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
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."
To that end, Pepsi plans to pour $60 million into an integration
and sponsorship with "X Factor," the Simon Cowell-created rival to
Coke-sponsored "American Idol." The beverage division, headed by
Massimo d'Amore, also will ramp up spending by 30%, with campaigns
planned for trademark Pepsi, as well as Diet Pepsi and Pepsi
But it's doing so bereft of a senior marketing leader. The
company's sparkling-brands division has been without a chief
marketing officer since Lauren Hobart's departure in January. In
fact, executives close to Pepsi bemoan the dearth of creative ideas
surrounding the brand, citing historical turnover in the marketing
department, a focus on "better for you" products rather than cola
and, overall, "flavor-of-the-day marketing." In large part, it's
the same accusations that have been leveled at the company for two
Though Pepsi did advertise on TV for Refresh Project, the
groundbreaking, celeb-studded campaigns that the brand was known
for have been conspicuously absent in recent years (see timeline). The closest it's
come recently was "Refresh Anthem," created for the 2009 Super Bowl
by TBWA/Chiat/Day, which
took over creative duties from BBDO in 2008. It featured Black Eyed Peas
singer Will.i.am and was set to Bob Dylan's "Forever Young," but it
received mixed reviews.
At last month's Consumer Analyst Group of New York conference,
Pepsi came out swinging in defense of its strategy. "We have a very
good beverage business in the United States," Indra Nooyi said
during a presentation at the meeting. "There's been some noise
around our position and our performance, so I want to set the
record straight. … We have done major work over the past two
years to strengthen our brands in North America and we're beginning
to see traction on all of these initiatives."
She was referring to October 2008, when PepsiCo announced it
would spend $1.2 billion over three years to reinvigorate its
beverage brands via a complete packaging, merchandising and
marketing overhaul. But with 2011 marking the third year since that
announcement, news that the Pepsi brand slid to third place surely
came as a psychological blow to employees.
Mr. Jacuzzi, however, said it wasn't viewed as such, pointing
out that colas are only one front in a wider war. "We're looking at
our total position," he said. "Consumers want a wide range of
products. … Today we're fighting a totally different battle
on a much bigger battlefield than just colas, though we are
completely committed to carbonated soft drinks."
Executives close to the company and industry insiders are mixed
on whether Pepsi can turn things around. "Pepsi is going to step up
its marketing behind brand Pepsi this year, and I think it's
critical that they do so," said Mr. Sicher.
It will be a hard road. Credit Suisse analyst Carlos Laboy
recently downgraded PepsiCo's stock, citing the "divergent
philosophies" between it and Coca-Cola. PepsiCo, he said,
emphasizes innovating to find what the consumer will want next,
while Coke focuses on innovation within its core brands. "It took
decades to get [Pepsi] to No. 2, and it is risky that PepsiCo
cannot avert this slide."
Ms. Nooyi said at CAGNY that she believes PepsiCo has the "best
management team with the most amount of experience."
And though Mr. Laboy called some of his observations
"intangible" and noted they were at odds with personal experiences,
he noted the "defensive tone" of the last two PepsiCo conference
calls. "For right or wrong, they left the impression that PepsiCo's
culture is turning increasingly insular and abrasive just as Coke's
seems to be opening, engaging and enjoying a renaissance of
partnership and team principles," he said.