1. What historically had been the value proposition of Coca Cola?
Coca Cola’s value proposition has historically been to evoke a “comforting nostalgic appeal” by associating itself with positive human moods/emotions - primarily happiness, belonging and celebration. The way to make this proposition possible has been to “place Coke within arms’ reach of desire...wherever there are people who get thirsty”. The company has gone out of its way to develop distribution channels ranging from gas stations to pop culture to even within war zones, to provide convenient access to Coca Cola, and in the process associating itself with a range of emotions.
As a result of being so heavily ingrained within the nostalgic psyche of its customers, Coca Cola came to symbolize “the sublimated essence of all that America stands for. A decent thing, honestly made, universally distributed, and conscientiously improved with the years.” 
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2. What was the value proposition for Pepsi in the 1960’s? (2 Points half each)
Pepsi’s value proposition was to urge their drinkers to “feel free” by associating with their product. They painted an image of their consumers as active, vital and young-at-heart Baby Boomers, and capitalized on the “needs of a country recovering from Watergate, Vietnam and a severe economic recession” This advertising idea eventually went on to be called the “Pepsi Generation” and provided the bedrock for their youth oriented advertising campaigns.
Pepsi’s second value proposition was taste superiority over Coke through its “Pepsi Challenge” comparative blind taste tests. They were able to consistently demonstrate consumer taste preference over a course of advertising campaigns, and ended up capturing a significant share of exclusive drinkers.
3. Coke invested $4 million in consumer testing, yet things went horribly wrong. Was the problem inadequate design, inadequate interpretation of the results, both, or neither?
Coke was basing its consumer testing on a number of assumptions, which were open to interpretation (or misinterpretation).
First of all, they were assuming the majority of its “existing” customers drank Coke for its taste. This fallacy of sorts may have been encouraged by the Pepsi Challenge campaign, but they should have realized from their focus groups that most loyal drinkers consumed Coke for the nostalgic image it portrayed. As some of the vocal minority said - “It was like saying you were going to make the flag prettier” [Page 12], which single handedly described the brand’s perception as a nostalgic symbol which couldn’t be changed overnight.
Most of the interview questions were intentionally focused on researching a new version of Coke. No attempt was made to gauge consumers’ preferences for a separate product line from Coke. Even though there were operational hurdles in encouraging multiple product lines, it would have helped in understanding consumer behavior if they would have at least framed the same questions from a multiple product viewpoint. It is quite possible there was a developing “experientials” segment which was seeking new taste/image opportunities, and was skewing their results by showing strong preference for a newer Coke.
4. Hindsight is 20/20, but that aside, what other factors do you think contributed to the failure of New Coke?
Ultimately, the problem was not exactly in the consumer testing methodologies, but in marketing the results. Given that they knew consumers preferred Coke for its image rather than taste, they should have spent significant efforts communicating that the change in taste does not convey a change in image. Instead they chose to emphasize the “new” factor a lot, even though initially they planned to never apply that word [Page 13]. This along with the redesigned packaging, hammered home the idea that New Coke was vastly different from the original, and effectively conveyed a change in the image portrayed.
When changing an existing product line, there will always be a vocal minority resisting the change and strongly voicing their discontent. [Page 12] But when the vocal minority gets prime time coverage on mass media, the network effects are too large to simply ignore with customer hotlines. Coke executives did not make the effort to address their most loyal drinkers’ concerns that Coke was no longer the same, and instead reinforced the permanence of this change.
Also, I believe taste preferences are more a function of consistency than measurable quality. We get attuned to getting the same taste every time we pick up a can of soda, and come to associate that taste with the brand/product. Even when presented with a supposedly improved version of that soda (for example, with natural sugar), we might react unfavorably to the change in taste. Most brands spend efforts trying to keep taste consistent while changing underlying ingredients. New Coke was attempting to change a habit/consistency, and was underestimating the efforts involved in doing that.
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