The Opportunity Costs of Secrets
Secrets are a false sense of pretense.
Bundled in NDAs and promises, they create a sense of security that, when needed, lines won’t be trespassed, trust won’t be breached, and its worth would remain intact.
We are often told that of all the corporate world secrets, Coca-Cola’s secret formula has been one of the most coveted and closely guarded recipes which have resisted declassifications from leagues of Julian Assanges and Snowdens.
It should have been pretty much worth it! But is that really the case?
As a competitor, knowing Coke’s “secret” formula has meant nothing for Pepsi. And here’s the logic.
Let’s assume that Pepsi gets to know about the formula and develops a similar beverage to market and sell it to the enthusiasts. The impact would have been identical to that of a prescription drug: once the formula is out, many not-so-well-known pharmaceutical companies step in to blur the competition. In this case, the share prices of Coke would plummet almost instantaneously, resulting in a drastic fall in the per unit selling cost.
But as customers shift their preference from a lofty, cheap and more often, revered as one of the better versions of “Coke,” Pepsi would have to drop its prices as well to match the competition and stay relevant.
Thus, when consumers shift their loyalties, they ultimately gain the bargaining power to negotiate the price.
So when the breach happened back in 2006, the executives at Pepsi were better economists, rather than someone who would have been driven by moral behaviour.
