The Pepsi Challenge – Lessons Learned & How It Relates to Your Business

coke-vs-pepsi There is an excellent article in the most recent issue of Colloquy titled The Neuromancers.  It attempts to answer the question “Is there a buy button inside the human mind?”  The article looks at the Pepsi Challenge from 1975, where consumers showed a definite preference for Pepsi over Coke in the blind taste test.  Almost a decade later and with declining market share Coke launched New Coke in 1983, which is was an utter failure.  But if market share was declining, and New Coke’s taste was closer to the preferred Pepsi, why did it end in disaster for Coke?

Lesson Learned for Coke

According the Colloquy article, Coke underestimated the power of their decades of marketing.  What mattered to Coke loyalists was “their emotional connection to Coke as a quintisential American brand.”  Coke consumers attached more than just the taste of the Coke to their buying decision.  They attached the powerful images and memories associated with Coke campaigns over the years.

… subjects who knowingly preferred Coke were recalling, perhaps subconsciously, positive memories and impressions from Coke’s advertising campaigns. Most subjects said they preferred Coke; but given a blind choice, many of them actually preferred Pepsi.  Cultural influences have a strong influence on expressed behavioral preferences…”

According to Sergio Zyman, Coke’s CMO at the time, as detailed in Guerilla Marketing Research:

What went wrong?  The answer was embarassingly simple.  We did not know enough about our consumers.  We did not even know what motivated them to buy Coke in the first place… After the debacle, we reached out to consumers and found that they wanted more than taste when they made their purchase decision.  Drinking Coke enabled them to tap into the Coca-Cola experience, to be part of Coke’s history and to feel the continuity and stability of the brand…  As soon as we stared listening to them, consumers responded, increasing our sales from 9 billion to 15 billion a year.”

What is the lesson for your business?

Most business can’t afford the marketing budget of a Coke to build emotional attachements over generations.  What you should learn here is that your customers don’t buy for just one reason. There are many factors that go into the purchasing decision.  Price may be most important, or it may not.  Features, customer support, convenience, quality, and the overall customer experience also weigh in on the decision.  It will be different factors for different types of customers.

How do you know what is most important to customers?  Do what Sergio Zyman did and start listening to customers, watch their behavior, and don’t always rely on a blind, single-feature test.

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Giving Senior Executives More Insight from NPS

blue_bulb1.jpg  The Net Promoter website describes the Net Promoter Score (NPS) as providing “the single most reliable indicator of a company’s ability to grow.”  There has been an on-going debate about how true this statement is and the real value of NPS, particularly for senior executives.  To better understand some of what the debate is about, check out this post at Marketing ROI and the posted comments.

I have been using NPS with clients for a couple of years now, and I’m not convinced yet that it is the best indicator of a company’s ability to grow.  The real work is figuring out what drives the likelihood to recommend for each business, and then measuring the actual recommendation behavior and corresponding purchase behavior of customers.  That is more than a blog post, so on to what you can do right now to get more value out of your NPS work…

As a quick review, NPS is calculated by first asking the following question with a 0 to 10 point answer scale:

“How likely is it that you would recommend (Company X) to a friend or colleague?”

Then you take the percentage of customers who are promoters (10’s & 9’s) and subtract the percentage who are detractors (6’s – 0’s):

% of Promoters – % of Detractors = Net Promoter Score (NPS)

To get additional customer insight, I also pair it with the following question:

“What was the most important factor that influenced your score above?”

What I like to present to senior executives is a summary of the answers to this question from the detractors.  Yes, they also get to see the comments from promoters, but they are already aware of this perspective.  There is often more value found in reading the detractors’ comments.  This tells executives what customers don’t like about their business or products and services.  This feedback contains the real voice of the customer, and often they are pretty blunt comments.  We all like to know what we do well, and we need to keep doing those things; but real insight, and real growth often comes from improving what is really wrong with a business.

No-Cost Consumer Research Tools

hammer-screwdriver.jpg Gary Stein has written a nice article for ClickZ about some free consumer research tools.  Gary describes how we uses each of these tools in the article so I suggest you read it.  I wanted to share his list of tools with my readers:

  • Compete and Alexa are online services that, amazingly, lets you pull traffic data for nearly any site on the Internet.
  • Yahoo Answers, or similar services on sites like LinkedIn.  Google Answers has been shut down.
  •  Apps section on Facebook and search for “survey” or “polls,” you’ll find several applications that enable you to send surveys out across the network.
  • Google’s trend tool is an amazing way to peek inside the world’s collective unconscious.

All of these are not tried and true market research tools, but they should give you a good place to start gathering ideas and insight.  From there you can design a more rigorous customer insight project.