Pepsi And Hoover Sales Promotions Were Too Good To Be True : The Indicator from Planet Money - NPR

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SYLVIE DOUGLAS, BYLINE: NPR.

(SOUNDBITE OF DROP ELECTRIC SONG, "WAKING UP TO THE FIRE")

STACEY VANEK SMITH, HOST:

This is THE INDICATOR FROM PLANET MONEY. I'm Stacey Vanek Smith.

DARIAN WOODS, HOST:

And I'm Darian Woods.

VANEK SMITH: And, Darian, I brought something into the studio with me today, a little prop.

WOODS: Yes.

VANEK SMITH: Because you told me today's story was going to be about Pepsi, particularly bottles of Pepsi.

WOODS: That's right.

VANEK SMITH: So I got Pepsi.

WOODS: So I want you to unscrew the lid and look under...

VANEK SMITH: OK.

WOODS: ...The bottle top. Put the top to the mic. I want to hear that refreshing...

VANEK SMITH: OK.

WOODS: ...Crisp open sound.

(SOUNDBITE OF SODA BOTTLE OPENING)

WOODS: Oh, that's it.

VANEK SMITH: OK.

WOODS: Now what's under the bottle top?

VANEK SMITH: It's a series of letters and some numbers.

WOODS: OK, so like a serial code.

VANEK SMITH: Yeah. B-N-M-M-N - yeah.

WOODS: OK. Well, I'm here to tell you about a story of a pretty similar promotional campaign that Pepsi ran back in 1992 where that number under that bottle top, Stacey, could have made you a millionaire in the Philippines.

VANEK SMITH: What?

WOODS: It was actually this huge fiasco. Here's economics writer and friend of the show, Tim Harford.

TIM HARFORD: It was called Number Fever. Pepsi were basically promising to make a millionaire of just - I mean, not everybody, but a huge number of people.

VANEK SMITH: I mean, I love Pepsi. It's delicious. I'm skeptical of its power to make people millionaires and still turn a profit.

WOODS: That was never their plan.

VANEK SMITH: (Laughter).

WOODS: This was a huge mistake...

VANEK SMITH: Oh.

WOODS: ...Probably among the most egregious mistakes ever made in the history of advertising promotional campaigns.

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VANEK SMITH: Today on the show, promotions and companies that have failed to do the math in a big way; sales and stunts that promised huge rewards and ended in disaster.

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WOODS: Victoria and Juanito Angelo were a couple living in Manila in the Philippines. They had a pretty hard life. Juanito worked as a rickshaw driver, and the whole family lived in a tin roof shack. But they had a dream. Tim Harford talked about this in his "Cautionary Tales" podcast.

HARFORD: And that dream is that they'll win a very unusual lottery. The lottery is called Number Fever.

(SOUNDBITE OF AD)

UNIDENTIFIED PERSON: Number fever?

HARFORD: And the lottery numbers are printed on the inside of bottle tops on bottles of Pepsi.

WOODS: They sat down every night to watch numbers drawn on TV. If the number from your bottle top was drawn and won grand prize, you could win a million pesos. That's equivalent to about $40,000 American dollars.

HARFORD: That is a lot of money in the Philippines in 1992, a life-changing amount of money for Victoria and Juanito if they were ever to win it. But, of course, you know, it's just that one grand prize. What are the chances they would ever win?

WOODS: What was their number?

HARFORD: The number was 349. And one evening, they are watching the television, and the lottery draw is held. And the number comes up, and it's 349. They can't believe it.

WOODS: Got $40,000.

HARFORD: Yeah, a million pesos. You know, the children can go to college. Juanito doesn't have to work as a rickshaw driver anymore. It would be like winning a million dollars in the U.S. today.

WOODS: But Pepsi messed up, and 800,000 bottle tops were printed with the winning number 349. So for Victoria and Juanito...

HARFORD: The way I imagine this is that they run out onto the streets to celebrate, and everybody else is on the streets, and they're celebrating, too, because they all have the number 349...

WOODS: (Laughter).

HARFORD: ...On their bottle tops.

WOODS: OK. So they're all going to be millionaires?

HARFORD: Yeah, well, you'd think.

WOODS: Pepsi was on the hook for at least $15 billion. To put that number into perspective, that was about half the Philippines' entire annual income. As you can imagine, this wasn't going to end well. We'll let you know how that turned out in a bit because when Tim looked into this story, he got obsessed with lots of other failed promotion campaigns.

HARFORD: That got me thinking, hang on, there are all sorts of horror stories of these deals going wrong.

WOODS: So the case of Pepsi's Number Fever promotion, that's clearly a mistake. But sometimes you get these promotions that seem too good to be true, but they're not necessarily a mistake, are they?

HARFORD: No. Sometimes they're just hoping that their customers don't notice how good the deal is, and they don't really follow through with the maths.

WOODS: Right.

HARFORD: The other thing that I think is very common indeed is exploiting something called breakage rates.

WOODS: Breakage rates is the industry term for how many people fail to follow up on offers. And companies intentionally try to increase breakage rates by making it hard for the customer to follow through, like you have to sign up to a complicated website and type in a long string of numbers, that kind of thing.

HARFORD: One example is in the 1990s in the U.K., Hoover offered free transatlantic flights with any Hoover appliance. Buy yourself a, you know, cheap washing machine, a cheap vacuum cleaner, and you get to fly across the Atlantic. I think it was a pair of tickets.

WOODS: Not bad.

HARFORD: And they just bet that the breakage rate would be high enough that this would work out for them. They would sell a lot of appliances, but people just wouldn't be able to follow through. The flights they were offered would be deliberately inconvenient. You'd have to fill in a form to get another form, and then you'd have to fill in the second form and all of this stuff. In fact, people in Scotland were being offered free flights only from London, which is hundreds of miles away. And people who lived near London were being offered free flights only if they went up to Scotland.

WOODS: That is evil (laughter).

HARFORD: It's really evil. And it didn't play well for Hoover when that was discovered.

WOODS: Wow.

HARFORD: There was one infamous example where a guy bought a washing machine from Hoover in order to get the free flights, and he was really having trouble claiming his free offer. And then to add insult to injury, the washing machine broke down. So then the guy comes from Hoover to fix the washing machine, and they're having this conversation. And he backs his horsebox - a horse trailer - across the driveway so he effectively takes the washing machine repair man's van hostage. So this van, this truck, is parked in the driveway, can't get out. And he says, all right, now you walk home. And you can tell them that when I get my flights, you'll get your van.

WOODS: (Laughter).

HARFORD: And he just became a national hero. Everybody was talking about this story.

WOODS: Wow. So if you actually do the sums and you notice that a company's promotion is a really, really good deal - maybe seems too good to be true - but what are the factors that increase your likelihood that you as the customer will actually get that payout?

HARFORD: Well, there's one factor that you can't control, but it's worth thinking about, which is how expensive is it going to be for the company to keep its promise? In the case of Number Fever, it's $15 billion. Like, it's super expensive. But some of these other deals, there are only a few customers who notice, and, you know, it's not really a big deal for the company to pay out.

The other thing is something you can affect, and that is how bad will it make the company look if they refuse to keep their promises? I suppose the interesting cases are where the reputational risk is huge but also it's incredibly expensive to follow through. Then the company's in a really, really difficult situation. That's the situation Hoover was in. So in the end, it cost them this huge amount of money.

WOODS: So what happened in the end with Number Fever in the Philippines?

HARFORD: They said basically, look, there's a mistake. And they said, look, anybody who's got the 349, we're going to give them - I think it was the equivalent of $20. But it's certainly not $40,000. It's not a million pesos.

WOODS: It's not life-changing.

HARFORD: So that meant that the people who'd got these 349 bottle tops, they had to make a decision. Do I fight, or do I settle? And of course, different people made different decisions. It's really a very sad story. And Pepsi's reputation in the country was trashed. People were threatening physical violence against Pepsi employees. Somebody threw a bomb at a Pepsi truck, which ended up bouncing off and killing two people, one of them a 5-year-old child.

WOODS: It's tragic.

HARFORD: And in the end, of course, Pepsi, you know, couldn't pay, didn't pay. It went all the way to the Supreme Court in the Philippines, and the Supreme Court said, yeah. I mean, it was obviously a mistake. They don't have to pay. And so in the end, the people who took the goodwill payments, they, I think, were the ones who correctly assessed the situation. This was a screw up. I can get a small payment. I will never get what I was promised. And they were right.

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WOODS: Tim Harford, thanks so much for joining us.

HARFORD: Well, thank you.

WOODS: You can find more parables of disaster at the "Cautionary Tales" podcast. This episode of THE INDICATOR was produced by Emma Peaslee and Brittany Cronin with help from Gilly Moon. It was fact-checked by Sam Cai and edited by Kate Concannon. This is NPR. Thanks for listening.

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