The Fall and Rise of Coca-Cola

“[It’s] smoother, uh, uh, rounder yet, uh, bolder… a more harmonious flavor.”

So were the words of Robert Goizueta at a press conference held at Lincoln Center in New York City nearly 28 years ago. At the time, Goizueta was the Chairman and CEO of The Coca-Cola Company. Formerly a flavor chemist with the world’s most famous soda producer, Goizueta knew what he was talking about.

Or at least he sure should have.

Goizueta was describing the flavor of the newly reformulated Coca-Cola, or “New Coke” as it would become more commonly referred to. On April 23, 1985, Coca-Cola did what by any measure today would appear to be pure brand suicide – it took its flagship product, arguably the most beloved soft drink on the planet, and completely revamped it.

To put this into context, imagine… well, herein lies the ludicrous scale of this maneuver: when imagining an indelible brand seemingly beyond the scope of compromise, the mind of even a novice marketer instinctively wants to turn to Coca-Cola. The brand is as much legacy as it is institution, since it’s creation by John Pemberton as a medicinal elixir in 1886 to its rise as the second most recognizable term in the world (“OK” is number one).  Coca-Cola is as synonymous with 20th Century, new world tradition as baseball, hot dogs, and television. To change the formula would be like arguing a pantsuit for Lady Liberty.

Newcokebottle2

Well, maybe not.

To be fair, when Goizueta took over as CEO in 1980, there was a lot for Coca-Cola to be worried about. The Cola Wars were in full swing, and PepsiCo had gained the upper hand. Halfway through the 20th Century, Coca-Cola had held the lion’s share of the soft drink market, but by 1983, it commanded less than a quarter. The younger demographic had migrated to Pepsi, with its sweeter flavor and lifestyle marketing campaigns (Pepsi rarely focused its advertising on its products, instead showcasing who drank them; this was a marketing first and major boon for PepsiCo). Goizueta, an aggressive tactician who abhorred sacred cows, well knew Coca-Cola had to embrace Pepsi as a viable usurper to its throne and meet this challenge head on with a drastic strategy.

Goizueta enlisted the support of Coca-Cola President, Donald Keough, as well as marketing vice-president Sergio Zyman and Coca-Cola USA President, Brian Dyson. An assertive marketing research campaign was launched involving taste-testings, focus groups, and surveys. And overwhelmingly what the results of the campaign showed were that people liked the taste of Coke’s new formula over both Pepsi and original Coca-Cola. Additionally, surveys showed people, for the most part, were open to the idea of drinking the new beverage, even if it were labeled “Coke.” The focus groups, on the other hand, weren’t as unilateral in conclusiveness. A small minority scoffed at the idea of altering Coca-Cola, which sparked peer-pressure resonance within the group dynamic. This, however, was widely ignored. Coca-Cola brass was confident in the taste test results and moved forward with release of “the new taste of Coca-Cola.”

Upon its initial release, New Coke did very well. Sales had risen from the same time the previous year, and surveys continued to show a substantial majority favor for New Coke. Of course, these were major metropolitan demographic results… not the South.

Coca-Cola was born in the Southeast, in the wake of defeat at the hands of the Union. Coca-Cola held a virtually unparalleled reverence throughout the region, and its perversion was considered sacrilege. That vocal minority from the focus groups had found its spawning ground, and from this nest it bred like wildfire. Disapproving letters and phone calls came pouring in. Critics began lambasting Coca-Cola executives for their carelessness in underestimating their customer-base’s loyalty. Pepsi fired back with its own advertising campaign questioning Coca-Cola’s motives. And even internal murmurs of dissatisfaction with the reformulation began to surface, prompting the question of a possible reintroduction of the old formula not even two months after New Coke’s release.

But perhaps no bigger component pressured Coca-Cola’s reversal decision than its own bottlers. Long entangled in a pricing feud – that at the time included litigation – Coke’s bottlers had become increasingly frustrated with the public’s alienation from the company. While Coca-Cola Company made the concentrate for Coke, the individual bottlers still had to produce, distribute, and merchandise Coca-Cola within their respective regions. In the South, this had become a challenge with so many consumers staunchly refusing to buy Coke – if not dump it on the ground in a show of defiance. Facing a major boycott from its bottlers, Coca-Cola had to concede defeat… to itself. The original formula would return to market.

On July 10, less than three months after the introduction of New Coke, Coca-Cola announced the heralded return of original Coke, dubbed Coca-Cola Classic. To say this merely stalled irrevocable damage would be a vast understatement. The return of Coca-Cola Classic rocketed company sales past Pepsi and reestablished Coca-Cola as the dominant force in the soft drink market. This quickly led to speculation that New Coke’s introduction and swift dismissal was an elaborate marketing ploy to reaffirm Coke’s value within the public arena. An amazing conspiracy, if it weren’t for the fact that New Coke wasn’t so readily dismissed.

While multiple product lines has become de rigueur in today’s diversified market, positioning two high-calorie soft drink beverages in a field recently divided by the advent of diet soda was a formidable task in 1985. But Goizueta and his team stood by their new product. It retained only a North American presence, but production continued until 2002 (New Coke was renamed Coke II in 1992). The beverage, however, was largely ignored by both consumers and corporate marketing. The soft drink that had found unanimous acceptance during its test phase died a slow and caustic death.

Despite what was seen as a monumental blunder by one of the most lauded corporations in the world, no blame was cast upon any one individual at the Coca-Cola Company. Simply, there was no one to blame. Marketing researchers have puzzled for years over one of the greatest missteps in free market history – how could a company as infallible as Coca-Cola make such a colossal mistake as tampering with their star product? Well, how did the stock market – with all its fancy, new computer hardware and mathematician brokers – crash only two years later? The Invisible Hand of economics revealed itself as the emotional unpredictability of consumerism during the height of the Cola Wars. If people loved Coca-Cola so much, why were sales down at the start of the decade? No one asked. The epic failure of New Coke was also the sweeping revitalization of Coca-Cola Classic. The power elite at Coca-Cola were happy enough to wipe the sweat off their brows and forget the whole thing ever happened.

Although that’s not entirely true, either. Its universal scorn notwithstanding, New Coke did maintain at least one loyal drinker for twelve years. Robert Goizueta continued to drink New Coke until his death in 1997.

“The moment avoiding failure becomes your motivation, you’re down the path of inactivity. You stumble only if you’re moving.”

Robert Goizueta

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It’s War! Format War!

When most people attempt to align the idea of war with the 80s, the first thing that comes to mind is usually The Cold War. And although the United States and Soviet Union’s near-cataclysmic rivalry warranted and earned the study and recognition it has received throughout history, the consumerist  – reminiscing upon that golden age of consumption – might argue another armless conflict synonymous with 80s: The Videotape Format War.

 

A blank Betamax casette next to a blank VHS ca...

(Photo credit: Wikipedia)

Format wars are as old as industry. Ever since businesses have attempted to exploit mutually incompatible formats within two-sided markets, there have been “wars” to establish dominant technical standards.  Basically that’s two or more companies saying to each other, “screw you; our stuff is better, and we’re not going to make it work with yours.”  The consumers, of course, are the ones who primarily suffer, being left with coordination problems where they have to either buy multiple products, or choose one and accept any number of variable limitations. This social dilemma, however, typically forces the format war and ultimate resolution. And no such battle has been more highly influential than the Videotape Format War of the 80s: VHS versus Betamax.In order to understand the importance the Videotape Format War, you have to understand what was at stake. Before videocassette recorders (VCRs), your television viewing was at the mercy of station programmers. Got a favorite show? Better be home on time. Big game playing at the same time as 60 Minutes? Flip a coin. Want to curl up and watch Casablanca with your spouse? Better hope one of the networks is playing it. Sure, there were reel-to-reel video tape recorders, but these machines were cumbersome, faulty, and expensive. Essentially, you had a T.V., and what was on it was what you got.

In 1971, Sony released the U-Matic. This was the first commercial video cassette format. It was intended, however, for broadcast television stations, and could only play back up to 60 minutes. While a striking success in businesses, schools, and news stations, the U-Matic’s impracticality and hefty price tag made it unappealing for home use. Enter Philips’ N1500 and Avco’s Cartrivision in 1972. These were smaller, and by comparison, cheaper VCRs that looked more like the traditional machines that would become prevalent in the Eighties. Neither product went on to dominate the market, but they were instrumental in instigating the VCR boom of 1975. Suddenly the aspect being able to watch a beloved show or movie at any time took over the hearts and minds of average household viewers, and every electronics manufacturer wanted in on the craze. Matsushita, JVC, and Sony emerged as the industry leaders, developing the more sophisticated and advanced machines.

Sony struck first in 1975 with the Betamax, quickly grabbing 100% of the market share. But JVC soon followed with its own mutually incompatible format, VHS. Sony petitioned the Japanese Ministry of Trade and Industry to encourage a single format for “the good of all (read: Sony),” but both companies refused to compromise on the development of their products, thus launching the format war. Opposing stances were quickly established: Betamax, with higher horizontal line resolution, lower video noise, and less crosstalk, espoused quality, while VHS’ 120-minute playback offered longer recording time.

 

El Philips VR2020 fue le primer modelo de vent...

Video 2000 (Photo credit: Wikipedia)

As in any war, there were, of course, other players. Philips attempted to enter the market with its own format, Video 2000, or Video Compact Cassette (VCC). The Video 2000 was an attempt to capitalize on the success of the audio compact cassette, which had grown in favor over the 8-track at the time. Much like an audio cassette, VCCs could be turned over to double their playing time. Another regarded feature of the Video 2000 was Dynamic Track Following. Anyone who owned a VCR in the 80s can tell you about having to get up and manually adjust tracking when a video’s image became distorted. The Video 2000 attempted to alleviate this problem, but the feature remained standard on only the priciest models. Entering the market in 1979, Philips couldn’t compete with the already established Sony and JVC brands, and the Video 2000 quickly disappeared. 

Another key player in the format war was RCA. In the mid-Seventies, the American electronics company attempted to develop their own home video format called “Selectavision.” The idea was abandoned when RCA learned about Sony’s development of Betamax, and the corporation originally intended to align itself with Sony. RCA, however, had a handle on something Sony overlooked. The quality Betamax provided over VHS was infinitesimal, but its limited playback time was a significant deterrent. Why? Although both Sony and JVC competed to create longer playing times, RCA realized North American success would come down to whoever could produce a tape with four hours of playback, or enough time to record an average NFL football game.

Neither company wanted to yield to RCA’s request, both fully aware such a feature would severely diminish video quality, but JVC’s parent company, Matsushita, agreed, and RCA began developing VCRs for the American market that complied with the VHS format.

Ultimately, RCA was right. Consumers were more interested in quantity over quality. The VCR boom of the late-Seventies gave rise to one of the most indelible cornerstones of Eighties and Nineties strip malls and supermarkets: the video rental store. Originally, Betamax cassettes had only 60 minutes of play time, which was the standard play time Sony had incorporated in their successful U-matic system. What Sony failed to consider was that the U-matic was primarily used in network newsrooms under constant surveillance. Tapes were readily switched out in this setting, but home viewers wishing to watch feature length films 90 to 120 minutes in length found switching tapes more obtrusive than the perceived quality was worth. Hollywood studios quickly came to adopt VHS at their preferred standard giving JVC a significant edge.

Although the length of play was a pivotal role in the battle for industry domination, brand loyalty proved a milestone component, as well. JVC made a tactically sound decision to license its technology to major electronics corporations. Soon VHS-compatible VCRs were being made and sold by companies such as RCA, Zenith, Panasonic, and Magnavox. If you’d grown up watching The Wizard of Oz telecasts on your Zenith 40-inch T.V., it was only natural you’d want to watch a videotape of it on your new Zenith VCR. And since Zenith was directly competing with every other major electronic brand, it was cheaper than Betamax’s sole unit supplier, Sony.

Sony fought valiantly, but by 1981, was reduced to only a quarter of the U.S. market share. This decline proved a longer battle in the U.K., where expensive VCR machines were more readily rented from electronics rental companies than purchased outright. Thanks to VHS’ expansive licensure – JVC owned a good deal of the rental stores in England – Betamax sales slowly dwindled across the pond as well. Despite Betamax’s fair standing in Japan, by 1988, the epic Videocassette Format War was over. VHS emerged the victor. JVC continued to dominate the video cassette market for another ten years before being supplanted by DVD (in a similar format war, Sony’s Blu-Ray would go on to beat Toshiba’s HD DVD in the high-definition digital video battle).

Sony made a number of strategic errors in judging the then-burgeoning home video market, yet regardless of its loss, Betamax is still remembered fondly by many Gen Xers who recall the wonderment of growing up in an era where movies and T.V. shows were only a PLAY>> button away. Betamax and VHS are both obsolete now, but their fleeting fight for survival still echoes in media history.