Coca-Cola’s $89M marketing psychology mistake

The pain of losing something is much more powerful than the thrill of getting something new.

Coca-Cola learned this expensive and painful buyer psychology lesson when it lost the equivalent of $89M on one of the biggest flops in business history:

New Coke.

To understand why New Coke flopped so hard, you first have to understand why it was created in the first place.

In the 1980s, competition between Coke and Pepsi was at its peak.

The battle for market share was so fierce that the press dubbed it the Cola Wars.

And when they said “wars” they almost meant literally.

There was corporate espionage, aggressive ads, sneaky marketing moves and counter-moves, and at one point the FBI even got involved 😬 

But you might be surprised to learn that in the 1980s, Coca-Cola was losing the Cola Wars.

And not by a little.

It came down to Pepsi’s appeal to younger customers.

Pepsi was much sweeter than Coke (which younger people preferred) and their marketing toward what they called “The Pepsi Generation” was much more attention-grabbing and memorable than Coke’s.

So Coke decided to start a top-secret initiative, code-named Project Kansas, to create a sweeter version of Coca-Cola.

You might be thinking, “That sounds fine, why not introduce a new, sweeter product to fight Pepsi?”

But the problem was that Roberto Goizueta - the CEO of Coca-Cola - didn’t just want to introduce a new product.

He wanted to replace the original, and much-loved, Coca-Cola with this new formulation and flavor.

He was known to say, “It’s New Coke or No Coke” when anyone questioned his strategy.

The launch went ok, but customers quickly realized that “Old Coke” was gone.

Forever.

And nothing upsets people more than taking something away.

Especially when it’s a product like Coca-Cola, a huge part of the cultural fabric of post-war America.

So customers began protesting.

They started letter-writing and call-in campaigns.

They even camped outside of Coca-Cola’s iconic Atlanta headquarters.

All because they felt a little piece of their lives - something they thought they could depend on to stay the same forever - had been taken away.

It’s down to the psychological principle of Loss Aversion…

A buyer psychology principle every business needs to take seriously, because it’s one of the most powerful.

I’ve seen Loss Aversion at work in many of my clients’ businesses.

For example, when I worked one-on-one with a career coach (MK).

He was struggling to convert leads into paying clients, so he got in touch with me to figure out what was going on and how to fix it.

His existing marketing focused on what people could gain from working with him:

Bigger salaries, better work-life balance, and dream jobs.

All great benefits.

But his conversion rate from call to client was only about 20%.

So clearly something was off.

While we were working together, I noticed MK kept mentioning the opportunities his clients had missed that caused them to seek out his services:

• "This guy was perfect for a director role that opened up last year, but he wasn't prepared for the interview so he got passed over."

• "She could have negotiated at least $20k more on her last offer if she'd known what to ask for, but she didn’t know what she didn’t know."

• “His skills were 10x more developed than his co-workers but he kept missing out on promotions because he didn’t know how to ‘manage up.’”

These stories were fascinating and spoke to his buyers’ strongest motivations - the moments of “loss” that were so painful that these people knew they had to find help.

But these stories didn’t show up in MK’s marketing or sales process.

So we reframed his messaging and added a Loss Aversion lens.

Instead of just talking about what clients might gain…

We shared stories of what his real clients had lost out on before they worked with MK, as well as what benefits they got from working with him.

Once he nailed this new Loss Aversion lens in his marketing, newsletter, and sales pitch, MK’s conversion rate more than doubled.

Same offer, same price, completely different results.

So ask yourself:

What could people lose out on by not buying your product or working with you? Is it time, money, opportunity, security, or peace of mind?

What it is and how you (ethically) use it for maximum marketing effectiveness will vary depending on your specific industry, brand, offers, and your buyer.

It’s not just that you use Lose Aversion, it’s how you use it that makes it work - or backfire.

Just ask Coke.

Until next time,
Jen

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