Remember the Pepsi Challenge?

I love the idea of the challenge because it makes a big, bold statement ' what I like to call a BIG ZIG! And what better way to get people to try your product than with a taste test?

What's interesting about the Pepsi Challenge is that Pepsi won the taste test in every city time and time again for 20 years. So why is Coke still the number one soft drink the world? If Pepsi won in all the taste tests for 2 decades why is it still #2?

The lesson is fascinating and proves that figuring out customer behavior is not as simple as a taste test.

First, I need to give you some background that Malcolm Gladwell explains so well in his best-selling book, "Blink, The Power of Thinking Without Thinking."

For years, Coke had always been the number one soft drink on the market. In 1972, 18% of soft drink users said they drank Coke exclusively compared with just 4% who called themselves Pepsi drinkers.

A few years later, in 1975, Pepsi launched its now famous Pepsi Challenge in which they invited anyone and everyone to a blind taste test. And in test after test, Pepsi won 57% of the time and Coke only won 43% of the challenges. That's huge in the fiercely competitive soda wars.

By the 1980s, Coke's market share had dropped to 12% and Pepsi was gaining sales with 11% of the market share. Coke was worried. They were spending $100 million more on advertising that Pepsi. They had twice as many vending machines, more shelf space, they were competitively priced with Pepsi ' so why were they losing market share?

It had to be the taste. The 100-year-old formula just didn't seem to be working any longer.

So Coke did its own taste tests and found the same disturbing results ' Pepsi won hands down. So Coke started experimenting with new formulas and found one in which it was finally beating Pepsi in blind taste tests by 6-8 percentage points.

A new formula was discovered and New Coke was given the green light. Coca-Cola CEO Roberto c. Goizueta called the new product 'the surest move the company's ever made.'

It bombed. There were protests ' seriously! Coke loyalists were outraged that their favorite drink was no longer available and replaced with New Coke, which they absolutely despised!

Within 3 months, New Coke was pulled from the shelves and it was replaced with Coca-Cola Classic. And today, Coke still holds the title as the #1 soda in the U.S. and the world.

So why did New Coke fail so miserably? It won the taste tests. Shouldn't it have been a hit?!

Stay tuned for the answer in tomorrow's e-letter.

Always taking you from where you are to where you want to go,

Jon

Jon Goldman, President