David Brown (13:13)
It's August 2003. Gatorade's marketing director Andy Haro hesitates before picking up the phone again. It's been a tough morning. His phone has been ringing non stop with calls from reporters asking about the same piece of news. LeBron James. The 18 year old phenom, recently drafted number one overall, has just signed a six year deal. But it's not with Gatorade. As everyone expected, James will be the new face of Coca Cola's Powerade. Haro picks up the phone and glances down at the statement he knows by heart now, we do value LeBron. We think he's going to be a great NBA player. But this is a brand that doesn't need to lean on one athlete for marketing. It's a little rich coming from Gatorade, a brand that relied on Michael Jordan for years. The truth is Gatorade did try to sign LeBron after all, as a high school player, James won Gatorade's player of the year award twice. Scouts are already saying he's the second coming of Jordan. Talks began with high hopes on both sides. But then Gatorade heard the price tag somewhere around $2 million a year and it decided to walk away. Now Gatorade is left issuing carefully worded quotes to the press while Coca Cola and Powerade get to celebrate. For Coke, the timing is perfect. They recently pulled ads featuring their previous NBA spokesman, Kobe Bryant, after allegations surfaced that he committed sexual assault. LeBron James represents a clean break, a fresh start. But this is about more than damage control, it's also revenge. Back in 1991, Coca Cola balked at Jordan's fee, allowing Gatorade to swoop in and sign the young superstar. Now history is flipping. Gatorade passed on James, creating an opportunity for Coke and Powerade to step in. You know, I think something else is going on here too. And it's not about sticker shock, but two different ways of putting a price tag on the future. Things have changed since Gatorade and Coke were fighting for Jordan. For Coke, Jordan was a marketing spend back in the day. But for Gatorade, he was a strategic asset, a boost to Gatorade's credibility. Well, now that Gatorade's the category leader, it's Powerade that needs credibility. If you're at the top of a category, decisions like this should never be just about return on investment. You gotta think about whether it's worth it to deny momentum to your closest rival. Because sometimes the most expensive move can be the One you choose not to make. Of course, Gatorade has good reason to be cautious. When Jordan signed with Gatorade in the early 90s, he was already an established All Star, with six years in the pros and an NBA title under his belt. By contrast, James is not only a rookie, he's never played a single minute of college basketball. Some analysts whisper that James value as a spokesperson might be inflated, fueled in part by the deal he just signed with Nike worth $90 million. With the benefit of hindsight, of course, we know that LeBron James talent was no fluke. He goes on to win four NBA championships for three different teams and becomes one of the defining players of the modern era. When Gatorade let him walk, they missed the chance to sign Jordan's successor. And in doing so, Gatorade inadvertently gives Powerade a new level of legitimacy. Over the next few years, Gatorade and Powerade compete for sponsorships, spokespeople and attention. Powerade holds on to its role as the official sports drink of NASCAR in the NHL. Gatorade, meanwhile, has a firm grip on football, basketball, baseball and soccer, and it maintains its massive size advantage over PowerAid. In 2004, Gatorade controls about 80% of the sports drink market. PowerAid has 15%. But throughout the 2000s, PowerAid keeps chipping away. Between 2000 and 2009, its sales nearly triple. By the end of the aughts, Powerade's market share has climbed 4 points to 19%. While Gatorade sales have slowed, it's still selling more than 550 million cases worldwide to Powerade's 177 million. But the gap is narrowing, and something more troubling is happening for Gatorade. Despite outselling Powerade 3 to 1, and despite outspending Powerade on advertising by as much as 10 to 1, Gatorade and Powerade are starting to be discussed in the same breath. Once upon a time, there was Gatorade and everyone else. But by 2010, there's Gatorade and Powerade. They've become the Pepsi and Coke of the sports drink world, quite literally, since they're owned by Coke and Pepsi. Powerade is perceived as an equality, despite actually being a smaller brand by sales. That's great news for them and a bad sign for Gatorade. Man, this reminds me a lot of other great brand rivalries where the spreadsheet and the street start telling different stories. On paper, Gatorade is still crushing Powerade, outselling it by a wide margin. But in the real world, perception shapes behavior long before accounting catches up. Think of motorcycles. Harley Davidson outlasted its biggest rival, Indian, but within the last 15 years or so, Indians made a big comeback. Now, on paper, there's no real comparison. Harley's a much bigger, more successful company. But in the showroom, the revived Indian's already a rival, fully reborn. Like Gatorade, Harley's bigger for now. But once customers start treating two brands as equals, price sensitivity goes up, loyalty goes down, and margins get squeezed. For any business, being thought of as interchangeable can be more dangerous than actually being outsold. Gatorade needs to add some distance between themselves and their biggest rival. Enter PepsiCo CEO Indra Nui. Nui has been at Pepsi since the mid-90s and has been running the company with a steady hand since 2006. Her diagnosis of Gatorade's problems comes down to one differentiation. Newey says Gatorade's mistake was actually something that used to be its strength marketing itself as a general hydration drink, a quote, social beverage as she puts it, instead of a performance tool for athletes. Remember back in the 80s and 90s, one of Gatorade's most successful marketing decisions was was widening its appeal from serious athletes to the average person. Gatorade wasn't just for NFL linemen or Olympic sprinters. It was for the weekend warriors, kids on blacktop courts, anyone who wanted to be like Mike. At the time, it seemed like a smart play. There are a lot more thirsty people in the world than there are elite athletes. Selling Gatorade as an all around thirst quencher helped the brand exponentially grow its reach and sales. It was a smart strategy when Gatorade owned the category, but now Powerade has entered the conversation and Gatorade needs to reclaim its roots. Under NUI's guidance, Gatorade begins a strategic refocus on products targeted at athletes. They create G2, a lower calorie option that promises to deliver the same electrolytes with less sugar and recover, which includes protein to help repair muscles after tough workouts. Gatorade also comes out with Gatorade Prime, a pouch of concentrated energy gel to sustain endurance athletes, as well as a line of protein bars, shakes and drinks. Notably, they decide not to create a truly sugar free version of Gatorade, which Powerade has already done with their zero calorie version. Powerade Zero Gatorade says that any performance boosting drink for athletes must contain some calories by definition because the energy boost from these calories is part of what you're paying for and there's another decision Nui makes to keep Gatorade distinct from the other guys. She refuses to lower Gatorade's price. Now. Powerade, on average sells for about $2 less per case than Gatorade, which means in the short term, Gatorade, as the more expensive option, experiences a dip in sales. But in an earnings call in 2012, Newey makes it clear that Gatorade will not become a discount rate brand. She tells analysts that slashing prices will hurt Gatorade's perception as a premium sports drink. And she makes it clear Gatorade is for people who are serious about their workouts. Powerade can be for everyone else. Gatorade's renewed focus on being the sports drink for real athletes will carry into the social media era. But as the brand's marketing team will soon learn, basing your reputation on athletic performance has the potential to seriously backfire. It's June 2014 in San Antonio, Texas, game one of the NBA Finals. The Miami Heat are taking on the San Antonio spurs at home, but the real opponent is the Texas Heat. On game day, the air conditioning system inside the AT&T center malfunctions, turning the entire building into a sauna. Sweat streams down the faces of players and fans alike. On the sidelines, players are downing electrolyte drinks like their professional lives depended on it. Thirstiest of all, LeBron James, the heat's power forward and longtime spokesperson for Powerade. Between plays, he gulps from a clear plastic bottle filled with bright yellow liquid. As a Powerade sponsored athlete, James isn't supposed to display his sponsor's logo on the court because Gatorade pays the NBA an estimated $18 million a year to be the league's official sports drink. To navigate this conflict, James usually peels the label off his sports drink bottles. But during this brutal game one of the Finals, LeBron will discover the limits of electrolyte hydration. He's the game's leading scorer heading into the fourth quarter. But in the game's final minutes, disaster strikes. Good crossover by James and on the landing immediately cramps up and James gonna have to be helped over. We've seen him again cramp up before in playoff situations, but it never seemed to be this severe. James limps over to the bench. Without James in the game, The Heat loses 110 to 95 and Gatorade's social media team sees an opportunity to needle its competitor on Twitter, aideraid replies to tweets about LeBron's exit with these the person cramping wasn't our client. Our athletes can take the heat. This is awkward. We don't sponsor him. Fail. We were waiting on the sidelines, but he prefers to drink something else. Gatorade's trolling catches the attention of fans and a few sports news outlets too. So a few Internet sleuths start pouring through ESPN's game footage, focusing on the bottle of bright yellow liquid James was drinking from during game one. Eagle eyed viewers notice that the bottle James is drinking from is smooth with the distinctive orange twist cap. They also notice the distinctive yellow color of his drink, which is only found in one flavor, Gatorade's Lemon Lime. The verdict is in. LeBron was absolutely drinking Gatorade, not Powerade, and Gatorade failed him. This incident ends up being a double ding on Gatorade. First, the brand must apologize for their unsportsmanlike conduct on Twitter. The morning after Crampgate, Gatorade releases a statement. Our apologies for our response to fans tweets during last night's Heat vs Spurs game. We got caught up in the heat of the battle. As a longtime partner of the Miami Heat, we support the entire team. But LeBron's cramping also undermines one of Gatorade's classic claims, that the beverage prevents dehydration in extreme heat. And this raises a dangerous question. If Gatorade was invented to prevent exactly what happened to James, does Gatorade even work? So does Gatorade actually prevent muscle cramps? Sports scientists Ross Tucker and Jonathan Ducas say the idea goes back more than a century, to the mines and factories of the Industrial Revolution. Workers collapsing from heat had their sweat tested. Researchers found salt and assumed its loss caused cramping. That explanation stuck and even carried into the 1930s, when workers building the Hoover Dam claimed that drinking salty milk helped with their cramping. By the time Dr. Robert Cade began studying dehydrated football players at the University of Florida, decades later, electrolytes were already the accepted explanation. But there's a problem with this theory. If electrolyte loss causes cramps, every muscle should fail at once. Instead, it's the muscles working the hardest that fail. Something simple fatigue can explain. Later studies of endurance athletes found that these athletes lose more weight water than salt, meaning that after intense exercise, the body already contains plenty of sodium. What it really needs is plain water. In other words, the science behind electrolyte drinks preventing cramping is complicated. And yet the belief persists. Years of advertising, locker room wisdom, and sideline rituals have locked this idea into our heads long after the science has moved on. Much like the belief that vitamin C prevents colds, Gatorade didn't invent this belief about electrolytes, but they did turn it into one of the most powerful marketing narratives in sports. Let's step out of our lab coats and get back to the business. No matter where you land on the science, it's hard to deny that Gatorade's story and the research behind it is starting to show its age. In 2015, Gatorade celebrates its 50th birthday with a remastered version of their classic Be Like Mike campaign.
