I found the story on the
Mental Floss site last week, and it immediately took me back to my first time
in graduate school, when one of my MBA classes discussed what was then known
about the product and the category. Pepsi had been the first company to try to
take over the clear cola market, or create it if there wasn’t one, with Crystal
Pepsi. The development and launch of the product had been a major expense for
the company, but Pepsi was expecting to appropriate enough market share from
various Coke products to recover the cost and then gain on the competition in
overall sales. Coke might decide to create their own clear cola, or even
reverse-engineer Crystal Pepsi and knock off their own version, but either way
Pepsi would gain the coveted “first mover” position in the “clear cola” segment
– if there was going to be one…
Instead, what the Coca-Cola
people actually did was create a clear version of their legacy Tab cola. With
the rise of Diet Pepsi over the previous decade, the Tab brand had become
increasingly redundant, and any risk the company might incur from changing its
formulation (e.g. alienating any remaining Tab customers) was less significant
than the threat of losing share to Crystal Pepsi. What made the move so
interesting was that Crystal Pepsi wasn’t a diet beverage, but since Tab was,
consumers became confused and started expecting both products to be
low-calorie. I have no evidence to suggest that Coca-Cola intentionally made
Tab Clear taste bad (and neither do the people at Mental Floss, apparently),
but they knew it couldn’t stand up to a full-sugar cola on taste alone – and with
the products becoming conflated in the public’s imagination, anyone who was
appalled by Tab Clear would also assume that Crystal Pepsi tasted terrible…
None of this was apparent in
1992-1993, of course, but even then people tended to place orders for “any
generic diet cola” by just saying “Diet Coke.” Over the years since it has
become increasingly clear that except for unusually brand loyal consumers the
two products are, if not exactly interchangeable, then at least acceptable
substitutes for each other, but the Coca-Cola people seem to have picked up on
this phenomenon before anyone else did. I would suggest that the company’s
experience with the New Coke debacle in 1985 may have given them some insights
about the difference between perception and actual flavor, given that some of
the most vocal opponents of the “new” formula were unable to distinguish it
from the original Coke in repeated blind taste tests…
In the event, the strategy
worked perfectly. People who had never tried either beverage became convinced
that all clear cola products were terrible, and attempts to debunk these
(baseless) opinions were no more effective than the ones regarding New Coke had
been. Pepsi was never able to develop a large enough market for Crystal Pepsi,
and they ended up withdrawing the product two years later without recovering
most of the development costs. I’m not aware of any exact parallel cases in
history, but I call the Tab Clear story to your attention anyway because it
demonstrates two of the principles I try to teach my own students. First,
always assume that your competition, whoever and whatever they may be, are as
smart and as capable as you are – and that they will be watching you just as
closely as you are watching them. And second, remember that no matter how bad
the strategic picture seems to be, things can always get worse…
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