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The first Coca-Cola was first drunk in 1886. A pharmacist, John Pemberton, mixed up a caramel-coloured liquid, then walked along his Atlanta street to Jacob’s Pharmacy where it was combined with carbonated water and sampled by customers. With positive feedback from Jacob’s patrons the drink was launched at 5 cents a glass. In the first year nine glasses were sold per day on average. John Pemberton’s partner and bookkeeper, Frank Robinson, named it Coca-Cola and wrote it out in his script – the logo you see today.
What the company did over the next century or so was to create an economic franchise by first producing a product that people find pleasing, but second by being acutely aware of the power of psychology in encouraging repeated consumption.
There was also a determination to control a distribution system which ensured competing products were set at a disadvantage. And there was the exploitation of economies of scale, first in the United States and then in over 190 countries.
In many countries Coca-Cola is operates on such a scale that it accounts for 50% or more of the carbonated soft drinks sold; and yet competition regulators rarely intervene in the market which indicates some cleverness in avoiding riling or waking-up the anti-trust watchdogs – another extraordinary resource. Some market shares statistics (including all carbonated brands such as Thums Up, in India): USA 43%, Mexico 48%, India 69%, Germany 79%.
The psychology of drink choices
The creation and maintenance of conditioned reflexes is a key part of Coca-Cola’s success. A considerable amount has been invested over the years in ensuring that the trade name and the trade dress act as stimuli inducing people to buy and consume Coke. The conditioned reflex is assisted by two types of habituation:
- Operant conditioning
This means inducing humans to learn through frequent rewards or punishment what is “good” or “bad”. Coca-Cola goes for positive reinforcement following regular behaviour, i.e. drinking Coke brings the rewards of hydration, calories, pleasant taste, cooling, caffeine and sugar stimulation leading to a strengthening in the desired response, i.e. buying another can.
For Coca-Cola to make good use of operant conditioning it needs to,
(a) Maximise rewards from drinking – flavour, calories, etc. – and;
(b) Minimise the risk of a diminishing reflex to drink Coke. This threat comes from the actions of competitors attracting customers and then introducing new operant conditioning, i.e. customer test and like a competing drink, leading to them going back for more of that reward.
This means making sure that Coca-Cola will be available at all times everywhere (as far as reasonably practicable) so that competitors find it difficult to persuade consumers to give their drink a try. In this way a habit in conflict with the habit of drinking Coke is rarely established.
An important economy of scale is created because people are more aware of your product than competing products because they have tested/tasted it in the past and it has always been around. This produces an informational advantage economy of scale. Munger puts it like this when writing about Wrigley’s but we can substitute Coke for chewing gum:
“If I go to some remote place, I may see Wrigley’s chewing gum alongside Glotz’s chewing gum. Well, I know that Wrigley is a satisfactory product whereas I don’t know anything about Glotz’s. So if one is forty cents and the other is thirty cents, am I going to take something I don’t know and put it in my mouth – which is a pretty personal place, after all – for a lousy dime.” (Poor Charlie’s Almanack, p177)
Thus Coca-Cola creates in people a willingness to pay a premium to drink “the real thing” despite less well-known similar beverages being offered at considerably lower cost.
Operant behaviour is voluntary, unlike the other type, Pavlovian conditioning.
- Pavlovian conditioning
This is often called classical conditioning. It is caused by mere association. It draws on Iv
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