THE NEW COKE: A CASE STUDY IN INTELLIGENCE GATHERING
Finally, the FBI’s information systems were woefully inadequate. The FBI lacked the ability to know what it knew: there was no effective mechanism for capturing or sharing its institutional knowledge. FBI agents did create records of interviews and other investigative efforts, but there were no reports officers to condense the information into meaningful intelligence that could be retrieved and disseminated
9/11 Commission report: page 77
“The right information at the right time is 9/10 of any battle”
Science is built up with facts, as a house is with stones. But a collection of facts is no more a science than a heap of stones is a house.
Henri Poincaré La Science et l'hypothèse.
Once issues are properly framed, we move the second step of our decision making process – gathering intelligence.
Intelligence gathering involves seeking both the knowable facts and the reasonable estimates of “unknowables” that you will need to make decisions.To set up an effective intelligence gathering system, we ask clients to agree to the following principles:
Information is factual -- Intelligence, on the other hand, is a collection of information pieces that have been filtered, distilled, and analyzed.
Intelligence, not information, is what managers need to make decisions -- Another word for intelligence is knowledge.
Information has become a commodity -- Intelligence is the most important source of competitive advantage today.
In the early 1980s, executives at Coca-Cola, the perennial market leader in carbonated beverages, became alarmed at the increasing market share of their eternal rival, Pepsi.Pepsi was using their considerable advertising budget to tout “the Pepsi Challenge,” a blind taste test by which customers were, they claimed, choosing Pepsi over Coke.Pepsi’s message about being the better tasting product was being reinforced with the slogan “taste that beats the others cold.”Privately, Coca-Cola was conducting its own scientifically controlled taste tests, and were surprised to find that in a blind test, customers did indeed choose their rivals product more often than not.
Playing defense, Coke put its crack product development group to work and came up with a new formula for their flagship product.Cognizant they were toying with an established brand and precious and widely beloved 99 year old recipe, the executives at Coke insisted on careful and exhaustive homework.Coke allotted a four million dollar budget and performed interviews or tests with some 200,000 customers.The findings of this research were exciting for the executives at Coke.These randomly chosen customers chose new formula over Pepsi in blind taste tests.They also chose the new product over the old Coke formula by 55% to 45%.Moreover, loyal Coke drinkers chose it over the old Coke formula by 53% to 47%.Research showed that the new formula was unquestionably more palatable to customers than the old, and looked to be a winner in the wars with Pepsi.
This product was released in 1985 as the “New Coke.”Initially, the new product was well received by the market, and the media buzz about Coke’s new entry even created a bump in sales and market share.Within weeks, though, the zeitgeist turned sour on the Coca-Cola company.An increasing number of news stories featured customers of the old product fussing about the change.Rallies and boycotts were staged by suddenly militant Coke loyalists.(Just imagine the scene had this happened in the day of internet rumor, spam and bloggers!)Market studies showed that the average consumer, who had been positive about the new product during initial queries, was increasingly dissatisfied.
After 87 days of negative press and a surprising degree of water cooler discussion, Coke announced that it would “bring back” the old formula and call it “Classic Coke.”Senator David Pryor (D-Ark), breaking the news to the Unites States Senate, called the renaissance of the old recipe product “a very meaningful moment in the history of America.”Sales of the Coke Classic soon surpassed the rapidly declining sales of New Coke.Eventually, the new product was quietly removed from the market and, eventually all was forgotten, with Coca-Cola returning to its traditional perch at the top of the market share ranking.
Indeed, Coca-Cola did learn and grow from the New Coke incident.But what can the rest of us glean from the experience.How could a company like Coca-Cola make such a blunder?How did their extensive market research fail them?
Over the years, strategy pundits have proffered two explanations, both of which are instructive.First, some flaws have been detected in Coke’s research methods.Apparently, taste tests do not account for the entire customer experience with the product.It turns out that in the artificial situation of a “taste test,” people will generally choose the sweeter product as the “tastier.”Drinking an entire can or bottle, however is a different encounter with the product than the first few sips.In the event of this more complete experience, the edge to sweetness disappears.
The second flaw in Coke’s market research was that they piloted the momentary experience of a single encounter with a serving of the beverage.They did not, obviously, pilot the product in a consumer environment in which the news and public media were constantly reminding the public that they were no longer drinking the “real thing.”Given the opportunity to vote with their purchases, customers reasserted their loyalty to the more comfortable, original product.People are indeed, it seems, influenced by the ramblings of the mass media.
A third explanation for failed market research is that often, customers simply do not know how they will respond in a free market situation, and the opinions that they offer in one-on-one interviews or focus groups are worthy of suspicion.For example, McDonalds created its short-lived McLean Deluxe sandwich in response to customers’ assertion that they wanted a healthier meal. Similarly, Kentucky Fried Chicken had to discontinue its skinless chicken offering despite consumers’ promise that they wanted the product.
Though it was market research itself that failed Coca-Cola, the importance of gathering intelligence is reinforced.Strategic decisions must be made in an “information-rich” environment.