Pepsi Refresh Project Faces Cheating Allegations

Some Nonprofits Claim Certain Participants Used Proxy Service to Amass Votes, Win Grants

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NEW YORK (AdAge.com) -- Pepsi Refresh, the much-lauded program that awards grants for civic and social programs, is facing allegations of cheating as beverage giant is gearing up to expand the program to new countries and launch its 2011 effort.

In a New York Times article, a few nonprofits claim that some winners have used a service, represented by an individual known only as "Mr. Magic," to generate proxy votes and win grants. Pepsi denies those claims, saying it is "committed to ensuring the integrity of the Refresh Project voting process."

Claims of voter fraud are not unusual in these types of contests, and Pepsi has taken precautions in the past. On the Refresh Project site, the company responds to the question, "How can I be sure the leader board is working properly?" in its frequently-asked-questions section. "Pepsi heard your concerns and hired a third-party technology firm to do a custom audit on the functionality of the leader board," the response states. A statement dated April 19, 2010 from Flying Aces Technology, the company handling the audit, says it was tasked, in part, with assessing whether the voting system "prevents and deters attacks and fraud." It found that "the entities involved have implemented suitable controls to deter fraudulent activity and prevent operational issues."

In a statement, Pepsi said, "We do not discuss specifics related to our proprietary security measures in order to maintain their confidentiality; however, many methods are used to identify fraudulent votes and remove them from the system. We take any allegation of fraud very seriously and once we have completed a thorough review of the facts, we will take appropriate action," the statement concluded. Pepsi did not respond to requests for further comment.

It's unclear what will happen next, but some execs say the allegations could mar what has, to this point, been viewed as a groundbreaking and successful campaign. The Refresh Project, launched a year ago, gives consumers the chance to apply for grants ranging from $5,000 to $250,000 in one of six areas: health, arts and culture, food and shelter, the planet, neighborhoods and education. A thousand applications are accepted monthly via refresheverything.com, and consumers vote on the winning projects.

"It could tarnish the whole campaign," said Avi Dan, founder and president of New York-based consulting firm Avidan Strategies, referencing the quiz-show scandals of the 1950s, which were a black eye to the TV industry. "It's a great marketing idea, but the devil is in the details."

Mr. Dan pointed out that marketers, in general, need to be more fastidious as they open up their marketing plans to the crowds. "You have to establish a strong policing mechanism and watch for irregularities," he said. "Votes coming from the same server or city -- that's a red flag."

It's unlikely marketers will abandon these types of campaigns all together, but management of the programs will surely come under scrutiny in the coming year. Patricia Hurley, senior VP-cause branding and nonprofit marketing at Cone, said that one way to head off disaster is to limit the number of charities involved. One of the challenges, and distinguishing features, of the Refresh Project is that it gives anyone a chance to win grants. Other marketers, such as Target and American Express, limit the charities that they work with, she said.

"We recommend to our clients that they know who they're working with, so they're able to mitigate the risks," Ms. Hurley said. "Companies should be more strategic, rather than extending such a broad net. That gives you much greater control."

However, Ms. Hurley said consumers, in general, feel "very positive" about Refresh Project. In a recent set of focus groups Ms. Hurley participated in, consumers brought up Refresh Project unaided, saying that they've switched to Pepsi, as a result of the program, she said.

"[The allegations] may make Pepsi and some others think twice about how they do this in the future,"she said. "But we probably shouldn't be too surprised these types of things are happening. ... The competition is fierce out there. Nonprofits are really hard up right now and doing whatever they can to get the funds they need. I'm sure the temptation to take short cuts when they come available is hard to resist."

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