April 15, 2013

Risk Management and Business Growth

I recently came across this blurb by one of the executives who was involved in the release of New Coke on April 23, 1985. Sergio Zyman says that “he knew New Coke was going to be a disaster almost from the day of its launch”. In a summary of the fiasco at snopes.com the thinking seems to be that this was a genuine mistake on the part of Coca-Cola executives.┬áThere are no analyses that I could find where the risky decision to implement New Coke was put under a microscope from a business perspective, but Coca-Cola’s own description of the event shows that they were surprised by consumer reaction.

Perhaps with the benefit of hindsight, my marketing mind says the whole thing was brilliant. They couldn’t lose! And in fact, they didn’t. Classic Coke was reintroduced and came back stronger than ever, subsequently leading to immense growth in the Coca-Cola company. Had they done a risk analysis on the idea of New Coke, and maybe they did, it would have revealed that there was a chance long-time Coke drinkers would not like the taste of New Coke. The thinking here would be that if they really did prefer the taste of Pepsi to Coke, they would already have switched. The company probably hoped New Coke would attract soda drinkers away from their arch rival Pepsi, and in that case they might have been betting on brand loyalty.

The point of the story for business owners is that any significant move should be analyzed for its risk potential before you attempt it. While Coca-Cola had to invest in new packaging and branding for New Coke, if it took off, that would be a win. What they didn’t realize is that if it failed, which it did, it was also a win. Complacent consumers suddenly cared about their Coke. The resulting publicity was worth millions. And to bring back Classic Coke took little more than the flip of a switch to put the old formula back into production, and a marketing campaign for now “Classic Coke” that added one word to existing marketing materials.

Not every risk you take in your business will have such happy consequences. Some will turn out to be precisely the disasters you feared. Do what you can to reduce the amount of risk, plan for any setbacks as best you can, and have the courage to keep moving forward no matter what. That’s what successful businesses are made of.

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