Real thing blind-sided, but Pepsi still can't pop its bubble
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.
Frequently Asked Questions about this Article…
The Pepsi Challenge was a high-profile marketing campaign built around double-blind taste tests that showed many people preferred Pepsi’s sweeter flavour. For investors, it’s a classic example of how a well-executed marketing effort can change consumer perceptions and drive sales momentum—even when it doesn’t permanently dethrone a dominant rival.
According to the article, Pepsi steadily gained on Coke in the late 1970s and early 1980s and by 1983 was outselling Coca‑Cola in supermarkets. That competitive pressure led Coca‑Cola to run its own taste tests and ultimately to the New Coke reformulation.
New Coke was Coca‑Cola’s sweeter reformulation created to win blind taste tests against Pepsi. The change triggered a strong public backlash—more than 400,000 complaint letters—and Pepsi recorded unusually fast year‑on‑year sales growth during New Coke’s first month. Coca‑Cola eventually acknowledged the mistake, reintroduced the original formula as ‘Coca‑Cola Classic,’ sold both for a time, then phased out the new formula.
The article explains that branding and advertising can override taste in non‑blind situations. Coca‑Cola has focused on brand associations—friendship, family and shared experiences—for decades, and that emphasis has helped it maintain a larger share of the U.S. soft drink market (about 17%) compared with Pepsi (about 8.9%).
The article highlights that marketing can be decisive: blind taste tests may show a preference for Pepsi, but Coke’s long-term brand marketing has driven consumer choice in real buying situations. In short, strong branding can trump pure product taste in determining market outcomes.
Pepsi is portrayed as a classic challenger brand that uses youthful, edgy marketing—'the choice of a new generation'—to try to turn second place into an advantage. For investors, that label signals a company whose strategy relies heavily on marketing campaigns to gain share rather than consistently beating the market leader on every metric.
Read Montague’s MRI study found that in blind taste tests Pepsi was associated with greater activity in the ventral putamen (a brain area linked to flavour evaluation). In non‑blind tests, Coca‑Cola produced increased activity in the medial prefrontal cortex, an area associated with higher‑level associations—suggesting brand cues can override taste preferences.
Based on the article, everyday investors should track market‑share trends, the effectiveness and direction of advertising and brand campaigns, consumer loyalty and response to product changes (like reformulations), and sales performance during marketing initiatives—because these factors can materially affect long‑term competitive positions.
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