Sip or Sink: The Story Behind New Coke's Epic Fail

Welcome to Great Business Stories, and this episode is called Sip or Sink, The Story Behind New Coke's Epic Fail.

And believe me, it was epic.

This is the story of how in 1985, Coke's superstar CEO, the man who could do no wrong, decided to replace the 100-year-old Coke formula with a new, sweeter tasting Coke.

Who was the CEO, and what were the reasons that led to his decision?

Why was there such an intense backlash?

And how did Coke not anticipate the backlash?

Was it all just a conspiracy?

It was definitely one of the worst product launches in consumer history, and it makes for a great story.

So we hope you enjoy us.

Morning, Caemin.

How are you?

Not too bad.

Not too bad.

And today, we're going to be talking about new Coke.

And this was your pick.

So why did you choose this?

A couple of different reasons, really, I suppose.

One is, you know, in retrospect, it seems like one of the more bizarre business decisions.

It almost seems unthinkable in retrospect.

But then, you know, a lot of mistakes that I think it's safe to say this was a mistake do seem kind of faintly ridiculous or impossible in retrospect.

And then I guess the other part of it is it was such a huge blunder by a consistently successful company that it seemed peculiar to me in speaking with a few different people that they weren't even aware that nd that happened, particularly people of a younger generation.

So not only was it a potentially huge blunder, but it seems to have been forgotten.

So I thought to myself, this could be a really interesting story.

And we have an opportunity, perhaps, to bring it to the awareness of people who maybe didn't even know that it happened.

So that's my motivation for the story.

Yeah, I knew about this, but I can see why it's been forgotten because it lasted only 70, 60 from the introduction of New Coke to the time that it was pulled that we'll get into.

And I suppose for listeners who mightn't be aware of what it is, it was basically back in the mid-80s, Coke decided to bring out a new Coke, but not only did they decide to bring out a new Coke, they also decided to pull and take off Marcus' original Coke.

And as Keith rightly said, it was a blunder of monumental proportions and by a CEO who was so good, and yes, he continued to be so good.

He was one of the best CEOs of the 20th century.

So it makes it all the more surprising that such an established company with such a heritage could do something so drastic.

And yes, as we shall see, they still recovered from it, but it was for those 76 days, I think America was consumed by Coke.

And it was so interesting.

And what about your sources?

What did you use for yourself?

Yeah, so the actual number of official books that dealt with the story directly is small.

I mean, it tends to be referenced in larger books around Coca-Cola, because it's such an epic sort of institution at this point.

And it's because it's very associated with the discipline of marketing, there's quite a bit of material around that.

But the only book that I could find, and it was recently short actually, was written by Thomas Oniver, and it's called The Real Coke, The Real Story.

And it dealt with the events leading up to, during and after the transition and about the face of New Coke.

And what I would say is it was very interesting for me to understand the power of the distributors and botters of Coca-Cola and how the organizations are very different.

So we might just kind of dip into that too, because I think that's an interesting story in and of itself.

It is.

And we will obviously, I'd say at some stage, do an episode on Coke and do an episode on Pepsi.

And we won't be getting to all the history of them today.

But in terms of my sources, like you said, there wasn't a whole lot of material on this, because it did only last for 76 days.

There were lots of short articles saying this was the biggest marketing blunder ever, but not a whole lot of really deep dives.

But I did manage to find a good few things all right through various documentaries that were on it.

And Mother Jones had an excellent article written by Tim O'Malley, which he wrote recently.

I think it was after New Coke was reintroduced on a limited basis.

After it was shown on Stranger Things, he had an article called New Coke Didn't Fail.

It was murdered.

His article kind of focused on the fact that it was a more political kind of article, although he did have some very good business information in there as well.

His thesis was that New Coke was an early sign of the culture wars that we're familiar with now.

It's a very interesting article.

And then Business Wars, which is a Wandery podcast, they had five parts or five episodes on New Coke.

So kudos to them.

So New Coke was, when it came out, was such a big story.

And the reason it was such a big story was because of the heritage behind Coke.

And as I said, while we're not going to get into the whole Coke history, I think we'll just very quickly go through how Coke was formed and why it had this amazing heritage.

The little bit I have here was that the formula was created in 1886 by Doc Pemberton down in Atlanta, but poor old Doc didn't really live to see its success.

And I don't think if Doc had lived that he would have made Coke a success.

Pretty checkered history in terms of making successful products.

But it was taken over after his death by Asa Candler, a very good marketer and a pharmacist as well from Atlanta.

He bought it for about $2,300.

And I think there was a bit of shenanigans in his purchase office.

He bought the formula and then he had to buy the name.

So it was a bit finicky there, but he took it over, made a success of it.

But the real success and the real growth came, and you mentioned them earlier on there, was when two guys decided they wanted to bottle Coke.

And so they went to Asa Candler and said, we want to bottle Coke.

They signed an agreement with Asa Candler.

He gave them the rights to bottle it.

They opened up a bottling company and then they sold the rights to bottle Coke all over America.

And this is what really spread Coke.

This is what made Coke such a big brand initially.

By 1909, there were Coke bottlers in 350 different towns and cities in America.

By 1920, there were 1200 bottlers across America.

And that's what sealed Coke's success.

And just to maybe talk about that, for people who are not familiar with it, it would have started off as it's almost a medicinal product.

Yes.

And sold as a dilutable syrup then.

So it was a syrup that was kind of sold, is that correct?

That's it.

It was sold in soda fountains.

You know, where you get the syrup and then they put in carbonated water themselves.

So the bottlers went with this idea.

Asa Candler apparently didn't see the potential in bottling it, but it proved to be a huge success.

But the real growth then came when Asa Candler sold Coke in 1919 for 25 million back then, which is the equivalent of about a billion in today's money.

So he made a pretty penny from it.

It was taken over by a group of industrialists, and one of the industrialists put his son, a guy called Robert Woodruff, in charge in 1915.

And it was Woodruff who really oversaw Coke's huge growth, not just in America, but also worldwide.

It was Woodruff who harnessed the link between Santa and Coke, because Coke sales were slow in the winter.

So he developed this campaign that linked Coke with Santa.

And prior to Coke, Santa did exist, but he wasn't this big, jolly, red-cheeked man in pristine red and white.

He came in all shape.

But Coke developed this Santa that we now are familiar with.

He also got Coke involved in World War II by cuddling up with the government and lobbying the government.

And Coke was the only company in America that didn't have any sugar rationing during World War II.

Because he promised that every soldier in America would be able to get their hands on a bottle of Coke.

And to do this, the government funded Coke, built bottling plants all around the world during the war, so that when the war was over then, Coke had already made it.

Right, imperialist footprints.

Yes, all over the world.

And this allowed their international expansion.

And it was also, crucially, why I mentioned Woodruff, it was Woodruff who really built the mythology around the Coke formula.

It was him who endorsed this idea that the Coke formula was this special formula, that only two people in the company at any one time knew the formula, that it was hidden away in a secret vault in a bank.

So there was always this mystique around the formula.

And I remember growing up hearing about the Coke formula and only two people would go about it.

And they're not allowed to travel together.

It's a bit like the KFC sort of Spice Men formula as well.

There's a lot of these sorts of mythologies.

I was trying to think, I was asking Susie, my daughter, what other company has that kind of built up that mythology?

I don't think anybody had this harnessed as completely as Coke, but you're right, there's KFC, there's dairy milk, two glasses of milk in every cup.

That kind of thing.

But Coke, more than anybody else, I think, really built the mythology around their formula, which is why I underlined it because, of course, we'd go on to find out that they changed their formula all of a sudden.

In the 50s and 60s, Coke is outselling Pepsi by six to one, but it changes a little bit in the 1950s to 1970s because the suburban population in the USA doubled.

And as a result, you have supermarkets overtaking these corner shops that used to be the mainstay for Coke sales.

And so these supermarkets offer a far wider range of products.

They also offer private label products.

So this eats into Coke's market share.

But more than that, what really hurts Coke as we go on into the 70s and 80s is that Pepsi starts to gain traction because up to this point, Pepsi was very much seen as the poor man's cola.

But in 1963, Pepsi launched their Generation campaign.

And throughout the 60s and 70s, the Generation campaign started making big inroads.

Whereas before Coke was outselling Pepsi 6 to 1, by 1975, the Coke sales were about 1.1 billion cases a year.

And Pepsi was now up to 775 million.

So Pepsi was nipping on their heels.

But then in 1975, and I think you might be able to talk a little bit about this, about the 1975 Pepsi launch, their Pepsi challenge.

Yes, yeah.

And that seems to be one of the big spurs.

But really, when I read about the generation, I think what was really clever about it, it's almost like, well, Coke was your mom and dad strength.

You're an individual.

You're new.

You're an independent person.

Don't necessarily, it's almost like, don't vote the same way as your parents do.

Don't drink the same soda.

And I think it was really fundamentally very clever.

I think it is.

And I mentioned the generation one, because I'm going to bring up the generation a good bit in this conversation, because I think the generation campaign, we can see that Coke's outselling Pepsi 6 to 1 before the generation.

And within 12 years, Pepsi was nipping at their heel.

And it was the generation campaign.

It was apparently one of the very best examples of lifestyle marketing back then.

Because as you said, it was targeted at the youth.

It was targeted at this aspirational lifestyle.

If you consider yourself young and active and progressive, then you're part of the Pepsi generation.

And it was hugely effective.

And they didn't stop us when they brought out the Pepsi Challenge.

The generation campaign continued for decades, but then they brought out the Pepsi Challenge.

And I think it was very clever.

The Pepsi Challenge, I've still seen it actually over a year.

So it's still on the go.

And that's just a very, very...

It's still on the go.

Yeah, yeah.

They still use it.

I've seen it on the outdoor on six sheets of bus stops, where what they'll do is they put up a picture of Pepsi.

I think it might be Pepsi Max recently.

And then a generic kind of unbranded Reg Kang.

Yeah, but the Pepsi challenge that they started out in 1975 was for listeners who don't know.

I remember it because they kept on going until the 80s and you'd actually see the TV ads.

But it's where Pepsi went into shopping centers or shopping malls.

And you see all the people around and they just basically sit at the table and somebody would sit down and they'd say, okay, well, here's, it was a blind taste test.

Yes.

Coke and Pepsi.

So you didn't know what you were drinking and people would sip both.

And Pepsi were able to say this more often than not, people preferred Pepsi.

It was a real confrontational and pretty bold, the kind of taunt to Coke.

It was like, look, people prefer our drink to your drink.

Yes.

And it really enraged, I'm guessing, really enraged Coke because it just threw down the gauntlets.

And it did have big impact.

I mean, the stats I have is that by 1978, whereas we had Pepsi at 775 million cases versus 1.1 billion against Coke, within three years, Pepsi were just under a billion and Coke stayed static at 1.1 billion.

But again, the Generation campaign was also running.

I think when I read people saying, oh, you know, sales increased 30% because of the Pepsi Challenge, I'm finally going, no, the Generation campaign, which had been working all the way up along, was still going as well.

And I think that's important as we talk about this further.

It is.

And I think the other kind of interesting phenomenon is the extent to which Coke's distribution is beyond just those sort of cases.

Maybe that's just how they count their distribution.

But if we think about salgels and cinemas and fast food, they have a huge distribution across a number of different customer touch points.

They do.

And that was the tipping point for Coke in that when they got to the ACs, they still had the market share, but only by a few percentage points.

And what was keeping Coke at the top was the McDonald's and the Hardys, these large fast food restaurants that did have Coke as their main drink.

But in actual supermarket sales by this time, Pepsi was outselling Coke.

So when it actually came to consumer choice, Pepsi was in the lead.

So this was putting huge pressure on Coke, especially now Coke was coming up to its centenary in 1986.

And the last thing they wanted was to be knocked off their top spot as the number one cola brand when it came to their centenary.

So there was an awful lot of pressure on Coke to do something about this.

And actually just on the Pepsi Challenge, because you might be thinking, well, how do we know the Pepsi Challenge actually worked?

Well, Coke themselves did their own in-house Pepsi Challenge.

And the stats they found was that when they did the Pepsi Challenge, that Pepsi was preferred by 58% versus 42%.

This wasn't people, and this is an important point, drinking a full can of Pepsi and then drinking a full can of Coke.

This is where people just had a little sip of Pepsi and a little sip of Coke.

And that's an important point that we talked about later as well.

Yeah.

And I think it's an interesting one because that theme of research and confidence in the research is a huge part of that decision to go with new Coke.

So they felt really that the facts and the research and the feedback made the decision a no-brainer to a certain extent.

Well, as we see in the press conference that they have when they're launching new Coke, that was their mantra.

It was the consumers and it was the taste test that told us that this was the best drink.

So they were very much data driven.

And that was probably one of the reasons why it was something.

Yeah.

100%.

I guess the other context around here that is interesting to understand the confidence in decision-making is probably the extent to which some of the non-core business investments that Coke made, particularly around film distribution.

Well, this is what I was going to get to because I want to lay the foundation for this because the characters involved here up to the 60s and 70s, very much seen.

It was viewed as a very slow paced, conservative, bureaucratic company.

And it made decisions really slowly.

Now it had grown significantly still over the 60s and 70s in terms of overall sales.

I checked that up.

But the image of Coke as a company was that it was slow paced and stodgy.

So Woodruff, who wasn't in charge anymore, but was still very much in control.

He knew that he needed a breath of fresh air.

He needed something really, really different.

Somebody new to shake things up.

And up to this stage, not only had every Coke chief or CEO been American, they'd also all been from Georgia.

And all of a sudden, he chose a guy called Roberto Guzzetta, who was a Cuban chief to be the next CEO.

Now Guzzetta hadn't come out of nowhere.

He rose up through the ranks.

He became the youngest vice president at the age of 35 when he was a chemical engineer, educated in Yale, and he had also implemented some very, very good strategies while he was chief technology officer in Coke.

So he had made a name for himself and caught the eye of Woodrow, but he was still very much surprised when he was chosen.

I remember I read an article before they made the decision who was the successor, and the article from New York Times named the six main candidates that were going up for this role.

And Guzzetta wasn't in the six.

I think his right-hand person was his biggest rival.

Wasn't it Donald Kehoe?

Don Kehoe, who comes across, I really like this guy.

And Kehoe actually, he was a smart cookie.

He's a best friend of Warren Buffett and lived across the street from Warren Buffett.

Who's a huge best friend of Coca-Cola as well?

Yes.

And Warren Buffett, you say that at his annual, not his annual meeting where there are thousands of people, but he had an annual get together with a handful of top business people like Bill Gates.

And at every one of these annual meetings, they all just wanted Don Kehoe to be the keynote speaker because he was so eloquent.

He was a really, really good speaker.

But he obviously knew that the writing was on the wall because a few weeks before they named a successor, he cornered Guzessa at a meeting and said, if I get the top job, I'll make you my number two.

If you get the top job, you'll make me my number two.

And they made a deal.

And Guzessa got the top job.

Kehoe became second in command and they were a formidable duo.

And so Guzessa, as you rightly say, they made a lot of moves.

As soon as he came into power, he said straight off, he said, there's going to be no secret cows.

He even made a point of saying, even the formulas of our products are up for grabs here.

Now, I don't think anybody thought that he would actually, you know, follow through in that change of form.

But anyway, he did say that he moved fast.

He put in a centralized decentralized strategy for all operations, where he standardized everything from accounting to procurement across all Coke's businesses around the world, made huge cost savings.

He met with the bottlers because the bottlers were very much the poor partner of Coke, even though they were very, very influential.

I don't think they felt they were losing their respect.

And I know you probably know a bit more about this by the time he was in power as well.

An awful lot of them were third generation bottlers, and some of them hadn't any interest in the business anymore.

They had very advantageous contracts in a lot of cases, where they kicked the pie's contracts with a syrup.

So they had a lot of leverage and a lot of influence at the same time.

They were all independent, weren't they?

Yeah, at that point they were.

And I think Guzessa said, look, whoever wants ouse will buy ouse.

And he bought an awful lot of ouse, invested money into them, put in new equipment and then sold them back to the more ambitious bottlers that wanted to grow their business.

Yeah, it's very much, well, it feels very much like a franchise type model, really.

Yeah, yeah.

He also made a point.

He said to the bottlers at that time, as soon as he came into power, I am going to listen to you guys.

Whatever you guys say, I am going to take ouse.

And in fairness, he seemed to come through with that, as we'll see later on.

He also gave them the ability to replace sugar with high fructose corn syrup.

Very controversial, allow them to make huge savings.

But again, it shows that he was willing to make changes to the ingredients.

So that apparently didn't change the taste of Coke, but it did change the ingredients.

Yeah, but it is.

Well, I think there's different opinions on that.

So in America, Mexican Coke is still made with cane sugar.

And that as a product line, the imported Mexican Coke today in America is a very popular product.

And it does taste differently.

I haven't tried it myself.

It's more expensive.

It's imported.

It's labeled differently.

But it does have a slightly, to my mind, maybe it's a psychological thing because it was in a different bottle and I was expecting it to taste different.

So maybe that's what it was.

But that was a very controversial decision, not least because, quote unquote, big sugar got involved in the decision and tried to argue that this wasn't sugar at all.

Yes.

The claim that the ingredients hadn't changed and it was still sugar, albeit from a different source, was heavily contested by big sugar at the time.

Yeah.

Well, it wasn't a non-controversial, it might seem like small as a wuss, but it wasn't a non-controversial decision.

No, and it also shows that Gouzetta was on for taking these kinds of risks.

And he took other risks.

He brought in Diet Coke in 1982, which prior to this, that was anathema to Coke, because Pepsi had brought out Diet Pepsi 18 years previously.

But there was a feeling within Coke that Coke was this sacred brand and couldn't bring any other drink under the Coke brand.

Gouzetta saw it as a totally opposite way, which I'll talk about later when we talk about his mega brand strategy.

But he brought in Diet Coke in 1982.

Within three years, Diet Coke was the third best-selling health drink in the US behind Pepsi and Coke.

They had Tab as well, don't forget.

They did have Tab, and that's why Tab was being outsold massively by Diet Pepsi, because Diet Pepsi was under the Pepsi brand.

Yeah, you have brand recognition.

Tab was just a tab, unknown.

And Cherry Coke as well, don't forget that.

That was a hugely successful product.

I never understand that.

I still did it.

I didn't share it.

Well, Cherry Coke came out in 1985, just before New Coke.

He brought out all these other caffeine-free Diet Coke, caffeine-free normal Coke.

So he brought out a number of Cokes under the Coke umbrella.

And then he also, as you said, in 1982, Diet Coke was bizarre.

He bought Columbia Studios for $750 million.

Well, they're much in the book as to, I mean, I read that he just wanted to diversify their earnings.

And that was really the main reason for it.

But I just see it was the book does touch on us as sort of a puzzling investment that the investment community scorned and thought was ludicrous.

It seemed like a bizarre investment that had very little to do with the core business.

And the early predictions were that it would cost Coca-Cola a fortune.

And the fact that it did the opposite and was profitable probably fuels the confidence in decision making that led to the new Coke and that decision as well.

I think you're right.

I mean, eventually they ended up selling Columbia to Sony in 1987 for 3 billion.

They bought it for 750 million.

So yeah, it obviously was a good investment.

But I think you're right.

I think that decision and the fact that that investment went so well coupled with the fact that Diet Coke was going so well.

He was making a lot of big decisions and they were all coming out trumps for him.

And the share price in those in his first four to five years had tripled.

So Guzzetta was on the rise and everything was going well, except for the fact that by 1984, Coke now only had 21.7% market share and Pepsi had 19.8%.

And the people in Coke were asking themselves, we've got twice as many vending machines.

We got soda fountains in the biggest restaurant chains in the country.

We have more shelf space on the supermarkets.

We're spending $100 million more on advertising than Pepsi every year.

How are they catching us?

And they thought because the Pepsi challenge was so, I think this is my take on it, because the Pepsi challenge was so much in their face, it was such a visible public challenge.

And because as well, Diet Coke had done so well, and Diet Coke was this sweeter taste as well.

And because I think Guzzetta didn't come from a marketing background, he came from a chemical engineer background, I think there's a load of factors that fed into this idea that maybe we should be changing taste.

Maybe the taste is the problem.

And Guzzetta actually had put in place a team to look for a new taste as soon as he came into power.

But it wasn't until 1984 that this team came back to him and said, we think we've got a good formula here.

Yeah, I think there's a bit of mythologizing around that as well though.

Where it's like, oh, we just stumbled in the lab.

We were trying to come up with a formula for one of our diet products.

We stumbled down to this new formula.

Yeah.

We toss, this is an aha moment.

Like a holy grail, literally.

Yeah.

So you could imagine us kind of being part of that mythology had it been successful.

So we had the old formula in the lab or in the safe, and then we stumbled on an even better one.

So our luck is so incredible.

We just stumbled across this accidently and now it's safe.

It seemed to me like it was quite a deliberate effort to try and develop a new formula.

I don't believe for a second somebody just stumbled on it.

Yeah.

I think you're right.

I think it was probably a lot more deliberate than that.

But anyway, that's the way they portrayed the story.

And I couldn't find anything else.

I suppose only the people involved would know and they haven't come out to say exactly what happened.

But on the back of anyway, them finding this miraculous new formula, they started this new project called Project Kansas, where Guzzette got his top marketing people to form a secret group, top secret group.

It was taught by Kansas after a Kansas newspaper editor and Pulitzer Prize-winning author, William Allen Weiss.

There's a famous picture of him that hangs in the Coke headquarters of him drinking a bottle of Coke.

So that's why they call it a Project Kansas.

Really?

Yeah.

And he also had a famous quote about how Coke was the ultimate in American sort of consumerism.

And it was the perfect drink.

It's weird.

My mind immediately went to Dorothy and The Wizard of Oz.

Sort of, we're not in Kansas now.

So, you know, maybe that sense of, oh, God, this isn't exactly where it's all we'd be after just success.

But there you go, our lack of success rate.

Exactly.

But it was top top secret.

It was secret even to the point that their ad agency McCann Erickson, people who worked on that would go into McCann Erickson during the day.

And then in the evenings, supposedly they were heading home, but they wouldn't.

They'd reconvene at a secret location.

I was manned by security people and shredders at the door.

So it was all, it was so hush hush.

They likened this in the Coke Museum.

They have papers on it where it was likened at the time to the Normandy invasion.

Now, an exaggeration, of course, but in terms of the resources that they put into this, like it was huge.

Was it 200,000 taste tests they did with new Coke?

Massive.

Hundreds and hundreds of focus groups, thousands and thousands of surveys.

It was a huge operation.

And of course, one of the big questions they had to ask, when they decided, okay, we've got this, it's the Holy Grail, it's beating Pepsi, and it was beating Pepsi on their own.

So they said, we're going to go ahead with this, but they had one big question, of course.

What are we going to do with the original Coke?

Are we going to discontinue it?

Or are we going to launch this new Coke with the original Coke?

It was a huge decision.

And they decided to discontinue it, which I can't.

No, I just can't reconcile my head to that one at all.

I mean, I have the reasons here, the reasons they gave, but none of them are that great.

Well, one of them is okay.

One of them was that the bottlers would kick up because they'd have two Cokes now to do, and that would put more pressure on the production line.

And you kind of got, yeah, but Guzzetta had already brought in Diet Coke, Caffeine Free Diet Coke, Caffeine Free Coke.

Another one, it wouldn't make that much difference.

That was one of the reasons.

Pet, fair or not, not great.

The other reason given, which was a good reason, is that if you had both Coke, would they not cannibalize each other?

And would that not give Pepsi the number one position?

So, okay, I could see that, especially coming up to their centenary, they wanted Coke, the one Coke, to be the number one Cola.

And maybe the two of them would cannibalize each other, and Pepsi would get the jump on them.

Fair enough.

The other issue, our dilemma they had was, what one would McDonald's choose?

And what problems would that cause?

So, they had that.

But at the same time, you have millions and millions of people who love your drink, and you're just going to take it off them?

Like, I know.

And another dilemma they had was, how are they going to market this new Coke?

Because remember, they had nearly a hundred years of Coke is this.

Coke is the real thing.

This heritage of the formula, this mystique behind the formula.

And even just the year previous to the launch of new Coke, they ran out a huge campaign with Bill Cosby on TV, where Bill Cosby more or less derided Pepsi and all the other colas for being too sweet.

And now they're bringing out this new Coke, which it's only a determining factor that differentiated it from the old Coke, was that it was much sweeter.

So now they did come up with a line, which was good, their tagline for new Coke, which was good, but it just couldn't paper over the cracks that all the issues that were going to come out.

But their tagline was for new Coke, the best just got better.

Yes, which is nice.

You know, it is nice.

It is nice.

That's the extraordinary thing about it.

I mean, so many smart, well paid people generated such data that kept them all of the reassurance that this was the right decision.

So it's hard not to be sympathetic in that respect.

You know, they're looking at these facts.

They feel like they're on the right track.

The data from consumers looks like it's right.

So you're on the precedence of this huge decision.

They must have been feeling very confident.

They were feeling very confident.

They were feeling extremely confident.

And they, Gouzetta and Kio went to the Bottlers the day before they did the big Coke launch, new Coke launch.

All the Bottlers, what they were doing, Bottlers gave them a standing ovation.

The Bottlers were delighted.

Because after years and years of Pepsi catching up to them, and after years and years of, I suppose, working with a very bureaucratic, slow-paced Coke, they finally had this man, Gouzetta, who is making fast changes, big risk.

All the risks were paying off.

And now his new risk was to take the old formula off the table, bring out this new formula that their tests had shown, and their research had shown was beaten Pepsi.

And, you know, so Gouzetta and Kio were going into that press conference on the 23rd of April, having met the Bottlers, all of confidence.

Not only had their own research proven that this was the right thing, but their main partner, the Bottlers, had given them a huge vote of confidence that, yes, you're doing the right thing.

But what they didn't realize, despite all the secrecy, was that the Pepsi CEO, a young fella by the name of Roger Enrico, had gotten the heads up that New Coke was going to be launched.

Apparently there was an insider inside in Coke, which is codenamed, I kid you not, Deep Palace.

Deep Palace had been in contact with Enrico and given them the heads up that this was coming down the line.

Now, Enrico initially was, it obviously frightened him because he thought, wait a second, if New Coke beats Pepsi in the Pepsi Challenge, we're in big trouble here.

But the more he and his executives thought about it, the more they realized, hold on a second.

What's actually happened here is, Coke had caved.

Coke had given in.

Coke have thrown away a hundred years of heritage, a hundred years of their, you know, we're the best.

To just try and compete with Pepsi, they've sweetened their drink to compete with Pepsi.

As Enrico said, famously, the other guy, Blinkton, that's exactly what happened.

And what Enrico did then was he got his PR team, contact all the journalists that were going to be at the press conference, the Coke launch, and they prepped them with kind of questions that they should be asking Guzetta and Kehoe.

In other words, that this is all about the Pepsi challenge.

They've only sweetened Coke so that they can compete with Pepsi.

And so when Kehoe and Guzetta got up and made their big announcement and said the best just got better, straight away the journalists just started peppering them with, hold on a second, isn't it just sweeter?

Haven't you just made Coke sweeter?

Isn't just a response to the Pepsi challenge?

And in the whole, I don't know how long the press conference went down for, I think it was an hour or so, Guzzetta never once mentioned the word sweet or sweet or anything like that.

He used words like that New Coke was deeper.

It was rime.

It was more harmonious.

Whereas every one of their dog knew that, no, it's just sweeter, man.

You know, and so the media had straight away had their story that Coke had caved.

And not only that, but Pepsi also brought out a full page ad in New York Times that same day to really gazumpco, and the main tagline on their New York Times ad was, the other guy blinked.

And then we go on to TV stations all that day with the same line saying, the other guy blinked.

And also another nice line I had from Pepsi was that victory is sweet.

That's very clever.

Very, very clever.

Yeah.

And they also had a celebration of their own, five kilometers down the road from the press conference that New Coke had, and they gave their staff the day off as well to celebrate Pepsi's victory.

So they really izzoned Coke on this.

It was very...

But it wasn't long before they knew they were in trouble.

So the consumer backlash is really the most remarkable thing here, I think.

One of the anecdotes in the book that really stood out to me was a guy several states away who rented a U-Haul truck as supplies of Coca-Cola Original started to dwindle in his local supermarket.

He actually drove to other states stocking up and filling his garage with Coke.

He didn't drink alcohol.

He didn't drink anything else.

That's all he drank.

He didn't drink water.

And there was panic.

There was consumer outrage that this institution was changing.

There was.

And the article that I referenced, Tim O'Malley's Mother Jones article, he frames it as a culture war.

And I love the article.

I think it was a really well-written piece.

And there was some truth in it.

There were some people who were jumping on the bad ragging because they just didn't want change for change.

You will have that.

But I think where Tim O'Malley gets it wrong, and he even mentioned in, he was interviewed in the Business Movers podcast that I referenced as well.

And Tim said in that podcast, you know, he said, soda is just soda.

And that's where I kind of stopped and I said, hold on a second.

Because when I was young, I was a big coke drinker.

Yes.

And I love coke.

And for me, soda wasn't just soda.

There was coal.

And if somebody gave me Pepsi, I might recognize it after one or two sips.

But after, you know, half a glass, I know it was Pepsi.

And an awful lot of the objections were coming from real coke loyalists who just, as you said, like that guy there, they just drank coke a lot.

And coke was taking it away from them.

You know, it wasn't as if they were bringing out a new coke.

That would be okay.

Grant, bring out 10 new coke.

But to take away my coke.

I know.

And I think it felt more, I mean, I don't know for you, but I can remember when you're drinking as a kid, it almost felt as if it was some sort of mythical connection to America.

It was always associated with Americana.

In a way, I can't think of any other product.

I don't think.

Not that I can think of anyway.

So it seemed to be a heart of American identity for a huge amount of people, the baby boomers, et cetera.

Who saw this as part of their identity, part of their origin, and suddenly it's been torn up.

It's like the flag or something.

Yeah.

And they were getting tens of thousands of calls and letters like every day, every day into the office, like saying, what are you doing?

What are you doing?

And of course, as well as that, one thing that I noticed is like back then you didn't have social media.

But in 1980, you had CNN launched the first 24 hour news channel.

And over the coming years, you had fierce competition in the news media.

And so this kind of story was just the type of story that they loved.

You had pictures of people on the streets buying New Coke and editing it into the drains.

You had thousands and thousands of phone calls.

So it was a story that the media definitely amplified.

And that will have an important part when I look at the research, when we get to start the post-mortem of how this all went wrong.

But yeah, you're right.

The complaints that were piling in, as well as that, the bottlers, who Guzessa said he would always listen to, the bottlers started getting back to Guzessa saying, our shops are not happy taking them, our customers went back saying they don't like the taste of it.

And Guzessa said was good on his promise.

He did start listening and very, very quickly, he decided we got to reverse this decision.

And this is despite the fact that they had like $30 million worth of new Coke syrup, that this was like the biggest product launch nearly in American consumer history.

Despite the fact that this would be one of the most embarrassing climb downs, he still made the decision.

Yeah, we got to reverse this and made it pretty quickly.

Yes, but it did, reversing is, yes, but not as dramatic as replacing it originally, because he did actually do probably arguably what he should have done in the first place, where two brands existed together.

Yeah.

Classic, which is the original and then new Coke.

Yeah, because that's exactly what he did.

Like after 76 days, they held another press conference and they said, we're bringing back original Coke.

We're keeping new Coke.

And they called original Coke, then classic Coke.

But Goodnesser still wants to give new Coke a chance because he had all this research shown that people loved it.

So he probably still thought, wait a second, I want to keep this out here because if people love this Coke, it might still be a winner.

Yeah.

But it wasn't because as soon as you put out classic Coke, McDonald decided, yeah, okay, we're going back to the old Coke.

And they started getting thousands of positive calls, thousands of letters.

And there was all this goodwill and gratitude that original Coke was coming back.

And original Coke then started taking off in their sales, started shooting through the roof again.

And then that in turn has fed into this conspiracy theory that that was the plan all along.

I don't know if you've read references.

I did.

I did.

Was that heavily referenced in the book?

No, it wasn't.

But reading up on different articles, they were saying this was a masterstroke.

They did this deliberately.

And yes, it was a huge investment in the formulation in Coke, but it was all a charade.

It was all, you know, a coincide stunt.

Kehoe addressed this.

And again, Kehoe is such a good communicator.

He addressed this at the second conference for Derbring and Backer in New Coke.

And he has this line that I think maybe most people would be able to use to dispute any conspiracy theory.

And he said, we're not that dumb and we're not that smart.

And that is very true.

I mean, you'd have to be either very dumb and very smart to do something like that.

Yes.

It wasn't intentional.

How could it be?

But, but, Chad, they got it wrong.

And there was an excellent article.

It was a piece of research.

And it was like, how did Coke get this wrong?

Because we talked about the data.

And there was, and it was like, did they have all the data?

Did they misinterpret the data?

What was the reason that they got this so wrong?

And there was one interesting point in this article.

And Coke, as well as doing the taste tests, they did focus groups and they did surveys.

Now, both the focus groups and the surveys found that about 10% of Coke drinkers objected very strongly against kicking out old Coke and bringing in new Coke in its place.

So 10 to 12%.

Okay.

Now in the surveys, because the surveys are done individually, it was always 10 to 12%.

In the focus groups, you would have say 10 people, and you would have one person, which would represent the 10%, that would be really object against this.

But within the focus group, that one person's objections were then taken up by about four people.

By the end of the focus group, you would have four to five people objecting really loudly about, no, you can't replace old Coke.

So they'd essentially make an argument, an emotional argument that would convince the other people in the group.

Well, yes, it's a phenomenon that we are familiar with now because of social media.

It's called social influence.

You get it on social media all the time where one person objects against something.

And then within a few hours, you have loads of people piling in and agreeing with this one objector.

And all of a sudden, it spreads around the world and everybody's going nuts over something.

No consequence at all.

Yes, so in the focus groups, that one person's influence would spread.

Now, Coke obviously thought, okay, but we don't live in a focus group.

So we're going to have 10% of people who aren't going to be happy.

But what they hadn't factored on, and I don't blame them for this either, was the influence that the media would have on it.

Because of the news channel and because the news, they kept on playing this.

They even interrupted news programs to bring it to Coke News.

So you had this 10% who would object, and then, of course, the media amplified it.

So then you had that 10% expand up to 40%.

And that was one of the reasons that cost Coke off guard.

They didn't expect it to spread like that.

So that was an interesting point.

And any lasting negative impact?

But you can kind of look at, I mean, ultimately, when the dust settles, they come out of the situation, up, right?

They're not so low.

They come out very up.

I suppose, I don't know about negative.

I suppose one thing that you'd have to look at, like as you said, it's hard to blame them because they had all this research.

And I wouldn't even blame them for getting that 10% and saying, well, how do they not know it was going to be amplified?

This was pre-social media.

I don't blame them for that.

The one thing I do would sort of point the finger, if you were to point the finger at them, is that the generation, and I get back to the generation campaign, the generation campaign had been going on successfully all the time.

And Pepsi had been nipping at their heels and getting market share through generation.

And then the challenge, the Pepsi challenge came and they made it all about taste.

But generations kept on going.

And I can't understand why Coke for one minute didn't think, hold on a second, could this be an image problem?

Because even when you look at Guzzetti, who was doing great, even when he took charge, look at 1984, okay?

Who was coaxed?

Me and Ambassador featuring in their ads.

It was Bill Cosby.

Dr.

Huxtable.

You're talking about middle-aged, middle-fast, middle-of-the-road.

Who did Pepsi have in 1984?

They had Michael Jackson.

They signed the biggest star in the world for the biggest deal at that time.

They invested $7 million in two ads.

I think one of them is where Michael Jackson birch his beer.

But you look at their image, and I can't understand for one second why Coke didn't stand back and say, wait a second, guys, might this be to do with our image?

Because there was other research that Coke had been doing all the way along.

In 1981, up to 1985, they were serving 16,000 people not on a taste test, just on purely which drink do you prefer?

And Coke always was winning that 36 to 33%, more or less all the way through.

So they didn't have a taste problem.

Okay, the sip test did show it, but as Malcolm Gladwell, and we don't have time to get into that, but he does have a very good chapter in his book about how sip tests are irrelevant, especially bright, blind sip tests, because our palates and our endorphins will always go for the sweeter taste.

So taste tests don't work out, and Coke themselves knew this.

When the first taste test or Pepsi challenge came out, Coke came out and said, oh yeah, but that's only a sip test when people actually do the drink at home test.

So Coke had done research to kind of show that the taste test and the blind test weren't relevant.

I don't understand why they didn't look at the image, because it's a good point.

Yeah.

And that's the only thing I would say.

But in terms of, did this have any long lasting impact?

Not at all.

I'm not having any students who were responsible for the decision either.

I mean, nobody fell under sword as a result of this reading either, did they?

No, nobody did.

And I think in fairness to Guzessa, he had built a very solid foundation up to then.

It wasn't as if he was a new CEO coming in, took a big risk and it all went to hell.

He had made a big success prior to this.

One question that came to me, I was like, okay, so the Pepsi challenge was so good.

And if Pepsi generation is so good, then how come Pepsi still haven't taken over Coke?

And the reason for that is again, because of Guzessa.

Guzessa brought out this mega brand strategy.

It started with Diet Coke and it continued when he brought in all these other caffeine free Diet Coke.

Okay, now you have Coke Zero.

You get as many Coke drinks under the one umbrella.

You build a bigger brand and that strengthens the whole brand of Coke.

And New Coke only bolstered this.

Okay, it was negative for two months.

But then once they changed it back to the original Coke, it became positive.

And it still fed into this whole thing that Coke is everywhere.

When you go into the shops now, Coke has more shelf space.

They have more ads promoting more drinks.

They have a larger consumer base.

And this all feeds into a mega brand strategy that Coke has been using since Guzessa developed this.

And it has just, Pepsi hasn't come close.

If you look at Pepsi now, Pepsi has 8.9% of the Coke market share in the US.

Coke has 17.4%.

So the Coke brands and that mega brand Coke strategy has worked fantastically.

And yeah, Guzessa didn't get fired, Keogh didn't get fired, and they were right not to get fired.

Because if you look at Guzessa, when he came into Coke in 1980, it had a market cap of $4.3 billion.

He stayed on until 1996.

And when he left, it had a market cap of $152 billion.

So he was one of the most successful CEOs in corporate history in the 20th century.

So this is one of the most successful mistakes made, really, when they think about it.

It was, wasn't it?

There's nothing like, I was reading a lot of different articles where they were saying, it's not a case study that you can really say this is how you do it.

It's because it kind of confounds all these.

Yes, it does.

Like there was nothing you could say, this is how you bounce.

Well, no, I mean, in fairness, one thing you could learn from it, and that Gouzessa did very well, is once you realize you make a mistake, you own up with it and move as quick as you possibly can to rectify it.

And make it work.

Yeah.

Yeah.

It was, I thought it was a fascinating story.

What did you get out of it?

That kind of thing as well.

Yeah.

I think for me, I think probably it's, it's a little bit like your view around the branding piece.

It's probably for me, maybe an underestimation of the intangible values that people put into a brand.

Yeah, people put in lots of, you know, associations, be it memories or nostalgia or culture, cultural type, kind of feelings into a brand that is very hard to figure out in any sort of scientific research.

And the extent of which the pillars of those sorts of things are eroded by a formula change probably weren't even conceived of.

And I can remember in the books, there was a piece saying, well, that's because he wasn't an Atlanta man.

He wasn't a Coke man.

He would never have made those decisions if he had understood the value of the intangible memories and associations with Coca-Cola.

He would never have killed the sacred cow.

And that may be the case, but then he wouldn't have made all of the successful changes either.

And that's why he was hired.

So I think it's a complex story.

I think for me, the one part that really jumps out though really is, how do you value those intangible kind of brand values?

It's almost impossible to quantify what a brand means to someone.

But the reaction shows, it means a lot.

Yeah.

Yeah.

And it's hard to blame Guzetta for much, but I think taking something away from your most loyal fan, that was the one thing where I was like, no, you just can't do that because we didn't get new Coke.

But back in my 20s, I was a bit of a Coke addict.

And if I had been told that Coke was going to just take it away from me, I would have cut nuts.

What are you doing, man?

And as you said, it's nearly, there's a lot of intangible factors as to why I love the taste of Coke.

But yeah, there was a lot of other things I loved about just having a Coke addict.

But you can't really define or put a value on.

So yeah, it's very interesting.

Okay.

Well, listen, that was a good one, Keith.

Good chance.

Your turn next time.

Yeah, I haven't got anything in mind, but I should go.

All right.