What Your Customer Strategy Can Learn From New Coke’s Failure

One of the best known product launch failures occurred in 1985 when the Coca-Cola Company, in an attempt to gain back market share, launched New Coke. Even though it happened nearly 30 years ago, there is a lesson to be learned for those involved in planning and executing customer strategies today.

Shortly after World War II, Coke’s market share was 60% of the soft drink market. But according to the book, Secret Formula: How Brilliant Marketing And Relentless Salesmanship Made Coca-Cola The Best Known Product In The World, by Frederick Allen, it had fallen to less than 24% in 1983. Not only was this attributed to the rise of Pepsi, but also to the emergence of other soft drinks as well, segmenting the market.

Aggravating this was the ongoing ad campaign launched by Pepsi called “The Pepsi Challenge,” first begun in 1975, which showed customers taking blind taste tests and picking Pepsi over Coke.

Faced with the declining market share, Coca-Cola executives began looking at reams of market research data, including their own taste tests which failed to show a clear preference for Coke. According to Allen,

Ray Stout, the scholarly director of the company’s market research department, piled up a small mountain of graphs, charts, computer printouts, and other data, all of which suggested that taste was the lone plausible reason for Coca-Cola’s stagnation in the market.

The analysis of this data pointing to taste quickly became the conventional wisdom in the company’s senior ranks and the search began for a new formula culminating in the launch of New Coke. Of course, you know the results. Disaster ensued leading to the reintroduction of “Coca-Cola Classic,” some months later and the eventual decline of New Coke to three percent of the market share before it exited the stage.

What Went “Worng?”

How did Coke misread its customers’ preferences when it had a mountain of data showing otherwise? Allen points to customers’ emotions and their relationships with Coca-Cola.

Pepsi could say it tasted better than Coca-Cola, but actual consumers could never make a fair, clinical determination of the accuracy of the claim—they couldn’t decide for themselves—because their taste buds would always be compromised by the thoughts and emotions and associations that the name of the product conjured up in their minds.

Perhaps you think the entire New Coke debacle could be traced back to the incompetence of senior Coca-Cola executives. Yet, Allen shows that they had data that actually led them to the conclusion that the only way to gain back market share was to change the formula of the iconic drink. These same executives had also launched the wildly successful Diet Coke several years earlier which soon became the fourth most purchased soft drink. Sales would also rebound after the reintroduction of the original formula and shareholder value would actually increase.

The Data, By Itself, Was Correct

It wasn’t incompetence, nor was it faulty data. The problem is that the data, as they knew it, only took them so far. They were still missing an important piece of the declining market share puzzle. Namely, the role emotion played in what is now known as the Customer Experience. Allen writes:

All across the country, and especially the South, people responded to the change in formula as if the company had committed an act of parricide, killing off a beloved member of the family. The surge of emotion over old Coke defied all reason. Hundreds and then thousands of angry callers began inundating the company’s 800 number in Atlanta, and the remarkable thing was that many of them weren’t Coca-Cola drinkers at all. They were simply American citizens, upset and feeling a profound sense of loss.

Even though it was years before Customer Experience was defined as a strategy and Voice of the Customer Software became available, Coca-Cola executives understood that drinking Coke was an emotional experience. But in those days defining emotions was not something that would result in credible data. More importantly, they had “a small mountain” of empirical data pointing to taste as the culprit. That data, by itself was correct. But had they factored in data on the role emotion plays in drinking a soft drink, they’d have realized that their “small mountain” of non emotional data was giving them a false conclusion.

Today “Emotional” Data Is Crucial

Your product, service, or organization may not command the same widespread loyalty Coke does. But the lesson still holds. Ignore the impact of the role emotion plays at your own peril. Make sure you’re looking at the complete picture.

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