The Ten Commandments for Business Failure - Don Keough [11]
“Pepsi Cola hits the spot.
Twelve full ounces, that’s a lot.
Twice as much for a nickel, too.
Pepsi Cola is the drink for you.”
Pepsi Jingle
PEPSI SALES began to rise.
But The Coca-Cola Company wouldn’t budge. In fact, in communications within The Coca-Cola Company, Pepsi-Cola was not even referred to by its name. It was called “the imitator.”
Twice as much for a nickel from the imitator was growing in popularity among more and more U.S. consumers who were able to buy refrigerators after the war and were serving more and more drinks at home. Pepsi sales doubled from 1947 to 1954 while Coca-Cola sales idled along. To be sure, Coca-Cola still outsold the competitor by a significant margin, but the gap was narrowing and a major competitor got a leg up.
But the leadership of The Coca-Cola Company was adamant. They would not consider any other packages. Besides, they reasoned, with twice as much product and twice as much expensive sugar in every bottle, Pepsi would soon go broke.
It didn’t.
Finally, in 1955, faced with sharply declining supermarket sales, the inflexibility of The Coca-Cola Company gave way. The company introduced three new packages: the King-Sized ten-ounce, the twelve-ounce, and the twenty-six-ounce Family Size.
Many of our bottlers were also inflexible.
In 1974, when I was president of our U.S.A. operation, it became absolutely critical for everyone’s survival that the bottlers let us change their contractual arrangements with the company. It was in their best interests but some just didn’t see it that way. They were fixed in the past and would not budge.
Our bottler system was successful but antiquated. The original bottling territories were carved out in the late nineteenth and early twentieth centuries and were based on how far one could go out and get back in a single day with a horse and wagon. The preservation of territorial integrity was valid, but large chain store customers had operations that spanned across many bottlers’ territories and it was becoming more and more difficult to maintain a common price. By the end of the 1960s the company’s ability to serve large grocery chains was severely limited. Yet many bottlers didn’t want to sell, move, or merge. And they held contracts that were granted in perpetuity. By being inflexible without realizing it, the Coca-Cola bottlers were slowly weakening the system that was, in fact, their lifeblood.
For The Coca-Cola Company to stay in business in the United States we had to raise prices and our contracts with bottlers prohibited it. In addition we had to have bottler territories that were compatible with the needs of our chain store customers. The Coca-Cola Company had to renegotiate with all of our bottlers. Under then company president Luke Smith, we began the process.
Luke Smith and I talked with every bottler owner. The bottlers often didn’t take kindly to change. Folklore around the company had it that the last thing a dying bottler would say to his son or daughter was “Don’t let them fool around with the contract.” And we were fooling around with the contract.
Eventually, one by one, most bottler leaders recognized that if we didn’t change things we were all committing corporate suicide. The world’s best-known product, Coca-Cola, was in danger and we all had to work together to save it. And we did.
When the conditions around you change, remain inflexible. Keep on keeping on. Stand firm. You will fail.
“For this is the tragedy of man—circumstances change, but he doesn’t.”
—Machiavelli
THERE ARE SO MANY examples of severe pigheaded inflexibility in companies that once represented a leading edge of innovation that they are simply too numerous to count. We’ve all seen people in high places in high-tech firms sitting back in a self-satisfied, thumb-sucking mode, assuring