We all have bills to pay and we all need cash to pay them, so of course it’s important for all business owners to have enough income to take care of their immediate needs. At the same time, it is also critical to put a business in the best possible position at any given point in time and on into the future and that means being very careful about taking actions in the present, which could come back to bite you in the future. In particular, you need to be supremely careful about educating customers to see your brand as the “cheap” option. If you do, you risk becoming the brand they are ashamed to buy and they will switch as soon as they can afford another option they perceive to be better.
The Pepsi Problem
Pepsi and Coca Cola both arrived on the scene towards the end of the 19th Century. They were (and are) very similar drinks, which aimed at very similar markets, but Coca Cola was promoted in a way which created a very strong public perception of the drink as being the premium brand, with Pepsi being relegated to the role of poor relation. By the mid 1930s, Pepsi was reaching the point of desperation and in 1936 they finally made a huge gamble which, they hoped, would finally gain them the market share they craved. They began to sell their drink at half the price of Coca Cola, or, more accurately, they produced bottles which contained almost double the amount of liquid as there was in Coca Cola bottles, but for the same price. Pepsi won its battle, its sales soared. Sadly for the company, however, the long-term effect of its actions was to convince consumers that Pepsi was the bargain-basement brand for people who couldn’t afford better. It took about 25 years for Pepsi to come up with a rebranding campaign, which actually succeeded in improving its public image. Even then, the company is rumoured to have clocked up a now legendary marketing blunder when they introduced the campaign to China. “Come alive with the Pepsi generation” wound up being translated as “Pepsi brings your ancestors back from the grave". Pepsi has never commented on this story to confirm or deny it, but if it is true they can take comfort from the fact that they are far from the first company to run into trouble with the complexities of translation in general and Chinese in particular. In fact there’s also a story that Coca Cola themselves had major problems finding a product name which worked in China, but that’s for another day.
The moral(s) of the story
There are several lessons can be drawn from the story and many of them are variations on the theme of “When you’re in a hole, stop digging.”. You could argue that Pepsi should never have let itself get in that deep a hole in the first place, which would be a fair point, but it's worth acknowledging that any newcomer pitching their product or service against an established rival, is essentially in much the same position as Pepsi was back in the 1930s. They are the ones who have to prove themselves. Ultimately, Pepsi’s biggest mistake was to create price-based advertising, which simply confirmed the existing bias towards viewing the product as the cheap alternative for those who couldn’t afford Coca Cola. Only when Pepsi finally learned its lesson (almost 30 years later) and created an original promotion based around the value it offered, did it start to gain recognition as an acceptable brand.