CSGB6201 STRATEGIC MANAGEMENTPrepared for PROF. DR. MOHD NAZARI BIN ISMAIL

Strategic Blunder The Case of The Coca Cola Company

Group 3Siti Munira Binti Abd Rashid

CGA130065Suraya Natrah Malek

CGA130148Nik Nor Hidayu Abd Jamel

CGA130001

CONTENTS

Introduction Strategic Blunder Coke

Impact Of The New Coke BlunderPorter’s Five Forces

Lesson LearntRecommendations

Conclusion

INTRODUCTION

INTRODUCTION

Largely favoured the new formula over the old coke as well as the rival drink Pepsi-cola

Coca-Cola worked on a new formula and conducted 200,000 taste tests

The Coca-Cola Company change the formula of the world's most popular soft drink

Coca-Cola, the undisputed market leader was constantly challenged by Pepsi-Cola

INTRODUCTION (cont’d)

Known as the “Biggest Marketing Blunder of AllTime”

The American public's reaction to the change was NEGATIVE and the New Coke was a major failure.

Stopped the production and distribution of the old coke completely

The Coca-Cola Company introduced reformulated Coca-Cola, often referred to as "new Coke," marking the first formula change in 99 years.

STRATEGIC BLUNDER COKE

STRATEGIC BLUNDER COKE

1- Ignore The Psychological Aspects Of Loyal Customers• Coke was a “national institution” of America• Coke was a symbol of American culture rather than just

a refreshing drink• Consumers were hurt because of a historical association

of coke with American culture and history was being taken away by the company

STRATEGIC BLUNDER COKE (cont’d)

2 - Failed to consider consumer-buying patterns• According to a survey done by Pepsi soon after the introduction of new

Coke, the Coke loyalists overwhelmingly favoured an unchanged original Coke formula

3 – Failed market research• Coca-Cola has made serious market research failure. From 200,000

consumers who took the test, only 30,000 or 40,000 actually tasted the new formula & they were not informed what they were tasting a new formula of coke• Therefore most consumers had no idea of their preferences as loyal coke

customer are loyal to the taste of old and original coke. They were not clearly advised that their responses might bring to the termination taste of the original and old Coke formula.

STRATEGIC BLUNDER COKE (cont’d)

4 - Taste the new coke was slightly difference from the original one• The difference in taste was a major reason for the

failure of ‘New Coke’• Tests done by their research and development

department proved that the taste of the Coke was the reason it was losing its market share• During the blind taste test, people just took a sip of the

cola and preferred a sweeter taste. But in reality they buy a can of 330 ml and they preferred the less sweet taste of old Coke.

IMPACT OF NEW COKE BLUNDER

IMPACT OF NEW COKE BLUNDER

1. Coca Cola Sales Dropped• Coca Cola market share

• 1980: 24.3%• 1984: 21.8%

• April, 1985 introduction of New Coke• PepsiCo recognized Coca Cola’s mistake and responded with by the “They

changed my Coke” advertisement• May, 1985 Pepsi became No.1• Summary of 1985 soft drink market share:

• New Coke 15% • Coke Classic 5.9% • Pepsi 18.6%.

IMPACT OF NEW COKE BLUNDER (cont’d)

2. Loyal Consumer Backlash• Replacement of original coke was too upsetting for

consumers• Backlash:

Angry letters and phone calls (60,000 calls/day)Intense media coverage – negative consumer responseProduct boycottProtest groups — such as the Society for the

Preservation of the Real Thing and Old Cola Drinkers of America established

REACTION OF THE IMPACT

• Coke’s Management Reactions• July 1985, “Old” Coke was sold alongside New Coke (after 79 days) and

re-named as “Classic” Coke• 1986:• New Coke collapsed to 2.3%, • Coke Classic surged to 18.9%• Pepsi held firm at 18.5%.

• 1987: Classic Coke became No. 1 soft drink • Consumers became even more loyal to the brand after it was

temporarily taken away from them.• 1990, New Coke re-labelled to “Coke II” and taken off the shelves• 2009, “Classic” Coke became Coca Cola

PORTER’S FIVE FORCES

PORTER’S FIVE FORCES IN ACTION: SAMPLE ANALYSIS OF COCA-COLA

Threat of New Entrants/Potential Competitors: Medium PressureCoca-Cola is seen not only as a beverage but also as a brand. It has held a very significant market share for a long time and loyal customers are not very likely to try a new brand.

Brand – identity, emotional attachment with the product.

PORTER’S FIVE FORCES IN ACTION: SAMPLE ANALYSIS OF COCA-COLA (cont’d)

Threat of Substitute Products: Medium to High pressureCoca-cola doesn’t really have an entirely unique flavor. In a blind taste test, people can’t tell the difference between Coca-Cola and Pepsi.

The Bargaining Power of Buyers: Low pressureIndividual buyer - no pressureLarge retailers – have bargaining power because of the large order quantity, but the bargaining power is lessened because of the end consumer brand loyalty.

PORTER’S FIVE FORCES IN ACTION: SAMPLE ANALYSIS OF COCA-COLA (cont’d)

The Bargaining Power of Suppliers: Low pressureThe main ingredients for soft drink include carbonated water, phosphoric acid, sweetener, and caffeine. The suppliers are not concentrated or differentiated.Coca-Cola is likely a large, or the largest customer of any of these suppliers.

Rivalry Among Existing Firms:  High PressureCompetitor - Pepsi which also has a wide range of beverage products under its brand. Both Coca-Cola and Pepsi are the predominant carbonated beveragesDuopoly – Coke, Pepsi

LESSON LEARNT

LESSON LEARNT• WHAT HAS THE COMPANY LEARNT?1. Market research has to be conducted or interpreted correctly2. Marketing is about much more than the product itself 3. Go back if there is a need4. Implementation should not be in a haste

• WHAT HAVE WE LEARNT?1. Have courage to accept your mistake and correct it2. Customers are loyal for a reason, we need to embrace that reason3. Research is one of the most critical steps before any decisions are made4. Branding is actually not an easy task5. Sometimes it is only best to stay true with who you are

LESSON LEARNT (cont’d)1.Market research has to be conducted or interpreted

correctlyCoke’s extensive market research was unable to furnish the

management with the proper guidance A “wrong-question explanation”Did not make it apparent to the taste-test respondents

2. Marketing is about much more than the product itself The blind taste test cannot measure the love the consumers

felt for Coke and the originality of Coke could also not be seen

LESSON LEARNT (cont’d)3.Go back if there is a needCoca-Cola executives announced the conclusion to go back to their original

recipe less than three months after New Coke’s introductionThe company somehow ended up with a more profound bond between the

product and the consumers

4. Implementation should not be in a hasteThe Pepsi challenge test is called ‘sip test’, means that drinkers were given

small sample to try out. The flaw of this test was that sometimes what people say they like in these tests may not actually reflect what they will actually want or buy to sit at home and drink

Coke would have succeeded had it chosen to change the drink’s flavor incrementally, without announcing that they were doing so

RECOMMENDATIONS

RECOMMENDATIONS• SWOT ANALYSIS1. Analyze current situation whether they need to produce a new formula of New

Cola as the best decision2. By doing SWOT analysis, Coca Cola may know the strength, weaknesses,

opportunity and threat of each alternative before considering them while making decision in inventing new formula of New Cola

• DECISION MAKING1. Coca Cola may conduct an adequate market research especially for the public

perception of the original brand of Coca Cola2. They also should take into account the symbolic value of coke towards their loyal

customers3. Coca Cola may run thousand of taste tests of New Coke but do not stop the old

Coca Cola recipe

RECOMMENDATIONS (cont’d)• COMPETITIVE ANALYSIS1. By doing competitive analysis, Coca Cola may establish a unique product of

New Cola and therefore what attributes they may play up in order to attract their target market

2. Coca Cola may analyze the difference between their old recipe compared wit Pepsi-Cola as their rival; analyze their main competitor and examine the factors that cause the major difference of their products before they invent their New Cola

• PRODUCT PREFERENCES1. Coca Cola should considered the product preferences and put it into account to

ensure the new formula (New Cola) will be successful compared to the previous strategy where the preferences for sweeter products diminish with use and was not taken into account

RECOMMENDATIONS (cont’d)• MARKETING STRATEGY1.While conducting a market research and taste survey for the new

formula of Coca Cola, the marketing team should brief all participants about the new product

2.The Coca Cola team have to tell the participants that by picking one cola, they would lose other one

3.Coca Cola may apply the 5Ps marketing tool which includes Product, Price, People, Place and Promotion to boost up their sales of New Cola

4.By producing a creative and an interesting media advert of New Cola compared to original ads, it may help to attract their customers and boost up the sales

CONCLUSION• The Coke reformulation attempt was a dramatic example of

how consumer awareness of the reactions of other consumers can play a critical role in the success and failure of a new or altered product.

• It highlights the necessity for some explicit investigation of social –interaction effects during concept testing research.

• The real lesson of the failed new Coke introduction is that consideration of the effects of social influence must become part of the new product development process

REFERENCES• http://www.strategicmanagementinsight.com/swot-analyses/coca-col

a-swot-analysis.html • http://www.bloomberg.com/ss/10/01/0127_20_stock_market_rockin

g_products/10.htm• http://www.ft.com/intl/cms/s/1/099ae96a-b4f0-11d9-8df4-00000e25

11c8.html#axzz3m71tTeYe• http://www.ft.com/intl/cms/s/1/099ae96a-b4f0-11d9-8df4-00000e25

11c8.html#axzz3m71tTeYe• http://valuationacademy.com/porters-five-forces-in-action-sample-an

alysis-of-coca-cola/

THANK YOU