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  • 7/22/2019 Coca Cola Failure of Diet Coke - Copy



    The Coca-Cola Company(NYSE:KO)is an Americanmultinationalbeverage corporation and

    manufacturer, retailer and marketer of non-alcoholic beverage concentrates andsyrups.[2]The

    company is best known for its flagship productCoca-Cola,invented in 1886 by pharmacistJohn

    Stith PembertoninColumbus, Georgia.[3]The Coca-Cola formula and brand was bought in 1889byAsa Candlerwho incorporated The Coca-Cola Company in 1892. Besides its namesake Coca-

    Cola beverage, Coca-Cola currently offers more than 500 brands in over 200 countries or

    territories and serves over 1.7 billion servings each day.

    The company is headquartered inAtlanta,Georgia,United States. Its stock is listed on theNYSE

    and is part ofDJIA,S&P 500 Index,theRussell 1000 Indexand the Russell 1000 Growth Stock

    Index. Its current chairman and chief executive isMuhtar Kent.The Coca-Cola Company is the world's largest beverage company, and markets four of the

    world's top five leading soft drinks: Coke, Diet Coke, Fanta, and Sprite. It also sells other brands

    including Powerade, Minute Maid, and Dansani bottled water.

    The company has a long history of acquisitions. Coca-Cola acquiredMinute Maidin 1960,[5]the

    Indian cola brandThums Upin 1993,[6]andBarq'sin 1995.[7]In 2001, it acquired theOdwalla

    brand of fruit juices, smoothies and bars for $181 million.[8]In 2007, it acquiredFuze Beverage

    from founder Lance Collins and Castanea Partners for an estimated $250 million.[9]The

    company's 2009 bid to buy a Chinese juice maker ended when China rejected its $2.4 billion bid

    for theHuiyuan Juice Groupon the grounds that it would be a virtual monopoly. Nationalism

    was also thought to be a reason for aborting the deal.[10]In 1982, Coca-Cola made its only non-

    beverage acquisition, when it purchasedColumbia Picturesfor $692 million. It sold the movie

    studio toSonyfor $1.5 billion in 1989

    he latest figure in 2010 shows that now they serve 1.6 billion drinks every day). Of these,

    beverages bearing the trademark "Coca-Cola"or "Coke" accounted for approximately 78% of

    the company's total gallon sales.,_Georgia,_Georgia,_Georgia
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    The Coca-Cola Company,its subsidiaries and products have been subject to sustained criticismby both consumer groups and watchdogs, particularly since the early 2000s.

    criticism has been based around; possible health effects of Coca-Cola products, questionable

    labour practices (including allegations of involvement with paramilitary organisations in

    suppression oftrade unions), the company's poorenvironmentalrecord, perception of the

    companies' engagement inmonopolisticbusiness practices, questionablemarketingstrategies

    and violations ofintellectual propertyrights

    In 2003, theCentre for Science and Environment(CSE),anon-governmental organisationinNew Delhi,said Coca-Cola, contained toxins includinglindane,DDT,malathionand

    chlorpyrifospesticidesthat can contribute to cancer and a breakdown of the immune system.

    David Cox, Coke's Hong Kong-based communications director for Asia, accusedSunita Narain,

    CSE's director, of "brandjacking"using Coke's brand name to draw attention to her campaign

    against pesticides. Narain defended CSE's actions by describing them as a natural follow-up to a

    previous study it did on bottled water

    In 2004, an Indian parliamentary committee backed up CSE's findings, and a government-

    appointed committee was tasked with developing the world's first pesticide standards for soft

    drinks. Coke oppose the move, arguing that lab tests aren't reliable enough to detect minute

    traces of pesticides in complex drinks like soda.

    Coca-Cola had registered a 11 percent drop in sales after the pesticide allegations were made in


    In 2006, the Indian state of Kerala banned the sale and production of Coca-Cola, along with

    other soft drinks, due to concerns of high levels of pesticide residue[19]On Friday, September 22,

    2006, the High Court in Kerala overturned the Kerala ban ruling that only the federal

    government can ban food products.

    In March 2004, local officials inKeralashut down a $16 million Coke bottling plant blamed for

    a drastic decline in both quantity and quality of water available to local farmers and villagers
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    Competition and market share

    Coca-Cola has been a successful company since its inception in the late 1800s. PepsiCo,although founded about the same time as Coca-Cola, did not become a strong competitor untilafter World War II when it began to gain market share. The rivalry intensified in tl1e mid-1960s,and tl1e "cola wars" began in earnest. Today, the duopoly wages war primarily on severalinternational fronts. The companies are engaged in an extremely competitive and sometimespersonal-rivalry, with occasional accusations of false market-share reports, anti competitivebehavior, and otl1er questionable business conduct, but without this fierce competition, neitherwould be as good a company as it is today.

    By January 2006, PepsiCo had a market value greater than Coca-Cola for the first time ever. Itsstrategy of focusing on snack foods and innovative strategies in the non-cola beverage markethelped the company gain market share and surpass Coca-Cola ill overall performance.

    Coca-Cola and its archrival, PepsiCo, have long fought the "cola wars" in the United States, but

    Coca-Cola, recognizing additional market potential, pursued international opportunities in an

    effort to dominate the global soft-drink industry. By the 1993 Coca-Cola controlled 45 percent of

    the global soft-drink market, while PepsiCo received just 15 percent of its profits from

    international sales. By the late 1990s, Coca-Cola had gained more than 50 percent of the global

    market in the soft-drink industry. Pepsi continued to target select international markets to gain a

    greater foothold in international markets. Since 1996 Coca-Cola has focused on traditional soft

    drinks, and PepsiCo has gained a strong foothold on new-age drinks, has signed a partnership

    with Starbucks, and has expanded rapidly into the snack-food business. PepsiCo's Frito-Laydivision has 60 percent of the U.S. snack-food market. Coca-Cola, on the other hand, does much

    of its business outside of the United States, and 85 percent of its sales now come from outside

    the United States.

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    However, in 2000 Coca-Cola failed to make the top ten of Fortune's annual "America's MostAdmired Companies" list for the first time in a decade. Problems at the company were leadershipissues, poor economic performance, and other upheavals. The company also dropped out of the

    top one hundred in Business Ethics annual list of" 1 00 Best Corporate Citizens" in 2001. For acompany that spent years on both lists, this was disappointing, but perhaps not unexpected, givenseveral ethical crises

    International Problems Related to Unions

    Around the same time, Coca-Cola also faced intense criticism in Colombia where unions weremaking progress inside Coke's plants. Coincidently, at the same time, eight Coca-Cola workersdied, forty-eight went into hiding, and sixty-five received death threats

    Coca-Cola India's [Images] president and CEO Atul Singh loves adda- the legendary Bengaliway of involved intellectual discussion - firmly believes former captain Sourav Ganguly [Images] has enough talent left to play for at least another season, but is equally worried aboutmaster blaster Sachin Tendulkar's [Images] waning form.

    The honorary Bengali - who was born and studied in Kolkata's [Images] up-market LaMartiniere Boys School - is a passionate supporter of the Mohun Bagan football club, and fondlyremembers the freewheeling 1960s, when he would rush to Eden Gardens, braving the crowd andthe cops, with a small notebook to keep a record of the score watching a cricket match betweenIndia and Australia [Images].

    Today, he doesn't have time for these simple pleasures and is fully absorbed in trying to fix,above all, Coke India's complete communication failure over the past few years, writes SurajeetDas Gupta.

    Since Singh simply cannot spare time for lunch, after three months into his job, we settle for teaat The Oberoi's Belvedere club. Singh orders, no prizes for guessing, a diet Coke, dismissing oneof the newer, and he says, bizarre, allegations he's heard that excessive drinking of diet Colaleads to loss of memory.

    "Don't worry, I've been drinking this for 25 years and have had no memory loss!" I go along withSingh. "People say," Singh continues, "that if you put a tooth in a bottle of Coke for 10 days andit will dissolve - put it in a bottle of orange juice, and the same will happen."
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    One of the first things Singh did after he took over once Sanjiv Gupta quit, some say in a huff,was to lunch with fifty Coke staffers across five days, from senior managers to secretaries, and toget to know their apprehensions - why wasn't the soft drinks market growing, would Coke evermake money, how was the attack from environmentalists to be handled and what should be doneto stem the 33 per cent attrition rate in the company?

    Singh says he's looking for answers, not providing them. He gives the example of the Greekfootball team in the Euro Cup - it had no stars, but played as a team, and upset all the big boys.

    The Coke chief invited all staffers from across the country for a two-day session at Uppal'sOrchid near the Delhi [Images] airport, and each was given a chance to vent their grievances,whether about the bland food in the canteen, the ground water in Kerala [Images], or theirsalaries.

    After this, 80 volunteers were asked (this excluded senior management) to form six committeesto come up with solutions to the problems. An elderly secretary, Singh recalls, said his son could

    not go to Dubai [Images] for the match since he could not afford the air ticket, ironic given themoney the company was spending on sponsoring top games and celebrity sportsmen.

    The money was sanctioned and Singh has left it to the committees to formulate a policy on whatshould be the criterion to help kids of staffers.

    RecentlyPepsi India's chief said the Rs 5 strategydidn't work, I toss the same question to Singh.The strategy, he insists, was right, but the execution was wrong.

    The Rs 5 bottle, he says, should have been used to woo new potential cola drinkers in the market,but since it was sold in big metros instead of in rural areas and small towns, the 300ml sales were

    cannibalised - at Rs 6 a bottle, they may still have broken even instead of being in the red.Singh's now trying to woo new drinkers with a 200 ml bottle, now at Rs 7.

    More differences emerge - Singh, unlike Pepsi's Rajiv Bakshi, does not endorse the idea that realgrowth will come only by focusing on the top 10 million income-earning families in the country.Nor does he believe colas are losing out to non-colas.

    Singh avoids the peanuts and wafers as we both go in for a refill of Coke, and admits thepesticide controversy was badly handled as the company stopped communicating withconsumers (since they stopped the ads), with the media and even the NGOs.

    In Kerala, he says, the state had a huge water shortage and parched earth, but people still saw themassive red Coke trucks passing by. This gave the perception that the MNC was taking all thewater, and so it was targetted, rightly or wrongly.

    Singh says the important thing is that they did not anticipate these perceptions, and did not go tohelp resolve the community's water shortage. Similarly, Coke did not address the health issuesraised -"coffee has caffeine, but who says it's bad for your health?", Singh asks.
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    He says consumers must be educated, though that will be a slow process. "NGOs will not agreewith what we say and we will not agree with what they say. So instead of arguing, let us sittogether and see what needs to be done on issues such as water harvesting, afforestation and soon," says Singh, telling me Coke has set up bodies like the Health and Wellness group and anenvironment group that has well-known experts to give them advice.

    My time's up, and adman Suhel Seth is asked to wait for five minutes while I ask my lastquestion - the difference between India and China, where Singh served Coke for 10 years. Cokedid a survey amongst teenagers across the world, which included India and China, Singh reveals.

    The Chinese kids were unanimous that they wanted their country to do well, but were not sureabout their individual career graph. Indian teenagers, on the other hand, Singh says, were clearabout their goals but were not sure about their country!

    As we part, Singh adds, "The Chinese work as a team, we don't. We are too proud to admit wewere wrong and look ahead." This is what Singh plans to do. business correspondent Mark Gregory

    Coca-Cola, the international beverage giant, has written off $400m worth of assets in India.

    Its management admits the loss is a major setback in its India operations.

    Coca-Cola's New York share price fell sharply on the news.

    From its base in Atlanta, Georgia, in the US, Coca-Cola has set out to make its famous fizzy drinks aspopular in developing nations as they are already in America, Europe and other rich country markets.

    Vast sums were poured into pushing the Coke brand to new consumers around the world.

    Coca-Cola boss Douglas Daft is

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    India, with its billion strong population and huge potential for economic growth,was seen as a particularly promising market for Coke.

    However, the company's top management has now admitted, in effect, that the strategy has failed.

    Bad investment

    Coca-Cola spent about $800m on building up its operations in India.

    It now proposes to value those assets at just $400m, an admission that much of the money spent hasbeen wasted.

    Coke has divulged little about exactly what went wrong.

    But industry experts point to the huge bills incurred in buying out and restructuring local drinksmanufacturers, particularly Parle with its Thums Up brand.

    Another factor has been lavish spending on advertising and marketing, which failed to produce enough

    extra sales to justify the cost.

    Expensive drinkIt appears that Coca-Cola greatly overestimated the eagerness of consumers in Indiaand other developing nations to pay premium prices to quench their thirst with a famous American brand.

    Critics have pointed out that, in comparison to local income levels, a glass of Coke bought in India canseem as expensive as a glass of high-quality champagne does to a consumer in the west.

    However, Coca-Cola's new worldwide boss Douglas Daft told industry analysts in New York that thecompany hasn't given up on the subcontinent.

    It aims to make a fresh start, with less vaulting ambitions. The company cited the problems suffered inIndia as a major factor in a decision to downgrade it's forecast of future profits all around the world

    News: Analysis & Commentary: Strategies

    Doug Daft Isn't Sugarcoating Things

    He's already shaking up Coke. But can he bring back the fizz?

    When Douglas N. Daft was hastily named by Coca-Cola Co. directors to succeed the embattledM. Douglas Ivester on Dec. 6, the betting among Coke watchers was that the veteran Asia chiefwould be a caretaker CEO. Given Ivester's unexpected resignation--and the lack of an obviousheir apparent--Daft was viewed by many as somebody who could keep the enterprise on coursewhile the board groomed a longer-term successor.

    still optimistic

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    Now, those bets are off. On Jan. 26--nearly three months before he officially takes over fromIvester--Daft showed insiders and, more importantly, investors that there is indeed a new regimein place. Daft announced the most sweeping shakeup in Coke's 114-year history, including theelimination of 6,000 jobs--about 20% of the company's 29,000-employee payroll. "The mood ispretty lousy, but this shakeup was long overdue," sighs one Coke middle manager whose job was

    eliminated.Daft is also decentralizing management. To get closer to local markets, he is reassigninghundreds of headquarters staffers to far-flung outposts. And, rolling back the overambitiousexpansion plans of his predecessors, he is biting the bullet on poorly performing ventures in theBaltics and Japan--which will cost $813 million in write-downs.OLD TEAM. More changes areon the way. By the time he is finished, Sanford C. Bernstein & Co. analyst William P. Pecoriellopredicts, Daft "will make the most significant changes to Coke's business model and strategysince Roberto Goizueta" took the helm in the early 1980s.

    What's the game plan? It looks more like the book of Goizueta than that of Ivester. Goizueta

    launched his tenure as CEO with a massive shakeup in 1981. Now, Daft is bringing back some ofGoizueta's team, including his former executive assistant, and has even initiated discussions withsome of Goizueta's outside advisers, such as New York public-relations exec Harold Burson,who helped Goizueta burnish his personal image.

    Daft told staffers he's simply following Goizueta's example--that new CEOs should move fastand focus on a "short and critical agenda." And Daft isn't letting Ivester, who is officially CEOand chairman until the April annual meeting, get in the way. When Ivester continued issuingedicts after the Dec. 6 announcement of his plan to step down, Daft's staff sent a curt message tothe Ivester camp: Back off--the Doug Daft era has begun.IDLE PLANTS. Behind Daft'ssweeping moves is a tacit acknowledgement that Coke's global buildup during the 1980s and

    1990s--when the soda giant spent lavishly as it raced to establish new markets in Russia, EasternEurope, and China--went too far, too fast. Even in the U.S., where the average consumer alreadydrinks more than 400 servings of Coke products each year, Ivester kept pushing bottlers to spendon new trucks, vending machines, and coolers so the stat could hit 500 servings.

    In Russia, two state-of-the-art bottling plants--which together cost more than $100 million--sitidle, used largely as a distribution warehouse; Daft is also writing down a portion of Coke's 1million vending machines in Japan. And even in the U.S., some of Coke's independent bottlersare ready to pull back from Ivester's push to put vending machines and coolers in unconventionalspots like auto-parts stores. "We've made the investments they wanted, and we're still waiting forthe payoff," grouses one bottler.

    For his part, Daft now acknowledges that Coke's long-held target of pumping out 7% to 8% morevolume each year is "probably a little on the high side." By scaling back the top-line target andreducing capital spending, Daft figures Coke can actually produce more profits. Merrill Lynch &Co. analyst Douglas M. Lane now believes Coke will boost its earnings 11% this year but bynearly 30% in 2001.

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    Meanwhile, the new mantra at Coke is to "think locally and act locally"--rather than await ordersfrom Atlanta. Coke's local managers and bottlers will have more leeway to set pricing, tailor adcampaigns to local cultures, and even introduce new brands. "With the world changing morequickly than ever, we must move decision-making closer to the local markets," says Daft.

    Analysts also expect the company to rely more heavily on growth beyond the carbonated-beverage business. In the U.S., which remains Coke's largest and most profitable market, juice,tea, and bottled water are growing from 5% to 28% a year. Meanwhile, growth in the sodamarket slipped last year from 4% to roughly 2%, estimates Gary A. Hemphill, vice-president atBeverage Marketing Corp. of New York. And some categories, such as diet cola, have actuallyshrunk.DEMAND CHALLENGE. Daft knows first-hand that Coke must seek solutions that relyon more than carbonated water and sugar. In Japan, which produces 20% of Coke's profits, Daftgenerated two-thirds of Coke's revenues from canned coffee and tea. And the new Coke team isalready signaling its desire to gin up more profits from other beverages besides soda. Jack L.Stahl, who will serve as president, predicts Coke management will "draw more on the bestpractices of Japan."

    Daft still faces a raft of challenges. He must mollify regulators in Austria, Italy, and elsewherewho are waging antitrust probes that could restrict Coke's sales practices. And despite his write-downs in Russia and Japan, analysts believe Coke is still sitting on at least an additional $100million in potential write-offs in markets such as India and Venezuela where it overinvested.

    Restructuring is fine. But ultimately, Daft will be judged on whether he can create more demandfor Coke products--be they soda, water, or whatever consumers desire. Otherwise, like Ivester,he too may find that his term as CEO goes flat.By Dean Foust, with David Rocks, in Atlanta,Manjeet Kripalani in Bombay, and Bureau ReportsReturn to top

    Coca-Cola has the most valuable brand name in the world and, as one of the most visible

    companies worldwide, has a tremendous opportunity to excel in all dimensions of business

    performance. However, over the last ten years, the firm has struggled to reach its financial

    objectives and has been associated with a number of ethical crises. Warren Buffetserved as a

    member of the board of directors and was a strong supporter and investor in Coca-Cola but

    resigned from the board in 2006after several years of frustration with Coca-Cola's failure to

    overcome many challenges.

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    Many issues were facing Doug Investor when he took over the reins at Coca-Cola in 1997.

    Investor was heralded for his ability to handle the financial flows and details of the soft-

    drink giant. Former-CEO Roberto Goizueta had carefully groomed Investor for the top

    position that he assumed in October 1997 after Goizueta's untimely death. However,

    Investor seemed to lack leadership in handling a series of ethical crises, causing some to

    doubt "Big Red's" reputation and its prospects for the future. For a company with a rich

    history of marketing prowess and financial performance, Ivester's departure in 1999

    represented a high-profile glitch on a relatively clean record in one hundred years of

    business. In 2000 Doug Daft, the company's former president and chief operating officer,

    replaced Investor as the new CEO. Daft's tenure was rocky, and the company continued to

    have a series of negative events in the early 2000s. For example, the company was allegedly

    involved in racial discrimination, misrepresenting market tests, manipulating earnings,

    and disrupting long-term contractual arrangements with distributors. By 2004 Daft wasout and Neville Isdell had become president and worked to improve Coca-Cola's


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    Flaw 3: The new item exists in product limbo.

    The Lesson:Test the product to make sure its differences will sway buyers.

    Coca-Cola C2

    For its biggest launch since Diet Coke, Coca-Cola identified a new market: 20- to 40-year-old

    men who liked the taste of Coke (but not its calories and carbs) and liked the no-calorie aspect

    of Diet Coke (but not its taste or feminine image). C2, which had half the calories and carbs and

    all the taste of original Coke, was introduced in 2004 with a $50 million advertising campaign.

    However, the budget couldnt overcome the fact that C2s benefits werent distinctive enough.

    Men rejected the hybrid drink; they wanted full flavor with no calories or carbs, not half the

    calories and carbs. And the low-carb trend turned out to be short-lived. (Positioning a product to

    leverage a fad is a common mistake.)

    Why didnt these issues come up before the launch? Sometimes market research is skewed by

    asking the wrong questions or rendered useless by failing to look objectively at the results. New

    products can take on a life of their own within an organization, becoming so hyped that theres

    no turning back. Coca-Colas management ultimately deemed C2 a failure. Worldwide case

    volume for all three drinks grew by only 2% in 2004 (and growth in North America was flat),

    suggesting that C2s few sales came mostly at the expense of Coke and Diet Coke. The

    company learned from its mistake, though: A year later it launched Coke Zero, a no-calorie, full-

    flavor product that can be found on shelvesand in mens handstoday.

    Coca cola failure of diet coke: Think of a brand success story, and you may well

    think of Coca-Cola. Indeed, with nearly 1 billion Coca-Cola drinks sold every

    single day, it is the worlds most recognized brand.
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    Yet in 1985 the Coca-Cola Company decided to terminate its most popular soft

    drink and replace it with a formula it would market as New Coke. To

    understand why this potentially disastrous 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 growing competition between

    Coca-Cola and Pepsi-Cola in the years and even decades prior to the launch of

    New Coke.

    The relationship between the arch-rivals had not been a healthy one. Although

    marketing experts have believed for a long time that the competition between

    the two companies had made consumers more cola-conscious, the firms

    themselves rarely saw it like that. Indeed, the Coca-Cola company had evenfought Pepsi-Cola in a legal battle over the use of the word cola in its name,

    and lost.

    Outside the courts though, Coca-Cola had always been ahead. Shortly after

    World War II, Time magazine was already celebrating Cokes peaceful near-

    conquest of the world. In the late 1950s, Coke outsold Pepsi by a ratio of more

    than five to one. However, during the next decade Pepsi repositioned itself as a

    youth brand.

    Thisstrategywas a risky one as it meant sacrificing its older customers to

    Coca-Cola, but ultimately it proved successful. By narrowing its focus, Pepsi

    was able to position its brand against the old and classic image of its

    competitor. As it became increasingly seen as the drink of youth Pepsi

    managed to narrow the gap.

    In the 1970s, Cokes chief rival raised the stakes even further by introducing

    the Pepsi Challenge testing consumers blind on the difference between its

    own brand and the real thing. To the horror of Coca-Colas longstandingcompany president, Robert Woodruff, most of those who participated

    preferred Pepsis sweeter formula.

    In the 1980s Pepsi continued its offensive, taking the Pepsi Challenge around

    the globe and heralding the arrival of the Pepsi Generation. It also signed up

    celebrities likely to appeal to its target market such as Don Johnson and
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    Michael Jackson (this tactic has survived into the new millennium, with

    figures like Britney Spears and Robbie Williams providing more recent


    By the time Roberto Goizuetabecame chairman in 1981, Cokes number one

    status was starting to look vulnerable. It was losing market share not only to

    Pepsi but also to some of the drinks produced by the Coca-Cola company

    itself, such as Fanta and Sprite. In particular the runaway success of Diet Coke

    was a double-edged sword, as it helped to shrink the sugar cola market. In

    1983, the year Diet Coke moved into the number three position behind

    standard Coke and Pepsi, Cokes market share had slipped to an all-time low

    of just under 24 per cent.

    Something clearly had to be done to secure Cokes supremacy. Goizuetas firstresponse to the Pepsi Challenge phenomenon was to launch an advertising

    campaign in 1984, praising Coke for being less sweet than Pepsi. The

    television ads were fronted by Bill Cosby, at that time one of the most familiar

    faces on the planet, and clearly someone who was too old to be part of the

    Pepsi Generation.

    The impact of such efforts to set Coca-Cola apart from its rival was limited.

    Cokes share of the market remained the same while Pepsi was catching up.

    Another worry was that when shoppers had the choice, such as in their local

    supermarket, they tended to plump for Pepsi. It was only Cokes more effective

    distribution which kept it ahead. For instance, there were still considerably

    more vending machines selling Coke than Pepsi.

    Even so, there was no getting away from the fact that despite the proliferation

    of soft drink brands, Pepsi was winning new customers. Having already lost on

    taste, the last thing Coca-Cola could afford was to lose its number one status.

    The problem, as Coca-Cola perceived it, came down to the product itself. Asthe Pepsi Challenge had highlighted millions of times over, Coke could always

    be defeated when it came down to taste. This seemed to be confirmed by the

    success of Diet Coke which was closer to Pepsi in terms of flavour.

    So in what must have been seen as a logical step, Coca-Cola started working

    on a new formula. A year later they had arrived at New Coke. Having produced

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    its new formula, the Atlanta-based company conducted 200,000 taste tests to

    see how it fared. The results were overwhelming. Not only did it taste better

    than the original, but people preferred it to Pepsi-Cola as well.

    However, if Coca-Cola was to stay ahead of Pepsi-Cola it couldnt have two

    directly competing products on the shelves at the same time. It therefore

    decided to scrap the original Coca-Cola and introduced New Coke in its place.

    The trouble was that the Coca-Cola company had severely underestimated the

    power of its first brand. As soon as the decision was announced, a large

    percentage of the US population immediately decided to boycott the new

    product. On 23 April 1985 New Coke was introduced and a few days later the

    production of original Coke was stopped. This joint decision has since been

    referred to as the biggest marketing blunder of all time. Sales of New Cokewere low and public outrage was high at the fact that the original was no

    longer available.

    It soon became clear that Coca-Cola had little choice but to bring back its

    original brand and formula. We have heard you, said Goizueta at a press

    conference on 11 July 1985. He then left it to the companys chief operating

    officer Donald Keough to announce the return of the product.

    Keough admitted:

    The simple fact is that all the time and money and skill poured into consumer

    research on the new Coca-Cola could not measure or reveal the deep and

    abiding emotional attachment to original Coca-Cola felt by so many people.

    The passion for original Coca-Cola and that is the word for it, passion was

    something that caught us by surprise. It is a wonderful American mystery, a

    lovely American enigma, and you cannot measure it any more than you can

    measure love, pride or patriotism.

    In other words, Coca-Cola had learnt that marketing is about much more thanthe product itself. The majority of the tests had been carried out blind, and

    therefore taste was the only factor under assessment. The company had finally

    taken Pepsis bait and, in doing so, conceded its key brand asset: originality.

    When Coca-Cola was launched in the 1880s it was the only product in the

    market. As such, it invented a new category and the brand name became the

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    name of the product itself. Throughout most of the last century, Coca-Cola

    capitalized on its original status in various advertising campaigns. In 1942,

    magazine adverts appeared across the United States declaring: The only thing

    like Coca-Cola is Coca-Cola itself. Its the real thing.

    By launching New Coke, Coca-Cola was therefore contradicting its previous

    marketing efforts. Its central product hadnt been called new since the very

    first advert appeared in the Atlanta Journal in 1886, billing Coca-Cola as The

    New Pop Soda Fountain Drink, containing the properties of the wonderful

    Coca-plant and the famous Cola nuts.

    In 1985, a century after the product launched, the last word people associated

    with Coca-Cola was new. This was the company with more allusions to US

    heritage than any other. Fifty years previously, the Pulitzer Prize winningeditor of a Kansas newspaper, William Allen White had referred to the soft

    drink as the sublimated essence of all America stands for a decent thing,

    honestly made, universally distributed, conscientiously improved with the

    years. Coca-Cola had even been involved with the history of US space travel,

    famously greeting Apollo astronauts with a sign reading Welcome back to

    earth, home of Coca-Cola.

    To confine the brands significance to a question of taste was therefore

    completely misguided. As with many big brands, the representation was more

    significant than the thing represented, and if any soft drink represented new

    it was Pepsi, not Coca-Cola (even though Pepsi is a mere decade younger).

    If you tell the world you have the real thingyou cannot then come up with a

    new real thing. To borrow the comparison of marketing guru Al Ries its like

    introducing a New God. This contradictory marketing message was

    accentuated by the fact that, since 1982, Cokes strap line had been Coke is it.

    Now it was telling consumers that they had got it wrong, as if they haddiscovered Coke wasnt it, but rather New Coke was instead.

    So despite the tremendous amount of hype which surrounded the launch of

    New Coke (one estimate puts the value of New Cokes free publicity at over US

    $10 million), it was destined to fail. Although Coca-Colas market researchers

    knew enough about branding to understand that consumers would go with

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    their brand preference if the taste tests werent blind, they failed to make the

    connection that these brand preferences would still exist once the product was


    Pepsi was, perhaps unsurprisingly, the first to recognize Coca-Colas mistake.

    Within weeks of the launch, it ran a TV ad with an old man sitting on a park

    bench, staring at the can in his hand. They changed my Coke, he said, clearly

    distressed. I cant believe it.

    However, when Coca-Cola relaunched its original coke, redubbed Classic

    Coke for the US market, the media interest swung back in the brands favour.

    It was considered a significant enough event to warrant a newsflash on ABC

    News and other US networks. Within months Coke had returned to the

    number one spot and New Coke had all but faded away.Ironically, through the brand failure of New Coke loyalty to the real thing

    intensified. In fact, certain conspiracy theorists have even gone so far as to say

    the whole thing had been planned as a deliberate marketing ploy to reaffirm

    public affection for Coca-Cola. After all, what better way to make someone

    appreciate the value of your global brand than to withdraw it completely?

    Of course, Coca-Cola has denied that this was the companys intention. Some

    critics will say Coca-Cola made a marketing mistake, some cynics will say that

    we planned the whole thing, said Donald Keough at the time. The truth is we

    are not that dumb, and we are not that smart. But viewed in the context of its

    competition with Pepsi, the decision to launch New Coke was understandable.

    For years, Pepsis key weapon had been the taste of its product. By launching

    New Coke, the Coca-Cola company clearly hoped to weaken its main rivals

    marketing offensive.

    So what was Pepsis verdict on the whole episode? In his book, The Other Guy

    Blinked, Pepsis CEO Roger Enrico believes the error of NewCoke proved tobe a valuable lesson for Coca-Cola. I think, by the end of their nightmare, they

    figured out who they really are. Caretakers. They cant change the taste of their

    flagship brand. They cant change its imagery. All they can do is defend the

    heritage they nearly abandoned in 1985.

    Lessons from New Coke

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    Concentrate on the brands perception.In the words ofJack Trout,

    author of Differentiate or Die, marketing is a battle of perceptions, not


    Dont clone your rivals.In creating New Coke, Coca-Cola was reversing itsbrand image to overlap with that of Pepsi. The company has made similar

    mistakes both before and after, launching Mr Pibb to rival Dr Pepper and

    Fruitopia to compete with Snapple.

    Feel the love.According to Saatchi and Saatchis worldwide chief executive

    officer, Kevin Roberts, successful brands dont have trademarks. They have

    lovemarks instead. In buildingbrand loyalty,companies are also creating an

    emotional attachment that often has little to do with the quality of the


    Dont be scared to U-turn.By going back on its decision to scrap original

    Coke, the company ended up creating an even stronger bond between the

    product and the consumer.

    Do the right market research.Despite the thousands of taste tests Coca-

    Cola carried out on its new formula, it failed to conduct adequate research into

    the public perception of the original brand.

    The story of how Coke arm-twisted the Indian government to achieve its objectives has a long and

    colourful history that has its origins a quarter of a century ago.

    Remember 1977, the Morarji Desai government with George Fernandes [Images] as industry minister?

    That year, Fernandes decided to throw Coke (as well as IBM) out of India because the soft drinks

    company was refusing to adhere to a particular provision of what was then the Foreign Exchange

    Regulation Act (FERA).

    This provision stipulated that foreign companies should dilute their equity stake in their Indian associates

    to 40 per cent if they wanted to continue to operate in the country.

    Coke refused.

    It left India and did not return for nearly two decades. By which time, the economic situation had

    undergone a major transformation. More importantly, the particular provision in FERA had been diluted

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    (An aside: It is ironical that Fernandes happens to be defence minister in the government headed by Atal

    Bihari Vajpayee [Images] who had served as external affairs minister in Morarji Desai's government.)

    On July 19, 1996, the Cabinet Committee on Foreign Investment -- in the government headed by H D

    Deve Gowda [Images] -- had decided to allow Coca-Cola to re-enter India.

    On July 31 that year, the government formally approved an investment proposal submitted by Coca-Cola

    South Asia Holding Inc, USA.

    The proposal envisaged the establishment of two subsidiaries in eastern and western India with a total

    investment of $700 million to be capitalised equally by the two subsidiaries over a period of 10 years.

    The proposal further entailed the establishment of a wholly owned subsidiary in Gujarat for setting up

    bottling plants with an investment of $40 million.

    Besides carbonated soft drinks, CCSAH said it would be developing new products such as non-

    carbonated fruit juices, coffee, tea and milk-based drinks.

    On January 21, 1997, the CCFI granted approval to CCSAH to set up two wholly owned subsidiaries as

    holding companies, which, in turn, would set up downstream ventures such as bottling operations.

    There were a few important conditions imposed on CCSAH.

    First, whereas the downstream ventures could operate initially as 100 per cent subsidiaries, the ventures

    would have to offload 49 per cent of their equity capital to Indian shareholders within a period of 'three to

    five years.'

    The CCFI approval was also subject to the condition that the two holding companies would act as

    investment companies and would not engage directly in any manufacturing activities.

    Now comes the somewhat complicated story of Coke's Indian operations.

    CCSAH sets up two holding companies in the country -- Hindustan Coca-Cola Holdings Private Limited

    and Bharat Coca-Cola Holdings Pvt Ltd.

    On July 4, 1997, the CCFI approved the following investment plans outlined by the Coke associates.

    Hindustan Coca-Cola Holdings Pvt Ltd sets up two downstream subsidiaries for bottling operations

    named Hindustan Coca-Cola Bottling North West Pvt Ltd (with an investment of Rs 435 crore (Rs 4.35

    billion) and Hindustan Coca-Cola Bottling South West Pvt Ltd (with an investment of Rs 250 crore or Rs

    2.5 billion).

    Bharat Coca-Cola Holdings Pvt Ltd sets up Bharat Coca-Cola Bottling North East Pvt Ltd (with an

    investment of Rs 250 crore (Rs 2.5 billion) and Bharat Coca-Cola Bottling South East Pvt Ltd (with an

    investment of Rs 345 crore (Rs 3.45 billion).
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    Thereafter, on February 11, 2000, the government granted permission for the two holding companies to

    be merged into one corporate entity called Hindustan Coca-Cola Holdings Pvt Ltd.

    Also, the four downstream subsidiaries were merged into a single company called Hindustan Coca-Cola

    Beverages Pvt Ltd.

    According to the original foreign collaboration agreement approved by the government, HCCHL was

    meant to divest 49 per cent of its equity stake in HCCBL is favour of Indian shareholders within a period

    of five years, that is, by July 17, 1997.

    By a letter dated August 28, 2002, the government extended the deadline for completing the divestment

    from August 16, 2002 to February 28, 2003.

    On March 13, 2003, a meeting of the Foreign Investment Promotion Board was held. The representative

    of the Department of Industrial Policy and Promotion (DIPP -- a department in the ministry of commerce

    and industry -- under which the FIPB used to operate) informed the meeting that HCCHL had completedits divestment by the end of February.

    Earlier, on January 2, 2003, the FIPB had granted permission to HCCHL to use a sum of Rs 803.36 crore

    (Rs 8.03 billion) lying as 'unused balance' in the 'advance against share capital' account of HCCBL.

    The amount was meant for the purchase of one per cent redeemable, non-cumulative, non-participating

    preference shares of Rs 10 each.

    The DEA in the Ministry of Finance had granted permission to HCCHL to use this money on the condition

    that 'under any circumstances,' the voting rights of HCCHL shall not exceed 51 per cent in HCCBL.

    In other words, what the DEA insisted on was that the Indian shareholders in HCCHL should get at least

    49 per cent of the voting rights in HCCBL 'at all times.'

    Coke's Indian associates represented against the imposition of this condition by claiming the following.

    First, it was argued that the original letter of approval only contained a condition specifying the amount as

    well as the percentage of foreign equity.

    Coca-Cola claimed that it was 'unfair and unjust' on the part of the government to 'impose' a 'new'

    condition relating to voting rights and that what was required was mere offloading of 49 per cent equity


    It was further contended that the government's own guidelines specifically prohibited any change in the

    conditions contained in the approval letter or the imposition of an additional condition 'unless there is a

    general policy change.'

    On March 13, 2003, at a meeting of the FIPB (now under the ministry of finance and not the DIPP), the

    DIPP commented that since private limited companies are exempt from Sections 88 and 89 of the

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    Companies Act, 1956, the imposition of a condition relating to voting rights would be tantamount to

    'imposing a new condition which is not permissible under the extant policy.'

    The Department of Company Affairs (now also under the ministry of finance) confirmed that preference

    shares could be issued at a 'zero per cent' coupon rate.

    Interestingly, this represented a complete about-turn from the position held by various government

    departments at a meeting of the FIPB held earlier on January 30, 2003.

    At that meeting, the Department of Economic Affairs in the finance ministry had made the following four


    First, the condition of 49 per cent divestment to Indian shareholders was imposed by the DIPP in 1997.

    Secondly, there were no 'differential rights' on equity shares at that point of time.

    Thirdly, the decision not to change the entry level approval with a divestment clause was taken by theDIPP and the FIPB.

    Finally, this position of the government had been conveyed in its action taken report on the observations

    contained in the 27th report of the Standing Committee on Finance comprising MPs from different political


    During the January 30 meeting of the FIPB, it was clarified that the condition of divestment imposed on

    Coca-Cola with regard to voting rights was strengthened by a judgment of the Bombay high court (in the

    BPL versus CDC case) that had also been upheld by the Supreme Court.

    The Secretariat of Industrial Approvals (in the industry ministry) stated that unlike the foreign direct

    investment policy in the telecommunications sector wherein there is a specific condition that management

    control shall at all times vest in the hands of Indian shareholders, other sectors do not have such a


    It was pointed out that the DEA itself did not recommend imposition of the voting rights condition in the

    case of Coke's rival Pepsi that had been considered earlier by the FIPB.

    Pepsi had been allowed by the government to hold 100 per cent of the shares in its Indian subsidiary.

    The point to note in this context is that Pepsi was allowed by the government to set up a wholly owned

    subsidiary much before Coke had made such an application before the FIPB.

    The question naturally arises as to why Coke agreed to abide by the FIPB stipulation to divest its shares.

    Did it not think about whether or not the playing field was level at that juncture?

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    If media reports are to be believed, Coke executives had held out a number of threats if it was

    "compelled" to sell its shares to the Indian public. The first threat was that this could result in the

    repatriation of a huge sum -- in the region of Rs 1,600 crore (Rs 16 billion).

    The second threat was that it made little sense for Coke to go in for an initial public offering and list its

    shares in Indian stock exchanges because it would then soon delist its shares as per existing Indian laws.

    These veiled and not-so-veiled threats evidently worked. The FIPB recommended to the CCEA that the

    following condition contained in paragraph five of its letter dated January 2, 2003, be deleted:

    "Under any circumstances, the voting rights of HCCHL shall not exceed 51 per cent in HCCBL i.e., the

    Indian shareholders in HCCHL should get at least 49 per cent voting rights at all times."

    The proposal to delete the above condition has been approved by Finance Minister Jaswant Singh. It will

    now be deliberated upon at a meeting of the Cabinet Committee on Economic Affairs.

    Does the story end here? Not exactly.

    After the Cabinet's approval comes through, it would imply that the government's policy towards

    divestment of equity by foreign companies in their Indian associates would have changed in all industries

    other than those in which a sectoral cap on foreign investment has been specifically placed -- industries

    like telecom and insurance.

    It would, therefore, mean that a company like Coca-Cola could claim to have adhered to its entry

    condition of divesting 49 per cent of its equity capital to 'Indian shareholders,' but these shareholders

    would have no voting rights.

    In other words, the foreign company would exercise 100 per cent voting rights on the equity shares of its

    Indian associate while nominally holding only 51 per cent of the capital.

    Is this a fair interpretation of the letter of the law? And is this is an example of proper adherence to the

    spirit of the law?

    These questions need to be debated by our legal eagles and policy makers. As for Coke, it must be pretty

    pleased with its ability to convince the country's bureaucrats and their political masters.

    It deliberately dragged its feet on floating an initial public offering of its shares after having signed on the

    dotted line before the FIPB in 1997.

    Time has proved that its persuasive powers can work wonders with our netas and babus.

    When there was a payments dispute between the Enron-promoted Dabhol Power Company and the

    Maharashtra [Images] government in 2001, many representatives of the American government (including

    the US Ambassador to India Robert Blackwill) had been sharply critical of India for allegedly not enforcing

    a legally valid contract.
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    Coke has gone one step further. It is on the verge of getting the Indian government to change its policy to

    suit its interests.

    The soft drinks corporation has gone about its job rather coolly. After all, in case you did not know, thanda