New Coke: A Product Manager Campfire Story

by drjim on July 13, 2009

Customers Said That They Liked New Coke Better, What Went Wrong?

Customers Said That They Liked New Coke Better, What Went Wrong?

In the world of product managers there are a few stories that the old hands talk about when they get together. The product failures, the flubs, and the downright fiascos that have grown into legends that are now only mentioned in hushed tones when a  product manger is trying to kill a product idea that he / she knows will doom a product. One such story is the tale of New Coke.

What Was New Coke?

You young whipper-snapper product managers out there might not be familiar with the story of New Coke, so we probably should go all the way back to the beginning – April 23, 1985.

The Coca-Cola company had a problem back in the early 1980’s: people were telling Coke that they liked the sweeter taste of Pepsi better than the taste of Coke. Being a careful company who didn’t like to rush into anything, Coke spent the years from 1981 to 1984 taste testing both a new and the old formulas of Coke. They ended up doing this over 200,000 times in 25 different cities.

What Coke’s Customers Told Them

The results of the taste tests were very clear to Coke’s product managers: 55% of the people tested preferred the taste of New Coke over the old formula. You might think that people made this selection because they didn’t know what they were drinking. However, the product managers at Coke thought of this also – in the taste tests that they performed where the person knew which sample was New Coke and which was the old formula, people’s preference for New Coke shot up by an additional 6%!

What Happened When New Coke Was Introduced?

On April 23, 1985 Coke announced that they were going to stop making Coke using the old formula and from then on only make New Coke. Boom! The world blew up overnight – at least in terms of Coke drinkers. People overwhelmed Coke’s customer support phone lines by calling to complain, they filed lawsuits to stop the switchover (which got dismissed), they said that they’d never buy Coke again, etc. Clearly the Coke product managers had made a huge mistake…

What Did Coke Do Wrong? (The Scarcity Principle)

So what did Coke do wrong here? Simple – they forgot about The Scarcity Principle. During those taste tests where people knew which sample was New Coke and which was the old formula, they also knew that they couldn’t get New Coke at that time and so they naturally showed a stronger preference for what they couldn’t have.

Coke probably thought that the 6% increase in desire for New Coke when people knew which sample was which meant that customers had a higher desire for something new. However, they were wrong.

When Coke replaced the old formula with New Coke, what happened is that people’s desire for the old formula shot up because now it was the thing that they could no longer have. That’s what caused the riots.

Final Thoughts

One of the best-supported findings in social science is that customers are more sensitive to possible losses than to possible gains. In this case, when Coke announced that they were going to stop making old formula Coke, this was a much bigger deal to Coke drinkers than the general availability of New Coke.

Product managers spend a lot of time listing out all of the benefits of their new products in the hopes of capturing new customers or getting existing customers to trade up. We all need to learn from the story of New Coke that sometimes our customers may have become so attached to our existing product that possibility of losing their existing product far outweighs the benefits of our new product. Being aware of this is how great product managers make their product(s) fantastically successful.

Questions For You

When you ask your customers if they’d be willing to upgrade to a new version of your product, do they tell you that they would? When you introduce the new version of your product do they follow through and upgrade? If a feature gets dropped in an upgraded version of your product do your customers complain louder than if you don’t deliver a promised feature? Leave me a comment and let me know what you are thinking.

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What We’ll Be Talking About Next Time

In the current tough economic times we are all feeling the pressure to keep sales of our product either at current levels or to boost them in order to make up for shortfalls in other parts of the company. When  you step back for a moment and realize that our customers, both current and potential, are also feeling the squeeze of tight times, how will a product manager pull off this magic trick…?

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