Case Study

Drink Pepsi Get Stuff

Pepsi Stuff was a major loyalty program launched in 1996 and rebooted in 2008, 2015, and 2018. Points were distributed on billions of packages and cups and could originally be redeemed for t-shirts, hats, jackets, bags, and mountain bikes. Later, through a partnership with Amazon, the points could be redeemed for many more items including PlayStations, scooters, MP3s, and magazine subscriptions.

The Pepsi Stuff campaign has been Pepsi’s most successful long-term strategy with millions of customers participating. Wikipedia says:

According to some sources, the first Pepsi Stuff campaign significantly outperformed The Coca-Cola Company’s much-anticipated Atlanta Olympics Summer with growth three times larger than Coca-Cola’s and two points of share gained by Pepsi.

This Case Study provides a high-level overview of the workflow without detailed explanation. It assumes you are already somewhat familiar with KNIME and Market Simulation. If not, start by reviewing the Building Blocks and Community Nodes.

Competitive Story

This Market Simulation provides all Cola Drinkers, both Coke Drinkers and Pepsi Drinkers, with additional value for Pepsi Points that would attract Customers to buy Pepsi. But while this incentive would increase Pepsi’s Market Share, Pepsi’s Cost of Goods Sold (COGS) would also increase. Not all Customers who receive Pepsi Points redeem those points, so Pepsi’s Cost To Serve (CTS)¬†its Customers would increase sporadically.

This Market Simulation takes place in Atlanta¬†(Coke’s hometown) during the the 1996 Summer Olympics when Pepsi’s Market Share overtakes Coke.

Market Setup

This Market Simulation is built upon Coke and Pepsi data from 1996. At that time, the Price of a 2-Litre bottle of Pepsi was 99 cents. Pepsi has been gaining share so Coke vs Pepsi sales before the Pepsi Stuff campaign was about 56% to 44%.

The Pepsi Points that were found on all Pepsi Cola products is treated by this Market Simulation as an additional Feature. The Pepsi Points increase the perceived value of Pepsi for all Customers – even for Customers who don’t buy Pepsi but still enjoy the value of the option.

The redemption of these Pepsi Points contributes to Pepsi’s increasing Cost of Goods Sold (COGS) so it is necessary to track Pepsi’s Cost To Serve (CTS) individual Customers.

1996 Market

The Price of a 2-Litre bottle is 99 cents. Coke’s WTP is a bit higher than Pepsi.

Pepsi Points

Pepsi Points for Pepsi Stuff is worth about 10 cents per bottle (+/- 5 cents).

Enhanced Product

Pepsi becomes a bundle of the old Pepsi Product and Pepsi Stuff.

Pepsi Stuff

A Pepsi Point, if redeemed, will cost Pepsi about 10 cents on average. But only about half the points are redeemed, and some Customers redeem more Pepsi Points than others. Hence Pepsi’s Cost To Serve (CTS) Customers will vary even in relation to how much Pepsi they drink. The Scale Purchase node takes care of this by allocating an average of 5 cents (10 cents / 2) randomly across Pepsi Customers.

The result is that Pepsi’s Market Share overtakes that of Coke (this Market Simulation is focused on Atlanta). But the Cost To Serve (CTS) Customers increases when those Customers redeem points for stuff. Hence while Pepsi Stuff raises Market Share, it also increases Pepsi’s Cost of Goods Sold (COGS) and decreases Pepsi’s Margin and Profitability.

Scale Purchased

Average redemption costs 5 cents per Pepsi Point spread randomly.

Cost To Serve (CTS)

Pepsi’s CTS is spread out across all of its Customers.

Final Results

Pepsi’s Market Share overtakes Coke but COGS and Profit suffer.