Lately, much hype has surrounded the new placement of Coca-Cola’s secret formula. In 1925, the secret formula was placed in a bank’s vault, where it remained for decades. In December 2011, the vault holding the secret formula was made visible at the World of Coca-Cola. Bear in mind, only the vault was made visible. It is unlikely that Coca-Cola will ever reveal the actual formula.
Coca-Cola has one of the best-kept secrets for over a century now. Because of it, Coca-Cola is the global leader in the beverage industry. Its trade secret for the formula of one of the most popular soft drinks in the United Sates is worth millions of dollars.
A trade secret is an explicit protection that accrues to an inventor or creator of some intangible asset. Common examples of trade secrets include customer lists, chemical formulas, inventions, business plans, etc. The primary means for protecting trade secrets is through contracts (usually non-disclosure agreements). Since Coca-Cola allows very few people in the company access to the formula and takes active measures to ensure its trade secret is safe, it has been successful in keeping the formula from the public. However, keeping a secret can pose challenges as Coca-Cola experienced in 2006 when its employees stole documentation containing propriety information and gave it to rival PepsiCo. Fortunately, PepsiCo reported the incident. The incident, however, caused Coca-Cola to review and revise its security procedures.
While competitors may try to emulate the formula, chances of getting the formula exactly right are slim. However, one of the disadvantages of trade secrets is the fact that others can even try to concoct the same solution. Although, in the unlikely event one were to concoct the very solution Coca-Cola uses, the value would not be as high because the product would not be marketed as Coca-Cola. Part of the success of the formula is the name associated with it. Yet, Coca-Cola would lose some of its value if a competitor were to come out with a product that tasted exactly the same as Coca-Cola’s. While patents and other types of intellectual property would stop others from even attempting to create the formula, trade secrets still make it difficult to reverse engineer or reproduce a product because full disclosure is not required.
Coca-Cola’s decision to use a trade secret versus a patent has lead to its success today. By not disclosing its soft drink formula, the company has created value because the taste of its formula is unique to any other in the market. As long as trade secrets are protected, they create value. Trade secrets are easy and low cost to create, requiring no continued maintenance fees, no expiration date, and no formal registration or approval process.
The name associated with this trade secret, Coca-Cola, is quite powerful. Coca-Cola products are sold in more than 200 countries and the company is associated with many sponsorships, such as the Olympics. To put it into perspective, if Coca-Cola were served to every McDonald’s customer, then 64 million customers around the world each day would enjoy that beverage. And that’s for just one of the restaurants serving Coca-Cola! So, every time customers drink Coca-Cola, they taste a secret worth millions.
