To keep growing, businesses need to take risks. The top companies do their due diligence to minimize the prospect of failure when introducing a new product. But even the best laid plans falter.
Iconic brands like Coca-Cola, McDonald’s and even Barbie have all made missteps. Such mistakes can lead to millions lost on marketing campaigns and production costs that go for naught.
Some products, like Earring Magic Ken, a part of the Barbie line, sell well despite a a marketing plan--and the doll's controversial look--that doomed it to be pulled from the shelves in the end. In the end though, the companies often thrive, moving past the debacles.
Here is AdvisorOne’s look at 6 Big Product Flops That Companies Survived:
1. Product: Windows Vista, 2007
Outcome: Product languished behind other Windows OS products
Investor Outlook: The Windows unit’s profit was down, by Microsoft’s was up
Microsoft is the dominant player in the creation and sales of operating systems for PCs. However, the days of every new product being an instant hit are long gone. The company’s Vista operating system, introduced in 2007, is the software giant’s recent symbol of failure.
The software was panned by critics. That, coupled with, according to The New York Times, a tip toward netbooks, as well less robust machines running “slimmer” versions of Windows in emerging countries, led to tepid sales. In addition, many companies did not upgrade to Vista.
Vista may have been a failure, but Microsoft chugs on. Its Windows 7, which shipped the next year, was much more successful than Vista. Windows 8 is nearing its launch and some are calling it a gamble by Microsoft because it is aimed more at the tablet market. They fret because they say the touchscreen-friendly OS might not be so great for laptop and desktop machines.
As an investment, the stock has proved good in the long-term. The stock has been split 2:1 four times since the release of Vista and currently trades at about $30 per share.
2. Product: Heinz EZ Squirt Ketchup, 2000
Outcome: Product Was Discontinued After 7 Years
Investor Outlook: The stock price rose over the life of the product
Anticipation. Surely, the marketing folks at Heinz couldn’t wait till the company, known for its “57 varieties,” introduced its newest product in 2000. The idea, aimed at kids, was to take that traditional deep red color of the company’s signature product and change it to purple, neon green and other “fun” colors and put it in a squeeze bottle.
Unlike some other products that flopped from the start, EZ Squirt was a hit at first. Heinz reported that it had sold about 25 million bottles of the colored goo by 2003. After that, sales dropped off. It’s not clear why. Some speculate moms didn’t like the colors. Others say the novelty wore off. Either way, Heinz stopped selling it in 2006.
The stock price bounced up and down throughout the period paying dividends along the way. In the end Heinz wound up at about $5 per share, closing at $45 per share at the end of 2006.
3. Product: McDonald’s Arch Deluxe, 1996
Outcome: Discontinued despite $100 million marketing campaign
Investor Outlook: The stock stayed the course, although growth was sluggish
Go to into any McDonald’s and you know exactly what you are going to get. It doesn’t matter where you are, the expectations are the same: the burger and fries will be inexpensive and have the taste that’s been the same for decades.
That didn’t stop the powers that be from trying a different tack in 1996 with the introduction of the Arch Deluxe. The new sandwich was aimed at sophisticated adults (I guess the company’s usual customers were too plebian). It was introduced with the slogan the “burger with the grown-up taste.”
That taste came from peppercorn bacon, a bun made from potato flour and topped with mayo, special mustard, lettuce, onion, tomato and cheese.
McDonald’s miscalculated badly. The sandwich was pulled from the menu in a few months. McDonald’s tried to market the burger in Japan with similar results, although it did meet with some success in France, which is known for its sophisticated food.
The stock, which had been trading at $45.50 per share as 1996 dawned, was down 12 cents per share at the end of 1996. Still, in 1997 a New York Times article advanced the idea that the company’s growth had turned sluggish by the flop. McDonald’s is currently priced at about $93 a share.
4. Product: Earring Magic Ken (a new look for Barbie’s boyfriend), 1993
Outcome: Product was discontinued after one year
Investor Outlook: The doll sold well depsite a marketing mess up and the stock more than stood its ground
Barbie has been one of the most enduring dolls since Mattel introduced it in 1959. One of the keys to the success of the toy surely was its adaptability. At first, Barbie was an icon of the conservative times in which it was created. By the late ’60s, Barbie and BFF Midge were reflections of the times in mini-skirts and other fashions. Even boyfriend Ken could be seen sporting a Nehru jacket. But not all the attempts to keep the products current worked out as intended.
In 1993, Mattel had created a line of Barbie dolls called Earring Magic. That year, Ken joined the fold. According to all accounts, kids were questioned about what would make Ken “cool.” The doll flew off the shelves. But the demographic was not exactly the one Mattel had been aiming at. You see, in his purple leather vest, mesh shirt and chain jewelry, Ken quickly was seen as having come out of the closet, and was nicknamed the "Gay Ken." By the end of the year the doll was recalled and production stopped.
As far as the stock went, investors seemingly made out well. The stock rose from $22 to $25 by the end of 1993 and then split 5:4 in January 1994.
5. Product: New Coke, 1985
Outcome: Marketing disaster turned around
Investor Outlook: The product tanked but the stock rose
Coca-Cola was the iconic soft drink of the 20th century, but it was losing ground to archrival Pepsi by the 1980s. The beverage giant figured it had to do something so it set about conducting taste tests of a reformulated version of its flagship product. A sweeter version was the favorite and it was rolled out to great fanfare in April 1985. That’s when things spiraled out of control. By July, Coke gave in, announcing that it was bringing back the old recipe. It was henceforth known as Classic Coke, while the updated product was called New Coke, then Coke II. It no longer is sold in the U.S.
All was not lost, however. Coke views the marketing mess as a success, bringing attention to its flagging brand. In fact, Coke has been declared the winner in the Cola Wars, with soft drink sales in 2011 of $28 million, compared to Pepsi’s $12 million. The new product was hardly a disaster for investors. In 1985, the stock actually rose from about $57 before the rollout of the new formula to nearly $70 that September. It currently trades at about $38.
Rumors that Coke all along planned to “reintroduce” the original recipe have been denied by the soft drink giant as well as by an investigation by snopes.com.
6. Product: Ford Pinto, 1971
Outcome: Massive recall, millions paid in lawsuits over deaths
Investor Outlook: The Pinto notwithstanding, Ford was in for a wild ride in the decades that followed
Ford and other American automakers were in a quandary in the late 1960s. Small cars made by foreign companies were gaining favor and they needed to move quickly, too, if they didn’t wanted to be left out of that part of the market. American Motors came out with the Gremlin. Ford followed soon after with the Pinto in 1971.
The car proved popular. It was inexpensive at about $2,000 ($11,000 today) and was touted as getting 25 mpg in an era before most people worried about the price of gas. There were some problems reported, like inside door handles breaking too easily, but nothing too bad, at first.
Then came complaints about the car catching fire and exploding when hit from the rear. Lawsuits were filed. The government reported that 27 people had died in such accidents. Others claimed the figure was much higher. An article in Mother Jones magazine in 1977 tipped public opinion against Ford. The article stated that Ford knew the location of the fuel tank was a danger, but calculated it was cheaper not to fix it. Rumors of scores of deaths abounded. Ford discontinued production in 1980.
Later reports claim the position of the fuel tank was standard for the time and the government found no evidence of more than the 27 deaths it reported. A disputed memo seemed to indicate that Ford had calculated the cost of lawsuits vs. the cost of fixing the problem (widely put at $11 per vehicle).
Still Ford faced the prospect of a deluge of lawsuits after a California judge awarded a teenager $6.3 million after he was burned in a crash. There was even a criminal trial accusing Ford of homicide. The carmaker was found not guilty.
Ford, which traded at $53.25 in 1978 when the Pinto was recalled, is currently at about $10.30. The troubles of the Big Three automakers are well known of course. But Ford was the only one that didn’t take a taxpayer bailout 2009 and seems to be regaining its footing.
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