Evan's Business Nightmares

You've got a new product, but how will you get people to buy it?

Through advertising and publicity, marketeers create an image

that can make your product seem very desirable.

But publicity can also have a negative impact.

Get it wrong and you could be stuck with an image problem,

and something that nobody wants to buy.

Consumer giant Proctor & Gamble has long been famous

for washing-up liquid and nappies, but in 1996,

it made its first foray into Britain's lucrative soft drinks market.

P&G enlisted the help of advertising gurus Saatchi & Saatchi.

Sunny Delight was an opportunity for us not only to create a great market

in the UK, but also to build this into a global brand.

Sunny Delight was already selling well in the US, so Saatchi & Saatchi

tweaked the clever American marketing to sell it in the UK.

It was a really stonking launch. It was very, very well thought-out.

As stores stacked their chiller cabinets with the drink,

a £10 million ad campaign showed thirsty children

reaching for the distinctive orange bottles.

There was a really quite extraordinary call to action

the commercial created.

It was kids running in from playing, outdoor pursuits, hot,

sweaty, thirsty.

-He's back, they're all back.

-Mum, can we get a drink?

-Go on!

Opening the fridge door, and I think the shot then

came out of the fridge

and they were grabbing this bright fluorescent orange, garish bottle.

We've got orange juice, cola, some purple stuff

and this new Sunny Delight.

Open it, chucking it all in and then quenching their thirst.

-It was very, very powerful and kids wanted it.

-So nice.

-Brilliant.

-That's the last of it.

-Oh, no it isn't!

-She's all right, your mum.

"New Sunny Delight, the great stuff kids go for."

It was a real power-of-advertising moment.

Within four months, Sunny Delight was the nation's third-best-selling soft drink.

Supermarkets doubled then tripled their orders.

It suddenly became one of the most successful grocery launches of all time.

The sales took off so fast that our initial problem

within the first few months of launch was about trying to reduce

demand for it, not increase demand.

We couldn't make the stuff fast enough.

In 1999, P & G sold over 200m bottles of Sunny Delight.

People began to ask

if it could knock a certain fizzy drink off its sugary throne.

Proctor & Gamble, it seemed, had discovered the impossible -

a wholesome drink that children preferred to Coke.

Until, well, the Food Commission urged parents to read the label.

It turned out that Sunny Delight wasn't full of great stuff at all.

Parents began to ask, is this really juice?

It was about 5% juice which, of course, means 95% other stuff

and the other stuff, obviously, mainly water,

but there were things in there like colourings, flavourings,

vegetable oil, which gives you a mouth-feel of drinking something

with a more juicy content.

In the trade, it's organoleptic properties, which sounds posh.

There was also a lot of sugar.

You couldn't see that from the label,

because it was declared as carbohydrate,

and that's the technical term for sugars in a product.

We worked out that that was a roughly equivalent product to a cola

and we wanted to let parents know that.

Horrified parents began to desert the brand.

It imploded the whole promise,

and I think there were literally hundreds of thousands, maybe even

millions of mums up and down the country realising that their bubble had burst

and this mysterious magical product was actually not juice.

Brand managers battled to regain Sunny Delight's healthy glow,

but nothing could prepare them for what was about to come.

Saatchi & Saatchi had been planning a fun new advert for Christmas.

We had taken the same sort of structure that we had

in our normal ads, but in this case it wasn't kids, it was a snowman.

The ad was launched as the school holidays began,

but Sunny Delight's makers were about to receive

an unwanted Christmas present.

The makers of Sunny Delight,

one of Britain's top-selling soft drinks,

have admitted that too much of it can turn children's skin yellow.

A young Sunny Delight drinker from Wales had been rushed

to hospital suffering from an unusual temporary side-effect.

She was a sweet little girl of around four, and just like any other

young girl, except that her skin had a certain colour to it.

Any parent trying to imagine what shade

she had turned needed only to watch to the end of the advert.

'Sunny Delight, the great stuff kids go for.'

I remember being home at Christmas time, opening up a newspaper,

looking at that story, illustrated with the ad

we had just made with the snowman turning orange, and it was one

of those moments. My mouth went a little bit dry, my heart started

beating a bit faster, my stomach leapt a little bit.

At that point, I knew something really bad had happened here.

The worst that can happen with any brand, and of course

in business in general, is that you hurt your consumers in any way.

Making children turn orange,

it is difficult to imagine a more difficult kind of story to manage.

By 2001, sales had halved, and Sunny Delight

fell from near the top of the best seller list to a lowly number 42.

Canny advertisers know that yes, you can fool people

for a while and you can enjoy booming sales for a year or two,

but you are in business for the long term, and in the long term,

you are bound to be rumbled, as Sunny Delight was.

Despite a star-studded rebrand,

P & G finally decided to sell off the Sunny Delight name.

Today's product has a new recipe with a higher juice content,

but its sales are just 4% of what they once were.

Gathering information through market research

is an important part of all new business campaigns.

But as the world's biggest brand Coca-Cola discovered,

it has to be carried out effectively.

You need to ensure you are asking the right questions

to get the right answers.

This is the story of an intense rivalry,

an ill-considered decision, and Coke shooting itself in the foot.

It was April 1985, and Coca-Cola had summoned the press

to an important announcement in New York City.

I think the anticipation would be

that whatever Coke did would be a smart move.

No one anticipated it wouldn't be.

Coke chairman Roberto Goizueta was ready to let out his secret.

I'm going to get right to the point.

The best soft drink, Coca-Cola, is now going to be even better.

Simply stated, we have a new formula for Coke.

For a second, the room is dead quiet and that was a surprise.

Coke represents America and it was sort of like saying, "We have

"decided to change the American flag and put the stars someplace else."

I mean... What? Why, what, why are you doing that?!

# There's nothing like a Coke. #

Since the Second World War, Coke's position had been unassailable,

until...

We were just the upstart, the number two.

Had been the number two for years and years and years.

By the '70s, tired of trailing behind,

Pepsi needed something brilliant.

Something that would change the game.

Pepsi came up with a marketing masterstroke.

We instituted the Pepsi Challenge, which told people,

which told the nation,

that more people preferred the taste of Pepsi to Coke.

-Can you tell me which one you prefer?

-L.

-You're both sure?

You like L better? What was your choice?

And that resulted in significant share gain, and that was

very difficult for Coke to accept, because they had been the champion forever.

The Pepsi Challenge became a real problem for us,

and a great concern to our marketeers.

Everyone, I believe on both sides, was very, very involved in

let's call it the Cola Wars, that is exactly what it was.

Pressure was growing at Coke to get its market share back.

-I want you to tell me which of these two colas you prefer.

-OK.

Come here, come here.

The Pepsi Challenge was a winner. It appeared to prove that people preferred the taste of Pepsi.

But even more importantly, it also convinced executives

at Coca-Cola that the taste of Coke was its biggest problem.

They began to think the unthinkable -

the taste of Coke had to be improved.

It was not something that you did lightly.

You did a lot of market research.

Almost 200,000 taste tests were conducted.

And those tests showed people preferred the new, sweeter flavour.

To Coke bosses, this market research was conclusive.

Armed with this data, they actually made the decision to go ahead,

change the formula, introduce a new product into the marketplace

and withdraw the original formula.

I remember thinking at the time that this was either

unbelievably brave or unbelievably stupid.

APPLAUSE

Thank you very much, Roberto.

Consumers preferred the new taste over the original

by a margin of 61 to 39.

# A great new taste Now it's opening night

# A colossal event It's reaching new heights... #

And all across America, Coca-Cola created a huge fanfare

to welcome new Coke.

# New Coke is here

# It's just how you feel and you know it's for real. #

It took a few days for the consumer reaction to start to move negatively.

Typically, in our consumer information centre,

we'd get about 300-400 calls a day.

Suddenly we were getting 1,500 calls a day.

And these were not positive calls, these were negative calls.

These were calls that basically said, "I want my Coke back."

# But it made me mad... #

We started to see protests in the street.

# When you went and changed

# the taste of Coke Yeah, yeah, yeah. #

For Pepsi, things could scarcely be better.

It was a very big error,

and it was exciting because it was a day-by-day battle with Coke.

My oldest daughter is 22.

Her first word was Coke, her second word was mommy.

Militant Coke drinkers who wanted their old flavour back kept

-stepping up their campaign.

-Coca-cola Drinkers of America.

This was a new thing to see this sort of grassroots organising

around an issue that people felt strongly about.

Keen to find out exactly what was going wrong,

Coke executives went back to their market research.

They realised they had made some extremely significant errors.

There is always a difference between blind taste testing

and branded product testing.

What you've got to remember with market research,

and particularly if you're doing blind taste testing,

is that you are doing it without all the brand associations attached.

We didn't ask all the questions we needed to ask.

All we asked people was whether they preferred taste X to taste Y.

We never asked them, "How would you feel if we replaced X with Y?"

Coke now knew they'd messed up horribly.

They had to act.

79 days after the introduction of New Coke, Coca-Cola executives

came out again in front of the world's press, this time to say

they were going to make a U-turn and revert to the old recipe.

Our boss is the consumer,

and we want them to know that we're really sorry.

Some critics will say, "Coca-Cola has made a marketing mistake."

And some cynics say that we planned the whole thing.

The truth is we're not that dumb, and we're not that smart.

The prime lesson is that you don't mess with a brand that easily,

and, in a sense, that quickly.

Secondly, don't be over-influenced by the noises of your competitor.

You know, this was a very successful Pepsi campaign.

They went on and on about the taste test.

But, actually, Coke sales continued to outstrip Pepsi.

And you need to be calm in dealing with competitors' noises.

I think that this goes down as the biggest single brand mistake

ever made.

You have a cutting edge, top-selling product, a great business,

and then suddenly something comes along to disrupt your comfortable life.

We know people love new and improved products,

but do old ones face an inevitable decline?

How much does a company need to change and adapt

to stay in business?

Well, Polaroid faced these problems

as intensely as any company ever has.

It struggled to find a strategy that would stop its product

being blown out of the water by something newer and more convenient.

Failing to solve the problem that digital created meant that

Polaroid went from being a 2 billion shops a year bestseller to bust.

In the old days, to see your images, first you had to use

all your film, then take it to a lab,

and then wait for it to be processed.

It all took such a long time.

Polaroid changed all of that.

THEY CHEER

In the early '40s, American inventor Edwin Land set about inventing

a new technology which would revolutionise photography

with a print which developed before your very eyes.

His invention reach the shops in 1948, and was an instant hit.

It seemed to me that we were creating

a new technology that people were just craving for.

And Polaroid had a monopoly

on the fast-growing instant photography market.

The idea is to sell a camera

at the lowest price that you can manage to sell it at,

you're not really making any profit on the camera,

and then hook the customer into continuing to buy film.

Unlike the cameras, the film was priced to ensure a good margin.

And because only Polaroid film would work in Polaroid cameras,

the company had a secure revenue stream.

That surely was the model, there was no question about that,

that if we sold 5 million cameras every year

and each one of those cameras used 10 packs of film, that's a lot of film.

The film was very profitable,

and this was the engine that drove the company for decades.

At its peak, the company shipped about 200 million packs of film per year.

It was a lucrative business, but one with an inherent risk.

I'm deeply suspicious of any business that relies on consumables.

I think you're in a perilous position, because

someone's going to come along and do away with the consumable.

It'll happen because we don't like those sorts of things as users.

The threat to film came as the '80s arrived,

along with digital technology.

Digital was to transform the way we shoot, view and share our photos.

At first, Polaroid invested in researching the new technology.

Polaroid people recognised that the future of imaging

resided in digital imaging.

By the late '80s they'd even developed a digital chip

which was way ahead of the competition.

But there was one major obstacle which held Polaroid bosses back -

where did their profitable film pack making operation

fit in the digital future?

The problem was how to come along with systems that made money,

that had a business model that worked

with the structure that the company had.

What they would have to do if they wanted to transition

into digital imaging is make a massive change in the way

they did business. There would have to be huge layoffs,

they would have to shut down the factories that made the film -

an absolutely incredibly massive change.

So Polaroid made its decision.

Instead of changing its entire way of doing business,

it chose to back away from going completely digital

and to focus instead on doing what it always had done...

Making cameras that use instant film.

To counter the digital revolution,

Polaroid launched a range of novelty film cameras.

The Spice Girls camera, for example, or the Barbie camera.

A variety of cameras that doesn't require a significant development expense

and then can be marketed as new products.

But it was a short-term solution.

By the year 2000, digital cameras were becoming affordable.

Polaroid found itself struggling for survival.

We were losing sales as digital was making inroads,

but yet we had the overhead expenses.

So the company did what most companies do,

you start to lay people off, you start to close down operations.

But now it becomes a race with time of sales going down,

debt going up,

disruptive innovations coming in in digital photography.

It was the perfect storm for Polaroid.

In 2001, Polaroid filed for Chapter 11 bankruptcy.

We had invested our whole lives,

our whole capital, around chemistry to create a hardcopy image.

I don't know whether or not,

because we'd invested all that money in our expertise,

we weren't able to see that people wouldn't want the hardcopy print.

Sure as heck, I'm surprised that no-one wants hardcopy prints.

I mean, er...

And I don't, either.

I think that Polaroid is actually incredibly convenient,

but I think the problem is that there's this huge consumable.

You have to go and buy it, you have to remember to buy it,

and when you make a mistake, it's very costly.

With digital, if you make a mistake, it doesn't cost you anything.

The whole sharing of photographs has just transformed photography.

If your money comes from a particular product,

which was the film, it's quite difficult to try and really see

that's not going to go on working for very much longer,

so you're very prone, under those circumstances,

to turn a blind eye to what's happening.

I wonder whether there was anything Polaroid could have done

to have survived the advent of digital.

It's hard to have some sort of born-again conversion

to a completely new business.

Yes, perhaps they should've accepted their big-seller

only had a future as a small, niche item.

But it's hard for any company to succeed

when its main product becomes obsolete.

Research and development is risky and very expensive.

If you don't do it and you continue with your existing product,

you're almost certain to dip down in sales,

and someone will come along with something better,

and Polaroid is a very good example of that.

Someone like Polaroid hit on something which was brilliant.

Why would you want that to go away? You wouldn't. But it's not your decision.

This car, the Mini, is Britain's bestselling car ever.

Over 5 million sold.

But its success in terms of sales hides a very surprising fact.

We consumers have got a much better deal on buying Minis

than we ever should have.

In any analysis of companies that failed

something like about 7/10 of those is to do with getting the price wrong.

They could have choked off some demand and raised the price.

This is a story that reveals how important it is

to get your pricing right if you want to turn a successful product

into a successful business.

Before the Mini was launched in 1959 by car manufacturer BMC,

the head of the company had decided on the price at which he wanted to sell it.

Sir Leonard Lord said,

"We want to put this car on the market for less than £500."

At that price, it would be cheaper than its rival, the Ford Anglia.

We knew that the Ford Anglia was above £500,

and that there would obviously be an impact on that product.

There were some people, at fairly senior level,

who were really shaken by the Mini.

They thought it would cost us volume on the Anglia.

And there were some very strong arguments in the board room.

The public fell in love with the new Mini.

BMC clearly had a hit on their hands,

a car that was both desirable and inexpensive.

But Ford bosses got bewildered.

They couldn't understand how BMC could manufacture the Mini so cheaply,

so Ford decided to dismantle a Mini and discover its inner secrets.

We analysed the Mini and we would dismantle the things completely,

even to the point of breaking spot welds if we needed to do so,

and we tore down, weighed and costed on every component.

Ford's team calculated how much it would cost them to make the Mini,

and the result was a figure they couldn't believe.

Based on our analysis, Ford would've incurred £35 of cost

over and above the price that they were advertising it at.

BMC were selling the Mini too cheaply.

If Ford couldn't do it profitably,

then it was very unlikely anybody else could.

It represented fantastic value for money.

Perhaps too good value for money.

You can obviously not price a product at less than it costs you,

that defeats the object of being in business in the first place, which is to make a profit.

The sheer incredulity of the thing, somebody turning out,

I don't know what they're doing, 500 or 600 a day,

losing £35 a car?

You can see the money building up in front of your eyes.

Incredibly, by insisting that a Mini had to be cheaper than £500,

it appears that Sir Leonard Lord had given scant attention

to the issue of production costs.

Rather than using cost-plus-pricing to ensure a profit is made on top of costs,

he'd chosen the price in relation to the competition.

You can't have a product which is similar, 50% higher priced.

You just can't do it, they won't sell.

But this was pretty well a unique product.

Obviously what you're trying to do is cover your cost of goods

and your cost of production and cost of marketing

and everything else, and then make a reasonable profit on top of that.

If you can't even get those calculations right, then, frankly,

that business doesn't really deserve to succeed in the first place.

Pricing low might have increased sales,

but it wasn't the easiest way to make money.

There's a trade-off.

There's a volume-versus-price argument, isn't there?

If I'm selling two T-shirts at £100 each,

and I could have sold 50 T-shirts at £5,

I'd sure as hell rather be selling two, because the margin is greater

and the effort is less, and all the things that go with it.

The goal of a company is not just to sell more,

it's to sell more if the money it makes from doing so

more than outweighs the money it spends.

And that makes pricing an all-important skill in business.

It has to marry two things,

the cost to the company on the one hand

and the amount that the consumer is willing to pay for a product on the other.

People wanted the Mini, and so may have been happy to pay a premium.

If they'd gone out and talked to the customers

who were waiting on these long lists for the Minis,

I'm sure they would've found a lot would've been happy

to pay more, and the company would've made more money.

The thing for me is that it was a wonderful piece of engineering,

and totally unique and original.

They probably could have sold it for more money.

I think you look at the elasticity in the market

at various price levels, what is the likely volume?

And if you increase the price, or lower price, what is the elasticity?

There is an intuitive element to it, I think, as well, but you must test it out.

Production of the Mini ended in the year 2000.

By then, it was owned by BMW.

The company went on to launch its own version of the Mini.

With a new range of prices in keeping with its slick design,

it seems unlikely BMW has made the same mistake.

Clearly, you can never say anything is a real marketing success

unless, in the end, it makes money.

That's a pretty fundamental principle of business.

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