Product Development Failure: New Coke Essay
Initially introduced in Atlanta Georgia in 1886.Coca Cola is one of the most predominate soft drinks of all time. The successes of Coca Cola were not without failures. The reformulation of Coke’s flagship may have been one of the worst product failures of all time. However, this disaster may have begun stemming way before the introduction of New Coke. Coca Cola had been battling with Pepsi Cola since Pepsi’s introduction in 1903. Until just after World War II, Coca Cola had a commanding 60% market share1.
Pepsi’s superior management decisions and marketing mix with the aging of the baby boomers enabled them to close the gap in the soft drink market segment. As the baby boomers got older and more health conscious coca cola began to lose market share. Pepsi, which was already the favorable product for the younger less health conscious soft drink users, began to target more niche markets such as the African American market. However, one of the big contributors to closing the market share gap was selling at a lower, market penetrating, price during The Great Depression by selling 12 oz bottles for a nickel while Coca Cola continued selling 6 oz bottles for the same price.
Pepsi, adjusted better to their external environment by delivering value to their customers and Coca Cola suffered because of this2. Coca Cola felt that their time was running out with much of their brand loyal customer base aging and Pepsi controlling the younger more favorable segment. Pepsi’s youth focused positioning was getting better and better especially with their “Pepsi Challenge” marketing campaign in 1975.
This campaign aimed to develop the belief that this is now the ‘Pepsi Generation’. This campaign was extremely successful because it called Coca Cola the reigning market leader out on it’s taste. Pepsi heavily marketed the results of this challenge to the public in exclamation that the Pepsi Generation has finally arrived3. Coca Cola tried firing back with an ad campaign featuring Bill Cosby commenting on Cokes preferable less sweet taste as compared to Pepsi. This however, was no match to the Pepsi Challenge campaign. “In 1980, Roberto Goizueta took over as CEO, he pointedly told employees there would be no sacred cows in how the company did its business, including how it formulated its drinks” 4. Coca Cola knew that Pepsi was beginning to surpass them and needed to make some drastic changes. They began research through focus groups, surveys, and customer sample handouts to perfect their flavor. On April 23rd 1985 New Coke was introduced.
To make sure they were not hiding this change, all bottles were instructed to have the word new included on them. Initially, New Coke did very well in the areas which it was tested and many consumers said they would drink it. However, of all that tried and appreciated it, there was still 10-12% who hated the idea of even changing this flavor. When Coca Cola was introduced to the Southeastern United States disaster began to break out5. They were not accepting of this new flavor and that 10-12% in the focus groups who were angry about the change began to get very vocal about their dissatisfaction. Pepsi began to heavily invest in PR to get the message out that this is proof that Coca Cola believes that their product is inferior and needed changed.. Many important considerations were not taken effectively by Coca Cola decision makers. We will address those and other important elements later on in this paper. Target Market
Coca Cola’s target market is generally for all consumers. However, some of their other products are more differentiated. Formally stated though, the company defined their market as follows “Our company will target multicultural youth by identifying common youth struggles and positioning Coca Cola as a unifying element in a diverse youth culture”. Breaking up their target market further, we can identify the importance of segments within this target market. The primary market for Coca Cola within their target market is the youth ages 13-18.First, 13-15 year olds are very important because this group influences their parents purchasing decisions, as well as influence their friends decisions. Next, the 16-18 age ranges are independent in their decision making. This presents a great opportunity for continuous sales through brand loyalty6. SWOT Analysis
As for the SWOT analysis for Coca-Cola Company, one can see that many of the internal factors are ones that Coca-Cola can still change/sustain. Some of Coca-Cola’s strengths include their brand recognition, a loyal fan base, marketing the product, and strong media attention. The cola that is known throughout the world is the cursive, white writing on the all red can. People know, wherever you are from, that it is Coke. This plays directly into the marketing of the product of Coke. Coca-Cola Company does an excellent job of getting their name widespread around the world. Their loyal fan base also plays a big factor. Coke knows that these loyal fans will do their best to stay Coke drinkers. The media also plays a huge part of Coca-Cola’s success, in that they spread the news of Coke day to day. When Coca-Cola Company announced they were bringing back the original Coke, a breaking news bulletin was posted, interrupting regular television. Coca-Cola’s weakness are that their market share was declining, they did not market to different generations very well, they did not deliver value when people needed it most, and they did not understand their intangible assets. Coca-Cola did not take into the consideration that their generation of loyal baby boomers were getting older and more health conscious. Coca-Cola should have been marketing to the younger generation, much like Pepsi did, to regain some of the market share. Also, as recently mentioned Coca-Cola did not lower their prices or give more for the same amount during the great depression when money was scarce.
Coca-Cola also did not understand their intangible assets of Coke being an American icon. Some of Coca-Cola’s opportunities are to add additional flavors, to focus on obtaining the western part of the United States, and to form more strategic alliances through food chains. Adding additional flavors will attract new customers and take away from other soda company’s market share. The western United States has always been Pepsi’s territory, focusing in on this area might attract new loyal customers and adding to Coca-Cola’s market. By forming more strategic alliances Coca-Cola will be able to sell more Coke product during a period of time. Threats within the Coca-Cola industry are Pepsi, Coca-Cola’s main rival, and any other soda company. Some additional threats include health officials and the loss of loyal customers during the reneging of the original Coke product. Doctors and dentists alike tell people all the time to stay away from soda due to its lack of nutritional value and harm to your teeth. By going back on their original formula, Coca-Cola might seem as unsteady, losing some of its loyal customers for good. Generic New Product Development Process
Developing a product takes time, risk, and some planning. Most successful companies have already completed this long journey of developing a new product. Companies strive to have their products in the maturity phase of the product life cycle; however every product at some point in time will reach its decline phase. When a company starts to see this decline, they usually have another product in queue ready to enter the market. This helps that company regain its share of profits from the declining portion of a previous product. Many companies have a lot of products all diversified in the different phases of their product life cycle, so that they can maximize profits.
The steps in the new product development (NPD) process are idea generation, idea screening, concept development/concept testing, business plan, product development, prototype testing, and commercialization and are normally in the order. It is crucial for a company that is developing a new product to follow through with all of these steps thoroughly. If a company does not follow these steps, a company could end up with a failed product such as Coca-Cola did with their development with New Coke.
In the first step of NPD, which is idea generation, a company sifts through many different factors. These factors include internal and external sources and the category of which a company wants to pursue. These categories that a company can choose from are NPD, product improvement, cost reduction, and regulatory. NPD is at the highest risk because it is hard to estimate how customers will react considering it is a new product. Product improvement is a little less risky than a NPD and cost reduction and regulatory compliance is even less risky than that. Product improvement and cost reduction do exactly as their name states; the improve products through a certain addition and reduce costs of a product. Reducing costs can be done many different ways, for example sourcing out to a different vendor to get the same part for a lower price. Regulatory compliance is complying with government regulation. The other subparts to idea generation are internal and external sources of generation. The internal sources are found within the company, with an example being employees stating an idea. Employee ideas can be very useful considering that they specialize in certain areas of the business. These employees might come across a need in a certain area, along with diversifying ideas throughout different sectors of the business. Companies can utilize external sources such as focus groups, their suppliers, customers, private researchers, and middle men to get ideas. By doing this, a business can know for sure what their customers want, which really is everything.
After an idea has been generated, the next step in the NPD process is idea screening. Within this step a selected group in the organization will make sure that the idea makes sense. There are two types of errors that can occur, which both could be costly to a company. The first error is “drop error”, in which a good idea is rejected. The second error is called a “go error”, which means the excepting of a poor idea. This plays into the stages and gates concept, where a group must decide whether to continue with the idea after each step is completed in the process, or to cancel the idea and start from the beginning.
The third step in the process is concept development/testing. Engineers will make sure that they are able to complete the process and more details are added to the given idea. This is where important specifications will be needed to figure out. After the product or idea is tested, the question of to continue or not is brought up again to the product committee.
Assuming the product has been accepted through the stages and gates theory, the business plans are made. Within the business plan is the demand analysis, cost of production, and product profitability. Within the demand analysis, a group will forecast to better find out what kind of market is available for the product. Also, the potential sales are forecasted to better understand how many units an industry can sell. Within the cost of production an organization will forecast the costs of marketing the product, along with the given research and development costs. Under the product profitability section of the business plan, one will figure out the demand and cost factors, rate of return of the product, and conduct a breakeven analysis. This will give a better understanding to all within the business through a written form of communication. Graphs and charts will also play a big part in helping outside employees who are not working with the process have a better understanding of what opportunity lays ahead of the company.
Following the business plan is the product development, prototype testing,
and commercialization stages of the NPD process. In the product development stage, the testers state the technical development of a product and build a prototype. This single unit of the product will be utilized for multiple different uses, including evaluating the most efficient way to produce the product. The testers will then run the prototype through a functional test to make sure the product does what it is suppose to do. After the testers will put the product through a market test, and end the process by commercializing the product. This will prepare the product to launch into the introductory stage of the product life cycle. Coca-Cola’s Product Improvement Process
The Coca-Cola team was looking for a spark to regain its lost market share to their famous rival Pepsi. They took a risk as a company, which many successful companies do. This idea for New Coke started as an internal idea and was thought of as a product improvement. The “new” product idea worked its way through idea screening, which was an easy step because Coca-Cola had the necessary equipment to product coke. After passing through the “gates” of screening process, New Coke continued on to concept development or testing where it was explained in greater detail of how everything for this product will work. New Coke was supposed to be sweeter than the original Coke, yet have the same “bite” that the original Coke had. This was supposed to grab some of Pepsi’s consumer market, while sustaining Cokes market. New Coke continued onto the business plan stage, where they calculated in the demand analysis the forecasted market sales and reaction of the consumer. Coca-Cola proceeded to the costs associated including research and development. In trying to figure out the profitability portion of the business plan, Coca-Cola was very generous in their numbers, making it seem like it was a greater idea then it actually was. New Coke made its way to the product development stage where Coca-Cola used its assets that previously made Coke to produce the brand latest product of New Coke. After making the prototype, Coca-Cola continued to make sure it tasted like it was suppose to. After verifying the taste, New Coke was brought in front of 200,000 taste testers7. The results confirmed that the product would do well. Coca-Cola decided to stop the making of the original Coke because of the following three reasons. The first was that the original Coke would
cannibalize the sales of New Coke. The second reason is that Pepsi could claim that it was better than both the original Coke and New Coke. The third reason, some scholars believe, was that Coca-Cola was going to change the sugar in the drink from sugar cane to a much cheaper supplement of high fructose corn syrup, which would give it a sweet flavor. The plan was that Coca-Cola would introduce New Coke to the market expecting their customers to get angry. This in turn would give them the chance to change their original formula to a cheaper high fructose corn syrup formula. Coca-Cola expected that their customers would not be able to tell the difference after the New Coke era was over8. However, it is unlikely that Coca-Cola made New Coke for that reason, but was found to be an interesting spin on why they produced New Coke in the first place. The idea screening, business plan, and marketing testing is where Coca-Cola made their error. Coca-Cola did not factor in a main part to their equation, which was intangible in the customers. Coca-Cola’s customers were ones who have grown up with Coca-Cola and heard stories of it in the past and grew up watching it on televisions. This in turn made Coke a part of American culture, which is an intangible factor of Coca-Cola’s product. No matter how good the taste, consumers would reject the taste because it was not the Coke they knew to love. This whole concept should have been figured out in the idea screening portion, where the company looks at the different factors of whether they should produce the product or not. Even if the product idea past the idea screening, it should have been brought up again in the demand analysis section in the business plan where the company forecasts the market. Partial blame can also be put on the marketing testing results where the marketer’s main focus was if it tasted better than the original Coke. The marketers should have been asking them, how would they feel if the old product was replaced by New Coke? The marketers, in this case, have tunnel vision where they knew that the results pointed them to continue on with the plan and start producing New Coke9. Reasons For Failure
There are many reasons for the failure of Coca-Cola Company getting rid of their original formula and introducing a new product called New Coke. One needs to ask the question, why would a company totally get rid of a product that has had years of success and has been the backbone of the company for
so many years. Doing all of this for the reason of some competition, something all businesses face. Instead of completely getting rid of the product, Coke simply could have added a new line of products, something that proved to be quite successful in the future after this fiasco.
Coca-Cola didn’t do much research before they decided to make the switch. They went solely on taste tests, surveys, and focus groups that seemed to be positive about the new flavor. They didn’t do much idea screening or cost evaluations, and were close-minded on the face of how many loyal customers they already had. They didn’t realize that Coca-Cola was a lot more than simply taste to the American people. There is a lot more intangible value behind the product. People grew up on the legendary brand and it meant a lot more to people than just taste, it was a color, a name and something people grew close to.
With the introduction of New Coke, the company did a bad job of marketing and also had a very unimpressive press release by CEO Roberto Goizueta. Coca-Cola Company failed to tell consumers why they made the switch to New Coke and even didn’t tell them that the taste tests from thousands of Americans overall favored their new flavor, something that would have helped their cause a lot. During the press release, CEO Goizueta was quoted saying: “Its smoother, uh, uh, rounder yet, uh yet bolder… a more harmonious flavor.” This was just sloppy and represents the company’s total performance through this short run failure.
Pepsi also countered the company with attack ads. One ad showed a long-term Pepsi drinker who said “Now I know why Coke did it”, as he enjoyed a glass of Pepsi. Pepsi also did something Coke should have done, “The Pepsi Challenge.” These ads actually showed taste testers doing a blind test between Coke and Pepsi and choosing Pepsi. To gullible consumers this means a lot more to them because they can actually see people enjoying the product. Unlike Coke who didn’t even tell the public that a majority of Americans enjoyed our New Coke more.
The last and probably most important thing Coke failed to do was realize the
serious and drastic effect that their decisions would have on the thousands of Coke drinkers. They based their decisions solely on the taste tests, that even proved to be biased at times, but they didn’t think of the thousands of people that loved Classic Coca-Cola, the people who made all of their sales. So many people grew attached to this product and as you will see in the following paragraph, taking something consumers enjoy away can cause a lot of problems. When / Why They Pulled the Plug
Many Southerners who had a strong loyalty towards Coke, because of its origins and first bottling production being done in their regions, grew very upset with the new product and decided to speak out against it publicly. This put a lot of attention on the company because Coke already received a lot of media attention. Their were over 400,000 negative phone calls made to the company’s customer service lines, along with thousands of negative letters from unhappy customers. A psychiatrist who worked with the company described the phone calls and letters and compared them to a death of a family member. This just shows the loyalty that exists with Coke. One organization was formed, The Old Cola Drinkers of America. They actually raised a lot of money and made efforts to lobby against the new formula. Tons of protestors even purchased the New Coke and emptied bottles in the streets and around the company’s headquarters. How Coca-Cola Overcame the Disaster
After only 77 days of the stopping of production of the original formula, Coca-Cola Company management finally realized the mistake they made and decided to resume production of the original formula. One very successful tactic they used was giving it the same name, but adding Classic to the end. This showed consumers that it was back to the original formula, but also gave the product a unique definitive name. It simply sounded good and now this is something that differentiated them from Pepsi. Coca-Cola finally realized who they were as a company, and that their product is a lot more than simply taste, it is somewhat a legendary brand. They didn’t get rid of New Coke right away as it did make some sales as the company expected, they did change the name to Coke II and it actually did quite well in other international markets for a while, but it slowly faded away.