New Coke

New Coke

The Pepsi Challenge of 1975 had badly shaken Coke. Despite emphatic denials, Coke’s own market research was showing that Customers did genuinely prefer the taste of the sweeter Pepsi-Cola. By 1985 Coke’s Market Share was flat while Pepsi’s Market Share was still growing. And while Pepsi had begun to outsell Coke in supermarkets, Coke managed to maintain its overall lead through soda vending machine and fountain drink sales.

When Roberto Goizueta became Coke’s CEO in 1980 he declared that there would be no “sacred cows” in how the company formulated its drinks. He commissioned a secret project to create a new flavor for Coke. After New Coke tested well in trials, surveys, and focus groups, the product was launched in the USA on 23-April-1985 with a prominent ‘New!’ label. Significantly, Coke simultaneously decided to retire the old Coke product that had barely changed since 1886.

Customer acceptance of the improved taste was as expected. But a loud controlling minority, coming particularly from Coke’s home in the Southeast, expressed anger and deep disappointment. These Customers felt betrayed — like a family member had died, or like the South had suffered yet another defeat in the Civil War.

Pepsi struck a cord when it declared:

“By today’s action, Coke has admitted that it’s not the real thing!”

After 79 days Coke reversed course and re-introduced Coca-Cola Classic. The result was, again, dramatic and unexpected. The reversal reinvigorated Coke’s brand and it’s popularity soared. By the end of 1985, Coke’s sales had increased at more than twice the rate of Pepsi’s.

Conspiracy theories abounded, with many Customers believing that the whole episode was a deliberate marketing ploy by Coke.

Donald Keough, Coke’s President & COO, said at the time:

“Some critics will say Coca-Cola made a marketing mistake. Some cynics will say that we planned the whole thing. The truth is we are not that dumb, and we are not that smart.”

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

This Market Simulation takes place in three simple stages during 1985:

  1. Before Market: Simulates Market conditions prior to the launch of New Coke.
  2. New Coke: Simulates the Customer backlash after New Coke was launched.
  3. Coke Classic: Simulates the reinvigoration of Coke’s brand when Coke Classic was re-introduced.

The results from each stage of this Market Simulation are as follows:

Market Share

Before

New Coke

Coke Classic

Coke

53% 50% 56%

Pepsi

47% 50% 44%

Stage #1 Before Market

The Coke and Pepsi Products were made up of two Features:

  1. Generic Cola
  2. Coke Brand / Pepsi Brand

The Coke Brand had long been established as ‘the real thing’ — constant and unchanging since 1886. Customers perceived Pepsi has being less authentic – as being a little closer to Generic Cola.

Product Features

Coke = Coke Brand + Generic Cola. The Price in 1985 was 89 cents.

Feature List

The Coke and Pepsi Brands have more Customer value than Generic Cola.

Before Results

Before Market Share for Coke:Pepsi was approximately 53% to 47%.

Stage #2 New Coke

When ‘New Coke’ is launched there is an immediate Customer backlash. Customers feel betrayed when they discover that Coke was no longer ‘the real thing’. Customer value for the Coke Brand drops by 5%.

Diminish Brand

Customer value for the Coke Brand drops by 5%.

WTP Matrix

The WTP for Coke also drops when the Coke Brand drops value.

New Coke

Pepsi declares victory in the Cola Wars as Market Shares level 50% to 50%.

Stage #3 Coke Classic

Re-introducing ‘Coke Classic’ reinvigorates the Coke Brand. Riding a wave of nostalgia, Customers boost Brand value by 5% (up from Coke’s original Brand value in the Before Market).

Boost Brand

Customer value for the Brand increases 5% from original levels.

WTP Matrix

The WTP for the Coke Product is again calculated.

Coke Classic

Coke’s sales increase at more than twice the rate of Pepsi.