A Critical Perspective for Coca-Colas 1985 Decision - Case Study Example

A CRITICAL PERSPECTIVE FOR COCA COLA’S 1985 DECISION By Location A Critical Perspective for Coca Cola’s 1985 Decision Introduction Coca Cola as a soft drink brand was invented in 1886 in the USA as a patent medicine by Pemberton John and later sold to Candler Griggs Asa, a famed businessman. Ideally, Candler’s marketing skills were significant as this led Coke to being one of the renowned soft drink brands in the world from that time up until the twentieth century. Presently, the Company has bottling companies spread across the world where each has a contract awarded by the parent company situated in Atlanta Georgia. Until 1985, Coca-Cola was using the original formula developed by Pemberton, but sough to change the formula to ‘New Coke’. The move, change to change the formula resulted from the fact that the company had been experiencing plunging sales because of the competition brought on by Pepsi-Cola, but Coca Cola remained afloat because of the vending machine sales in restaurants and in fast food joints. The top notch officials at the helm of Coca Cola commissioned a secretive research aimed at perfecting the new flavour for Coke. In a build-up to the change, consumers through taste test had preference to the new Coke rather than the old Coke or to the Pepsi. The reaction of the American population was not as Coca Cola had expected as it was negative and did not attract any increase in sales making it to be one of the Company’s greatest market failure attempts. With this, this essay will give a critical perspective to the Coca Cola Company’s decision to launch the reformulated Coca Cola in 1985 and provide suggestions on different applicable approaches towards the losses in sales could have influenced a different outcome. The theory of decision making and risk taking Ideally, the success or failure of a business attributes from the decisions that the top decision making organ of an organization makes in terms or investments. In many cases, these decisions tend to be risky as the chances of chances of succeeding without incurring any losses tend to be slim or none. With this, the conception of the theory of decision making was imminent as this sought to explain the reasons and behaviours that influence the decisions made for a business. According to Kahneman and Tversky (1986, p. 251), the decisions that an organization tends to make help in the maximization of opportunities and also in handling competition wedged by its market peers. Many of these decisions also tend to be as a result of intuitions in which those charged with making decisions may have uncertainties, but may use the outcomes as a way of forging an appropriate for which a business may take towards its success. In essence, Coca Cola made such a bold move in the 1980s, when it sought to change the Coke formula in order to attract new customers and retain the ones that it had already acquired because of the ways in which its sales had dropped. The senior most executives of Coca Cola rolled out the tasting campaign for the New Coke and also the marketing department also set out their role in introducing the new product to its existing market (Kontes 2011, p. 66). Framing effects At first, the response was overwhelmingly positive, but later received a backlash from the same market because of the perceived nostalgia for the old coke that had been in circulation for a better part of the century. The new formula was sweeter and most of those that tasted the new beverage intimated that they would definitely buy the product without knowing that Coca Cola intended it to be the new Coca Cola product. However, the response was positive at the testing stage, but this later changed when the Company decided to pull down the old Coke and replace it with the New Coke in the same week where customers gave uproar for the change (an 2014, p. 40). One of the grave mistakes that Coca Cola made was the fact that the management team disregarded the idea of using the New Coke formula as another Coke variety, but rather they chose it to replace the original taste. Using the decision making theory as the basis, the decision to take the risk and allowing the market to taste the new formula was an informed move because they had to gauge the response before making the actual launch to the market. The Company used incentives such as offering the drinks for free, which attracted more tasters to be involved in the tasting of the project. In essence, making a decision of such magnitude requires the application of rationale as some of the outcomes of such tend to be dire and consequential to a business’s profit margin (Ang 2014, p. 41). In the case of Coca Cola, the senior executives made the decision to replace the original Coke formula based on the response given by a fraction of its market, which ended up being misleading. Mostly, the competitors that a business may have tended to feel intimated by the investment risks and decisions that a company may make hence anticipating loss of market. However, this tends to be a speculative move in which the outcome may either be positive or negative depending on the actual response by the market once changes roll out. A Company may also use press releases as a way of teasing a population over an anticipated move or change that leaves them speculating on what exactly a company intends to do. In essence, Coca Cola kept their competitors and market in guessing as they did not diverge any information regarding their set move to change the formula as this also posed as a threat to companies like Pepsi. The implication of this is that a Company may use such a move as a way of building anxiety and also a way of marketing as this is highly likely to attract the interest of many with the aim of finding out what the fuss could be all about. Somehow, Coca Cola had misled its market because it had intimated in its advertisements that the New Coke would retain its diet nature only to give a product that had a high sugar percentage in it. In a way, this led to the continued plummet in sales, because Coca Cola had now lost the fraction of its market that relied on the diet coke as a soft drink because of its low sugar. Ideally, business decisions should aim at improving a company’s performance and market presence rather than decreasing sales and popularity. Role assumptions played in determining the cause of the problem Arguably, the senior executives agreed that the decision to pull down the original Coke from the market was detrimental to the Company, but the damage had already been done. The major fact that emanates from this is that the senior management at Coca Cola based their final decision on assumptions. For instance, the Coca Cola management assumed that the response given by the tasters was going to be similar to that of the actual market without factoring in the wider population. In this case, the baby boomers were the first to distance themselves from this new product because they had developed a loyalty to the old brand. The implication of this is that the making of decisions should be an all inclusive affair that stretches in the history of a product and the product acceptance. Further, research before making changes to an already existing brand should be expansive in that it should capture a wider market range before the making of a final decision. The most appropriate approach that Coca Cola could have taken could have been the conducting of several tasting tests across America and included all age brackets in making the assessment. As a requirement, businesses should not make decisions for their customers without including them exclusively because many organizations have adopted the customer-centred approach to attracting and retaining them (Venkatesan & Gajendiran 2008, p. 57). The other assumption that Coca Cola used to be that the initial response registered by the tasting aspect translated in the success of the actual role out the mission. The executives rode on this, which influenced their competitors such as Pepsi to gain a competitive edge against them because they took up the vocal minority of the soft drink drinkers. The backlash that the Coca Cola headquarters in Atlanta received is communicated volumes on how much the actual consumers of the product did not appreciate the move to change the formula especially after the World War II. In many cases, consumers of well-known products tend to develop a bond with them, meaning that when the goods that they are accustomed to change becomes distressful to them. This was the same for Coca Cola consumers in that consumers expressed their disappointment with the new Coke formula because most of them voiced their concerns with intense passion. As much as the New Coke did not attract a positive response, the product somehow did well in some parts of the country, but their greatest worry was how the reaction would be in their international markets. However, this did not deter Coca Cola from the continued production of the New Coke Formula, which was a fact that most of the top management team were comfortable with the change. The other assumption made was that all of the senior executives were on the same on the production, distribution and sale of the sweetened Coke. Secretly, some executives started to push for the reintroduction of the old Coke formula because many of Coca Cola’s southern customers began to export the old formula Coke rather than consume the sweetened coke. In order for a company to make substantive progress, it is important for the management team to share the same values and embody the plans that a company has for easy operations. In some quarters, critics argued that the move to change the Coke formula was a deliberate attempt because many believe that such a renowned global brand could not have made such a blunder on its side. The implication of this was that Coke pulled down the old formula in order to spark public out roar that would influence the demand of the old Coke and in turn boost its sales. With this, the senior executive team at Coca Cola had to withdraw the sweetened drink because of the public outcry witnessed in the south which influenced an increase in sales for the old product. To some extent, a company has to take a gamble in terms of decision making in the same manner as Coca Cola did in 1985 because the change in product taste was a way of attracting new sales to the Company. In a way, the spotlight that New Coke brought for the Coca Cola in the three months that it was in existence brought mixed fortunes to the organization in terms of market presence and its influence on the sales levels. The effect that this event brought varies depending on the side that an individual or a critic may view it from because the long term effect was that the sales, short up by a significant margin, but after a period of turmoil. A critical evaluation of other explanations that could have given rise to the problem as seen by Coca Cola According to business analysts, the move by Coca Cola to change the Coke formula in 1985 was one of the greatest business risks or blunders to have ever been made in the history of entrepreneurship (Evans & Hastings 2008, p. 11). The move worked in favour of the Company as those influenced the re-energizing of the slow moving old Coke product. The public outcry by Coke consumers led to the re-introduction of the old formula that became the Coca Cola Classic formula (Dahlén, Lange & Smith 2008, p. 27). In the business world, this was an intelligent risk despite the fact that some of these risks may not work out as the risk takers would have intended. The inclination of taking such risks reflects that an organization is willing to take up any necessary action in order for the business to continue staying afloat even in economically challenging times. The announcement that Coca Cola was going to change the Coke formula led consumers of this product to stock-up their basements with the Old formula Coke, which led to the shooting up in sales for the perceived poor performing product. Further, the introduction of the ‘New Coke’ appears to have been a marketing gimmick for Coca Cola because when it was pulled down and replaced by the old Coke formula seventy nine days later, the story made headlines in leading newspapers. This led to increased advertising campaigns that led to the re-energizing of the product that had registered decreased sales to which the Company took to its advantage. The events of that year were a landmark in the history of soft drinks as this also influenced the success of the Coca Cola brand in the USA and beyond. In some quarters, the decision by the senior executives of the Company may not have been the best at the beginning of the formula change process, but this appears to have been a hidden strategy by the team. In order to show that this business decision had an impact, the story of the New Coke has become a learning tool in many business schools across. The business idea behind this aspect was that Coca Cola intended to outdo Pepsi in terms of market presence and sales, hence resorting to desperate measures without factoring the psychological effects that this would have on its loyal customers. Others argue that Pepsi might have misled Coca Cola as they intimated that the market preferred a sweeter soft drink that was later found to be Pepsi (Ang 2014, p. 39). The taste tests gave all indications that the Pepsi taste was the most preferred because of its sweetness even by the perceived loyal Coke drinkers as per the consumer taste conducted. By 1977, the dip in sales for Coca Cola suggested that Pepsi had captured the market because the product had reduced in popularity. In essence, a management team may decide to use the market projections by rival companies to influence their decisions, but may not always work in their favour. A management team should make sound decisions based on facts rather than taking a gamble that may end up being detrimental to a company’s gins and its relationship with their target market (Whyte 1991, p. 23). The finances that go into market research also tend to be high meaning that a risk has to be worth the investment in that it should be able to attract return. As for the case of Coke, the market research made use of $4,000,000 and the blind taste tests for the sweetened Coke indicated that mass production into the market would translate into greater profit levels. The then chairman of Coca Cola, Mr. Goizueta, Roberto somehow used the reformulation process as a way of making a name for himself rather than saving the Company from its dipping sales. Essentially, those tasked with the decision making function in an organization should not make them based on their personal reasons or selfish interest, but should do having the interest of the company at heart. As much as the decision was going to be costly for Goizueta, his determination was in ensuring that the Company regained its market status from as early as when he took over operations for the Company in 1981. In essence, bringing change to the performance of a company requires that the management team changes from normative practice, which is relatively taking up risks in order to foster success. With this, then making a grand and drastic move for a company tends to be the only way that a business can continue to stay relevant in its trading market, which partly one of the reasons why the Chairman at the time applied the reformulation strategy. Further, the chairman disregarded the responses that the new formula Coke was likely to influence customer dissatisfaction because only a few expressed this concern during the taste test phase of the process. In order for managers to be effective in their decision making capabilities, they should be able to factor in all the aspects and concerns voiced during the research phase for the purpose of making informed choices to influence positive outcomes. If the management team had factored in the likelihood that loyal Coke drinkers would have an outcry over the formula change, then this would avoid a further plunge in the Company’s product sales. This was indicative that Coca Cola changed the formula and alienated the few loyal Coke drinkers by expecting that they would join in the new craze for preferring the new formula. However, this did not happen as those influenced more loyal Coke drinkers to express their dissatisfaction with the new product. Indecision, speculation can be a vital tool, but this should not extend to the point that those making decisions for the business decide how consumers should react or are supposed to react to the product that they offer to the market. Moreover, the decision making aspect should in most cases rely on the consumers view because many businesses have to offer products and services that will respond to their needs and not vice versa. During the taste test process, Coca Cola did not inform the respondents that the new formula would replace the old in totality. The testing questions should have also included how the respondents would feel if the new formula would replace the old formula in order for them to gauge a possible outcome rather than making their own conclusions. The implication of this is that an organization should understand their loyal customers before making a major decision that concerns them that may include a change of product (Venkatesan & Gajendiran 2008, p. 58). Coca Cola could have given the product a younger image rather than making a complete product change because its market did not anticipate for such a drastic move. The other alternative that could have ensured that Coke remained relevant in the market could have been the introduction of the new formula while maintaining the old one on the shelves rather than pulling the old product down without allowing them to have choices. In essence, a decision made should be forceful to the market, but it should allow consumers to have a variety to which they can choose from rather than having to quit using an introduced product by a company. The other aspect that managers should be aware of is that consumers may reject a new product, hence they should have a fall back plan that would ensure that this does not affect their profit margins. In conclusion, the 1985 decision by Coca Cola was a mixed-fortune event as it influenced an outcry by the public and later helped the Company to restore it to former glory through boosted sales. The implication of this is businesses need to take intelligent risks in order to attract higher profit margins after conducting a detailed market research on the possible outcomes of the business decisions made. Bibliography Ang, L 2014, Intergrated Marketing Communications: A focus on new technologies and advanced theories, Cambridge, University of Cambridge Press. 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