Assignment 2

COCA COLA
Consumer attitudes are very Important to Coca-Cola, the world’s largest marketer of soft
drinks (2002 sales of $18 billion cases worldwide). Coca-Cola is perhaps the best known brand
name in the world. According to Warren Buffett, the largest holder of Coca-Cola stock, “This is
fundamentally the best large business in the world. [The product] sells for a moderate price. It’s
universally liked. The per capita consumption goes up almost every year in every country. There
is not another product like it.”

Coca-Cola receives about 80 percent of its operating income ($8.6 billion in 1992) from
overseas markets. Once a big American company with a substantial foreign market, Coca-Cola
now is a huge international company with a substantial market in the United States. What are
consumers’ attitudes toward Coke in foreign markets? Consumers’ attitudes toward the Coke
brand and Coca-Cola company tend to be most favorable in countries whose culture differs
considerably from America’s. In many of these countries—especially those in the former
communist world—Coke is an icon of American culture and a symbol of a market economy. For
instance, Polish consumers’ attitudes toward Coca-Cola were so positive that a crowd gathered
and spontaneously broke into applause when the first Coke delivery truck came down the street.
Brand attitudes like these are why Coca-Cola held a 45 percent share of the world market for soft
drinks in 1992. (Although Coke and Pepsi are closely matched in the United States, Coke
outsells Pepsi by a 4-to-1 margin elsewhere in the world.) Coca-Cola’s goal was to achieve a 50
percent market share.

It seems consumers everywhere like the product (cola soft drinks) and the Coca-Cola
brand. And those positive brand attitudes seem to influence consumers’ behavior. In the United
States, where attitudes toward the Coke brand are positive, the per capita consumption of Coke
products in the early 1990s was 296. This means, on average, every person in the United States
drank 296 8-ounce servings of Coca-Cola products per year! Could this level of consumption go
even higher? Elsewhere around the world, there was substantial room for growth. In 1992,
Austria had a per capita consumption of 150 Coke servings per year, compared to 83 in Hungary
and only 8 in Romania. Consumption in Iceland was inexplicably high at 397 servings, and
consumption was even higher in American Samoa at 500 servings per year.

Over the past 20 or so years, Coca-Cola has had many occasions to pay special
attention to the attitudes of U.S. consumers. In July 1982, Coca-Cola did the unthinkable (at that
time) and introduced a new brand called Diet Coke. Several executives feared “diluting” the
Coca-Cola brand name and perhaps reducing favorable consumer attitudes toward the flagship
brand. This did not occur, however. Diet Coke became one of the most successful new products
of the 1980s. By 1984 it had displaced 7UP to become the third most popular soft drink (after
Coca-Cola and Pepsi). Thereafter the company rapidly introduced decaffeinated versions of
Coca-Cola, Diet Coke, and Tab. But these successes were overshadowed by a highly
controversial marketing decision.

In the spring of 1985, chairman Roberto Goizueta announced a new brand with an
improved taste, to be called “Coke.” He also reported that the original Coca-Cola brand would be
retired permanently. The original formula with its secret ingredient (Merchandise 7X) was to be
locked in a bank vault in Atlanta, never to be used again. New Coke was to permanently replace
the 99-year-old Coca-Cola brand. Goizueta called the new product the most significant soft-drink
development in the company’s history. Americans got their first taste of the new Coke in late
April 1985. By July, the company reversed its earlier decision and announced that the original
brand (and formula) was coming back under the brand name Coca-Cola Classic. New Coke was
one of the most embarrassing new-product launches ever because the company failed to
understand consumers’ strong positive attitudes toward the original Coca-Cola brand.

The positive attitudes and beliefs that kept Coca-Cola consumers buying the brand
over and over again are the basis of brand loyalty. Brand loyalty usually begins to develop when
consumers acquire positive attitudes based on beliefs about desirable product attributes and
functional benefits (Coca-Cola is sweet, carbonated, or refreshing). After the brand has been
around for a while, it can accumulate “extra” meanings through consumers’ experiences in
consuming the product. Some of these meanings can be highly emotional and self relevant if the
brand becomes associated with consumers’ lifestyles and self-images.

In the case of Coca-Cola, many brand-loyal users associated the brand with fond
memories of days gone by. When the company announced that it was replacing the original
Coca-Cola brand, these consumers reacted as if they had lost an old friend. They inundated
company headquarters with protests. One group in Seattle threatened to sue the company. Then,
when June sales of new Coke didn’t pick up, the company hastily brought back the original
brand, renamed Coca-Cola Classic.

The decision to retire the old Coca-Cola formula had been very carefully researched.
Managers thought they had covered every angle, especially taste characteristics. Coca-Cola had
spent more than $4 million on many different taste tests of the new flavor, involving 200,000
consumers in some 25 cities. These tests revealed that more people preferred the new, sweeter
flavor to the old (about 55 percent to 45 percent). But this research didn’t measure everything.
“All the time and money and skill poured into consumer research on the new Coca-Cola could
not measure or reveal the deep and abiding emotional attachment to original Coca-Cola,” Donald
Keough, president of Coca-Cola, said later. A company spokesperson put it this way: “We had
taken away more than the product Coca-Cola. We had taken away a little part of them and their
past. They said, ‘You have no right to do that. Bring it back.’” So Coca-Cola did.

In 1994, Coke Classic was the leading brand in the United States with 20.4 percent
market share (by volume); Pepsi had 17.8 percent; and New Coke, now called Coke II, had a tiny
0.1 percent. But Coca-Cola learned several valuable lessons from the New Coke fiasco,
including the amount of equity associated with the Coke name.

The highly positive meanings and feelings many consumers have for Coca-Cola
constitute its “brand equity.” Brand equity concerns the meanings that attract consumers to the
brand and underlie positive attitudes toward it. The 1985 fiasco with New Coke clearly showed
that Coca-Cola has a powerful brand equity with its customers. Managers at Coca-Cola have
used this equity to develop new brands, most of which have been successful. Most of these new
brands are “line extensions,” minor variations of the original brand. For instance, the Coca-Cola
section of a supermarket shelf might include Coca-Cola Classic, Caffeine-Free Coca-Cola
Classic, Diet Coke, Caffeine-Free Diet Coke, Cherry, Lemon, and Vanilla Coke, and others.

In the 1990s, Coca-Cola managed brand equity and consumer attitudes with a variety
of strategies. In 1995 it acquired brand equity by purchasing the Barq brand of root beer. Coca-
Cola attempted to create brand equity through new-product development by launching a flotilla
of new flavors for its Fruitopia and Nestea brands. It tried to enhance brand equity for Sprite by
using more dynamic graphics on the package. Coca-Cola attempted to borrow brand equity
through its sponsorship of the 1996 Summer Olympics, held in Atlanta (location of world
headquarters). Finally, and most significantly, Coca-Cola attempted to reactivate brand equity by
introducing new packages for Coke Classic that revived the vintage contour bottle. According to
Goizueta, introducing the contour bottle throughout the world was the single most effective
differentiation effort in the soft-drink industry for years.

Coca-Cola is the most popular beverage brand in North America and the rest of the
world. For instance, Diet Coke and its variants own more than a 55 percent share of the diet soft
drink market in North America. As further growth becomes increasingly difficult, Coke is
focusing on “niche markets” by creating new versions of Coke to sell to narrowly defined
demographic segments.

Currently Coke offers four different varieties of no-calories sodas—original Diet Coke,
Diet Coke with Splenda, Coca-Cola Zero, and TAB. Coke believes that the new Coke Zero will
be popular among young men who don’t like to drink something “diet.” Classic Diet Coke is
marketed to those in their late twenties to early thirties, while Diet Coke with Splenda is
marketed to an even older demographic, those 30 to 40. TAB, Coke’s iconic brand, is not
advertised at all and survives by the brand loyalty of aging baby boomers. Recently, Coke
introduced a completely new and different brand to the Coca-Cola lineup—Coke BlaK. This
low-cal coffee inspired soda is targeted to consumers who want a more sophisticated drinking
experience.

Since its blunder in the 1980s, Coca-Cola has been extremely careful not to impinge on
its loyalty base. But some believe that Coke is slowly cannibalizing its core brands by offering
too many choices for consumers, thus creating brand confusion. Consumers no longer have the
simple decision of choosing Coca-Cola Classic or Diet Coke—now they are faced with many
flavor options.

Soda sales are down for the first time in 20 years while energy drinks are becoming
increasingly popular. Some believe that Americans are looking for healthy alternatives. Soda is
seen as a cause of the childhood obesity epidemic while bottled water is increasing in sales
revenue. Even diet sodas aren’t performing as expected. Experts are now noticing a changing
attitude about diet soda. Many consumers simply don’t believe that the low-cal beverages and
artificial sweeteners are healthy. However, some consumers do believe that energy drinks are
lower in sugar and calories, so they are turning to them instead of traditional soda.

Some marketers argue that consumers want variety in their soft drinks and attribute the
decline in overall soft drink sales to consumer boredom with the current offerings on the shelf. If
consumers are asked it they want more Coke choices, most would respond yes. What do you
think about Coke’s proliferation of soft drink choices?

Discussion Questions
1. Discuss the attitudes and related beliefs toward Coca-Cola of intensely brand-loyal
consumers (perhaps like those who were upset by the New Coke in 1985). How
might their attitudes and beliefs differ from those of less involved, less loyal
consumers? What marketing implications would these differences have?
2. Do you think it possible for consumers to be loyal to more than one brand of soft
drink? What about more than one brand of cola? Discuss the pros and cons of
having several brands in a product category (as do Coca-Cola and Pepsi in the cola
category). Compare the strategy of line extension to that of creating completely
distinct brands for these products. What factors should marketers consider in
making this important decision?
 Possibility of Consumer Loyalty to more than One Brand of Soft Drink:
It’s not possible for consumers to be loyal to more than one brand of soft drink. If a
consumer is loyal to Coca-Cola they would go without a soft drink before they purchase
Pepsi, rather they will choose water as an alternative.
 Loyalty to more than one brand of Cola:
One can be loyal to more than one brand of Cola. If a consumer is loyal to Coke, they
may also enjoy Cherry Coke and Coke Vanilla. On the whole, they will still be loyal to
Coke products.
 Pros and Cons of Line extension:
Variety is something that different generations enjoy. An older consumer may prefer only
a Classic Coke whereas a younger consumer may decide to have a Coke zero while they
are dieting. Another thing being that having the same category may allow consumers the
 opportunity to decide the product they prefer the most which gives them choice. It also
gives the company an opportunity to expand and gain a bigger market share.
Cons include that a brand may cannibalize on its own market equity and the chances of
making a blunder are higher as in case of “New Coke”.
 Important factors to consider:

While making important decisions marketers should keep in mind the emotional,
nostalgic and psychological association of consumers with the brand as hampering or
tinkering with the association can result in a disaster for the brand loyalty and image. The
same happened at the launch of the “New Coke” which was immediately rejected by the
consumers although all the indicators were in favor of launching the “New Coke”.

Many marketers made a distinction between customers and consumers. For

instance, Coca-Cola sells cola syrup directly to its customers, the operators of
bottling plants. The bottlers sell bottled Coke products to retailers, vending machine
operators, restaurants, airlines, and so forth. Those organizations, in turn, sell
Coca-Cola products to individual consumers who drink it. Discuss how the salient
beliefs about Coke products might differ for customers and consumers. How might
their attitudes toward Coke differ? Who should Coca-Cola pay more attention to—
its customers or the consumer? Why?
3. Discuss Coca-Cola’s various strategies for managing brand equity of its many
products. For instance, what are the pros and cons of borrowing versus creating
brand equity? Analyze Coke’s attempt to “revive” brand equity by reintroducing
the contour bottle around the world.
4. What is your opinion about the effects on consumer attitudes and intentions of
Coca-Cola’s proliferation of choice alternatives? Why do you think so?