Four Loko Case Study

1. Four Loko Case Study Phusion Projects, LLC, responds to the crisis and chaos surrounding their alcoholic beverage Four Loko.

2. Case Background • Phusion Projects, LLC • The company was formed in 2005 by three college friends. • Founders noticed the trend of mixing alcohol with energy drinks (i.e., Red Bull and vodka). • Released Four Loko in 2008 • Four Loko • It was a pre-packaged alcoholic energy drink in a 23.5-ounce can. • It contained ingredients for energy boost: caffeine, taurine and guarana. • It contained 12% alcohol, which equaled alcohol content of 4 standard beers.

3. Case Background: Caffeine and Alcohol • Adverse Effects: • Caffeine counteracts some, but not all, of alcohol’s effects. • Caffeine combined with alcohol causes consumers to perceive themselves less intoxicated than they actually are. • The combination creates a feeling of “wide-awake drunk.” • High-Risk Behavior • Scientific study showed link between alcoholic energy drink consumption and high-risk behavior (serious injury, sexual assault, drunk driving, death).

4. Chronology • September 2009 • National Association of Attorneys General Youth Access to Alcohol Committee wrote a letter to the FDA that expressed concern about the safety of alcoholic energy . • FDA sent a letter to Phusion Projects requesting the company submit a GRAS notice proving Four Loko was generally recognized as safe. • May 2010 • An 18-year-old female in New York claimed she blacked out from drinking Four Loko before she wrecked her car, killing her friend and injuring another woman. • June 2010 • Phusion Projects submitted GRAS notice to FDA.

5. Chronology • August 2010 • An 18-year-old female in New York died after drinking one can of Four Loko. • A 20-year-old male in Florida admitted to drinking Four Loko after killing a father and three sons in a car accident. • A 20-year-old female in Florida lost her hand in a car accident, the driver admitted to drinking Four Loko before hand. • September 2010 • A 20-year-old Florida State University student shot himself after drinking three cans of Four Loko and additional beers. His parents claimed the drink made him “bizarre and erratic.”

6. Chronology • October 2010 • A 30-year-old man in the Bronx was forced to drink 10 cans of Four Loko in anti-gay attack. • NineCentral Washington University students were hospitalized after drinking Four Loko at a party. Washington State Attorney General Rob McKenna publicly accused Four Loko. • Ramapo College in New Jersey banned Four Loko on campus. • A 19-year-old Temple University student was hospitalized after drinking Four Loko and reported chest pains and shortage of breath. • Utah banned the sale of Four Loko.

7. Chronology • November 2010 • Oklahoma banned the sale of Four Loko. • Michigan banned the sale of Four Loko • Washington Liquor Control Board placed emergency ban on Four Loko. • A 14-year-old female in Texas died in a car accident after her 15-year-old boyfriend purchased and consumed Four Loko. • An 18-year-old female in Arizona crashed her car into a tree after playing a drinking game with Four Loko. • Phusion Projects announced plan to reformulate Four Loko by removing energy boosting ingredients. • FDA sent letter to Phusion Projects stating caffeine was “unsafe food additive.”

8. Chronology • December 2010 • Phusion Projects distributed reformulated Four Loko to states that allowed the product. • October 2011 • FTC claimed Four Loko used deceptive marketing and labeling by falsely claiming the product is equivalent to one beer. • Phusion Projects agreed to change the Four Loko label.

9. Media Response: Negative Media • There was nationwide, negative coverage of Four Loko. Major news sources included: New York Times, Los Angeles Times, Time Magazine, CNN, ABC News, NBC and The Washington Post. • Terminology and headlines including Four Lokoled to negative image: • Heavy use of “blackout in a can” and “liquid cocaine” to describe Four Loko. • Headlines linked Four Loko to deaths and accidents.

10. Media Response: Pro Four Loko Media • Student-run newspapers supported Four Loko.Key messages: • Banning a product doesn’t fix a problem. • Students as consumers were concerned because they did not want Four Lokoto be reformulated or banned. • A handful of editorials and opinion columns supported Four Loko(The Huffington Post, The New York Post). Key messages: • FDA was criticized for too much power. • Senators that attacked Four Loko were criticized for ulterior motives such as positive media attention.

11. Phusion Projects Response: Press Releases • Regarding Central Washington University incident - key messages: • Four Loko was not the only substance involved in incident. • Caffeine and alcohol is safe. • We market our products responsibly. • We want to participate in making college campuses safe. • Regarding Four Loko state-wide bans in Pennsylvania, Michigan, Washington, Oklahoma & New York-key messages: • Four Loko is a safe product. • Several other companies use similar marketing tactics (i.e., colorful cans for alcoholic beverages)

12. Phusion Projects Response: Press Releases • An open letter to state and federal regulators • Expressed desire to cooperate with regulators. • Felt that Four Loko was singled out and that “industry-wide, uniform standards” should be set. • A letter to college presidents and staff, was circulated to over 100 colleges – key messages: • Admitted to being “late to the game” in addressing Four Lokocriticisms. • Offered support in promoting responsible drinking on campus.

13. Four Loko Web Presence • Official web presence • Drinkfour.com engaged college students by encouraging them to upload pictures of themselves consuming Four Loko. • Stance on social media: “Our company has taken a unique position and made a conscious effort to reject the social media marketing tactics that other companies embrace – including many of our competitors. There is no company sponsored ‘Four Loko’ Facebook page or YouTube channel” • There was evidence that Drink FOUR Facebook page was linked to official Drinkfour.compage.

14. Four Loko Web Presence • Unofficial web presence • YouTube and word of mouth phenomenon created Four Loko an image associated with binge drinking. • Rap videos portrayed binge drinking and claimed to be “Official Four Loko Music Videos.” • Hundreds of videos and pictures of consumers chugging Four Loko were on YouTube.

15. PR Representative Response • Correspondence with The Seattle Weeklyblog in which the Edelman public relations representative for Phusion Projects framed the Four Loko product • Compared the alcohol equivalent to wine and craft beers, and stated the comparison to five or six beers was incorrect.

16. Company Founders Response • Chris Hunter and Jaisen Freeman spoke to the media. Key messages: • Retracted terminology “alcoholic energy drink” for Four Loko. • Stood by Four Loko and the safety of the product. • Expressed sympathy for victims of tragedy in St. Augustine, Florida tragedy. • Publicly disagreed with FTC and FDA’s allegations. • Offered “no comment” on three occasions (ban in Washington, death of FSU student and ban on Ramapo College campus).

17. Page Principles Applied • Tell the truth. • Scientific studies proved the combination within Four Loko to be dangerous. The FDA forced Phusion Projects to review the scientific evidence and submit a refute that proved the combination to be safe. Even though no scientific evidence supported the safety of alcoholic energy drinks, Phusion Projects continued to insist the product was safe and that the deaths resulted from individual binge drinking incidents ultimately unrelated to Four Loko. • Phusion Projects was dishonest about marketing efforts. The company claimed they never engaged in social media efforts when evidence displayed they specifically engaged college representatives and students to promote the product via social networks

18. Page Principles Applied • Prove it with action. • Phusion Projects offered support to college campuses and advocated responsible drinking in press releases. There was, however, no action taken to advocate responsible drinking. If the company proved that their concern was sincere with action, then Phusion Projects may have been able to repair their reputation. Phusion Projects would have benefited from hosting anti-binge drinking events or informational sessions.

19. Page Principles Applied • Listen to the customer. • Phusion Projects should have respected the government and the victims more than they did. The company would have benefitted from seeing the point of views voiced by government officials and victims. • Those who enjoyed the original Four Loko product, primarily college students, voiced concern over the product being banned or reformulated. In this sense, Phusion Projects did listen to these stakeholders and chose to defend the original Four Loko product. That choice, however, negatively impacted the company’s reputation.

20. Page Principles Applied • Manage for tomorrow. • There were early warning signs that led up to highly covered incident at Central Washington State in October 2010. The government began scrutinizing Four Loko in November 2009. Phusion Projects had ample time to develop a better crisis communication plan before the media took off with the coverage in October and November of 2010. • . If Phusion Projects paid better attention to these warning signs, the company would have also been better equipped for the possibility of reformulating and disposing of the original Four Loko product. Phusion Projects did not effectively manage for tomorrow.

21. Page Principles Applied • Conduct public relations as if the whole company depends on it. • It was clear that before the crisis, Phusion Projects did not value public relations as a management function. The company’s presence depended almost entirely on word-of-mouth buzz and Internet marketing. Before October of 2010, there is little evidence of Phusion Projects engaging with external publics. • If Phusion Projects considered public relations as a management function from the beginning, the company would have been more careful in developing a reputation and preparing for a crisis. After assessing the company’s response, it is safe to assume no set crisis communication plan was in place.

22. Page Principles Applied • Realize a company’s true character is expressed by its people. • The only people within Phusion Projects that spoke out were the founders themselves. In doing so, they personally involved themselves in the company’s public relations. As a company, Phusion Projects employs approximately 90 people, none of which spoke out during the crisis. • Remain calm, patient, and good-humored. • When the founders of Phusion Projects spoke out to the media, it was clear they were upset as they felt their product was unfairly targeted. They reiterated the points that combining caffeine and alcohol is nothing new and that binge drinking is the problem at hand. The defensive content of their messages suggested the company was frustrated with the negative attention and government speculation.

23. Discussion : Crisis Communications • Define the key stakeholders for Phusion Projects. Which stakeholders did Phusion Projects treat as most important? Which stakeholders do you perceive to be most important? • Discuss the three threats (public safety, financial loss and reputation) that resulted from the Four Loko crisis. Did Phusion Projects respond accordingly to the sequential order of these threats? (i.e., was public safety the main priority in the company’s response?)

24. Discussion: Crisis Communications • Evaluate each of the six guidelines for an initial crisis response in the Four Loko case study. Which of these guidelines did Phusion Projects follow? Which of the guidelines did they neglect, and how did that affect the crisis at hand? • How did Phusion Projects’ “no comment” responses and “we will let our product speak for itself” affect the crisis? • How did external influences such as media sensationalism and binge drinking culture shape the Four Loko crisis? How did Phusion Projects respond to these external influences?

25. Discussion: Reputation Management • Assess Four Loko’s reputation throughout the crisis. How did certain stakeholders (i.e., consumers, media, government) influence this reputation? • Consider Phusion Projects’ reputation as a company. Did this affect the reputation of the Four Loko product? • How did Four Loko’s reputation contribute to the crisis?

26. Discussion: Reputation Management • Identify Phusion Projects’ behaviors, communications and relationships that influenced Four Loko’s reputation. • What strategies did Phusion Projects use to repair the company and the product’s reputation during the crisis? Refer to the list of strategies above. Consider specifically how Phusion Projects defined the Four Loko product. • Did any of these strategies prove to be successful?