Pepsi Number Fever
What would you have done?
I spent my grade school years in the Philippines where I drank my fair share of Coke and Pepsi. I was not accustomed to the peculiarities of the local water, so I couldn’t drink water when out and about. So, like all expats in the Philippines, I drank a lot of carbonated beverages. It was hot there!
We drank Coke and Pepsi and collected the bottle caps. Occasionally I would find one with something printed inside it and win a free soda. Little did I know that a few years later, Pepsi would go big and offer a million peso prize ($40,000) for a bottle cap with the right number printed inside.
Accounts vary as to how it happened, but somehow, Pepsi printed 800,000 winning caps. To make good on the prizes would have cost them $32 billion. That is dollars. Pepsi couldn’t live up to its end of the bargain, paid only a fraction of the amount due, and suffered the wrath of the people. The gains they had made in market share were wiped out and boycotts drove the numbers down even further.
There were riots. Several people died. CEO of Pepsico, Christopher Sinclair, flew to Manila and met with President Fidel Ramos. The government of the Philippines did help the company get some of the thousands of lawsuits dismissed and made a stab at punishing the error with a nominal fine. But it still took over a decade and by some accounts $400 million, before the episode would dissipate. I say dissipate because it may never end.
Journalists and marketing types are still writing about it today. The story in the articles are all the same: Pepsi almost had to pay out $32 billion. I haven’t found any article that laments the way that the company handled the crisis or that suggests other strategies for dealing with it.
OK, maybe Monday morning quarterbacking a marketing disaster thirty years after the fact is just a bad idea. However, we look at cases of great wins and losses with the aim of learning something. Just recounting in article after article that it was really bad is a missed opportunity.
So, if you were there 30 years ago, sitting in that 3AM meeting everyone writes about. What would you have done?
Do you know of a similar fiasco where the marketing team came up with an elegant solution?
Links and References
If you want to read the articles start here: https://en.wikipedia.org/wiki/Pepsi_Number_Fever
Or just Google Pepsi Number Fever
So if the fiasco ended up costing them $400 million in the long run, and that's 12 times the cost if they had just paid out the erroneous bottle caps, logically they should have just bit the bullet and paid. But of course that's impossible to see at the outset so they compare it to the $2M they have budgeted and paying seems outrageous. It's the number anchoring (as described by Daniel Kahneman) that seems to have made for a terrible outcome in this case! So interesting!
I learned about your newsletter through Wynne’s blog, and have enjoyed reading about the time you all were in the Philippines in some of her posts. It’s fun reading about it here from a different perspective. As to what Pepsi could have done differently, I’d have to say don’t commit to more than what you can pay. Do the numbers ahead of time. Have a strategy. Things that, in hindsight, seem obvious (to Pepsi as well, I’m sure). Great reminder to count the cost, and don’t overpromise.