Additional References
EWFF, December 1999
A Dow Stock Case Study: Coca-Cola
What is it about Coca-Cola? Is it the cola nut? The coca extract? The sugar? The answer, of course, is none of the above. In 1993's For God, Country and Coca-Cola, Mark Pendergrast actually published Coca-Cola's coveted 107-year old secret formula. Since then, no one has cooked it up and successfully sold a reasonable facsimile of The Real Thing. In fact, Pendergrast reports that when he was researching his history, the company literally handed him the recipe. Coca-Cola executives were not concerned because they know full well that it is not the drink their customers are buying. As one put it, "We're selling smoke. They're drinking the image, not the product."
It is plain old sugar water, yet some call it the "essence of capitalism." How can it be? The answer appears on page 168 of The Wave Principle of Human Social Behavior. In a section called "Social Visioning as an Aspect of Herding," Prechter explains how social moods find expression in "shared fantasy images." As the chart of Coke from 1957 shows, it is a "social vision" that conforms nicely to the dictates of the Wave Principle. While Coke can stray from the Dow, it always finds its way back to the main trend.
The corporate history behind Coke's long rise shows that the company's old jingle is actually pretty accurate. Things really do go better with Coke. Unless, of course, the thing is a bear market. At such times, things don't go so well, not even for Coke. The firm's history is a living illustration of this passage from page 168: "Trends based upon subjective mental imagery undergo violent reversals when the imagery dissolves." Like the Dow Jones Industrial Average, Coca-Cola took off in the mid-1890s when its founders realized that there was more future in the beverage as refreshment than medicine. "We found we were advertising to the few when we ought to advertise to the masses," said one of the firm's original leaders. By the turn of the century, the company was burrowing deep into the public psyche as it "pioneered celebrity endorsements" to become "not simply a soft drink, but a phenomenon." The first big setback for Coke was the passage of the Pure Food and Drugs Act. Its date of passage was June 1906, five months after a Dow high that would not be materially exceeded until the 1920s. At the outset, Coca-Cola loyalists referred to proponents of the "pure food movement" as "cranks" and "misguided fanatics," but they had far more clout and staying power than expected. Their leader was Harvey Wiley, a man Pendergrast calls the Ralph Nader of the early 1900s. In 1907, Wiley took aim at Coca-Cola with the formation of a new "Poison Squad." Coke's annual report of 1907 reflected a coincident downturn in the company's prospects. As the bear market dragged on, Coca-Cola was beset by woes. In 1908, the government filed suit over its labeling and employment practices. "Even though Coca-Cola won the case in 1912, the publicity hurt the drink. D.W. Griffith put out an anti-Coca-Cola epic in which the inventor of ‘DOPOKOKE' watched his son fall prey to the drink's cocaine. ‘The drink no longer satisfies,' read one caption as the young man went on to hypodermic injections." Through the end of the 1910s, Coke was riled by rocketing sugar prices and a "civil war" for control of the company. After a "disastrous" year in 1920, Coca-Cola finally righted itself in 1922, a year after the Dow bottomed.
Pendergrast dates the start of Coca-Cola's "golden age" to 1923. With a push into global markets and a new age of mass media, Coke soared to heights of wealth generation previously unimagined for a maker of a 5-cent item. The real "secret," of course, was the company's primitive but powerful understanding of its underlying attractiveness. Ad man Archie Lee, "one of the first to realize that a product's image was more important than the product itself," came up with the "Pause that Refreshes" campaign in 1929. It is to that moment in time that anthropologist Clifford Geertz dates Coca-Cola's crossover from a soda fountain and syrup making company to "a system of symbols which acts to establish powerful, pervasive and long-lasting moods." The company "promotes a particular, satisfying, all-inclusive world view espousing perennial values such as love, peace and universal brotherhood. As a sacred symbol, Coca-Cola induces varying ‘worshipful' moods, ranging from exaltation to pensive solitude, from near-orgasmic togetherness to playful games of chase."
With the help of its "social vision" and prohibition, Coke held up better than most firms in the early 1930s, but by 1949, the end of the bear market in inflation-adjusted terms, it was experiencing the same anti-Coca Cola sentiment that had pulled it down in the 1910s. In Paris , mobs overturned Coke trucks, and "the level of hysteria reached such a pitch" that the wife of Coca-Cola's French president worried that her house might be bombed. "Coca-Cola faced similar threats and rumors at mid-century around the world." In , the drink was said to sterilize women.
In the 1950s, the drink got back on track with the bull market. "Consumer behavior was often irrational, based on subconscious psychological motives," Pendergrast writes. "For the first time, the company attempted to plumb the depths of the subconscious mind." Coca-Cola was soon riding high again. In 1966, the end of Cycle wave III in the Dow and a long advance for Coke, the company "suddenly became a hot political topic" and nearly lost the Jewish market by refusing to grant an Israeli bottling franchise. The crisis was forestalled until late 1968 when the Dow topped and the resulting Arab boycott went into effect. In 1969, Ralph Nader himself surfaced with attacks in a hearing before the Select Committee on Nutrition and Human Needs. Shortly thereafter, "the Food and Drug Administration sounded another theme of the approaching seventies by revealing alarming results of tests on cyclamates." Coke's "perfect harmony" ad campaign of the early 1970s helped carry it to a final high with the Dow in 1973, but after that, it was all downhill as the company lost its long battle with the FTC, internal morale fell to an all-time low and "cozy relationships with dictators blew up one after the other." "No one would have guessed that a hopeful new era was about to commence."
By 1995, Coca-Cola would be the world's best known brand, with nearly half of the worldwide soft drink market. The perfection with which the "peace and harmony" of its commercials reflected the public mindset is captured in the stock's price climb from 1982 to 1998. Since its peak in July 1998, however, things have changed in ways reminiscent of past stock market tops. Coke has been shaken by a continuous stream of mysterious corporate crises that range from mold scares to the French government's rejection of its bid to buy Orangina to an assortment of unfavorable court rulings. In one case, the Belgian government successfully forced Coke to stop selling its beverages at a discount. In another, its own employees won the right to internal documents that they will use to mount a major discrimination case. As the New York Times said, the troubles have "revealed a different Coca-Cola," one that somehow manages to make unfortunate situations "even worse."
The true nature of Coke's problems is revealed by another recent snafu, an outbreak in which several Belgian school students reported feeling bad after buying Coca-Cola from a vending machine. Some were hospitalized, but no medical problems were ever diagnosed. Even though the company analysis showed "consumers were generally limited to subjective symptoms," massive recalls followed in and then . "The pattern of this epidemic is consistent with a clinical entity which has been described as ‘mass sociogenic illness.'" In socionomic terminology, this translates to "We're in a bear market." |
