Wednesday, April 22, 2015

Happy Birthday, New Coke (°March 23, 1985)

Tuesday April 23rd of 1985 the Coca-Cola Company launched New Coke. This still remains one of the major cases in the marketing literature. It often ranks first in all-time lists of marketing fails (such as on marketwired, or in Matt Haig's book Brand Failures). Apart from the obvious failure (for the short version, see below; for the longer version, see Wikipedia), I think it is also a good demonstration of the intangible part of brand value, which I will explain below.


The short story.
Coca-Cola and Pepsi-Cola are entangled in a brand war dating back for decades. Coca-Cola had seen its market share, drop since World War II, most of all compared to Pepsi-Cola. In blind taste tests, more consumers were also favoring the Pepsi taste than the Coke taste. This resulted in the Coca-Cola management deciding to work on a new formula. This new formula performed better than its competitors in the taste tests and thus its launch was prepared. In April 1985 they launched the New Coke and in order not to confuse their existing segments, they also decided to discontinue the old formula.
Initially, sales figures for the New Coke were good but soon there was an increasing call from consumers to revoke the replacement of the old taste. Less than three months after the launch of New Coke and the discontinuation of the Classic Coke, the latter was reintroduced to the market. By the end of the year Classic Coke produced better sales figures than Pepsi and New Coke.

The traditional marketing learnings from this case usually involve two things. First, go easy on your brand changes when you're a market leader in a consumer packaged good. Though well-prepared and seemingly with a serious back-up of lab tests and market research, the drastic move made the branding for this product too salient. Therefore, consumers began to elaborate on taste preferences and brands. Given that soft drink choice apparently is not merely objective or functional, this is a slippery slope. Second, the sales figures after the reintroduction of Classic Coke demonstrate that even a crisis can result in positive outcomes given appropriate decisions (and some luck).

Another reason to really like the case of New Coke is that it demonstrates one powerful concept in marketing. It most clearly shows the intangible part of brand value as expressed in the notion of consumer-based brand equity. Even if, on average, people did like the New Coke better than the old one, and even if the sales were actually quite OK shortly after New Coke launched, the consumer perception about the old brand got the upper hand. Brand equity is a rather general term, prominent in the work of Kevin Lane Keller and David Aaker (@DavidAaker). Brand equity is often defined in rather economic terms as the intangible part of brand value that denotes the difference between the tangible value of the product and what the consumer actually wants to pay for it. This definition is not applicable to the the New Coke case because at the time of the complaints the Classic Coke was no longer available. Still, these reactions clearly signify a highly positive brand equity for that Classic Coke because in some intangible way, consumers actually preferred that Coke as a consumer whereas market and lab data suggested the more tangible part of their consumer perceptions did not.

2 comments:

  1. Recently I have written an Educational research work on a topic of Marketing of a Big companies such as Coca-Cola, but I have a tok essay word limit to 1000 words. Thats why I'm looking for interesting articles such as this one.

    ReplyDelete