C2 is a bust

Sneaky Pete wants you to buy this book.

Six months ago, I noted Coca-Cola was going to be introducing a mid-calorie cola, which I referred to as a product for “low-carb dieters who have been marooned on the distant asteroid where Diet Coke is unavailable.” After some minor success during the marketing blitz of its debut, overall sales of C2 have fizzled. Coke will announce earnings tomorrow, and they’re expected to have declined.So what happened? First, C2 is a silly idea. There’s little enough distinction between C2 and the other colas (Diet Coke and regular Coke). Someone who drinks regular Coke doesn’t care that much about the calories. If they did, and they still wanted a cola buzz, they’d drink Diet Coke. On top of that, there are a gazillion competitors and alternatives. With such little distinction, it’s surprising C2 ever got past the concept stage.Second, C2′s pricing sucked. At times, C2 cost 40-60% more than regular Coca-Cola. This, and discounting on regular Coke turned consumers off from a product that’s basically a staple with plenty of substitutes.Third, the incompatible business models of Coke and the cola bottlers are exacerbated by the increased pricing. Coke charges its bottlers fixed fees for syrup. Coke’s profits are therefore tied to volume. Bottlers’ profits are tied to margins. Consumers are price-sensitive on soda. If you’re a bottler, and you have an opportunity of promoting ten units with a $2.00 profit or ten units with a $1.00 profit, guess which ones you’re going to do? The bottlers initially tried passing along the price increase, but that tempered demand. Now it’s to the point where stores are pulling it off the shelves. (N.B. The syrup producer — bottler relationship is complicated. Porter’s model is here, while a more thorough and lengthy explanation is here.)(Totally random silly note: I was surprised to see I had > 120 referrals last month from one of the Coca-Cola internal web sites. If you’re reading this, Coke, my services are available at surprisingly high consulting rates.)