16 - Fox Gives Up Star Wars Licensing
When George Lucas persuaded 20th Century Fox to make Star Wars, Fox figured it was getting a sweet deal: Lucas agreed to write and direct the film for a paltry $150,000 along with a cut of the profits and, oh, let’s see, the rights to sequels and merchandising. Since the studio didn’t even have a merchandising department, it didn’t blink. Or think. Star Wars then proceeded to rewrite the rules about how movies were marketed. In the end, Fox’s signing off on that one apparently inconsequential contract clause was the equivalent of its handing Lucas a check for about $1 billion.
10 - People Express Flies Too High
There have been larger airline industry fiascoes, but the fate of Newark, New Jersey–based People Express remains the saddest, since the concept was so promising. “They invented the low-fare carrier in 1981—you could go to small northeastern cities for 19 bucks a pop—and there was real fear in the boardrooms of the large airlines,” says Steven Morrison, a professor of economics at Northeastern University who specializes in the economics of air travel. Service was no-frills and generic. So was the company philosophy. People Express chairman and Harvard Business School alum Donald C. Burr used a horizontal management style, making every employee a stockholder and manager. And for a while, business soared. But not content with being the burliest midget on the block, People Express stupidly tried to compete with the big boys, and moved into large cities. Burr bought 50 planes from Braniff (talk about bad juju), and managed to lose $80 million in an ill-advised acquisition of Frontier. By 1986, the corporation was $345 million in the hole; finally, it was absorbed by Continental. The morals here are clear: (1) Too much horizontal leadership can lead to no leadership at all, and (2) never lose sight of your core competency. “You see the lesson in what Southwest does,” says Morrison. “They’re slow and steady, keep to what they do best, and add just two or three new cities a year.”
06 - New Coke Fizzles
The New Coke debacle can be viewed as the triumph of brilliant executives who did their homework and took an intelligent risk . . . or as an example of how corporate idiocy can stigmatize a great brand. By the early ‘80s, Coca-Cola’s market share had dwindled to 23 percent (it was 60 percent at midcentury), because of both soft-drink segmentation and the insurgent Pepsi’s masterful Pepsi Challenge campaign. CEO Roberto Goizueta and anxious president Don Keough gave the go-ahead to tweak the cola’s top-secret formula. After exhaustive research and testing, New Coke was unveiled in April 1985—with disastrous results. What went wrong? “Taste tests couldn’t measure the strength of the brand,” says Ambar Rao, a professor of marketing at Washington University’s Olin School of Business. “In their research, they forgot to include the fact that they would be supplanting original Coke, and you don’t know the strength of a brand until you have people imagine a future without it.” Coca-Cola-addled crackpots flooded the 800 line; Coke became a national joke. A scant three months later, Coca-Cola was reintroduced, only now it was called Coca-Cola Classic. “In doing so, they reaffirmed brand equity and turned a horrific defeat into victory,” says Rao. By the end of 1986, New Coke had gone the way of Corey Hart, while Coke’s shares were at $117, their highest ever.