Pepsi lost the cola war last week.
It's debatable whether the brand was defeated or unwittingly surrendered by abandoning tried-and-true advertising for generation-next marketing tactics, and it's also unclear whether it will stay down for long.
But this much seems certain: Pepsi blinked. Its flagship, the perennial No. 2 to brand Coke, dropped to the No. 3 slot as it was surpassed by Diet Coke. As a result, for the first time in two decades, PepsiCo ceded the soft-drink category's two leading share positions to its legendary rival.
The shift was historic if not sudden, as it capped a long downward spiral marked by management changes, a complete overhaul of the brand's marketing and logo, the close of a storied agency-client relationship and an exodus of marketing talent.
As war stories go, this one is epic. "It's a tale of two companies, both in the same category, both facing the same market dynamics," said one executive close to Pepsi, referring to that brand's rivalry with Coke. "One of them stayed the course and recognized that brand building is a long-term proposition. It built on its heritage, protected its brand and invested in its brand and its people. The other went into a tailspin, trying to reverse its fortunes overnight at any cost. It lost its best people, lost its continuity and, ultimately, lost its direction."
That's not to say that Coke didn't lose a few battles, some spectacularly. The 1980s were marred by the New Coke debacle, celebrated in a book written by ex-PepsiCo CEO Roger Enrico, "The Other Guy Blinked: How Pepsi Won the Cola Wars." Then there was the late 1990s contamination scare in Belgium. Mass layoffs and a revolving cast of CEOs marked the early 2000s.
Perhaps that's why the beverage giant, often publicly gleeful over ground gained on its competitor, is tempering its response to news that its long-time rival, founded in 1898, has fallen behind a brand less than three decades old.
"It's an accomplishment," said Coca-Cola spokesman Dan Schafer, of the news released Thursday by Beverage Digest. "But we've also delivered three straight quarters of growth here in North America. Each of these things shows us we just have to keep on doing what we're doing."
So, how did Pepsi fall so far, even after managing to put behind it the Peter Arnell-fueled mishaps of 2009? (Remember his much-mocked memo that compared his redesign of the Pepsi globe logo to the Earth's magnetic fields and the sun's radiation?)
It seemed to be on the right track with the Refresh Project, rolled out in early 2010 and hailed by this publication as a "case for marketing textbooks." The program, which doled out $20 million in grants to consumers with "refreshing ideas that change the world," was well regarded by those inside and outside the beverage and advertising industries. And Pepsi's move to bow out of the Super Bowl, though criticized by some, was widely seen as a brilliant marketing ploy, as its absence of ads generated more publicity than Coke's two 60-second spots.
But as 2010 wore on, cracks began to show. Some questioned whether the Refresh Project was affecting the bottom line -- negatively or positively. The program, while helping to foster good relationships between bottlers and their local communities, was marred by allegations of cheating, and some complained that well-organized and well-connected nonprofits were able to snag the grants over average consumers. The company, however, has steadfastly stood by it and maintains that Refresh Project has garnered an "unbelievable response."
"It's a long-term play," said Pepsi spokesman Joe Jacuzzi, noting that the program would be evolving and expanding to other countries this year.
But long term or not, it might not be visible enough. "In the cola wars, the Refresh Project by itself isn't enough to market Pepsi's cola brands," said John Sicher, editor and publisher of Beverage Digest. (Former Pepsi exec Ralph Santana, now with Samsung, indicated as much at the Association of National Advertisers meeting last fall when he said of Refresh: "The key learning for us was that in addition to having a cultural idea that taps into a mass sensibility, you need to make sure that your idea is getting enough exposure to be successful." Pepsi strongly disputed that statement.)
Mr. Sicher believes that in addition to Refresh, the company needs "more product-oriented advertising and marketing. I think that the 2010 results are probably a wake-up call for Pepsi."