Coke Crisis: Equity erodes as brand troubles mount

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Coca-Cola's brand -- one of the most recognized in the world -- is in danger of dilution, as events of the last two years continue to erode equity built over a century.

The last two decades have seen dramatic growth for the company in sales, power and reputation. The company's share price grew from less than $1.50 in 1980 to nearly $89 in 1998.

Then the company's brand and image started to go flat. The problems seem to have begun with the 1997 death of beloved Chairman Robert Goizueta and picked up with recent employee lawsuits over diversity issues, fizzling bottler relations, plunging demand for syrup that forced a production stoppage, and a disastrous product recall in Belgium. As a result, profits fell and the stock lost more than $100 billion in value since Coke's price peak.

In an acknowledgment of its 41% drop in net income from 1997 to 1999, the normally paternalistic Coca-Cola in January announced plans to lay off some 6,000 workers, or about 18% of the work force.


Coke hasn't found any easy answers in marketing. It parted company with Edge Creative, Santa Monica, Calif.; and although officials said the account has not moved, it appears to have given a Coke Classic assignment to Cliff Freeman & Partners, New York, the agency for Fanta and Cherry Coke. An executive close to the pitch said Coca-Cola will keep the "Enjoy" tagline for Classic Coke.

The marketer is also seeking a new direction for ailing Diet Coke, whose sales fell to 843 million cases in 1999 from 851 million cases in 1998. The company is exploring a celebrity-laden effort from Wieden & Kennedy, Portland, Ore., which includes approaching star-magnet "Pleasantville" director Gary Ross to film the campaign. This would be the first commercial for Mr. Ross, who declined to comment, calling it "premature."

Publicly, Coke offers platitudes about the need to market well. At the company's annual meeting last week, little emphasis was given to the company's marketing plans, despite CEO Doug Daft's declaration that the company "has to be the pre-eminent marketing company."


Mr. Daft, a 30-year Coke veteran, succeeded Doug Ivester as chairman-CEO. Mr. Ivester, who has been blamed for unraveling the successes of Mr. Goizueta, will likely remain the fall guy for Coke's woes; at the meeting, some shareholders complained about Mr. Ivester's $30 million golden parachute. Robert Morse, representing the Mary Morse Family Trust that owns 9,000 shares of Coke stock, declared from the floor: "Nobody needs that many shoes."

Mr. Daft has taken steps to differentiate himself from prior regimes and reversed the Goizueta-era mantra that Coke Classic was the ultimate universal drink with infinite growth potential. Mr. Daft's "Think local, act local" battle cry has paved the way for multiple ad executions to communicate local tastes and attitudes.

To keep abreast of local preferences and market demands, top executives have been moved out to the local markets and have responsibility over their regions' ad campaigns. The company has a roster of 15 advertising agencies around the world and 19 executions were developed for the global "Enjoy" campaign.


Gerald Meyers, former CEO of American Motors Corp. turned professor and management consultant, said the Coke brand is damaged because of its back-to-back crises, from the succession problem to the product recall to the current discrimination suit. He believes Coke hasn't sustained brand damage like this since the New Coke debacle in 1985.

Moreover, he's skeptical of the 180-degree turn Mr. Daft has made in the company strategy in order to sell whatever product people want whenever and wherever they want it. The company boasts 232 different beverage brands.

"To be all things to all people is to be important to no one," he said. "It sounds like magnificent strategy, but it does blur the brand."

According to consultancy Corporate Brand Strategy, Coke's overall "brand power" rating fell to 77.1% in 1999 from an 82.7% rating in 1995.

Its corporate public image is also reflecting on the brand. Much of its shareholder meeting focused on good-neighbor issues, with the glare of scrutiny mostly targeted to the class-action discrimination lawsuit. Filed a year ago by eight current and former employees who allege the company denied blacks fair pay, promotions and raises, the suit is now in settlement negotiations. Some 50 current and former employees of Coca-Cola traveled in a multicity bus ride from Atlanta to the shareholder meeting in Wilmington, Del., stopping in Greensboro, N.C., and Washington to publicize the federal lawsuit.


During the meeting, Larry Jones, a former benefits manager and leader of the Justice Riders, called for a product boycott in protest of the company's problems. His comments were bolstered by the presence of the Rev. Jesse Jackson, president of the Rainbow Push Coalition, who is carefully monitoring the progress of the group. He called for a complete diversity audit throughout the company's entire system, including law firms and ad agencies.

But brand experts say Coke can come back, at least from the backlash over its diversity issues.

"What hurts the brand is when you have a product problem," said marketing strategy consultant Jack Trout, president, Trout & Partners. "If there's not a lot of angst or if the issue is not on television, [the diversity issue] will have very little impact."

How Coke leaders move forward in addressing its image problems is more important, observers said.

"Any assault on the reputation of a company is a crisis and reputations are built on how management responds to crises," said Clarke Caywood, department chair, Integrated Marketing Communications, Northwestern University. "Jesse Jackson picks his fights carefully. The fact that he is paying attention to this will be judged by Wall Street and by other businesses."

Contributing: Richard Linnett

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