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Pepsi-Cola Co. traces its origins to August 1898 in New Bern, N.C., when Caleb D. Bradham first devised the formula for Pepsi-Cola. Mr. Bradham patented the formula, registered the Pepsi trademark and incorporated in 1902. Because Pepsi was introduced 12 years after Coca-Cola, for years it defined itself in relation to the market leader through slogans, jingles and advertising campaigns from a succession of four major ad agencies.

After World War I, the company fell into debt and was acquired in 1923 by Craven Holding Co. A second financial crisis hit the marketer, however, and the Loft Candy Store company purchased the ailing company in May 1931. With few bottlers behind the marketer, however, the company's future appeared bleak; advertising consisted of small-space newspaper ads, billboards and point-of-purchase materials, all created by the company.

Value positioning

In March 1934 in a marketing coup, the company introduced Pepsi-Cola in 12-ounce bottles priced at 5¢ each. The repackaging reinvigorated the soft-drink brand, which previously had competed with rivals' six-ounce bottles, by offering Depression-era consumers a bargain. By 1936, Pepsi had a $500,000 ad budget and retained Baltimore's Brown Agency to create marketing materials, such as enamel signs, and to handle local newspaper promotions. Ad spending doubled by 1938, and Pepsi moved its account to the Metropolitan Advertising Agency, New York.

Pepsi changed hands again in July 1939, when Phoenix Securities, which owned 29% of Loft, took over the company. Walter Mack became the chief executive at Pepsi and began an agency review after which the account moved to Newell-Emmett Co. Mr. Mack, however, retained a jingle that rival shop Lord & Thomas had commissioned as part of the review and told Newell-Emmett to run it on as many local stations as possible. In September 1939, Newell-Emmett introduced the "Pepsi-Cola Hits the Spot" campaign, which ran in 15-second slots on local radio stations, where brevity bought frequency. Soon everybody was humming the tune.

After World War II, Pepsi increased its advertising budget to almost $4 million. But Pepsi's thrift message—"Twice as much for a nickel"—made the product look cheap at a time when consumption was becoming more acceptable. In 1948, with sales dropping $10 million in one year, Mr. Mack moved the ad account to the Biow Co.; he also moved corporate headquarters to New York. In 1949, with a $3 million ad budget, Biow introduced the slogan "Twice as much for a penny more," moving the soft drink to a bargain positioning.

Despite the new advertising campaign, Pepsi's sales continued to decline. In October 1950, Mr. Mack resigned, and Alfred Steel, formerly at rival Coca-Cola Co., succeeded him. "More bounce to the ounce" became the Pepsi mantra, and actress Polly Bergen personified Pepsi's modern image in advertising, discussing "the light refreshment that refreshes without filling." "Reduced calories" became a Pepsi theme, and slender women in Dior suits set the new upscale Pepsi look. By 1955, the brand's ad budget increased to about $8 million.

In December 1955, Pepsi moved its account to Kenyon & Eckhardt, which raised the level of elegance in new Pepsi advertising. "Say 'Pepsi, please'" became the soft drink's slogan, and the sales gap between Coke and Pepsi rapidly closed. In September 1956, K&E introduced the tagline "Be sociable, look smart" for Pepsi, which now was served from champagne coolers to "young and fair and debonair" men in tuxedos and women in cocktail dresses.

Mr. Steel died on April 21, 1959, at age 57. One year later, after hiring away a number of top K&E executives, Pepsi moved its account to Batten, Barton, Durstine & Osborn.

International growth

Don Kendall, who had run Pepsi's international division, secured control of the company in 1963 and began an acquisition spree, turning Pepsi into a multinational conglomerate. Pepsi acquired Tip Corp., marketer of Mountain Dew, in September 1964; then, in 1965, Frito-Lay. That same year, the company created PepsiCo Inc. as a holding company for its acquisitions. Rival Coca-Cola Co., however, had outflanked PepsiCo on the international front; Coke had been aggressively working the world market since 1926, so Pepsi had some catching up to do.

The number of Pepsi bottlers outside the U.S. grew from 70 to 278 between 1957 and 1962. In the 1960s, working with Schweppes, Perrier and other bottlers in Europe, Pepsi made huge strides; it also set up franchises in China and Japan and, in September 1973, Mr. Kendall traveled to the Soviet Union to finalize a deal that made Pepsi a symbol of Cold War détente.

While Pepsi pursued Coke overseas, BBDO replaced the cocktail dresses in domestic ads with surfing gear, targeting a younger consumer. The agency introduced the slogan "For those who think young," and the campaign that used it repositioned Pepsi with a fierce new aggressiveness against Coke. Four years later, BBDO launched "Come alive. . . . You're in the Pepsi Generation," and the phrase "Pepsi Generation" became closely associated with the term "baby boomer."

Visuals carried strong images of sports and active recreation, and ads linked the soft drink to the ideas of challenge and reward. Even when ad emphasis turned to a specific product claim—"Taste that beats the others cold, Pepsi pours it on"—in Pepsi advertising remained focused on high-energy outdoor play.

In 1964, Pepsi introduced Diet Pepsi, which became one of the marketer's leading brands. In 1965, "Girlwatchers" became the first ad effort to support the low-calorie soft drink. After its acquisition of Mountain Dew, Pepsi introduced the "Ya-Hoo" ad effort in 1965 in support of its new brand.

Social change

The 1960s were a difficult time for advertisers placing their bets on youth and lifestyle, and Pepsi's commercials came to represent a kind of social commentary as they essentially ignored the sometimes violent changes occurring in the U.S. While Pepsi's TV and radio spots had always relied heavily on music, Pepsi advertising virtually ignored rock music until the 1980s, when the marketer turned to the young Michael Jackson as well as veterans Lionel Richie and Tina Turner for its commercials.

In the 1970s, the folk sound seemed safer. While Coke hit the charts in 1972 with the Seekers' ballad "I'd Like to Teach the World to Sing," Pepsi chose a different folk style in "You've Got a Lot to Live, and Pepsi's Got a Lot to Give." At the same time, Pepsi commercials became multiracial, showing black and white consumers socializing together.

A sanitized counterculture sensibility pervaded BBDO's Pepsi advertising, but in the wake of the Watergate scandal, Pepsi canceled a mid-1970s campaign called the "Smilin' Majority" in favor of "Join the Pepsi People, Feelin' Free."

That slogan posed a problem for the soft-drink marketer as it expanded into several Communist countries. A small adjustment in translation, however, allowed Pepsi to tout Pepsi drinkers as "carefree," avoiding any unwanted concern over "freedom" in those new markets.

Beginning in 1975, Pepsi began using filmed taste tests in a subordinate campaign known as the "Pepsi Challenge" that showed consumers tasting samples of two colas whose brands were disguised. Data from the taste tests showed consumers preferred the taste of Pepsi to Coke. That persuaded Coca-Cola to reformulate its brand into a sweeter tasting beverage, more like Pepsi. In what proved to be a marketing catastrophe for Coca-Cola, loyal Coke drinkers rejected the reformulated soda and consumers of Pepsi simply ignored it.

In the 1990s, PepsiCo increased ad spending in an effort to reach Spanish-speaking consumers in the U.S. and retained Dieste & Partners, Dallas, a BBDO sibling within Omnicom Group and a minority marketing specialist, to handle its Hispanic marketing. In 1990, it also introduced a campaign that featured Ray Charles and the Uh-Huh Girls with the slogan "You got the right one, baby, uh-huh." In 1999, Pepsi began a TV campaign called "The Joy of Cola" that featured child actress Hallie Eisenberg.

At the turn of the century, PepsiCo made two significant acquisitions: Quaker Oats Co. (in 2000) and South Beach Beverage Co. (2001).

In 2001, PepsiCo yanked more than $350 million in advertising assignments for Quaker's blockbuster Gatorade and cereal brands, and Pepsi's Aquafina water brand from longtime agency Foote, Cone & Belding, Chicago. The Interpublic Group of Cos. shop also handled work for archrival Coca-Cola Co. The companies sued each other, but later settled out of court. In the meantime, Pepsi moved its business to Omnicom Group, which set up agency Element 79, Chicago, to handle the account.

In 2002, Pepsi revived its "for those who think young" advertising with a new campaign fronted by pop star Britney Spears. She was later sidelined after getting caught drinking a rival Coca-Cola brand. After two years of launching brand extensions with flavors ranging from berry to vanilla while core brand sales declined, Pepsi in 2004 dumped the divas in the U.S. and refocused its efforts on flagship Pepsi as the perfect match to food, using the "It’s the cola" theme line. To fend off scrutiny and possible litigation over rising childhood obesity rates, the marketer also began testing and launching "better for you" and "good for you" products, including a so-called "mid-calorie" brand called Pepsi Edge, slated for a summer 2004 debut.

In 2003, PepsiCo had worldwide sales of $27 billion, an increase of 7.4% over the previous year; earnings were $3.6 billion, up 18.9%. U.S. sales for 2003 were $17.4 billion, up 4.8%. For 2003, the marketer spent an estimated total of $1.2 billion on U.S. advertising, up 8.8% from the previous year, to rank No. 23 among U.S. advertisers.

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