One of the largest and most dynamic global markets is that for Cola-flavoured carbonated

beverages. Internationally this market is dominated by two brands – Coca-Cola and Pepsi-Cola – and
recent years have seen a continuous battle between the two brands as Pepsi seeks to wrest supremacy
from Coke.
By the mid-1970s Coca-Cola had become an American institution and, despite the efforts of
its arch-rival Pepsi, outsold them by 2 to 1. Coca-Cola’s formulation had not been changed in 99 years
and its bottle shape had remained the same since 1916. Generations of Americans had been brought
up with Coke and it had become an integral part of the American psyche. More than that, world-wide
Coca-Cola is perceived as a drink that symbolizes many American values – dynamism, ambition,
drive, modernity, entrepreneurship and a product which unifies the country as it targets the whole
population regardless of nationality, age or social class.
But as Levitt demonstrated so vividly in his “Marketing Myopia” (1960), success can breed
complacency and inertia, and between 1976 and 1979 Coca-Cola’s annual growth rate dropped from
an average of 13% to 2%. Much of this lost momentum was due to inroads made by Pepsi in what
subsequently came to be known as “the Cola wars”.
As is the case with many highly competitive markets there was little objective difference
between the products of Coca-Cola and Pepsi-Cola. Such differences as were seen to exist between
the two products depended very much upon marketing and particularly on distribution and promotion.
Thus, much of Coca-Cola’s difficulties in the late 1970s can be explained by the particularly effective
advertising campaign which Pepsi targeted at the idealism and youth of the baby-boomers which they
identified with as “the Pepsi generation”.
The success of “the Pepsi generation” which linked the image of Pepsi strongly with youth
and vitality was strongly reinforced by Pepsi featuring comparative taste tests in its advertising which
showed that in blind taste tests more consumers chose Pepsi than Coca-Cola. As a result of the Pepsi
challenge Pepsi’s market share increased from 6% to 14% of the total US soft drink market. In
addition to its more effective advertising Pepsi had also chosen to attack Coca-Cola in grocery store
market where Coke was at its weakest. By 1984 Pepsi had reduced Coca-Cola’s overall lead in market
share to only 2.9% whilst in grocery store market it led Coke by 1.7%.
It was in the light of the erosion of its market share and the confirmation from its own blind
taste tests that, indeed, consumers did prefer Pepsi that Coca-Cola was prompted to launch a new
product.
In April 1985 Robert Goizuetta, Chairman of Coca-Cola, announced “The best has been made
even better”. After offering the same formulation for 99 years New Coke had been developed with a
sweeter and softer taste much closer to that of Pepsi, which their own blind taste tests had proved to
be the most preferred offering.
Contrary to expectations the launch of New Coke created an immediate backlash from
existing customers. Over 5000 calls a day from dissatisfied customers were registered on the
company’s free phone number whilst consumers demonstrated in the streets of Atlanta calling for the
return of the original Coca-Cola brand. Seventy-nine days after its launch New Coke was withdrawn
from the market and disappeared for ever.
Having spent two years and $4 million on market research one would have imagined that
Coca-Cola might reasonably have expected New Coke to be a success. In face of the enormous
groundswell of public opinion Coca-Cola was forced to bring “Old Coke” back under the name
“Coca-Cola Classic”. As a result of the relaunch of the original product Coca-Cola enjoyed the
biggest one-year rise in sales ever so that despite the failure of New Coke, at the end of the year Coca-
Cola had once again restored its supremacy over Pepsi-Cola.