The Launch of the New Coke - Essay Example

Apply a critical Perspective to the company decision in the 1980s to launch reformulated Coca Cola and suggest where a different approach to the lossof sales might have produced a different outcome Contents Contents 2 Introduction 3 Discussion 4 Background 4 Reactions of the market 5 Initial Response 6 Issues 7 Decision Frame 8 Reasons 9 Framing Effects 11 Conclusion 12 References 13 Introduction Coca Cola is the biggest aerated beverage manufacturing company in the world. The company manufactures and markets a number of aerated beverages as well as packaged drinking water. Coke is considered to be the flagship products of the company. The centuries old recipe of Coca cola is immensely popular among the soft drinks consumers. The company faces extensive competition from its arch rival Pepsi which is another giant in the global aerated beverages industry. In order to compete with Pepsi, Coca Cola conducted extensive market research in order to understand the potential of a new launch of Coke with a sweeter flavour. The popularity of Pepsi products were focused on the sweetness factor which was missing in the Coke. As such, in April 1985, the company announced the decision to introduce the New Coke which had a sweeter taste and take the old flavour Coke off the shelves. This decision on the part of the company went on to become a big marketing blunder in the history of Coca Cola. The launch of the New Coke received a high level of protests from the consumers and had far reached effects on the sales and profitability of the company. Coca Cola as forced to call back the New Coke products within six weeks of their launch in the market due to extensive consumer protests and criticism regarding the decision of the company. Though, Coca Cola reversed itself and tried to position the old Coke back as the important product of the brand both in terms of production and sales, yet the sales of Coke continued dropping for a long time causing huge damage to the brand reputation as well a the profitability of the company. Coca Cola was known to be a market oriented and market savvy business which was renowned for its ability to serve the customer needs. But the blunder of new coke created much negative impact for the company and indicated its inefficiency in identifying the market needs and being blinded by the sole aim to compete with its rival, Pepsi. The paper will discuss the background of the problem and will try to find out the reasons for decision failure. It will talk about the initial response and the response of the market in the decision problem part and will also talk about the alternative strategies in the next part. Discussion Background The marketing and financial implications of the New Coke launch indicated the decision to be incomplete and inaccurate. Though extensive market research was carried out by the company before making the decision of replacing the old flavour of the Coke with a new flavour similar to Pepsi, it can be argued that the market research process did not produce accurate information. The critical factors like brand loyalty of the consumers and the extreme favourability of the original taste of the Coke were not taken into consideration while the management took the decision of launching the new flavoured coke (Schindler, 2002, pp.22-27). The consumers of Coke had a primary emotional attachment with the brand which was strengthened by the old recipe of Coke. The launch of the new Coke acted as a shock to the consumers who were not able to accept the new form of Coke. Also, the move of Coca Cola trying to become similar with Pepsi in terms of product development was an aspect that could not be absorbed by the loyal consumers of Coke. The main factors which influenced the challenges faced in the launch of the New Coke were the significance of brand loyalty among the consumers, the emotional connection of the consumers with the brand, clash with the New Coke with Pepsi and new product development and product management. The decision of Coca Cola to change the original formulation of Coke was considered as major development in the soft drinks industry in the 1980s. But this caused major worries for the management of Coca cola, due to the decrease of Coke sales hugely after the launch of the New Coke. The market share of the company also dropped to almost half from 9.8% in the 1970s. This caused the company to stop the production of the new Coke and later re launch the old Coke with the name of Classic Coke to win back the market share for the business. Reactions of the market The revised version of Coke was launched by Coca Cola with much aplomb and confidence. The company expected it to create a highly positive effect on the market and drive a great increase in sales for the business. But, in reality the launch backfired and the new product was completely unaccepted by the old consumers of the company. The decision to launch the New Coke was based on the results of the blind taste which was carried out on various groups of people and always tended to produce the same results with the respondents preferring the taste of Pepsi over Coke. The blind test was performed by blindfolding the respondents and making them taste both Pepsi and Coke without telling which one is Pepsi and which one is coke. In this test, the consumers mostly said that the taste of Pepsi was better than that of Coke. This generate the idea among the Coca Cola product manufacturers and market researchers that the sweetness in Pepsi beverages which was missing in the Coca Cola beverages was the main factor which made people prefer Pepsi more in the blindfolded tests. The new Coke was a huge failure in the market. But the project was based on extensive market research and cannot be labelled as a hasty decision on the apart of the management of Coca Cola. The New coke was the result of an extensive and well planned research done under the name of Project Kansas which employed the top executives of Coca Cola. The aim of this project was to decide the new flavour for Coke and test the product among samples. The project had millions of dollars invested in it and the results of the research caries out by the project indicated that most people preferred the taste of New Coke over the original Coke. Initial Response The initial response of the consumers on the launch of the New Coke was positive and encouraging. This made the distributors stock more number of the new beverage in their inventories. The introduction of the new beverage indicated its high conformity with the aim of innovation of the products portfolio and creates better satisfaction of the consumers. But the main problems evolved when the customers identified that the taste of the New Coke was similar to Pepsi and ignited worse reactions when the consumers considered the taste of the New Coke to be worse than that of the original Coke (McCall and Kaplan, 2001, p.90). The preference of the consumers towards the old Coke was much influenced by the emotional factors and the attachment of the consumers with the age old product. The company was majorly criticized for having changed the formula for the old Coke and the new Coke was perceived as a mere replicating product for Pepsi. The New Coke failed to create a new position for itself in the market. The similarity of the taste of New Coke with Pepsi blurred the differences better the two beverages and since Pepsi was already an established sweet tasting beverage, the New Coke failed in competing with Pepsi. The trust factor acted as a main driver for the non-acceptance of the consumers towards the new beverage. Many consumers accused Coca Cola of betraying the trust of the consumers and the nation by removing the 99 year old recipe for the original Coke. By the end of 1985, the response of the consumers towards Coca Cola became worst with old Coke being sold in the black markets and consumers stocking the old beverage in their houses. The market share of the company including the products Classic Coke and New Coke had dropped much lower as compared to Pepsi. Issues The millions of dollars of investment in the market research and product innovation related to the launch of the New Coke established the fact that the success of a new product depends on the responses of the customers. The pre-launch research of Coca Cola did not sufficiently indicate the high level of consumer loyalty towards the original Coke. The failure in predicting the preference of the consumers towards the old recipe for Coke was a main reason that caused the backlash against the new product and created the declining interest of the consumers towards the product. The psychological aspects that influence the success of a new product were not gauged in the market research (Kaura and Stretch, 2002, pp.114). The levels of brand loyalty and brand association in the minds of the consumers with respect to a particular product should be considered accurately when launching a new product. This is extremely important when the new product is aimed to replace an existing product. The old Coke was an immensely popular product replacing which needed a lot of customer support and the consent of the customers to switch to a new product which acted as the substitute of their age old favourite beverage. The samplings actually established the New Coke as a better tasting beverage as compared to the old Coke. But these tests did not include the psychological aspects of consumer behaviour. Neither was the consumer behaviour approaches implemented in the decision making processes relevant to the launch of the new beverage. This indicated much short sightedness and inaccuracy on the part of the product innovators and strategy makers in Coca Cola. The favourability of a new tasting beverage did not essentially mean that the consumers were ready to replace their old favourite Coke with a new drink. Decision Frame The testing process of the new coke formula involved three formulations in which the taste of the new beverage was compared with that of the existing Coke and Pepsi beverages. 200,000 consumers were taken as sample to respond to the test (Haidt, 2003, p.112). It is indicated that among these, only 30,000 respondents tasted the actual taste which was later launched in the market. Also, most consumers were not informed about the actual objective of the testing process. This means that the consumers did not have any idea that their preference for the new coke may act as a factor in driving the replacement of the old Coke. The opinion of the consumers during the sampling process, that the new Coke tasted better was void of the emotional and other psychological factors associated with the brand (England, Howe and Sofranac, 2000, p.40). The research indicated the apparent responses of the customers and had no link with the deep seated emotional factors of the consumers related to Coke. The consumers were not aware that their positive response to the new coke would lead to the non-availability of the old Coke due to the beverage being taken off the shelf. It is understood, that in such a hypothetical situation, the responses of the consumers could highly vary from their actual responses. The decision frame was guided by the company giving equal importance to different factors. This was a major reason driving the failure of the decision because it completely ignored the 80-20 rule in which it is indicated that a small number of purchase factors actually account for the large number of purchase decisions among the consumers (Kahnema and Tversky, 1984, pp.341-350). Coca Cola was unable to give proper weightage to factors that affected the response of the Coke loyalists. Had the company assessed and interpreted the responses rightly, the decision of the company to reformulate Coke may have been changed. According to researchers, the psychological attachment of the consumers towards the products which are either consumed or are applied directly to the skin is much stronger than the psychological attachment for other products. Coca Cola was also not able to identify the trend among the consumers in US preferring traditionalism and continuity over innovation and novelty. The consumers of this segment preferred stability more than innovation. Coke represented a high level of tradition and familiarity for the consumers. The replacement of coke by a new formula was a direct insult to the traditional consumers. The identification of the consumers with the brand was deeply hurt and the New Coke evoked a deep psychological and behavioural resistance from the consumers. The decision makers in Coca cola failed to identify the other important dynamics of the soft drinks industry apart from the taste factor. Coca Cola took a risky decision of launching the new Coke with the sole objective to compete with the rival company Pepsi. To create a competitive edge over Pepsi by launching a similar tasted product, Coca Cola risked the years of goodwill that the business had created. The high regard of the consumers towards Coca Cola due to their excellent products, techniques, innovative ideas and the importance given by the company to the environment and the consumers for the brand was damaged by this move of Coca cola. The launch of new Coke was perceived as an act by the company which was against the taste, preferences and interest of the consumers. The opinions and the expectations of the consumers were not appropriately considered in the decision making process. Reasons Coca Cola launch new Coke on April 23, 1985. It already did two years research into taste tests. Then company Chairman Roberto C.Goizueta claimed that the new coke would be smoother but bolder. But public response was negative in nature which resulted in the company withdrawing the product from the market. Though the company adopted a new formula, they didn’t realise the bond which the consumers felt with their product. The company realised that the consumer didn’t want anyone to tamper with the formula for the product. As taste changed the consumers panicked and they started filling their basements with huge cases of Cokes. Some people got depressed due to loss of their favourite drink. There were protest groups like Old Cola Drinkers of America and Preservation of the Real Thing which started protesting across the country, even songs were written to honour the old coke taste. In Atlanta many protestors carried signs which read that they want the real thing and that their children will never get to know refreshments. The change in taste of new coke was distinct from the original one. It was found that the new coke was sweeter than the original one and smoother was less tangy than original one. During market research the subjects took a small sip of the new cola and liked it but in reality when they bought a can of 330 ml the preferred Old Cake which had less sweet taste. Again the new packaging of the product isolated it from the consumers. This is because the association of word new was associated with Pepsi which was relatively new and was a brand of youth. But Coke was considered as legacy brand and part of American Culture (Tversky and Kahneman, 1986, pp. S251-S259). The difference in the taste was one major reason of failure for the New Coke. Another related reason was the similarity of the taste of the New Coke with Pepsi. This created a negative image of coca cola in the market as the action of the company was perceived a mere move to replicate the product of its competitor brand (Adler, 2001, pp.61-78). The new product was expected to be a variant added to the product portfolio of Coca Cola and not a substitute for the original Coke. The new packaging was also a negative factor which blurred the link between the customers and the brand. The packaging caused an isolation of the beverage from the consumers with the consumers failing to relate with the beverage as it did with the traditional coke. The consumers found it difficult to associate themselves with the newly introduced Coke. The sentimental value and the traditionalism of the loyal consumers of Coke were directly related with the old beverage. The launch of the new product made the company loose its focus on the traditional characteristics of the brand. The counter attack of Pepsi through advertisements and media which directly hit at the wrong move of Coca Cola added to the resistance of the customers towards the revamped coke. Framing Effects Framing effects is said to occur when an equivalent descriptions of a decision problem leads to systematically decision failures. Many disastrously risky decisions which were framed by decisions makers are regarded as a choice between losses. The resulting effects are a strong preference of risk which results from aversions to perceived losses. This aversion helps individuals take huge or extreme risk in order to avoid loss. In spite of the fact that such behaviour may avoid loss but the actual result is to increase the loss. During mid-1980s Coca Cola took major decisions to changing the formula of Coke in spite of the fact that it was the largest selling soft drink in the market. The Chief operating officer and president of then Coca Cola, Roberto Goizueta finally admitted that he made a mistake and brought back the old Coke after three months. When Coca Cola decided to change the formula, they took a huge risk and the profitability of Coke was declining steadily. The status quo represented certain huge losses. The option of change the taste of Coke involved less probable but had damaging eventualities. Thus it is clear that the decision to change the formula of Coke was an example of negative decision frame. In some cases mistakes were made but it paid off. After realising the mistake the company came out with their old Coke and it achieved huge volume sells and is presently the best-selling soft drink in America. Thus the red faced retreat of Coca Cola appears to have increased their customer loyalty to the product. Thus it resulted in increase of sales for all Coke brand products (Glen, 1991, pp. 23-31). Conclusion Other approaches of understanding the consumer behaviour towards the beverage would have been more constructive approaches in measuring the viability of the new Coke. An in depth observation and analysis of the psychological and behavioural perspectives of the consumers should have been considered to evaluate the long term success of the new product in replacing the old product. The product launch would have gained success if the product innovation and new launch would have been based on appropriate judgment of the customer behaviour perspectives as expected in the practical scenario. Clear distinctions with the competing product were necessary in the introduction of a new product. Coca Cola should have aimed to capitalize on the existing customer loyalty by taking steps to protect the sentiments of the consumers. Relating the product with the preferences and psychological aspects of the consumers and introducing the New Coke as a new variant rather than replacement for the traditional Coke beverage would have reduced the financial and market risks associated with the introduction of the new coke. Positioning the new beverage as a separate product would have instilled acceptance among the consumers because the new products was not deemed to be a threat for the old Coke. Following these steps would have ensured that decision failure was prevented in the reformulation of Coke and would have created a successful strategy to improve the brand value, perception and goodwill along with financial returns. References Adler, J. E. 2001. Critical Thinking: A deflated Defence. Informal Logic. Vol. 13(1), pp. 61-78. England, R., Howe, N., & Sofranac, R. 2000. Critical Thinking and Decision. London: Routledge. Glen, W. 1991. Decision failures: why they occur and how to prevent them. Academy of Management Executive, Vol. 5(3), pp. 23-31. Haidt, J. 2003. The moral emotions. Oxford, UK: Oxford University Press. Kahneman, A. & Tversky, K. 1984. Choices, Values, and Frames. American Psychologist. Vol. 39(1), pp. 341-350. Kaura, J. & Stretch, R. 2002. Critical Thinking and Decision Making. McCall, M., & Kaplan, R. 2001. Whatever It Takes: The Realities of Managerial Decision Making (2nd ed.). New Jersey: Prentice-Hall. Schindler, R. M. 2002. The real lesson of New Coke: the value of focus groups for predicting the effects of social influence. Marketing Research. Vol. 84(2), pp. 22-27. Tversky, A. and Kahneman, D. 1986. Rational Choice and the Framing of Decisions. The Journal of Business, Vol. 59 (4), pp. S251-S259. Read More