Free The Coke Machine by Michael Blanding Page B

there were unique reasons to buy one, and market segmentation was born. In this new selling environment, Coke might still be the leader in the soft drink category. But upstart company Pepsi-Cola could seek dominance in a new demographic: youth.
    Like Coke, Pepsi had its origins in the patent medicine era, the creation of a North Carolina pharmacist named Caleb D. Bradham, who sold a brew of kola nut and the stomach enzyme pepsin as a cure for stomachache. It nipped successfully at Coke’s heels for a while, with some three hundred bottlers in twenty-four states by 1910, but foundered during World War I, when the spike in sugar prices all but put it out of business. The company probably would have died if not for the intervention of a temperamental New York City department store owner, Charles Guth, who bought it out of bankruptcy in 1931 after Coke refused to cut him a discount for his soda fountains. Despite sweetening Pepsi’s formula and reviving bottling, Guth failed spectacularly at first—even offering to sell the company to Coke for $50,000 in 1933.
    When Coke refused, the company went for broke with a new strategy: bottling the drink in 12-ounce beer bottles and selling “Twice as Much for a Nickel.” The tactic worked; Pepsi sales rocketed back during the value-conscious Depression, with profits topping $2 million in 1936, $3 million in 1937, and $4 million in 1938. The new medium of radio drilled the drink more firmly into the public’s mind with an infectious jingle first introduced in 1940 that became the most successful radio spot in history: “Twice as Much for a Nickel, Too . . . Pepsi-Cola Is the Drink for You.”
    Coke wasn’t about to take such vibrant free-market competition lying down. It went straight to the government to quash the young upstart, arguing in a series of court cases in the United States, Canada, and the United Kingdom that Coke had exclusive rights to the word “cola.” Pepsi countersued, charging Coke with illegally trying to constitute a monopoly. In the end, Pepsi’s arguments carried the day, with a British court finally ruling in 1942 that “cola” was a generic term any company could use. Coke sued for peace, with Woodruff personally agreeing with Pepsi’s new president, Walter Mack, that the two companies would no longer compete in the court of law.
    Instead, they competed in the arena of image—and here, for the first time, Coke was losing. In 1950, Pepsi hired as its president Al Steele, a former D’Arcy executive and Coke VP of marketing, who out-coked Coke with a new lifestyle-oriented campaign. While Coke still marketed itself as the product for everyone—workmen and businessmen, soldiers and socialites—Pepsi focused solely on young middle-class families moving into suburban tract houses in droves.
    “Stay young and fair, be debonair, be sociable, have a Pepsi!” the new radio jingles urged. Pepsi’s USP had nothing to do with its product, but in the idea that it represented: youth, energy, upward mobility. And the campaign was wildly successful. After dipping as low as $1.25 million in 1950, Pepsi’s net profit shot up to $14 million by 1955. For the first time, Coke’s market share began slipping, and sales slumped. “Coke can hardly be said to be foundering,” wrote The Wall Street Journal . “But it is faltering.” Pepsi, meanwhile, distilled its message to take advantage of the burgeoning “generation gap” with a new slogan: “For those who think young.” Eventually, the campaign would become a direct appeal to the new generation of “baby boomers”—the Pepsi Generation—and establish the most important battleground for the Cola Wars: young people.
     
     
     
    Despite Pepsi’s upper hand in advertising, however, Coke had something the upstart could never match: money. In 1956, Coke poured $11 million into its advertising, one of the top ten ad budgets in the country. By 1963, it was number one, spending $53 million a year. Much of it