Fizz (33 page)

So when Smith went to Dallas to fix the problems at the company's struggling bottling plant, he found the picture depressing. Texas, he later reported, was nothing short of a disaster. Not only was Pepsi behind Coke, but it was also outperformed by Dr Pepper. Coke had 35 percent of the market, Dr Pepper 25 percent, Pepsi a dismal 6 percent. Eager to boost sales, Smith visited a major Dallas grocery chain and offered to pay for ads and in-store displays to promote Pepsi. The grocery chain turned him down flat, telling him it didn't need Pepsi. The incident convinced Smith that Pepsi needed a different approach in Texas, one that was more direct
and aggressive than the company's sunny Pepsi Generation promotions. BBDO and Pepsi's ad men in New York resisted, arguing that a special campaign for Texas would undermine the drink's national message and that an aggressive promotion could destroy the drink's upbeat image.

Smith wouldn't take no for an answer and hired Bob Stanford, the creative director for 7-11 in Texas, to devise a campaign for the Lone Star State. Stanford organized a series of blind taste tests to see how people felt about Pepsi compared to Coke. He gave them a choice between two unmarked paper cups filled with cola and asked them to try both before picking the one they preferred. Pepsi won, even with loyal Coca-Cola drinkers. To be sure the findings were right Stanford carried out another two hundred blind taste tests, this time capturing the reactions using a hidden camera, and he found that the result was the same. It was a slim margin—52 percent for Pepsi against 48 percent for Coke—but enough for Pepsi to safely claim that people preferred its cola. Armed with these results the company turned the taste tests into an ad: the Pepsi Challenge.

In May 1975 the first Pepsi Challenge TV commercial aired in the Dallas-Fort Worth area. It showed a loyal Coke drinker testing two unidentified colas, only to be shocked when he opted for the taste of Pepsi. “Pepsi-Cola,” he exclaimed. “Well, I'll be darned.” More ads followed in Houston, where again Pepsi lagged far behind Coke and Dr Pepper. Again the Coca-Cola drinker picked Pepsi. The ads, with their spontaneous tone, local sights and people, and suggestion that viewers try the challenge for themselves, caused Pepsi sales to rise.

Coca-Cola was outraged at the aggressive campaign and at the claim that people preferred Pepsi over Coke. The company ordered its researchers to carry out its own taste tests, only to find—to its horror and surprise— that Pepsi came out on top. It tried accusing the ads of bias since in the ads the Pepsi cup had the letter M on it, which Coca-Cola claimed people preferred to the Q that adorned the Coca-Cola cups. The next day Pepsi responded by running another Pepsi Challenge ad that featured different letters on the cups but the same “Pepsi tastes better than Coke” message.

In 1977 when Sculley became president of Pepsi-Cola he decided the campaign should go national. The Pepsi Challenge became a sensation. The
company turned the arrival of the Pepsi Challenge in each area into a major event, repainting Pepsi trucks to herald the coming of the challenge and inviting TV crews to film the public taste tests as they happened. For Pepsi's bottlers this was nerve-wracking stuff. What if Pepsi lost the challenge in their area? But it didn't. In town after town, city after city, Pepsi came out on top. Soon the Pepsi Challenge went international. In 1977 the campaign turned up at the Canadian National Exhibition in Toronto where it got Coca-Cola devotee Debbie Cowan to take up the challenge. “The commercials on TV are a bunch of hogwash,” Cowan stated confidently before taking the taste test and picking out Pepsi. “I can't believe it,” she squealed. “OK, I'm not skeptical, not any more.” In Australia a blonde-haired surfer took the test on a beach and, inevitably, opted for Pepsi. “I'm going to go with Pepsi for sure,” he told the camera after the result was revealed.

Coca-Cola struggled to respond. It tried to intimidate local Pepsi bottlers with threats of price wars and ran an ill-judged TV ad starring a redneck Coke drinker ranting about outsiders coming to Texas and “pulling their wily tricks,” but both tactics failed to stop the march of the Pepsi Challenge. Soon the market research reports were indicating that Pepsi had narrowly overtaken Coca-Cola in the supermarket sales. While Pepsi's growth was mainly at the expense of smaller rivals like Royal Crown, the prospect of Pepsi pulling ahead in the supermarkets was frightening for Coke, as it knew that its New York rival would be after its lucrative fast-food contracts next. Coke decided to exploit its dominance of fast-food restaurants, raising prices there to build a war chest before making it clear to Pepsi bottlers that if they brought the Pepsi Challenge to their area, Coca-Cola would hit back hard with a major advertising offensive and unmatchable price cuts. The threat stopped the Pepsi Challenge in its tracks, as Pepsi bottlers chickened out of adopting the campaign. As the 1980s began Pepsi's taste test campaign ground to a halt.

But not before the Coke-beating campaign caught the attention of a Californian businessman named Steve Jobs, the cofounder of Apple Computer. The Pepsi Challenge was already running in Texas when Jobs and his friend Steve Wozniak started their home computer business in a garage in 1976. A year later they launched the Apple II, one of the first mass-produced
home computers, and by 1982 their business had grown into a Fortune 500 company. While Apple's success was remarkable, the future looked less certain for the computer firm as it entered 1982. The IBM PC was taking the business world by storm and Commodore's low-priced VIC-20 computer was doing the same in the nation's homes. Jobs wasn't interested in fighting Commodore and other manufacturers of cheap home computers head on. He wanted to present the computer industry as a two-horse race between Apple and IBM that would make the likes of Commodore seem irrelevant—just as the battle between Coke and Pepsi had overshadowed other cola brands.

As it happened, Apple was also on the hunt for a new president. After failing to lure Don Estridge, the IBM man who created the PC, Jobs decided the company needed to look beyond Silicon Valley for its next boss. It didn't take long before he homed in on Sculley, the man under whom Pepsi-Cola had finally broken Coca-Cola's grip on the market. The Pepsi boss was the perfect fit: a marketing wizard capable of winning over Wall Street who had firsthand experience leading an underdog company to victory in a fight against an established rival. In late 1982 Apple sent its headhunter Gerry Roche to approach Sculley about the job. Sculley wasn't interested, but Roche persuaded him that it was worth meeting the exciting young leader of this technology success story anyway. So Sculley went to California to meet Jobs and see what all the fuss was about. He came away buzzing with ideas, and Jobs was equally excited. The pair met again in New York in January 1983 for dinner at the Four Seasons Hotel. As Jobs picked over his vegan meal, Sculley explained the ideas behind the Pepsi Generation and how they were selling a lifestyle rather than a product. Apple, the Pepsi-Cola boss told Jobs, has a chance to create the Apple Generation. Jobs lapped it up. The next morning Roche called Sculley to tell him that Jobs thought their evening together was the most exciting of his entire life.

Jobs was more convinced than ever that it had to be Sculley who became Apple's new president. He needed him to help create the Apple Generation. The two continued their awkward corporate courtship for another two months, eventually ending up spending a day together in New York touring the city's art museums. They talked money—a million-dollar salary and a
million dollars just for signing up. But even then Sculley refused to commit. Maybe we should just be friends, Sculley told Jobs. The Apple founder remained silent for a while before looking Sculley in the eye and asking: “Do you want to spend the rest of your life selling sugared water, or do you want a chance to change the world?”

The question haunted Sculley. A few days later he accepted the job offer, and in May 1983 he started work at Apple. What followed was nothing less than the wholesale import of Pepsi's marketing philosophy into the California computer company. Sculley and Jobs devised a new approach to computer marketing to launch the Apple Macintosh computer that would be a far cry from the dry, wordy advertising that Apple and its competitors had been using with their lists of bits, bytes, and processor speeds. Instead Apple would present the Macintosh as a lifestyle choice. It would be the Pepsi of computing, the choice of the young, the free, and the cool. IBM would be the monolithic and outmoded competitor, the Coca-Cola of circuitry representing the status quo, boredom, and control. Commodore and the rest would have to settle for being 7Up, Royal Crown, or Dr Pepper. “We needed a campaign that would focus on a two-horse race to play off of Apple's underdog status,” Sculley wrote in his biography
Odyssey: Pepsi to Apple.
“The advertising had to stake out our role as industry innovator in this two-horse race. Perhaps we could even stimulate a public computer war, not unlike the Cola Wars, because of the huge consumer interest in personal computers.”

The 1984 launch of the Macintosh did just that. From the iconic Super Bowl commercial showing a young woman rebelling against a dismal world straight out of George Orwell's
1984
to the way Apple turned the arrival of its new computer into a media event, the Pepsi-inspired launch marked the point when the Silicon Valley pioneer stopped being just another tech company and became a business that sold a lifestyle. It was a marketing approach that transformed how computer technology was sold and would still be the basis of Apple's approach twenty years later when the iPod and iTunes turned Jobs's Pepsi-inspired dream of the Apple Generation into a reality. Andrea Cunningham, one of the public relations consultants who worked on the Macintosh launch, said the campaign brought the idea of
turning technology launches into media events to the fore. “That was a John Sculley innovation, and I think it was something he had done at Pepsi,” she told Stanford University in 2000. “It was more than just getting journalists to cover the product the way we wanted: it was about creating this mystique, this coolness, and this ‘I'm on the inside' kind of thing.”

While Sculley used the lessons of the Pepsi Generation to reinvent Apple, back in the world of soda the battle for cola dominance was heating up. In March 1981 Coke got a new chief executive: Roberto Goizueta, a Cuban born in November 1931. The son of a successful architect, Goizueta grew up in a wealthy district of Havana and attended the same private school as a sugar plantation owner's son named Fidel Castro. After finishing school, he studied chemical engineering at Yale before returning to Cuba to marry his childhood sweetheart Olguita in 1953. A year later, with his first child on the way, Goizueta spotted a job listing in a newspaper seeking an English-speaking chemist for an unnamed company. He applied and the mystery employer turned out to be Coca-Cola, who hired him as a quality control specialist.

He was still working there when Castro and his men marched into Havana in December 1958 and declared the country a Communist state. In the wake of Castro's revolution, life became tougher for Coca-Cola. Castro's soldiers repeatedly stopped Goizueta in the streets, hoping to find company secrets in his briefcase. In one incident, armed Cuban officials turned up at the Coca-Cola plant and ordered Goizueta to stop coloring the drink with unpatriotic caramel and use burnt sugar instead. They only relented when he cooked up a batch using their preferred coloring and they discovered how vile the result tasted. As relations between the United States and Cuba deteriorated, Coca-Cola worried that its plant would be nationalized by Castro, a concern Goizueta shared. In spring 1960 he and his wife sent their three children to Miami to live with their grandparents; shortly after he and Olguita did the same with nothing but two suitcases to their name. After they left Cuba, Castro seized control of the Coca-Cola plant and banished the drink from the country. Coca-Cola found Goizueta a new job in its Latin American division and within four years he had worked his way into the Atlanta head office. By 1979 he was a vice
president and one of just two people in the company who knew the secret formula.

A striking figure, always dressed in sharp tailored suits and chain smoking his Kool menthol cigarettes, Goizueta did not believe in sacred cows. So when Robert Woodruff, who still acted as overseer of the company despite being ninety-one and having suffered two strokes, put Goizueta in charge, the Cuban executive set out to change Coca-Cola's style. He envisaged a feistier Coca-Cola that would be unafraid of change and happy to hit Pepsi where it hurt.

One of Goizueta's first moves was to rid the company of the non-beverage divisions it had accumulated since the mergers and acquisition mania of the 1960s. Out went the wine business, the water purification division Aqua-Chem, and the Mexican inland shrimp farms. Minute Maid, however, stayed. Coke had bought Minute Maid back in September 1960 for $70 million. Founded in 1945 as the Florida Foods Corporation, the company created the frozen orange juice concentrate market, a revolutionary product that offered shoppers the chance to drink orange juice all year round. The product made Minute Maid a corporate success story, but, under Coca-Cola's guidance, the company would instigate a second revolution in orange juice. The task of overseeing Minute Maid's operations fell to Coca-Cola executive Ben Oehlert, who saw a company—no, an entire industry— in desperate need of Coke's soft drink marketing savvy. “Look at orange juice advertising,” he commented. “It tells mothers to see to it that the kiddies take a four-ounce dose of the stuff at breakfast and forget it. It tells old folks to drink it to prevent colds. People don't like medicine; they don't like to do things that are good for them.”

Coke decided that this talk of health, colds, and flus simply would not do and transformed how Minute Maid promoted its juice. Instead of presenting it as a source of vitamin C, Minute Maid's orange juice would now be a refreshing drink suitable for all occasions and times of day. The shift in marketing strategy shook up the entire juice business, and the era of orange juice being sold as a medicine was history. As Oehlert put it, “The fundamental change that Coca-Cola has brought to Minute Maid's policies was to go from the business of selling orange juice as a breakfast medicine
to the business of selling oranges in any and every form the public will take them.”