Subject: Scarcity and Loss Aversion - New Coke
Event: The Coca-Cola Company discontinues New Coke, 1985
Imagine you are a part of a cookie taste test. Before you are two jars of cookies. One of the jars has ten cookies in it, while the other had just two. Do you think you would be capable of judging the two cookies objectively? Do you think that the number of cookies in each jar might somehow influence your preference for one over the other?
An actual psychological experiment was conducted as described above. What the researchers did not tell the subjects, however, was that all the cookies in the experiment were exactly the same. The results of the study revealed that subjects consistently preferred the cookies that were in short supply over the cookies that were more plentiful. This fact illustrates a powerful idea from social psychology called the scarcity principle -- the tendency that humans have to perceive the value of things that are less abundant or rare over things that are viewed as common or abundant (1).
On April 23, 1985, the Coca-Cola company announced that it would be introducing “New Coke,” a sweeter tasting version of its long-successful traditional formula. Almost immediately there was a backlash from Coke drinkers across America demanding that old Coke be restored to the store shelves. One Seattle man even organized a group called Old Coke Drinkers of America to lobby and even sue the Coca-Cola Company.
Coke executives thought they had done their research, for they had developed the new formula over a four-year period and conducted blind taste tests with thousands of consumers in twenty-five cities. The results of these taste tests were clear: 55% to 45% of Coke drinkers preferred the new formula over the old. In addition, in tests where consumers were told they were drinking old and new formulas, 6% preferred New Coke.
What the Coke executives failed to account for was an important phenomena from psychology called the scarcity principle. In short, it means that when we are told we can’t have something or that something is in short supply, we want that thing even more. Furthermore, we truly dislike it when we have something and it's taken away from us.
When New Coke was released, Americans had been drinking Coke for nearly 100 years, ever since Dr. John Pemberton sold his first glass of the bubbly beverage on May 8, 1886, in a pharmacy in Atlanta, Georgia. More than just soda pop, traditional Coke was a part of Americana. With old Coke no longer available, the scarcity principle kicked in. In addition, a related notion came into play, loss aversion, which causes people to weigh losses more heavily than gains (2).
If Coke executives would have understood scarcity and loss aversion better, they might have, for example, kept old Coke on the shelves awhile before fully replacing it with New Coke. Similarly, they might have framed their advertising to account for loss aversion by emphasizing losses over gains. For example, they might have advertised New Coke, saying, “Don’t miss the opportunity to be the first on your block to taste New Coke. For a limited time you can buy it at a 20% discount over old Coke.”
Because of their failure to understand the consumer’s psychology, the Coca-Cola Company finally had to admit defeat. It was on this day in 1985 that New Coke was discontinued and “Classic Coke” was reintroduced.
Recall, Retrieve, Recite, Ruminate, Reflect, Reason: What is the difference between loss aversion and the scarcity principle?
Challenge: Failed Products - Busts
What are some classic failed products from the past? Do some research into the product, and try to answer the question of why it failed?
Sources:
1-Cialdini, Robert B. Influence: The Psychology of Persuasion. New York: Harper Business, 2021: 268.
2-Goldstein, Noah J., Steve J. Martin, and Robert B. Cialdini. Yes!: 50 Scientifically Proven Ways to Be Persuasive. Free Press, 2009.
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