Why Coke is not The Real Thing for Pepsi

Author: Linda J. Popky

In a great example of juxtaposition, the same day that convicted former Enron President Ken Lay died of a massive coronary attack, the media reported that three people who tried to sell the ultra-secret, century-old formula for Coke to Pepsi were arrested after being turned in – by Pepsi.

Unlike Enron in the Lay-Skilling days, Pepsi is to be commended for having a culture where individuals understand the legal implications of this kind of illicit action and feel the company will support them for taking the moral high ground and doing the right thing. Legally and ethically, participating in this transaction was clearly wrong. Beyond that, however, consider that Pepsi had everything to lose and nothing to gain by accepting access to its rival’s closely guarded trade secrets.

The Pepsi/Coke rivalry has flourished for decades, driven by both companies’ efforts to differentiate themselves from the other – by product attributes, by packaging, by distribution channels, and by positioning and branding. Each company spends hundreds of millions of dollars every year in an effort to convince consumers that their offerings, though fundamentally the same basic product (carbonated water, sweeteners and flavorings) are really different and that THEIR product provides significantly more value for a particular consumer segment than does the other’s.

From a practical standpoint, what on earth would Pepsi do with the Coke formula – even if it had somehow been obtained legally? Would they change their core product to be Coke instead of Pepsi? Would they produce “Coke by Pepsi” in blue cans instead of red? If they did, what message would they be giving consumers: “Our own product isn’t really very good. We finally have a way to reproduce our competitor’s product exactly. Buy this one instead – it’s as good as Coke, because it really is Coke.”

(By the way, this goes both ways. “Pepsi by Coke” in red cans would be no more useful to the folks in Atlanta than “Coke by Pepsi” is to the Pepsi team from Purchase, NY.)

In some specific businesses, creating an exact replica of the competition is exactly the point – the IBM PC clone marketplace and generic drug manufacturers come immediately to mind. But in both of these situations, the results of this type of business model are readily apparent: standardization leads to commodization which in turns leads to price competition. When price is the only differentiator, margins are squeezed, profits shrink, and long-term survival becomes a key concern.

We all want our generic pharmaceuticals to be exactly the same as the name-brand drugs they are competing against. But we don’t want our Pepsi to be identical to Coke and vice versa. Unfortunately, there are too many businesses whose business models and marketing campaigns are geared to make them as similar to the competition as possible. That’s not a sustainable marketing position, nor is it good business sense. Customers want the ability to choose the features and benefits that fit their perceived needs.

Even in the technology space, where we want systems that conform to pervasive standards, we don’t want exactly the same systems, feature for feature, from multiple suppliers. We want Cingular’s phone service to work with Sprint’s and Verizon’s, and we want a Samsung phone to be able to interface with a Motorola phone, a Nokia phone or any other phone. But we don’t want Samsung, Sanyo and Nokia’s phones to all be built exactly like the Motorola Razor – what kind of choice would that be? Kind of like Henry Ford’s “any color you want – as long as it’s black.”

In the Coke secrets case, Pepsi came out as a clear winner. Both the company and the individuals involved did the right thing. Promoting these actions publicly has been extremely helpful to Pepsi’s corporate image – more so than for Coke, who appears to be a passive participant on the receiving end of Pepsi’s good deed.

The ethical lesson here is an important one, but the marketing lesson should also not be lost. If your employees would consider accepting and/or using illegal trade secrets, you have a major moral and ethical problem. If your business is focused on replicating your competitor’s offering exactly, you have a whole other set of major business problems on your hands.


Great Sales Lines

On a recent trip to the San Diego area, we took a day to make the cross-border trip to Tijuana, Mexico. The journey by bus from the US border parking lot to the downtown Tijuana shopping district is no more than a mile or two in length, but the two locations feel worlds apart.

As we walked through the numerous shops and stalls that exist primarily to reach tourists like us, it quickly became apparent that there are a very limited amount of product types for sale, and that within these limited categories (t-shirts, blankets, pottery, jewelry, clothing, etc.), most of the shops are selling more or less the exact same things.

So what makes a tourist chose one shop over the other? Perhaps it’s an item attractively displayed in the front of the store that attracts the eye of the passerby. More often that not, though, it’s the sales skills of the shop owners who work hard to get the shopper’s attention by being persuasive but not overbearing.

Some of these folks use a hard sell: “You’ve got to see what we have. Come see the great deals.” Or “You need to look at our silver (gold, leather, pottery, etc.). Ours is better than what the others are selling.” Others are more creative, like the shop owner at the back of a long corridor who cries out to those few souls who make the long trek to his door, “Look, we’ve saved the best for last!”

But my favorite sales line overall was from the young man who said with a knowing smile, “Come in my store and buy something you really don’t need – from me.”

We didn’t wind up buying anything from him, but we did take the time to go in and look at what he had (all of which we really did not need). Among a sea of sameness, he stood out: his marketing made a difference.

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