Contents
The story of New Coke is often told as a marketing blunder. It is more than that. Coca-Cola had tested thoroughly, and the tests were not wrong. They simply asked the wrong question. They measured whether people liked a new taste. They did not measure how people react when something they regard as their own is taken away from them. That is where Loss Aversion comes in.
A market leader under pressure
Situation
In the early 1980s, Coca-Cola was the best-selling soft drink in the world but was losing ground to Pepsi in the United States. For years, Pepsi had been advertising with blind taste tests in which many participants preferred the sweeter taste of Pepsi. Under CEO Roberto Goizueta, Coca-Cola developed a new, sweeter formula. In blind tests, it did better than Pepsi and better than the old Coca-Cola.
Link to the principle
From the point of view of the tests, the decision was logical: you replace an inferior product with a better one. But the tests weighed only gains against gains. No participant was asked how they would feel if the old drink were no longer available. That is exactly where loss aversion takes hold.
The announcement
Situation
On April 23, 1985, Coca-Cola announced the first change to its formula in 99 years. The new drink went on sale as “New Coke,” and the old formula was to disappear from the market. The company presented the move as renewal and progress.
Link to the principle
With the announcement, the customers’ reference point shifted. Until then, the old Coca-Cola had simply been there. Now it became something you lose. A better taste is a small gain. The loss of a habit many had known since childhood is a big loss.
The storm of protest
Situation
The reaction was fierce. According to History.com, Coca-Cola received up to 8,000 calls a day, plus around 40,000 letters of complaint. One letter to Goizueta was addressed to the company’s “Chief Dodo.” Customers stockpiled the old drink, and protest groups formed.
Link to the principle
What is remarkable is the disproportion. Many of those who protested probably would not have reliably recognized the difference in a blind test. It was not about the taste but about ownership. Customers felt that the old Coca-Cola was theirs, part of their history. People defend what they regard as their property more fiercely than they would ever have pursued it.
Back after 79 days
Situation
On July 11, 1985, 79 days after the launch of New Coke, the original formula returned as “Coca-Cola Classic.” The news was reported nationwide. Coca-Cola Classic quickly regained its position as the leading cola, and New Coke faded in importance. Ten years later, Goizueta said the company had taken smart risks at the time. It had wanted to change the dynamics of the cola market in the United States and had done so, only not in the way it had planned.
Link to the principle
The return felt like a gift, even though customers were only getting back what they had had before. This, too, is loss aversion: people who see a loss averted feel relief and a renewed attachment. Some therefore later suspected it had all been staged. There is no evidence for this, and the company has denied it.
What strategists can learn from it
Situation
To this day, New Coke is considered a textbook example in marketing and management. It shows the limits of market research that measures only preferences and not attachment to what already exists.
Link to the principle
Every change has two sides: the gain of the new and the loss of the old. Strategies often fail not because the new is bad but because the loss of the old is underestimated. Coca-Cola could have offered the new drink alongside the old one. Then it would have been a gain, not a loss.
Key takeaways
Key lessons
- Don’t just ask whether the new is better; ask what people will lose.
- Measure attachment, not just preferences.
- Add where you can instead of taking away.
- Keep in mind that people fight harder for what is familiar than for what is better.
- If you have made a mistake, correct it quickly.
Summary
In 1985, Coca-Cola replaced its original formula with a sweeter one that won blind tests. Customers reacted not to the taste but to the loss. After 79 days, the old formula returned as Coca-Cola Classic. The example shows why changes can fail even though the new is objectively better: losses weigh more heavily than gains of the same size.
Sources
- Daniel Kahneman: Thinking, Fast and Slow. New York: Farrar, Straus and Giroux 2011 (German edition: Schnelles Denken, langsames Denken. Munich: Siedler 2012).
- Mark Pendergrast: For God, Country, and Coca-Cola. New York: Basic Books 2013 (3rd edition).
