1. PEPSI CHALLENGE

2.  In the early 1980’s, the Coca-Cola Company was profoundly nervous about its future. Once, Coke had been far and away the dominant soft drink in the world. But Pepsi had been steadily chipping away at Coke’s lead. In 1972, 18% of soft drink users said that they drank Coke exclusively, compared to 4% who called themselves exclusive Pepsi drinkers. By the early 1980’s, Coke had dropped to 12% and Pepsi had risen to 11% - and this despite the fact that Coke was more widely available than Pepsi and spending at least $100 million more on advertising per year.

3.  In the midst of the upheaval, Pepsi began running television commercials around the country, pitting Coke head-to-head with Pepsi in what was called the Pepsi Challenge. Dedicated Coke drinkers were asked to take a sip from two glasses, one marked Q and one marked M.

4. Which did they prefer?  Invariably, they would say M, and lo and behold, M would be revealed as Pepsi. Coke’s initial reaction to the Pepsi Challenge was to dispute its findings. But when they privately conducted blind head-to-head taste tests of their own, they found the same thing: when asked to choose between Coke and Pepsi, the majority of tasters – 17 percent – preferred Pepsi. A 17 percent edge is a lot, particularly in a world where millions of dollars hang on a tenth of a percentage point, and it is not hard to imagine how devastating this news was to Coca-Cola management. It appeared that Coke's lead in the soft drink industry was no longer.  Or was it?

5. Questions to consider  1. Make a hypothesis as to why people may have chosen the Pepsi instead of the Coke. Could there be a variable that is affecting the participants besides the actual taste of the drink?

6.  2. What should Coke due to test for the variables that you identified in question 1?

7.  3. If Coke paid you to design an experiment to test whether people could identify Coke and Pepsi, what type of test would you design?