New Coke, Old Tribalism

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In 1977, the government of India instituted new policies intended to reverse centuries of economic exploitation by foreign powers. Among these were mandatory profit-sharing arrangements that multinational corporations had to accept in order to do business in the country.

One of those companies was Coca-Cola.

Given the market that was at stake, Coke was perfectly willing to accede to the new rules. Its emissaries were meeting with representatives of the Indian government to finalize the terms when New Delhi mentioned one last detail: it wanted to know what was in the product. After all, they couldn’t very well allow a foreign vendor to sell a beverage to Indian consumers without knowing what was in it (even though they had been doing so since Coke’s introduction there in 1956).

In short, they wanted Coca-Cola to tell them what was in its famously secret formula, what Coke internally referred to as “Merchandise 7X.”

According to legend, Coke’s reps calmly thanked their hosts, packed up their briefcases, and walked out of the meeting.

Coca-Cola would be unavailable in India until 1993.

That’s how fanatically protective Coca-Cola was of its secret recipe: the one so valuable that it was kept in a vault (first at Sun Trust Bank in Atlanta, later in a specially built vault at Coke headquarters itself, having been transported there by armored convoy in a massive publicity stunt), the one that reportedly only three people at Coke even knew, and they weren’t allowed to fly on the same plane. Coke was willing to pull out of the second most populous country on Earth and give up almost a billion customers rather than reveal the jealously guarded formula that made it the best-known and most widely available product on the planet.

Which makes it even more shocking that eight years later, Coca-Cola suddenly announced that it was changing the formula altogether.

CHILDREN OF MARX AND COCA-COLA

Incredible as it now sounds, in the 1980s Americans drank more soda than any other beverage, including water, milk, and coffee. Such was the climate in which Coke decided in the spring of 1985 to change its iconic hundred-year-old formula, a move announced on the eve of that centennial and rolled out with enormous fanfare, sparking a furious consumer backlash that took everyone by surprise—Coca-Cola very much included. The change set off 77 madcap days in which uproar over a soft drink was the lead story on the national news, eventually resulting in the unprecedented spectacle of the biggest brand on Earth succumbing to public pressure and making the embarrassing decision to reverse itself.

The “New Coke” debacle has since gone down in history as the greatest unforced error in the history of American manufacturing, one that’s studied in business schools even today, rivaled only by the Edsel and Ishtar as synonymous with epic commercial failure.

Except that much of the conventional wisdom regarding New Coke is wrong.

(Shameless plug: a new two-hour special on the subject, COLA WARS, airs on History this Sunday August 18, at 9pm EDT, as part of its new “History 100” strand. My partner Ferne Pearlstein and I are among the executive producers, along with Christopher Cowen, Katie King, and Mark Herzog of Herzog & Co.)

For those too young to remember, the broad stroke are as follows:

For almost a century, Coca-Cola had been far and away the market leader in the soda pop industry and the most recognizable brand of any kind on the whole planet. It had been invented in Georgia in 1886 by a former Confederate colonel turned pharmacist looking for an alternative to the morphine to which he was addicted—one of many such quasi-medicinal elixirs in the country, all claiming to aid digestion and generate vim and vigor, among various other dubious health benefits. (And yes, like other such “miracle tonics” of the time, it did briefly contain traces of cocaine, which, admittedly, will certainly generate vim. That particular ingredient was phased out by 1929.)

Coke eventually came to dominate all its rivals. During World War II, a sweetheart deal with the US government enabled the company to build bottling plants all over the world, in keeping with Washington’s stated desire to have an ice cold Coke within arm’s reach of every American GI, no matter to what godforsaken corner of the earth he was posted. (To that end, Coke was also exempted from the wartime sugar rationing that hobbled its competitors.) After the war, that headstart gave Coke an insurmountable advantage both in terms of infrastructure and name recognition. Both home and abroad, Coke and its signature red can and curvy green “contour” bottle and Spencerian script logo soon became synonymous with America itself, a symbol of the USA every bit as much as the Stars and Stripes or Uncle Sam. Hence also the not-so-flattering term “Coca-Colonization.”

The distant number two in the soda market was Pepsi, which had been invented by a North Carolina druggist in 1893. The rivalry is long and intense, and the differences between the two companies stark. (I refer you to Thomas Oliver’s The Real Coke, the Real Story, and Mark Pendergrast’s For God, Country, and Coca-Cola.) As the reigning champ, Coke’s corporate culture was always very cautious and conservative; as the challenger, Pepsi’s more loose and freewheeling. Though both drinks grew out of the post-Reconstruction South, Coke has always been more tied up in the history of segregation, while Pepsi has always been more popular in African-American communities and actively marketed itself to those consumers. Similarly, Pepsi dominated in the Arab world, where there was an embargo on Coca-Cola until 1991, thanks to Coke’s strong presence in Israel, and its prominent advertising of the fact that it was kosher. (So is Pepsi, for that matter; they just didn’t stress it.)

This is not to say that Pepsi had a monopoly on progressivism. In 1962, Pepsi’s longtime CEO, a staunch Republican named Don Kendall, hired a down-on-his-luck Richard Nixon—fresh off defeats in the California gubernatorial race and the 1960 presidential campaign—to be the company’s general counsel. It was in that capacity that Nixon traveled the world and made many of the international contacts that helped propel him to the White House six years later, and served his foreign policy once there. When he moved in, he had all the Coke machines removed and replaced with Pepsi ones.

(When Jimmy Carter of Plains, Georgia took up residence there in 1977, he had the Pepsi machines removed and the Coke ones brought back.)

Kendall also oversaw a highly strategic move in 1965 when Pepsi bought Frito Lay, memorably remarking that he’d only ever had one truly great idea in his long career: “How do you get people to buy more drinks? Feed them salty snacks.” That merger created a company that was actually bigger than Coca-Cola and did more diverse things, but was and remains still very much second place when it comes to soda.

Yet second place is a choice spot for an insurgent.

ALL COKED UP

Beginning in the early 1960s, cheeky ad campaigns by Pepsi had created a crisis of confidence within Coke’s Atlanta headquarters, as the enormous demographic of the Baby Boomer generation offered a huge opportunity and a natural fit for the upstart soda manufacturer in its pursuit of the market leader. The “Pepsi Generation” ad campaign was one of the first examples of “lifestyle” advertising, the rather insidious technique of selling a product based on what it claims to say about the consumer, rather than on the merits of the product itself. That approach is now so ubiquitous—not just in the world of soda but in all of advertising full stop—that it’s hard to recall how revolutionary it once was.

Coke responded with the 1971 TV spot known in the trade as “Hilltop” (better known as “I’d Like to Teach the World to Sing”), a feel-good pseudo-hippie anthem that remains one of the most memorable and successful TV commercials of all time. But Pepsi still owned the youth demographic, and continued to tweak Coke’s nose, presenting itself as the hipper, cooler brand—“the choice of a new generation” as one of its later slogans went. Chief among the Pepsi ads that got under Coke’s skin was a bold campaign called “the Pepsi Challenge,” begun in 1975, in which consumers were invited to take part in a blind side-by-side taste test, on camera, an audacious and norm-breaking gambit at a time when advertising rivalries were still relatively genteel.

In reality, the Pepsi Challenge never seriously dented Coke’s sales or threatened its brand dominance. The main thing it did was help Pepsi separate itself from even lesser rivals, like RC Cola and numerous now-forgotten others, by presenting it to the American public on an equal footing with Coke. Kind of like Kim Jong-un standing side by side with an American president.

Probably the best thing Coca-Cola’s executives could have done in response was ignore it altogether.

But they didn’t.

What ensued was a kind of crazed arms race for dominance of the soft drink market—a sort of funhouse analogue to the Cold War—featuring increasingly elaborate, expensive, and ever more star-studded ads, as both beverage giants rolled out ambitious thirty second mini-movies by directors like Ridley Scott and paid top dollar to celebrity spokesmen like Bill Cosby for Coke and Michael Jackson for Pepsi. (Insert jokes here.)

A global battle over colored sugar water might seem rather absurd, until one considers that billions of dollars and tens of thousands of jobs were at stake—which itself is absurd.

At times the cola wars played almost like farce; at other times like something from David Mamet, with brilliant and ruthless executives going at it hammer and tong. It says a lot that Pepsi would literally set Michael Jackson’s hair on fire, and that would not even be nearly the weirdest thing that happened. (Some believe that Michael’s obsession with plastic surgery and addiction to pain killers began with his recuperation from that incident.) Not just the companies but consumers on both sides were wildly passionate and partisan, though it wasn’t entirely clear why. But it was very clear that people took their loyalties to their chosen soft drinks very seriously, treating them with a fervor usually reserved for sports teams. Both Coke and Pepsi had succeeded in making people care deeply about soda pop, generating allegiances that were very strong and very personal, even if they were largely irrational.

Because at the end of the day, the difference between the two brands was utterly subjective—literally a matter of taste—and highly fungible, as the Pepsi Challenge showed. Which was kind of the point. When what separates the actual products is so marginal, advertising and marketing become everything.

It’s not well-known, but Coke and Pepsi don’t actually make the product. Rather, they each own a formula, which they license to individually-owned bottling companies all over the country. (Although some bottlers are owned by the corporation, most are franchisees.) Those bottlers have the infrastructure to make any carbonated beverage they want, and can switch on a dime. Coke and Pepsi have to constantly convince the bottlers that they have the superior product—if not necessarily in taste, which is inherently subjective, but in ad campaigns—or they’ll lose them to the competition. As Pepsi’s CEO Roger Enrico used to say, “We don’t sell concentrate; we sell confidence.” In that sense, Coke and Pepsi are really ad companies that sell soda on the side, the same way a movie theater is really a candy store that happens to show motion pictures, and both companies are very well aware of the triviality of their own product. As Enrico also said, “There’s not a single thing that PepsiCo makes that anybody needs.”

In other words, it’s all marketing.

IT’S THE REAL THING

In response to the Pepsi Challenge, Coke made the entirely correct argument that a sip test was scientifically irrelevant, as humans are well-known to prefer the sweeter option—such as Pepsi—under those conditions, but not when drinking twelve ounces, the way soda is actually consumed. (Even as it was people chose Pepsi only by a razor thin, statistically insignificant margin.)

It was all true, but it still sounded lame. Consumed with the “optics” of the Pepsi Challenge regardless of its minimal economic impact, Coke decided it had to make a bold move.

The company had recently hit a home run with the introduction of Diet Coke, the first diet soda that tasted good to a big chunk of the soft drink-swilling public, and thus broke out of the sexist ghetto in which diet beverages had heretofore been consigned……including Coke’s own abysmal brand Tab, in its pink can. (On the day it was introduced in 1982 Diet Coke immediately became the most popular diet soda in the world, and soon after, the third most popular soda of any kind, displacing 7Up.)

But there was more. In the process of creating the Diet Coke formula—which was not merely sugar-free Coke, but an entirely different recipe—the company’s mad scientists had also hit on an remarkable alteration to Merchandise 7X. The new formula was just a little bit sweeter—a little more like Pepsi, actually. And in top secret blind taste tests, conducted with Manhattan Project-style security, it beat Coke and Pepsi both.

Coke’s senior leadership at the time—CEO Roberto Goizeuta and COO Don Keough—had come in just a few years before with a mandate to shake up the hidebound company, trumpeting the motto “no sacred cows.” Now they felt had to make good on that ethos….and what better way to do that than with the boldest move imaginable? On Friday April 19, 1985 they issued a statement announcing a momentous press conference at New York’s Lincoln Center the following Tuesday, cryptically promising the biggest news ever in the history of soft drinks.

In a telling omen, before the change was made public, Goizueta went to the Atlanta nursing home where Coke’s 96-year-old retired CEO Robert Woodruff was on his deathbed. “Mr. Bob,” as he was known, was the son of the man who’d bought Coke from its founder in 1919, and had personally led the company from 1927 until he retired in the Fifties. Shouting so that the deaf old man could hear, Goizueta broke the news to Mr. Bob that they were going to change the formula.

He dropped dead soon after.

COKE STEPS IN IT

Now, the fact was, Coke had tinkered with the formula before over the years—several times, in fact. It had just never made a public fuss about it. And therein lay the rub.

Contrary to how it is commonly remembered, the new product was never officially called “New Coke.” It was called “Coca-Cola.” Which was sort of the whole point. The new drink was supplanting the Coke that America and the world had come to know and love. Surprising as it sounds now, Coke never seriously considered bringing it out as a separate product—a “flanker” as it was known in the trade. Until Diet Coke, Coca-Cola had never put the “Coke” name on anything but its flagship product, fearing that it would dilute the brand. There could only be one Coke, the thinking went.

Word of the change leaked out in the days before the press conference, setting off a panic at Pepsi headquarters in Purchase, New York. (Pepsi had spies inside Coke, just as Coke had spies inside Pepsi—one of them known as “Deep Palate.”) Having just had their ass kicked by Diet Coke, Pepsi’s execs were terrified that this “New Coke” was going to be a hit too. But what could they do?

After hunkering down in bunker mode and strategizing all weekend, finally Pepsi’s vice president of public relations, Joe McCann, hit on a brilliant solution:

“Let’s just declare victory.”

It was nothing but spin, but it was world-beating spin. Enrico, Pepsi’s savvy CEO, immediately saw the genius in it and put out an announcement even before Coke’s Lincoln Center event. The Cola Wars are over! Coke surrendered. It pulled its product off the shelves and replaced it with one that was sweeter…..one that tasted more like Pepsi!

By the time Coke held its disastrous press conference, Pepsi had succeeded in seizing control of the narrative, which took unshakable hold. The press pounded Goizueta and Keough, who looked shellshocked. There’s video; it’s hard to watch. (See the documentary, if you dare.)

As the rollout of the new formula began, it was like an atomic bomb hit the soft drink market. Coke drinkers were furious that their beloved drink was no longer available. People were emptying stores of old Coke before it disappeared for good, buying it by the truckload. Coke had a near-mutiny among its bottlers and had to put on extra phone operators to handle the customer complaints. Late night comics had a field day. Outraged Coke loyalists took to the streets in protests that looked like the 1968 Democratic National Convention in Chicago. Enrico took out a gleeful full page ad in the New York Times crowing over his company’s triumph, erected a billboard to that effect outside Coke headquarters in Atlanta, and gave everyone in Pepsi a celebratory day off. Meanwhile Pepsi had its undercover operatives down in Atlanta buy a six-pack before “New Coke” was available in the rest of the country and fly the cans up to New York so their execs could sample it.

The whole world seemed caught off guard by the passion and anger of Coke drinkers—even Coke, which desperately went into damage control mode even as it swore it was sticking by the new formula. The company launched a huge PR counterattack and even conducted its own version of the “Pepsi Challenge,” blind taste tests between new and old Coke. Sure enough, even the leaders of the protests to bring back old Coke actually preferred the taste of New Coke.

But it didn’t matter in the slightest.

What nobody at Coca-Cola seemed to understand—at least not at first—was that it wasn’t about the taste at all. It was about the deep emotional attachment that Coke drinkers had to the brand that they had grown up with. This was the whole lesson of “lifestyle” advertising, as pioneered by the Pepsi Generation campaign way back in the early Sixties. Coke wasn’t stupid, although it may have looked that way that spring. They had tested “New Coke” seven ways to Sunday. They knew empirically that people would like the taste. But what they didn’t test—and couldn’t test, due to the secrecy involved—was how consumers would feel if this new product replaced their beloved Coke altogether.

The message that American consumers sent was blunt. Coke doesn’t belong to you guys in Atlanta; it belongs to us.

IRONY, THY NAME IS SODA

Seventy-seven chaotic days after the launch, on July 10, 1985, Coca-Cola raised the white flag. The amiable and folksy Don Keough led a press conference where he ate crow on behalf of the company, even reading some of the hate mail, as he announced that Coke was reversing itself. The thinking that “there could only be one Coke”—already weakened by the creation of Diet Coke—went out the window. Coke was bringing back the old formula—now renamed “Coca-Cola Classic”—while still trying to defend and promote its new product, which continued to bear the simple name brand “Coke.” (“Coke are it,” quipped the wags, playing on the company’s slogan of the time.) Pepsi continued to revel in competing against two products now: one it described as having been beaten in blind taste tests, the other one that the American public decidedly hated. Coke continued to be ridiculed as the narrative calcified about how badly it had shat the bed.

But here’s the final irony.

Bizarrely, Coca-Cola emerged from this epic fiasco in better shape than ever.

New Coke served to remind people how much they liked old Coke, and what a central place it occupied in their emotional lives. (Witness: we’re still talking about it today, 34 years later.) Coke got millions of dollars of free advertising on the news, proving that there’s no such thing as bad publicity. Its stock price rose. Financially, the success of Diet Coke dwarfed the brief and minor damage of the New Coke debacle. All Coke’s executives got raises.

Above all, it definitively showed that Coke—as stodgy and sclerotic as companies come—was in fact willing to change, and in the biggest and riskiest way possible, and more importantly, that it was willing to listen to its customers. In so doing, Coke also denied Pepsi some of the “rebel” marketing battlespace that it had once had all to itself. No company of its size had ever admitted a mistake in that way, or so humbly bowed to the wishes of its customer base. The goodwill Coke earned was incalculable. As one Coke exec quipped, “It’s like we hit a hole-in-one, even though the ball bounced off a tree on the way.”

In fact, New Coke ultimately proved so good for the company that some people still wonder if the whole thing had been a giant hoax. Coke has always denied that—“We’re not that smart,” a good-natured Don Keough memorably quipped—and even a cursory study of how Coca-Cola misjudged the whole affair immediately disproves the theory. But like the idea that the moon landings were staged on a movie set in Utah, it is an urban myth that is now a permanent part of American folklore.

Eventually what the public had dubbed “New Coke” was slowly withdrawn. Briefly it was sold as Coke II, at the suggestion of the actress Miranda July, who had been part of a marketing focus group when she was just an unknown. By 2002 was discontinued altogether. (That’s longer than you thought, isn’t it?) In a fitting irony, this past May, Coca-Cola announced that it is bringing “New Coke” back for a limited run as a promotional tie-in with Netflix’s “Stranger Things,” whose new season takes place in 1985 and includes the soda pop fiasco in its plotline. What was once a public humiliation has become yet another branding opportunity.

SLIGHTLY BITTER AFTERTASTE

Soda pop is a uniquely American invention, one that took over the world. It’s deeply rooted in our country’s image of itself and our history and who we are, and as Coke learned, you fuck with that at your own peril.

The cola wars were the greatest marketing battle in history and the last one waged in prime time, in front of an audience of millions, between two great American companies that actually made a product. That the product in question is utterly ephemeral, and even actively damaging in terms of health, is beside the point: what could be more American? It will likely never be replicated, given the tectonic shifts in global economics since then, the transition to a service economy, the decline of American manufacturing, and the rise of high tech. Nor do we have a narrow, centralized pre-Internet mediascape that would lend itself to an advertising battle of that type.

The cola wars carried on into the Nineties, with more and more expensive ad campaigns and more and more celebrity spokespeople including Madonna, Cindy Crawford, Lionel Richie, Ray Charles, Michael J. Fox, Britney Spears, Bob Dole, and others. The course of that battle transformed the ad industry, and along with product placement, blurred the line between advertising and entertainment. Consumers now watch and judge commercials for their entertainment value, even as movies and TV increasingly integrate ads in the body of their content. In effect, both Coke and Pepsi went into showbiz—Coca-Cola literally, by its acquisition of Columbia Pictures. In essence, of course, both companies had been in show business all along.

Today there’s no denying that the cola wars are over: Coke completely dominates the market. But people still retain this incredible loyalty to their “teams,” and soda advertising can still cause a stir, as the disastrous Kendall Jenner ad for Pepsi of two years ago proved.

We are now accustomed to twenty-five different micro-brands of Coke. Soda consumption at large has steeply declined relative to other beverages; even most of the “cola war” veterans we interviewed for the History documentary confessed to having not having had a full-sugar soda in decades. Coca-Cola, which for a time waged all-out war against bottled water as a beverage option, eventually surrendered to the “if you can’t beat ‘em, join ‘em” approach and brought out its own bottled water, Dasani—which is filtered tap water tagged with a made-up exotic-sounding name, speaking of marketing.

To that end, the story of New Coke is instructive on two major fronts.

First, as a story of tribalism and why we are loyal to the things we are loyal to—often irrationally, in defiance of logic, and sometimes even in direct, self-destructive opposition to our own self-interest. Those loyalties can be to sodas, NFL franchises, or even political parties and politicians (cough cough).

Second, as a story of the power of spin. In the cola wars—as in politics, as in life at general—perception is more important than reality…..indeed, as the mystics and the quantum physicists will tell us, perception is reality. Once Pepsi successfully established control of the narrative—“Coke surrendered!”—it was impossible for Coca-Cola to combat it, even when it had the facts on its side. Such is the Orwellian power of propaganda, misinformation, and active disinformation. Like tribalism, it is a dynamic with which all sentient Americans ought to be painfully familiar these days.

*********

COLA WARS airs on History this Sunday August 18, at 9pm EDT. As they say, check local listings.

Oh, and also, there’s this new thing called DVR, which lets you skip the commercials.

 

 

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