April 23rd, 1985, The Coco-Cola Company took a major risk by changing the formula which was renowned for almost a century. During 1980s, it was the time of “Cola wars”, Pepsi were very aggressive with their marketing campaigns and were able to reduce the marketing share gap with Coco-Cola. From 1980 till 1984 Coke’s marketing share fell from 24.3% to 21.8% (down 2.5%) which forced them to take a step ahead of their competitor and in doing so, they introduced the “New Coke” replacing their first brand. Change is not always good, perhaps. What happened after that was not expected by the Company, and the decision has since been referred to as ‘the biggest marketing blunder of all time’.
Had the Coco-Cola Company followed some basic STP (Segmentation, Targeting and Positioning) marketing strategy, they would not have failed, or probably would not have decided to change their very own ‘real thing’. Pepsi, on the other hand did apply STP strategy and came out to be the beneficiary of this whole “New Coke” thing.
What is Segmentation, Targeting and Positioning?
Segmentation, targeting and positioning (STP) are the three fundamental principles of modern marketing, based on which a company designs a product or service for targeted consumers sharing same characteristics who will value the product, and positioning it distinctly from the competitors to make it ‘profitable yet valuable’ (Iacobucci 2013). During the 80s, Pepsi applied these strategies, specially positioning Pepsi in the market as “The Choice of a New Generation” to compete with the leading brand of soft drinks, Coco-Cola.
Dividing the market in to segments and identifying the correct segment is what makes a company succeed. As every product is not for everyone but ‘meeting the needs of certain kind of customers, not all customers’ (Sally & Lyndon 1991). Pepsi and Coco-Cola shared the same segmentation strategy divided on the Geographic and demographic basis. One segment “The switching segment” was identified by Pepsi where the consumer would switch between Pepsi and Coke. This segment was responsible for majority of the promotional budget of both the brands. With the introduction of “New Coke” which was rejected by the loyal Coke consumers who did not like the very idea of the change, gave Pepsi the chance to work on the switching segment as they were better than coke in taste according to their ‘Blind Taste Test’ result which they used previously as an advertising campaign. Another variable of segmentation is behavioural segment. The loyal Coke consumer had affinity with the brand but the brand which was introduced as “The real thing” which was constant for a century, not the “New coke”. Neglecting this segment was one of the major reason for the failure of the new coke.
Coco-Cola being the only product in the market when it was launched, used a ‘broad targeting’ strategy since there was no substitute. But targeting has to be changed at each stage of life of the product which is a factor influencing the choice of targeting strategy (Proctor 2000). Had the Coco-Cola company done the competitive analysis, they would have known that Pepsi were ahead of them in few areas and the New Coke was not their best corporate fit. It was like competing with your own product, Coco-Cola vs New coke. While Pepsi on the other hand had better opportunities and corporate strengths with the loyal Coke drinkers boycotting the new coke, thus, allowing Pepsi to target this segment and making it profitable and strategically fit.
‘Positioning represents the sharp end for marketers’ (Sally & Lyndon 1991). It is about how better and unique is the product in comparison with the competitors, how the target segment perceives it and gives value to it. It is not how the manufacturers wants it but the consumers. (Iacabucci 2013). During the cola wars Pepsi re-positioned coke by their “New generation” campaign targeting the young generation and positioning coke as old and boring. The sponsorship of Michael Jackson and Blind taste test were also aggravated the positioning process. Being better at taste, Pepsi was winning the new customers and, perhaps the cola war as well for time being. Overall, coke was perceived by the consumers as outdated and poor at taste after being re-positioned.
Tony Proctor’s concept of positioning and the point that marketing mix should be keen on targeted customer’s satisfaction, pricing of the product as well as the channels of distribution can be perfectly depicted in Pepsi’s positioning during the cola wars.
Take home messages:
Although, Coco-Cola is still the leading brand in soft drink market but the events during the cola war teaches us the application of STP process. Before introducing a new product, its strengths and weakness must be taken in to the account.The segmentation, targeting and positioning should be in accordance with the market and consumer’s need. Above all, always wary about the competitors since they are there to react.
Conversations staff 2012, The real story story of new coke, The Coco-Cola company, accessed 1 August 2016, <http://www.coca-colacompany.com/stories/coke-lore-new-coke>.
Bold, B 2014, A history of coke vs pepsi war in 3 1/2 minutes, Campaign, accessed 5 August 2016, <http://www.campaignlive.co.uk/article/1315611/history-coke-vs-pepsi-war-3-1-2-minutes#>.
Bhasin, H 2016, Coco-Cola brand failure, Marketing91, accessed 1 August 2016, <http://www.marketing91.com/coca-cola-brand-failure>.
Fripp, G c. 2012, An example of Segmentation, Targeting and Positioning process, Marketing segment study guide, accessed 30 July 2016, <http://www.segmentationstudyguide.com>.
Iacobucci, D 2013, Marketing Management, vol. 4, Mason, Southern-Western, Ohio.
Proctor, T 2000, Strategic Marketing: An Introduction, 2nd edn, Routledge, Oxon.
Dibb, S, Simkin, L 1991, ‘Targeting, Segments and Positioning’, International Journal of Retail & Distribution Mangement, vol. 19, no. 3, pp. 1- 10.
ZEESHAN ABBAS ALI
STUDENT ID: 216304968