Chapter 205: Unlocking the Big Prize

Lockheed, at this point in time, was not yet the global arms giant Lockheed Martin would later become. Although the company secured numerous orders during World War II, it still lagged behind Boeing in many respects.

During the war, Lockheed produced nearly 20,000 aircraft for the military, including the renowned P-38 "Lightning" twin-engine fighter. Hardy recalled playing an airplane shooting game called '1945' earlier, where the P-38 "Lightning" was a featured plane.

After World War II, the U.S. military downsized, drastically reducing war expenditures. This led to a significant reduction in Lockheed's military orders. In an attempt to remain profitable, Lockheed turned to the civilian aircraft market with its 'Constellation' series. Despite the impressive performance of these aircraft, they faced fierce competition from Boeing's B-377 Strato Cruiser and Douglas's DC-6B. Over the past two years, Douglas had secured more than 100 orders, while Lockheed managed to sell only 17 planes.

To increase market share in this tough environment, Lockheed initiated a promotion where salespeople could take 10% to 20% of the total price of an aircraft as public relations "costs" to secure orders. However, sales remained disappointing.

Robert Gross, Lockheed's anxious president, saw an opportunity when he met Hardy. Knowing that Hardy owned an airline, he asked if Hardy was interested in purchasing aircraft.

Hardy had a clear strategy for his airline. He wasn't interested in expensive, complex aircraft. If he were to buy, he would choose the more affordable and durable Douglas planes. Lockheed's products, though good, were too delicate and expensive to maintain. An airplane cost nearly a million dollars, and it would take over a decade to recoup that investment, making it an unattractive option for Hardy.

Historically, due to the struggling airliner business, Lockheed eventually abandoned the market within a few years to focus on military aircraft.

Hardy thought to himself, **I don't want planes, but if you're selling stock, I might be interested.** Lockheed would face a prolonged period of depression in the coming years. Hardy believed it was best to wait for the right moment to buy if the opportunity presented itself.

After chatting with Hardy, Robert Gross mingled with other guests.

As the event neared its end, Hardy prepared to leave. Before he could exit, Pepsi's Chairman and President, Walter Mack, approached him.

"Mr. Hardy, when can we discuss Pepsi's future development?" Walter asked.

"How about we find a place to talk now?" Hardy suggested.

"Perfect," Walter agreed, joining Hardy in his car. Walter had a manor in San Francisco and invited Hardy and Andy over for a discussion.

On the way there, Hardy noticed billboards for Coca-Cola and Pepsi. He instructed the driver to stop the car.

"Do you see anything wrong with these billboards?" Hardy asked Walter, pointing at them.

Walter examined the ads. "These were created by a professional advertising company. I don't see any issues."

Hardy shook his head. "I don't see any distinctive qualities. Pepsi has been trying to compete with Coca-Cola for years, but it's lagging behind. Don't you think there's something wrong with your guiding philosophy?"

Walter paused. "We've tried to mimic Coca-Cola as closely as possible, thinking that if we could create the illusion that Pepsi was competing with Coca-Cola, we could increase Pepsi's market visibility."

Hardy understood. **This was a classic case of brand mimicry,** which could work in the short term but often had long-term negative effects on brand identity.

"I think Pepsi needs to carve its own path and differentiate its marketing from Coca-Cola," Hardy suggested.

"But Pepsi and Coca-Cola taste almost identical, and their markets overlap completely," Walter pointed out.

"Then target a specific market and stand out. Market Pepsi as a drink for the young—drinking Pepsi should feel youthful, joyful, and liberating."

It was only years later that Pepsi began to rise by targeting the younger demographic.

Walter pondered Hardy's advice. Hardy then asked his assistant Henry to find a grocery store and buy two cases of Pepsi.

Soon, they arrived at Walter's manor. Walter's wife greeted them politely, offering tea as the men continued their discussion.

"President Mack, the advertising strategy I mentioned is a long-term plan. It may take years to establish. However, I have two other ideas that can boost Pepsi sales in the short term," Hardy said.

Walter leaned forward, eager to hear more. "What are they, Mr. Hardy?"

"The first idea is canned drinks."

"Canned drinks? What do you mean?" Walter asked, puzzled.

Hardy sketched a simple can and explained, "Imagine a can made of aluminum with an easy-pull tab on top. With one pull, the drink is ready to consume anywhere."

Walter found the design innovative. "Where can we buy this filling equipment?"

"You can't yet. This is a future direction. Pepsi should develop this technology in-house. Once it's perfected, patent it. I believe Coca-Cola will eventually beg us for the rights to use it," Hardy said.

"For now, we can't use it," Walter acknowledged.

Hardy handed a bottle of Pepsi to Walter. "Could you open this for me?"

Walter fumbled, unable to open it without a bottle opener. After a while, the butler fetched one from the kitchen.

"Notice how inconvenient it is to open this without a bottle opener?" Hardy remarked. "We can design an easy-pull ring bottle cap that opens with a simple pull. It'll be much more convenient."

"But many people enjoy opening bottles with their teeth, lighters, or even table corners," Walter countered.

"Once people experience the ease of the pull-ring, especially women, they'll love it. Imagine the cool sound and feel when they open the bottle. It's all about the experience," Hardy explained. "When the new bottle cap Pepsi hits the market, you can create a TV commercial showing people struggling to open bottles in all sorts of ways. Then, a beautiful girl effortlessly opens a Pepsi with the pull-tab, leaving everyone else amazed."

"And make sure those struggles involve Coca-Cola bottles," Hardy added with a grin.

Walter was excited by the idea. "I'll have our product team develop this pull-ring cap. It shouldn't be too difficult."

"What's the second idea?" Walter asked.

Hardy picked up a Pepsi bottle cap with the company logo on top and a rubber pad underneath.

"The second idea is a lottery," Hardy said.

"Lottery? Can you explain?" Walter asked.

Hardy instructed the group to open several bottles of Pepsi and remove the rubber pads beneath the caps. On the underside of the pads, Hardy wrote, "Thank you for your patronage," "10 cents prize," "25 cents prize," "50 cents prize," "$1 prize," and the highest, "$100 prize."

Hardy then put the rubber pads back in place and resealed the bottles. "Do you understand now?" he asked.

Walter, with his years of experience at Pepsi, immediately grasped the concept. He envisioned people buying Pepsi for the chance to win a prize.

Walter picked up a bottle, mimicking opening it with a pull-tab, and made a 'pop' sound with his mouth. He pretended to win 50 cents and exclaimed, "Wow, I won! I can buy 10 more bottles of Pepsi!"

The more Walter thought about it, the more excited he became. He could already see customers flocking to stores, choosing Pepsi over Coca-Cola for a chance to win.

Hardy explained, "The pull-tab and lottery concepts should be patented. If Coca-Cola or any other beverage company tries to imitate them in the future, we can sue for infringement."

Walter nodded enthusiastically. "Yes, we'll apply for patents and copyrights. These ideas are brilliant, Mr. Hardy!"

Walter was now truly impressed with Hardy's business acumen. Andy, observing from the side, also admired his boss's innovative thinking. He was certain Pepsi would see a significant sales boost if they implemented Hardy's ideas.

As they continued their conversation, Hardy suggested they take a walk in Walter's garden.

Walter agreed, and as they strolled, Hardy brought up a sensitive topic. "I think we need to revisit Pepsi's share distribution."

Walter hesitated, wondering if Hardy was implying a hostile takeover.

"What do you mean, Mr. Hardy?" Walter asked cautiously.

"Your current stake is 21%, correct?" Hardy inquired.

"Yes."

"I own 23%. I believe our shares are too small. With the ideas I've shared, Pepsi's sales and stock price will likely soar. But right now, Pepsi's stock is at a historic low. I think we should take advantage of this and acquire more shares. What do you think?"

Walter understood Hardy's intent. He was suggesting they manipulate the stock to further depress Pepsi's price before buying more shares. Such a move, if discovered, could lead to trouble with the Securities and Exchange Commission.

However, as long as everything was handled discreetly, it would be almost impossible to detect. After all, it could all be made to look like regular business operations.

Andy, walking behind them, was impressed by Hardy's bold plan. He had considered buying some Pepsi stock himself but realized now that Hardy was thinking on an entirely different level.

After a moment of silence, Walter responded, "Pepsi's fourth-quarter earnings report is coming out soon, and it will show that our earnings have dropped even further compared to the third quarter."

Walter's statement was a clear sign that he was willing to collaborate with Hardy.

Hardy smiled. "After the New Year, there will be a minor accident at one of Pepsi's syrup plants. A pipeline will burst, causing production to stop for two days, leading to a loss of tens of thousands

 of gallons of syrup."

Walter added, "And the syrup we produce won't meet the standard, so we'll have to sell it at a low price."

"Exactly. Then you can issue an announcement to temporarily halt sales in the southern states, like Georgia, for instance," Hardy suggested.

"Sales in Georgia have never been good, and we've been considering stopping them anyway," Walter agreed.

"One more thing: have someone resign—a major figure. When a senior executive leaves the company, it often causes a significant drop in stock prices," Hardy said.

Walter pondered this. "Perhaps James will announce his resignation. He's already considering retiring."

"And we can have other executives start selling their shares. Public opinion will do the rest. When the stock price drops to a low enough level, we'll buy it back," Hardy concluded.

As the two men planned, Hardy offered one last suggestion. "You should also get in touch with the top executives at Goldman Sachs. They handle most of the stock trades for large beverage companies. Have them short Pepsi stock, and we'll split the profits with them."

"That's a good idea," Walter agreed.

As they continued their walk, Walter's wife, who had no idea what they were planning, complimented them on how well they were getting along.

Once they returned to the manor, Walter asked Hardy, "How many shares are you planning to acquire?"

"At least 10%," Hardy responded.

Walter thought for a moment. "Then I'll try to get 5%."

If they succeeded, Hardy and Walter would jointly hold more than 50% of Pepsi's stock. With that level of control, they could drive Coca-Cola out of business if they wanted.

After their conversation, Walter looked at Hardy with newfound respect. He realized that Hardy was a master at playing the stock market, and he was glad to be on the same side as him.

As Hardy and Andy left the manor and drove away, Andy, who had been listening quietly, finally spoke up. "Mr. Hardy, will everything really go as planned?"

Hardy smiled and replied, "It will, Andy. You'll see."

Andy nodded, feeling reassured. He knew Hardy well enough to trust his judgment. They were about to embark on a major business venture, and Andy was ready to follow Hardy's lead.