Coca-Cola

“In 1934, Pepsi tests using recycled beer bottles, which are 12 ounce bottles to sell Pepsi, also for a nickel. The amount of liquid in the bottle is approximately free. Whether you're serving six ounces of liquid per bottle, or 12 ounces of liquid per bottle, it's not going to impact your margins that much. And oh by the way, there are a lot of existing 12-ounce beer bottles out there that we can buy up super cheap. Pepsi starts selling 12-ounce bottles also for a nickel.”— David Rosenthal

Strategy & Decision Making · Economics & Markets · Business & Entrepreneurship

DUR_ENDURING

Pepsi 12oz exploit: liquid free, bottles cheap

“They decide that they are going to offer tickets to consumers, redeemable at their local Atlanta soda fountains for free glasses of Coke. They start mailing out these free Coke tickets or coupons to every address in the Atlanta City directory. This is the very first manufacturer's coupon redeemable at a retailer. This becomes absolutely huge for Coca-Cola and integral to its success.”— David Rosenthal

Strategy & Decision Making · Business & Entrepreneurship · Economics & Markets

DUR_ENDURING

First manufacturer coupon aligned all parties

“Christmas of 1984, the executive team makes the decision. They're going to replace the original Coca-Cola formula with New Coke. They've done tons of taste tests. Not only does it beat Pepsi in taste tests, it beats original Coke. People prefer the taste of New Coke. However, in all the research that they conducted for New Coke, all 200,000 people that they did the taste test with, they never asked them how they would feel if this new beverage replaced the old Coca-Cola.”— Ben Gilbert

Psychology & Behavior · Strategy & Decision Making · Business & Entrepreneurship

DUR_ENDURING

New Coke: tested taste, not loss emotion

“In July of 1899, two guys from Chattanooga named Benjamin Thomas and Joseph Whitehead come to Candler with a proposal. They want to bottle Coca-Cola. Candler's extremely skeptical. Thomas and Whitehead say, what if we do it at no risk to you? You let us buy Coca-Cola syrup from you, same as all the soda fountains are doing. We will bottle it and sell it at our own expense. If the product isn't up to your standards, you can just pull our license and we'll stop selling it.”— David Rosenthal

Strategy & Decision Making · Business & Entrepreneurship · Operations & Execution

DUR_ENDURING

Perpetual $1 contract unlocked bottling

“The Pepsi Challenge. The local ad agency for the Pepsi bottler in Dallas had accidentally discovered the secret that Coke and McCann has known for 20 years: that consumers prefer Pepsi to Coke. Locally in the Dallas market, they start running commercials of people taking the Pepsi Challenge. They roll up to a supermarket, plunk down a card table, and they have Coke and Pepsi behind a cardboard screen, give consumers a glass. Which do you prefer?”— David Rosenthal

Business & Entrepreneurship · Strategy & Decision Making · Creativity & Innovation

DUR_ENDURING

Camcorders to bottlers: grassroots at scale

“Lee and Woodruff embrace, maybe I might even say create, lifestyle advertising. This is everything that we talked about in the Rolex episode, but that was much later when Rolex did that in the 1950s and 1960s. This is in the 1920s. Coca-Cola is inventing this idea that through advertising we can associate our products with feelings. Coca-Cola isn't a carbonated sweetened soft drink with unique flavor. Coca-Cola is happiness. Coca-Cola's friendship. It's romance.”— David Rosenthal

Business & Entrepreneurship · Psychology & Behavior · Creativity & Innovation

DUR_ENDURING

Coke invented lifestyle advertising

“Coca-Cola realizes, hey, we're not actually in the bottling business ourselves, but we have full control over it. If we really want to drive home to consumers that Coca-Cola is the real thing and have it be immediately identifiable what the real thing is, we actually can force our bottlers to develop and invest in a proprietary bottle. This results in 1916 in the famous proprietary bottle, the contour bottle.”— David Rosenthal

Business & Entrepreneurship · Strategy & Decision Making

DUR_ENDURING

Design brief: recognizable by touch alone

“The military and the US government realize, hey, Coke may actually be one of America's best weapons in this war. The military grants Coca-Cola employees technical observer status, meaning that they can participate in the supply and infrastructure build-out of the military around the world. As the American military is advancing in the global theater all around the world, Coca-Cola is right there with them setting up bottling plants and production lines to supply the troops.”— David Rosenthal

Strategy & Decision Making · History & Geopolitics · Business & Entrepreneurship

DUR_CONTEXTUAL

WWII: 25 years expansion in 4 years

“When they were selling gallons of syrup to the soda fountains, they sold them for about $1.30 per gallon. The soda fountains then sold drinks to customers at 5 cents a drink. There are 128 drinks per gallon. They're making $6.40 of revenue for a product that costs them $1.30 to buy. I'm not a retailer, but I'm pretty sure those are good margins.”— David Rosenthal

Economics & Markets · Business & Entrepreneurship

DUR_ENDURING

490 percent retail margins on Coke

“Pretty quickly, Thomas and Whitehead both independently decide, actually owning and operating these bottling operations, dealing with the capital investment of both setting up the production lines and then buying the bottles, recycling them, returning and cleaning them. We've realized we can just assign the rights that we have here. They start subcontracting out little sub-territories to other entrepreneurs.”— David Rosenthal

Strategy & Decision Making · Operations & Execution · Business & Entrepreneurship

DUR_ENDURING

Franchisees sub-franchised creating network

“Pemberton deliberately designs a 5 cent product that anybody can have just to have a little pick me up, a little treat when they're at the soda fountain. Drug stores at that time were the Starbucks of this time. It really was this gathering place to go and spend time. He says, I'm going to serve this other market of anytime refreshment. Because drug stores were this social gathering space and mineral water carbonated water is thought to be a health tonic, these all mix together.”— Ben Gilbert

Strategy & Decision Making · Business & Entrepreneurship · Economics & Markets

DUR_ENDURING

Affordable luxury in existing social space

“In 1931, Coke commissions the artist Haddon Sundblom to create Christmas ad imagery for Coca-Cola featuring Santa Claus. Sundblom is like, well I'm going to make Santa as red as possible, in Coca-Cola red, and then I'm going to make him as big as possible to get as much Coca-Cola red in the picture. This is 1931, before television, and magazines had only just started to be commonly printed in color. Santa didn't have a color. Nobody really thought about what color Santa was.”— David Rosenthal

Business & Entrepreneurship · Culture & Society · Creativity & Innovation

DUR_ENDURING

Coke standardized red Santa via scale

“Over the next 15 to 20 years, by the mid-1920s, it's estimated that Coca-Cola sues and shuts down over 7000 copycat cola brands. This becomes the next critically important pillar of building Coke. Only Coke is the real thing. Coke is real. Everything else is an imitator. It is a copycat. It should not exist.”— David Rosenthal

Strategy & Decision Making · Leadership & Management

DUR_ENDURING

7000 lawsuits cemented the real thing

“Patent medicines were like this seed crystal that created the modern American consumer business. Before this industry, there were no national brands in America or anywhere else. Everything was local. These medicines, it's just commodities like leaves, nuts, water and stuff that go into these things. It's super cheap commodities that are very easy to obtain in great quantities, very easy to then produce into your product and transform, then pretty small relative to other products, easy to transpo...”— David Rosenthal

Business & Entrepreneurship · Strategy & Decision Making · Economics & Markets

DUR_ENDURING

Commodity inputs to branded national products

“Coca-Cola just needs to sell syrup and spend marketing dollars to sell the dream. It's a beautiful position to be in. The Coca-Cola company gets a tremendous amount of leverage out of the bottling system. A full $47 billion of the $175 billion in revenue goes to the Coca-Cola company, 27 percent of the revenue with just 10 percent of the total employees. Earnings on that $47 billion, they generate $10.6 billion of net income. Net income margins tend to average around 23 percent.”— Ben Gilbert

Economics & Markets · Business & Entrepreneurship · Strategy & Decision Making

DUR_ENDURING

27 percent revenue, 10 percent employees

“If you really boil it down, the Coca-Cola company in a nutshell, it is figuring out how to incentivize partners to sell your product. Everyone is incentivized. The bottlers are massively incentivized. The retailers, there's great margin there for you. The soda fountain operators, the restaurant, the billboard owners. Robert Woodruff had a mantra, an official motto within the company during his reign as company boss, that everyone who has anything to do with Coca-Cola should make money.”— Ben Gilbert and David Rosenthal

Strategy & Decision Making · Leadership & Management · Business & Entrepreneurship

DUR_ENDURING

Everyone who touches Coke makes money

“Patent medicines discover that the best way to reinforce that message with consumers and to stimulate demand was advertising, especially in newspapers. This is the birth of the advertising industry in America. It's these patent medicines that start spending the first real scale dollars in newspapers, which are also coming up in industrializing post Civil War, and building the business model of the media industry as we know it today.”— David Rosenthal

History & Geopolitics · Business & Entrepreneurship · Economics & Markets

DUR_ENDURING

Patent medicines birthed modern advertising

“Pemberton starts selling Pemberton's French wine, Coca, which is still wine, but is now infused both with coca leaves for the cocaine and kola nuts for the caffeine. Fall of 1885, Atlanta institutes prohibition and becomes a dry town. Pemberton's now like, well shoot, I've got this hit product. I need to scramble and come up with a soft version. And this is the origin of soft drinks. They're not hard as in alcoholic drinks. They're soft.”— David Rosenthal

Creativity & Innovation · Business & Entrepreneurship

DUR_ENDURING

Prohibition forced soft drink category creation