You would be hard-pressed not to name Coca-Cola as the world’s all-time best brand. Venerable, ubiquitous, global and American all at once, Coca-Cola and Coke are brands to be envied. So how did management at Coca-Cola end up making one of the biggest blunders ever in the history of business and in the process almost ruin that incredible brand?
Three things: Fear, hubri, and lack of planning.
Back in the mid-1980s Coca-Cola was still the world’s Number One soft drink maker, but Pepsi was coming on strong.
Pepsi ruled the airwaves at the time with something called “The Pepsi Challenge” whereby regular folk engaged in a blind taste test which, of course, seemingly uncovered that Pepsi tasted better. Also at that time, Michael Jackson signed a lucrative endorsement deal with Pepsi. The upshot was that Pepsi looked to be young, hip, and “the choice of a new generation” while Coke seemed old and bit stodgy.
As such, afraid of losing both their mojo and their market share, the executives at Coca-Cola decided to secretly create a soda that could rival Pepsi. After months of tinkering and testing, they had it; they had invented a cola that scored better than Pepsi in blind taste tests.
Convinced they had a winner, the Coca-Cola people decided to change one of the oldest, best-known and loved brands on the planet and name their nascent product New Coke.
Not only did they decide to re-work one of the greatest brands in history, but the Coca-Cola executives also decided that with the introduction of New Coke they would simultaneously take “old” Coke off the shelves.
Might as well outlaw mom and ban apple pie while you are at it.
Of course New Coke quickly became one of the greatest business disasters ever. It immediately was the butt of jokes and was universally derided. Customers resented the change and demanded their old Coke back; famously hording the few cases they could manage to find.
Within months, New Coke was gone and “Coke Classic” was back, but not before untoward damage on the Coca-Cola brand and business was wrought.
As I said, the problem was three-fold:
1. Fear: Instead of being business people and letting the numbers do the talking (superior Coca-Cola sales, market share, etc.) the folks at Coke seemed to base their decision to tinker with its brand on mostly unsubstantiated fears of the competition. Sure Pepsi was gaining, but not really all that much in the grand scheme of things.
2. Hubris: Apparently at no time did Coca-Cola actually test market New Coke in a community where they took old Coke off the shelves. Had they done so they likely could have anticipated the negative reaction such a move would cause. It is hubris to think you know better than your customer what they want. Sales tell you what people like. Market research tells you what they may want.
3. Lack of planning: See No. 2.
Entrepreneurs are typically an (over) confident, energetic lot. We tend to trust our gut and charge full steam ahead. That is both a blessing and a curse. You know the blessings – you have a business. The curse is that your hunch may be wrong; people may not really be clamoring for a better iteration of Coca-Cola, or in your case – for a second location, or a new product line, or whatever.
Look, another word for entrepreneur is businessperson, and if you want to avoid the big mistake, the fatal flaw, then you need to be equal parts businessperson and entrepreneur, accountant and salesperson.
Do your due diligence. Crunch some numbers. Do the math. Engage in research. What is the market telling you? The big mistake usually comes when you think you know better, even though you may not have all the facts and data you need.
I knew a startup wherein one of the partners got it in his head that a full color ad in a national magazine would be the secret to their success. But what he didn’t do was his homework. He didn’t analyze the readership of the magazine, the circulation numbers, or the lost opportunity cost of advertising in the magazine versus somewhere else. In the end, that $50,000 expenditure essentially put them out of business.
So the lesson is this: Know what you don’t know. Let the numbers do the talking. Don’t trust your hunches all the time. . Be a business person. Do that, and you will very likely be drinking old Coke for a long time.