0:00:06 > 0:00:10You've got a new product, but how will you get people to buy it?
0:00:10 > 0:00:15Through advertising and publicity, marketeers create an image
0:00:15 > 0:00:19that can make your product seem very desirable.
0:00:19 > 0:00:21But publicity can also have a negative impact.
0:00:21 > 0:00:25Get it wrong and you could be stuck with an image problem,
0:00:25 > 0:00:27and something that nobody wants to buy.
0:00:28 > 0:00:31Consumer giant Proctor & Gamble has long been famous
0:00:31 > 0:00:35for washing-up liquid and nappies, but in 1996,
0:00:35 > 0:00:38it made its first foray into Britain's lucrative soft drinks market.
0:00:38 > 0:00:44P&G enlisted the help of advertising gurus Saatchi & Saatchi.
0:00:44 > 0:00:48Sunny Delight was an opportunity for us not only to create a great market
0:00:48 > 0:00:50in the UK, but also to build this into a global brand.
0:00:50 > 0:00:55Sunny Delight was already selling well in the US, so Saatchi & Saatchi
0:00:55 > 0:01:00tweaked the clever American marketing to sell it in the UK.
0:01:00 > 0:01:05It was a really stonking launch. It was very, very well thought-out.
0:01:05 > 0:01:08As stores stacked their chiller cabinets with the drink,
0:01:08 > 0:01:10a £10 million ad campaign showed thirsty children
0:01:10 > 0:01:13reaching for the distinctive orange bottles.
0:01:13 > 0:01:17There was a really quite extraordinary call to action
0:01:17 > 0:01:19the commercial created.
0:01:19 > 0:01:24It was kids running in from playing, outdoor pursuits, hot,
0:01:24 > 0:01:26sweaty, thirsty.
0:01:26 > 0:01:30- He's back, they're all back. - Mum, can we get a drink?- Go on!
0:01:30 > 0:01:33Opening the fridge door, and I think the shot then
0:01:33 > 0:01:34came out of the fridge
0:01:34 > 0:01:40and they were grabbing this bright fluorescent orange, garish bottle.
0:01:40 > 0:01:43We've got orange juice, cola, some purple stuff
0:01:43 > 0:01:45and this new Sunny Delight.
0:01:45 > 0:01:48Open it, chucking it all in and then quenching their thirst.
0:01:48 > 0:01:53- It was very, very powerful and kids wanted it.- So nice.- Brilliant.
0:01:53 > 0:01:58- That's the last of it.- Oh, no it isn't!- She's all right, your mum.
0:01:58 > 0:02:02"New Sunny Delight, the great stuff kids go for."
0:02:02 > 0:02:05It was a real power-of-advertising moment.
0:02:07 > 0:02:11Within four months, Sunny Delight was the nation's third-best-selling soft drink.
0:02:11 > 0:02:14Supermarkets doubled then tripled their orders.
0:02:14 > 0:02:20It suddenly became one of the most successful grocery launches of all time.
0:02:20 > 0:02:22The sales took off so fast that our initial problem
0:02:22 > 0:02:26within the first few months of launch was about trying to reduce
0:02:26 > 0:02:28demand for it, not increase demand.
0:02:28 > 0:02:31We couldn't make the stuff fast enough.
0:02:31 > 0:02:38In 1999, P & G sold over 200m bottles of Sunny Delight.
0:02:38 > 0:02:39People began to ask
0:02:39 > 0:02:43if it could knock a certain fizzy drink off its sugary throne.
0:02:47 > 0:02:51Proctor & Gamble, it seemed, had discovered the impossible -
0:02:51 > 0:02:55a wholesome drink that children preferred to Coke.
0:02:55 > 0:03:00Until, well, the Food Commission urged parents to read the label.
0:03:00 > 0:03:04It turned out that Sunny Delight wasn't full of great stuff at all.
0:03:04 > 0:03:08Parents began to ask, is this really juice?
0:03:08 > 0:03:13It was about 5% juice which, of course, means 95% other stuff
0:03:13 > 0:03:16and the other stuff, obviously, mainly water,
0:03:16 > 0:03:19but there were things in there like colourings, flavourings,
0:03:19 > 0:03:22vegetable oil, which gives you a mouth-feel of drinking something
0:03:22 > 0:03:24with a more juicy content.
0:03:24 > 0:03:27In the trade, it's organoleptic properties, which sounds posh.
0:03:27 > 0:03:29There was also a lot of sugar.
0:03:29 > 0:03:31You couldn't see that from the label,
0:03:31 > 0:03:34because it was declared as carbohydrate,
0:03:34 > 0:03:37and that's the technical term for sugars in a product.
0:03:37 > 0:03:41We worked out that that was a roughly equivalent product to a cola
0:03:41 > 0:03:44and we wanted to let parents know that.
0:03:51 > 0:03:55Horrified parents began to desert the brand.
0:03:55 > 0:03:58It imploded the whole promise,
0:03:58 > 0:04:02and I think there were literally hundreds of thousands, maybe even
0:04:02 > 0:04:07millions of mums up and down the country realising that their bubble had burst
0:04:07 > 0:04:12and this mysterious magical product was actually not juice.
0:04:12 > 0:04:17Brand managers battled to regain Sunny Delight's healthy glow,
0:04:17 > 0:04:21but nothing could prepare them for what was about to come.
0:04:21 > 0:04:26Saatchi & Saatchi had been planning a fun new advert for Christmas.
0:04:26 > 0:04:29We had taken the same sort of structure that we had
0:04:29 > 0:04:34in our normal ads, but in this case it wasn't kids, it was a snowman.
0:04:34 > 0:04:38The ad was launched as the school holidays began,
0:04:38 > 0:04:41but Sunny Delight's makers were about to receive
0:04:41 > 0:04:44an unwanted Christmas present.
0:04:44 > 0:04:45The makers of Sunny Delight,
0:04:45 > 0:04:48one of Britain's top-selling soft drinks,
0:04:48 > 0:04:52have admitted that too much of it can turn children's skin yellow.
0:04:52 > 0:04:55A young Sunny Delight drinker from Wales had been rushed
0:04:55 > 0:04:59to hospital suffering from an unusual temporary side-effect.
0:04:59 > 0:05:05She was a sweet little girl of around four, and just like any other
0:05:05 > 0:05:08young girl, except that her skin had a certain colour to it.
0:05:08 > 0:05:11Any parent trying to imagine what shade
0:05:11 > 0:05:15she had turned needed only to watch to the end of the advert.
0:05:15 > 0:05:19'Sunny Delight, the great stuff kids go for.'
0:05:19 > 0:05:22I remember being home at Christmas time, opening up a newspaper,
0:05:22 > 0:05:25looking at that story, illustrated with the ad
0:05:25 > 0:05:28we had just made with the snowman turning orange, and it was one
0:05:28 > 0:05:34of those moments. My mouth went a little bit dry, my heart started
0:05:34 > 0:05:37beating a bit faster, my stomach leapt a little bit.
0:05:37 > 0:05:41At that point, I knew something really bad had happened here.
0:05:41 > 0:05:44The worst that can happen with any brand, and of course
0:05:44 > 0:05:49in business in general, is that you hurt your consumers in any way.
0:05:49 > 0:05:51Making children turn orange,
0:05:51 > 0:05:57it is difficult to imagine a more difficult kind of story to manage.
0:05:59 > 0:06:03By 2001, sales had halved, and Sunny Delight
0:06:03 > 0:06:08fell from near the top of the best seller list to a lowly number 42.
0:06:08 > 0:06:11Canny advertisers know that yes, you can fool people
0:06:11 > 0:06:15for a while and you can enjoy booming sales for a year or two,
0:06:15 > 0:06:18but you are in business for the long term, and in the long term,
0:06:18 > 0:06:21you are bound to be rumbled, as Sunny Delight was.
0:06:21 > 0:06:24Despite a star-studded rebrand,
0:06:24 > 0:06:27P & G finally decided to sell off the Sunny Delight name.
0:06:27 > 0:06:30Today's product has a new recipe with a higher juice content,
0:06:30 > 0:06:34but its sales are just 4% of what they once were.
0:06:39 > 0:06:42Gathering information through market research
0:06:42 > 0:06:45is an important part of all new business campaigns.
0:06:45 > 0:06:48But as the world's biggest brand Coca-Cola discovered,
0:06:48 > 0:06:51it has to be carried out effectively.
0:06:51 > 0:06:54You need to ensure you are asking the right questions
0:06:54 > 0:06:56to get the right answers.
0:06:56 > 0:06:59This is the story of an intense rivalry,
0:06:59 > 0:07:04an ill-considered decision, and Coke shooting itself in the foot.
0:07:09 > 0:07:14It was April 1985, and Coca-Cola had summoned the press
0:07:14 > 0:07:17to an important announcement in New York City.
0:07:17 > 0:07:19I think the anticipation would be
0:07:19 > 0:07:21that whatever Coke did would be a smart move.
0:07:21 > 0:07:24No one anticipated it wouldn't be.
0:07:25 > 0:07:31Coke chairman Roberto Goizueta was ready to let out his secret.
0:07:31 > 0:07:33I'm going to get right to the point.
0:07:33 > 0:07:41The best soft drink, Coca-Cola, is now going to be even better.
0:07:41 > 0:07:46Simply stated, we have a new formula for Coke.
0:07:48 > 0:07:53For a second, the room is dead quiet and that was a surprise.
0:07:54 > 0:07:59Coke represents America and it was sort of like saying, "We have
0:07:59 > 0:08:04"decided to change the American flag and put the stars someplace else."
0:08:05 > 0:08:09I mean... What? Why, what, why are you doing that?!
0:08:09 > 0:08:12# There's nothing like a Coke. #
0:08:12 > 0:08:17Since the Second World War, Coke's position had been unassailable,
0:08:17 > 0:08:19until...
0:08:19 > 0:08:21We were just the upstart, the number two.
0:08:21 > 0:08:25Had been the number two for years and years and years.
0:08:25 > 0:08:28By the '70s, tired of trailing behind,
0:08:28 > 0:08:31Pepsi needed something brilliant.
0:08:31 > 0:08:33Something that would change the game.
0:08:33 > 0:08:36Pepsi came up with a marketing masterstroke.
0:08:36 > 0:08:40We instituted the Pepsi Challenge, which told people,
0:08:40 > 0:08:41which told the nation,
0:08:41 > 0:08:45that more people preferred the taste of Pepsi to Coke.
0:08:45 > 0:08:49- Can you tell me which one you prefer?- L.- You're both sure?
0:08:49 > 0:08:52You like L better? What was your choice?
0:08:54 > 0:08:59And that resulted in significant share gain, and that was
0:08:59 > 0:09:05very difficult for Coke to accept, because they had been the champion forever.
0:09:05 > 0:09:09The Pepsi Challenge became a real problem for us,
0:09:09 > 0:09:11and a great concern to our marketeers.
0:09:11 > 0:09:16Everyone, I believe on both sides, was very, very involved in
0:09:16 > 0:09:20let's call it the Cola Wars, that is exactly what it was.
0:09:20 > 0:09:24Pressure was growing at Coke to get its market share back.
0:09:28 > 0:09:32- I want you to tell me which of these two colas you prefer.- OK.
0:09:37 > 0:09:38Come here, come here.
0:09:38 > 0:09:44The Pepsi Challenge was a winner. It appeared to prove that people preferred the taste of Pepsi.
0:09:44 > 0:09:47But even more importantly, it also convinced executives
0:09:47 > 0:09:51at Coca-Cola that the taste of Coke was its biggest problem.
0:09:51 > 0:09:53They began to think the unthinkable -
0:09:53 > 0:09:56the taste of Coke had to be improved.
0:09:57 > 0:10:00It was not something that you did lightly.
0:10:00 > 0:10:02You did a lot of market research.
0:10:02 > 0:10:08Almost 200,000 taste tests were conducted.
0:10:08 > 0:10:12And those tests showed people preferred the new, sweeter flavour.
0:10:12 > 0:10:15To Coke bosses, this market research was conclusive.
0:10:17 > 0:10:21Armed with this data, they actually made the decision to go ahead,
0:10:21 > 0:10:25change the formula, introduce a new product into the marketplace
0:10:25 > 0:10:27and withdraw the original formula.
0:10:29 > 0:10:32I remember thinking at the time that this was either
0:10:32 > 0:10:36unbelievably brave or unbelievably stupid.
0:10:39 > 0:10:43APPLAUSE
0:10:43 > 0:10:44Thank you very much, Roberto.
0:10:44 > 0:10:48Consumers preferred the new taste over the original
0:10:48 > 0:10:52by a margin of 61 to 39.
0:10:53 > 0:10:56# A great new taste Now it's opening night
0:10:56 > 0:11:00# A colossal event It's reaching new heights... #
0:11:00 > 0:11:04And all across America, Coca-Cola created a huge fanfare
0:11:04 > 0:11:06to welcome new Coke.
0:11:06 > 0:11:08# New Coke is here
0:11:08 > 0:11:11# It's just how you feel and you know it's for real. #
0:11:13 > 0:11:20It took a few days for the consumer reaction to start to move negatively.
0:11:20 > 0:11:24Typically, in our consumer information centre,
0:11:24 > 0:11:27we'd get about 300-400 calls a day.
0:11:29 > 0:11:33Suddenly we were getting 1,500 calls a day.
0:11:33 > 0:11:37And these were not positive calls, these were negative calls.
0:11:37 > 0:11:42These were calls that basically said, "I want my Coke back."
0:11:42 > 0:11:44# But it made me mad... #
0:11:44 > 0:11:47We started to see protests in the street.
0:11:47 > 0:11:52# When you went and changed
0:11:52 > 0:11:54# the taste of Coke Yeah, yeah, yeah. #
0:11:56 > 0:11:58For Pepsi, things could scarcely be better.
0:11:59 > 0:12:01It was a very big error,
0:12:01 > 0:12:06and it was exciting because it was a day-by-day battle with Coke.
0:12:06 > 0:12:08My oldest daughter is 22.
0:12:08 > 0:12:11Her first word was Coke, her second word was mommy.
0:12:11 > 0:12:16Militant Coke drinkers who wanted their old flavour back kept
0:12:16 > 0:12:19- stepping up their campaign. - Coca-cola Drinkers of America.
0:12:19 > 0:12:22This was a new thing to see this sort of grassroots organising
0:12:22 > 0:12:26around an issue that people felt strongly about.
0:12:30 > 0:12:33Keen to find out exactly what was going wrong,
0:12:33 > 0:12:37Coke executives went back to their market research.
0:12:37 > 0:12:42They realised they had made some extremely significant errors.
0:12:42 > 0:12:45There is always a difference between blind taste testing
0:12:45 > 0:12:47and branded product testing.
0:12:47 > 0:12:51What you've got to remember with market research,
0:12:51 > 0:12:54and particularly if you're doing blind taste testing,
0:12:54 > 0:12:58is that you are doing it without all the brand associations attached.
0:12:58 > 0:13:02We didn't ask all the questions we needed to ask.
0:13:02 > 0:13:08All we asked people was whether they preferred taste X to taste Y.
0:13:08 > 0:13:14We never asked them, "How would you feel if we replaced X with Y?"
0:13:16 > 0:13:18Coke now knew they'd messed up horribly.
0:13:18 > 0:13:20They had to act.
0:13:24 > 0:13:2879 days after the introduction of New Coke, Coca-Cola executives
0:13:28 > 0:13:32came out again in front of the world's press, this time to say
0:13:32 > 0:13:35they were going to make a U-turn and revert to the old recipe.
0:13:35 > 0:13:38Our boss is the consumer,
0:13:38 > 0:13:41and we want them to know that we're really sorry.
0:13:41 > 0:13:47Some critics will say, "Coca-Cola has made a marketing mistake."
0:13:47 > 0:13:53And some cynics say that we planned the whole thing.
0:13:53 > 0:13:59The truth is we're not that dumb, and we're not that smart.
0:13:59 > 0:14:04The prime lesson is that you don't mess with a brand that easily,
0:14:04 > 0:14:06and, in a sense, that quickly.
0:14:06 > 0:14:12Secondly, don't be over-influenced by the noises of your competitor.
0:14:12 > 0:14:15You know, this was a very successful Pepsi campaign.
0:14:15 > 0:14:19They went on and on about the taste test.
0:14:19 > 0:14:22But, actually, Coke sales continued to outstrip Pepsi.
0:14:22 > 0:14:28And you need to be calm in dealing with competitors' noises.
0:14:28 > 0:14:34I think that this goes down as the biggest single brand mistake
0:14:34 > 0:14:36ever made.
0:14:43 > 0:14:48You have a cutting edge, top-selling product, a great business,
0:14:48 > 0:14:54and then suddenly something comes along to disrupt your comfortable life.
0:14:54 > 0:14:57We know people love new and improved products,
0:14:57 > 0:14:59but do old ones face an inevitable decline?
0:15:01 > 0:15:03How much does a company need to change and adapt
0:15:03 > 0:15:05to stay in business?
0:15:05 > 0:15:07Well, Polaroid faced these problems
0:15:07 > 0:15:11as intensely as any company ever has.
0:15:11 > 0:15:16It struggled to find a strategy that would stop its product
0:15:16 > 0:15:20being blown out of the water by something newer and more convenient.
0:15:21 > 0:15:24Failing to solve the problem that digital created meant that
0:15:24 > 0:15:29Polaroid went from being a 2 billion shops a year bestseller to bust.
0:15:32 > 0:15:35In the old days, to see your images, first you had to use
0:15:35 > 0:15:38all your film, then take it to a lab,
0:15:38 > 0:15:41and then wait for it to be processed.
0:15:41 > 0:15:45It all took such a long time.
0:15:46 > 0:15:49Polaroid changed all of that.
0:15:49 > 0:15:52THEY CHEER
0:15:52 > 0:15:58In the early '40s, American inventor Edwin Land set about inventing
0:15:58 > 0:16:00a new technology which would revolutionise photography
0:16:00 > 0:16:03with a print which developed before your very eyes.
0:16:05 > 0:16:09His invention reach the shops in 1948, and was an instant hit.
0:16:09 > 0:16:11It seemed to me that we were creating
0:16:11 > 0:16:15a new technology that people were just craving for.
0:16:15 > 0:16:17And Polaroid had a monopoly
0:16:17 > 0:16:21on the fast-growing instant photography market.
0:16:21 > 0:16:23The idea is to sell a camera
0:16:23 > 0:16:26at the lowest price that you can manage to sell it at,
0:16:26 > 0:16:29you're not really making any profit on the camera,
0:16:29 > 0:16:32and then hook the customer into continuing to buy film.
0:16:33 > 0:16:39Unlike the cameras, the film was priced to ensure a good margin.
0:16:39 > 0:16:44And because only Polaroid film would work in Polaroid cameras,
0:16:44 > 0:16:46the company had a secure revenue stream.
0:16:50 > 0:16:54That surely was the model, there was no question about that,
0:16:54 > 0:16:57that if we sold 5 million cameras every year
0:16:57 > 0:17:01and each one of those cameras used 10 packs of film, that's a lot of film.
0:17:02 > 0:17:04The film was very profitable,
0:17:04 > 0:17:07and this was the engine that drove the company for decades.
0:17:07 > 0:17:13At its peak, the company shipped about 200 million packs of film per year.
0:17:13 > 0:17:19It was a lucrative business, but one with an inherent risk.
0:17:19 > 0:17:23I'm deeply suspicious of any business that relies on consumables.
0:17:23 > 0:17:26I think you're in a perilous position, because
0:17:26 > 0:17:30someone's going to come along and do away with the consumable.
0:17:30 > 0:17:33It'll happen because we don't like those sorts of things as users.
0:17:39 > 0:17:43The threat to film came as the '80s arrived,
0:17:43 > 0:17:45along with digital technology.
0:17:45 > 0:17:50Digital was to transform the way we shoot, view and share our photos.
0:17:50 > 0:17:55At first, Polaroid invested in researching the new technology.
0:17:55 > 0:17:59Polaroid people recognised that the future of imaging
0:17:59 > 0:18:01resided in digital imaging.
0:18:01 > 0:18:04By the late '80s they'd even developed a digital chip
0:18:04 > 0:18:08which was way ahead of the competition.
0:18:08 > 0:18:12But there was one major obstacle which held Polaroid bosses back -
0:18:12 > 0:18:15where did their profitable film pack making operation
0:18:15 > 0:18:17fit in the digital future?
0:18:20 > 0:18:23The problem was how to come along with systems that made money,
0:18:23 > 0:18:25that had a business model that worked
0:18:25 > 0:18:27with the structure that the company had.
0:18:27 > 0:18:31What they would have to do if they wanted to transition
0:18:31 > 0:18:34into digital imaging is make a massive change in the way
0:18:34 > 0:18:38they did business. There would have to be huge layoffs,
0:18:38 > 0:18:41they would have to shut down the factories that made the film -
0:18:41 > 0:18:43an absolutely incredibly massive change.
0:18:44 > 0:18:47So Polaroid made its decision.
0:18:47 > 0:18:50Instead of changing its entire way of doing business,
0:18:50 > 0:18:52it chose to back away from going completely digital
0:18:52 > 0:18:55and to focus instead on doing what it always had done...
0:18:58 > 0:19:02Making cameras that use instant film.
0:19:03 > 0:19:06To counter the digital revolution,
0:19:06 > 0:19:10Polaroid launched a range of novelty film cameras.
0:19:10 > 0:19:13The Spice Girls camera, for example, or the Barbie camera.
0:19:13 > 0:19:19A variety of cameras that doesn't require a significant development expense
0:19:19 > 0:19:21and then can be marketed as new products.
0:19:22 > 0:19:25But it was a short-term solution.
0:19:25 > 0:19:28By the year 2000, digital cameras were becoming affordable.
0:19:31 > 0:19:34Polaroid found itself struggling for survival.
0:19:34 > 0:19:37We were losing sales as digital was making inroads,
0:19:37 > 0:19:40but yet we had the overhead expenses.
0:19:40 > 0:19:42So the company did what most companies do,
0:19:42 > 0:19:45you start to lay people off, you start to close down operations.
0:19:45 > 0:19:50But now it becomes a race with time of sales going down,
0:19:50 > 0:19:52debt going up,
0:19:52 > 0:19:57disruptive innovations coming in in digital photography.
0:19:57 > 0:20:00It was the perfect storm for Polaroid.
0:20:00 > 0:20:04In 2001, Polaroid filed for Chapter 11 bankruptcy.
0:20:04 > 0:20:07We had invested our whole lives,
0:20:07 > 0:20:13our whole capital, around chemistry to create a hardcopy image.
0:20:13 > 0:20:15I don't know whether or not,
0:20:15 > 0:20:19because we'd invested all that money in our expertise,
0:20:19 > 0:20:23we weren't able to see that people wouldn't want the hardcopy print.
0:20:23 > 0:20:27Sure as heck, I'm surprised that no-one wants hardcopy prints.
0:20:27 > 0:20:29I mean, er...
0:20:29 > 0:20:30And I don't, either.
0:20:37 > 0:20:40I think that Polaroid is actually incredibly convenient,
0:20:40 > 0:20:44but I think the problem is that there's this huge consumable.
0:20:44 > 0:20:46You have to go and buy it, you have to remember to buy it,
0:20:46 > 0:20:49and when you make a mistake, it's very costly.
0:20:49 > 0:20:52With digital, if you make a mistake, it doesn't cost you anything.
0:20:52 > 0:20:57The whole sharing of photographs has just transformed photography.
0:20:57 > 0:21:00If your money comes from a particular product,
0:21:00 > 0:21:05which was the film, it's quite difficult to try and really see
0:21:05 > 0:21:09that's not going to go on working for very much longer,
0:21:09 > 0:21:11so you're very prone, under those circumstances,
0:21:11 > 0:21:14to turn a blind eye to what's happening.
0:21:17 > 0:21:20I wonder whether there was anything Polaroid could have done
0:21:20 > 0:21:23to have survived the advent of digital.
0:21:23 > 0:21:26It's hard to have some sort of born-again conversion
0:21:26 > 0:21:28to a completely new business.
0:21:28 > 0:21:31Yes, perhaps they should've accepted their big-seller
0:21:31 > 0:21:34only had a future as a small, niche item.
0:21:34 > 0:21:36But it's hard for any company to succeed
0:21:36 > 0:21:39when its main product becomes obsolete.
0:21:39 > 0:21:43Research and development is risky and very expensive.
0:21:43 > 0:21:46If you don't do it and you continue with your existing product,
0:21:46 > 0:21:49you're almost certain to dip down in sales,
0:21:49 > 0:21:51and someone will come along with something better,
0:21:51 > 0:21:54and Polaroid is a very good example of that.
0:21:54 > 0:21:57Someone like Polaroid hit on something which was brilliant.
0:21:57 > 0:22:02Why would you want that to go away? You wouldn't. But it's not your decision.
0:22:17 > 0:22:22This car, the Mini, is Britain's bestselling car ever.
0:22:24 > 0:22:26Over 5 million sold.
0:22:26 > 0:22:31But its success in terms of sales hides a very surprising fact.
0:22:33 > 0:22:36We consumers have got a much better deal on buying Minis
0:22:36 > 0:22:39than we ever should have.
0:22:39 > 0:22:41In any analysis of companies that failed
0:22:41 > 0:22:45something like about 7/10 of those is to do with getting the price wrong.
0:22:45 > 0:22:49They could have choked off some demand and raised the price.
0:22:51 > 0:22:54This is a story that reveals how important it is
0:22:54 > 0:22:59to get your pricing right if you want to turn a successful product
0:22:59 > 0:23:01into a successful business.
0:23:04 > 0:23:09Before the Mini was launched in 1959 by car manufacturer BMC,
0:23:09 > 0:23:13the head of the company had decided on the price at which he wanted to sell it.
0:23:13 > 0:23:15Sir Leonard Lord said,
0:23:15 > 0:23:21"We want to put this car on the market for less than £500."
0:23:21 > 0:23:28At that price, it would be cheaper than its rival, the Ford Anglia.
0:23:28 > 0:23:33We knew that the Ford Anglia was above £500,
0:23:33 > 0:23:39and that there would obviously be an impact on that product.
0:23:39 > 0:23:42There were some people, at fairly senior level,
0:23:42 > 0:23:45who were really shaken by the Mini.
0:23:45 > 0:23:49They thought it would cost us volume on the Anglia.
0:23:49 > 0:23:52And there were some very strong arguments in the board room.
0:23:54 > 0:23:56The public fell in love with the new Mini.
0:24:00 > 0:24:04BMC clearly had a hit on their hands,
0:24:04 > 0:24:08a car that was both desirable and inexpensive.
0:24:08 > 0:24:10But Ford bosses got bewildered.
0:24:10 > 0:24:14They couldn't understand how BMC could manufacture the Mini so cheaply,
0:24:14 > 0:24:21so Ford decided to dismantle a Mini and discover its inner secrets.
0:24:23 > 0:24:27We analysed the Mini and we would dismantle the things completely,
0:24:27 > 0:24:30even to the point of breaking spot welds if we needed to do so,
0:24:30 > 0:24:35and we tore down, weighed and costed on every component.
0:24:35 > 0:24:39Ford's team calculated how much it would cost them to make the Mini,
0:24:39 > 0:24:43and the result was a figure they couldn't believe.
0:24:43 > 0:24:51Based on our analysis, Ford would've incurred £35 of cost
0:24:51 > 0:24:54over and above the price that they were advertising it at.
0:24:54 > 0:24:59BMC were selling the Mini too cheaply.
0:24:59 > 0:25:02If Ford couldn't do it profitably,
0:25:02 > 0:25:04then it was very unlikely anybody else could.
0:25:05 > 0:25:09It represented fantastic value for money.
0:25:09 > 0:25:11Perhaps too good value for money.
0:25:13 > 0:25:16You can obviously not price a product at less than it costs you,
0:25:16 > 0:25:21that defeats the object of being in business in the first place, which is to make a profit.
0:25:21 > 0:25:25The sheer incredulity of the thing, somebody turning out,
0:25:25 > 0:25:28I don't know what they're doing, 500 or 600 a day,
0:25:28 > 0:25:31losing £35 a car?
0:25:31 > 0:25:34You can see the money building up in front of your eyes.
0:25:36 > 0:25:41Incredibly, by insisting that a Mini had to be cheaper than £500,
0:25:41 > 0:25:44it appears that Sir Leonard Lord had given scant attention
0:25:44 > 0:25:46to the issue of production costs.
0:25:48 > 0:25:52Rather than using cost-plus-pricing to ensure a profit is made on top of costs,
0:25:52 > 0:25:56he'd chosen the price in relation to the competition.
0:25:56 > 0:26:00You can't have a product which is similar, 50% higher priced.
0:26:00 > 0:26:02You just can't do it, they won't sell.
0:26:02 > 0:26:07But this was pretty well a unique product.
0:26:07 > 0:26:10Obviously what you're trying to do is cover your cost of goods
0:26:10 > 0:26:13and your cost of production and cost of marketing
0:26:13 > 0:26:17and everything else, and then make a reasonable profit on top of that.
0:26:17 > 0:26:21If you can't even get those calculations right, then, frankly,
0:26:21 > 0:26:25that business doesn't really deserve to succeed in the first place.
0:26:25 > 0:26:27Pricing low might have increased sales,
0:26:27 > 0:26:30but it wasn't the easiest way to make money.
0:26:30 > 0:26:31There's a trade-off.
0:26:31 > 0:26:34There's a volume-versus-price argument, isn't there?
0:26:34 > 0:26:38If I'm selling two T-shirts at £100 each,
0:26:38 > 0:26:41and I could have sold 50 T-shirts at £5,
0:26:41 > 0:26:44I'd sure as hell rather be selling two, because the margin is greater
0:26:44 > 0:26:47and the effort is less, and all the things that go with it.
0:26:49 > 0:26:52The goal of a company is not just to sell more,
0:26:52 > 0:26:55it's to sell more if the money it makes from doing so
0:26:55 > 0:26:58more than outweighs the money it spends.
0:26:58 > 0:27:03And that makes pricing an all-important skill in business.
0:27:03 > 0:27:05It has to marry two things,
0:27:05 > 0:27:08the cost to the company on the one hand
0:27:08 > 0:27:13and the amount that the consumer is willing to pay for a product on the other.
0:27:14 > 0:27:18People wanted the Mini, and so may have been happy to pay a premium.
0:27:18 > 0:27:20If they'd gone out and talked to the customers
0:27:20 > 0:27:23who were waiting on these long lists for the Minis,
0:27:23 > 0:27:25I'm sure they would've found a lot would've been happy
0:27:25 > 0:27:28to pay more, and the company would've made more money.
0:27:28 > 0:27:32The thing for me is that it was a wonderful piece of engineering,
0:27:32 > 0:27:33and totally unique and original.
0:27:33 > 0:27:36They probably could have sold it for more money.
0:27:36 > 0:27:39I think you look at the elasticity in the market
0:27:39 > 0:27:44at various price levels, what is the likely volume?
0:27:44 > 0:27:48And if you increase the price, or lower price, what is the elasticity?
0:27:48 > 0:27:52There is an intuitive element to it, I think, as well, but you must test it out.
0:27:52 > 0:27:56Production of the Mini ended in the year 2000.
0:27:56 > 0:27:58By then, it was owned by BMW.
0:27:58 > 0:28:01The company went on to launch its own version of the Mini.
0:28:01 > 0:28:05With a new range of prices in keeping with its slick design,
0:28:05 > 0:28:07it seems unlikely BMW has made the same mistake.
0:28:07 > 0:28:11Clearly, you can never say anything is a real marketing success
0:28:11 > 0:28:14unless, in the end, it makes money.
0:28:14 > 0:28:17That's a pretty fundamental principle of business.
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