Coke commits $400M to fix It

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Admitting it has relinquished marketing leadership, Coca-Cola Co. became the latest corporate leviathan to ramp up ad and innovation investment at the expense of earnings expectations.

And, calling himself the "top brand manager," Chairman-CEO Neville Isdell will lead the charge to fix a marketing effort he said has been marked by missteps in recent years.

The Atlanta giant announced Nov. 11 its plan to reverse years of declining sales with a "return to world-class marketing" and a $400 million a year boost in marketing spending. It asked Wall Street for patience as it gets its house in order, cutting long-term volume and earnings targets to pave the way for an ambitious "manifesto for change."

In doing so it follows similar moves by the likes of Unilever and Colgate-Palmolive, both of which have recently cited the need to maintain marketing spending as a factor in missing in their earnings targets (AA, Sep. 27). Unilever and Colgate were notorious for trimming year-end ad spending to hit earnings numbers, but both signaled it wouldn't be that way in 2004, or for a few years to come.

Similarly Coca-Cola Co. executives accept that it will take some time to revive the Coke icon and the company sales, and plan not only to increase spending on major global ad campaigns, but also make investments in innovation and internal communication. "Re-establishing marketing leadership is job one," said Mr. Isdell at a briefing to analysts and media in New York last week.

Like a number of top CEOs, such as P&G's A.G. Lafley, Mr. Isdell made his personal involvement in marketing strategy clear: "As chairman I am also the top brand manager for the Coca-Cola Co."

As such, he was critical of his company's recent efforts. "We have been underperforming since 1997," he said. Mr. Isdell's observations stemmed from a 120-day operational review that ended Oct. 1. The CEO of five months candidly listed the company's missteps, including a decline in brand-building investments, not driving growth in the profitable carbonated-soft-drink category, and being late to respond to trends in water and non-carbonated beverages.

below the surface

On the surface, "marketing spending appears to be adequate," said Mr. Isdell. "But in fact, our share of voice [share of media spending compared to the total non-alcoholic beverage industry] declined." From 1999 to 2003, the marketer's relative spending fell to 14% from 20%. Moreover, he said worldwide core-brand spending fell 22% in real terms while the number of brands supported had doubled.

In a corrective move, he said the company would increase annual spending by $300 million to $400 million starting in 2005. The additional dollars will go against core brands, low-calorie brands, high growth markets and product and packaging innovation. He was quick to note that the majority of spending will be outside the U.S., as he predicted 95% of the company's future growth would come from outside of North America.

Several analysts were doubtful the amount was sufficient to accomplish all the tasks outlined. Coke's spending boost falls short of what many observers recommended, although Bill Pecoriello, analyst with Morgan Stanley, said second-half spending boosts, reinvesting efficiency savings and foreign-exchange benefits may actually drive the figure up closer to $500 million or $600 million.

He also warned that "restoring iconic advertising will certainly reinforce consumers' strong feeling for the Coke brand, but may not be enough to overcome the beverage itself being on the wrong side of health and wellness trends." Coke will focus on its global mega-brands such as Coca-Cola, Fanta and Minute Maid and will boost collaboration between regions to balance global and local efforts, according to Chuck Fruit, chief marketing officer. "Candidly, our advertising has not been as consistently effective as it needs to be," he said. He reiterated that network TV was becoming less effective, and said he wants more integrated campaigns that make use of a range of media.

trademark value

"In 2004, we completely rethought our strategy for Coke," said Mark Mathieu, VP-Coca-Cola Franchise, in highlighting a multiyear global project pipeline. He spoke about how the Coca-Cola trademark growth has slowed since 1998. In setting a four-part communication strategy, he vowed to double the value of the Coca-Cola trademark within 10 years by returning to iconic advertising with a youthful and worldly point of view. "It can be done," he said, reeling off a list of ads-including "Mean Joe Green" and "Hilltop"-in which the company did so in the past.

Coke plans to develop advertising around the notions of universal connection, stubborn optimism and everything refreshment, he said. Mr. Mathieu showed two spots that fit these ideals, including a "festivity" spot for the holidays via McCann Erickson, Madrid, Spain, set to a rock version of "White Christmas." It rapidly cuts to sweeping images of random acts of holiday kindness and ends with the line "Let's make this season a little better." Another spot via McCann, Malaysia, was developed for Ramadan with the theme, "a promise of one, a promise for all."

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