Pepsi's challenge: Tap power of One

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Pepsi One needs people like Heather Marcozzi.

The 30-year-old longtime dieter drains six to nine cans of diet cola per day, and she and her husband go through three to four cases every week. She's been dieting since she was 10 and has tried everything from Tab to Diet Rite, Diet Pepsi and no-name drinks. Her current fix is Diet Coke, but she's not wedded to the country's No. 1 diet soda; she picked up a case of Pepsi One, Diet Pepsi's little sibling, when it arrived in her western Pennsylvania hometown in late 1998.

"When it first came out, I was so excited to have something new to try," she said.

But accustomed to the taste of aspartame, which has been sweetening American diet beverages since 1982, she couldn't stomach Pepsi One's sweetening ingredient, acesulfame K. "I choked the entire case down. I had to get my money out of it," said the independent insurance agent and mother of a toddler. "It was really artificial-tasting."

That, apparently, has been the sentiment for lots of Americans.

Sweetened primarily with aspartame but secondarily with Ace K, Pepsi One aims to lure men to diet beverages-a category often categorized as feminine. With a taste closer to that of its full-calorie brethren than most diet offerings, Pepsi One is positioned as a bridge drink for young men transitioning from regular to diet colas as they age and their waistlines expand.

When it launched nationally in October 1998, Pepsi-Cola Co. turned to its longtime Omnicom Group agency, BBDO Worldwide, New York, and spent more than $26 million in measured media for just a fraction of the year. Launch ads featured Oscar-winner Cuba Gooding Jr. of the film "Jerry Maguire."

Soon after the rollout, sales rocketed to give Pepsi One about a 1% share of the $60.2 billion carbonated soft-drink category. But they've since retreated to a 0.7% share, last year selling 65.3 million cases, according to Beverage Digest-part of the leveling off experienced by most new brands. While that showing is better than many fledgling brands see, it is less than what's expected from the world's No. 2 soft-drink marketer, said consumer-products consultant Manny Goldman, a former analyst at ING Barings, San Francisco, who followed Pepsi for many years.

A Pepsi spokesman said the company is satisfied that Pepsi One's share will rise.

But it appears that nearly three years after the debut, even internal enthusiasm over Pepsi One has subsided. Pepsi executives now are focused on lemon-lime Sierra Mist and its diet version coming out later this year as well as the first extension for Mountain Dew. That's in addition to Aquafina bottled water, the flagship Pepsi brand and the newly acquired noncarbonated South Beach Beverage Co. lines.

Officials, however, maintain they basically are pleased with Pepsi One. This year's ad budget is in line with 2000, when the brand received more than $36 million in measured media (compared with Diet Pepsi's $486 million for the first 10 months of 2000). Its newest ad iteration launched in January with "Sex in the City" vixen Kim Cattrall as Goldilocks, trying-then dismissing-Coca-Cola products.

"We think this whole Goldilocks storyline ... [shows] Pepsi One is a perfect blend of one-calorie or traditional diet colas and the real cola taste that traditional colas have," said Dave Burwick, VP-marketing for carbonated soft drinks at Pepsi-Cola.

Pepsi One sold 33.5 million cases for the three months it was in market in 1998, compared with 83.7 million in 1999 and 65.3 million in 2000, according to Beverage Digest. That's a mere fraction of the tally for Diet Pepsi, the fastest-growing top-10 carbonated soft drink, which last year sold 523.1 million cases, a 4% jump over the prior year, according to Beverage Digest.

Yet, for Pepsi-Cola Co., a company that generated $32 billion in worldwide retail sales in 1999, a product that rakes in less than $500 million in sales can be called a success. In the stagnant world of soft drinks, 115-year old market leader Coca-Cola Co. and 103-year-old Pepsi-Cola together control 75% of the market. The top 10 brands have been unchanged for at least a decade, and the last winning new product launch was Diet Coke 19 years ago.

"In the scheme of things, you have to view Pepsi One as a successful new product, considering the industry's record with new products," said Gary Hemphill, senior VP-information services at Beverage Marketing, New York.

What makes it so hard for products such as Pepsi One, or any of the many new drinks that hit convenience stores each year, is that fickle Americans are surprisingly loyal when it comes to sodas-or at least are set in their tastes. That's why marketers, rather than devoting all of their R&D to carbonation, are buying, developing or contracting with noncarbonated brands.

"With brands that are so big and powerful and so well entrenched, it's hard to basically inject something new into that universe," said one industry expert.

It's certainly the case with Ms. Marcozzi. "Pepsi One tastes artificial. Then again, it could be that I'm so used to the taste of Nutrasweet" that anything else tastes odd, she said.

Amid aggressive ad spending, Pepsi One is taking care not to deride Diet Pepsi. That's why the brand is going after college-age men-and younger.

"There are about 75 million people between the age of 5 and 22. That's a huge generation of consumers coming through and looking for a different type of diet cola," said Mr. Burwick. "Younger consumers are not willing to trade off taste for fewer calories as easily as baby boomers were. ... They want to have something that tastes as close as possible to a regular cola."

Pepsi may have known even before launch that it would have to educate diet cola drinkers about its taste. According to one insider, the concoction that became Pepsi One originally was going to be launched as a retooled Diet Pepsi, but execs thought the plan would have alienated millions of Diet Pepsi loyalists.

"I think they're walking a fine line and haven't figured it out yet," said USB Warburg analyst Caroline Levy. She said the male skew might work since men are reluctant to drink anything emblazoned with the word "diet."

Coca-Cola Co. is believed to have worked on a product similar to Pepsi One, but a spokeswoman for the Atlanta company said she is unaware of plans for a Diet Coke alternative. The company uses Ace K in Coca-Cola Light, its European version of Diet Coke, and domestically in Fresca, Diet Sprite and Diet Cherry Coke. Ace K was given the OK for U.S. soft drinks in 1998 but has been available longer in Europe.

While the carbonated soft-drink business has been flat for two years, it's bubbling for diet drinks, which last year bounced off the lowest share in about 11 years to hit 24.7%, according to Beverage Digest. Editor John Sicher said Pepsi One was a successful launch, but its "future success depends on how well the Pepsi system can maintain two diet colas. And it will be up to Pepsi to provide a point of differentiation in its marketing. If it can do that, Pepsi One should have a good future."

Pepsi One is the country's seventh-best selling low-calorie carbonated soft drink after Diet Coke, Caffeine Free Diet Coke, Diet Pepsi, Diet Dr Pepper, Caffeine Free Diet Pepsi and Diet Mountain Dew.

Mr. Goldman, the former ING Barings analyst, said Pepsi One is having a hard time because initial advertising didn't give people a reason to pick up the brand. "They didn't position it as a diet cola. They said `This is new. This is different. It tastes really good,' and somehow you might see in there `one calorie.' But unlike Diet Pepsi, which is clearly a diet soda, Pepsi One ... got off on the wrong foot."

Pepsi and BBDO hope to remedy that with the Cattrall campaign and a new tag: "This ONE's just right." This is the brand's fourth ad iteration after spots featuring Mr. Gooding, actor/comedian Tom Green and then unsuspecting ferry passengers mistakenly drinking both Pepsi One and Coke.

The Coca-Cola spokeswoman said the company is watching Pepsi One but is not concerned about losing share to it. She noted that Diet Coke's volume grew 2.5% last year despite minimal advertising and promotion. If Ms. Marcozzi is any indication, the company is sitting pretty comfortable.

"I probably won't leave Diet Coke," she said, "but it's nice to have an alternative."

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