The CMO Interview

At Pepsi, Old Rules of Marketing Don't Apply

'Under-hyped' China Is the No. 1 Priority for Multinationals, Says PepsiCo's CMO Richard Lee in Shanghai

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SHANGHAI (AdAgeChina.com) -- Three years can seem like a professional lifetime in fast-moving China. Just ask Richard Lee, PepsiCo's international marketing director for sparkling beverages in New York from 2007 to early 2010, and before that, chief marketing officer of its beverages business unit in Greater China.

Mr. Lee returned to Shanghai last summer in a much more powerful role as chief marketing officer for Greater China, in charge of marketing and portfolio management of Pepsi's food and beverage brands.

Richard Lee, PepsiCo's chief marketing officer for Greater China
Richard Lee, PepsiCo's chief marketing officer for Greater China
Putting control of both its food and beverage brands into the hands of one person was a new approach for China, but success in the mainland requires taking risks, Mr. Lee said.

Mr. Lee's return was designed to rejuvenate PepsiCo's operation in China, where he is remembered as a marketing star. During the decade he helped run Pepsi's marketing in China, starting in 1997 as a brand manager, he transformed Pepsi from an underdog to one of China's hottest youth brands. He also doubled the company's market share to 22%. During his final year in China, he initiated a user-generated content program, the Pepsi Creative Challenge, which is still the centerpiece of Pepsi's marketing strategy in the mainland.

Mr. Lee has noticed two big changes about China during his time in the U.S. First, the pace of change had accelerated dramatically and it was happening across China. Places he'd previously known as farmland were now dotted with stores and restaurants.

Secondly, the digital footprint has dramatically expanded into greater China and its third and fourth tier markets, sating a content-starved population and creating an emerging population that may not have access to indoor plumbing but knows Wayne Rooney.

China is a "convergence of great forces," Mr. Lee said. You've got an enormous country with a 2,000-year history going through a period of great economic expansion—and at the same undergoing the digital revolution. That mix has created a non-linear evolution, more Big Bang than Charles Darwin. And the Chinese believe everything is possible.

Mr. Lee spoke with Ad Age Editor Abbey Klaassen and Asia Editor Normandy Madden in Shanghai.

Is China over-hyped?

I think it's under-hyped. The pace of development is not just happening in the top-tier cities, it's happening across all of China. Most visitors only go to tier one cities, but when you go outside you see what's really happening.

Describe the changes you've seen in China since you left three years ago.

China is the No. 1 priority for all multinational companies. So you have Chinese competitors, Japanese and Korean companies, Americans, Europeans...everyone is here. It's like the big bang, the market is developing so fast. What's happening is unprecedented, so old marketing models don't apply. Where else would you have this big country with 5,000 years of history going on, and this kind of rapid pace of economic development during the...digital age, and while the gap between tier one and tier three cities is closing? It's a convergence of great forces.

Recently I went on a home visit near Guangzhou to [visit with] a lower-to-middle-income family. There was a 14-year-old girl. She has only been to Guangzhou two times even though the trip is only a three-hour drive. But she knows everything about Korea's pop culture and the hottest things happening in the U.S. through the internet. That's amazing and wouldn't have happened three years ago.

How does China's internet market compare to the U.S.?

I think the China digital space is as developed as in the U.S. [Will it pass the U.S.?] Yes, I think so, because people here have a stronger demand for the internet. In the U.S., you have more media to get entertainment, movies, TV. In China, the internet is their portal, not only to China but to the outside world.

Has celebrity culture changed in China?

We don't have many big stars anymore. People are spending more time online so there is lower demand for concerts and watching stars, plus there is so much information online, there is no more mystique. With the rise of reality TV, anyone can be a star now.

How are Chinese consumers different from Americans?

Chinese people are extremely optimistic about the future. They all believe that anything is possible. That has huge implications in everything, including product development. They constantly want to try new things. There's not much skepticism, they're willing to accept new products. That's why new categories can be developed so easily. One example is the Quaker instant congee product made with oats, which we launched in 2010. It's also happening with juice drinks, water, tea, dairy products and snacks.

Do you worry more about local competitors or global companies?

Locals. Global competitors have a lot of baggage, they have developed a business model based on past learnings, whereas local competitors are starting new and fresh. They also have a higher tolerance for risk. Chinese in general like to take risks. They'll do crazy things, and they are faster to get new products on the market.

What's your biggest challenge?

Catching up to the fast pace of development. It changes too fast. I'll give you an example. Just three years ago, the biggest Chinese company on the Fortune 500 list was ranked 17th. This year, it's No. 1. China Petrol is the biggest company in the world, and there are three or four Chinese companies in the top ten. Three years ago, I had a marketing team of about 40 people in China. When I came back, the marketing team had 120 people just in Shanghai.

Is China becoming tougher for multinationals?

No, I don't think so, not in our industry. I think it's opening up even more. It's definitely opening up. Otherwise, it's impossible for us to expand so rapidly.

Which multinationals do you admire in China from a marketing perspective?

Apple is doing very well. You don't see a lot of advertising, but everyone is talking about them. You can build a brand through technology, products and pricing too. I also admire Louis Vuitton. They are taking risks and expanding rapidly, opening three flagship stores just in Shanghai.

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