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While washington and Moscow make nice in ways John Foster Dulles would never have dreamed, Purchase, N.Y., and Atlanta are still eyeball-to-eyeball in what historians may one day decide was the only cold war that really counted in the 20th century -- the one between Pepsi and Coke.

Capitalism and communism, after all, settled their differences in less than 50 years. But the ice cold stand-off between Pepsi and Coke will shortly touch on three centuries.


Pepsi this year marks the Hundred Years War with no decisive victory in sight. But then, perhaps victory would spoil all the fun -- not to mention the price wars that frequently let thirsty consumers load up at grocery chains for less than 17 cents a can. If it were just a matter of stuffing cola into an endless procession of cans, the days at Purchase and Somers, N.Y. (home of the Pepsi division) would hold no intrigue.

But the so-called cola wars have never had much, if anything, to do with colas, which have remained essentially unchanged for generations (with the exception of "New Coke" in April 1985). The game of it is beating Coke, and the weaponry is not cola but advertising.

Not since the Republicans met the Democrats have two American institutions found their identities so mutually intertwined.


For decades Pepsi has defined itself against Coke through the wizardry of the slogan, the jingle and the storyboard and all that a succession of four ad agencies have spun from them. One hundred years after New Bern, N.C., druggist Caleb Bradham called it Pepsi-Cola (actually, Caleb Cola would have had a nice ring and spared Mr. Bradham the necessity of buying out an existing trademark, Pep-Kola, for the princely sum of $100), this worldly and sophisticated company still succumbs to the temptation to see itself as the "feisty newcomer" struggling in the shadow of tradition and Americana cast by "the competitor."

In fact, Pepsi and its competitor share essentially common origins. Both were born in the Third World of the rural South after Reconstruction. Both were concocted by drugstore operators. And both came into the world as "medicines," not liquid candy. The name Pepsi-Cola was supposed to connote pepsin and suggest a cure for peptic ulcers. With no federal government to poke its nose into advertising claims, who was to say it couldn't? Mr. Bradham patented his formula, incorporated in 1902 and was off to the races.


The demand, it turned out, was already there. The race was how to make enough Pepsi without going broke in the process. Spritzing it out of fountain dispensers didn't begin to do the job. So Mr. Bradham turned to selling it in bottles.

Unfortunately, this required bottles, which were only beginning their evolution from handblown delicacies to mass-produced containers. It also required bottlers willing to invest capital in Mr. Bradham's beverage. With the fundamentals of manufacturing still untamed, building additional demand through advertising probably was the least of anyone's concerns.


Indeed, it was a crisis of manufacturing, not marketing, that would swallow Pepsi up in the first of a series of bankruptcies. Sugar shortages during World War I and a cartel-induced price surge after that war convinced Caleb Bradham to buy up as much sugar as he could before prices got worse.

Unfortunately, prices soon got better, making everything else worse for Mr. Bradham, who found himself buried under a stockpile of overpriced sugar and debt. Facing bankruptcy, he prevailed upon Wall Street investor Roy Megargel to reorganize. But it came to nothing. In 1923, Mr. Bradham sold out for $35,000 to the Craven Holding Co., went back to the drugstore business and died 11 years later.

Craven transplanted Pepsi to Richmond, Va., while Mr. Megargel, now the largest stockholder, sat on the board and watched his company eke out a modest growth record through the 1920s. It was reorganized again in 1928 as the National Pepsi-Cola Co., just in time for the the Depression and bankruptcy.

Exit Roy Megargel, enter Charles Guth, president of the Loft Candy Store chain and a man with a score to settle against Coca-Cola Co., which had refused to supply Loft stores with syrup at a price Mr. Guth considered reasonable. With Pepsi on the block in 1931, he saw a source of supply that would be his to control. So he picked it up for $150,000, as much to avoid dickering with Coke as for any future he might have seen in Pepsi.


And the future was still none too bright. Only a "handful of bottlers remained in operation," according to the official company history; the main fountain outlet was through Loft.

Advertising had dwindled to nothing. At this point, Coca-Cola moved in for what it hoped might be the final coup de grace: a lawsuit claiming that Loft was selling Pepsi to customers who expected Coke.

In the first legal confrontation between Pepsi and Coke, Coke was the loser. But it was hard to tell. Pepsi's sales were so poor, Mr. Guth had to renegotiate his debt to Mr. Megargel. And the Standard Directory of Advertisers listed no advertising agency for the company through most of the decade of the '30s.


When a humiliated Charles Guth sent quiet feelers to Coca-Cola about buying out the company, Coke wasn't interested. It preferred to let Pepsi die a natural death, and the quicker the better. The year was 1934.

Then, with nothing left to lose, Mr. Guth had a final idea, one shimmering with the glow of common sense. That March, something astonishing began appearing in Baltimore grocery stores -- 12-oz. bottles of Pepsi selling for 5 cents each.

Without raising the price, Mr. Guth had taken Pepsi off the gold standard of the soft drink business, the 6-oz. sales unit. In the midst of the Great Depression, he offered customers a bargain.

The result was a reversal of fortune worthy of a Frank Capra movie. Sales soared, bottlers materialized and the race was on to meet a suddenly huge demand. Pepsi began operations in Canada, Cuba and England and moved its main offices and bottling plant to Long Island City, N.Y.


By 1936, Pepsi had a $500,000 ad budget and retained the Brown Agency, a small shop in Manhattan. Brown was mostly responsible for handling signage and local newspaper promotions. Pepsi had no money for network radio, which was the glamor end of the ad business. Spending doubled by 1938, and the Pepsi account moved to Metropolitan Advertising in Manhattan.

In the midst of the Pepsi renaissance, though, an internecine battle broke out between Mr. Loft and Mr. Guth that would open a new management era for Pepsi. After

Mr. Guth stepped down as Loft president in 1935, the company demanded his 91% share of Pepsi on the grounds he had built it with Loft capital. In 1938, after three years of litigation, Mr. Guth was out and Pepsi was a division of Loft.


In July 1939, Walter Mack, a VP of Phoenix Securities, Philadelphia, which owned 29% of Loft, took over Pepsi. A year later Phoenix sold off the last of its Loft stock, cutting forever the link to Pepsi.

Mr. Mack took over a company that was increasingly getting noticed, especially by Coke, which in 1938, after 40 years, had finally seen fit to challenge Pepsi's use of the word cola in its trademark. Though the suit was unsuccessful, Coke was now resolved to fight Pepsi for every bit of market share.

In 1939, the cola wars got serious. When producer Billy Rose decided to sell Pepsi in his Aquacade show at the New York World's Fair that summer, Coke got the fair's lawyers to block him, an order Mr. Rose immediately ignored with his usual flair. This brought out police to seize the contraband Pepsi, which in turn drew an injunction from Mr. Rose, one that was upheld a month later in court. A few weeks later, as if to emphasize its victory, Pepsi launched a sky-writing campaign by putting its signature directly over the fair grounds.


With manufacturing and distribution finally on sound footing, Mr. Mack knew marketing would drive Pepsi's future. He fired Metropolitan Advertising and in August hired the Newell Emmett Co., which 10 years later would become Cunningham & Walsh. Among the agency's first pitches were a couple of Keystone Kops knock-offs it called Sarge and Large, in comic strip form. Mr. Mack changed their names to Pepsi and Pete and for the next decade they ran in Sunday newspaper comic sections and as an animated short in movie theaters.

But Pepsi and Pete are not what the world remembers best from those days. Rather, it is the famous jingle, "Pepsi-Cola Hits the Spot," sung to the tune of "John Peel."

In May 1942, Newell Emmett took Pepsi advertising into network radio for the first time, but in a weekly five-minute slot on the second-string NBC Blue Network (soon to become ABC). A second try in February 1946, with a 15-minute Sunday evening commentary program by journalist Quentin Reynolds, also was brief, as was a third network flirtation involving "Counter-Spy" in 1949 and 1950.

Mr. Mack in 1942 also chose to re-enter the soda fountain race, a competition in which Pepsi would find itself immediately handicapped by wartime production limits on equipment, and for decades to come by Coca-Cola's huge head start. (See interview with Craig Weatherup on Page C-6.)


After World War II, Pepsi's ad budget was closing in on $4 million. The company had passed Royal Crown Cola and Dr Pepper, and would never look back. Pepsi's prosperity was characteristic of the times. The New Deal and war had transformed the U.S. working class of the '20s and '30s into a Post War middle class that could afford babies, TVs and new homes in the suburbs. There was one casualty, though. The Pepsi advertising that had promised "Twice as Much for a Nickel, Too" since 1934 now made the product look cheap in a time when consumption was finally safe. The agency tried to shift the message to quality. But the fact was, more than 10 years of positioning was rendered obsolete.


In 1948, with sales dropping, Mr. Mack took two steps to separate the old Pepsi from the new. He moved company headquarters across the East River from industrial Long Island City to fashionable Fifth Ave. and 57th St. in Manhattan. And, as CEOs routinely do at such times, he fired his agency ( Young & Rubicam, which had been handling Everess, Pepsi's sparking water introduced in 1946, was not affected). Newell Emmett was out; the Biow Agency was in. Milton Biow had given America "Call for Philip Morris-s-s" and "B-U-L-O-V-A -- Bulova watch time." In 1949, with a $3 million budget in hand, he intended to give Pepsi "Twice as Much for a Nickel, Too."

In October 1950, with Pepsi sales down $16 million from 1947, Walter Mack resigned at age 54, clearing the way for his heir apparent, Alfred Steele, whom Mr. Mack had recruited from Coca-Cola in 1949. It wasn't the last talent Coke would surrender to Pepsi. In 1951 Biow beckoned three key executives from Coke's long-time agency, D'Arcy Advertising, presumably at the instruction of Mr. Steele, who had been friends with each of them since his Coke days with D'Arcy in 1939.


"More Bounce to the Ounce" became the Pepsi mantra as Mr. Steele took over, a line that complemented his taste for glamor, not to mention his TV sponsorship of Faye Emerson, whose plunging necklines and decolletage were the talk of the industry. The old "John Peel" jingle was phased out, and a stylish Polly Bergen personified Pepsi's modern image as she talked about a "the light refreshment that refreshed without filling." Pepsi's stylish image was further burnished when Alfred Steele married actress Joan Crawford in 1956.

"Reduced calories" became a Pepsi theme years before Diet-Rite Cola arrived, bringing with it the whole diet category, as slender women in Dior suits set the new upscale look. Even the Pepsi-Cola logo was lightened from two hyphens to one.


Eight million dollars was an account worth fighting for in 1955, and rumors of a change were in the air after D'Arcy lost Coke to McCann-Erickson in October. John Tiago, speaking for the Biow Agency (by now Biow-Beirn-Tiago), said he knew nothing about a Pepsi agency switch and that in any case he was loyal to BBT. Two weeks later, Pepsi fired BBT and hired Kenyon & Eckhardt. What had apparently piqued Pepsi for several months was the appearance in July of BBT's high-fashion Philip Morris campaign, whose art and type style were too close to Pepsi's for comfort. In Pepsi's view, it was sheer plagiarism, because the company credited Mr. Steele and not BBT with coming up with the high-fashion glamor look. Any way you look at it, the breakup was as personal as it was professional. Advertising Age called it "one of the most bitter advertising wrangles in history." Biow, which had been the nation's 11th-largest agency in 1944, quickly folded in June 1956.


Kenyon & Eckhardt raised the stakes of elegance and good taste still higher. "Say Pepsi Please" became the slogan de jour going into 1957, as the Coke-Pepsi sales gap closed from 5 to 1 in 1950 to 2 to 1. At the same time, international growth surged. By the time K&E came aboard, Pepsi had 243 plants in 72 countries, which led Pepsi's then-international chief, Donald Kendall, to have K&E take on a young TV director named Alan Pottasch to run the overseas part of the account.

In September 1957, the aura of refinement climbed to new heights as K&E broke "Be sociable, look smart." Pepsi was now being served from champagne coolers as "young and fair and debonair" men in tuxes and women in cocktail dresses toasted each other to the pastel sophistication of George Shearing-style jazz. A quiet revolution was taking place in Pepsi advertising. In trying to tell a quality story, the advertising emphasis had drifted from product qualities to an association with a quality-conscious lifestyle. The principle was good, and more basic than anyone may have sensed. There was only one problem: For a soft drink, the lifestyle lacked any sense of reality.


Then in April 1959, Alfred Steele, the master of it all who made Pepsi the nation's 57th largest advertiser, died at age 57. Mr. Steele's demise signaled big changes just ahead. There would be Pepsi in new pop-top cans, whose pull rings, buyers soon discovered, not only made the old "church key" obsolete but made excellect slugs in parking meters (an unintended design benefit later corrected by American Can Co.). Also just ahead: a new non-script logo, new Manhattan offices at 500 Park Ave., new brands like Teem and Patio, the first Diet Pepsi cola.

In March 1960, after cannibalizing K&E of a number of its key executives, including Mr. Pottasch, who came over in August to become VP of marketing, Pepsi invited 11 top agencies to make presentations. On April 11, the Coke machines were hauled out of BBDO's offices at 383 Madison Ave. and new Pepsi coolers were hauled in.


If Mr. Steele's regime persisted through Joan Crawford's presence on the board of directors, her influence was more pomp than circumstance. Over the next three years, real power shifted to Donald Kendall. After joining Pepsi in 1947 as a syrup salesman, this gregarious salesman-politican and friend-of-U.S. Presidents secured control of the company in 1963 and began the acquisition spree that would turn Pepsi into a multinational conglomerate. First came Tip Corp., maker of Mountain Dew, in September 1964. Then in 1965 came the merger with Frito-Lay. With Frito-Lay came the creation of PepsiCo, parent company of all once and future acquisitions.


Mr. Kendall also moved onto the world stage as one of the country's most pivotal and often progressive business leaders. His politics were those of a pragmatist, not an ideologue. He viewed the Soviet Union as a potential customer, not a perpetual adversary, a statesmanlike notion that had a decidedly civilizing influence on his friend and one-time cold-war buccaneer, Richard Nixon. When Mr. Kendall was reportedly weighing the prospect of a cabinet post in 1969, one Pepsi executive said "Why should he?" Indeed, Mr. Kendall and Pepsi were playing far more important roles as the symbol and substance of East-West detente.

BBDO couldn't have come aboard at a better time. With Mr. Kendall absorbed in larger matters, the shop assumed an authority over advertising content and style earlier Pepsi agencies hadn't enjoyed. BBDO appreciated K&E's efforts to fit Pepsi into a lifestyle context. But it also recognized it was the wrong lifestyle.


Under BBDO Creative Director Phil Dusenberry and Pepsi marketing chief Alan Pottasch, cocktail frocks were replaced with surfing gear. Seeing a young stampede barreling toward the marketplace, Pepsi zeroed in on a population that saw itself as distinct and separate from its parents in a way earlier generations hadn't.

Three weeks after John Kennedy was inaugurated as President in 1961, Pepsi set out to take that generation for its own. To the tune of "Makin' Whoopie," singer Joannie Sommers rolled out the message that would steer the Pepsi personality for the rest of the century -- "for those who think young." The phrase became a colloquialism that United Artists even used as the name of a beach-romp film. The intensity of the campaign symbolized a fierce new overall aggressiveness against Coke.

The phrase "Pepsi Generation" soon became interchangeable with baby boomer, although it didn't materialize until four years later when BBDO launched the "Come Alive . . ."You're in the Pepsi Generation" campaign, also with Ms. Sommers.

While the music remained important and memorable, the visuals carried equally strong messages: sports, active recreation, a sense of "challenge and reward." Even when the emphasis moved back to a specific product claim -- "Taste that beats the others cold, Pepsi pours it on" -- the images stayed focused on high-energy outdoor play.

The '60s would be a difficult time for advertisers placing their bets of youth and lifestyle. For Pepsi, it made the company a kind of social commentator through its commercials in a period of cultural conflict and controversy. So like any advertiser, Pepsi saw what it wished to see. Rock music, for instance, with its associations with drugs and sex, was virtually ignored until the '80s, when Pepsi embraced bubble-gum rockers like Michael Jackson as well as veterans Lionel Richie and Tina Turner.


In the hot-blooded '70s the folk sound seemed safer. While Coke hit the charts in 1972 with the Seekers' mountain-top ballad, "I'd Like to Teach the World to Sing," Pepsi used a different folk style in "You've Got a Lot to Live, and Pepsi's Got a Lot to Give." And as for the pop hits, Pepsi had charted one five years before with its own music for Diet Pepsi, "Music to Watch Girls By."

There also was a growing tolerance for diversity as commercials became proudly multi-racial. For the first time viewers saw black and white consumers, not only in the same spot, but actually socializing with one another. Brief shots of benign hippies flashed in montages of rural and small town Americana. Even a motorcyclist acknowledged the subversive impact of the film "Easy Rider" in a spot called "This Happy Land."


But BBDO knew this was not a happy land. Wisely Pepsi scratched a mid-'70s campaign on the "Smilin' Majority" in the wake of Watergate in favor "Join the Pepsi People, Feelin' Free." A sanitized counter-culture sensibility pervaded even the most traditional Main Street visuals of swimming holes and farm life, as lines such as "you be you, I'll be me" blended a non-judgmental open-mindedness with red, white and blue patriotism.

"We did that consciously," says Mr. Pottasch. "We wanted to keep the `Pepsi Generation' idea alive, but constantly to refresh it with what was going on. Even when we were going from city to city with the `Pepsi Challenge' taste tests, there was always the umbrella of the `Pepsi Generation' running alongside it. We treated it more as a promotion. Then [in 1984] we started to talk about Pepsi as `the Choice of a New Generation.' "


True enough. When limits seem to loom, another path has opened up. While Hispanic consumers have been an important market since the 1980 census, for instance, more recently Pepsi has worked with Dallas-based Dieste & Partners, a top minority agency affiliated with BBDO through parent company Omnicom Group. In 1996, Dieste created a Pepsi spot ("Go-o-oal") that became the first Hispanic commercial to win a Cannes Lion.

"The whole `Pepsi Generation' theme has crossed easily into Latino culture," says Tony Dieste, who worked with Pepsi agencies on and off for 10 years before forming his own shop. "American youth has no monopoly on rebellion when it comes to values and music. This has made Pepsi a real innovator in the Hispanic market. In the early '80s, they signed Gloria Estefan when she had just started playing small clubs in Miami. And they discovered Paul Rodriguez and made him `Pepsi Man' in the Hispanic market."


Music has become the road map to the next generation, wherever it might be hiding. By the mid-'80s, the Michael Jackson tour sponsorships made Pepsi and BBDO show-business players in ways not seen since the '30s and '40s, when great advertisers and agencies produced packaged music stars like Bing Crosby (Kraft) and Benny Goodman (Camels) for network radio.

While the first 60 years of Pepsi history has fallen into neat chapters divided by bankruptcies and CEO strong men, the last 40 have assumed a remarkably seamless flow. Not even the rise and subsequent divestiture of the company's restaurant interests (Kentucky Fried Chicken, Taco Bell and Pizza Hut) have disturbed the larger vitality of the basic Pepsi brand.


Under a succession of smart company men, including the present regime of Roger Enrico and Craig Weatherup, and the overarching continuity with BBDO, a client-agency relationship of considerable dimension has developed. Each has complemented the other's weaknesses with a countervailing strength. After nearly 40 years, and having survived Menudo, Madonna, Michael Jackson and the five Spice Girls, both company and agency seem willing and eager to celebrate this centennial year. And they have much to celebrate.

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