How an obscure brand conquered the world

Drugs and drink

As 19^th-century America regained its footing after the Civil War, the dislocation caused by rapid urbanization and industrialization created a fertile environment for innovators and hucksters of all stripes. Rising prosperity coupled with the intensifying rhythms of life shined a spotlight on various diseases, both real and imagined.

Curiosity and gullibility often outstripped common sense as people sought to treat their ailments, which could include specific symptoms like migraines or indigestion, or vaguer complaints like a surfeit of nervous energy. Sufferers turned to a growing number of tonics and liniments and oils and other concoctions of dubious efficacy.1 These were sometimes spiked with exotic substances but just as often had no active ingredients. Nonetheless manufacturers would make sweeping, unsubstantiated claims to cure all manner of diseases.

Creators of these so-called patent medicines, with their quaint and hyperbolic names, could generate extraordinary fortunes before interest evaporated and the market moved on to the next big thing.2 Entrepreneurs looking to get rich would hawk their creations to prospective buyers through new forms of advertising, crowded into newspaper pages and painted on every available surface, dominating the public consciousness. The lines demarcating the fledgling pharmaceutical industry from general commerce had yet to form, so the market was open to anyone with a persuasive pitch.

In a prefiguring of today’s opioid crisis, many at the time were addicted to morphine and opium.3 The personal and social ills these caused were widespread, so the hunt was on for safer alternatives that still provided the kick their users sought.

In this atmosphere of general quackery, a dogged pharmacist was busy brewing up another medicine, this one including both cocaine and a healthy jolt of caffeine derived from the West African kola nut. His new creation was just one more in a sea of non-differentiated competitors, but his connections gave him the means to test it in the Atlanta market.

After much iterating, the druggist and his partners decided on an alliterative name that highlighted the primary ingredients in his drink: Coca-Cola.

It was initially sold at a few soda fountains around town, alongside dozens of competing options. From those humble beginnings sprang a drink that is regularly consumed in almost every part of the world.

Maximum viable product

In its rise to prominence, leadership of The Coca-Cola Company was prescient about several trends that would shape business, notably the importance of advertising.4 Coke was the subject of one of the first coupons ever issued, which provided the bearer with an initial serving for free. It was also fortunate to be in the right place at the right time, as external circumstances conspired to boost its popularity at key moments, particularly temperance movements that swung the pendulum against alcoholic drinks and a Second World War that spread American influence globally.

It wasn’t fully comprehended at the time, but the formula itself turned out to be almost perfectly designed in both attributes and economics, cementing its place in the culture so firmly that no one has been able to dislodge it for over a century. The core reasons why “Coke is it”5:

• It hits elemental pleasure centers. The original recipe contained addictive cocaine, a fact the company officially denies even though this fact is well attested—the proof is even right there in the name.6 Combine that with the continued presence of stimulating caffeine, the dopamine punch of a sugar rush, and the effervescent tickling of the sinuses caused by the fizz, and the result is a product almost perfectly designed to tap into our core human wiring. It’s not coincidental that Starbucks, another global empire, is known to have more caffeine in its coffee than other brands. Meeting basic needs is very profitable.
• It’s cheap but still has massive margins. The actual purchase price of Coke is trivial for most people. For decades the price of a glass in the U.S. was fixed at five cents, and it remained viable for the company to maintain it despite the Great Depression, two World Wars, and roughly 70 years of inflation. That tells you something about the efficiencies of manufacturing sugared syrups. In developed countries, almost everyone can afford the cost of a serving. Heinz ketchup plays an analogous role—sure, it may not be differentiated, but what restaurant wants to save a few cents by stocking the generic brand? The cost of inputs is not what drives value in the resulting product.
• It both rewards consumption and is hard to copy. Part of the unexpected genius of using carbonated water is that pouring it triggers a timer: drink it relatively quickly or it gets flat and unpalatable. Unlike other brands that attempt to simulate urgency, this is an inherent feature, encouraging consumption, discouraging storage, and making it very hard to replicate without a home carbonation rig that is probably not worth the trouble. Unexpected product attributes can create stickiness.
• It is ubiquitous. One of the visions of early leadership was to put Coke “within arm’s reach of desire,” which is not exactly hashtag-friendly but sums up the vision of total market saturation.7 Whether through vending machines, fountains, or various packages for home consumption, the company understands that ready access is a precondition for impulsive purchases.8 Availability often trumps other considerations.
• It spreads the wealth. for much of its existence the company sold only the syrup concentrates, leaving the actual production of drinks to soda fountains and later to independent bottlers. This built a web of businesses that were dependent on Coke for the fat margins it brought them. Bottlers and distributors made their cut, but more importantly drugstores and restaurants could pad diners’ checks with the massive margins that come from selling beverages costing a few cents for a few dollars. The company cleverly found a way to maintain this margin even when it expanded to water by providing a patented mix of minerals to its bottlers, which then combine it with regular municipal tap water. It remains enmeshed in a web of mutually beneficial relationships. Highly successful organizations rarely stand alone.
• It benefits from a strong primary competitor. Coke also lucked out by the concurrent rise of Pepsi, a worthy number two that proved to be a useful foil in spurring the segment on to greater innovation and more creative marketing. Pepsi similarly had its roots in the late-1800s tonic craze, with a name evoking the digestive ailment dyspepsia. Each was forced to stake out its claim; while the scrappier Pepsi could afford to target younger generations, the venerable Coke positioned itself as all things to all people, clothed in a general haze of goodwill. Similarly, in the rental car industry Avis even made a virtue of its second-place position to the dominant Hertz, suggesting that “we try harder” because of its underdog status. Good competitors can make everyone better.

Any one of these features can provide a strategic edge, but the overall combination has been close to unbeatable. How could you apply them to your work?

Be more

Underpinning these factors, perhaps the truest reason for Coca-Cola’s success is that it transcends its supposed role. Its original medical claims have long since been discarded, and it doesn’t assert unique nutritional properties. Such a beverage should logically win by virtue of its taste—except that in the case of Coke, it doesn’t. The famous “Pepsi Challenge” that heralded the start of the cola wars showed that in blind tests consumers were mostly indifferent, or had a slight preference for Pepsi. Most people who insist they can tell the difference between various colas are mistaken (and that probably includes you).

The reality is that Coke tastes like childhood, or summertime, or backyard barbecues, or church potlucks, or a furtively-enjoyed treat.9 It turns out you can put a price on these things, and it is somewhere in the neighborhood of $200 billion, the company’s current stock market capitalization. Simple offerings can come to embody larger experiences. The deeper the product positioned itself, the more it surpassed being a mere mix of coloring and flavorings.

The pivotal proof point was the abortive attempt to replace the flagship offering with New Coke. The expensive rollout of this reformulated product was hastily reversed when consumers revolted, even though it was superior in taste tests. The vehemence of the reaction suggested that something inherent to American’s self-conception was being challenged—and in a sense, it had been.

Get your product to represent something far more than the attributes of the product themselves, and you have yourself a winner.10 If you’re looking to have impact that spans generations, be more than just a transaction. When playing the long game, remember that what you provide is more than just the attributes or quality of a service, but the associations it brings and reinforces. For example:

• Schools with lifelong connections alumni are more than transmitters or information, or providers of credentials. They are the venue for transformative experiences and the place where lifelong relationships are formed.
• A bookstore can be a reseller of cheap paperbacks, or a source and sustainer of the love of learning, a place of serendipity and broadened horizons.
• A clothing outlet can be a place to pick up wardrobe staples, or the venue that enables self-expression and creation of a personal style.

It’s hard to envision how organizations in some fields, particularly those in the business-to-business space, could tap into these principles. But consider how improbable it is that colored sugar water, of all things, managed to lock on and ride them to the stratosphere.

Where else could this work?

References

The best book on the subject is the detailed history “For God, Country, and Coca-Cola”, by Mark Pendergrast