---
title: "How to Create a Brand Like Coca-Cola?"
description: "Charlie Munger's multi-disciplinary thinking model explains how to build a company like Coca-Cola. In a speech, he outlines a plan to turn a $2 million investment into a $2 trillion company by 2034, using simple math, psychology, and strategic branding."
author: "查理芒格"
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published: "2020-06-26"
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# How to Create a Brand Like Coca-Cola?

> Charlie Munger's multi-disciplinary thinking model explains how to build a company like Coca-Cola. In a speech, he outlines a plan to turn a $2 million investment into a $2 trillion company by 2034, using simple math, psychology, and strategic branding.

Source: Xiaomasong (ID: xiaomasong999) Author: Charlie Munger

**The multi-disciplinary thinking model explains how to build a company like Coca-Cola.**

Recently, I've been reading "Poor Charlie's Almanack," which includes a speech by Charlie Munger (Warren Buffett's partner, one of the world's wisest wealthy men). In this speech, Munger uses his multi-disciplinary thinking model to explain how to build a company like Coca-Cola, using the most common-sense principles and methods. If you're planning to start a company, it's worth reading. I've excerpted it below, with my personal annotations in parentheses:

Now it's time to raise my real question.

The problem is this: In 1884 in Atlanta, you and 20 other companions come before an eccentric and wealthy Atlanta citizen named Glotz.

You and Glotz have two things in common: First, you often use these five useful concepts to solve problems (these are the five views on practical wisdom that Charlie Munger presents at the beginning of the speech):

> **1) Solve the obvious big problems first. 2) Use simple mathematical calculations. 3) Think in reverse. 4) Think in a cross-disciplinary way. 5) Truly great results only emerge when several powerful factors work together.**

Second, you have mastered the basic concepts from all required university courses in 1996. However, all the discoverers and examples of these basic concepts appeared before 1884. You and Glotz know nothing about what happened after 1884.

Glotz is willing to invest $2 million (at 1884 face value) to establish a new enterprise producing non-alcoholic beverages, but he will only take half the shares, which will forever belong to the Glotz Charitable Fund. Glotz wants to name the company a name he likes: Coca-Cola.

If anyone can convincingly demonstrate that his business plan will cause the Glotz Fund's assets to reach $1 trillion in 150 years—that is, after paying out large annual profits as shareholder dividends, the Glotz Fund will still have $1 trillion in assets by 2034—then that person will receive the other half of the equity.

If this plan succeeds, the new company will be worth $2 trillion, even if it has distributed dividends totaling tens of billions of dollars over the years.

You have 15 minutes to make your presentation. What will you say to Glotz? Here is my approach; here is what I will say to Glotz; I will only use useful concepts that every smart sophomore should know.

Well, Glotz, to simplify our task, we should first clarify the following obvious big problems:

**First, we cannot create a $2 trillion enterprise by selling unbranded beverages.** Therefore, we must turn the name you chose, "Coca-Cola," into a legally protected, powerful brand.

**Second, we must start in Atlanta, then succeed elsewhere in the United States, and then quickly capture the world market with our new beverage** to reach a value of $2 trillion. This requires us to produce a widely popular product that must possess some powerful fundamental elements. We should look for these fundamental elements in the required courses of universities.

Now we will use mathematics to determine what our goal actually means.

Based on reasonable speculation, **by 2034, there will be about 8 billion beverage consumers worldwide.** On average, each of these consumers will be wealthier than the average consumer in 1884. Each consumer's body is mainly water, and they must drink 64 ounces of water per day, which is eight 8-ounce servings.

Thus, if our new beverage and other beverages imitating us in new markets can cater to consumer tastes, and if we can capture 25% of the world's total water intake, and we can capture half of the new market worldwide, then by 2034, we can sell 29,200 billion 8-ounce bottles. (**This is a simple estimate, requiring only junior high school math.**)

If our net profit per bottle is four cents, we can earn $117 billion. That's enough; if we can maintain a good growth rate, the enterprise's value can easily reach $2 trillion.

Of course, the biggest question is whether earning four cents per bottle in 2034 is reasonable. If we can invent a widely popular beverage, the answer is yes.

150 years is a long time. The dollar, like the Roman drachma, will certainly depreciate. Correspondingly, the real purchasing power of ordinary beverage consumers worldwide will rise (**$1 in 1884 is roughly equivalent to $50-100 today**).

Since relatively small amounts of money can improve the consumption experience, consumers' water intake will increase rapidly. At the same time, with technological progress, the cost of our simple product will decline when measured in general purchasing power units (**cost reduction due to economies of scale**).

These four factors combined will help us achieve our goal of four cents per bottle.

Over these 150 years, in dollar terms, the world's beverage purchasing power will grow 40-fold. Working backwards, this means that under 1884 conditions, we would only need 1/40th of four cents, or one-tenth of a cent per bottle. If our product is truly popular, this goal is easily achievable.

After solving the first problem, our next task is to invent a product with universal appeal.

There are two interrelated big challenges to solve:

**First, over these 150 years, we must create a new beverage market that can account for 1/4 of the world's total water intake;**

**Second, we must manage well enough to capture half of the market, while all our competitors combined capture the other half.** These results can be called the lollapalooza effect (simply put, a huge effect caused by multiple factors working together).

So, we must mobilize all favorable factors to accomplish our task. Clearly, only a powerful combination of many factors can trigger the lollapalooza result we want. Fortunately, the solution to these complex problems turns out to be quite easy, provided you didn't sleep through your freshman classes.

After clarifying these obvious problems, we conclude that we must have a strong trademark. To have a strong trademark, we must naturally use basic academic concepts to understand the nature of this business.

From introductory psychology courses, we learn that essentially, the business we are in is creating and maintaining conditioned reflexes. The trademark name and image of "Coca-Cola" will serve as the stimulus, and purchasing and drinking our beverage is the response we want.

(**A brand is essentially a long-term conditioned action reflex; our core work is to make consumers choose our brand first in certain situations.**)

How do people create and maintain conditioned reflexes? Well, psychology textbooks give two answers:

> 1) Through operant conditioning;
> 2) Through classical conditioning, often called "Pavlovian reflex," in honor of the great Russian scientist.

Since we want a lollapalooza result, we should use both techniques for creating conditioned reflexes—this way we can strengthen the effects of each technique. The operant conditioning part of our task is easy to accomplish.

(**Operant conditioning, simply explained, is when a customer makes an action and gets a reward, so they tend to repeat that action. For example, buying a bottle of Coke and feeling great leads to buying it again next time.**)

We just need to:

> 1) Maximize the reward for consumers drinking our beverage;
> 2) Once we trigger the desired reflex, minimize the possibility that it will be eliminated by operant conditioning built by competitors.

In terms of operant conditioning rewards, only a few categories are realistic for us:

> 1) The nutritional value of calories and other ingredients in the beverage;
> 2) The taste, mouthfeel, and aroma that stimulate consumption under the influence of the human nervous system shaped by Darwinian natural selection;
> 3) Stimulants, such as sugar and caffeine;
> 4) The cooling effect when people feel too hot, or the warming effect when they feel too cold.

Because we want a lollapalooza result, we will naturally include all these categories of rewards.

It's easy to determine that we should design a beverage suitable for refrigerated drinking (**In early America, the ice business was supplied by Maine in the north; later, with the invention of the refrigerator, Coca-Cola began promoting home storage bottles.**). Drinking cold beverages helps combat hot weather. Moreover, when it's hot, the body consumes more water, but not when it's cold.

It's also easy to decide to add sugar and caffeine to the beverage (**Sugar intake brings pleasure, both in the mouth and stomach; caffeine is addictive.**). After all, tea, coffee, and lemonade have been widely used as beverages.

Additionally, it's clear that we must be enthusiastic about conducting continuous experiments to determine the taste and other elements that give people the greatest pleasure when drinking our caffeinated sugar water.

To prevent competitors from offsetting the operant responses we've already induced in consumers through their own operant conditioning, what we need to do is also obvious: our company should strive to make our beverage available to people everywhere in the world at any time in the shortest possible time (**This is a first-mover advantage.**).

After all, a competitive product that hasn't been tried is unlikely to encourage people to develop a different habit. Everyone who is married understands this.

Next, we must consider the Pavlovian conditioning we must use.

In Pavlovian conditioning, mere association can produce powerful effects. Pavlov's dog's nervous system made it salivate at the sound of a bell that couldn't be eaten. A man's brain craves the drink held by a beautiful woman he cannot have. So, Glotz, we must use various beautiful and noble images to stimulate consumers' nervous systems.

Because if we can do this, our beverage will make consumers associate it with things they like or admire. This strong Pavlovian conditioning will cost a lot of money, especially in advertising.

We will spend far more money in advance than we can imagine, but this money will be spent effectively (**Charlie Munger borrows the military theory of saturation attack, also known as Van Fleet load.**).

As we rapidly expand in the new beverage market, our competitors will face a huge competitive disadvantage; they won't be able to buy advertising to trigger the Pavlovian conditioning they need. This result, combined with other effects like "production creates power," should help us win and maintain at least 50% of the market everywhere.

In fact, because buyers are dispersed, our higher production volume can give us significant cost advantages in distribution channels. (**Remember, low price itself is not a strategy; low cost is a strategy.**)

Furthermore, the Pavlovian effects from association can help us choose the taste, mouthfeel, and aroma of our new beverage. Considering Pavlovian effects, we will wisely choose the mysterious and noble-sounding name "Coca-Cola" rather than a street vendor name like "Glotz's Caffeine Sugar Water."

For the same Pavlovian reasons, it's wise to make our beverage look like red wine rather than sugar water. (**Using the original cultural meme of "red wine" color to establish a "noble" association.**) So if the beverage is clear, we will add artificial coloring.

We will carbonate the beverage to make it look like champagne or other expensive drinks, while also making the taste better and harder for competitors to imitate.

Because we plan to associate many expensive psychological effects with our taste, it should be different from any standard taste, so we can create maximum difficulty for competitors and ensure that no existing beverage benefits from coincidentally having the same taste as our product.

Beyond this, what else can psychology textbooks help with for our new enterprise? Humans have a powerful tendency to "follow the crowd," which psychologists often call "social proof." Social proof—imitative consumption merely from seeing others consume—not only makes consumers more receptive to our product but also makes them feel they get more reward.

When designing advertising and promotional plans, and when considering sacrificing current profits to invest in promoting current and future consumption, we will always take this powerful social proof factor into account. Thus, unlike most other products, the more we sell, the better we can sell.

Glotz, we can now see that if we combine the following factors:

> 1) Pavlovian conditioning; 2) Strong social proof effects; 3) A beverage that tastes great, refreshes, cools, and induces operant conditioning.

The powerful synergy of these three factors will cause our sales to rise steadily over a long period. This is similar to autocatalytic reactions in chemistry, and it's exactly the multi-factor lollapalooza effect we need.

Our company's logistics and sales strategy will be simple.

**When it comes to selling our beverage, there are only two feasible methods: selling it as syrup to soda fountains or restaurants, or selling it as complete bottled soda.**

We want the lollapalooza effect, so of course we'll use both methods. We also want huge Pavlovian and social proof effects, so we'll always spend heavily on advertising and promotions, selling syrup to soda fountains at a 40% discount. A few syrup plants can meet worldwide demand.

However, to avoid unnecessary transportation costs, we need to establish bottling plants around the world. (**In China, two bottling companies, Swire and COFCO, cooperate with Coca-Cola, dividing the Chinese market along the Yangtze River.**)

We can maximize profits if we (**like General Electric selling light bulbs**) have pricing power, the right to set the price of syrup sold to soda fountains and our bottled products.

The best way to gain this profit-maximizing control is to make each independent bottling plant we need a contract manufacturer rather than a syrup buyer. Moreover, since our super-important taste cannot be patented or copyrighted, we will strive to keep our formula secret. We will publicize our secret formula heavily, which will strengthen the Pavlovian effect.

Eventually, with the development of food chemistry, competitors will be able to produce beverages that taste similar to ours. But by then, we will have a significant lead, a strong brand effect, and a well-established "never out of stock" worldwide distribution channel, so competitors copying our taste won't hinder our goals.

Furthermore, while food chemistry development helps our competitors, it will certainly benefit us too, including better refrigeration, better transportation, and methods to keep sweetness without sugar (**for diabetic patients**). Additionally, we will seize opportunities to develop related beverages. (**Currently in the U.S., sales of sugar-free Coke are almost on par with traditional flavors.**)

Now our business plan only needs to pass one final test. We will again think in reverse like Jacobi. What situations must we avoid?

There are four situations we should clearly avoid:

First, we must avoid consumers feeling tired of the drink after drinking it, because according to modern Darwinian theory, once consumers feel tired, their physiological mechanisms will resist our beverage, prompting them to stop consuming it.

To achieve our goal, we must make consumers drink our product bottle after bottle on hot days without getting tired of it. We will solve this problem through experiments to find a great taste that doesn't get boring.

Second, we must avoid losing our strong trademark name, even half of it.

For example, if due to our negligence, a "some cola" appears on the market, like a "Pepsi-Cola," we will suffer heavy losses. Even if a "Pepsi-Cola" appears, we should be the holder of that brand.

Third, due to our great success, we must avoid the negative consequences of envy. Envy holds a prominent place in the Ten Commandments because it's human nature.

Aristotle said the best way to avoid envy is to be truly worthy of your reputation. We will strive to improve product quality, set reasonable prices, and provide harmless pleasure to consumers. (**Once you become a well-known brand, you must accept supervision from society and customers.**)

Fourth, after our brand's taste captures new markets, we must avoid making major changes to the product's taste suddenly. Even if in double-blind tests the new taste is better, switching to that new taste is a foolish move.

Because after the above efforts, our original taste will be deeply ingrained and become consumer preference; changing the taste does us no good. Doing so will trigger a standard deprivation super-reaction syndrome among consumers, causing us great losses.

The deprivation super-reaction syndrome makes people unable to accept "loss" without any room for negotiation; this psychological tendency causes most gamblers to lose their minds.

Moreover, changing the taste will allow competitors to gain an advantage by copying our taste, because they can exploit two factors:

> 1) Consumer hostility due to being deprived of the original taste; 2) The love for our original taste created by our previous products.

Well, my task was to explain how to turn $2 million into $2 trillion while paying out billions in dividends. That's my solution.

I believe it would convince Glotz in 1884, and it should be more persuasive than you initially expected. After all, once you connect the various basic academic concepts involved in these useful principles, the correct approach becomes obvious.

Does the history of the real Coca-Cola Company confirm the feasibility of my method? Until 1896, 12 years after the fictional Mr. Glotz started with $2 million in 1884, the real Coca-Cola Company had net assets of $150,000 and profits near zero.

Later, the real Coca-Cola Company did lose half of its trademark, and it did grant some bottling plants perpetual rights at fixed syrup prices. Some bottling plants were very inefficient and stubborn, not easily changed. Due to this system, the real Coca-Cola Company did lose price control, which would have allowed it to increase profits.

However, even so, the real Coca-Cola Company's history has too many similarities with the business plan submitted to Mr. Glotz, so its current assets are $125 billion, and if its value grows by just 8% annually, it will reach $2 trillion by 2034.

From now on, if its sales volume grows by just 6% annually, it will reach the sales target of 29,200 billion bottles by 2034. Based on past sales performance, this growth rate is achievable, and after 2034, there is still much room for Coca-Cola to replace water.

So I think this fictional Glotz, if he had seized the opportunity from the start, grown strong, and avoided the worst mistakes, should easily accomplish the $2 trillion goal, and he would complete it well before 2034.

Xiaomasong's note: Charlie Munger highly advocates the multi-disciplinary thinking model. If we can master models from different disciplines in marketing planning, it will help us achieve client goals faster. Even daily practices learned from clients in different industries can greatly help clients in other industries.

Xiaomasong's note: Charlie Munger highly advocates the multi-disciplinary thinking model. If we can master models from different disciplines in marketing planning, it will help us achieve client goals faster. Even daily practices learned from clients in different industries can greatly help clients in other industries.

Tips will be paid 400-2000 yuan once adopted.


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