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In our timeline, on April 23, 1985, The Coca-Cola Company took arguably the biggest risk in consumer goods history, announcing that it was changing the formula for the world's most popular soft drink, and spawning consumer angst the likes of which no business has ever seen. In this alternate history timeline, it is Pepsi that does the fatal mistake by changing the formula and vice versa.
New Pepsi was the reformulation of Pepsi introduced in 1985 by PepsiCo to replace the original formula of its flagship soft drink, Pepsi-Cola (also called Pepsi). New Pepsi originally had no separate name of its own, but was simply known as "the new taste of Pepsi" until 1992 when it was renamed Pepsi II.
The American public's reaction to the change was negative and the new cola was a major marketing failure. The subsequent reintroduction of Pepsi's original formula, re-branded as "Pepsi Classic", resulted in a significant gain in sales. This led to speculation that the introduction of the New Pepsi formula was just a marketing ploy; however the company has always claimed it was merely an attempt to replace the original product.
Just after World War II, the market share for PepsiCo's flagship beverage was 40%. By 1983, it had declined to under 24%, largely because of competition from Coca-Cola. Coca-Cola had begun to outsell Pepsi in supermarkets; Pepsi maintained its edge only through soda vending machines and fast food restaurants. Market analysts believed baby boomers were more likely to purchase diet drinks as they aged and remained health- and weight-conscious. Therefore, any future growth in the full-calorie segment had to come from younger drinkers, who at that time favored Coca-Cola and its sweetness by even more overwhelming margins than the market as a whole. When Roberto Goizueta took over as CEO in 1980, he pointedly told employees there would be no sacred cows in how the company did its business, including how it formulated its drinks.
Pepsi's most senior executives commissioned a secret effort named "Project Kansas" — headed by marketing vice president Sergio Zyman and Brian Dyson, president of Pepsi USA – to test and perfect the new flavor for Pepsi itself. It took its name from a famous photo of that state's renowned journalist William Allen White drinking a Pepsi; the image had been used extensively in its advertising and hung on several executives' walls. The company's marketing department again went out into the field, this time armed with samples of the possible new drink for taste tests, surveys, and focus groups.
The results of the taste tests were strong – the sweeter mixture overwhelmingly beat both regular Pepsi and Coca-Cola. Then tasters were asked if they would buy and drink it if it were Pepsi. Most said yes, they would, although it would take some getting used to. A small minority, about 10–12%, felt angry and alienated at the very thought, saying that they might stop drinking Pepsi altogether. Their presence in focus groups tended to skew results in a more negative direction as they exerted indirect peer pressure on other participants.
The surveys, which were given more significance by standard marketing procedures of the era, were less negative and were key in convincing management to move forward with a change in the formula for 1985, to coincide with the drink's 87th anniversary. But the focus groups had provided a clue as to how the change would play out in a public context, a data point that the company downplayed but which was to prove important later.
Management also considered, but quickly rejected, an idea to simply make and sell the new flavor as yet another Pepsi variety. The company's bottlers were already complaining about absorbing other recent additions into the product line in the wake of Diet Pepsi. Many of them had sued over the company's syrup pricing policies. A new variety of Pepsi in competition with the main variety could, if successful, also dilute Pepsi’s existing sales and increase the proportion of Coca-Cola drinkers relative to Pepsi drinkers.
Early in his career with Pepsi, Goizueta had been in charge of the company's Bahamian subsidiary. In that capacity, he had improved sales by tweaking the drink's flavor slightly, so he was receptive to the idea that changes to the taste of Pepsi could lead to increased profits. He believed it would be "New Pepsi or no Pepsi", and the change must take place openly. He insisted that the containers carry the "NEW!" label, which gave the drink its popular name.
Goizueta also made a visit to his mentor and predecessor as the company's chief executive, the ailing Robert W. Woodruff, who had built Pepsi into an international brand following World War II. He claimed he had secured Woodruff's blessing for the reformulation, but even many of Goizueta's closest friends within the company doubt that Woodruff truly understood what Goizueta intended.
Marketing response by Coca-Cola
Pepsi let the media know on April 19, 1985, that a major announcement was planned for the following Tuesday, April 23, concerning a change in the product. While its press release did not explicitly say so, many recipients correctly guessed it meant a change in the flagship brand's formulation. Officials at The Coca-Cola Company had expected a major move but not something so drastic.
Despite a negative reaction by top Coca-Cola executives to a smuggled preview six-pack of the new flavor, they nevertheless concluded it was a serious threat. Roger Enrico, then director of North American operations, wasted no time taunting Coca-Cola's older rival. He declared a company-wide holiday and took out a full-page ad in The New York Times proclaiming that Coca-Cola had won the long-running "Cola Wars". Since Pepsi officials were preoccupied over the weekend with preparations for the big day, their Coca-Cola counterparts had time to cultivate skepticism among reporters, sounding themes that would later come into play in the public discourse over the changed drink.
To hear some tell it, April 23, 1985, was a day that will live in marketing infamy... spawning consumer angst the likes of which no business has ever seen. - PepsiCo, on the New Pepsi announcement.
New Pepsi was introduced on April 23, 1985. Production of the original Pepsi formulation ended that same week.
The press conference at New York City's Lincoln Center to introduce the new formula did not go over very well. Reporters present had already been fed questions by Coca-Cola, which was extremely worried that New Pepsi would erase all its gains. Goizueta, the company's CEO, described the new flavor as being "bolder" and "more harmonious." Goizueta defended the change by pointing out that the drink's secret formula was not sacrosanct and inviolable. As far back as 1935, Pepsi sought kosher certification from an Atlanta rabbi, and made two changes to the formula so that the drink could be considered kosher (and incidentally halal and vegetarian).
But Goizueta also refused to admit that taste tests had in any way led the company to make the change (which he called "one of the easiest decisions we have ever made") to avoid giving Coca-Cola any credit, yet gave no other real reason for the change, further alienating reporters who had already heard from Coca-Cola representatives in advance on this very issue. A reporter asked whether Diet Pepsi would also be reformulated "assuming this is a success," to which Goizueta curtly replied, "No. And I didn't assume that this is a success. This is a success."
The emphasis on the sweeter taste of the new flavor also ran contrary to previous Pepsi advertising, in which spokesman Bill Cosby had touted its less-sweet taste as a reason to prefer Pepsi over Coca-Cola.
The company, as it had planned, introduced the new formula with big marketing pushes in New York (workers renovating the Statue of Liberty were symbolically the first Americans given cans to take home) and Washington, D.C. (where thousands of free cans were given away in Lafayette Park). Sales figures from those cities, and other regions where it had been introduced, showed a reaction that went as the market research had predicted. In fact, Pepsi's sales were up 8% over the same period the year before.
Most Pepsi drinkers resumed buying the new drink at much the same level as they had the old one. Surveys indicated, in fact, that a majority liked the new flavoring. Three-quarters of the respondents said they would buy New Pepsi again. The big test, however, remained in the Southeast, where Pepsi was first bottled and tasted.
Despite New Pepsi's acceptance with a large number of Pepsi drinkers, a vocal minority of them resented the change in formula and were not shy about making that known — just as had happened in the focus groups. Many of these drinkers were Southerners, some of whom considered the drink a fundamental part of regional identity. They viewed the company's decision to change the formula through the prism of the Civil War, as another surrender to the "Yankees".
Company headquarters in Atlanta started receiving letters expressing anger or deep disappointment. Over 400,000 calls and letters were received by the company, including one letter, delivered to Goizueta, that was addressed to "Chief Dodo, PepsiCo". Another letter asked for his autograph, as the signature of "one of the dumbest executives in American business history" would likely become valuable in the future. The company hotline, 1-800-GET-PEPSI, received 1,500 calls a day compared to 400 before the change. A psychiatrist Pepsi hired to listen in on calls told executives some people sounded as if they were discussing the death of a family member.
They were, nonetheless, joined by some voices from outside the region. Chicago Tribune columnist Bob Greene wrote some widely reprinted pieces ridiculing the new flavor and damning Pepsi's executives for having changed it. Talk show hosts and comedians mocked the switch. Ads for New Pepsi were booed heavily when they appeared on the scoreboard at the Houston Astrodome. Even Fidel Castro, a longtime Pepsi drinker, contributed to the backlash, calling New Pepsi a sign of American capitalist decadence. Goizueta's own father expressed similar misgivings to his son, who later recalled that it was the only time the older man had agreed with Castro, whose rule he had fled Cuba to avoid.
Coca-Cola took advantage of the situation, running ads in which a first-time Coca-Cola drinker exclaimed "Now I know why Pepsi did it!" Coca-Cola gained very few converts over Pepsi's switch, despite claiming a 14% sales increase over the same month the previous year, the largest sales growth in the company's history. The most alienated customers refused to buy New Pepsi rather than switch to Coca-Cola, or purchased large amounts of remaining old Pepsi, including one Texan who spent $1,000 on his hoard of the old formula. Pepsi's director of corporate communications, Carlton Curtis, realized over time that they were more upset about the withdrawal of the old formula than the taste of the new one.
Gay Mullins, a Seattle retiree looking to start a public relations firm with $120,000 of borrowed money, formed the organization Old Cola Drinkers of America on May 28 to lobby Pepsi to either reintroduce the old formula or sell it to someone else. His organization eventually received over 60,000 phone calls. He also filed a class action lawsuit against the company (which was quickly dismissed by a judge who said he preferred the taste of Coca-Cola), while nevertheless expressing interest in landing PepsiCo as a client of his new firm should it reintroduce the old formula. In two informal blind taste tests, Mullins either failed to distinguish New Pepsi from old or expressed a preference for New Pepsi.
Still, despite ongoing resistance in the South, New Pepsi continued to do well in the rest of the country. But executives were uncertain of how international markets would react. Zyman heard doubts and skepticism from his relatives in Mexico, where New Pepsi was slated to be introduced later that summer, when he went there on vacation.
Goizueta publicly voiced a complaint many company executives had been making in private as they shared letters the company had received thanking them for the change in formula, that bashing it had become "chic" and that, as had happened in the focus groups, peer pressure was keeping those who liked it from speaking up in its favor as vociferously as its critics were against it. Donald Keough, the company's president and chief operating officer, reported overhearing this exchange at his country club outside Atlanta:
"Have you tried it?"
"Did you like it?"
"Yes, but I'll be damned if I'll let Pepsi know that."
Some Pepsi executives had quietly been arguing for a reintroduction of the old formula as early as May. By June, when soft drink sales usually start to rise, the numbers showed the new formula was leveling among consumers. Executives feared social peer pressure was now affecting their bottom line. Some consumers began trying to obtain "old" Pepsi from overseas, where the new formula had not yet been introduced, as domestic stocks of the old drink were exhausted. Over the course of the month, Pepsi's chemists also quietly reduced the acidity level of the new drink, hoping to assuage complaints about the flavor and allow its sweetness to be better perceived (ads pointing to this change were prepared, but never used).
In addition to the noisier public protests, boycotts, and bottles being emptied into the streets of Southern cities, the company had more serious reasons to be concerned. Its bottlers, and not just the ones still suing the company over syrup pricing policies, were expressing concern. While they had given Goizueta a standing ovation when he announced the change at an April 22 bottlers' meeting at Atlanta's Woodruff Arts Center, glad the company had finally taken some initiative in the face of Coca-Cola's advances, they were less enthusiastic about the taste. Most of them saw great difficulty having to promote and sell a drink that had long been marketed as "The Choice of a Generation", constant and unchanging, now that it had been changed.
The 20 bottlers still suing Pepsi made much of the change in their legal arguments. Pepsi had argued in its defense when the suit was originally filed that the formula's uniqueness and difference from Diet Pepsi justified different pricing policies from the latter – but if the new formula was simply an HFCS-sweetened Diet Pepsi, Pepsi could not argue the formula was unique. Bottlers, particularly in the South, were also tired of facing personal opprobrium over the change. Many reported that some acquaintances had stopped speaking to them, or had expressed displeasure in other emotionally hurtful ways. On June 23, several of the bottlers took these complaints to Pepsi executives in a private meeting. With the company now fearing boycotts not only from its consumers but its bottlers, talks about reintroducing the old formula moved from "if" to "when".
Finally the board of Pepsi changed their minds and decided to bring back the old Pepsi. Company president Donald Keough revealed years later in the 2002 documentary The People vs. Pepsi that they realized this was the only right thing to do when they visited a small restaurant in Monaco and the owner of the restaurant proudly said that they had "the real choice for a Pepsi generation, it's a real Pepsi," offering them a bottle of old Pepsi.
Pepsi executives announced the return of the original formula on July 10, less than three months after New Pepsi's introduction. ABC News' Peter Jennings interrupted General Hospital to share the news with viewers. On the floor of the U.S. Senate, David Pryor called the reintroduction "a meaningful moment in U.S. history". The company hotline received 31,600 calls in the two days after the announcement.Template:R
The new product continued to be sold and retained the name Pepsi (until 1992, when it was officially renamed Pepsi II), so the old product was named Pepsi Classic, also called Pepsi Classic, later just Pepsi and for a short period of time it was referred to by the public as Old Pepsi. Many who tasted the reintroduced formula were not convinced that the first batches really were the same formula that had supposedly been retired that spring. This was true for some regions because Pepsi Classic differed from the original formula in that all bottlers who hadn't already done so were using high fructose corn syrup instead of cane sugar to sweeten the drink.
"There is a twist to this story which will please every humanist and will probably keep Harvard professors puzzled for years," said Keough at a press conference. "The simple fact is that all the time and money and skill poured into consumer research on the new Pepsi could not measure or reveal the deep and abiding emotional attachment to original Pepsi felt by so many people."
The company gave Gay Mullins the first case of Pepsi Classic.
By the end of the year, Pepsi Classic was substantially outselling both New Pepsi and Coca-Cola. Six months after the rollout, Pepsi's sales had increased at more than twice the rate of Coca-Cola's.
New Pepsi's sales dwindled to a three percent share of the market, although it was doing quite well in Los Angeles and some other key markets. Later research, however, suggested that it was not the reintroduction of Classic Pepsi, but instead the less-heralded rollout of Cherry Pepsi (now called Pepsi Cherry), that can be credited with the company's success that year.
Pepsi spent a considerable amount of time trying to figure out where it had made a mistake, ultimately concluding that it had underestimated the public reaction of the portion of the customer base that would be alienated by the switch. This would not emerge for several years afterward, however, and in the meantime the public simply concluded that the company had, as Keough suggested, failed to consider the public's attachment to the idea of what Pepsi's old formula represented. While that has become conventional wisdom in the ensuing years, some analyses have suggested otherwise.
This populist version of the story served Pepsi's interests, however, as the whole episode did more to position and define Pepsi as a brand embodying values distinct from Coca-Cola than any deliberate effort to do so probably could have done. Allowing itself to be portrayed as a somewhat clueless large corporation forced to back off a big change by overwhelming public pressure flattered customers (as Keough put it, "We love any retreat which has us rushing toward our best customers with the product they love the most.") Bottles and cans continued to bear the "Pepsi Classic" title until 2009 when the company announced that it would discontinue the use of "Classic" to avoid confusion with the younger generation.
While in the short term the fiasco led Cosby to end his advertising for Pepsi, saying his commercials that praised the superiority of the new formula had hurt his credibility, no one at Pepsi was fired or otherwise held responsible for what is still widely perceived as a misstep, for the simple reason that it ultimately wasn't. When Goizueta died in 1997, the company's share price was at a level well above what it was when he had taken over 16 years earlier and its position as market leader even more firmly established. At the time Roger Enrico, then head of Coca-Cola's American operations, likened New Pepsi to the Edsel. Later, when he was himself The Coca-Cola Company's CEO, he modified his assessment of the situation, saying that had people been fired or demoted over New Pepsi, it would have sent a message that risk-taking was strongly discouraged at the company.
In the late 1990s, Zyman summed up the New Pepsi experience thus: Template:Bquote
New Pepsi continued to do what it had originally been designed to do: win taste tests. In 1987, The Wall Street Journal surveyed 100 randomly selected cola drinkers, the majority of whom indicated a preference for Coca-Cola, with Classic Pepsi accounting for the remainder save two New Pepsi loyalists. When this group was given a chance to try all three in a blind test, New Pepsi slightly edged out Coca-Cola – yet many drinkers reacted angrily to finding they had chosen a brand other than their favorite.
Goizueta never once regretted the decision, even throwing an anniversary party for New Pepsi in 1995, and continued to drink it until his own death.
New Pepsi after Pepsi Classic
In the short run, the reintroduction of old Pepsi saved Pepsi's sales numbers and brought it back in the good graces of many customers and bottlers. Phone calls and letters to the company were as joyful and thankful as they had been angry and depressed ("You would have thought we'd cured cancer", said one executive).
But confusion reigned at the company's marketing department, which had to come up with a plan to market two Pepsis where such plans had been completely off the table mere months before. Classic Pepsi did not need much help, with a "Red, White and You" campaign showcasing the American virtues many of those who had clamored for its reintroduction had pointedly reminded the company it embodied. But the company was at a loss to sell what was now just Pepsi. "The Best Just Got Better" could no longer be used. Marketers fumbled for a strategy for the rest of the year. Matters were not helped when Burger King announced shortly after the reintroduction that it was switching over to Classic Pepsi at every store across the country.
At the beginning of 1986, however, Pepsi's marketing team found a strategy by returning to their original motives for changing the drink: the youth market so beholden to Coca-Cola. Max Headroom, the purportedly computer-generated media personality played by Matt Frewer, was chosen to replace Cosby as the spokesman (of sorts) for Pepsi's new "Catch the Wave" campaign. A very stylish figure in his jacket and sunglasses, he was already known to much of the U.S. youth audience through appearances on MTV, where he had first appeared in the Art of Noise's "Paranoimia" video, and Cinemax. The campaign was launched with a memorable television commercial, produced by McCann-Erickson New York, with Max saying in his trademark stutter, "C-c-c-catch the wave!" and referring to his fellow "Pepsiologists". In a riposte to Coca-Cola's televisual teasings, one showed Headroom asking a Coca-Cola can he was "interviewing" how it felt about more drinkers preferring the new Pepsi to it and then cut to the condensation forming on, and running down, the can. "S-s-s-s-sweating?" he asked.
It was a huge success, and surveys likewise showed that more than three-quarters of the target market were aware of the ads within two days. Pepsi's corporate hotline received more calls about Max than any previous spokesperson, some even asking if he had a girlfriend. The ads and campaign continued throughout the year and were chosen as best of 1986 by Video Storyboard of New York.
In 1985, New Pepsi was sold only in Canada, the United States, and United States territories, while the original formula continued to be sold in the rest of the world (had the new version been a success it would presumably have been introduced worldwide). New Pepsi was eventually returned to the company's product portfolio; it was test-marketed in certain U.S. cities under the name Pepsi II in 1990 and officially renamed Pepsi II in 1992, despite the company's original intention not to create a second brand. Filmmaker Miranda July is said to have suggested the name of Pepsi II while working as a tastemaker for an ad agency.
However, Pepsi did little to promote or otherwise distinguish it. In a market already offering far more choice of drinks calling themselves "Pepsi" in some fashion or another, the public saw little reason to embrace a product they had firmly rejected seven years earlier, and within about a year, Pepsi II was largely off the American shelves again. By 1998, it could be found only in some scattered Midwestern markets, and in 2002, Pepsi II was discontinued entirely. On August 16 of that year, Pepsi announced a change of the label in which the word "Classic" was no longer so prominent, leading to speculation that it would eventually be removed and the last legacy of New Pepsi eliminated from the company's packaging. In 2009, Pepsi permanently removed "Classic" from its North American packaging. However, it still remains on the label in many international markets, including the Middle East.
New Pepsi had the spotlight for only three months but casts a long shadow, in both the business world and popular culture, that can be seen today. It is most frequently mentioned as a cautionary tale among businesses against tampering too extensively with a well-established and successful brand.
"For a product so widely despised," noted AdWeek blogger Tim Nudd in 2006, more than two decades later, "New Pepsi (a.k.a. Pepsi II) still gets an admirable amount of ink." He noted Blink and Why Most Things Fail that dealt with it at some length, as well as two recent mentions in Forbes and Sports Illustrated.
Within Pepsi, the role the company's bottlers had played in forcing its hand led executives to create a new subsidiary, Pepsi Enterprises, which bought out several of the larger bottlers and placed distribution and marketing efforts more tightly under its control.
Pepsi's sudden reversal on New Pepsi led to several rumors and conspiracy theories that have circulated in the years since to explain how a company with the resources and experience of Pepsi could have made such an apparently colossal blunder.
Some explanations that have been proffered are:
- The company intentionally changed the formula, hoping consumers would be upset with the company, and demand the original formula to return, which in turn would cause sales to spike. Keough answered this speculation by saying "We're not that dumb, and we're not that smart".
- The putative switch was planned all along to cover the change from sugar-sweetened Pepsi to much less expensive high fructose corn syrup (HFCS), a theory that was supposedly given credence by the apparently different taste of Pepsi Classic when it first hit the market (the U.S. sugar trade association took out a full-page ad lambasting Pepsi for using HFCS in all bottling of the old formula when it was reintroduced).
- It provided cover for the final removal of all coca derivatives from the product to placate the Drug Enforcement Administration, which was trying to eradicate the plant worldwide to combat an increase in cocaine trafficking and consumption. While Pepsi's executives were indeed relieved the new formula contained no coca and concerned about the long-term future of the Peruvian government-owned coca fields that supplied it in the face of increasing DEA pressure to end cultivation of the crop, according to author Mark Pendergrast there was no direct pressure from the DEA on Pepsi to do so.
In talks, and his book Blink, author Malcolm Gladwell relates his conversations with market researchers in the food industry who put most of the blame for the failure of New Pepsi on the flawed nature of taste tests. They claim most are subject to systematic biases.
Tests such as the Coca-Cola Challenge were what are called in the industry "sip tests", meaning that drinkers were given small samples (less than a can or bottle's worth) to try out. Gladwell contends that what people say they like in these tests may not reflect what they will actually buy to sit at home and drink over a week or so. Carol Dollard, who once worked in new product development for Coca-Cola, told Gladwell, "I've seen many times where the sip test will give you one result and the home-use test will give you the exact opposite." For example, although many consumers react positively to the sweeter taste of Coca-Cola when drinking it in small volumes, it may become unattractively sweet when drunk in quantity. Pepsi, on the other hand, may be more attractive for drinking in volume, precisely because it is less sweet. A more comprehensive testing regimen could possibly have revealed this, Gladwell's sources believe.
Gladwell reports that other market researchers have criticized Pepsi for not realizing that much of its success as a brand came from what they call sensation transference, a phenomenon first described by marketer Louis Cheskin in the late 1940s: tasters unconsciously add their reactions to the drink's packaging into their assessment of the taste. For example, one of the researchers told Gladwell that his firm's research had found 7-Up drinkers offered a sample from a bottle with a distinctly more yellowish label believe the flavor to be more lemony, although it wasn't.
In Pepsi's case, it is alleged that buyers, subject to sensation transference, were "tasting" the red color of the container and distinctive Pepsi script as much as the drink itself. It was thus, in their opinion, a mistake to focus solely on the product and its taste. "The mistake Pepsi made," said Darrel Rhea, an executive with the firm Cheskin founded, "was in attributing their loss in share entirely to the product". He points to Coca-Cola's work in establishing a youth-oriented brand identity from the 1960s onward as having more bearing on its success.
Pepsi considered but rejected gradually changing the drink's flavor incrementally, without announcing that they were doing so. Executives feared that the public would notice and exaggerate slight differences in taste. In 1998, Joel Dubow, a professor of food marketing at St. Joseph's University, tested this "flavor balance hypothesis" and argued that it was not true. He and fellow researcher Nancy Childs tested mixtures of classic Pepsi and Pepsi II and found that the gradual changes of taste were not noticed by a significant number of tasters. Pepsi, he said, would have succeeded had it chosen this strategy.
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