Diet Coke is 99% Water (And That Is Now a Good Thing)

Back in the day, when people noted that Diet Coke was 99% water, it was an insult. The point was that water was free, and Diet Coke was just free water plus a little bit of artificial this and that — so you would have to be a fool to pay so much for it.

Of course, times have changed. Bottled water now generates an estimated $50 billion in sales each year, with that number growing rapidly. According to this CBS News report, which puts soda revenues at $68 billion a year and stagnant, bottled water is now as big a business as soda.

All of which explains the new print ad I saw for Diet Coke, which was simply a picture of a can of Diet Coke and the words “99 Percent Water.” The implication is that if Diet Coke and water are almost the same thing, but Diet Coke tastes better, you might as well drink Diet Coke. Which is a pretty sensible point of view, as long as the 1% that is not water isn’t hurting you.

Still, imagine if an ad agency in the 1980s proposed such a slogan for Diet Coke. They would have been laughed out of the building, and for good reason. What consumers are willing to pay for a good depends on at least two things (although this is not the way economists usually talk about how demand is determined). The first is how much utility or enjoyment they get from the good. The second is how much it costs to make the good — consumers don’t like big markups, even if they enjoy consuming the good.

So, in a world where free water is the benchmark, if you make Diet Coke, you want to hide the fact that it is mostly water with a few cheap extras mixed in. On the other hand, when water is priced the same as soda, that part of the equation falls away. The emphasis can instead move to the fact that a lot of people strongly prefer the flavor of Diet Coke to that of water.

I don’t know whether this ad campaign will work, but it definitely shows cultural — not to mention economic — insight.


Enough Wealth

I'm glad that diet coke is 99% water for two reasons:
1. It's just about all I drink, so it's good to know I'm getting the recommended 8 glasses of water a day by drinking coke ;)
2. Currently I can buy 1.5L bottles of coke on special for 99c each. By comparison the cheapest "no name" bottled water costs 77c for 1L, so diet coke is cheaper than bottled water!

Regards
http://enoughwealth.com

econ2econ

Substitution effects, natch.

I think for the vast majority of people, bottled water isn't so much of a status thing (except for those who buy specific brands), it's about convenience. Water quenches thirst better than other drinks and doesn't have additives or calories, yet until the invention of bottled water, it wasn't terribly convenient to carry water around, get it from vending machines, or get it cold and tasting fresh (instead of like rusty pipes). I think a lot of people are also like myself, in that they refill empty water bottles with filtered water from their homes or offices. And have you ever drank the sulfur water in Florida???

Zoe

Perhaps it's a response to the recent bad press bottled water has been getting, i.e., you don't have to feel guilty about drinking diet cola. (Not yet, anyway.)

Erratica

I have never understood the craze behind diet drinks, yet 25 years after being introduced Diet Coke still makes sense to millions. The reason I have so much difficulty digesting the fact that diet drinks are so popular is because I am a huge fan of the original coke and the satisfaction gained by consuming a can of the product comes solely from the taste. If one is addicted to the drink it is simply because you crave the taste. If I were offered another product that were completely dissimilar in taste I would not get as much satisfaction from consuming it and would give it up… This clearly isn't a case of substitution as the two products are dissimilar except in terms of colour. In fact, diet Coke isn't a variation of the original Coke formula but instead a whole separate formulated drink!

Nevertheless, in response to this post, it's odd that this campaign has started shortly after Pepsi Co. decided to come clean about its bottled water line - Aquafina being nothing but glorified tap water. I believe this campaign is Cokes preemptive marketing gimmick to draw attention away from its bottled water products and towards its primary product lines. It might also be that Coke wants to remind its patrons that the diet product IS in fact 99% water (i.e., tap water) and if they liked the diet product with just 1% flavouring, their water can't be that much worse! Once they see sales pick up they go the way Pepsi Co. did and announce that their water is pretty much the same – TAP WATER!

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Florida Diet Coke Girl

On the bottled water matter, I think it has been pretty well known for a while that Dasani is filtered tap water. I don't think Coke has tried to hide that. Personally, Dasani is my favorite bottled water for the same reason Erratica mentions for drinking regular Coke - it just tastes better. I don't care whether it's filtered or spring.

That's also the reason I prefer Diet Coke over Coke. I can taste the difference so fast, I'll return a regular Coke given to me in a restaurant (and a Pepsi, for that matter).

Schizohedron

@Erratica #5: "If one is addicted to the drink it is simply because you crave the taste."

I think in the case of Coke (regular or diet), the caffeine plays no small part in the addiction.

Canadian G

People choose Diet drinks because there are no calories (or just 1 calorie) and the similar carbonated taste. Regular sodas are generally 150 calories per can.

Jonny_eh

Am I the only one that thinks Coke Zero tastes WAY better than Diet Coke? Also, Diet 7-up and Diet Sprite don't taste that bad either. I can't stand Diet Coke or Diet Pepsi though. Diet Dr. Pepper ain't bad either.

Paul Ward

"I don't know whether this ad campaign will work, but it definitely shows cultural — not to mention economic — insight."

Interestingly, the entire business of marketing is to decrease price sensitivity through differentiation/positioning, which means that the economic forces of competition are the enemy, since competition drives prices down. (The idea of cost-plus pricing is just anathema to most companies; they do it only when they're forced to, or when such a pricing model allows them some sustainable competitive advantage, such as when Dell was in its halcyon-we're-cheaper-than-HP-because-we're-direct days.)

With the transparency consumers get on pricing via the internet, the only real game in town is differentiation on both feature sets (what problems do we solve?) and on brand perception (how does using our product make you feel about yourself).

Thus, the simple comment on "utility" -- is something useful or enjoyable -- hides the real battle being waged, and in the cola wars/water wars, "enjoyability" is the battle ground.

GREAT BLOG! Keep it up!

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Bill

Somehwere, a man named Thorstein is laughing.

Oliver

@Schizohedron #7: "I think in the case of Coke (regular or diet), the caffeine plays no small part in the addiction."

Umm, I don't know about you, but most kids and young adults (age range 12-30) are probably not affected by the caffeine in Coca-Cola and similar products.

We are from a generation that needs energy drink-levels of caffeine in order to feel the affects of caffeine.

I know that I feel 100% the same whether I drink Coca-Cola or Sprite (which is a caffeine-free drink)... I believe most others who have been drinking soft drinks for their entire lives would say the same.

admittedly, perhaps small+light women and really tiny guys are affected, but thats just because they are... well... small?

natenido

Coffee is 98% water (according to starbucks.com), tea is 99% water, and people have been paying for both even in the 1980s, if I recall correctly. (Admittedly, the average U.S. customer paid a lot less for coffee before Starbucks existed.)

Purvis

The problem with drinking diet coke instead of water is that caffeine is a diuretic. Whenever you have a caffeinated drink, you need to drink extra water to make up for it.

Mario Ruiz

Stephen,

Given 99% of Diet Coke is water, today the main question would be, IS THIS HEALTHY?

I think this would be more important than the cost.

Mari Ruiz
@ http://www.oursheet.com

Mickey

These high percentages of water content shouldn't come as a surprise. I imagine that if all these drinks weren't ninety-something water, they'd be either noticeably viscous or oil-based.

The change in the advertising angle of this fact is interesting. I wonder how well it will work.

Jake

Great...I can just imagine the looks that bartenders will be giving me when I order a Jack and 99% water.

AM

in earlier comments, one person made a half-joke about getting the "recommended" 8 glasses of water daily, and another person said that caffeine is a diuretic.

that 8 glasses of water is "recommended" is a persistent myth (which i feel you may have pointed out in your book), and i am pretty sure it is also a myth that caffeine is a diuretic, or at least that it's any more of a diuretic than water is. cf. http://tinyurl.com/2864hh

about the whole diet-coke-is-water idea: tony kornheiser (i think) wrote a great column about 12 years ago when DC's water treatment facilities got infected with some kind of bacteria that people should just give up water and drink diet coke instead, since it was safer, had no calories, and tasted better anyway.

Robert Gorell

What ever happened to saying it tastes better than Diet Pepsi? Or are Diet Coke's benefits only 1% of the game?

risma

Commenter Paul Ward said the entire business of marketing is to decrease price sensitivity through differentiation/positioning -- Really? Is this the economist's view of marketing? This seems so limited, and it implies that customers are something like sheep to be manipulated. I don't think such simple thinking makes for very good marketing, and especially now with the level of information available to consumers, a marketer who thinks like that isn't going to be very successful.

I suppose it is one of several purposes to marketing campaigns, yes. As for marketing as a whole, product design, finding product/market fit, trend and competitive analysis are at least as important.

Rita: Lovely Meter Maid

Diet Coke is 99% water? Funny. I'm old enough to remember a time when this soda tibit of knowledge would have been used to make a Carol Burnett Show (or Saturday Night Live) skit for a commercial parody:
Diet Coke: it's fully 99% plain, old water, but still has ALL of the cost for you, the consumer!!! ;)