Coca Cola Decision Making

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Don’t Mess with Coca-Cola: Introducing New Coke Reveals Flaws in Decision-
Making within the Coca-Cola Company
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GE-INTERNATIONAL JOURNAL OF MANAGEMENT RESEARCH
VOLUME -4, ISSUE -10 (Oct., 2016) SJIF-4.88 ISSN: O (2321-1709), P (2394-4226)
DON’T MESS WITH COCA-COLA: INTRODUCING NEW COKE REVEALS FLAWS IN DECISION-MAKING
WITHIN THE COCA-COLA COMPANY
Kimberly Jones, Colorado State University—Global Campus, U.S.A.

James Ondracek, Minot State University, U.S.A.
M. Saeed, Minot State University, U.S.A.
Andy Bertsch, Minot State University, U.S.A.
ABSTRACT
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The year 2015 marks the 30 anniversary of the introduction of New Coke by The Coca-Cola Company, a product that
quickly vanished following a firestorm of consumer complaints. How is it that customers turned their back on the
cola giant? The effects of The Coca-Cola Company’s decision to introduce New Coke to replace original Coke in 1985
can be attributed to three areas: it was a replacement beverage, the organization misapplied focus group data, and
leadership experienced tunnel vision, ignoring warning signs of trouble. The organization relied on certain models to
guide their decision-making in each area, however when combined, New Coke ultimately failed. Although their
decision did not have the desired outcome, The Coca-Cola Company can offer modern organizations lessons in
avoiding the problems they faced in their decision-making process surrounding New Coke.
Key Words: Decision –Making, Beverage Industry, Consumer Reactions, Groupthink, Rational Decision-Making Model,
Illusion of Control
The Coca-Cola Company

th
The year 2015 marks the 30 anniversary of the introduction of New Coke by The Coca-Cola Company, a product
that quickly vanished following a firestorm of consumer complaints (Ringold, 1988). How is it that customers turned
their back on the cola giant? The effects of The Coca-Cola Company’s decision to introduce New Coke to replace
original Coke in 1985 can be attributed to three areas: it was a replacement beverage, the organization misapplied
focus group data, and leadership experienced tunnel vision, ignoring warning signs of trouble. The organization
relied on certain models to guide their decision-making in each area, however when combined, New Coke ultimately
failed. Although their decision did not have the desired outcome, The Coca-Cola Company can offer modern
organizations lessons in avoiding the problems they faced in their decision-making process surrounding New Coke.
Organization Background
The Coca-Cola Company came into existence shortly after the introduction of Coca-Cola in 1886 in Atlanta, Georgia
(Coca-Cola, 2011). Throughout its history, the company has “woven its advertising into the emotional and cultural
fabric of the United States and the world” (p. 54). As a result, Coca-Cola, its signature product, is one of the most
ubiquitous soft drinks with the most widely recognized logos in the world (Coca-Cola, 2011; Pendergrast, 2013). In
fact, it is so recognizable that according to a Business Insider article, the logo is recognized by 94% of the world’s
population (Bhasin, 2011). By the early 1980s, the organization had been in existence for nearly a century, so it is
safe to assume that the American consumer had a good grasp of the original product, as well as other beverages
that the organization introduced in recent years, such as Sprite, Tab, and Diet Coke (Coca-Cola, 2011).
The Precipitating Problem and Subsequent Decision

The beverage industry climate of the time suggests the central problem that precipitated the decision to move
forward with the replacement Coke was Coca-Cola’s rival, Pepsi. Pepsi had always been on the heels of The Coca-
Cola Company’s success, and recently had edged closer to the top of the industry (Ringold, 1988). During the 1970s,
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Pepsi started an advertising campaign that pitted Pepsi against Coke in a blind taste test. The “Pepsi Challenge,” as
it has been referred to ever since, proved that people preferred the taste of Pepsi to Coke (Yglesias, 2013). The
Coca-Cola Company was embarrassed to learn later when it ran its own taste test that the results were accurate. As
a result of the industry climate, Coke leaders thought that a new product that could compete with the taste of Pepsi
would help bring Coca-Cola’s market share back and distance it from Pepsi.
How and Why the Decision Was Made

Before launching the product, a new formula had to be developed. The organization invested $4 million in research
and development to accomplish this, representing one of the most expensive and extensive market research
projects ever completed (Schindler, 1992). The new formula was then tested in blind consumer tests against the
original formula where the results confirmed a preference for the new version. After further testing conducted in
the major U.S. markets confirmed these results, leadership was confident that the organization should move
forward and replace the original formula with what they dubbed New Coke.
But why go so far to replace the original formula instead of simply introducing a new product to add to the beverage
lineup? There are two potential reasons. One possible rationale was that the company wanted to have one
signature product to directly compete with Pepsi (Yglesias, 2013). It is easy to make direct comparisons if there is a
single product. Another reason is that during the testing conducted before its launch, the new formula was also
preferred to the old formula by a similar percentage to that reported by Pepsi (Ringold, 1988). This suggests that if
the new formula was better than the old formula, which was implicated in a declining market share, it would make
sense to discontinue producing the less popular and therefore less profitable version of Coca-Cola. The focus was
entirely to beat Pepsi on taste.
It is important to keep in mind that The Coca-Cola Company leadership did not act unilaterally in coming to the
decision. In fact, they conducted research to discover how consumers would react to a new beverage before it
continued with the development and introduction of the new formula (Schindler, 1992). Although the reaction was
mixed, it was only a small group that overwhelmingly opposed the change. Indeed, there was a willingness to try a
new version. Thus, the organization continued to develop the new formula in order to “beat Pepsi” (p. 24).
According to Schindler (1992), the value of the focus group data results prior to the taste tests and launch were
underappreciated (instead relying upon survey results), so the organization ultimately ignored the effects of social
influence as it relates to consumer behavior. This concept will be discussed in greater detail in an upcoming section
that outlines the reasons for failure.
During the taste tests, participants were presented with the old and new versions of Coca-Cola (Ringold, 1988). The
brands were not identified during the testing. Participants were asked which one they preferred, and the majority
of responses favored New Coke’s taste. In additional tests where participants were told they were trying a new
flavor, responses were even more favorable for New Coke, and the same result occurred when it went up against
Pepsi. However, during the course of the testing, consumers were not made aware that only one Coca-Cola version
would be offered in the future (Smith, 2013). In testing of this nature, participants typically provide more reliable
information when they compare alternatives (Gorchels, 2012). Beta testing is designed to test the product under
real-world conditions, and this was not the case for this product. Instead, testers were misled about how the
product would be presented. This mistake became clear after New Coke was launched on May 9, 1985 and New
Coke was to be the only version of Coca-Cola sold (Ringold, 1988).
Consumer Reaction to the Decision

At first, people were curious about the new product from the beverage giant (Ringold, 1988). However, the
research that the organization conducted showed consumer preference for New Coke declined after the launch.
Consumers preferred it to the original formula by 53% at the end of May, but only by 40% in early July. Even in an
age before the internet and social media outlets, the media coverage was “prominent and persistent” (p. 192) in
telling unhappy Coke drinkers that more and more people were persuaded to turn a cold shoulder to New Coke.
When individuals discovered that the company was discontinuing production of the old formula, “consumers
panicked, filling their basements with cases” (Conversations, 2012, para. 12) of their favorite beverage, original
Coke. Finally, in July of the same year, The Coca-Cola Company admitted defeat and reintroduced its original
formula, now called “Classic” (Ringold, 1988, p. 192) to be sold alongside of New Coke. In 2002, New Coke, later
named Coke II, was finally discontinued for good (Gorman & Gould, 2015).
Reasons for Failure

It was a replacement.
How could all the research and development invested yield such an unsavory result for the organization? There are
many theories, but three in particular are identified here. The first theory is that New Coke was presented to
consumers as a replacement beverage rather than as an additional choice. Ringold (1988) theorizes that the
organization would have been more successful in launching New Coke if it had “incorporated an examination of
psychological reactance” (p. 195) during the research and development phase. The concept of psychological
reactance is that people believe that they have a set of freedoms. If an outside force compromises these freedoms,
it feels like an attack, and people will try to do something, including protest, until the freedom returns. In this case,
the freedom was to have the choice between original and New Coke. Consumers protested the change, wrote
letters to the organization, and tried to buy all the original Coca-Cola they could get. This theory is further
supported because after original Coke was reintroduced as Coca-Cola Classic, negative consumer reactions subsided
since their freedom of choice returned.
Focus group data was misapplied.
The second theory concerns how the focus group data was utilized. According to Schindler (1992), during the
preliminary research stage when focus group data was gathered, the organization was aware that some individuals
would be truly unhappy about the new product. Obviously people have different tastes and might have different
opinions, but the evidence supported that many more people would continue to drink Coke after the new formula
was introduced. These findings and the process used to collect the data are fairly standard for product
development of this type, but the company ignored a key piece of information: they overestimated how groupthink
could poison individuals into thinking that the new product was actually inferior, and that taking away the old
formula was a mistake. How could information like this be ignored?
Perhaps it is because all leaders have bounded awareness (Bazerman & Moore, 2013). Bounded awareness is what
gets in the way of taking in all the information available that can be useful when making a decision. The Coca-Cola
Company’s leaders also had a “focusing illusion” (p. 68) that caused them to zero-in on the positive aspects of the
research, specifically that the majority of consumers would prefer the new formula of Coke, and that dissenters
were a small, inconsequential subset. Leaders often fall victim to overestimation which presents in this case has
having the “illusion of control” (p. 23). The illusion of control simply means that leaders believe they are in control
over aspects that they actually have no control over. Coca-Cola Company leaders believed they knew how
consumers would react but in reality they had no clue about how people could influence other people, and also how
media coverage would influence still more consumers.
Although typically understood as an internal process, groupthink outside of the organization was present in this case
from the consumers. Groupthink is the “process of rationalization that sets in when members of a team or group
begin to think alike” (Sims & Sauser, 2013, p. 79). According to Schindler (1992), at the initial introduction,
consumers made “individual decisions” (p. 24) to buy the new product, but over time, “as the majority of the
population had the opportunity to be stimulated by media reports and other social intersections with angry Coke
loyalists, most changed their minds” (p. 24). Again, people influence other people. “Without information on how
other consumers will respond, individuals have no means of predicting how their own feelings will change after
being exposed to the response of others” (p. 25). Since their focus was elsewhere, leadership failed to accurately
apply all the knowledge they had on consumers, and take into account how negative press sours entire groups of
individuals.
Tunnel vision.
The third theory was that leadership at The Coca-Cola Company was so focused on taste, they disregarded the
importance of Coke itself, specifically the clout Coke had developed as a mainstay of American culture (Pendergrast,
1994). Throughout its history, the organization had built a powerhouse brand behind the beverage, and has been
stated earlier, its worldwide presence was widespread. Advertising campaigns with slogans like “Things go better
with Coke” (Coca-Cola, 2011, p. 60), “It’s the real thing” (p. 60), “Have a Coke and a Smile” (p. 61), and then in 1982,
“Coke is it!” (p. 61) all became ingrained in consumer minds yet the organization did not recognize the cognitive
conflict that would arise when introducing New Coke. These campaigns spanned generations of consumers. Why
did The Coca-Cola Company’s leaders fail to remember, as Pendergrast (1994) explains, an organization
“advertise[s] [the] image, not [the] product” (p.29)?
In making the decision to replace original Coke with New Coke, it was difficult to utilize a rational decision-making
model, the ideal model in many situations (Bazerman & Moore, 2013). Rational decision-making should be used
when information on alternatives can be assessed and the decision is important, however Bazerman and Moore
(2013) concede that it cannot always be achieved due to the “bounds of human attention” (p. 5). As has been
stated, the Coca-Cola Company appeared to be subject to bounded awareness, which “prevents [people] from
noticing or focusing on useful, observable, and relevant data” (p. 63). Unlike rational decision-making, bounded
rationality occurs when decisions are made quickly because human brains only process a limited number of
alternatives. As the evidence provided earlier shows, the organizational decision makers had more information than
they used in weighing the decision.
While it is unclear at which point leadership determined that they would replace the original version of Coke, the
evidence suggests they used both divergent and convergent thinking to arrive at the decision (Cropley, 2006).
According to Cropley (2006), both divergent and convergent thinking is typical in many organizations to solve
problems. Characteristics of using divergent thinking include being unconventional, taking risks, applying diverse
information, and developing more than one potential answer. While the leaders did not generate more than one
answer (only that they would replace the original version), it was a risk to do so. In contrast, convergent thinking is
characteristically more logical, a familiar processes where past techniques are applied, and one answer is
determined. The organization followed a past pattern of research and development and also included test groups
as they had done with the introduction of diet Coke, which turned out to be very successful (Moye, 2013).
However, the results of the New Coke are more characteristic of using divergent thinking (Cropley, 2006). For
example, typical results from divergent thinking include “a surprising answer” (p. 392), “a feeling of uncertainty or
excitement,” (p. 392), and “exciting or risky possibilities” (p. 392). All of these were results of the New Coke launch
and discontinuation of the original formula. Therefore, by using both techniques but not in a uniform way, the
result was unexpectedly negative.
How It Could Have Been Prevented

Given the evidence presented, it is clear that there are many things the organization should have done differently in
order to achieve a better outcome. The following information suggests how the decision to launch a replacement
product may have been avoided, as a new product could have yielded a more positive consumer response. This
includes the role of bias, the role and interpretation of data collected, and the role of the Coca-Cola brand.
There are two biases the organization should have worked hard to fight against. The first is the anchoring decision
bias (Bazerman & Moore, 2013). The anchoring decision bias means that decisions are heavily influenced by
numbers. In learning that the majority of test group participants would react well to the changes, The Coca-Cola
Company let that baseline be evidence to support their decision. Another bias that should have been disregarded
stems from the availability heuristic, the retrieveability bias which is “based on memory structures” (p. 37).
Bazerman and Moore (2013) explain this bias creeps in when human brains have to sift through information and
arrive at past instances of what decision makers believe to be a similar issue. For the organization, the recent past
positive experience of the diet Coke introduction may have made decision makers believe that if they applied the
same processes, they would also experience success with New Coke. However, they misapplied the bias because
they failed to realize a key difference in the two situations. Diet Coke was a new product and not a replacement
product, and New Coke was a replacement. As has been explained earlier, people like having choices.
What else could have prevented the decision to make New Coke a replacement product? Using decision-analysis
tools could have aided leadership in leading them towards the best decision (Bazerman & Moore, 2013). For
example, the application of decision trees would have shown the organization different potential outcomes for
various scenarios. Using the available data to find hidden consumer preferences and related information is another
idea. According to Barry, Peterson and Todd (1987), many U.S. companies at the time did not employ account
planners in their organizations, but their involvement could have yielded better research on consumers for Coca-
Cola. The role of the account planner is to focus energy on understanding the consumer deeply and provide
valuable information prior to a product launch, even more so than traditional research and development and
marketing departments. Specifically, consumer desires and opinions are explored, and this information may have
suggested that introducing the product as a new item rather than a replacement would be a better option.
Finally, had The Coca-Cola Company stopped to remember its history, it may have influenced decision makers to
reconsider throwing out the company’s signature formula and its associations. As Pendergrast (1994) reminds
readers, The Coca-Cola Company made its signature product “an icon” (p. 27) with nearly 100 years of strong
advertising campaigns, and iconic products simply do not fade away quietly by bringing in a replacement. All the
work done building the brand would have been lost, and multiple generations of consumers would feel distrust
towards the organization. This occurred after the launch of New Coke, especially as media coverage increased.
However, given the criticism and backlash, the organization did change course by phasing out New Coke and
reintroducing their original, signature product under the updated title of Coca-Cola Classic (Ringold, 1988).
Lessons Learned and Implications for Modern Businesses

Modern businesses can learn many things from how The Coca-Cola Company handled the New Coke debacle.
Prominently, the organization ignored the effects of social influence when it introduced New Coke. Today, with the
wide reach of social media and increased direct interaction with consumers, businesses would be wise to know their
customers intimately before making major decisions that disrupt the status quo. Had The Coca-Cola Company been
presented this problem recently, for example, a simple question posed on Twitter would have revealed candid
consumer feedback about changing the Coca-Cola formula. Relatedly, the New Coke decision brought to light how
consumers value transparency in the research and development phase of a new product’s development. Taste
testers were misled about the intentions of the organization to replace the original product with a new product,
which greatly affected consumer trust in The Coca-Cola Company. Many consumers are interacting with businesses
earlier in the innovation process today, and so there needs to be a great deal of transparency about expectations
from the beginning in order to preserve a strong relationship (Davila, Epstein & Shelton, 2006).
Today it is clearer how the consumer voice shapes product development and success; and this example
demonstrates this concept was not as widely understood in 1985. Specifically, social media outlets today provide
rich feedback on consumer preferences in real-time, which can either be a positive thing or a negative thing for an
organization launching a new product. Businesses cannot focus on only one part of a problem to solve a problem.
No matter how a product is developed and managed, the voice of the consumer needs to have a place early in the
development to prevent wasted time and effort (Gorchels, 2012).
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Conclusion
The botched launch of New Coke occurred for a variety of reasons that The Coca-Cola Company failed to accurately
identify. Although there was a plethora of data available, leaders focused on beating their competition instead of
delving into the psychological effects that a replacement beverage would have on their loyal customer base.
Eliminating the formula for the original Coke would have swept nearly 100 years of marketing efforts under the rug.
While the success of New Coke against Pepsi was short-lived, offering it as a new product instead of a replacement
may have led to less customer backlash. Businesses must carefully integrate customer data into their product
development process because individual behavior impacts their purchasing decisions. It’s about so much more than
simply how a product tastes.
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See discussions, stats, and author profiles for this publication at: https://www.researchgate.

Article · January 2016

Andy Bertsch James Ondracek

SEE PROFILE SEE PROFILE

Mohamed Osman Saeed

The user has requested enhancement of the downloaded file.

Kimberly Jones, Colorado State University—Global Campus, U.S.A.

The Coca-Cola Company

The Precipitating Problem and Subsequent Decision

How and Why the Decision Was Made

Consumer Reaction to the Decision

Reasons for Failure

How It Could Have Been Prevented

Lessons Learned and Implications for Modern Businesses

GE-INTERNATIONAL JOURNAL OF MANAGEMENT RESEARCH

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