Collecting Data 131In April 1985, the Coca-Cola Company announced it would change the
formulation of the world’s best-selling soft drink to an improved formula: New
Coke. This move followed nearly five years of market research and planning—
perhaps the most intensive and costly program in history. In some 190,000 taste
tests conducted by the company, consumers favored New Coke consistently
over the old (by 55 to 45 percent in blind tests) and, perhaps more important,
over Pepsi. In the 1980s, the company’s market share had fallen due to com-
petition from Pepsi. Moreover, Pepsi had beaten the old Coke convincingly in
highly publicized taste tests.
With the advantage of 20–20 hindsight, we all know that the taste tests
were wrong. (It just goes to show that you can succeed in doing the wrong
thing, even with 190,000 people backing you up.) New Coke did not replace
the old Coke in the hearts and mouths of soft-drink consumers. Why? The
tests failed to measure the psychological attachment of Coke drinkers to their
product. In response to the protests of die-hard old-Coke drinkers and evi-
dence that the old Coke was outselling New Coke by four to one, Coca-Cola
Company revived the old Coke (three months after announcing its discon-
tinuance) and apologized to its customers. With its quick about-face, Coca-
Cola minimized the damage to its flagship product, now called Coke Classic.
In the last 26 years, Coca-Cola has greatly expanded its cola offerings: Diet
Coke, Cherry Coke, Caffeine-free Coke, among other offerings. On the
advertising, image, taste, and new-product fronts, the cola wars between
PepsiCo and Coca-Cola continue.Controlled Market Studies
Firms can also generate data on product demand by selling their product in sev-
eral smaller markets while varying key demand determinants, such as price,
across the markets. The firm might set a high price with high advertising spend-
ing in one market, a high price and low advertising in another, a low price and
high advertising in yet another, and so on. By observing sales responses in the
different markets, the firm can learn how various pricing and advertising poli-
cies (and possible interactions among them) affect demand.
To draw valid conclusions from such market studies, all other factors
affecting demand should vary as little as possible across the markets. The most
common—and important—of these “other” demand factors include popula-
tion size, consumer incomes and tastes, competitors’ prices, and even differ-
ences in climate. Unfortunately, regional and cultural differences, built-up
brand loyalties, and other subtle but potentially important differences may
thwart the search for uniform markets. In practice, researchers seek to identify
and control as many of these extraneous factors as possible.
Market studies typically generate cross-sectional data—observations of eco-
nomic entities (consumers or firms) in different regions or markets during theBusiness Behavior:
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