Marketing mistakes - Coca Cola

HISTORICAL BACKGROUND OF COCA-COLA

COCA-COLA was invented by a pharmacist, John Styth Pemberton, settled in Atlanta after the Civil War and began putting out patent medicines, such as Triplex Liver Pills. In 1885, he registered a trademark for French Wine Coca, “an ideal nerve and tonic stimulant”. In 1886, Pemberton unveiled a modification of French Wine Coca that he called COCA-COLA, and began distributing this to soda fountains in used beer bottles. It was considered to be a headache cure and by chance, a pharmacist discovered that the syrup tasted better when mixed with carbonated water.

When COCA-COLA failed to bring him sufficient money, Pemberton sold the rights to it to a 39-year –old pharmacist, Asa Griggs Candler, for the small sum of $2,300.

Candler struggled for almost 40 years until he bought COCA-COLA, but then his fortunes changed dramatically. In 1892, he organized the COCA-COLA company, and a few years later gave up the therapeutic qualities of the beverage and began emphasizing the pleasure-giving qualities. At the same time, he developed the bottling system that still exists today.

In 1916, after 25 years of guiding the drink’s destiny, Candler left COCA-COLA to run for mayor. The company was taken over by his relatives who, after only three years, sold it to a group of Atlanta businessmen, for $25 million. Ernest Woodruff headed the group who bought COCA-COLA. Coke today still remains in the hands of the Woodruff family. Under the direction of the son, Robert Winship Woodruff, COCA-COLA became not only a household word within the United States, but also one of the most recognized symbols over the world.

During World War II, Coke went with the GIs. Woodruff saw to it that every man in uniform could get a bottle of COCA-COLA for five cents whenever he wanted, no matter what the cost to the company. Throughout the 1950s, 1960s and early 1970s, COCA-COLA ruled the soft-drink market and outsold Pepsi by two to one.

BACKGROUND OF THE DECISION

Between 1976 and 1979, the growth rate of COCA-COLA soft drinks dropped from 13% annually to 2%. As the giant stumbled, Pepsi Cola was finding heady triumphs.

First came the “Pepsi Generation” and the association with youth and vitality enhanced the image of Pepsi and firmly associated it with the largest consumer market for soft drinks.

Then came another management campaign idea, the “Pepsi Challenge”. This campaign led to a rapid increase in Pepsi’s market share from 6% to 14% of total U.S. soft-drink sales.

COCA-COLA, in reaction conducted its own taste tests. These tests also showed the same results- people liked Pepsi better, and market share changes reflected this.

As the table shows, by 1979, Pepsi had diminished the gap between itself and COCA-COLA, having 17.9% of the soft-drink market, to Coke’s 23.9%. By the end of 1984, Coke had only 2.9% lead, while in the grocery store market it had only 1.7% lead. Further indication on the position of Coke relative to Pepsi was a study done by COCA- COLA’s own marketing research department.

Coke and Pepsi Shares of Total Soft Drink Market 1950s-1984

In ten years the picture had changed greatly: only 12% now claimed loyalty to Coke, while the number of exclusive Pepsi drinkers was 11%, as the graphic shows.

It was a very worrisome and frustrating situation as COCA-COLA was outspending Pepsi in advertising by $100 million. It had twice as many vending machines, dominated fountains, had more shelf space, and was competitively priced. Why was it still losing market share?