother, rounder, and bolder. Keough was even more vague. Both men vehemently denied that the change had anything to do with Pepsi. They claimed that they wanted only to give customers a better version of an old favorite. No one believed that this was the case. Goizueta even seemed to be disparaging a drink that hundreds of millions enjoyed. It was an unpropitious start.
Coca-Cola’s management was not prepared for the firestorm of criticism that followed. Company telephone lines were jammed as irate consumers complained bitterly about the change in one of the nation’s most familiar products. As news of the switch spread, stores that sold soft drinks were flooded with loyalists who wanted to stock up on the old Coke while they could. Grocery stores and supermarkets were besieged by consumers who were stockpiling caches of the old Coke. The United States had seen nothing similar since the announcement of Prohibition. Newspapers noted that reporters had spoken with scores of angry consumers and that people were renting vans to cart away their huge purchases of old Coke. Newspaper columnists all but accused Goizueta of anti-Americanism, with some hinting darkly that he had failed to understand how Americans would react because he had been born and reared in Cuba.
All of this was wonderful publicity for Pepsi, which crowed over what its executives called a major victory, a concession of its ability to give the public what it wanted. Industry watchers noted that the change made Coke sweeter, closer in taste to Pepsi than was the old Coke. This prompted ardent Coke drinkers to declare that if Coke was going to taste like Pepsi, they might as well switch to Pepsi. This sentiment showed in Coke’s sales figures, which declined in June. The progress of the new Coke was reported regularly on evening television news programs. Meanwhile, scores of strategy meetings were held at Coca-Cola’s offices in Atlanta, Georgia, attended by top management, advertising agency representatives, pollsters, and other interested and concerned parties.
Coke sales continued to plunge. Later it was learned that even many of those who preferred the new Coke refused to drink it, as they resented any tampering with a revered institution. Even many people who did not drink Coke were angry about the change. To them, Goizueta’s assertions that he had presented the American people with a better Coke seemed to suggest there was something wrong with the old Coke, a suggestion they resented. Goizueta had not included the element of nostalgia in his calculations.
Despite the negative reactions, enough Coca-Cola drinkers remained loyal to increase the company’s overall profits. The controversy over the new Coke stimulated interest in both Coke and Pepsi, and sales of both increased. Ironically, the contest proved as successful as any advertising campaign in increasing sales.
Coca-Cola executives made the best of a bad situation. Five months after the reformulation, they announced that both old and new formulations would be available. The new formula would remain Coca-Cola, and the old would return as Coca-Cola Classic. This was greeted as significant news, with stories covering the announcement appearing on the front pages of newspapers and featured on television news programs.
In marketing classes across the United States, professors spoke of the episode as a major blunder. Was it really so? A few industry observers wondered whether Goizueta, one of the nation’s most talented executives, might have planned the entire campaign. Coke received much free publicity and in the end had two Coke formulations, the combined sales of which were higher than those of the sole one before reformulation. At one news conference, Goizueta was asked whether he would do it over again had he known what would happen. He gave an elliptical answer, but Keough was more direct: “The truth is that we are not that dumb, and we are not that smart.” The testing and marketing evidenced blunders, but Coca-Cola was able to recover nicely and profit from the episode.
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Allen, Frederick. Secret Formula: How Brilliant Marketing and Relentless Salesmanship Made Coca-Cola the Best-Known Product in the World. New York: HarperCollins, 1994. Entertaining and informative company history draws on archival sources and interviews. Chapter 12 is devoted to the introduction of the new Coke. -
DeMott, J. S. “All Afizz over the New Coke.” Time, June 24, 1985, 60. Reflects the optimism of the Coca-Cola organization as it introduced the new formulation. -
Enrico, Roger. The Other Guy Blinked: How Pepsi Won the Cola Wars. New York: Bantam Books, 1986. PepsiCo’s chief executive officer presents a lively account of the rivals’ strategies in the struggle for domination of the soft drink market. Contains some amusing and telling anecdotes. -
Greising, David. I’d Like to Buy the World a Coke: The Life and Leadership of Roberto Goizueta. New York: John Wiley & Sons, 1998. Biography of the Coca-Cola executive is also a history of the company under his leadership. Chapter 5 is devoted to the story of the introduction of the new Coke. -
Hoy, Anne. Coca-Cola: The First Hundred Years. Atlanta, Ga.: Coca-Cola, 1986. Authorized history of the company discusses the Pepsi-Coke wars from a partisan perspective. -
Louis, J. C., and Harvey Yazijian. The Cola Wars. New York: Everest House, 1980. Brief but comprehensive account of the struggle between Coke and Pepsi prior to 1980. Also discusses the roles played by other companies in the soft drink business. -
Pendergrast, Mark. For God, Country, and Coca-Cola: The Definitive History of the Great American Soft Drink and the Company That Makes It. 2d ed. New York: Basic Books, 2000. Authoritative study of the subject includes several chapters that deal with marketing strategies. Provides one of the best accounts available of the introduction of the reformulated Coke and how the Coca-Cola Company recovered from its errors.
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