The new Coke tasted better than the competition and even the old Coke. It ended up costing Coca-Cola hundreds of millions.
In the 70s, Pepsi started nibbling away market share from Coca-Cola. Pepsi achieved this by gradually improving their taste. In the 80s, Coca-Cola had lost a lot of market share to Pepsi, because Pepsi’s taste caught up.
Coca-Cola reacted by joining the Pepsi game: let’s change and improve our taste.
Money was not an issue. Around 200.000 randomized double-blind placebo controlled taste tests were performed. Since the risk was huge, Coca-Cola wanted to play it as safe as possible and be certain the new Coke tasted better.
The end result was a formula that beat everyone. It tasted better than Pepsi, old Coke and any other brand in the world you would pit it against. Everybody believed that the new Coke was going to be a huge success. After all, it is hard to argue against mountains of data.
Despite all evidence, excitement and hype the Coke II failed. It is labelled as one of the biggest business disasters of all-time. Coca-Cola received nearly 400.000 letters and phone calls from people who hated the new Coke.
It was such a big disaster, Coca-Coca never admitted how much money they lost exactly.
Why did the new Coke fail despite all evidence to back up it’s superiority?
It’s All In Your Head
Double-blind tests are great for eliminating noise. They allow to focus on a single variable of interest: in this case taste. Coca-Cola applied this kind of testing to make sure the taste of the new Coke was objectively better.
Unfortunately, a large part of taste is all in your head. Imagination is removed by using double-blind testing. The story your mind tells itself about what you are going to taste matters. It is not noise you should filter out, it is part of the signal.
Ever heard of George Riedel wine glasses? Every Riedel wine glass is hand-made and shaped in a way the taste of wine comes out best. Wine experts unanimously agree: wine tastes better when you drink from a Riedel glass.
Except when you do not tell the story behind Riedel glasses and perform a double-blind test. Nobody is able to tell a difference between a cheap $1 glass or a 25$ Riedel glass. Not even the most renown wine experts.
Does that mean Riedel glasses are a waste of money?
As long as you believe their story, they make wine taste better. It is all in your head, but who cares?
The Coke brand matters. The story your mind tells itself affects how Coke tastes.
The Power Of Scarcity
If you throw some pepper on the street, nobody would care. Pepper is a commodity. It is extremely common and every restaurant offers it for free.
Back in the 16th century, pepper was more valuable than gold in some places. Pepper was in short supply back then and difficult to get. It is still the same pepper as today, the only difference is availability.
We value and appreciate things more when they are unusual. Even though the thing itself remains the same. Exceptional things are rare, but are all rare things exceptional?
Our mind finds it difficult to distinguish the two. Once at a conference I saw two people walking around with branded propeller hats. My brain immediately thought: I want one, where can I get them? A few seconds later I realized: I hate those hats, why do I want them actually? The answer: scarcity.
When Coca-Cola was testing the new Coke II, the new formula was special and limited. They were trying something new very few people had tasted before or could taste again. When they released the new Coke, the old Coke became more special.
Scarcity is a powerful force you should not ignore.
People Prefer Avoiding Losses Over Equivalent Gains
If you offer people the following choice:
- 100% chance to gain 3000$.
- 80% chance to gain 4000$, 20% chance of gaining nothing.
Around 80% will pick the first option. People prefer a guaranteed gain, over a higher gain at the risk of gaining nothing.
If you offer people the following options:
- 100% chance of losing 3000$.
- 80% chance of losing 4000$, 20% chance of losing nothing.
Then 90% of people actually prefer option 2. They would rather risk losing more money if it comes with a chance of not losing anything.
This does not make sense from a logical perspective. The calculated risks are the same for both scenario’s, yet people make a different choice. People evaluate losses and gains differently. People prefer avoiding losses over equivalent gains.
In other words: if we first lose 100 dollars and then gain 100 dollars then it does not even out. The losses affect us more than the gains compensate.
When releasing the Coke II, people were losing the old Coke and gaining the Coke II. The new Coke II did not just need to be better. It needed to be a lot better to offset the loss of the old Coke.
Lessons From The New Coke Launch
We are not as rational as we would like to believe. There are a lot of heuristics and quirks of the human mind to take into account when performing experiments. If you fail to do so, you will draw the wrong conclusions.
Start small and fail fast. No matter how much confidence you have in your data. Your lab setting does not always transfer perfectly to the real world. The real world may contain one or more variables you failed to take into account that matter.
If the new ‘Coke II’ would have been launched small, the cost of failure would have been small as well. There would also have been an opportunity to identify what to do to fix it. With a big launch and money pouring away every day, the only option was to pull the plug. By starting small, you can pivot and try to make it a success in a different way.