Coca-Cola was first invented by a pharmacist John Styth Pemberton during civil war.
Pemberton
sold the right to syrup to Asa Griggs Candler. In 1895, Candler made coca-col available in all
parts of the world an was repositioned as a refreshment drink. Candler is credited for
“expanding Coca-Cola to soda fountains beyond Atlanta Georgia “which is where the
company’s headquarter currently resides. (“our company” ,h.d) Coca-Cola was then
sold for five cents a cup in stores around the country.The company is best known for the
main flagship store that is Coca Cola. Every single day, nearly one billion Coca-Cola sold all
over the world. Yet in 1985, The company decided to relinquish its popular soft drink and
wanted to replace it with new formula that would market as new coke. However, there was a
backlash from buyer and the media within a few days of classic coke being withdrawn and
replaced with new coke. This decision was hampered the brand image of the company.
Coke was seen as a cultural symbol by many customers and they are angry that it was no
longer available.
To understand the reasons of this catastrophic decision was made, it is necessary to appreciate
what was happening in the soft drinks’ marketplace. In particular, we must take a closer look at
the rising competition between Coca-Cola and Pepsi cola in the years and even decades prior to
the lunch of new coke.
https://studylib.net/doc/9536513/hannan-coca-cola-situation-analysis-introduction-coca
Situation Analysis: Coca-Cola company hold its prestigious position for nearly hundred years.
While from1970, it gave less attention to its main product and divert its attention to fight with
bottlers over the price of the syrup and to give the ownership to those who were not directly
investing in the business. But still the company steadily progressed (on average 15% per year) in
the late 1970s.For the first time in 1980, Pepsi pulled ahead of coke in supermarkets. Coca-
Cola’s compounded return on investment as a whole less than 1%. Its most popular venture
fountain sales were also in bad state.
On the other hand, Pepsi marketing campaign was so good that it easily captured young
generations mind and simultaneously made coke old, tired and boring Pepsi now had Michael
Jackson at the height of his career. This ad was made consumers attention more focused on
Pepsi. This time Pepsi challenge was also emerged. Coca-Cola took taste from consumers by
giving them two unmarked bottles of cola. In this challenge consumers preferred Pepsi by a
margin of 52% to 48%. Coca-Cola also hired Bill Cosby for their campaign but it was not
bringing any good result. Pepsi market share was increased from 4% to 11% from 1972 to 1982.
On the other hand, Coca-Cola company’s market share was dropped to 9.8% by 1984.
In 1980 the chairman of the Coca-Cola company retired and Goizueta becme the chairman. The
new chairman dream was diversification of their products. He invented diet coke in 1982. This
was improved its position and also fragmenting market through introducing caffeine-free
versions of Coke, Diet coke Tab in the following years. Pepsi was nicely handled the situation. It
started to featuring its campaign using Micheal Jackson. This new trick would help to regain
Pepsi to its own position. Coca-Cola also launched an advertising campaign. The theme of the ad
was coke being less sweet than Pepsi. Ad is performed by Bill Cosby but it totally failed to attract
young generations.
After happening those events chronologically, Keogh and Goizueta were both decided to
introduce new coke. The New Coke Strategy
Coca-Cola’s management believed that the
introduction of New Coke would completely
destroy Pepsi’s competitive strategy. In fact,
Pepsi’s own management initially believed that
this was a masterstroke by Coke.
Firstly, the New Coke product was to be
positioned as new, exciting, modern and young;
directly confronting the “Pepsi Generation”
campaign and stealing Pepsi’s market positioning.
Secondly, the New Coke product tasted better
which would stop the Pepsi Challenge taste-test
advertising. In fact, Coke had plans to run their
own taste-tests and run their own TV commercials
in order to win back lost customers.
Therefore, you can see why Coke’s management
was so confident, as they believed that they had
boxed Pepsi into a corner and destroyed their
competitive strategy, as highlighted in the
following perceptual map.
Coca-Cola launched its new coke in April 1985 with the punch line “catch the wave”. The new
coke was publicized through the television and newspapers. Introduction of new coke had a
huge impact on existing customers and market share.
The existing customers did not like the new coke in terms of its taste and switched to other
brands. Many of the existing customers boycotted the new coke. Classic coke had spent more
than a hundred years convincing the north American population and it became an integral part
of their lives and identities. American people started to feel that the new coke was violating their
identities which was related with classic coke. In Seattle, a group was formed to bring back old
coke. The name of the group was “Old Coke Drinkers of America”. From exhibit 13 we can see
their protest against new coke.
Market share of Coca-Cola company’s share price dropped from $70 to $68.375 while Pepsi
share price rose by $1.875.
After launching new coke initially, the company at first indicated that their sales were increasing
double than the previous year’s sales. By mid-June, they started to realize that customers gave
negative ratings for new coke. But still they were not taken any action. This was created a new
opportunity for Pepsi company. They handled this situation so nicely through creating
advertising spots.
After analyzing all incidents carefully, Coca-Cola executives decided to relaunch their classic
coke. Within three months of the re- introduction of classic coke it was outselling new coke by 9
to 1 in some markets.
Alternative strategies:
1. 3. SWOT Analysis shows Coke’s situation… STRENGTHS OPPORTUNITIES• Positive
customer-based brand equity • Younger generation, the untapped• Deeply imbibed in the
American culture market• Huge loyal customer base • Build on their considerable loyal base •
Horizontal Growth – Diversification WEAKNESSES THREATS• Too much emphasis on legal
issues • Complacency towards competition,• Loss of focus; failed diversification never been
tested against a rival attempts• Fragmented leadership; no strong leader
2. 15. PORTER’S FIVE FORCES IN ACTION: SAMPLE ANALYSIS OF COCA-COLA Threat of
New Entrants/Potential Competitors: Medium Pressure Coca-Cola is seen not only as a
beverage but also as a brand. It has held a very significant market share for a long time and
loyal customers are not very likely to try a new brand. Brand – identity, emotional attachment
with the product.
3. 16. PORTER’S FIVE FORCES IN ACTION: SAMPLE ANALYSIS OF COCA-COLA (cont’d)
Threat of Substitute Products: Medium to High pressure Coca-cola doesn’t really have an
entirely unique flavor. In a blind taste test, people can’t tell the difference between Coca-Cola
and Pepsi. The Bargaining Power of Buyers: Low pressure Individual buyer - no pressure
Large retailers – have bargaining power because of the large order quantity, but the
bargaining power is lessened because of the end consumer brand loyalty.
4. 17. PORTER’S FIVE FORCES IN ACTION: SAMPLE ANALYSIS OF COCA-COLA (cont’d)
The Bargaining Power of Suppliers: Low pressure The main ingredients for soft drink include
carbonated water, phosphoric acid, sweetener, and caffeine. The suppliers are not
concentrated or differentiated. Coca-Cola is likely a large, or the largest customer of any of
these suppliers. Rivalry Among Existing Firms: High Pressure Competitor - Pepsi which also
has a wide range of beverage products under its brand. Both Coca-Cola and Pepsi are the
predominant carbonated beverages Duopoly – Coke, Pepsi
