The soft drink market shows how marketing can win over consumers, writes Matthew Yglesias.
The inspired Pepsi Challenge marketing campaign of the 1980s was an introduction to one of the fundamentals of scientific inquiry: the double-blind experiment. In a world beset with soft drink advertising, how could you really know which one you liked best? What made sense was to put prejudice and branding aside, don a blindfold, and focus on pure flavour.
In the late 1970s and early '80s, Pepsi steadily gained on Coke in terms of market share. Characters in the ads always picked Pepsi, but so did most people who tried it in real life - the sweeter taste was more appealing. By 1983, Pepsi was outselling Coke in supermarkets, leaving Coke dependent on its larger infrastructure of dispensing machines and fast food tie-ins to preserve its lead. But even better, Pepsi forced Coke into a business blunder. Faced with eroding market share, Coke began a series of its own internal taste tests. Thus was born New Coke, a sweeter cola reformulated to best Pepsi in blind taste tests.
The backlash was fast and furious, with more than 400,000 letters of complaint. Pepsi recorded the fastest year-on-year sales growth in the company's history during New Coke's first month.
Coca-Cola's leadership did something tough: they admitted they were wrong. And they executed a strategic pivot that's kept them on top ever since. They reintroduced the original formula under the name "Coca-Cola Classic" and sold it along with New Coke. Over time, the "new" was phased out, and Coca-Cola Classic became Coke again.
For the past 25 years, Coke advertising has focused on the brand first and foremost. The soft drink is a shared experience that's supposed to remind you of friendship, family, adorable bears and other fuzzy associations. And it's worked great. Coke owns 17 per cent of the US market for soft drinks. The next most popular choice is Diet Coke with 9.4 per cent. Pepsi languishes in third place at 8.9 per cent.
Pepsi is a quintessential example of a "challenger brand" seeking an edge against a dominant firm. Marketing has emphasised Pepsi as more youthful - "the choice of a new generation" - as a way of turning its second-place status into an advantage. But Pepsi works as such a great example of a challenge because despite decades of efforts, none of its different campaigns has ever put it in first place.
The Pepsi Challenge wasn't just an ad gimmick. It really is true that blind taste tests suggest that people like it better than Coke. Yet people keep buying more Coke.
Read Montague of Baylor College of Medicine performed a version of the Pepsi Challenge with subjects hooked up to an MRI machine. In blind taste tests, Pepsi was associated with higher activity in an area of the brain known as the ventral putamen, which helps us evaluate flavours. In a non-blind test, Coke was more popular and was associated with increased activity in the medial prefrontal cortex. Montague's interpretation: this prefrontal activity represented the higher-thinking functions of the brain associating the soft drink with ad campaigns and, in effect, overriding the taste buds.