Free Drink Coupon

Coke Invents Coupons

The recipe for Coca-Cola was originally developed in 1885 by a Confederate Army Colonel named John Pemberton. He wanted to develop a medicine substitute for the additive morphine that he, himself, needed after a saber wound he suffered during the Civil War.

The product’s original two main ingredients were cocaine (from the Coca leaf) and caffeine (from Kola nuts). The combination of the main ingredients gave the tonic its name. But after John Pemberton accidentally mixed the base syrup with carbonated water, he decided to sell the product as a fountain drink rather than as a medicine. John Pemberton first started selling Coca-Cola in Atlanta, Georgia in 1886.

In 1888, after John Pemberton’s suddenly death, Asa Candler bought full control of the Coca-Cola Company. Six years later, in 1894, Asa Candler started an extensive marketing campaign – inventing free drink coupons to build product awareness. The coupon shown above is believed to be the first coupon ever.

Between 1894 and 1913 (approximately 20 years) a total of 8,500,000 free drinks had been consumed by about one-in-nine Americans.

Pepsi’s recipe was developed by Caleb Bradham in 1893 (8 years after Coca-Cola’s recipe). It was originally called Brad’s Drink but was renamed as Pepsi-Cola in 1898 (4 years after Coke’s marketing campaign started).

This Case Study provides a high-level overview of the workflow without detailed explanation. It assumes you are already somewhat familiar with KNIME and Market Simulation. If not, start by reviewing the Building Blocks and Community Nodes.

Competitive Story

Coca-Cola was founded in 1886. Eight years later, in 1894, Coca-Cola invented free drink coupons to build product awareness. Between 1894 and 1913 (approximately 20 years) a total of 8,500,000 free drinks had been consumed by about one-in-nine Americans.

Pepsi-Cola was founded in 1898 – four years after Coca-Cola’s coupon campaign started.

This Market Simulation attempts to explore two phenomenon:

  1. First, it maps the growth in popularity of Coca-Cola as a function of the free drink coupons.
  2. Second, it predicts what would have happened if Pepsi, starting 4-years later, adopted exactly the same marketing strategy of giving away free drink coupons to build product awareness.

The results of the Market Simulation show that, even had Pepsi been a virtually identical drink and adopted the exact same strategy, it’s delayed start would cause it to forever be the market laggard to Coca-Cola (all else being equal).

Market Setup

Coca-Cola and Pepsi-Cola were both originally invented as patent medicines for health and nerves. Coca-Cola itself specifically targeted:

“ladies, and all those whose sedentary employment causes nervous prostration”

Hence the Customer Willingness To Pay (WTP) for both Coca-Cola and Pepsi-Cola in this Market Simulation were low and varied widely. But there was tremendous latent potential for both Products as better targeting became apparent. Hence the WTP of Customers could grow up to a maximum level as their awareness of the Products grew.

At this time in 1886, and for the next 70 years, the Price of Coca-Cola was 5 cents a bottle.

Identical Products

Coke and Pepsi are nearly identical Products with the same WTP profile.

Product Array

Both Products have a fixed Price of 5 cents throughout the simulation.

Product WTP

The WTP starts low but can grow to a maximum level.

Coupons Raise WTP

Over 20 years (20 loop iterations) the Customer Willingness To Pay (WTP) for both Coke and Pepsi rise at 5% per year towards their latent maximum level. As Pepsi is founded 4 years after Coke invents the coupon, Pepsi gets a late start.

Coke WTP

The WTP for Coke rises each iteration by 5% towards the ‘Coke Max’.

Pepsi Delay

The ‘Java IF’ node only allows Pepsi’s WTP to increase after 4 iterations.

WTP Matrix

After 20 years (iterations) the WTP Matrix looks like this.

Profit Growth

After 20 years (20 loop iterations) all of the results are collected and prepared for plotting. The Profit Growth is calculated by lagging the Profit column so that it can be compared with the Profit from the last iteration.

The results show that Coke’s Profit Growth rises quickly and then falls quickly as Customer WTP approaches saturation. Pepsi’s Profit Growth, on the other hand, starts 4-years later. It then rises more slowly and falls more slowly than Coke.

When comparing the year-over-year Profit for both Coke and Pepsi it becomes clear that Coke firmly establishes market leadership. Even though Pepsi was set up in this Market Simulation to have exactly the same WTP profile as Coke, Coke’s invention of the free-drink coupon gives it a lead that cannot be overcome with coupons alone. Pepsi must come up with a new strategy to catch Coke…

Profit Growth

Profit Growth is calculated by comparing each year with the last.

Compare Growth

Pepsi is later to start, slower to rise, and slower to fall than Coke.

Total Profit

Pepsi’s profit never catches Coke even though the Products are identical.