New Coke Failure

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The Failure of New Coke
Wright State University
MKT 3500 - 01
Marketing Research

By
Nicole Fore
Taylor Gilliam
Ashley Hatton
John Petry
Abstract
During the 1980’s Coca-Cola was faced with a potentially company killing problem. They were losing market share quickly to their competitors. Pepsi was stealing a portion of the younger generation with their advertising campaign, and they proved that consumers liked Pepsi better with the “Pepsi Challenge.” To combat their falling market share Coke decided to introduce a new formula. This formula was based on the fact that people preferred the sweeter taste of Pepsi. Once the new formula was finished, Coke conducted close to 200,000 taste tests to find out what consumers thought. New Coke outperformed both Pepsi and the original Coke in these taste tests. Coke then proceeded to release the new formula on April 23, 1985 based on the results of the taste test. There was public outrage at the release of the new formula. Even though the taste was better than both Pepsi and the original Coke, there was major public outcry and the new formula stayed on the market for 79 days and was pulled on July 11, 1985. This proved that Coca-Cola made a huge mistake with their research. They assumed that taste was the most important factor in choosing a soft drink. However, it turned out that Americans had a deep emotional connection to the Coca-Cola brand and they rejected the new formula causing them to pull it from the market.

History of New Coke

From 1945 to 1983 Coca-Cola’s market share had declined from 60% to below 24%. This major decline was due to the competition Coke had with Pepsi. Pepsi was easily outselling Coke in every market it was available. In 1975 Pepsi started the “Pepsi Challenge” which was a taste test where consumers were overwhelmingly choosing the taste of Pepsi to that of Coke. In response Coca-Cola began what they termed as “Project Kansas”(Klassen, 2010). This was a mission to reformulate Coke in order to taste more like Pepsi. After the development of a new formula, the company conducted about 200,000 nationwide taste tests at a cost of $4 million. On April 22, 1985 the announcement was made that Coke’s taste was about to change. The next day, Coca-Cola revealed the new formula to financial analyst and the media. Once Pepsi got wind of the formula change they began attacking Coke in the media, saying that they changed the taste to taste “more like” Pepsi. After admitting that the new formula would completely replace the original Coke, consumers began an outcry of rebellion. It took only 79 days for Coca-Cola to pull the new formula and return the original formula to the market, renaming it Coca-Cola Classic.

Coke’s Reasoning
Just after WWII, Coca-Cola held close to 60% market share, but through intense competition from Pepsi, market share dropped to 24% by 1983. Each percentage point that Coca-Cola lost cost the company roughly $200 million (Chandran, 2002). Much of this market share was going to Pepsi, which had a sweeter taste than Coke did. This slide was occurring despite the fact that Coke outspent Pepsi, their main competition, in advertising by close to $100 million (Chandran, 2002). The mid 70’s brought about the “Pepsi Challenge”. This was a taste test, put on by Pepsi, and held in public places that showed that 58% of consumers preferred Pepsi over Coke. This was the beginning of Pepsi positioning themselves as the choice for the younger generation. Dubbing this generation as the “Pepsi Generation”, Pepsi began to recruit stars of the times such as Don Johnson and Michael Jackson (Haig, 2005). Coke’s first response to this assault was an advertising campaign that praised Coke for being less sweet than Pepsi. They even recruited Bill Cosby to be the front man for this campaign, someone who was obviously too old to be part of the so called “Pepsi Generation.” This tactic did not gain much traction with consumers and was quickly dropped....
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