Introducing New Coke Coca Cola Company Case Study Paper I need a four page write, and everything in the file, if you have any question please tell me. For

Introducing New Coke Coca Cola Company Case Study Paper I need a four page write, and everything in the file, if you have any question please tell me. For the exclusive use of Z. Yu, 2019.
9-500-067
REV: OCTOBER 31, 2001
SUSAN FOURNIER
Introducing New Coke
Background: The History of Coca-Cola
Coca-Cola was invented by John Styth Pemberton, a pharmacist who served as cavalry general for
the Confederates during the Civil War. Settling in Atlanta after the war, Pemberton started a
business selling patent medicines such as Triplex Liver Pills and Flower Cough Syrup. In 1885, he
registered a trademark for French Wine Coca—“an ideal nerve tonic and stimulant.” The name was
apparently appropriate as the beverage contained coca leaf and wine. One year later, Pemberton
removed the wine, added caffeine and the flavor of the kola nut, and introduced a product
improvement called Coca-Cola, which he packaged in used beer bottles and distributed to soda
fountains. Pemberton’s friend advocated the name change since he thought the two C’s, written in
Spencerian script, would look good in advertising. Pemberton considered the beverage a headache
remedy rather than a refreshment, and saw additional uses as a curative for hangovers. Quite by
accident, one druggist discovered that the syrup tasted great when mixed with carbonated water, and
the Coke we know was born.
Pemberton sold the right to bottle and distribute Coca-Cola syrup to Asa Griggs Candler, a smalltown Georgia boy turned druggist, for $2,300 two years later. Pemberton believed that sales of CocaCola would remain predominantly in drug stores, and wanted no part of what he considered to be
expensive bottling operations. The destitute Pemberton died in 1888 and was buried in an unmarked
grave.
Candler organized the Coca-Cola Company in 1892, and began promoting the beverage based on
its refreshment versus therapeutic qualities. The network of independent bottlers that Candler put in
place would form the heart and soul of Coca-Cola’s distribution system, and would come under
attack a century later when the FTC charged the company with the violation of antitrust law.
Candler also introduced the idea of selling Coca-Cola in shapely glass bottles, such as those that
stand as collector’s items today. Candler put the secret formula for Coca-Cola—the company’s
sacred cow—into the company vault, and instituted a policy that no more than three people at any
time would know the proper mixture of ingredients.
In 1916, Candler left Coca-Cola to run for mayor of Atlanta, placing control of the company in the
hands of relatives. In 1919, without benefit of counsel with Candler, the relatives sold Coca-Cola to a
group of Atlanta businessmen for $25 million. Ernest Woodruff, an Atlanta banker, headed the
________________________________________________________________________________________________________________
Professor Susan Fournier prepared this case. HBS cases are developed solely as the basis for class discussion. Cases are not intended to serve as
endorsements, sources of primary data, or illustrations of effective or ineffective management.
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500-067
Introducing New Coke
acquiring business group. Under the guidance of Robert Winship Woodruff, Ernest’s son, the CocaCola Company became a household word within the United States, and a recognized symbol the
world over. The Coca-Cola Company remains in the hands of the Woodruff family to this day.
Robert (“The Boss”) Woodruff became president of Coca-Cola in 1923, a period of severe financial
strife for the organization. An untimely purchase of sugar had precipitated the need for serious
borrowing to keep the company afloat. Necessary increases in the price of syrup threatened bottler
relations, where contracts guaranteed fixed prices. When the company tried to pass on some of its
financial burden to the bottlers, they sued in revolt. Share prices dropped from $40 to $18, and sales
of Coke syrup plummeted from 18.7 million gallons in 1918 to 15.4 million gallons in 1922.
The Boss moved quickly to repair bottler relations (“We want everyone in conjunction with CocaCola to make money.”1) New contracts were negotiated in which all syrup ingredient prices were
fixed at 1921 levels save that for sugar. Quality control programs were also initiated to ensure taste
consistency across bottlers. In a radical move, Woodruff called an impromptu meeting of the sales
force and announced that the department had been eliminated and that everyone was fired. The next
day The Boss called everyone back and rehired them into the new “service” department. Job duties
were expanded beyond the simple sale of syrup to the installation of fountain equipment, retailer
training, and advisory roles in bottler operations. “I didn’t have vision,” a chagrined Woodruff
explains, “I was just curious.”2
The Boss’ dream was “to place Coke within arm’s reach of desire. . .wherever there are people
who get thirsty.”3 Gas stations were adopted as a major new distribution outlet. Advertising touted
Coke as being “around the corner from anywhere.”4 For the first time, Coke sold in bottles began to
outsell Coke sold at the fountain. Expansion continued. Against the advice of the board, Woodruff
took the brand to Europe, established a foreign sales department, and showed a profit within three
years. Woodruff was adamant that the Coke sold oversees should be identical in taste to the Coke
sold in the U.S. despite advisors who recommended adapting the taste to local palettes.
Meanwhile, Coke continued its forays into American pop culture. In 1923, Coke admen urged the
harried worker to “Pause and Refresh Yourself.” In 1929, this mandate was captured in the famous
tagline “the Pause that Refreshes,” a thought that would become part of the vernacular, and
synonymous with Coca-Cola for the next twenty years. In the 1930s, Coca-Cola commissioned artist
Norman Rockwell to paint beautiful, bucolic print illustrations for the brand that evoked a
comforting nostalgic appeal (see Exhibit 1).
Perhaps the most significant cultural accomplishment was delivered through the artwork of one
Haddon Sundblom, who created the classic Coca-Cola Santa Claus in 1931 (see Exhibit 2) and forever
emblazoned the brand in the hearts of America’s youth. Pendergrast describes:
Sundholm’s Santa was the perfect Coca-Cola man. Bigger than life, bright red, eternally
jolly, and caught in whimsical situations involving a well-known soft drink as a reward for his
hard night’s work of toy delivery. Every Christmas, Sundholm delivered another eagerly
awaited Santa Claus ad. Sundholm has thus directly shaped the way we think of Santa. Prior
to the Sundholm illustrations, the Christmas saint had been variously illustrated wearing blue,
1 Thomas Oliver, The Real Coke, The Real Story, New York: Penguin Books, 1986, p. 20.
2 Oliver, p. 23.
3 Mark Pendergrast, For God, Country, and Coca-Cola, New York: Collier Books, 1993, p.167.
4 Oliver, p. 22.
2
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Introducing New Coke
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yellow, green, or red. Sometimes he was an elf, sometimes tall and gaunt. After the soft drink
ads, Santa would forever more be a huge, fat, relentlessly happy man with a broad belt and
black hip boots—and he would wear Coca-Cola red.5
Cultural inroads were granted through Hollywood as well. A popular movie of 1935, Imitation of
Life, gave Coke much free publicity. Broadway Bill mentioned the soft drink several times as well, and
Dizzy Dean gulped many bottles while announcing baseball games. Coke officials hired specialized
agents to arrange film placements for their products. Management liked these films because they
“made people so actively conscious of Coca-Cola that they subconsciously bought it.”6
In 1937, Woodruff was offered the chance to buy flailing Pepsi-Cola for a nominal fee. Woodruff
declined, believing that it would be unwise to market a drink that would compete directly with Coke.
Throughout the 1940s, Coke continued its deluge of world markets. Coke went to war with the
GIs during World War II. “See that every man in uniform gets a bottle of Coca-Cola for five cents,
wherever he is and whatever it costs the company,” ordered Woodruff.7 General Eisenhower
requested that the war department establish ten bottling plants in North Africa and Italy to support
the war-related distribution operations. Response and gratitude among the GIs was immeasurable,
as the letters below reveal.
Today was such a big day that I had to write and tell you about it. Everyone in the
company got a Coca-Cola. That might not seem like much to you, but I wish you could see
some of these guys who have been oversees for twenty months. They clutch their Coke to their
chest, run to their tent, and just look at it. No one has drunk theirs yet, for after you drink it, it
is gone.8
One real bottle of Coke. The first one I have seen here. It was pulled out from under a
pilot’s shirt. He caressed it, his eyes rolled over it, he smacked his lips at the prospect of
tasting it. I offered him one dollar for half of it. Then two, three, five.9
In civilian life, when there is an abundance of Coca-Cola, you feel convinced that it is good
and more or less let it go at that. But you have to experience the scarcity of Coca-Cola or suffer
its absence to acquire a full appreciation of what it means to us Americans.10
My motivation to shoot down my first enemy soldier stems from thoughts of America,
Democracy, and Coca-Cola.11
If anyone were to ask us what we are fighting for, we think half of us would answer, the
right to buy Coca-Cola again.12
5Pendergrast, p. 181.
6 Pendergrast, p. 179.
7 The Coca-Cola Company: An Illustrated Profile, Atlanta: The Coca-Cola Company, 1974, p. 77.
8 Pendergrast, “For God, Country, and Coca-Cola, New York: Collier Books, 1993, p. 199.
9 Pendergrast, p. 210.
10 Pendergrast, p. 211.
11 Pendergrast, p. 211.
12 Pendergrast, p. 211.
3
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Introducing New Coke
Coca-Cola representatives and technicians supporting the bottling plants were granted pseudomilitary status as “technical observers,” a designation for civilians who aided the war effort. Wearing
army uniforms with “T.O.” as a shoulder patch, they became known as the “Coca-Cola Colonels.”
The T.O.s told stories of the drink’s powers during the war:
One poor devil came in with one leg and one arm gone. He told the nurse not to kid him.
When he really did get a drink he cried like a baby because it reminded him so much of
home.13
Men on crutches, in wheelchairs, men with bandaged hands, some who cannot see—all
lined up by the hundreds to get their Cokes. 14
A theme song was created commemorating the role of the Coca-Cola Colonels in advancing the
war:15
The technical observers are winning the war, parley vous.
The technical observers are winning the war, parley vous.
The technical observers are winning the war, so what do
The Hennies keep fighting for? Hinkey, dinkey, Parlez vous.
By war’s end, GIs would consume 5 billion bottles of Coke. Black market sales of the drink
thrived, with a bottle selling for an average of $5-$40, and fetching upwards of $4,000 at auction. The
company’s unpublished history would state that the wartime program made “friends and customers
for home consumption of 11,000,000 GIs and did an expansion job that otherwise would have taken
25 years and cost millions of dollars.”16 Zarubica, one of the T.O.s, described the behind-the-lines
operation to a boss at Coca-Cola headquarters; “It’s the greatest sampling program in the world.”17
At war’s end, there would exist 64 bottling plants worldwide, each built at the government’s expense,
which the company would later incorporate without cost.
Back in the States, advertising exploited the drink’s patriotic presence abroad. “Wherever a U.S.
battleship might be, the American way of life goes along… So naturally Coca-Cola is there too,”
claimed one print advertisement. Ads showed Coke assuaging the thirst of bond salesmen, Victory
gardeners, and returning soldiers (see Exhibit 3). In 1942, Coke was “The Real Thing.” Advertising
reminded consumers: “Yes, around the globe, Coca-Cola stands for the pause that refreshes—it has
become a symbol for our way of living.” The word ‘pause’, in fact, became so strongly associated
with Coca-Cola by 1942 that the U.S. patent office refused to register a new soft drink called Pause,
calling it an infringement on Coca-Cola.18
Coca-Cola continued to thrive in the fifties, outpacing its nearest rival Pepsi by over two to one.
Advertising budgets were substantial ($30 million in 1955). Crooner Eddie Fischer was enlisted as
spokesperson for the brand, delivering soft-sell praises during the popular Coke Time TV show. The
company also sponsored Kit Carson at this time, a western adventure series that captured the hearts
13 Pendergrast, p. 206.
14 Ibid.
15 Pendergrast, p. 206.
16 Pendergrast, p. 217.
17 Pendergrast, p. 215.
18 “The Coca-Cola Company fights Pause as a Soft Drink, Wins,” Red Barrel, April 1942, p. 36.
4
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Introducing New Coke
500-067
and minds of the day’s youth. Across TV land, the message was for urgency and ubiquity: “What
you need is a Coke.”
The sixties and early seventies saw the creation of several other popular advertising themes.
“Things go Better with Coke” broke in 1963 and ran through 1968. In 1969, Coke’s advertising
agency revived the classic 1942 slogan “It’s the Real Thing” and set it to a melody that would win the
world over. In 1971, 200 young adults from all corners of the globe were assembled atop a hill in
Italy where they sang a sweet song destined to become a favorite:
I’d like to buy the world a home and furnish it with love
Grow apple trees and honey bees and snow white turtle doves
I’d like to teach the world to sing in perfect harmony
I’d like to buy the world a Coke and keep it company.
That’s the real thing.
The company was deluged with response to the ad; over 100,000 requests came in for sheet music.
The British pop group The New Seekers recorded the song, minus its direct reference to the Coke
brand, which hit the top of the charts. Over 1 million copies of the record were sold in 1972. It was,
as Newsweek observed, “a surefire form of subliminal advertising.”19
Meanwhile, Woodruff maintained Coke on a path of continued expansion and diversification.
Coke bought Minute Maid Corporation and Duncan Foods in 1964, merging them into a unit known
as Coca-Cola Foods Division. Sprite was launched in 1961. Tab, a diet cola, was introduced in 1963.
Grapefruit-flavored Fresca was launched in 1969. Each of these soda brands were thus named
because of management’s belief that the trademark “Coke” should represent one product only.
Throughout the 1970s, Coke continued to rule the soft drink world. At its height, Coke was
distributed in 155 countries and consumed 303 million times a day. Coke had grown up with
twentieth century America, where rites of passage were marked by a shift from sipping Coke as a
soda pop to mixing it with rum as an adult’s elixir. Coke’s association with America became so
strong that it became a target for retaliation of anti-western insurgents: the beverage was exiled from
two countries experiencing fallout with the U.S., and more than one Coca-Cola bottling plant was
taken over or blown up during periods of political turmoil.
About this time, in May 1979, an irreverent first generation Mexican named Sergio Zyman came to
Coke from rival Pepsi-Co. In one of his first assignments, Zyman argued vehemently for leadership
through “an ongoing and continuous stream of innovations.” Zyman concluded that the diet cola
segment was growing much too fast for Coke to restrict its entries to the Tab brand, which held the
segment leadership at the time. The Coke name, he continued, was a boost to brand equity of the
new entry, not an asset that would be diminished because of it. Research results confirmed this
assertion: trial and purchase intent rose 12% when the Tab beverage was identified as Diet Coke
versus Tab. Approval was granted to go ahead with a Diet Coke product, though two months later
management had a change of heart, and the project was declared dead.
The Period of Turmoil
While Coke looked rosy on the outside, Oliver reported it to be less so:
19 “Have A Coke, World,” Newsweek, January 3, 1972, p. 47.
5
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Introducing New Coke
Behind the scenes, executives were snared in a very different drama, bickering among
themselves, distracted by tangential issues, and losing sight of the heart of the matter—Coke
itself. The top executives of the Coca-Cola Company of the late 1970s actually paid less and
less attention to the marketing and sale of their central product, so caught up were they in
dodging government allegations (about restrictive competitive practice stemming from the
bottler’s territorial exclusivity), fighting with bottlers over the price of syrup (exacerbated by
the hyperinflation of the 1970s), and squabbling over whether or not to control who owned the
company franchises (most franchises were in the hands of third-generation owners who were
not investing in the business).20
Several failed diversification attempts also distracted the company. In 1970, Coca-Cola bought
Aqua-Chem, Inc., which produces water treatment equipment and boilers. In 1978, it bought Presto
Products, a maker of plastic bags. The Wine Spectrum, which owned Taylor California Cellars, was
bought in 1977. None of these companies ever made enough to cover the dividends on the Coke
shares used to purchase them.21
New company president, Donald Keough, spent his first fifty meetings discussing legal battles. “I
was practicing law. I made a mistake. I should have hired a roomful of lawyers and told them to
deal with it and we could have gotten on with the business.”22
In 1979, The Coca-Cola Company began a string of leveraged buyouts of the bottler franchises,
launching one of Wall Street’s favored tactics for acquisition, and bringing the system under better
stewardship and control. And, in 1980, the firm eventually won against charges of anti-competitive
activity and laid that trauma to rest.
Still, all this took its toll. Coke growth slowed from an historical average of 15% per year to
roughly 2% in the late 1970s. Coke was steadily losing market position at retail. In 1980, for the first
time in history, Pepsi pulled ahead of Coke in the supermarkets, claiming a 29.3% share to Coke’s
29%. Foreign…
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