you need the who to correctly determine who is doing the demanding and words of recommendation or mandate need a that if you are demanding that something be done.

The sentence is in past tense-- note that coca-cola "yielded"(simple past) to irate ""consumers"(noun), should be followed by "who"( to point that the consumers demanded) "demanded"( simple past) that (restrictive clause because the consumers demanded that the original formula be brought back) it ( the coca cola company) bring back the original Coke formula

Hence choice D is the correct answer in my opinion

samyak wrote:394. In one of the most stunning reversals in the history of marketing, the Coca-Cola company in July 1985 yielded to thousands of irate consumers demanding that it should bring back the original Coke formula.
(A) demanding that it should
(B) demanding it to
(C) and their demand to
(D) who demanded that it
(E) who demanded it to

Please explain why option B is not correct?

Samyak,

You 'demanding' can refer to 'coca-cola' OR to 'consumers', Hence A\B are Incorrect.
WHO always refer to noun immediately preceding it, Hence who is required to resolve this ambiguity.

Hope that helps!