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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.