TheFiresideCEO 237brand strength was the key. Brand strength was for Goizueta not
solely about delivering value to the marketplace, marketing research
results, or balance sheet impacts. Goizueta defined brand strength
in terms of its “ability to command a premium price in exchange for
the very real and obvious value it delivers in return.”
Managing brand strength need not be tricky, although enough
businesses have squeezed brand strength to the point where its
price-value relationship led to its rejection by the market. Coke did
not make that mistake under Goizueta’s leadership. Instead, it con-
tinually sought to find ways to add brand strength by differentiating
the products, “making them unique and distinctive.” For many years
Coke used the AAA approach to its brand strength: availability, af-
fordability, and acceptability of its products. That strategy worked
well, but Goizueta moved to the next level in 1995, to the PPP ap-
proach: pervasive penetration (rather than mere availability), price-
to-value ratios for customers (rather than mere affordability), and
preferred (to merely acceptable).
Financial Prudence
Another foundation of Coke’s enormous success was Goizueta’s
commitment to financial prudence, epitomized by his decision in
1994 to effect at Coke a “financial reformation.” Noting that Coke’s
historical financial prudence had ossified by the early 1980s—“effec-
tively trapping a live organism within the hard constrictions of its
own fossil shell”—and rejuvenated in the latter 1980s, Goizueta re-
stated that commitment.
Goizueta announced a new way of measuring Coke’s perfor-
mance. Economic profits (a version of what would later be called
economic value added), not just growth in revenues or earnings,
became the yardstick. Economic profit is “net operating profit after
taxes, less a charge for the average cost of capital employed to pro-
duce that profit.”
Evaluating businesses with this measure led Coke to divest some
poorly performing operations and renewed the focus on the core
business of soft drin kconcentrate (with some holdings in bottlers
complemented by an economically profitable foods business).
Coke used debt sparingly to enhance shareholder returns and
effected share repurchases to enhance earnings per share. It lowered
its dividend payout ratio while increasing the annual dividend to free