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PepsiCo, Inc.

PepsiCo, Inc.

700 Anderson Hill Road
Purchase, New York 10577-1444
U.S.A.
Telephone: (914) 253-2000
Fax: (914) 253-2070
Web site: http://www.pepsico.com

Public Company
Incorporated:
1965
Employees: 118,000
Sales: $20.37 billion (1999)
Stock Exchanges: New York Chicago Swiss Amsterdam Tokyo
Ticker Symbol: PEP
NAIC: 311411 Frozen Fruit, Juice, and Vegetable Manufacturing; 311919 Other Snack Food Manufacturing; 311821 Cookie and Cracker Manufacturing; 311930 Flavoring Syrup and Concentrate Manufacturing; 312111 Soft Drink Manufacturing; 312112 Bottled Water Manufacturing

PepsiCo, Inc. is one of the worlds top consumer product companies with many of the worlds most important and valuable trademarks. Its Pepsi-Cola Company division is the second largest soft drink business in the world, with a 21 percent share of the carbonated soft drink market worldwide and 29 percent in the United States. Three of its brandsPepsi-Cola, Mountain Dew, and Diet Pepsiare among the top ten soft drinks in the U.S. market. The Frito-Lay Company division is by far the world leader in salty snacks, holding a 40 percent market share and an even more staggering 56 percent share of the U.S. market. In the United States, Frito-Lay is nine times the size of its nearest competitor and sells nine of the top ten snack chip brands in the supermarket channel, including Lays, Doritos, Tostitos, Ruffles, Fritos, and Chee-tos. Frito-Lay generates more than 60 percent of PepsiCos net sales and more than two-thirds of the parent companys operating profits. The companys third division, Tropi-cana Products, Inc., is the world leader in juice sales and holds a dominant 41 percent of the U.S. chilled orange juice market. On a worldwide basis, PepsiCos product portfolio includes 16 brands that generate more than $500 million in sales each year, ten of which generate more than $1 billion annually. Overall, PepsiCo garners about 35 percent of its retail sales outside the United States, with Pepsi-Cola brands marketed in about 160 countries, Frito-Lay in more than 40, and Tropicana in approximately 50. As 2001 began, PepsiCo was on the verge of adding to its food and drink empire the brands of the Quaker Oats Company, which include Gatorade sports drink, Quaker oatmeal, and Capn Crunch, Life, and other ready-to-eat cereals.

When Caleb D. Bradham concocted a new cola drink in the 1890s, his friends enthusiastic response convinced him that he had created a commercially viable product. For 20 years, Doc Bradham prospered from his Pepsi-Cola sales. Eventually, he was faced with a dilemma; the crucial decision he made turned out to be the wrong one and he was forced to sell. But his successors fared no better and it was not until the end of the 1930s that Pepsi-Cola again became profitable. Seventy years later, PepsiCo, Inc. was a mammoth multinational supplier of soft drinks, juices, and snack food. PepsiCos advance to that level was almost entirely the result of its management style and the phenomenal success of its television advertising.

Ups and Downs in the Early Years

Doc Bradham, like countless other entrepreneurs across the United States, was trying to create a cola drink similar in taste to Coca-Cola, which by 1895 was selling well in every state of the union. On August 28, 1898, at his pharmacy in New Bern, North Carolina, Bradham gave the name Pepsi-Cola to his most popular flavored soda. Formerly known as Brads Drink, the new cola beverage was a syrup of sugar, vanilla, oils, cola nuts, and other flavorings diluted in carbonated water. The enterprising pharmacist followed Coca-Colas method of selling the concentrate to soda fountains; he mixed the syrup in his drugstore, then shipped it in barrels to the contracted fountain operators who added the soda water. He also bottled and sold the drink himself.

In 1902 Doc Bradham closed his drugstore to devote his attention to the thriving new business. The next year, he patented the Pepsi-Cola trademark, ran his first advertisement in a local paper, and moved the bottling and syrup-making operations to a custom-built factory. Almost 20,000 gallons of Pepsi-Cola syrup were produced in 1904.

Again following the successful methods of the Coca-Cola Company, Bradham began to establish a network of bottling franchises. Entrepreneurs anxious to enter the increasingly popular soft drink business set themselves up as bottlers and contracted with Bradham to buy his syrup and sell nothing but Pepsi. With little cash outlay, Pepsi-Cola reached a much wider market. Bradhams first two bottling franchises, both in North Carolina, commenced operation in 1905. By 1907, Pepsi-Cola had signed agreements with 40 bottlers; over the next three years, the number grew to 250 and annual production of the syrup exceeded one million gallons.

Pepsi-Colas growth continued until World War I, when sugar, then the main ingredient of all flavored sodas, was rationed. Soft drink producers were forced to cut back until sugar rationing ended. The wartime set price of sugar5.5 cents per poundrocketed after controls were lifted to as much as 26.5 cents per pound in 1920. Bradham, like his rivals, had to decide whether to halt production and sit tight in the hope that prices would soon drop, or stockpile the precious commodity as a precaution against even higher prices; he chose the latter course. But unfortunately for him the market was saturated by the end of 1920 and sugar prices plunged to a low of two cents per pound.

Bradham never recovered. After several abortive attempts to reorganize, only two of the bottling plants remained open. In a last ditch effort, he enlisted the help of Roy C. Megargel, a Wall Street investment banker. Very few people, however, were willing to invest in the business and it went bankrupt in 1923. The assets were sold and Megargel purchased the company trademark, giving him the rights to the Pepsi-Cola formula. Doc Bradham went back to his drug dispensary and died 11 years later.

Megargel reorganized the firm as the National Pepsi-Cola Company in 1928, but after three years of continuous losses he had to declare bankruptcy. That same year, 1931, Megargel met Charles G. Guth, a somewhat autocratic businessman who had recently taken over as president of Loft Inc., a New York-based candy and fountain store concern. Guth had fallen out with Coca-Cola for refusing the company a wholesaler discount and he was on the lookout for a new soft drink. He signed an agreement with Megargel to resurrect the Pepsi-Cola company, and acquired 80 percent of the new shares, ostensibly for himself. Then, having modified the syrup formula, he canceled Lofts contract with Coca-Cola and introduced Pepsi-Cola, whose name was often shortened to Pepsi.

Lofts customers were wary of the brand switch and in the first year of Pepsi sales the companys soft drink turnover was down by a third. By the end of 1933, Guth bought out Megargel and owned 91 percent of the insolvent company. Resistance to Pepsi in the Loft stores tailed off in 1934, and Guth decided to further improve sales by offering 12-ounce bottles of Pepsi for a nickelthe same price as six ounces of Coke. The Depression-weary people of Baltimorewhere the 12-ounce bottles were first introducedwere ready for a bargain and Pepsi-Cola sales increased dramatically.

Guth soon took steps to internationalize Pepsi-Cola, establishing the Pepsi-Cola Company of Canada in 1934 and in the following year forming Compania Pepsi-Cola de Cuba. He also moved the entire American operation to Long Island City, New York, and set up national territorial boundaries for the bottling franchises. In 1936, Pepsi-Cola Ltd. of London commenced business.

Guths ownership of the Pepsi-Cola Company was challenged that same year by Loft Inc. In a complex arrangement, Guth had organized Pepsi-Cola as an independent corporation, but he had run it with Lofts employees and money. After three years of litigation, the court upheld Lofts contention and Guth had to step down, although he was retained as an adviser. James W. Carkner was elected president of the company, now a subsidiary of Loft Inc., but Carkner was soon replaced by Walter S. Mack, Jr., an executive from the Phoenix Securities Corporation.

Mack established a board of directors with real voting powers to ensure that no one person would be able to wield control as Guth had done. From the start, Macks aim was to promote Pepsi to the hilt so that it might replace Coca-Cola as the worlds best-selling soft drink. The advertising agency Mack hired worked wonders. In 1939, a Pepsi radio jinglethe first one to be aired nationallycaught the publics attention: Pepsi-Cola hits the spot. Twelve full ounces, thats a lot. Twice as much for a nickel, too. Pepsi-Cola is the drink for you. The jingle, sung to the tune of the old British hunting song DYe Ken John Peel, became an advertising hallmark; no one was more impressed, or concerned, than the executives at Coca-Cola.

In 1940, with foreign expansion continuing strongly, Loft Inc. made plans to merge with its Pepsi-Cola subsidiary. The new firm, formed in 1941, used the name Pepsi-Cola Company since it was so well-known. Pepsis stock was listed on the New York Stock Exchange for the first time.

Sugar rationing was even more severe during World War II, but this time the company fared better; indeed, the sugar plantation Pepsi-Cola acquired in Cuba became a most successful investment. But as inflation spiraled in the postwar U.S. economy, sales of soft drinks fell. The public needed time to get used to paying six or seven cents for a bottle of Pepsi which, as they remembered from the jingle, had always been a nickel. Profits in 1948 were down $3.6 million from the year before.

Company Perspectives:

PepsiCos overall mission is to increase the value of our shareholders investment. We do this through sales growth, cost controls and wise investment of resources. We believe our commercial success depends upon offering quality and value to our consumers and customers; providing products that are safe, wholesome, economically efficient and environmentally sound; and providing a fair return to our investors while adhering to the highest standards of integrity.

In other respects, 1948 was a notable year. Pepsi moved its corporate headquarters across the East River to midtown Manhattan, and for the first time the drink was sold in cans. The decision to start canning, while absolutely right for Pepsi-Cola and other soft drink companies, upset the franchised bottlers, who had invested heavily in equipment. However, another decision at Pepsi-Colato ignore the burgeoning vending machine market because of the necessarily large capital outlayproved to be a costly mistake. The company had to learn the hard way that as canned drinks gained a larger share of the market, vending machine sales would become increasingly important.

1950s: The Steele and Crawford Era

Walter Mack was appointed company chairman in 1950, and a former Coca-Cola vice-president of sales, Alfred N. Steele, took over as president and chief executive officer, bringing 15 other Coke executives with him. Steele continued the policy of management decentralization by giving broader powers to regional vice-presidents, and he placed Herbert Barnet in charge of Pepsis financial operations. Steeles outstanding contribution, however, was in marketing. He launched an extensive advertising campaign with the slogan Be Sociable, Have a Pepsi. The new television medium provided a perfect forum; Pepsi advertisements presented young Americans drinking The Light Refreshment and having fun.

By the time Alfred Steele married movie star Joan Crawford in 1954, a transformation of the company was well underway. Crawfords adopted daughter, Christina, noted in her best-seller Mommie Dearest: [Steele had] driven Pepsi into national prominence and distribution, second only to his former employer, Coca-Cola. Pepsi was giving Coke a run for its money in every nook and hamlet of America. Al Steele welded a national network of bottlers together, standardized the syrup formula ..., brought the distinctive logo into mass consciousness, and was on the brink of going international. In fact, Pepsi-Cola International Ltd. was formed shortly after Steeles marriage.

Joan Crawford became the personification of Pepsis new and glamorous image. She invariably kept a bottle of Pepsi at hand during press conferences and mentioned the product at interviews and on talk shows; on occasion she even arranged for Pepsi trucks and vending machines to feature in background shots of her movies. The actress also worked hard to spread the Pepsi word overseas and accompanied her husband, now chairman of the board, on his 1957 tour of Europe and Africa, where bottling plants were being established.

Steele died suddenly of a heart attack in the spring of 1959. Herbert Barnet succeeded him as chairman and Joan Crawford was elected a board member. Pepsi-Cola profits had fallen to a postwar low of $1.3 million in 1950 when Steele joined the company, but with the proliferation of supermarkets during the decade and the developments in overseas business, profits reached $14.2 million in 1960. By that time, young adults had become a major target of soft drink manufacturers and Pepsis advertisements were aimed at Those who think young.

Al Steele and Joan Crawford had been superb cheerleaders, but a stunt pulled in 1959 by Donald M. Kendall, head of Pepsi-Cola International, is still regarded as one of the great coups in the annals of advertising. Kendall attended the Moscow Trade Fair that year and persuaded U.S. Vice-President Richard Nixon to stop by the Pepsi booth with Nikita Khrushchev, the Soviet premier. As the cameras flashed, Khrushchev quenched his thirst with Pepsi and the grinning U.S. Vice-President stood in attendance. The next day, newspapers around the world featured photographs of the happy couple, complete with Pepsi bottle.

1960s and 1970s: The Pepsi Generation, Diversification

By 1963, Kendall was presiding over the Pepsi empire. His rise to the top of the company was legendary. He had been an amateur boxing champion in his youth and joined the company as a production line worker in 1947 after a stint in the U.S. Navy. He was later promoted to syrup sales where it quickly became apparent that he was destined for higher office. Ever pugnacious, Kendall has been described as abrasive and ruthlessly ambitious; beleaguered Pepsi executives secretly referred to him as White Fang. Under his long reign, the companys fortunes skyrocketed.

Key Dates:

1898:
Pharmacist Caleb D. Bradham begins selling a cola beverage called Pepsi-Cola.
1905:
Bradham begins establishing a network of bottling franchises.
1923:
Bradhams company goes bankrupt.
1928:
Roy C. Megargel reorganizes the firm as the National Pepsi-Cola Company.
1931:
Company again goes bankrupt and is resurrected by the president of Loft Inc., Charles G. Guth.
1933:
The size of Pepsi bottles is doubled, increasing sales dramatically.
1936:
Pepsi-Cola Company becomes a subsidiary of Loft.
1939:
First national radio advertising of the Pepsi brand.
1941:
Loft and Pepsi-Cola merge, the new firm using the name Pepsi-Cola Company.
1964:
Diet Pepsi debuts; Mountain Dew is acquired from Tip Corporation.
1965:
Pepsi-Cola merges with Frito-Lay to form PepsiCo, Inc., with the two predecessors becoming divisions.
1967:
Frito-Lay introduces Doritos tortilla chips to the national U.S. market.
1977:
PepsiCo acquires Taco Bell.
1978:
PepsiCo acquires Pizza Hut.
1981:
Frito-Lay introduces Tostitos tortilla chips.
1986:
The Kentucky Fried Chicken (KFC) chain is acquired.
1997:
Taco Bell, Pizza Hut, and KFC are spun off into a new company called Tricon Global Restaurants.
1998:
PepsiCo acquires Tropicana Products for $3.3 billion.
1999:
Pepsi Bottling Group is spun off to the public, with PepsiCo retaining a 35 percent stake.
2000:
PepsiCo reaches an agreement to acquire the Quaker Oats Company for $13.4 billion.

Pepsi-Colas remarkable successes in the 1960s and 1970s were the result of five distinct policies, all of which Kendall and his crew pursued diligently: advertising on a massive, unprecedented scale; introducing new brands of soft drinks; leading the industry in packaging innovations; expanding overseas; and, through acquisitions, diversifying their product line.

The postwar baby boomers were in their mid- to late teens by the time Kendall came to power. Pepsi was there, states a recent company flyer, to claim these kids for our own. These kids became the Pepsi Generation. In the late 1960s Pepsi was the Taste that beats the others cold. Viewers were advised Youve got a lot to live. Pepsis got a lot to give. By the early 1970s, the appeal was to Join the Pepsi people, feelin free. In mid-decade an American catchphrase was given a company twist with Have a Pepsi Day, and the 1970s ended on the note Catch the Pepsi Spirit!

The Pepsi Generation wanted variety and Pepsi was happy to oblige. Company brands introduced in the 1960s included Patio soft drinks, Teem, Tropic Surf, Diet Pepsithe first nationally distributed diet soda, introduced in 1964and Mountain Dew, acquired from the Tip Corporation, also in 1964. Pepsi Light, a diet cola with a hint of lemon, made its debut in 1975, and a few years later Pepsi tested the market with Aspen apple soda and On-Tap root beer. The company also introduced greater variety into the packaging of its products. Soon after Kendalls accession, the 12-ounce bottle was phased out in favor of the 16-ounce size, and in the 1970s Pepsi-Cola became the first American company to introduce one-and-a-half and two-liter bottles; it also began to package its sodas in sturdy, lightweight plastic bottles. By the end of the decade, Pepsi had added 12-pack cans to its growing array of packaging options.

The companys expansion beyond the soft drink market began in 1965 when Kendall met Herman Lay, the owner of Frito-Lay, at a grocers convention. Kendall arranged a merger with this Dallas-based snack food manufacturer and formed PepsiCo, Inc. Herman Lay retired soon thereafter but retained his substantial PepsiCo shareholding. The value of this stock increased dramatically as Frito-Lay products were introduced to Pepsis nationwide market. At the time of the merger, key Frito-Lay brands included Fritos corn chips (created in 1932), Lays potato chips (1938), Chee-tos cheese-flavored snacks (1948), Ruffles potato chips (1958), and Rold Gold pretzels (acquired by Frito-Lay in 1961). Doritos tortilla chips were introduced nationally in 1967. The addition of Frito-Lay helped PepsiCo achieve $1 billion in sales for the first time in 1970. That same year, the corporation moved into its new world headquarters in Purchase, New York.

During the 1970s, Kendall acquired two well-known fast-food restaurant chains, Taco Bell, in 1977, and Pizza Hut, in 1978; naturally, these new subsidiaries became major outlets for Pepsi products. But Kendall also diversified outside the food and drink industry, bringing North American Van Lines (acquired in 1968), Lee Way Motor Freight, and Wilson Sporting Goods into the PepsiCo empire.

Overseas developments continued apace throughout Kendalls tenure. Building on his famous Soviet achievement, he negotiated a trade agreement with the U.S.S.R. in 1972; the first Pepsi plant opened there two years later. Gains were also made in the Middle East and Latin America, but Coca-Cola, the major rival, retained its dominant position in Europe and throughout much of Asia.

1980s Highlighted by the Cola Wars

By the time PepsiCo greeted the 1980s with the slogan Pepsis got your taste for life!, Kendall was busy arranging for China to get that taste too; production began there in 1983. Kendall put his seal of approval on several other major developments in the early 1980s, including the introduction of Pepsi Free, a non-caffeine cola, and Slice, the first widely distributed soft drink to contain real fruit juice (lemon and lime). The latter drink was aimed at the growing 7-Up and Sprite market. Additionally, Diet Pepsi was reformulated using a blend of saccharin and aspartame (NutraSweet). Pepsi Now! was the cry of company commercials, and this was interspersed with Taste, Improved by Diet Pepsi. On the Frito-Lay side, meantime, the Tostitos brand of crispy round tortilla chips was introduced in 1981.

In 1983 the company claimed a significant share of the fast-food soft drink market when Burger King began selling Pepsi products. A year later, mindful of the industry axiom that there is virtually no limit to the amount a consumer will buy once the decision to buy has been made, PepsiCo introduced the 3-liter container.

By the mid-1980s, the Pepsi Generation was over the hill. Kendalls ad agency spared no expense in heralding Pepsi as The Choice of a New Generation, using the talents of superstar Michael Jackson, singer Lionel Richie, and the Puerto Rican teenage group Menudo. Michael Jacksons ads were smash hits and enjoyed the highest exposure of any American television commercial to date. The companys high profile and powerful presence in all of the soft drink marketsdirect results of Kendalls strategieshelped it to weather the somewhat uncertain economic situation of the time.

On only one front had Kendalls efforts failed to produce satisfactory results. Experience showed that for all its expertise, PepsiCo simply did not have the managerial experience required to run its subsidiaries outside the food and drink industries. A van line, a motor freight concern, and a sporting goods firm were indeed odd companies for a soft drink enterprise; and Kendall auctioned off these strange and ailing bedfellows, vowing never again to go courting in unfamiliar territories.

With his house in excellent order, the PepsiCo mogul began to prepare for his retirement. He had bullied and cajoled a generation of Pepsi executives and guided them ever upward on the steep slopes of Pepsi profits. But he had one last task: to lead PepsiCo to victory in the Cola Wars.

Hostilities commenced soon after the Coca-Cola Company changed its syrup recipe in the summer of 1985 and with much fanfare introduced New Coke. Pepsi, caught napping, claimed that Coca-Colas reformulated drink failed to meet with consumer approval and pointed to their own flourishing sales. But serious fans of the original Coke were not about to switch to Pepsi and demanded that their favorite refreshment be restored. When blindfolded, however, it became manifestly apparent that these diehards could rarely tell the difference between Old Coke, New Coke, and Pepsi; indeed, more often than not, they got it wrong. In any event, the Coca-Cola Company acceded to the public clamor for the original Coke and remarketed it as Coca-Cola Classic alongside its new cola.

Some advertising analysts believed that the entire conflict was a clever publicity ploy on the part of Coca-Cola to demonstrate the preeminence of its original concoction (Its the Real Thing!), while introducing a new colaallegedly a Pepsi taste-aliketo win the hearts of waverers. More interesting perhaps than the possible differences between the colas were the very real differences in peoples reactions. Four discrete fields were identified by Roger Enrico and Jesse Kornbluth in their book, The Other Guy Blinked: How Pepsi Won the Cola Wars: the totally wowed (possibly caffeine-induced); the rather amused; the slightly irritated; and the distinctly bored.

The latter group must have nodded off in front of their television sets when Pepsi took the Cola Wars beyond the firmament. One Giant Sip for Mankind, proclaimed the ads as a Pepsi space can was opened up aboard the U.S. space shuttle Challenger in 1985. Presumably, had a regular can been used, Pepsi-Cola would have sloshed aimlessly around the gravity-free cabin. This scientific breakthrough, together with the almost obligatory hype and hoopla, and more mundane factors such as the continued expansion in PepsiCos outlets, boosted sales to new heights, and Pepsis ad agency glittered with accolades. The debate persisted, at least within Coke and Pepsi corporate offices, as to who won the Cola Wars. The answer appeared to be that there were no losers, only winners; but skirmishes would inevitably continue.

Late 1980s and Early 1990s: Focusing on International Growth and Diversification

D. Wayne Calloway replaced Donald M. Kendall as chairman and chief executive officer in 1986. Calloway had been instrumental in the success of Frito-Lay, helping it to become PepsiCos most profitable division. The new chairman realized that his flagship Pepsi brand was not likely to win additional market share from Coca-Cola, and focused his efforts on international growth and diversification.

Calloway hoped to build on the phenomenal success of the Slice line of fruit juice beverages, which achieved $1 billion in sales and created a new beverage category within just two years of its 1984 introduction. From 1985 to 1993, PepsiCo introduced, acquired, or formed joint ventures to distribute nine beverages, including Lipton Original Iced Teas, Ocean Spray juices, All Sport drink, H20h! sparkling water, Avalon bottled water, and Mug root beer. Many of these products had a New Age light and healthy positioning, in line with consumer tastes, and higher net prices. In 1992, PepsiCo introduced Crystal Pepsi, a clear cola that, while still a traditional soda, also tried to capture the momentum of the New Age beverage trend.

In the restaurant segment, PepsiCos 1986 purchase of Kentucky Fried Chicken (KFC) and 1990 acquisition of the Hot n Now hamburger chain continued its emphasis on value-priced fast foods. But the company strayed slightly from that formula with the 1992 and 1993 purchases of such full-service restaurants as California Pizza Kitchen, which specialized in creative wood-fired pizzas, Chevys, a Mexican-style chain, East Side Marios Italian-style offerings, and DAngelo Sandwich Shops.

Pepsi lost a powerful marketing tool in 1992, when Michael Jackson was accused of child molestation. Although the case was settled out of court, Pepsi dropped its contract with the entertainer. The firm launched its largest promotion ever in May 1992 with the Gotta Have It card, which offered discounts on the products of marketing partners Reebok sporting goods, Continental Airlines, and the MCI long distance company telephone. The company also launched a new marketing (or, as the company phrased it, product quality) initiative early in 1994, when it announced that packaged carbonated soft drink products sold in the United States would voluntarily be marked with a Best if Consumed By date.

Although Pepsi had commenced international expansion during the 1950s, it had long trailed Coca-Colas dramatic and overwhelming conquest of international markets. In 1990, CEO Calloway pledged up to $1 billion for overseas development, with the goal of increasing international volume 150 percent by 1995. At that time, Coke held 50 percent of the European soft drink market, while Pepsi claimed a meager 10 percent. But Pepsis advantage was that it could compete in other, less saturated segments. The companys biggest challenge to expanding its restaurant division was affordability. PepsiCo noted that, while it took the average U.S. worker just 15 minutes to earn enough to enjoy a meal in one of the firms restaurants, it would take an Australian 25 minutes to achieve a similar goal. Pepsi still had other options, however. In 1992, for example, the company forged a joint venture with General Mills called Snack Ventures Europe which emerged as the largest firm in the $17 billion market. By 1993, PepsiCo had invested over $5 billion in international businesses, and its international sales comprised 27 percent, or $6.71 billion, of total annual sales.

In January 1992, Calloway was credited by Business Week magazine with emerging from the long shadow cast by his predecessor to put together five impressive years of 20 percent compound earnings growth, doubling sales and nearly tripling the companys value on the stock market. Calloway also worked to reshape PepsiCos corporate culture by fostering personal responsibility and a decentralized, flexible management style.

Mid-to-Late 1990s: The Enrico Restructuring

Calloway, who was battling prostate cancer, retired as CEO in April 1996 and was replaced by Roger A. Enrico, who became chairman as well later in the year (Calloway died in July 1998). Since joining Frito-Lays marketing department in 1971, Enrico had stints heading up both Pepsi-Cola and Frito-Lay before becoming head of the restaurants division in 1994. He engineered a quick turnaround of the struggling chains by changing the overall strategy, for example adopting more franchising of units rather than company ownership. Under Enrico, the marketing of new concepts was also emphasized, with one notable success being the introduction of stuffed-crust pizza at Pizza Hut.

After taking over leadership of PepsiCo, Enrico quickly faced major problems in the overseas beverages operations, including big losses that were posted by its large Latin American bottler and the defection of its Venezuelan partner to Coca-Cola. PepsiCo ended up taking $576 million in special charges related to international writeoffs and restructuring, and its international arm posted a huge operating loss of $846 million, depressing 1996 profits. Among the moves initiated to turn around the international beverage operations, which faced brutal competition from the entrenched and better organized Coca-Cola, was to increase emphasis on emerging markets, such as India, China, Eastern Europe, and Russia, where Coke had a less formidable presence, and to rely less on bottling joint ventures and more on Pepsi- or franchise-owned bottling operations.

Another area of concern was the restaurant division, which had consistently been the PepsiCo laggard in terms of performance. Enrico concluded that in order to revitalize the beverage division and to take advantage of the surging Frito-Lay, which already accounted for 43 percent of PepsiCos operating profits, the restaurants had to go. Hot n Now and the casual dining chains were soon sold off, and in January 1997 PepsiCo announced that it would spin off its three fast-food chains into a separate publicly traded company. The spinoff was completed in October 1997 with the formation of Tricon Global Restaurants, Inc., consisting of the Taco Bell, Pizza Hut, and KFC chains. The exit from restaurants removed one obstacle facing Pepsi in its battle with Coke: that most large fast-food chains had been reluctant to carry Pepsi beverages, not wanting to support the parent of a major competitor. Consequently, Coke held a huge market share advantage over Pepsi in the fast-food channel. Pepsi subsequently made some inroads, for example, in 1999 sealing a ten-year deal with the 11,500-plus-outlet Subway chain.

Enrico placed more emphasis, however, on building sales of Pepsi in its core supermarket channel. In this regard, he launched an initiative called Power of One that aimed to take advantage of the synergies between Frito-Lays salty snacks and the beverages of Pepsi-Cola. This strategy involved persuading grocery retailers to move soft drinks next to snacks, the pitch being that such a placement would increase supermarket sales. In the process, PepsiCo would gain sales of both snacks and beverages while Coca-Cola could only benefit in the latter area. Power of One harkened back to the original rationale for the merger of Pepsi-Cola and Frito-Lay. At the time, the head of Pepsi, Kendall, had told Frito-Lays leader, Herman W. Lay: You make them thirsty, and Ill give them something to drink. The promise of this seemingly ideal marriage had never really been achieved, however, until the Power of One campaign, which in 1999 helped increase Frito-Lays market share by two percentage points and boosted Pepsis volume by 0.6 percent.

In the meantime, Enrico was active on a number of other fronts. The company in 1997 nationally launched the Aquafina bottled water brand, which quickly gained the number one position in a fast-growing sector. In a move into the nonsalty snack category, Frito-Lay acquired the venerable Cracker Jack brand that year, and subsequently bolstered the brand through renewed advertising, a new four-ounce-bag package, the addition of more peanuts, the inclusion of better prizes, and the strength of Frito-Lays vast distribution network. In August 1998 PepsiCo opened up another front in its ongoing war with Coca-Cola by acquiring juice-maker Tropicana Products, Inc. from the Seagram Company, Ltd. for $3.3 billion in cashthe largest acquisition in PepsiCo history. Coca-Cola had been the owner of Tropicanas arch-rival, Minute Maid, since 1960, but Tropicana was the clear world juice leader, led by the flagship Tropicana Pure Premium brand. Tropicana had a dominating 41 percent share of the fast-growing chilled orange juice market in the United States. The brand was also attractive for its growth potential; not only were sales of juice growing at a much faster rate than the stagnating carbonated beverage sector, there was also great potential for brand growth overseas. Psychologically, the acquisition also provided PepsiCo with something it very much needed: it could boast of holding at least dominant position over Coca-Cola.

In 1999 PepsiCo divested itself of another low-margin, capital-intensive business when it spun off Pepsi Bottling Group, the largest Pepsi bottler in the world, to the public in a $2.3 billion IPO. PepsiCo retained a 35 percent stake. PepsiCo was now focused exclusively on the less capital-intensive businesses of beverages and snack foods.

On the beverage side, Enrico, who had gained a reputation as a master marketer, spearheaded a bolder advertising strategy for the flagship Pepsi brand. In 1999, Pepsi-Cola was the exclusive global beverage partner for the movie blockbuster Star Wars, Episode 1: The Phantom Menace. The company also revived the old Pepsi Challenge campaign of the 1970s with the new Pepsi One diet drink facing off against Diet Coke. Pepsis Joy of Cola advertising campaign was gaining accolades and in 2000 captured renewed attention following the signing of a string of celebrities to endorsement deals, including singer Faith Hill and baseball stars Sammy Sosa and Ken Griffey, Jr. Pepsi also greatly increased the number of vending machines it had planted around the United States, making a renewed push to gain on Coke in another area where the arch-enemy had long dominated.

By the end of 1999, after three and one-half years at the helm, Enrico had clearly turned PepsiCo into a stronger, much more focused, and better performing firm. Although revenues were more than one-third lower due to the divestments, earnings were higher by more than $100 million. Operating margins had increased from 10 percent to 15 percent, while return on invested capital grew from 15 percent to 20 percent. Net debt had been slashed from $8 billion to $2 billion. During 1999, Steve Reinemund was named president and COO of PepsiCo. Reinemund had headed Pizza Hut from 1986 to 1992 then was placed in charge of Frito-Lay. In the latter position, he oversaw a division whose sales increased 10 percent per year on average and whose profits doubled. During his tenure, Frito-Lays share of the U.S. salty snack sector jumped from 40 to 60 percent.

Turning Acquisitive in the Early 21st Century

In October 2000 Enrico announced that he intended to vacate his position as CEO by the end of 2001 and his position as chairman by year-end 2002. Reinemund was named the heir apparent. Also that month, PepsiCo reached an agreement to acquire a majority stake in South Beach Beverage Company, maker of the SoBe brand. Popular with young consumers, the SoBe drink line featured herbal ingredients and was the fastest growing brand in the burgeoning noncarbonated alternative beverage sector.

An even more tempting target soon attracted PepsiCos attention: the powerhouse Gatorade brand owned by the Quaker Oats Company. Gatorade held an astounding 83.6 percent of the U.S. retail market for sports drinks and was the world leader in that segment with annual sales of about $2 billion. PepsiCo entered into talks with Quaker about acquiring the company for about $14 billion in stock, but by early November the two sides had failed to reach an agreement. Coca-Cola and Groupe Danone quickly came forward to discuss acquiring Quaker. Coke came exceedingly close to signing a $15.75 billion takeover agreement, but the companys board pulled the plug on the deal at the last minute. Danone soon bowed out as well. At that point, PepsiCo reentered the picture, and in early December the firm announced that it agreed to acquire Quaker Oats for $13.4 billion in stock. This appeared to be quite a coup for PepsiCo as it would not only bring on board the valuable Gatorade brand and make PepsiCo the clear leader in the fast-growing non-carbonated beverage category, it would also add Quakers small but growing snack business, which included granola and other bars as well as rice cakes. Quakers non-snack food brandswhich included the flagship Quaker oatmeal, Life and Capn Crunch cereals, Rice-a-Roni, and Aunt Jemima syrupdid not fit as neatly into the PepsiCo portfolio but were highly profitable and could eventually be divested if desired. In conjunction with the acquisition announcement, Enrico said that upon completion of the merger, he and the head of Quaker, Robert S. Morrison, would become vice-chairmen of PepsiCo, Morrison would also remain chairman, president, and CEO of Quaker, and Reinemund would become chairman and CEO of PepsiCo, thereby accelerating the management transition. At that same time, PepsiCos CFO, Indra Nooyi, who was the highest ranking Indian-born woman in corporate America, would become president and CFO. It seemed likely that this new management team would take PepsiCo to new heights in the early 21st century and that the company would continue to be a more and more formidable challenger to arch-rival Coca-Cola.

Principal Divisions

Frito-Lay Company; Pepsi-Cola Company; Tropicana Products, Inc.

Principal Competitors

Borden, Inc.; Cadbury Schweppes plc; Campbell Soup Company; Chiquita Brands International, Inc.; The Coca-Cola Company; ConAgra Foods, Inc.; Cott Corporation; Groupe Danone; General Mills, Inc.; Golden Enterprises, Inc.; Keebler Foods Company; Kraft Foods, Inc.; Nestle S.A.; Ocean Spray Cranberries, Inc.; The Procter & Gamble Company.

Further Reading

Boards of Pepsi-Cola and Frito-Lay Approve Merging As PepsiCo, Wall Street Journal, February 26, 1965, p. 8.

Bongiorno, Lori, The Pepsi Regeneration, Business Week, March 11, 1996, pp. 70+.

Byrne, John A., PepsiCos New Formula, Business Week, April 10, 2000, pp. 172-76+.

Cappelli, Peter, and Harbir Singh, Do Pepsi and Oatmeal Mix?, Wall Street Journal, December 5, 2000, p. A26.

Collins, Glenn, PepsiCo Pushes a Star Performer, New York Times, November 3, 1994, pp. Dl, D8.

Collins, Glenn, and Stephanie Strom, Can Pepsi Become the Coke of Snacks?, New York Times, November 3, 1996.

De Lisser, Eleena, Pepsi Has Lost Its Midas Touch in Restaurants, Wall Street Journal, July 18, 1994, p. Bl.

Deogun, Nikhil, Pepsi Challenge: Can Companys Brass Mute Flashy Culture and Make Profits Fizz?, Wall Street Journal, August 8, 1997, pp. A1+.

, PepsiCo to Buy Quaker for $13.4 Billion, Wall Street Journal, December 4, 2000, pp. A3, A8.

, PepsiCo to Reorganize U.S. Operations, Wall Street Journal, June 2, 1997, p. A3.

, Revamped PepsiCo Still Needs to Conquer Wall Street, Wall Street Journal, July 27, 1998, p. B4.

Deogun, Nikhil, Betsy McKay, and Jonathan Eig, PepsiCo Aborts a Play for Quaker Oats, Wall Street Journal, November 3, 2000, p. A3.

Dietz, Lawrence, Soda Pop: The History, Advertising, Art, and Memorabilia of Soft Drinks in America, New York: Simon and Schuster, 1973, 184 p.

Duncan, Amy, Pepsis Marketing Market: Why Nobody Does It Better, Business Week, February 10, 1986.

Enrico, Roger, and Jesse Kornbluth, The Other Guy Blinked: How Pepsi Won the Cola Wars, New York: Bantam, 1986, 280 p.

Fisher, Anne B., Peering Past Pepsicos Bad News, Fortune, November 14, 1983, pp. 124+.

Frank, Robert, PepsiCos Critics Worry the Glass Is Still Half Empty, Wall Street Journal, September 30, 1996, p. B4.

Gibney, Frank, Jr., Pepsi Gets Back in the Game, Time, April 26, 1999.

Gulp, Munch & Merge, Forbes, July 15, 1968, pp. 20-21.

Herman W. Lay of PepsiCo, Nations Business, September 1969, pp. 88-89, 92-95.

Holders of Pepsi-Cola and Frito-Lay Approve Proposal for Merger, Wall Street Journal, June 9, 1965, p. 8.

Kraar, Louis, Pepsis Pitch to Quench Chinese Thirsts, Fortune, March 17, 1986.

Lousi, J.C., and Harvey Z. Yazijian, The Cola Wars, New York: Everest House, 1980, 386 p.

Mack, Walter, and Peter Buckley, No Time Lost, New York: Atheneum, 1982,211 p.

Martin, Milward W., Twelve Full Ounces, New York: Holt Rinehart, 1962, 136 p.

McCarthy, Michael J., Added Fizz: Pepsi Is Going Better with Its Fast Foods and Frito-Lay Snacks, Wall Street Journal, June 13, 1991, pp. A1+.

McKay, Betsy, Juices Up: Pepsi Edges Past Coke and It Has Nothing to Do with Cola, Wall Street Journal, November 6, 2000, pp. A1+. McKay, Betsy, and Jonathan Eig, PepsiCo Hopes to Feast on Profits from Quaker Snacks, Wall Street Journal, December 4, 2000, p. B4.

McKay, Betsy, and Nikhil Deogun, PepsiCos Enrico to Pass CEO Baton to His Number Two by End of Next Year, Wall Street Journal, October 4, 2000, p. Bl.

PepsiCoMore Than Just Pepsi, Financial World, November 4, 1970, pp. 5, 26.

Pepsis Sitting on Trop of the World After Making Juicy Deal with Seagram, Beverage World, August 15, 1998, p. 14.

Reeves, Scott, The Pepsi Challenge, Barrons, August 11, 1997, pp. 17-18.

Rothman, Andrea, Can Wayne Calloway Handle the Pepsi Challenge?, Business Week, January 27, 1992.

Sellers, Patricia, If It Aint Broke, Fit It Anyway, Fortune, December 28, 1992, pp. 49+.

, PepsiCos New Generation, Fortune, April 1, 1996, pp. 110-13+.

, Pepsi Opens a Second Front, Fortune, August 8, 1994, pp. 70-76.

, Why Pepsi Needs to Become More Like Coke, Fortune, March 3, 1997, pp. 26-27.

Sparks, Debra, Will Pepsi Take the Wall Street Challenge?, Financial World, April 8, 1996, pp. 26-29.

Steady Gains for PepsiCo, Financial World, March 1, 1972, pp. 7, 19.

Stoddard, Bob, Pepsi: 100 Years, Los Angeles: General Publishing Group, 1997, 207 p.

Wayne Calloways Nonstop Cash Machine, Forbes, September 7, 1987.

Who Acquired Who?, Forbes, April 1, 1967, p. 69.

Zellner, Wendy, Frito-Lay Is Munching on the Competition, Business Week, August 24, 1992, pp. 52-53.

April Dougal Gasbarre

updated by David E. Salamie

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PepsiCo, Inc.

PepsiCo, Inc.

Purchase, New York 10577-1444
U.S.A.
(914) 253-2000
Fax: (914) 253-2070

Public Company
Incorporated: 1919 as Loft, Inc.
Employees: 423,000
Sales: $25.02 billion
Stock Exchanges: New York Chicago Basel Geneva Zurich Amsterdam Tokyo
SICs: 5812 Eating Places; 2086 Bottled and Canned Soft Drinks; 2087 Flavoring Extracts and Syrups, Nee; 2096 Potato Chips and Similar Snacks; 2099 Food Preparations, Nee; 2052 Cookies and Crackers; 6794 Patent Owners and Lessors

PepsiCo, Inc. is a diversified consumer products company with some of the worlds most important and valuable trademarks. By the early 1990s, the companys system dispensed $30 million in snack foods, $43 million in fast food, and $77 million in beverages each day. At that time, snack foods from PepsiCos Frito-Lay division, which included Doritos tortilla chips, Ruggles and Lays potato chips, Fritos corn chips, and Rold Gold pretzels, contributed the majority (39 percent, or $1.L9 billion) of the conglomerates operating profits. Incidentally, Frito-Lay also held 50 percent share of the $8 billion snack food market. Beverages, including the venerable Pepsi-Cola, and newer Slice and Mountain Dew, comprised 36 percent (or $1.11 billion) of PepsiCos operating profits. While the restaurant divisions Taco Bell, Pizza Hut, and KFC chains brought in the majority of PepsiCos sales, they added the minority of operating profits, 25 percent, or $778 million. As PepsiCo neared its centennial, its soft drinks were distributed in 166 countries, its snack foods were available in almost 90 countries, and its restaurant chains had operations in 88 countries and territories.

When Caleb D. Bradham concocted a new cola drink in the 1890s, his friends enthusiastic response convinced him that he had created a commercially viable product. For twenty years, Doc Bradham prospered from his Pepsi-Cola sales. Eventually, he was faced with a dilemma; the crucial decision he made turned out to be the wrong one and he was forced to sell. But his successors fared no better and it was not until the end of the 1930s that Pepsi-Cola again became profitable. Sixty years later, PepsiCo, Inc. was a mammoth multinational supplier of soft drinks, snack food, and fast food. PepsiCos advance to that level was almost entirely the result of its management style and the phenomenal success of its television advertising.

Doc Bradham, like countless other entrepreneurs across America, was trying to create a cola drink similar in taste to Coca-Cola, which by 1895 was selling well in every state of the union. On August 28, 1898, at his pharmacy in New Bern, North Carolina, Bradham gave the name Pepsi-Cola to his most popular flavored soda. Formerly known as Brads Drink, the new cola beverage was a syrup of sugar, vanilla, oils, cola nuts, and other flavorings diluted in carbonated water. The enterprising pharmacist followed Coca-Colas method of selling the concentrate to soda fountains; he mixed the syrup in his drugstore then shipped it in barrels to the contracted fountain operators who added the soda water. He also bottled and sold the drink himself.

In 1902 Doc Bradham closed his drugstore to devote his attention to the thriving new business. The next year, he patented the Pepsi-Cola trademark, ran his first advertisement in a local paper, and moved the bottling and syrup-making operations to a purpose-built factory. Almost 20,000 gallons of Pepsi-Cola syrup was produced in 1904.

Again following the successful methods of the Coca-Cola company, Bradham began to establish a network of bottling franchises. Entrepreneurs anxious to enter the increasingly popular soft drink business set themselves up as bottlers and contracted with Bradham to buy his syrup and sell nothing but Pepsi. With little cash outlay, Pepsi-Cola reached a much wider market. Bradhams first two bottling franchises, both in North Carolina, commenced operation in 1905. By 1907, Pepsi-Cola had signed agreements with 40 bottlers; over the next three years, the number grew to 250 and annual production of the syrup exceeded one million gallons.

Pepsi-Colas growth continued until World War I, when sugar, then the main ingredient of all flavored sodas, was rationed. Soft drink producers were forced to cut back until sugar rationing ended. The wartime set price of sugar5.5 cents per pound rocketed after controls were lifted to as much as 26.5 cents per pound in 1920. Bradham, like his rivals, had to decide whether to halt production and sit tight in the hope that prices would soon drop, or stockpile the precious commodity as a precaution against even higher prices; he chose the latter course. But unfortunately for him the market was saturated by the end of 1920 and sugar prices plunged to a low of 2 cents per pound.

Bradham never recovered. After several abortive attempts to reorganize, only two of the bottling plants remained open. In a last ditch effort, he enlisted the help of Roy C. Megargel, a Wall Street investment banker. However, very few people were willing to invest in the business and it went bankrupt in 1923. The assets were sold and Megargel purchased the company trademark, giving him the rights to the Pepsi-Cola formula. Doc Bradham went back to his drug dispensary and died 11 years later.

Megargel reorganized the firm as the National Pepsi-Cola Company in 1928, but after three years of continuous losses he had to declare bankruptcy. That same year, 1931, Megargel met Charles G. Guth, a somewhat autocratic businessman who had recently taken over as president of Loft Inc., a New York-based candy and fountain store concern. Guth had fallen out with Coca-Cola for refusing the company a wholesaler discount and he was on the lookout for a new soft drink. He signed an agreement with Megargel to resurrect the Pepsi-Cola company, and acquired 80 percent of the new shares, ostensibly for himself. Then, having modified the syrup formula, he canceled Lofts contract with Coca-Cola and introduced Pepsi-Cola, whose name was often shortened to Pepsi.

Lofts customers were wary of the brand switch and in the first year of Pepsi sales the companys soft drink turnover was down by a third. By the end of 1933, Guth had bought out Megargel and owned 91 percent of the insolvent company. Resistance to Pepsi in the Loft stores tailed off in 1934, and Guth decided further to improve sales by offering 12 ounce bottles of Pepsi for a nickelthe same price as six ounces of Coke. The Depression-weary people of Baltimorewhere the 12 ounce bottles were first introducedwere ready for a bargain and Pepsi-Cola sales increased dramatically.

Guth soon took steps to internationalize Pepsi-Cola, establishing the Pepsi-Cola Company of Canada in 1934 and in the following year forming Compania Pepsi-Cola de Cuba. He also moved the entire American operation to Long Island City, New York, and set up national territorial boundaries for the bottling franchises. In 1936, Pepsi-Cola Ltd. of London commenced business.

Guths ownership of the Pepsi-Cola Company was challenged that same year by Loft Inc. In a complex arrangement, Guth had organized Pepsi-Cola as an independent corporation, but he had run it with Lofts employees and money. After three years of litigation, the court upheld Lofts contention and Guth had to step down, although he was retained as an adviser. James W. Carkner was elected president of the company, now a subsidiary of Loft Inc., but Carkner was soon replaced by Walter S. Mack, Jr., an executive from the Phoenix Securities Corporation.

Mack established a board of directors with real voting powers to ensure that no one person would be able to wield control as Guth had done. From the start, Macks aim was to promote Pepsi to the hilt so that it might replace Coca-Cola as the worlds best-selling soft drink. The advertising agency Mack hired worked wonders. In 1939, a Pepsi radio jinglethe first one to be aired nationallycaught the publics attention: Pepsi-Cola hits the spot. Twelve full ounces, thats a lot. Twice as much for a nickel, too. Pepsi-Cola is the drink for you. The jingle, sung to the tune of the old British hunting song DYe Ken John Peel, became an advertising hallmark; no one was more impressed, or concerned, than the executives at Coca-Cola.

In 1940, with foreign expansion continuing strongly, Loft Inc. made plans to merge with its Pepsi-Cola subsidiary. The new firm, formed in 1941, used the name Pepsi-Cola Company since it was so well-known. Pepsis stock was listed on the New York Stock Exchange for the first time.

Sugar rationing was even more severe during World War II, but this time the company fared better; indeed, the sugar plantation Pepsi-Cola acquired in Cuba became a most successful investment. But as inflation spiraled in the postwar U.S. economy, sales of soft drinks fell. The public needed time to get used to paying six or seven cents for a bottle of Pepsi which, as they remembered from the jingle, had always been a nickel. Profits in 1948 were down $3.6 million from the year before.

In other respects, 1948 was a notable year. Pepsi moved its corporate headquarters across the East River to midtown Manhattan, and for the first time the drink was sold in cans. The decision to start canning, while absolutely right for Pepsi-Cola and other soft drink companies, upset the franchised bottlers, who had invested heavily in equipment. However, another decision at Pepsi-Colato ignore the burgeoning vending machine market because of the necessarily large capital outlayproved to be a costly mistake. The company had to learn the hard way that as canned drinks gained a larger share of the market, vending machine sales would become increasingly important.

Walter Mack was appointed company chairman in 1950, and a former Coca-Cola vice-president of sales, Alfred N. Steele, took over as president and chief executive officer, bringing 15 other Coke executives with him. Steele continued the policy of management decentralization by giving broader powers to regional vice-presidents, and he placed Herbert Barnet in charge of Pepsis financial operations. However, Steeles outstanding contribution was in marketing. He launched an extensive advertising campaign with the slogan Be Sociable, Have a Pepsi. The new television medium provided a perfect forum; Pepsi advertisements presented young Americans drinking The Light Refreshment and having fun.

By the time Alfred Steele married movie star Joan Crawford in 1954, a transformation of the company was well underway. Crawfords adopted daughter Christina noted in her best seller Mommie Dearest: [Steele had] driven Pepsi into national prominence and distribution, second only to his former employer, Coca-Cola. Pepsi was giving Coke a run for its money in every nook and hamlet of America. Al Steele welded a national network of bottlers together, standardized the syrup formula... , brought the distinctive logo into mass consciousness, and was on the brink of going international. In fact, Pepsi-Cola International Ltd. was formed shortly after Steeles marriage.

Joan Crawford became the personification of Pepsis new and glamorous image. She invariably kept a bottle of Pepsi at hand during press conferences and mentioned the product at interviews and on talk shows; on occasion she even arranged for Pepsi trucks and vending machines to feature in background shots of her movies. The actress also worked hard to spread the Pepsi word overseas and accompanied her husband, now chairman of the board, on his 1957 tour of Europe and Africa, where bottling plants were being established.

Steele died suddenly of a heart attack in the spring of 1959. Herbert Barnet succeeded him as chairman and Joan Crawford was elected a board member. Pepsi-Cola profits had fallen to a postwar low of $1.3 million in 1950 when Steele joined the company, but with the proliferation of supermarkets during the decade and the developments in overseas business, profits reached $14.2 million in 1960. By that time, young adults had become a major target of soft drink manufacturers and Pepsis advertisements were aimed at Those who think young.

Al Steele and Joan Crawford had been superb cheerleaders, but a stunt pulled in 1959 by Donald M. Kendall, head of Pepsi-Cola International, is still regarded as one of the great coups in the annals of advertising. Kendall attended the Moscow Trade Fair that year and persuaded U.S. Vice-President Richard Nixon to stop by the Pepsi booth with Nikita Khrushchev, the Soviet premier. As the cameras flashed, Khrushchev quenched his thirst with Pepsi and the grinning U.S. Vice-President stood in attendance. The next day, newspapers around the world featured photographs of the happy couple, complete with Pepsi bottle.

By 1963, Kendall was presiding over the Pepsi empire. His rise to the top of the company was legendary. He had been an amateur boxing champion in his youth and joined the company as a production line worker in 1947 after a stint in the U.S. Navy. He was later promoted to syrup sales where it quickly became apparent that he was destined for higher office. Ever pugnacious, Kendall has been described as abrasive and ruthlessly ambitious; beleaguered Pepsi executives secretly referred to him as White Fang. Under his long reign, the companys fortunes skyrocketed.

Pepsi-Colas remarkable successes in the 1960s and 1970s were the result of five distinct policies, all of which Kendall and his crew pursued diligently: they advertised on a massive, unprecedented scale; they introduced new brands of soft drinks; they led the industry in packaging innovations; they expanded overseas; and, through acquisitions, they diversified their product line.

The postwar baby-boomers were in their mid- to late-teens by the time Kendall came to power. Pepsi was there, states a recent company flyer, to claim these kids for our own. These kids became the Pepsi Generation. In the late 1960s Pepsi was the Taste that beats the others cold. Viewers were advised Youve got a lot to live. Pepsis got a lot to give. By the early 1970s, the appeal was to Join the Pepsi people, feelin free. In mid-decade an American catch-phrase was given a company twist with Have a Pepsi Day, and the 1970s ended on the note Catch the Pepsi Spirit!

The Pepsi Generation wanted variety and Pepsi was happy to oblige. Company brands introduced in the 1960s included Patio soft drinks, Teem, Tropic Surf, Diet Pepsithe first nationally distributed diet sodaand Mountain Dew, acquired from the Tip Corporation. Pepsi Light, a diet cola with a hint of lemon, made its debut in 1975, and a few years later Pepsi tested the market with Aspen apple soda and On-Tap root beer. The company also introduced greater variety into the packaging of its products. Soon after Kendalls accession, the 12-ounce bottle was phased out in favor of the 16-ounce size, and in the 1970s Pepsi-Cola became the first American company to introduce one-and-a-half and two-liter bottles; it also began to package its sodas in sturdy, lightweight plastic bottles. By the end of the decade, Pepsi had added 12-pack cans to its growing array of packaging options.

The companys expansion beyond the soft drink market began in 1965 when Kendall met Herman Lay, the owner of Frito-Lay, at a grocers convention. Kendall arranged a merger with this Dallas-based snack food manufacturer and formed PepsiCo, Inc. Herman Lay retired soon thereafter but retained his substantial PepsiCo shareholding. The value of this stock increased dramatically as Frito-Lay products were introduced to Pepsis nationwide market.

In the late 1960s and early 1970s, Kendall acquired two well-known fast-food restaurant chains, Taco Bell and Pizza Hut; naturally, these new subsidiaries became major outlets for Pepsi products. But Kendall also diversified outside the food and drink industry, bringing North American Van Lines, Lee Way Motor Freight, and Wilson Sporting Goods into the PepsiCo empire.

Overseas developments continued apace throughout Kendalls tenure. Building on his famous Soviet achievement, he negotiated a trade agreement with the USSR in 1972; the first Pepsi plant opened there two years later. Gains were also made in the Middle East and Latin America, but Coca-Cola, the major rival, retained its dominant position in Europe and throughout much of Asia.

By the time PepsiCo greeted the 1980s with the slogan Pepsis got your taste for life!, Kendall was busy arranging for China to get that taste too; production began there in 1983. Kendall put his seal of approval on several other major developments in the early 1980s, including the introduction of Pepsi Free, a non-caffeine cola, and Slice, the first widely distributed soft drink to contain real fruit juice (lemon and lime). The latter drink was aimed at the growing 7-Up and Sprite market. Additionally, Diet Pepsi was reformulated using a blend of saccharin and aspartame (NutraSweet). Pepsi Now! was the cry of company commercials, and this was interspersed with Taste, Improved by Diet Pepsi.

In 1983 the company claimed a significant share of the fast-food soft drink market when Burger King began selling Pepsi products. A year later, mindful of the industry axiom that there is virtually no limit to the amount a consumer will buy once the decision to buy has been made, PepsiCo introduced the 3-liter container.

By the mid 1980s, the Pepsi Generation was over the hill. Kendalls ad agency spared no expense in heralding Pepsi as The Choice of a New Generation, using the talents of superstar Michael Jackson, singer Lionel Richie, and the Puerto Rican teenage group Menudo. Michael Jacksons ads were smash hits and enjoyed the highest exposure of any American television commercial to date. The companys high profile and powerful presence in all of the soft drink marketsdirect results of Kendalls strategieshelped it to weather the somewhat uncertain economic situation of the time.

On only one front had Kendalls efforts failed to produce satisfactory results. Experience showed that for all its expertise, PepsiCo simply did not have the managerial experience required to run its subsidiaries outside the food and drink industries. A van line, a motor freight concern, and a sporting goods firm were indeed odd companies for a soft drink enterprise; and Kendall auctioned off these strange and ailing bedfellows, vowing never again to go courting in unfamiliar territories.

With his house in excellent order, the PepsiCo mogul began to prepare for his retirement. He had bullied and cajoled a generation of Pepsi executives and guided them ever upward on the steep slopes of Pepsi profits. But he had one last task: to lead PepsiCo to victory in the Cola Wars.

Hostilities commenced soon after the Coca-Cola Company changed its syrup recipe in the summer of 1985 and with much fanfare introduced New Coke. Pepsi, caught napping, claimed that Coca-Colas reformulated drink failed to meet with consumer approval and pointed to their own flourishing sales. But serious fans of the original Coke were not about to switch to Pepsi and demanded that their favorite refreshment be restored. However, when blindfolded, it became manifestly apparent that these diehards could rarely tell the difference between Old Coke, New Coke, and Pepsi; indeed, more often than not, they got it wrong. In any event, the Coca-Cola Company acceded to the public clamor for the original Coke and remarketed it as Coca-Cola Classic alongside its new cola.

Some advertising analysts believed that the entire conflict was a clever publicity ploy on the part of Coca-Cola to demonstrate the preeminence of its original concoction (Its the Real Thing!), while introducing a new colaallegedly a Pepsi taste-aliketo win the hearts of waverers. More interesting perhaps than the possible differences between the colas were the very real differences in peoples reactions. Four discrete fields were identified by Roger Enrico and Jesse Kornbluth in their book, The Other Guy Blinked: How Pepsi Won the Cola Wars: the totally wowed (possibly caffeine-induced); the rather amused; the slightly irritated; and the distinctly bored.

The latter group must have nodded off in front of their television sets when Pepsi took the Cola Wars beyond the firmament. One Giant Sip for Mankind, proclaimed the ads as a Pepsi space can was opened up aboard the U.S. space shuttle Challenger. Presumably, had a regular can been used, Pepsi-Cola would have sloshed aimlessly around the gravity-free cabin. This scientific breakthrough, together with the almost obligatory hype and hoopla, and more mundane factors such as the continued expansion in PepsiCos outlets, boosted sales to new heights, and Pepsis ad agency glittered with accolades. The debate still continues, at least within Coke and Pepsi corporate offices, as to who won the Cola Wars. The answer would appear to be that there were no losers, only winners; but skirmishes will inevitably continue.

D. Wayne Calloway replaced Donald M. Kendall as chairman and chief executive officer in 1986. Calloway had been instrumental in the success of Frito-Lay, helping it to become PepsiCos most profitable division. The new chairman realized that his flagship Pepsi brand was not likely to win additional market share from Coca-Cola, and focused his efforts on international growth and diversification.

Calloway hoped to build on the phenomenal success of the Slice line of fruit juice beverages, which achieved $1 billion in sales and created a new beverage category within just two years of its 1984 introduction. From 1985 to 1993, PepsiCo introduced, acquired, or formed joint ventures to distribute nine beverages, including Lipton Original Iced Teas, Ocean Spray juices, All Sport drink, H2Oh! sparkling water, Avalon bottled water, and Mug root beer. Many of these products had a New Age light and healthy positioning, in line with consumer tastes, and higher net prices. In 1992, PepsiCo introduced Crystal Pepsi, a clear cola that, while still a traditional soda, also tried to capture the momentum of the New Age beverage trend.

In the restaurant segment, PepsiCos 1990 acquisition of the Hot n Now hamburger chain continued its emphasis on value priced fast foods. But the company strayed slightly from that formula with the 1992 and 1993 purchases of such full-service restaurants as California Pizza Kitchen, which specialized in creative wood-fired pizzas, Chevys, a Mexican-style chain, East Side Marios Italian-style offerings, and DAngelo Sandwich Shops.

Pepsi lost a powerful marketing tool in 1992, when Michael Jackson was accused of child molestation. Although the case was settled out of court, Pepsi dropped its contract with the entertainer. The firm launched its largest promotion ever in May 1992 with the Gotta Have It card, which offered discounts on the products of marketing partners Reebok sporting goods, Continental Airlines, and the MCI telephone long distance company. The company also launched a new marketing (or, as the company phrased it, product quality) initiative early in 1994, when it announced that packaged carbonated soft drink products sold in the United States would voluntarily be marked with a Best if Consumed By date.

Although Pepsi had commenced international expansion during the 1950s, it had long trailed Coca-Colas dramatic and overwhelming conquest of international markets. In 1990, CEO Calloway pledged up to $1 billion for overseas development, with the goal of increasing international volume 150 percent by 1995. At that time, Coke held 50 percent of the European soft drink market, while Pepsi claimed a meager 10 percent. But Pepsis advantage was that it could compete in other, less saturated segments. The companys biggest challenge to expanding its restaurant division was affordability. PepsiCo noted that, while it took the average U.S. worker just 15 minutes to earn enough to enjoy a meal in one of the firms restaurants, it would take an Australian 25 minutes to achieve a similar goal. Pepsi still had other options, however. In 1992, for example, the company forged a joint venture with General Mills called Snack Ventures Europe which emerged as the largest firm in the $17 billion market. By 1993, PepsiCo had invested over $5 billion in international businesses, and its international sales comprised 27 percent, or $6.71 billion, of total annual sales.

In January 1992, Calloway was credited by Business Week magazine with emerging from the long shadow cast by his predecessor to put together five impressive years of 20 percent compound earnings growth, doubling sales and nearly tripling the companys value on the stock market. Calloway was also working to reshape PepsiCos corporate culture by fostering personal responsibility and a decentralized, flexible management style. PepsiCo is one of Americas true corporate giants, and seems likely to continue its tradition of well-chosen acquisitions and astute marketing into its second century of business.

Principal Subsidiaries:

A&M Food Services, Inc.; Ainwick Corp.; Anderson Hill Insurance Ltd.; Atlantic Soft Drink Company, Inc.; Beverages, Foods, & Service Industries, Inc.; Collin Leasing Corp.; CPK Acquisition Corp.; Davlyn Realty Corp.; East Kentucky Beverage Company, Inc.; Embotelladoa del Uruguay S.A.; Equity Beverage, Inc.; Frito-Lay of Puerto Rico, Inc.; Frito-Lay of Hawaii, Inc.; Hostess-FL NRO Ltd.; Hot n Now, Inc.; Japan Frito-Ltd.; Kentucky Fried Chicken of California, Inc.; National Beverages, Inc.; PepsiCo Capital Corporation N.V.; PepsiCo China Ltd.; PepsiCo Holdings Ltd.; Pizza Management, Inc.; Recot, Inc.; PepsiCo. Overseas Corp.; PepsiCo Overseas Finance N.V.; PepsiCo Services Corp.; PepsiCo World Trading Company, Inc.; Pepsi-Cola (Bermuda) Ltd.; Pepsi-Cola Bottling Company of Los Angeles; Pepsi-Cola Chile Consultores Ltda.; Pepsi-Cola Commodities, Inc.; Pepsi-Cola de Espana S.A.; Pepsi-Cola France S.N.C.; Pepsi-Cola Equipment Corp.; Pepsi-Cola Far East Trade Development Company, Inc.; Pepsi-Cola Interamericana S.A.; Pepsi-Cola International Ltd. (Bermuda); Pepsi-Cola International Ltd. (U.S.A.); Pepsi-Cola Mamulleri Limited Sirketi; Pepsi-Cola

Metropolitan Bottling Company, Inc.; Pepsi-Cola Mexicana S.A. de C.V.; Pepsi-Cola Personnel, Inc.; Pepsi-Cola San Joaquin Bottling Co.; Pizza Hut, Inc.; Redux Realty, Inc.; Rice Bottling Enterprises, Inc.; Sabritas S.A. de C.V.; Taco Bell Corp.; Taco Enterprises, Inc.; TFL Holdings, Inc.; Von Karman Leasing Corp.; Wilson International Sales Corp.

Further Reading:

Dietz, Lawrence, Soda Pop, New York: Simon and Schuster, 1973.

Enrico, Roger, and Jesse Kornbluth, The Other Guy Blinked: How Pepsi Won the Cola Wars, New York: Bantam, 1986.

Lousi, J. C, The Cola Wars, New York: Everest House, 1980.

Mack, Walter, and P. Buckley, No Time Lost, New York: Atheneum, 1982.

Martin, Milward, Twelve Full Ounces, New York: Holt Rinehart, 1962.

updated by April Dougal Gasbarre

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Pepsico, Inc.

Pepsico, Inc.

Purchase, New York 10577
U.S.A.
(914) 253-2000

Public Company
Incorporated:
September 18, 1919 as Loft, Inc.
Employees: 150,000
Sales: $9.29 billion
Market Value: $9.11 billion
Stock Index: New York

When Caleb D. Bradham concocted a new cola drink in the 1890s, his friends enthusiastic response convinced him that he had created a commercially viable product. For twenty years, Doc Bradham prospered from his Pepsi-Cola sales. Eventually, he was faced with a dilemma; the crucial decision he made turned out to be the wrong one and he was forced to sell. But his successors fared no better and it was not until the end of the 1930s that Pepsi-Cola again became profitable.

Fifty years later, PepsiCo, Inc. is a mammoth multinational supplier of soft drinks, snack food, and fast food. The company has finally dislodged Coca-Cola as the number one soft drink company in America. But there is little enough to distinguish between the quality, variety, and taste of the products offered by either company. PepsoCos slight edge is almost entirely the result of its management style and the phenomenal success of its television advertising.

Doc Bradham, like countless other entrepreneurs across America, was trying to create a cola drink similar in taste to Coca-Cola, which by 1895 was selling well in every state of the union. At his pharmacy in New Bern, North Carolina on August 28, 1898, Bradham gave the name Pepsi-Cola to his most popular flavored soda. Formerly known as Brads Drink, the new cola beverage was a syrup of sugar, vanilla, oils, cola nuts, and other flavorings diluted in carbonated water. The enterprising pharmacist followed Coca-Colas method of selling the concentrate to soda fountains; he mixed the syrup in his drugstore then shipped it in barrels to the contracted fountain operators who added the soda water. He also bottled and sold the drink himself.

In 1902 Doc Bradham closed his drugstore to devote his attention to the thriving new business. The next year, he patented the Pepsi-Cola trademark, ran his first advertisement in a local paper, and moved the bottling and syrupmaking operations to a purpose-built factory. Almost 20,000 gallons of Pepso-Cola syrup was produced in 1904.

Again following the successful methods of the Coca-Cola company, Bradham began to establish a network of bottling franchises. Entrepreneurs anxious to enter the increasingly popular soft drink business, set themselves up as bottlers and contracted with Bradham to buy his syrup and sell nothing but Pepsi. With little cash outlay, Pepsi-Cola reached a much wider market.

Bradhams first two bottling franchises, both in North Carolina, commenced operation in 1905. By 1907, Pepsi-Cola had signed agreements with 40 bottlers; over the next three years, the number grew to 250 and annual production of the syrup exceeded one million gallons.

Pepsi-Colas growth continued until World War I, when sugar, then the main ingredient of all flavored sodas, was rationed. Soft drink producers were forced to cut back until sugar rationing ended. The wartime set price of sugar5.5 cents per poundrocketed after controls were lifted to as much as 26.5 cents per pound in 1920. Bradham, like his rivals, had to decide whether to halt production and sit tight in the hope that prices would soon drop, or stockpile the precious commodity as a precaution against even higher prices; he chose the latter course. But unfortunately for him the market was saturated by the end of 1920 and sugar prices plunged to a low of 2 cents per pound.

Bradham never recovered. After several abortive attempts to reorganize, only two of the bottling plants remained open. In a last ditch effort, he enlisted the help of Roy C. Megargel, a Wall Street investment banker. However, very few people were willing to invest in the business and it went bankrupt in 1923. The assets were sold and Megargel purchased the company trademark, giving him the rights to the Pepsi-Cola formula. Doc Bradham went back to his drug dispensary and he died 11 years later.

Megargel apparently lacked marketing ability and after continuous losses, reorganized the firm as the National Pepsi-Cola Company in 1928. But after three years he had to declare bankruptcy. That same year (1931), Megargel met Charles G. Guth, a somewhat autocratic businessman who had recently taken over as president of Loft Inc., a New York-based candy and fountain store concern. Guth had fallen out with Coca-Cola for refusing the company a wholesaler discount and he was on the lookout for a new soft drink. He signed an agreement with Megargel to resurrect the Pepsi-Cola company, and acquired 80% of the new shares, ostensibly for himself. Then, having modified the syrup formula, he cancelled Lofts contract with Coca-Cola and introduced Pepsi.

Lofts customers were wary of the brand switch and in the first year of Pepsi sales the companys soft drink turnover was down by a third. By the end of 1933, Guth had bought out Megargel and owned 91% of the insolvent company. But resistance to Pepsi in the Loft stores tailed off in 1934, and Guth decided further to improve sales by offering 12 ounce bottles of Pepsi for a nickelthe same price as six ounces of Coke. The Depression-weary people of Baltimorewhere the 12 ounce bottles were first introducedwere ready for a bargain and Pepsi-Cola sales increased dramatically.

Guth established Pepsi-Cola Company of Canada in 1934 and the following year formed Compania Pepsi-Cola de Cuba. He also moved the entire American operation to Long Island City, New York and set up national territorial boundaries for the bottling franchises. In 1936, Pepsi-Cola Ltd. of London commenced business.

Guths ownership of the Pepsi-Cola Company was challenged that same year by Loft Inc. In a complex arrangement, Guth had organized Pepsi-Cola as an independent corporation, but he had run it with Lofts employees and money. After three years of litigation, the court upheld Lofts contention and Guth had to step down, although he was retained as an adviser. James W. Carkner was elected president of the company, now a subsidiary of Loft Inc., but Carkner was soon replaced by Walter S. Mack, Jr., an executive from the Phoenix Securities Corporation.

Mack established a board of directors with real voting powers to ensure that no one person would be able to wield control as Guth had done. From the start, Macks aim was to promote Pepsi to the hilt so that it might replace Coca-Cola as the worlds best-selling soft drink. The advertising agency Mack hired worked wonders. In 1939, a Pepsi jinglethe first one to be aired nationallycaught the publics attention: Pepsi-Cola hits the spot. Twelve full ounces, thats a lot. Twice as much for a nickel, too. Pepsi-Cola is the drink for you. The jingle, sung to the tune of the old British hunting song DYe Ken John Peel, became an advertising hallmark; no-one was more impressed, or concerned, than the executives at Coca-Cola.

In 1940, with foreign expansion continuing strongly, Loft Inc. made plans to merge with its Pepsi subsidiary. The new firm, formed in 1941, used the name Pepsi-Cola Company since it was so well-known. Pepsis stock was listed on the New York Stock Exchange for the first time.

Sugar rationing was even more severe during World War II, but this time the company fared better; indeed, the sugar plantation Pepsi-Cola acquired in Cuba became a most successful investment. But as inflation spiralled in the postwar U.S. economy, sales of soft drinks fell. The public needed time to get used to paying six or seven cents for a bottle of Pepsi which, as they remembered from the jingle, had always been a nickel. Profits in 1948 were down $3.6 million from the year before.

In other respects, 1948 was a notable year. Pepsi moved its corporate headquarters across the East River to mid-town Manhattan, and for the first time the drink was sold in cans. The decision to start canning, while absolutely right for Pepsi-Cola and other soft drink companies, upset the franchised bottlers, who had invested heavily in equipment. However, another decision at Pepsi-Colato ignore the burgeoning vending machine market because of the necessarily large capital outlayproved to be a costly mistake. The company had to learn the hard way that as canned drinks gained a larger share of the market, vending machine sales would become increasingly important.

Walter Mack was appointed company chairman in 1950, and a former Coca-Cola vice president of sales, Alfred N. Steele, took over as president and chief executive officer; he brought 15 other Coke executives with him. Steele continued the policy of management decentralization by giving broader powers to regional vice presidents, and he placed Herbert Barnet in charge of Pepsis financial operations. However, Steeles outstanding contribution was in marketing. He launched an extensive advertising campaign with the slogan Be sociable, have a Pepsi. The new television medium provided a perfect forum; Pepsi advertisements presented young Americans drinking the Light refreshment and having fun.

By the time Alfred Steele married the movie star Joan Crawford in 1954, transformation of the company was well underway. Crawfords adopted daughter Christina noted in her bestseller Mommie Dearest: [Steele had] driven Pepsi into national prominence and distribution, second only to his former employer, Coca-Cola. Pepsi was giving Coke a run for its money in every nook and hamlet of America. Al Steele welded a national network of bottlers together, standardized the syrup formula... brought the distinctive logo into mass consciousness, and was on the brink of going international.... In fact, Pepsi-Cola International Ltd. was formed shortly after Steeles marriage.

Joan Crawford became the personification of Pepsis new and glamorous image. She invariably kept a bottle of Pepsi at hand during press conferences and mentioned the product at interviews and on talk shows; on occasion she even arranged for Pepsi trucks and vending machines to feature in background shots of her movies. The actress also worked hard to spread the Pepsi word overseas and accompanied her husband, now chairman of the board, on his 1957 tour of Europe and Africa, where bottling plants were being established.

Steele died suddenly of a heart attack in the spring of 1959. Herbert Barnet succeeded him as chairman and Joan Crawford was elected a board member. According to the film version of Mommie Dearest, the Hollywood star took an active interest in company policy and did not mince her words at board meetings.

Pepsi-Cola profits had fallen to a postwar low of $1.3 million in 1950 when Steele joined the company, but with the proliferation of supermarkets during the decade and the developments in overseas business, profits reached $14.2 million in 1960. By that time, young adults had become a major target of soft drink manufacturers and Pepsis advertisements were aimed at Those Who Think Young.

Al Steele and Joan Crawford had been superb cheerleaders, but a stunt pulled in 1959 by Donald M. Kendall, head of Pepsi-Cola International, is still regarded as one of the great coups in the annals of advertising. Kendall attended the Moscow Trade Fair that year and persuaded U.S. Vice President Richard Nixon to stop by the Pepsi booth with Nikita Khrushchev, the Soviet premier. As the cameras flashed, Khrushchev quenched his thirst with several Pepsis and the grinning U.S. Vice President stood in attendance. Next day, newspapers around the world featured photographs of the happy couple, complete with Pepsi bottle.

By 1963 Kendall was presiding over the Pepsi empire. He had been an amateur boxing champion in his youth and joined the company as a production line worker in 1947 after a stint in the U.S. Navy. He was later promoted to syrup sales where it quickly became apparent that he was destined for higher office. Ever pugnacious, Kendall has been described as abrasive and ruthlessly ambitious; beleaguered Pepsi executives secretly referred to him as White Fang. Under his long reign, the companys fortunes skyrocketed.

Pepsi-Colas remarkable successes in the 1960s and 1970s were the result of five distinct policies, all of which Kendall and his crew pursued diligently: they advertised on a massive, unprecedented scale; they introduced new brands of soft drinks; they led the industry in packaging innovations; they expanded overseas; and, through acquisitions, they diversified their product line.

The postwar baby-boomers were in their mid-to-late teens by the time Kendall came to power. Pepsi was there, states a recent company flyer, to claim these kids for our own. These kids became the Pepsi Generation. In the late 1960s Pepsi was the Taste that beats the others cold. Viewers were advised Youve got a lot to live. Pepsis got a lot to give. By the early 1970s, the appeal was to Join the Pepsi people, feelin free. In mid-decade an American catch-phrase was given a company twistHave a Pepsi Day, and the 1970s ended on the note Catch the Pepsi Spirit!

The Pepsi Generation wanted variety and Pepsi was happy to oblige. Company brands introduced in the 1960s included Patio soft drinks, Teem, Tropic Surf, Diet Pepsithe first nationally distributed diet sodaand Mountain Dew, acquired from the Tip Corporation. Pepsi Light, a diet cola with a hint of lemon, made its debut in 1975, and a few years later Pepsi tested the market with Aspen apple soda and On-Tap root beer. The company also introduced greater variety into the packaging of its products. Soon after Kendalls accession, the 12-ounce bottle was phased out in favour of the 16-ounce size, and in the 1970s Pepsi-Cola became the first American company to introduce one-and-a-half and two-liter bottles; it also began to package its sodas in sturdy, lightweight plastic bottles. By the end of the decade, Pepsi had added 12-pack cans to its growing array of packaging options.

The companys expansion beyond the soft drink market began in 1965 when Kendall met Herman Lay, the owner of Frito-Lay, at a grocers convention. Kendall arranged a merger with this Dallas-based snack food manufacturer and formed PepsiCo, Inc. Herman Lay retired soon thereafter but retained his substantial PepsiCo shareholding. The value of this stock increased dramatically as Frito-Lay products were introduced to Pepsis nationwide market.

In the late 1960s and early 1970s Kendall acquired two well-known fast-food restaurant chains, Taco Bell and Pizza Hut; naturally, these new subsidiaries became major outlets for Pepsi products. But Kendall also diversified outside the food and drink industry, bringing North American Van Lines, Lee Way Motor Freight, and Wilson Sporting Goods into the PepsiCo empire.

Overseas developments continued apace throughout Kendalls tenure. Building on his famous Soviet achievement, he negotiated a trade agreement with the USSR in 1972; the first Pepsi plant opened there two years later. Gains were also made in the Middle East and Latin America, but Coca-Cola, the major rival, retained its dominant position in Europe and throughout much of Asia.

By the time PepsiCo greeted the 1980s with the slogan Pepsis got your taste for life!, Kendall was busy arranging for China to get that taste too; production began there in 1983. Kendall put his seal of approval on several other major developments in the early 1980s, including the introduction of Pepsi Free, a non-caffeine cola, and Slice, the first widely distributed soft drink to contain real fruit juice (lemon and lime); the latter was aimed at the growing 7-Up and Sprite market. Additionally, Diet-Pepsi was reformulated using a blend of saccharin and aspartame (NutraSweet). Pepsi Now! was the cry of company commercials, and this was interspersed with Taste, Improved by Diet Pepsi.

In 1983 the company claimed a significant share of the fastfood soft drink market when Burger King began selling Pepsi products. A year later, mindful of the industry axiom that there is virtually no limit to the amount a consumer will buy once the decision to buy has been made, PepsiCo introduced the 3-liter container.

By the mid-1980s the Pepsi Generation was over the hill. Kendalls ad agency, no expense spared, heralded Pepsi as the Choice of a New Generation, using the talents of superstar Michael Jackson, as well as those of singer Lionel Richie and the Puerto Rican teenage group Menudo. Michael Jacksons ads were smash hits and enjoyed the highest exposure of any American television commercial to date. The companys high profile and powerful presence in all of the soft drink marketsdirect results of Kendalls strategieshelped it to weather the somewhat uncertain economic situation of the time.

On only one front had Kendalls efforts failed to produce satisfactory results. Experience showed that for all its expertise, PepsiCo simply did not have the managerial experience required to run its subsidiaries outside the food and drink industries. A van line, a motor freight concern, and a sporting goods firm were indeed odd companies for a soft drink enterprise; and Kendall auctioned off these strange and ailing bedfellows, vowing never again to go courting in unfamiliar territories.

With his house in excellent order, the PepsiCo mogul began to prepare for his retirement. He had bullied and cajoled a generation of pepsi executives and guided them ever upward on the steep slopes of Pepsi profits. But he had one last taskto lead PepsiCo to victory in the Cola Wars.

Hostilities commenced soon after the Coca-Cola Company changed its syrup recipe in the summer of 1985 and with much fanfare introduced New Coke. Pepsi, caught napping, claimed that Coca-Colas reformulated drink failed to meet with consumer approval and pointed to their own flourishing sales. But serious fans of the original Coke were not about to switch to Pepsi and demanded that their favorite refreshment be restored. However, when blindfolded, it became manifestly apparent that these diehards could rarely tell the difference between Old Coke, New Coke and Pepsi; indeed, more often than not, they got it wrong. In any event, the Coca-Cola Company acceded to the public clamor for the original Coke and remarketed it as Coca-Cola Classic alongside its new cola.

Some advertising analysts believed that the entire conflict was a clever publicity ploy on the part of Coca-Cola to demonstrate the preeminence of its original concoction (Its the Real Thing!), while introducing a new colaallegedly a Pepsi taste-aliketo win the hearts of waverers. More interesting perhaps than the possible differences between the colas were the very real differences in peoples reactions. Four discrete fields could be identified: the totally wowed (possibly caffeine-induced); the rather amused; the slightly irritated; and the distinctly bored.

The latter group must have nodded off in front of their television sets when Pepsi took the Cola Wars beyond the firmament. One Giant Sip for Mankind, proclaimed the ads as a Pepsi space can was opened up aboard Challenger, the U.S. space shuttle. Presumably, had a regular can been used, Pepsi-Cola would have sloshed aimlessly around the gravity-free cabin. This scientific breakthrough, together with the almost obligatory hype and hoopla, and more mundane factors such as the continued expansion in PepsiCos outlets, boosted sales to new heights; and Pepsis ad agency glittered with accolades. The debate still continues, at least within Coke and Pepsi corporate offices, as to who won the Cola Wars. The answer would appear to be that there were no losers, only winners; but skirmishes will inevitably continue.

D. Wayne Calloway replaced Donald M. Kendall as chairman and chief executive officer in 1986. Calloway had been instrumental in the success of Frito-Lay, helping it to become PepsiCos most profitable division. By the time he took command, 195 independent owners operated 380 Pepsi-Cola franchise territories in the U.S., and a further 38 territories were owned directly by the company. Additionally, there were 600 PepsiCo plants worldwide, located in 148 countries and foreign territories.

In the last couple of years, PepsiCos Slice has become a real winner and there have been several additions to this soft drink line, including Diet Slice, Mandarin Orange, Cherry Cola, and Apple. Marketing analysts see continuing strength in the companys advertising program, citing in particular a second agreement with Michael Jackson and PepsiCos sponsorship of concerts and sporting events. It is expected that PepsiCo will end the 1980s as it started them: rich, aggressive, and second to none.

Principal Subsidiaries

Ainwick Corporation; Darlyn Realty Corp.; Frito-Lay Corp.; Recot, Inc.; Arizona Specialty Breads, Inc.; California Exceptional Breads, Inc.; National Beverages, Inc.; Franklin Bottling Co.; Pizza Hut, Inc.; Taco Bell Corp.; Taco Bell Royalty Co. PepsiCo also lists subsidiaries in the following countries: Argentina, Australia, Bermuda, Canada, Chile, France, Ireland, England, West Germany, Mexico, the Netherlands Antilles, Spain, and Turkey.

Further Reading

Twelve Full Ounces by Milward Martin, New York, Holt Rinehart, 1962; Soda Pop by Lawrence Dietz, New York, Simon and Schuster, 1973; The Cola Wars by J.C. Lousi, New York, Everest House, 1980; No Time Lost by Walter Mack and P. Buckley, New York, Atheneum, 1982; The Other Guy Blinked: How Pepsi Won the Cola Wars by Roger Enrico and Jesse Kornbluth, New York, Bantam, 1986.

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PepsiCo, Inc.

PepsiCo, Inc.

700 Anderson Hill Road
Purchase, NY 10577-1444
(914) 253-2000
www.pepsico.com

With strong management and unique vision, PepsiCo, Inc., is not only a leader in the beverage and snack industry, it is one of the most successful companies in the world. Much of the company's success comes from the fact that it consistently stays in touch with changing trends and lifestyles, and gives consumers the tastes and conveniences they desire.

Over one hundred years after the first Pepsi was bottled, PepsiCo now offers thirty-two different kinds of carbonated and noncarbonated drinks with Pepsi-Cola beverages sold in 170 countries around the globe. It also produces thirty different kinds of snack foods and twenty-one cereals and other grain-related foods through its subsidiaries, Frito Lay and Quaker Oats. And, of course, the company continues its "cola war," battling rival Coca-Cola Company (see entry) to produce the beverage of choice.

Battle of Beverages

In 1893, Caleb "Doc" Bradham (1867-1934) opened a pharmacy in New Bern, North Carolina. Bradham was studying to be a doctor, but he was forced to leave medical school when his father lost his job. Many residents of the southern town frequented his drugstore, not only for the medicines Bradham provided but also to meet and talk with friends at the store's soda fountain. His customers especially enjoyed a beverage called "Brad's Drink," a combination of sugar, vanilla, oils, spices, the African kola nut, and carbonated water. Doc Bradham said the drink would help relieve the symptoms from dyspepsia, or an upset stomach, and ulcers.

It is not known if Doc Bradham had tasted a Coca-Cola in Atlanta, Georgia, where the drink, also sold as a medicinal beverage, had been invented several years earlier. Perhaps he heard about it in medical school. In any case, Bradham knew about "Coke" and succeeded in making a similar carbonated drink that brought customers to his store.

In 1898, Bradham changed the name of his popular drink to Pepsi-Cola and started his beverage business. At first, he mixed the syrup in his drugstore and shipped it in barrels to soda fountains where the carbonated water was added. He also bottled and sold Pepsi himself. After four successful years of distributing his new drink, Bradham patented the Pepsi-Cola trademark and closed his drugstore to devote all of his time to making, bottling, and selling Pepsi. By 1905, he had established his first two bottling franchises, or companies who purchased from him the right to bottle and sell Pepsi. In 1910, there were 250 Pepsi-Cola bottling franchises across the United States.

PepsiCo at a Glance

  • Employees: 135,000
  • CEO: Steven S. Reinemund
  • Subsidiaries: Pepsi-Cola Company; Frito-Lay, Inc.; Pepsi Bottling Group, Inc.; Quaker Oats Company; South Beach Beverage Company; Tropicana Products, Inc.
  • Major Competitors: Coca-Cola Company; Cadbury Schweppes; Kraft Foods
  • Notable Products: Pepsi; Pepsi Twist; Pepsi One; Pepsi Blue; Diet Pepsi; Mountain Dew; Sierra Mist; Aquafina water; Lipton Brisk tea; FruitWorks fruit drinks; Doritos; Fritos; Ruffles potato chips; Tropicana orange juice; Quaker oatmeal; Life cereal; Aunt Jemima syrup; Gatorade

Pepsi-Cola's growth came to an abrupt end four years later when the price of sugar, one of Pepsi's key ingredients, skyrocketed because of rationing during World War I (1914-18). This means that sugar could be used only in small amounts. By 1922, the company had lost so much money that Bradham went bankrupt. In order to make enough money to pay off his debts, he had to sell the rights to the Pepsi-Cola formula. Bradham returned to his drugstore where he died twelve years later.

Timeline

1898:
Caleb Bradham invents Pepsi-Cola.
1965:
PepsiCo, Inc., is founded by Pepsi-Cola CEO Donald M. Kendall and Herman W. Lay, CEO of Frito-Lay.
1967:
Pepsi Generation advertising campaign begins.
1976:
The Pepsi Challenge becomes a national campaign after its introduction in Dallas, Texas, a year earlier.
1981:
Frito-Lay begins nutritional labeling.
1984:
Michael Jackson becomes the spokesman for "The Choice of a New Generation."
1988:
Frito-Lay's Doritos becomes the world's largest selling snack chips.
1991:
Commercials feature singer Ray Charles and the Uh-Huh Girls.
1993:
Pepsi-Cola introduces freshness dating.
1996:
Pepsico.com and Pepsi Stuff are unveiled.
2000:
Pepsi Challenge is revived.
2002:
PepsiCo introduces Gatorade ICE, Go Snacks, and Pepsi Blue.

Survive and Conquer

The ownership of Pepsi-Cola changed hands several times over the next ten years, barely surviving a second and third bankruptcy. It finally rested with Charles Guth, the owner of a New York-based candy and fountain store called Loft, Inc. Guth had been selling Coca-Cola, but became angry when Coke would not allow him to buy a large amount of syrup at a discounted price. He decided to switch to Pepsi although his customers were not sure they liked the new cola.

In 1934, sales of Pepsi increased mainly because of an important decision made by Guth. The United States was experiencing a devastating Depression, which lasted throughout the 1930s, and caused millions of people to be out of work. Guth decided to offer a twelve-ounce bottle of Pepsi for five centsthe same price as only six ounces of Coke. This was quite a bargain for people who were counting their pennies.

For the next two decades, the Pepsi-Cola Company, established in 1941, experienced steady growth due to continued good management and creative advertising. By 1954, the company was led by a former Coke employee, Alfred N. Steele (1901-1959), whose strength was in marketing. He also happened to be married to movie star Joan Crawford (1908-1977). The famous actress mentioned Pepsi during television interviews, and sometimes the product's vending machines and trucks were included in her movies. By 1960, Pepsi profits reached $14.2 million and the company was advertising their soft drink to "Those who think young."

Pepsi Generation

Pepsi-Cola enjoyed extraordinary success during the 1960s and 1970s mainly because of its new man in charge, Donald M. Kendall. Kendall was noted for leading his company in five major areas during this period: massive advertising; the introduction of new soft drink brands; creative packaging; overseas expansion; and product line expansion.

In 1963, Kendall and Pepsi made marketing history when the company changed the way it advertised its product. Instead of focusing on Pepsi the beverage, its television campaigns appealed directly to a specific group of peoplebaby boomers. Baby boomers were children born immediately after World War II (1939-45), between 1946 and 1964, and they numbered in the millions. Pepsi told them to "Come alive! You're in the Pepsi Generation." Advertising slogans that followed continued to target the energetic, youthful lifestyles of baby boomer teens. They also advised a generation of viewers who were experiencing significant social changes: "You've got a lot to live. Pepsi's got a lot to give" and "Join the Pepsi people, feelin' free."

As successful as Pepsi was during the 1960s, it was still trailing behind Coke. In response, Kendall thought it was important to expand the company' product line beyond soft drinks. At a grocer's convention in 1960, he met Herman W. Lay, the president and chief executive officer (CEO) of Frito-Lay, the nation's leading manufacturer of such snack foods as Lay's potato chips, Cheetos, Ruffles, and Rold Gold pretzels. The two decided to merge companies, and in 1965, PepsiCo, Inc. became the name of the new company. A year later they introduced Doritos, which eventually became the most popular snack chip in the United States.

Ups and Downs

By the 1980s, PepsiCo had become a major competitor in the fast food, snack food, and beverage market. They had acquired three restaurant chains, Pizza Hut, Taco Bell, and Kentucky Fried Chicken, which they later sold in 1997; introduced several new soft drinks, including Diet Pepsi, Pepsi Free, and Slice; and signed one of the world's most exciting and talented superstars, Michael Jackson (1958-). This alliance began a long line of pop stars who used their talents to promote PepsiCo products.

Along with its successes, the company went through a period of uncertainty and scandal in the 1980s. In the Philippines and Mexico, PepsiCo employees had been caught using false documents to make it look like the company was making more money than it really was. The publicized scandal caused PepsiCo's 1982 profits to plunge by 25 percent. Profits continued to decrease in 1983 when the value of the peso, Mexico's currency, dropped dramatically. At that time, Mexico provided PepsiCo with the largest sales of soft drinks and snacks in the international market.

In 1940, Pepsi introduced the world's first radio jingle. Called "Nickel, Nickel," the catchy tune explained that: "Pepsi-Cola hits the spot/Twelve full ounces that's a lot/Twice as much for a nickel, too/Pepsi-Cola is the drink for you."

But help was soon on the way for PepsiCo. In the summer of 1985, Coca-Cola decided to change the recipe of their century-old syrup. They introduced a new and improved taste called New Coke, saying it had a milder taste than the original version. According to PepsiCo, the rival company was trying to make Coke taste more like Pepsi. PepsiCo anticipated that the new formula would entice consumers to finally switch brands, so they released full-page Pepsi advertisements on the day it was announced that New Coke would replace the old. What happened surprised everyone. Instead of die-hard fans switching colas, they demanded their old Coke be returned. After only ninety days on the market, New Coke was canned, and Coca-Cola introduced the restored formula in Coca-Cola Classic. During this brief period, while tasters were trying to make up their minds, Pepsi enjoyed a brief lead in the cola wars.

Beverages and Beyond

For the next decade and through the turn of the century, PepsiCo expanded to include products that would keep it competitive in a continually growing and changing market. As consumers became more and more conscious of their health and eating habits, PepsiCo answered their needs. In the late 1990s, they introduced Aquafina bottled water, acquired Tropicana fruit juices, bought the South Beach Beverage Company, which manufactures SoBe juice blends, and acquired the company whose name is synonymous with healthy eating, Quaker Oats. Healthy food was not the only benefit in this merger. It just so happened that Quaker owned the sports drink, Gatorade.

In 1976, PepsiCo launched a head-to-head combat with Coke by offering drinkers a blind taste test to see whether they could tell the difference between the two colas. The marketing campaign, known as the Pepsi Challenge, was so successful, the company decided to revive it in 2000.

PepsiCo also answered the needs of the growing ethnic population of the United States. According to Tom Pirko, president of beverage consultant Bevmark, in a 2001 Advertising Age article, "More than one third of America's youth are Hispanic or black. Soft drinks are more popular among minorities than Caucasians and among youth than their parents." In response, PepsiCo launched three new drinks to meet these demands: Sierra Mist (a lemon-lime soda), Mountain Dew Code Red, and Pepsi Blue (a cola and berry beverage). According to a 2002 New York Times article, "Both Code Red and Pepsi Blue have sixteen-year-old males as their target consumer."

Promoting Pepsi

Many consumers enjoy PepsiCo's products because of the company's entertaining and memorable commercials. Some of the most well-known include "Apartment 10G" starring Michael j. Fox (1961-); "You Got the Right One Baby, Uh-Huh!" sung by Ray Charles (1930-) and the Uh-Huh Girls; "Joy of Cola" featuring a little girl named Hallie Eisenberg; "Joy of Pepsi" with Britney Spears (1981); and "A Twist on a Great Thing," which paired Mike Meyers (1964-) as Austin Powers with pop sensation Spears.

The launch of a new Pepsi commercial eventually became a much anticipated event that millions tuned in to watch. Savvy Pepsi marketers usually guaranteed an already big audience by debuting their ads during top-rated television programs. For example, Pepsi spent $6 million to advertise during the Super Bowl in 1992. In 2002, PepsiCo reportedly paid $200 million for a five-year deal to advertise during NFL events such as the Super Bowl and Pro Bowl.

Pepsi's advertising is not limited to television. In 2000, PepsiCo teamed with one of the Internet's largest navigation companies, Yahoo, to promote its products. A year later on PepsiStuff.com, consumers could redeem points from Pepsi packages to get "more than a half a million cool prizes."

As Pepsi introduced new products to keep up with the times, it also continued to be neck and neck in the cola race. According to the 2002 Soft Drink Report published in Beverage Industry, Pepsi-Cola had 34.5 percent of the United States market for carbonated beverages while Coca-Cola had 36.2 percent. The fight goes on, but the gap draws ever closer. As former PepsiCo CEO Roger Enrico said in his book The Other Guy Blinked: How Pepsi Won the Cola Wars, "At Pepsi, we like the Cola Wars. Without Coke, Pepsi would have a tough time being an original and lively competitor. The more successful they are, the sharper we have to be."

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PepsiCo, Inc.

PepsiCo, Inc.

founded: 1965



Contact Information:

headquarters: 700 anderson hill rd.

purchase, ny 10577-1444 phone: (914)253-2000 fax: (914)253-2070 url: http://www.pepsico.com

OVERVIEW

At the end of 1996, PepsiCo operated on a worldwide basis in three separate industry segments: beverages, snack foods, and restaurants. However, in 1997 the company began a dramatic restructuring. On January 23, 1997 PepsiCo announced that it would spin-off its restaurant business, which consisted mainly of three fast food chains: KFC, Pizza Hut, and Taco Bell. The spin-off was completed in October 1997, PepsiCo became the number one worldwide snack chip maker (with its Frito-Lay unit) and the number two soft drink and beverage producer. PepsiCo claimed 23 percent of the worldwide soft drink market, second only to The Coca-Cola Company, which claimed 43 percent of the market.

PepsiCo created a new, publicly traded restaurant company by "spinning-off" a tax-free stock issue to PepsiCo shareholders. The restaurant unit represented about one-third of PepsiCo's sales before the spin off. The new restaurant company, Tricon Global Restaurants Inc., became the second largest foodservice provider in the world, after McDonald's Corporation.




COMPANY FINANCES

In 1997 PepsiCo Inc. earned revenues of $20.9 billion, up slightly from 1996 figures of $20.3 billion. Of 1997 revenues, $10.54 billion was earned by the company's beverages operations, and $10.37 billion was earned by its snack foods operations. The company's operating profit also increased from $2.0 billion in 1996 to $2.6 billion in 1997, a growth of 30 percent.

In 1997 PepsiCo's income from continuing operations was $.95 per share, a 62-percent increase over 1996 earnings of $.59 per share. PepsiCo stock was trading around $42.00 per share in mid-1998. The company's 52-week high was $44.81, and its 52-week low was $33.38 per share.



ANALYSTS' OPINIONS

Market analysts at major brokerage firms focused on the spin-off of PepsiCo's restaurant division in their analyses of the firm in early 1997. For example, in a January 1997 report, Credit Suisse First Boston Corp. was positive about the spin-off, noting that it would likely cause Pepsi management to focus more closely on capital allocation and growth opportunities. The firm said that PepsiCo would be wise to use the opportunity to accelerate investment in its international snacks business, "where it has an excellent long-term growth opportunity."

In a January 1997 report, PaineWebber Inc. said that the beverage and food companies, when divided, would be worth more than they were combined. Paine Webber estimated that the two companies' separate stock prices would add up to $42.55 per share, about 23 percent above the January 28, 1997 price for PepsiCo before the spinoff, which was $34 5/8. The combined soft drink and snack food business would likely have a high stock price to earnings (P/E) ratio, but it would still be less than Coca-Cola. Likewise, a free-standing restaurant business would have a good P/E ratio, but would still be less than McDonald's, said Paine Webber.




HISTORY

PepsiCo's history dates back to the birth of Pepsi-Cola. Pharmacist Caleb Bradham began selling Pepsi in 1898 in New Bern, North Carolina, claiming that the drink cured dyspepsia and aided digestion. Bradham sold bottling franchises to independent businessmen and, by World War I, more than 250 bottlers were in the Pepsi network. In 1923, Bradham left the company, and it was transferred again several times until a more stable owner, the Loft Candy Company, purchased the Pepsi trademark and name in 1931.

In 1939, Pepsi introduced the first radio jingle. In 1941, Loft merged with its Pepsi subsidiary and became the Pepsi-Cola Company. Pepsi began to sell canned soft drinks in 1948. The company changed its name to PepsiCo, Inc. when it merged with snack food maker Frito-Lay in 1965. Frito-Lay produces such popular brands as Fritos corn chips, Lay's potato chips, Doritos tortilla chips, and Ruffles potato chips.

From the 1960s through the 1990s, Pepsi-Cola added several new soft drink products. Diet Pepsi was introduced in 1964, Mountain Dew was acquired in 1964; Slice was introduced in 1984; Mug Root Beer was acquired in 1986; All Sport sports beverage was introduced in 1991; finally, through a partnership with the Thomas J. Lipton Company, Lipton ice tea drinks were sold in 1992.

In 1972, PepsiCo began importing Stolichnaya vodka into the United States and in exchange became the first western company permitted to bottle soft drinks in the Soviet Union. In the 1970s and 1980s, the company branched out of its core businesses by acquiring fast food chains. PepsiCo purchased Pizza Hut in 1977, Taco Bell in 1978, and Kentucky Fried Chicken (now KFC) in 1986. In late 1997, PepsiCo spun those restaurants off into a new company called Tricon Global Restaurants Inc. PepsiCo eliminated the restaurant companies from its holdings in order to focus on its core businesses.

In late July 1998, PepsiCo announced its acquisition of Seagram Co.'s Tropicana Products Ltd. for $3.3 million. Tropicana leads the name brand juice market, surpassing Coca Cola's Minute Maid, and industry analysts believed PepsiCo and Tropicana would work well together.



STRATEGY

According to CEO Roger Enrico, PepsiCo's primary strategy is to "Invest in Big Opportunities." In 1997, the company did this by focusing on expanding its products' distribution. The company installed over 150,000 beverage vending machines and coolers in North America and had more planned for 1998. It also planned to expand its fountain beverage business in restaurants and foodser-vice, where bottling contracts once made it hard to serve the thousands of accounts requiring delivery to a central commissary. By changing the contracts, PepsiCo created a long-term growth opportunity. Also, the company had plans for more aggressive marketing and new product development, as well as a focus on increasing its global operations.

The 1997 divestiture of its restaurant division represented an abrupt change in PepsiCo's business strategy. It showed that the company had chosen to adopt a strategy popular among many companies in the 1990s—stick to the things you do best. By exiting the restaurant business, PepsiCo assumed a focus on its packaged goods products, producing one-time proceeds of $5.5 billion in cash during 1997. The company's remaining businesses grew by 30 percent that same year; beverage profits worldwide were up 18 percent alone. Beverage operations were also helped by the re-franchising of bottling operations.

As part of the company's global marketing strategy, PepsiCo launched its Pepsi Globe blue packaging and Frito-Lay introduced its "WOW!" line of fat-free snacks for early 1998.



INFLUENCES

Pepsi's early years were somewhat shaky. Founder Caleb Bradham made a critical mistake after World War I when he stockpiled sugar to protect the company against rising sugar prices. In 1920 sugar prices dropped sharply, and Bradham's financial losses forced him to leave the company in 1923. The company continued to face numerous financial problems until it was purchased by the Loft Candy Company in 1931. In 1934, the company made a bold strategic move by doubling the size of Pepsi bottles to 12 ounces without raising the price, which was then $.05. This move, executed in the middle of the Great Depression, helped increase sales of the product.

One of the most important actions taken by Pepsi-Cola was its merger with Frito-Lay, which has since grown to be a major force in the snack food industry. Volume at the snack maker grew 9 percent annually from 1991 to 1996, and in the late 1990s accounted for well over half of the U.S. snack chip industry sales. In the fourth quarter of 1997 alone, the Frito-Lay division acquired three new snack companies: Cracker Jack in the United States, a leading snack business in Argentina, and several of United Biscuits PLC's Australian and European operations.

FAST FACTS: About PepsiCo, Inc.


Ownership: PepsiCo Inc. is a publicly owned company traded on the New York Stock Exchange and other stock exchanges around the world.

Ticker symbol: PEP

Officers: Roger Enrico, Chmn. & CEO, 53, 1998 base salary $900,000; Karl M. von der Heyden, VChmn. 61; Craig E. Weatherup, Chmn. & CEO, Pepsi-Cola, 52; Steven S. Reinemund, Chmn. & CEO, Frito-Lay, 49

Employees: 142,000

Principal Subsidiary Companies: PepsiCo's chief subsidiaries include: Pepsi-Cola North America; Frito-Lay North America Inc.; Pepsi-Cola Bottling Company; Pepsi-Cola International; and Frito-Lay International.

Chief Competitors: A manufacturer and marketer of beverages and snack foods, PepsiCo, Inc.'s main competitors include: Cadbury Schweppes; The Coca-Cola Company; Nabisco Holdings; Procter & Gamble; and The Quaker Oats Co.




CURRENT TRENDS

Vending machines represent a key market for soft drink companies, and in the mid-1990s PepsiCo moved to capitalize on new vending technology to move all of its product lines in the vending distribution channel. For example, in 1996 PepsiCo developed the "total beverage vendor," which can vend plastic, glass, and cans. This allowed Pepsi to sell its sport and juice drinks along with its standard carbonated soft drinks, such as Pepsi and Mountain Dew. The company was also devoting a good deal of its resources in the late 1990s to global expansion.




PRODUCTS

PepsiCo's beverage products include: Pepsi, Diet Pepsi, Mountain Dew, 7UP, All Sport, Aquafina (bottled water), Frappuccino (jointly with Starbucks), Lipton Ice Tea (jointly with Lipton Co.), Pepsi Max, Josta, Mirinda, and Slice. Snack food products marketed by PepsiCo include items such as Cheetos cheese flavored snacks, Doritos tortilla chips, Fritos tortilla chips, Grandma's Cookies, Lay's potato chips, Rold Gold pretzels, Ruffles potato chips, Tostitos tortilla chips, and Walkers crisps (in the United Kingdom). As of 1998, PepsiCo's new international beverage partners included: Brahma in Brazil; Goa Bottling in India; Suntory Ltd. in Japan; Pepsi-GEMEX in Monterrey, Mexico; Guoco Group in the Philippines; and Empresas Polar in Venezuela.




CORPORATE CITIZENSHIP

In early 1998, PepsiCo chairman and CEO Roger Enrico announced he was giving up his 1997 salary of $900,000 so the money could be put towards scholarships for children of PepsiCo's drivers, clerks, and other front-line employees. Under Enrico's plan, children of the company's full-time employees earning annual salaries of less than $60,000 were eligible for the scholarships, which could be spent on community colleges, technical and vocational schools, and four-year college and university programs. Though executives from other companies have sometimes set aside their own salaries to benefit company performance, this move by Enrico represented the first time an executive had done so with the express purpose of benefiting the company's own employees. The company's existing scholarship program also disbursed about $1.5 million in 1997 to children of employees.




GLOBAL PRESENCE

Global markets are an essential part of PepsiCo's business. Its soft drinks and other beverages are available in nearly 200 countries, and Frito-Lay snack foods are available in almost 40 countries. Of international sales, the company's largest market was in Europe, where 11 percent of total PepsiCo sales were earned ($2.3 billion). Sales in Mexico were $1.5 billion (7 percent of overall sales); in Canada, $941 million (4 percent); and the United Kingdom, $859 million (4 percent). Sales in other regions were $1.3 billion (7 percent).

To shore up its international soft drink operations, PepsiCo created what it called "Project Blue," a plan to both restructure international manufacturing processes to produce a consistent taste worldwide and improve its international marketing efforts. Launched in 1996, Project Blue was so called because the company changed the background color of its Pepsi can in international markets from white to electric blue.

CHRONOLOGY: Key Dates for PepsiCo, Inc.


1898:

Caleb Bradham begins selling Pepsi as a cure for dyspepsia

1917:

Pepsi has more than 300 bottlers

1923:

Bradham sells the company to concentrate on his chemistry

1931:

Loft Candy Company buys Pepsi

1939:

Pepsi introduces the first ever radio jingle

1941:

Loft merges with its own subsidiary to form Pepsi-Cola

1948:

Begins to sell canned soft drinks

1965:

Merges with Frito-Lay and becomes PepsiCo

1977:

PepsiCo acquires Pizza Hut

1978:

PepsiCo acquires Taco Bell

1986:

Purchases KFC

1991:

Forms joint venture with Lipton to market tea-based products

1997:

PepsiCo spins off its restaurants as an independent public company—Tricon Global Restaurants




Like other soft drink companies, PepsiCo has been particularly active in China. The company began operations in China in 1982 and by 1996 was operating 15 production facilities throughout the country. Three more were expected to be built in 1998. Pepsi's growth in China was strong in the mid-1990s. Its unit case volume in China grew 30 percent annually between 1994 and 1996. By 1996 China was the world's fifth largest soft drink market and PepsiCo held a 17-percent share.

Despite successful early initiatives overseas, PepsiCo had a hard time keeping up with Coca-Cola in the mid-1990s. Startup operations in emerging markets such as eastern Europe were said to be having financial difficulties in the mid-1990s, and operating problems in Latin America peaked in 1996 when the company lost its Venezuelan bottler, which defected to Coca-Cola. Overall, Coca-Cola controlled 43 percent of the world market for soft drinks in 1997, compared to just 23 percent for PepsiCo. More bad news came from South America, where PepsiCo's main bottler, Buenos Aires Embotelladora SA of Argentina, defaulted on $505 million in debt in April 1997. Despite these problems, PepsiCo said that financial losses in its international beverage operations would be moderate in 1997, and the division would turn profitable in 1998. And while the company's beverage business was still experiencing difficulty in Latin America during 1998, its Frito-Lay division captured 80 percent of the salty-snack market in Mexico and significant market share in other South American areas such as Venezuela and Brazil.

DEWLIRIUM

Do you find yourself having trouble staying awake till 3 A.M. to get that last-minute term paper completed? Are you nodding off during algebra? Then do I have the thing for you! This magical liquid will put the pep back in your step, the groove back in your move, the jive back in your drive. What is this wonder beverage, you ask? Well, its devotees call it by many names: happy juice, rocket fuel, the green-glowing stuff, nuclear-yellow refreshment, Sprite on steroids, and even the Nectar of the Gods, or NOG for short. Just what colossal carbonated cooler am I talking about? To quote an old song, "They call it that old Mountain Dew, and those who refuse it are few." It's PepsiCo's number two soft drink, the bestselling noncola in the United States, and the fourth bestselling soft drink in the world.

What is most curious about this soda pop is the peculiar reactions and passionate testimonials it evinces. Many who drink the Dew just don't drink it—they experience it. They express feelings of devotion and fervor when describing it. For some, it appears to be a religious relationship; for others, an addictive one.

To get a sense of the delirium evoked by the Dew one has only to surf the web. There you will find numerous sites of Dew devotion. For instance, one site calls itself the Church of the Mountain Dew and is devoted to the worship of the "divine beverage." Proclaims the church's high priest, "Dew is happiness. Dew is energy. Dew is health." Another page entitled "Mountain Dew or Die" intones the "mystery and the magic of Mountain Dew." The Mountain Dew Anonymous page introduces one to a 12-step program that culminates in a diploma of Dewology. Go to yet another page and you will see Mountain Dew Man, the mascot that one scout troop built using old Dew cans. Poetry inspired by this "magical juice" can be found scattered across the Web. Try to enter one particular Dew devotion site and the following message will pop up: "Press yes if you are of legal age and want to view Mountain Dew material. Press cancel if you are underage or if Mountain Dew is illegal in your country."

What is it about this drink that evokes such strong (and weird) reactions? The high sugar and caffeine content must have some weird effect on brain chemistry. Witness the web page simply entitled "Mountain Dew!," which seems to encapsulate Dewmania: "Can one ever convey the splendor and beauty that is Mountain Dew? . . . Don't be intimidated by the awesome power of Dew. No one can deny you that first indescribably luxurious sip! Note the sensation of gulp after gulp of the brisk nectar. Take a few moments to revel in the glorious feeling, and then go out and tell the world. You have found the wonder that is DEW!!!"




EMPLOYMENT

PepsiCo prided itself on hiring bright, ambitious people, but thought it needed to address high turnaround rates. Company plans for 1997 included evaluating compensation, improving the company's focus, and boosting employee loyalty and morale. PepsiCo also felt that while it could continue expecting high standards from its employees, and at the same time offer great opportunities, the company could do that within a simpler organizational structure. Changes implemented at PepsiCo during 1997 and 1998 were in support of each of these goals.

SOURCES OF INFORMATION

Bibliography

"cut and paste: demergers and acquisitions." the economist, 1 february 1997.

deogun, nikhil. "pepsico net climbs 8.4%, giving rise to recovery hopes after rough 1996." the wall street journal, 30 april 1997.

emproto, robert. "vends of change." beverage world, february 1995.

martin, richard. "pepsico to divest all chain holdings; spinoff would create megacorporation." nation's restaurant news, 3 february 1997.

mcbride, sandra, and havis dawson. "news from china: the world's largest population meets the world's two greatest soft drink marketers." beverage world, september 1996.

murray, barbra. "pepsi's juicy entry to a market." u.s. news and & world report, 3 august 1998.

o'harrow, robert., jr. "pepsi ceo gives pay to next generation." washington post, 25 march 1998.

pepsico 1996 annual report. purchase, ny: pepsico inc., 1997.

"pepsico, inc." hoover's online, 2 july 1998. available at http://www.hoovers.com.

poole, claire. "a taste of success." latin trade magazine, april 1998.



For an annual report:

on the internet at: http://www.pepsico.com/annual/shtmlor write: manager, shareholder relations, pepsico, inc., 700 anderson hill rd., purchase, ny 10577



For additional industry research:

investigate companies by their standard industrial classification codes, also known as sics. pepsico, inc.'s primary sics are:

2086 bottled and canned soft drinks and carbonated waters

2096 potato chips, corn chips and similar snacks

5812 eating places

6794 patent owners and lessors

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PepsiCo, Inc.

PepsiCo, Inc.

CODE RED CAMPAIGN
DO THE DEW CAMPAIGN
DRINK MORE WATER CAMPAIGN
GENERATION NEXT CAMPAIGN
THE JOY OF PEPSI CAMPAIGN
THE NOT-SO-VANILLA VANILLA CAMPAIGN
ORIGINS CAMPAIGN
PEPSI. IT'S THE COLA CAMPAIGN
QUAKER-WARMS YOU, HEART AND SOUL CAMPAIGN
SECURITY CAMERA CAMPAIGN
THAT'S BRISK, BABY! CAMPAIGN
THIS IS DIET? CAMPAIGN

700 Anderson Hill Road
Purchase, New York 10577-1444
USA
Telephone: (914) 253-2000
Fax: (914) 253-2070
Web site: www.pepsico.com

CODE RED CAMPAIGN

OVERVIEW

In 2001 PepsiCo's Mountain Dew was the fourth-best-selling soft drink on the U.S. market. Even so, since the 1990s soft-drink sales overall had been seriously declining. While Mountain Dew's sales growth had often been in the double digits since the 1970s, by the turn of the century, growth had trickled to around 2 percent. To revive sales Pepsi introduced a bright-red version of the original called Mountain Dew Code Red. The new cherry-flavored beverage was to be marketed in a different direction than the original Dew. While Mountain Dew's target market had long been young, white males interested in extreme sports, Code Red's market was to be ethnically diverse and urban.

Working with ad agency BBDO New York, Pepsi introduced Code Red slowly, beginning within the target market of the original Dew instead of the new target market. Prior to placing the product onto store shelves, PepsiCo offered samples to extreme-sports enthusiasts at the February 2001 X Games and established a Code Red game on the Mountain Dew website in April 2001. A month later Code Red was finally distributed to stores. A "teaser campaign" accompanying the launch consisted of print ads and radio spots with an urban, multicultural focus. Television commercials were added in October 2001. The initial spots featured NBA stars Tracy McGrady and Chris Webber as well as singer and actress Macy Gray. These spots ran through 2003, when two new television commercials, "Mascot" and "Football Court," were introduced.

By September 2001 Code Red had become the fifth-best-selling soft drink in convenience stores. PepsiCo's overall third-quarter 2001 net income jumped an astonishing 22 percent, largely because of Code Red. Advertising awards for the campaign included a Gold EFFIE Award, one of the most prestigious honors in the ad industry. But the success did not last. By 2002 Code Red sales numbers had begun to dwindle, and in 2003 its sales volume dropped 37 percent. The problem was that sales of soft drinks were declining as consumers chose healthier beverages such as bottled water and juice.

HISTORICAL CONTEXT

Tennessee's Tri-City Beverage became the first Mountain Dew franchise in 1954, and by 1958 it had adorned the bottle with Mountain Dew's first logo. The old red-and-white labels featured a hillbilly shooting at a government agent fleeing an outhouse. The agent represented a revenuer, one whose job was to stop bootlegging. Slang for moonshine, and invented in the Tennessee hills in the 1940s, Mountain Dew was originally used as a mixer with whiskey. The label, as well as the drink itself, embodied the moonshiner days of 1920 through 1933, when Prohibition made the use of alcohol illegal in the United States.

In 1964 PepsiCo bought the franchise, bringing Mountain Dew into the national marketplace. Two years later Pepsi introduced its first nationwide Mountain Dew advertising campaign, "Ya-Hoo, Mountain Dew!" The catchy phrase helped Pepsi establish recognition of its new soft drink. In 1973, when advertising agency BBDO took over the Mountain Dew account, advertising for the brand began to focus on a target market of young, active people who enjoyed the outdoors. It also emphasized Mountain Dew's high caffeine content. The 1973 and 1974 advertising campaigns, "Put a Little Ya-Hoo in Your Life" and "Hello, Sunshine, Hello, Mountain Dew," represented early shifts toward this focus. By the 1980s, although Mountain Dew sales were climbing, a trend toward healthier eating and drinking habits was emerging. In response PepsiCo introduced Diet Mountain Dew in 1986. By this time Mountain Dew had become the industry's sixth-biggest brand, and the growth continued. From 1984 through 1993 Mountain Dew's volume doubled, bringing in $2.2 billion in sales in 1993. But meanwhile the healthy-eating trend had spread. Mountain Dew's reaction was aggressive.

The 1993 "Do the Dew" campaign was enormous, accounting for a 44 percent increase in ad spending from 1992 to 1993. The "Do the Dew" debut included 28 TV spots, which appeared on nine television networks. During the campaign's launch the ad schedule involved an astonishing 14 minutes of advertising per night. With "Do the Dew" Mountain Dew's sales continued to grow, even when soft-drink sales were in serious decline. In 1999 Mountain Dew's sales, while not matching the double-digit growth of the past, grew by 7.1 percent. In an attempt to reclaim the huge sales growth of years prior, PepsiCo created a new product in 2001: Mountain Dew Code Red.

TARGET MARKET

When ad agency BBDO took over the Mountain Dew account in 1973, the brand's target market was defined as the young and active. Since then the focus had zeroed in on extreme sports. With the "Do the Dew" campaign that began in 1993, this focus was obvious. The commercials featured four adventurous young men performing such thrilling stunts as jumping from a cliff and boogie-board waterfall diving. As noted in a 1993 PR Newswire article, Mountain Dew's focus was on young, energetic males. In particular, Mountain Dew sought 20-somethings who represented a "vibrant, adventure-seeking group that is 40 million strong and spends $125 billion each year." Mountain Dew's well-known high caffeine content helped to retain these customers.

Code Red's target market differed in two ways from the original drink. The target age was younger, and the target socioeconomic group was more diverse. Code Red, with the same 55 mg of caffeine as its predecessor, targeted teens. Still, this teen was similar to the 20-something targeted by the original Mountain Dew. He was a male, thrill-seeking adrenaline addict. As Gary Rodkin, then PepsiCo CEO, told the New York Times, the target consumer was "a kid with his hair on end, his eyes bugging out. He's a little bit on edge." Next, while Mountain Dew appealed most directly to nonurban white males, Code Red was marketed to urban, minority populations. In its research Mountain Dew concluded that a large percentage of people from minority groups had historically chosen soft drinks with sweet, fruity flavors. Code Red, with its red color and cherry flavor, fit the bill.

CAFFEINE JOLT

Pepsi and other soft-drink distributors long claimed that the caffeine added to soft drinks provided a bitter taste that was needed to balance the predominant sweetness. But in a study conducted by Johns Hopkins University in 2001, four out of five tasters could not tell the difference between a cola with an average amount of caffeine (35 mg) and one without any caffeine. When the researchers doubled the amount to 70 mg, however, more than half the tasters could detect it. A 20-ounce bottle of Mountain Dew (containing 55 mg of caffeine) contained about the same amount of caffeine as a strong cup of brewed coffee.

COMPETITION

In response to Pepsi's success with Mountain Dew, top Pepsi competitor Coca-Cola introduced citrus-flavored Mello Yello in 1964. Like Mountain Dew, Mello Yello boasted higher than normal caffeine amounts, 53 mg per serving. In marketing the product Coke first connected the drink with urbane jazz, thus portraying its "mellowness." But once Mountain Dew became the drink for extreme-sports enthusiasts, Mello Yello followed suit, introducing the tagline "There is nothing mellow about it." To reinforce the point, Coke plastered Mello Yello packaging with images of people engaging in extreme sports. Nevertheless, by the 1990s Mello Yello was still far behind Mountain Dew in sales and popularity. While Mountain Dew had climbed to the number four spot in total U.S. soft-drink sales, Mello Yello, with only 0.5 percent of the market in 1996, was nowhere near the top-10 list. In 1997 Coke introduced Surge, which sold 69 million cases in the first year but flopped soon afterward. But Coke was far from quitting the game.

With a plan to phase out Surge, Coca-Cola returned its focus to Mello Yello, introducing a big-budget advertising campaign, "Mello Yello: It's Smooth," in 1999. The campaign's target audience closely resembled that of Mountain Dew: boys in their late teens. With heavy advertising on TV stations Fox and WB as well as a saturation of the evening and late-night radio waves, the campaign was an enormous hit. "Mello Yello: It's Smooth" won a plethora of advertising awards, including an EFFIE, an award that was among the most prestigious in its category. Even more substantial were the financial results. For two years following the campaign's start, Mello Yello experienced double-digit growth in the United States. But the success did not last. Mountain Dew's introduction of Code Red helped to burst the Mello Yello bubble. In 2004 Mello Yello launched its own red version: Cherry Mello Yello. But the beverage flopped so badly, Coke began pulling it off shelves within a year.

Mello Yello never made it to the top-10 list, but another Coca-Cola product, Sprite, did. By 2003 Sprite sales, at $57 million, had surpassed Mountain Dew's $54 million. But this followed two consecutive years of losses for both soft drinks. The sales decrease may have been connected to Code Red sales, which reportedly stole market share from the others. As such, in 2003 Coke introduced Sprite Remix, which added tropical flavors to the original drink. The new Sprite, however, could not fully compete with Code Red for two reasons. With zero caffeine, Sprite Remix's market was different than Mountain Dew's. Further, Sprite, unlike Code Red, did not focus on the inner-city market.

MARKETING STRATEGY

By 2000 Mountain Dew, one of the soda industry's fastest-growing brands ever, was slowing in sales. In 2001, in an attempt to revive sales, Pepsi released Mountain Dew Code Red, a wild-cherry version of Mountain Dew. Code Red, unlike regular Mountain Dew, was to be aimed at a minority, urban population. Hiring ad agency BBDO New York to handle the account, Pepsi was in no hurry to start a big television campaign for the new product. Instead, largely in response to the challenge of pursuing a new target market, Pepsi wanted to first spread word of the product slowly and steadily. It began marketing the new drink with subtlety and within the core Mountain Dew target market.

The unveiling of Code Red occurred in February 2001, at the X Games in Mount Snow, Vermont, an event focused on young extreme-sports enthusiasts. Next Pepsi sent Code Red bottles to approximately 3,000 core Mountain Dew users, including extreme-sports athletes, disc jockeys, and musicians. In April 2001 an online Code Red car-racing game was introduced on the Mountain Dew website; approximately 1,500 winners of the online game won samples of Code Red. At this time advertising of the product was made more evident, and posters with the headline "Prepare to Get Your Swirl On" were hung in urban centers. Mountain Dew Code Red entered the marketplace on May 2001, but only in single-serve 20-ounce and one-liter plastic bottles. A television campaign was still months off. Instead, a "teaser campaign" was launched, with print ads appearing in Vibe, Source, XXL, and Slam, magazines with large ethnic readerships. In addition, a billboard appeared in May 2001 in New York City's Times Square; it featured the headline "Crack the Code." A radio spot, "On the One Twos," in which rappers Busta Rhymes and Fatman Scoop offered a Code Red jingle, was also introduced at this time.

In October 2001 Code Red aired its first television spot, "Hoops." The commercial, which portrayed an inner-city basketball game, was far from ordinary. For the spot BBDO sent NBA stars Tracy McGrady and Chris Webber to an outdoor court to initiate a pickup basketball game without revealing their identities. Within seconds a crowd gathered, oohing and aahing over the jumping, the swishing, the incredible ball-handling skills, a dunk. One spectator gave a play-by-play of the action over his cell phone. To create the commercial, 10 hidden cameras captured the action. With this spot BBDO seemed to accomplish Mountain Dew's goal perfectly. Or, as Advertising Age critic Bob Garfield put it, "So comes now this brand extension of Mountain Dew, the caffeine-spiked Code Red, and—lo and behold—the scene is an inner city playground where large numbers of Target-Audience Americans are shooting hoops and spectating." Another television spot, "Macy," starring female African-American singer/actor Macy Gray, also appeared in 2001. When Pepsi was trying to regain momentum for Code Red in 2003, it aired two new television spots, "Mascot" and "Football Court," as well as a new radio spot, "High Noon." Print advertising also expanded at this time. The 2003 advertising budget for Code Red was reportedly $6.3 million (in comparison, $18 million was allotted for advertising the core Mountain Dew brand). Between 2004 and 2005 no new TV commercials were introduced for Code Red, although one radio spot, "Street Legends," as well as a print ad called "Legends," appeared in 2004.

OUTCOME

While the marketing of Mountain Dew Code Red began slowly, momentum for the product was immediate and massive Even before Code Red hit the shelves, the press wrote about it, and consumers could not wait to have a taste. Thus, Pepsi was optimistic about the product. As Dave Burwick, then Pepsi's vice president for marketing, told the New York Times, "Today's marketing environment is so hypersaturated it's hard to get noticed. But this one will float seamlessly above the noise." And from the start, Code Red did exactly that. Within five weeks of its May launch, Code Red reached its initial 34-week sales goal of 17 million cases. Further, within three months of entering the market, without even a television campaign, Code Red became the fifth-best-selling soft drink in convenience stores. These figures were good news for PepsiCo, which had been suffering from a lag in soft-drink sales for the past decade. In October 2001 PepsiCo's third-quarter net income jumped 22 percent; Pepsi granted Code Red half the credit for this feat (its Aquafina bottled water was credited for the other half). Advertising awards also followed. Most notably, in 2003 the Code Red campaign as a whole won a Gold EFFIE Award (Carbonated Soft Drink category) from the New York American Marketing Association. The EFFIEs were among the most prestigious in advertising awards.

Sales, meanwhile, began to drop. In 2003 Code Red's sales volume declined 37 percent. In response to slowing sales Mountain Dew introduced the orange-flavored Mountain Dew LiveWire around Memorial Day 2003. But within months it became clear that the new flavor was not going to repeat the instant success of Code Red. It also seemed that Code Red may have hit its performance peak in a market of consumers seeking beverages that were healthier than soft drinks. Further, Mountain Dew's high caffeine content was losing its edge in a market that was becoming saturated with relatively new energy drinks (which offered even more caffeine than Mountain Dew as well as other ingredients—such as B vitamins and ginkgo—that had energizing properties). In 2004 PepsiCo introduced the grape-flavored Mountain Dew Pitch Black. But this time Mountain Dew recognized trends from the past. Pitch Black was thus available only during a 10-week period surrounding Halloween. Meanwhile, although Pepsi continued to sell Code Red, it returned its focus to the original Dew. In 2004 it initiated a "Dew U" continuity program, a major push in the long-standing "Do the Dew" advertising campaign. "Dew U" included three television spots as well as radio and online advertisements; these were Mountain Dew's only major advertising focus that year.

FURTHER READING

"Breaking News: Code Red; Dunking with the Big Boys." Advertising Age, October 1, 2001, p. 58.

Chura, Hillary. "Pepsi-Cola's Code Red Is White Hot." Advertising Age, August 27, 2001, p. 1.

Garfield, Bob. "Code Red's Ads Present a New, Riveting Take on Reality." Advertising Age, October 22, 2001, p. 61.

Ives, Nat. "Mountain Dew Double-Dose for Times Square Passers-By." New York Times, April 8, 2004, p. C1.

McKay, Betsy. "Advertising: Pepsi's Code Red May Score with Subtlety." Wall Street Journal, September 28, 2001, p. B9.

"Mountain Dew's 1993 Ad Campaign Debuts with 14-Minute Single-Night Advertising Schedules." PR Newswire, March 17, 1993.

Unger, Henry, and Scott Leith. "Code Red Making Waves since Debut." Atlanta Journal-Constitution, July 8, 2001, p. 1F.

Wilder, Shannon. "Mountain Dew's Formula for Cool: Code Red." Point of Purchase, November 2001, p. 16.

Winter, Greg. "Red to the Rescue; PepsiCo Looks to a New Drink to Jolt Soda Sales." New York Times, May 1, 2001, p. C1.

                                       Candice L. Mancini

DO THE DEW CAMPAIGN

OVERVIEW

Mountain Dew, a lemon-lime flavored, highly caffeinated soft drink, became a prominent national brand for PepsiCo, Inc., in the 1980s, posting double-digit annual sales increases. Many observers expected the brand's growth to level off in the next decade, but Mountain Dew continued to grow. Its annual volume increased at least 10 percent every year between 1993 and 1995, surpassing even Diet Pepsi as the parent company's second-highest seller. By 1996 the citrus drink had displaced Dr Pepper as the top-selling noncola product in the United States. In 1997 the brand released a campaign with the tagline "Do the Dew" to solidify the youth-focused marketing strategy that had so effectively driven sales since the early 1990s.

"Do the Dew," budgeted at $30-$40 million annually in the late 1990s and at $50-$70 million between 2000 and 2005, was able to establish and maintain a Mountain Dew brand identity while remaining on the cutting edge of an ever-changing youth culture. One of the hallmarks of the campaign was a close association of the brand with extreme sports. As exemplified by the X Games (the "X" stood for extreme)—an alternative Olympics consisting of daredevil events such as sky surfing and street luge—this trend appealed to young people's high energy and sense of adventure. Mountain Dew commercials featured "Dew Dudes" participating in extreme sports as well as celebrity endorsers who, either through tongue-in-cheek humor or athletic prowess, could be effectively associated with the "extreme" brand image that the drink was nurturing.

Mountain Dew sales outpaced those of all other full-calorie soft drinks during most of the time that "Do the Dew" ran. The brand did not grow at the double-digit rates that it had known in the 1980s and early 1990s, but the campaign firmly established the product as the number four soft drink in the United States, behind Coke, Pepsi, and Diet Coke, while managing to retain Mountain Dew's aura of daring, youthful edginess. Although its formula of appealing to young men through an association with extreme sports and similarly bold brand imagery was frequently imitated, few marketers in the United States were as effective in making their brands synonymous with youthful exuberance as Mountain Dew was between 1997 and 2005.

HISTORICAL CONTEXT

Mountain Dew in its earliest incarnation was developed in the 1940s by A.A. "Ollie" Hartman, a Tennessee bar owner, to serve as a mixer with whiskey. The product was named after the illegal moonshine that was said to be as plentiful as early morning dew on the mountain. The original marketing of Mountain Dew failed, but the product stayed alive in one form or another until Bill Jones, a manager at the soft-drink company Tip Corporation developed the drink's now-famous high caffeine formula in order, he said, to help people combat the fatigue that generally occurred at around 2:30 in the afternoon. Jones began selling the product in 1961 using a simple marketing campaign that attempted to put the drink in as many hands as possible. Mountain Dew was a huge success (Tip Corporation was selling more than 10 million cases annually), and by March 1964 a number of national corporations, including PepsiCo, were contacting Jones asking to purchase the formula.

In August 1964 the board of directors of PepsiCo approved a plan negotiated with Jones to acquire the rights to Mountain Dew. The sale made news around the world. Mountain Dew swiftly became PepsiCo's second-best-selling drink, providing the soft-drink giant with a tool to compete successfully in the so-called flavor market. In 1965 PepsiCo launched its inaugural ad campaign for Mountain Dew with the tagline "Yahoo Mountain Dew … It'll Tickle Your Innards." That tagline was used for five years until it was replaced by "Get That Barefoot Feelin' Drinkin' Mountain Dew" in 1969.

PepsiCo stuck with a hillbilly theme for the product until 1972, when it shifted its advertising and graphics package toward action-oriented scenes. This switch was exemplified by the soft drink's new slogan for 1973, "Put a Little Yahoo in Your Life." Sales jumped appreciably. Two years later the "Hello Sunshine" campaign was launched. This campaign remained intact for almost six years, although the tagline was modified in 1979 to "Reach for the Sun, Reach for Mountain Dew." In 1981 it was succeeded by "Give Me a Dew," which gave way to "Dew It to It" in 1983.

The rustic theme that had marked the early years of the brand's marketing was reintroduced in 1986 with the slogan "Dew It Country Cool." This remained in place for almost a decade, at which point a move was made toward more youth-oriented marketing. In 1995 Mountain Dew sponsored the Grammy Awards and used the jaded tagline "Been There, Done That, Tried That." That same year tennis superstar Andre Agassi signed a deal to promote Mountain Dew in the United States.

Piggybacking on the cultural trend toward extreme sports and activities, the brand's innovative commercials featured an actor dressed as James Bond snowboarding, Agassi bungee jumping, and pop vocalist Mel Tormé (known as "The Velvet Fog") free-falling from the roof of a Las Vegas hotel. In 1996 Mountain Dew launched a massive beeper network called "The Mountain Dew Extreme Network." The "Do the Dew" tagline was unveiled the following year.

TARGET MARKET

With its youth-oriented campaign, the Mountain Dew brand was aimed at 13- to 29-year-old consumers and became the most popular soft drink among teenagers. More than any other Pepsi brand, Mountain Dew was directly targeted at young people, or what the company called "Generation Nexters with more edge." To nurture this relationship, the brand relied on focus groups of young consumers and conducted extensive sampling.

The youth market was targeted increasingly in the 1990s as youth spending skyrocketed. According to a study conducted by Texas A&M University, in 1997 consumers under the age of 18 spent $172 billion. In addition, young people were indirectly responsible for $300 billion in spending by their parents.

Research had shown that brand preferences were formed at an early age. With teenagers making up the largest segment of soft-drink consumers, appealing to this market became critical for brand success. Mountain Dew was one of the best-selling soft drinks at convenience stores, which, according to industry analysts, were the most popular point of sale for younger consumers.

COMPETITION

Mountain Dew's principal challenge in the carbonated-citrus-soft-drink sector came from industry giant Coca-Cola. But Coca-Cola had mixed results trying to overshadow the success of Mountain Dew. Coca-Cola's first foray into the so-called heavy citrus market was in 1979, when it introduced Mello Yello, a drink named after a song by the 1960s pop star Donovan. In 1994 the brand was marketed with a NASCAR racing tie-in and featured the slogan "Make Some Noise." But it failed to generate more than a whimper with consumers, and the product was retired in all but a few markets.

In 1996 Coca-Cola introduced a new citrus product, Surge, with a mandate to take a chunk out of Mountain Dew's market share. "The Coke system has been looking for a Dew killer for quite some time," Michael Bellas of Beverage Marketing Corp. told the Atlanta Journal-Constitution. "This is the most direct attack against Dew, a head-on offensive with some massive advertising behind it." With the tagline "Feed the Rush," Surge spots debuted during the telecast of the Super Bowl on January 26, 1997. The company spent a total of $60 million on an advertising blitz to promote the product. By contrast, PepsiCo spent only $27.5 million to advertise Mountain Dew in the first nine months of 1996.

By the end of 1997 the new drink was available in 90 percent of the U.S. market and had achieved a loyal teen following. But the increased competition seemed to spur Mountain Dew on to more sales, as the market leader continued to enjoy vigorous growth of its own. "There have been a wide array of wannabes that have tried and failed to put a dent in Dew," commented PepsiCo spokesman Brad Shaw.

MARKETING STRATEGY

Mountain Dew's "Do the Dew" campaign was not a radical departure from what had gone before it. "It's always been an outdoor, active drink," Bill Bruce, a copywriter on the account, told Beverage World magazine. "We wanted to bring it up to date and try to do things people hadn't seen before."

One of the new elements the campaign introduced was the "Dew Dude" persona, a young person with a passion for extreme sports like street luge and in-line skating. Mountain Dew deemed these commercials "aspirational," meaning that even those who did not participate in these dangerous sports could relate to the spirit of adventure behind them. Expanded to encompass "Dewdettes" in 1997, the characters represented a natural evolution from previous campaigns that had featured young people engaged in outdoor activities. The consistency of its message helped Mountain Dew maintain a strong brand identity despite changes in youth culture. "When you have a basic consistent core selling proposition for a brand," remarked PepsiCo's vice president of flavors Dave Burwick to Beverage World, "no matter how you dress it up and how you communicate it and how you execute it to your consumer, it needs to vary over time, because your consumers change over time, particularly when you're talking about teens whose tastes change less than yearly."

As the campaign progressed, the "Dew Dude" persona remained consistent even as it evolved to refer more to a daring state of mind than to literal participation in extreme activities, and later "Do the Dew" commercials used comedy to convey the brand's essence. A 2000 Super Bowl spot, for instance, illustrated a young man's fearless athleticism as well as his attachment to the product by showing him chasing down a cheetah that had stolen his Mountain Dew. Similarly, a 2001 commercial featured the same young man engaging in a head-butting match with a ram in order to retrieve a Mountain Dew that the animal was guarding.

AN EXTREME SACRIFICE

Commercials that appealed to extreme-sports enthusiasts of necessity demanded extreme risks on the part of their participants. In 1996 one skydiver paid the ultimate price when he died filming a spot for Mountain Dew.

Rob Harris, a 28-year-old stunt diver and veteran of ESPN's X Games competition, plummeted to his death during the filming of a Mountain Dew commercial spoofing James Bond movies. The shoot called for Harris to dive from an exploding plane at 5,000 feet, the kind of daring stunt he had performed in a dozen TV spots since 1993. This time, however, his parachute lines got tangled, and his reserve chute failed to open in time.

PepsiCo officials considered scrapping the spot but ultimately decided to ask Harris's parents for permission to use footage of their son taken before the fatal jump. The grieving family reluctantly agreed, and Harris's friends and fellow skydivers were treated to the eerie spectacle of watching commercials featuring their late friend. In perhaps a more fitting tribute, one of Harris's best friends later released a sachet of his ashes into the sky during a sky-surfing competition.

Another component of the "Do the Dew" campaign was the judicious use of celebrity endorsers. Humor was employed in some of these television spots, such as a commercial in which crooner Mel Tormé was shown falling from the top of a Las Vegas hotel. Another spot, produced by the agency BBDO, featured martial-arts superstar Jackie Chan performing a series of death-defying stunts. At the end of the spot Chan encountered the spirits of the "Dew Dudes," who encouraged him to "see the Dew, be the Dew, do the Dew." The ironic humor was part of a strategy to appeal to teens who might ordinarily be turned off by big-name spokespersons. "If you talk down to teens," observed senior brand manager Ron Coughlin to Beverage World, "they'll see it right away and they'll punish you." Not all of Mountain Dew's celebrity endorsers were subject to such tongue-in-cheek treatment, however. Star athletes such as the professional football quarterback Brett Favre and the Olympic runner Michael Johnson were used in spots that tied the bold nature of their athletic talent with the "extreme" brand image.

Among the most effective ongoing components of the "Do the Dew" campaign was Mountain Dew's sponsorship of the X Games, the annual extreme-sports competition telecast by the cable sports network ESPN. The sports featured in the games often figured prominently in Mountain Dew commercials. "There's no better stamp of authenticity for the X Games than Mountain Dew," ESPN's Judy Fearing told Beverage World.

Mountain Dew, like other soft-drink brands looking for renewed energy during what became a protracted industry downturn (a result of growing consumer preference for bottled water, teas, and other alternative beverages), pursued brand growth via new products beginning in 2001. That year's introduction of Code Red, a cherry-flavored version of Mountain Dew aimed chiefly at urban African-American and Hispanic youth, was the most successful of the new products. Advertisements in Code Red's first year included a teaser launch campaign tagged "Do the New Do," a rap jingle called "Crack the Code" (performed by Busta Rhymes and Fatman Scoop), and graffiti-cartoon print ads in hip-hop-influenced magazines such as Vibe and the Source.

In 2004, after four years of sliding sales, PepsiCo shifted most of its Mountain Dew marketing resources back to the core brand. In addition to the ongoing weakness of the soft-drink market as a whole, Mountain Dew also had to contend with the aging of its initial Generation X target. PepsiCo continued to emphasize a mix of extreme sports, celebrity endorsers, and humor in its Mountain Dew advertising, but the company was also aware of changing behaviors and tastes among the rising generation of prospective Dew Dudes. Among the new extensions of the highly durable "Do the Dew" positioning, therefore, was an effort to increase the brand's visibility among "gamers," or video-game players, who spent more time engaged in that activity than watching extreme sports on TV.

OUTCOME

Mountain Dew's consistently distinct brand identity, as communicated through "Do the Dew," was widely credited with sales growth that—though it slowed from the double-digit gains of the mid-1990s—outpaced virtually all other soft-drink products during the last several years of the twentieth century. In 1999 Beverage Digest publisher John Sicher told the Los Angeles Times that the drink was "one of the two or three strongest brands in the beverage industry today"—in sales volume it ranked fourth behind Coke, Pepsi, and Diet Coke—and that "Pepsi has done a masterful job of marketing Mountain Dew." Every year from 2000 to 2003 the core Mountain Dew brand posted modest sales declines of between 0.5 and 4 percent, but these were attributed primarily to the changing beverage marketplace, as bottled water, teas, and blended-juice beverages gained in popularity. The Mountain Dew spin-off brand Code Red performed well between 2001 and 2003, but its success was believed to have come at least partially at the expense of the core brand. In 2004 Mountain Dew returned to form, outpacing all other full-calorie soft drinks with sales volume growth of 1.5 percent.

"Do the Dew" remained vital and effective at maintaining Mountain Dew's brand image regardless of the vicissitudes of the beverage industry. In 2003 Adweek columnist Barbara Lippert reflected on the cultural significance of the preceding 10 years of Mountain Dew advertising, noting that the brand had debuted its "dude-centric" approach "before the Dumb and Dumber guys and a half-generation pre-Jackass … when Ashton Kutcher was learning cursive and the Dell dude was wearing a night brace … And the campaign has remained fresh and imaginative through all those wild, nature-defying executions." Although numerous marketers attempted to replicate the Mountain Dew formula for appealing to youth, none was able to make itself as synonymous with an enduring set of youth values as Mountain Dew did through its seemingly timeless "extreme" positioning.

FURTHER READING

Chura, Hillary. "Pepsi Tests More Dew." Advertising Age (midwest ed.), December 18, 2000.

Enrico, Dottie. "Mountain Dew's Hip Ads Refresh Viewers." USA Today, May 18, 1998, p. 4B.

"Fatal Pursuit: Behind a Zany Mountain Dew Ad Lies the Sad Saga of the Death of Pro Skydiver Rob Harris." People Weekly, July 15, 1996, p. 154.

Hein, Kenneth. "Dew unto Others." Brandweek, April 8, 2002.

Horovitz, Bruce. "Marketers Get in Line for Extreme Sports." USA Today, June 2, 1997, p. 10B.

Johnson, Greg. "Advertising & Marketing; Mountain Dew Hits New Heights to Help Pepsi Grab a New Generation; No. 4 Soft Drink Has Succeeded by Taking Extreme Measures Since Its Hillbilly Days and Its 'Tickle-Your-Innards' Slogan." Los Angeles Times, October 6, 1999.

Lippert, Barbara. "Long Live the Dudes." Adweek, June 2, 2003.

Prince, Greg W. "Give Them Their Dew: Credit Pepsi for Marketing a Mountain of a Brand." Beverage World, January 15, 1998.

Roush, Chris. "Coca-Cola's New Surge Taking Different Tack." Atlanta Journal-Constitution, December 17, 1996.

                                     Robert Schnakenberg

                                               Mark Lane

DRINK MORE WATER CAMPAIGN

OVERVIEW

In 2004, when PepsiCo and advertising agency BBDO New York released the Aquafina "Drink More Water" campaign, Aquafina was the best-selling bottled water in the United States. With "Drink More Water," Aquafina highlighted the pure fun of water, straying slightly from its long-established focus on the young athlete. Still, the campaign embodied Aquafina's dismissal of the pretentious bottled-water image of the past. It was also intended as a means to maintain Aquafina's number-one position in the U.S. bottled-water market. Since its 1999 launch, Coca-Cola's Dasani water in particular had been infringing upon Aquafina's market.

The campaign debuted to 30 million viewers on July 13, 2004, during the broadcast of Major League Baseball's 75th All-Star Game. The initial spot, "Drink Up," helped to create a connection between water (in particular, Aquafina water) and happy fun. It depicted a barroom scene with an unusual twist: the happy, singing crowd, all gathered in a Bavarian-style beer garden, was not, in fact, guzzling beer. Instead, all were toasting with water. "Make your body happy," said a voice-over, "Drink more water!" BBDO released another television commercial, "I Feel Pretty," for the campaign in 2004 as well as two more in 2005. All the spots followed the happy and fun theme of "Drink Up." Print ads that ran in major magazines as well as on billboards also hyped up water's pure fun. PepsiCo did not disclose the campaign's budget.

The "Drink More Water" campaign found widespread success. A number of advertising awards and recognitions rolled in, including a WIN (Women's Image Network) Ad Award, a bronze New York Festivals Advertising Award, and a nomination for an Emmy Award for best commercial. There were also financial benefits. In 2004 Aquafina sales grew in the double digits. In the first quarter of 2005 the bottled water experienced a 25 percent growth in sales. For PepsiCo, whose cola sales had been dwindling for more than a decade, this was good news. In the summer of 2005, one year after the start of "Drink More Water," PepsiCo reported its biggest quarterly gain in sales in more than three years. Aquafina (along with Gatorade sports drinks and Lipton tea) were credited for this growth.

HISTORICAL CONTEXT

By the 1990s consumers nationwide were increasingly purchasing healthier beverages, such as teas, fruit drinks, sports drinks, diet colas, and bottled waters. In response soda companies rushed to diversify their beverage varieties. Bottled water, for one, caught the attention of such companies. From 1976 to 1986 U.S. bottled-water consumption rose by more than one billion gallons (from 354 million gallons to 1.366 billion gallons) per year. Within the following decade the number increased dramatically, to nearly 3.5 billion gallons a year. In 1994 PepsiCo jumped on board, launching its first bottled-water brand, Aquafina.

The 1994 release of Aquafina was small and local, beginning in Wichita, Kansas. Though full national distribution of the product did not occur until 1997, larger marketing efforts soon evolved. In May 1995 Aquafina cosponsored the third All-Star Benefit Concert, a charity concert and auction to benefit the Pediatric AIDS Foundation. The event's auction took place online, becoming accessible to 30 million subscribers worldwide. This, plus the large celebrity presence at the event, generated the first widespread recognition of the Aquafina name. Further promotional efforts followed, and in July 1997 Aquafina began its first national print and radio ad campaign under the tagline "Take Me to the Water." The campaign, which cost Pepsi $8 to $10 million in the first year alone, was intended to change bottled water's image as stuffy and overpriced. It initiated Aquafina's long-term association of its water with healthy young adults, in particular athletes. As such, "Take Me to the Water" centered on a trio of sports sponsorships: the Association of Volleyball Professionals, U.S. Soccer, and the Professional Golfers' Association.

In 1999 Aquafina reaffirmed its connection with athletes when it became the lead sponsor of the All-American Soccer Stars Victory Tour. Aquafina's first national television campaign, which had the tagline "Every part of your body needs pure water," was introduced in 2000. The campaign continued Aquafina's focus on a young-adult target market. Success followed, as sales of Aquafina jumped by an astonishing 59.4 percent from 2000 to 2001. In 2003 Aquafina launched what was then its biggest national campaign, "Aquafina Pure Luck." The campaign doubled as a rewards program, offering consumers a chance to win cash prizes for being spotted with Aquafina products. By 2004, when "Drink More Water" was released, Aquafina had become the U.S. bottled-water business's first billion-dollar brand as well as the nation's top-selling bottled water.

TARGET MARKET

"It wasn't long ago [that] bottled water was considered an oddity, an affectation, a pretentious luxury good. Who drank only bottle water? Snobs … effetes … Hollywood phonies." So said BevNet.com writer Greg Prince. For a long time this had been the predominant image of bottled water. Over the course of the 1990s the image began to change. The shift coincided with the growth of an active and health-conscious population, especially among those in the young-adult age group. Full-calorie soft drinks were going out of style; healthy, low-sugar, low-calorie beverages were in. And what could be lower in calories, and more beneficial to health, than water? The problem was that tap water could contain contaminants, and more often simply did not pass the taste test among drinkers. Thus, a lucrative bottled-water market emerged.

Right away Aquafina identified its target drinkers: healthy, active adults aged 25 to 39. By 1997, the year it began national distribution, Aquafina had become the official sponsor of three professional athletic organizations: the Association of Volleyball Professionals, U.S. Soccer, and the Professional Golfers' Association. Thus, its image and its target market were immediately carved into consumers' minds. And it was a very different target market from that of the luxury bottled water of years prior. Aquafina did not hesitate to point this out. In television spots that aired in 1998, Aquafina, alluding to Evian's pricey brand and pretentiousness, mockingly referred to its competitor's water as "Envie." Aquafina's then-tagline, "Pure water. No additives. No attitude," along with a lower price, further reinforced its unpretentious image, thus directly appealing to the young-adult market. By focusing on the all-inclusive fun of water, the "Drink More Water" campaign diverted slightly from the young athlete. Still, Aquafina's target market remained the same.

COMPETITION

Coca-Cola entered the U.S. bottled-water scene a little late, in 1999, with the introduction of Dasani. Coca-Cola, like PepsiCo, was well aware of the consumer trend toward healthier drinks, including water. Yet Coke was hesitant to jump into the bottled-water market, as it continued to hold optimism that the trend would reverse and that consumers would return to their beloved sodas. But in 1998, a year prior to Dasani's launch, the bottled-water industry was up to $4.3 billion, reflecting a nearly 10 percent increase from the previous year. As such, Pepsi's main rival was drawn in. Though late to the game, Dasani found immediate success. In 1999, with only a half a year of distribution, Dasani jumped to the number-five spot in U.S. bottled-water sales.

In 2000 Coca-Cola released a $15 million national ad campaign for Dasani. "Life Simplified" focused on the busy and stressed-out woman, revealing how her life could be simplified by drinking Dasani. Dasani's target market consisted of women ages 25 to 49. The marketing approach worked. Soon after "Life Simplified" was presented to the public, Dasani climbed its way to the number-two U.S. bottled-water distributor spot, with nearly $150 million in sales. That number, however, lagged far behind Aquafina's $203 million. In response Coca-Cola switched marketing gears. While Aquafina was promoting "Drink More Water" in 2004, Dasani was infringing upon the athletic market with its "Go for Six" campaign. The latter campaign teamed up with Tour de France bicycling champion Lance Armstrong as a way to reinforce Dasani's tagline, "Can't Live without Dasani."

DIRTY WATER

In 1999 the Natural Resources Defense Council (NRDC), a top U.S. environmental-action organization, completed a comprehensive four-year study on the quality of bottled water. After testing more than 1,000 bottles of 103 brands of bottled water, the NRDC disclosed that approximately one-third of waters tested contained levels of contamination. The NRDC's findings did not seem to affect bottled-water sales. By 2002 wholesale U.S. bottled-water sales had reached 7.8 billion. By 2003 the number had increased to 8.3 billion.

Food giant Nestlé found tremendous success in the U.S. bottled-water market. Nestlé's water offerings had grown to include 10 separate brands, which, when accumulated, made Nestlé the top-selling bottled-water distributor in the United States. In 2003 Nestlé had three of the top-five-selling U.S. bottled-water brands (Poland Spring, Arrowhead, and Deer Park) as well as six among the top ten. That year Poland Spring, holding 7.8 percent of market share and $649 million in sales, sat at number three. In its marketing Poland Spring reminded customers that its water was true "spring water," from deep in the Maine woods (as opposed to the top-two brands, Aquafina and Dasani, which both used filtered municipal water). Or, as Pland Spring's longtime slogan claimed, its water represented "What it means to be from Maine."

MARKETING STRATEGY

Aquafina, with ad agency BBDO New York, debuted its "Drink More Water" campaign on July 13, 2004, during the broadcast of Major League Baseball's 75th All-Star Game. To the 30 million viewers who tuned in, Aquafina revealed an entirely new kind of "watering hole." The "Drink Up" TV spot opened at a city intersection, empty except for a lone male accordion player and his dog. The reason that the streets were empty was quickly revealed: everyone was at a local Bavarian-style beer garden, singing and carousing. "Drink! Drink! Drink!" they sang. "To eyes that are bright as stars when they're shining on me!" Then came the final twist. The patrons were not toasting beer, as one might expect. Instead, each and every glass, bottle, and jug was filled with (Aquafina) water. The spot concluded with a voice-over stating, "Drink to your health; because the more water you drink, the better you'll feel. So make your body happy. Drink more water!" For 60 seconds the viewer was transported to pure fun. Or, as ad critic Lewis Lazare of the Chicago Sun-Times put it, the commercial hit the viewer "like a giant burst of energy unlike any we've experienced in television advertising in quite some time." The spot ran through the end of 2004 and continued in 2005.

A theme of pure musical fun continued with the release of the "I Feel Pretty" television commercial in 2004. In this fast-moving spot various ordinary-looking people—from an old man on a lawn mower to a city cabdriver to a pig farmer—flashed on the screen, smiling and drinking Aquafina, while the West Side Story tune "I Feel Pretty" played in the background. The commercial's voice-over said, "Drinking water. Makes you feel better, look better, and your whole body more beautiful. Make your body happy. Drink more water. Aquafina." The spot continued to air into 2005. Also in 2005, two additional television commercials were added to the campaign: "On Top of the World" (which used the Carpenters' tune of the same name) and "Man and Woman."

In addition to the television spots, Aquafina's "Drink More Water" involved large-scale print and billboard advertising. The print campaign ran in the 2004 year-end issues of People, Sports Illustrated, and Time magazines. To celebrate the 2005 New Year, Aquafina put up its first-ever billboard in New York City's Times Square. In a spirit much like that of the "Drink Up" television commercial, the billboard urged consumers to drink water in order to celebrate and have a good time. "Make your body happy, drink more water," the sign read. A similar billboard appeared at the New Year's 2005 celebration at the intersection of Hollywood and Vine in Los Angeles. Last, to further reinforce a connection between Pepsi's bottled water and New Year's celebrations, Aquafina became the official water of MTV's "Iced Out New Year's 2005."

OUTCOME

Aquafina and BBDO's "Drink Up" television commercial gained widespread recognition in the advertising world. Advertising critic Lewis Lazare said, "Aquafina has decided just to hit hard on the fact that water makes your body happy, so it's smart to drink lots of it. The message is smart. But more importantly, it's being delivered in a commercial that engulfs us with bliss … How refreshing." Others also took notice. In 2004 "Drink Up" was given a WIN (Women's Image Network) Ad Award. The award honored creatively excellent advertising that portrayed women as empowered. The winning of this award suggested that Aquafina, indeed, had reached its female target market. The commercial was also nominated in 2005 for an Emmy for best commercial and was a finalist for a Clio Award. The Emmy and Clio had come to represent the epitome of positive advertising recognition. "I Feel Pretty" was also admired and won a bronze at the New York Festivals Advertising Awards.

Consumers liked the advertisements as well. In a poll that Pepsi conducted about the Aquafina brand, most respondents stated that they found the campaign effective in communicating a memorable message. Aquafina's 2004 sales grew in the double digits; in the first quarter of 2005 sales grew by 25 percent. In the larger picture, Aquafina's success helped to improve PepsiCo's sales, even at a time when sales of the company's signature cola had been slipping. In the summer of 2005, for instance, PepsiCo reported its biggest quarterly gain sales in three and a half years. This increase was attributed to three of Pepsi's noncarbonated beverages: Gatorade sports drinks, Lipton tea, and Aquafina water.

FURTHER READING

"Aquafina Plays Up Pure Water Necessities in First National TV Advertising Campaign." PR Newswire, May 15, 2000.

Benezra, Karen. "Real Money: Advertising Activity in the Media Marketplace." Mediaweek, June 2, 1997.

"Bottled Water Is Almost the Real Thing." Sunday Star Times (Wellington, New Zealand), February 21, 1999, p. 13.

"Bottled Water: Pure Drink or Pure Hype?" Natural Resources Defense Council, March 1999. Available from 〈http://www.nrdc.org/water/drinking/nbw.asp〉

Furman, Phyllis. "Watered Down." New York Daily News, December 23, 2004.

Lazare, Lewis. "Ad Makes Beer Garden Truly a Watering Hole." Chicago Sun-Times, July 28, 2004, p. 75.

Leith, Scott. "Coke, Pepsi Unleash Flood of Ad Muscle for Branding Water." Atlanta Journal-Constitution, July 12, 2001.

"102.7 KIIS-FM and Aquafina Unite for the 3rd All-Star Benefit Concert." Business Wire, May 25, 1995.

Prince, Greg W. "It's the Little Differences." BevNet.com, July 25, 2004. Available from 〈http://www.bevnet.com/news/2004/07-25-2004-prince_the_little_differences.asp〉

"Profit Slips at PepsiCo, but Big Sales Lift Shares." New York Times, September 30, 2005, p. 5.

Turcsik, Richard. "Pepsi Expecting to Get Big Bang From Pop." Business and Industry, January 15, 1996, p. 20.

Unger, Henry. "Coke Launches Advertising Campaign to Boost Bottled-Water Line." Atlanta Journal-Constitution, June 3, 2000.

Vranica, Suzanne. "Advertising: Partyers Knock Back a Few … Aquafinas." Wall Street Journal, July 13, 2004, p. B4.

                                         Candice L. Mancini

GENERATION NEXT CAMPAIGN

OVERVIEW

For more than 30 years PepsiCo, Inc. has been courting younger consumers, and youthful cola drinkers have formed a major battleground for Pepsi and its number one rival, Coca-Cola. The struggle for this demographic was especially contentious because teenagers made up the largest group of soft drink consumers in the United States.

The PepsiCo Inc.'s 1997 advertising campaign, featuring the theme slogan "Generation Next," was unveiled during the national telecast of professional football's championship game between the Green Bay Packers and the New England Patriots. The new commercials were created by Pepsi's longtime agency BBDO. A new Pepsi "globe" logo was introduced at that time as well. For the far-reaching "Generation Next" campaign, PepsiCo Inc. forged powerful marketing alliances with Major League Baseball and the international pop group the Spice Girls. These complex promotions were touted by the soda maker's marketing officials as vital forms of outreach to the global youth culture. By and large, consumers responded favorably to these initiatives. By 1998, however, PepsiCo's executives and bottlers were beginning to rethink a strategy that was focused on only one segment of a large and diverse soft drink market.

HISTORICAL CONTEXT

PepsiCo Inc. was founded in 1965 through the merger of Pepsi-Cola Company and Frito-Lay, Inc. By the 1990s it was the second-largest maker of soft drinks in the United States and among the most successful consumer products companies in the world, with annual revenues of more than $20 billion and about 140,000 employees. PepsiCo had achieved a leadership position in each of its two major packaged goods businesses: beverages and snack foods. The company was a world leader in soft drink bottling and the world's largest producer of snack chips. PepsiCo's brand names were some of the best known and most respected in the world.

Pepsi-Cola provided advertising, marketing, sales, and promotional support to Pepsi-Cola bottlers and food service customers, and its advertising was among the world's most recognized. Traditional features of Pepsi advertising included humor, an emphasis on youth, and the use of storylines.

As early as the 1960s Pepsi signaled its intention to win over young consumers with its tag line "Pepsi—For Those Who Think Young." In 1963 the soda giant unveiled its "Pepsi Generation" tag line, created by agency BBDO. This long-running campaign was replaced by "The Choice of a New Generation" in the 1980s and revised in 1997 as "Generation Next."

On January 21, 1997, PepsiCo Inc. launched a new advertising campaign designed to stake the company's claim to the global youth culture. "Generation Next" commercials began airing in markets worldwide shortly thereafter. Pepsi, which had purchased ad time during the previous 12 Super Bowls, secured a total of four commercial minutes before, during, and after the 1997 Super Bowl. A total of six Pepsi spots were aired during the championship contest, three of which can be summarized as follows. "Shaq/Shaft" featured gargantuan NBA superstar Shaquille O'Neal in a takeoff on the 1970s blaxploitation classic Shaft starring Richard Roundtree. New music was recorded for the spot by Oscar-winning Shaft composer Isaac Hayes. In "Bears" a computer animated gaggle of grizzlies called the "Village Bears" danced to the Village People chestnut "YMCA." In perhaps the most enduring ad, supermodels Cindy Crawford, Tyra Banks, and Bridget Hall blew kisses to "Norman Pheeny," an infant fresh out of the maternity ward, while they were drinking Pepsi. The accompanying voice-over dubbed Pheeny a "Pepsi drinker for life."

In March 1997 PepsiCo, Inc. and Major League Baseball announced a broad five-year marketing alliance that sought to expand the bonds between Pepsi's youthful "Generation Next" consumers and America's national pastime. As part of this deal, PepsiCo Inc. agreed to advertise heavily on national television broadcasts of baseball games. The soft drink giant also agreed to produce a series of baseball-oriented television ads for airing during the 1998 season. The deal also made Pepsi the official soft drink of Major League Baseball and gave the soft drink giant exclusive rights to use Major League Baseball's trademarks, including postseason event logos (such as the World Series), the All-Star Game logo, and collective use of Major League Baseball team marks, in advertising, packaging, merchandising, and promotions.

The Spice Girls, an international all-female pop music combo, forged their own alliance with the soda maker in May 1997. The first details of this relationship were leaked to the press via London Music Week magazine. The massive promotional relationship easily eclipsed Pepsi's previous music sponsorship deals with such artists as Michael Jackson, Tina Turner, Madonna, and Lionel Richie.

TARGET MARKET

Pepsi officials repeatedly defined the target market for "Generation Next" in one word: youth. "There is an identity at Pepsi which is timeless," observed Brian Swette, executive vice president and chief marketing officer for Pepsi-Cola North America. "Essentially, it's about being eternally youthful. Youth means innovation and optimism—with a sense of humor and just a little cynicism. That's what being youthful is about, and that's the character of the brand."

Young consumers, who form their brand preferences early in life, responded favorably to Pepsi's efforts to gear its advertising toward them. According to one market study, Pepsi ads ranked number two in popularity with children aged 6 to 17. The soda maker's shrewd use of rock music performers, sports stars, and whiz-bang special effects have often been cited as the reasons for this strong showing.

An emphasis on youth and youth culture informed many of the marketing initiatives undertaken by Pepsi with its "Generation Next" campaign. High-profile promotional deals with the Spice Girls and Major League Baseball seemed designed to enhance Pepsi's image with the youth demographic. By and large Pepsi's marketing partners benefited from the newly forged relationships as well. "This association is great for baseball," crowed Allan H. "Bud" Selig, chairman of the Major League Baseball executive council. "Pepsi is uniquely qualified to infuse the game with contemporary youthfulness and help reconnect baseball with America's kids and teens, one of our key goals."

COMPETITION

In the competitive soft drink market, Pepsi's volume gains lagged behind Coca-Cola's through much of the 1990s. From 1994 through 1997 Coke's share of the U.S. soft drink market grew from 41 percent to 43.9 percent, while Pepsi's slipped from 31.2 percent to 30.9 percent, according to Beverage Digest/Maxwell data.

To stem this tide, PepsiCo Inc. decided on a new advertising and marketing strategy. In mid-January 1997 PepsiCo Inc. executives huddled with the company's bottlers in New Orleans, where top officials—including CEO Roger Enrico—outlined Pepsi's "Generation Next" initiative. Insiders expected the number two ranked soft drink giant to introduce global themes designed to improve the performance of its overseas divisions. A more aggressive approach on pricing and store displays, in response to successful Coke initiatives in these areas, was forecast as well.

"GENERATION LESS"

The "Generation Next" campaign is considered a failure by most industry analysts, but another of the cola giant's moves of 1997 won instant accolades from its shareholders. In January of that year PepsiCo Inc. announced that it was spinning off its restaurant subsidiaries into a separate company. The decision was taken to allow Pepsi to concentrate on its core packaged food businesses.

The restaurant unit—comprising the popular chains KFC (formerly Kentucky Fried Chicken), Pizza Hut, and Taco Bell—would thereafter have its own management and corporate structure. PepsiCo retained direct control over its other two units, Pepsi (soft drinks) and Frito Lay (snack foods), businesses it believed were of a distinctly different dynamic than fast food.

Wall Street responded enthusiastically to the change. When the news came down, PepsiCo Inc. stock surged by 11 percent in the first day alone. Market analysts believed that investors would respond favorably to the spin-off in the long term as well.

MARKETING STRATEGY

The tag line for PepsiCo's 1997 campaign, "Generation Next," represented something of a return to the company's roots. Replacing the two-year-old theme "Nothing Else Is a Pepsi," the new theme echoed one of Pepsi's most memorable campaigns of previous years, which featured the tag line "Choice of a New Generation." Both themes were concocted by the New York ad agency BBDO. The "Generation Next" campaign was designed to leverage Pepsi's "generation" equities of humor and humanity while positioning Pepsi and its drinkers as looking in anticipation to the future. The new spots encompassed a diverse swath of themes and characters but retained traditional Pepsi features like the storyline approach.

One of the spots, entitled "Move Over," employed original music and images to depict how "Generation Next" reflected the lives of contemporary youth—their likes, their language, and their attitude. A series of other storyline spots offered a mix of Pepsi-style humor, irreverence, and attitude. The humor this time was a bit edgier than in past campaigns, with a more concerted focus on youth. The entire campaign was linked together with a new brand icon: a spiraling Pepsi globe bearing the legend "Generation Next." "Generation Next is an ageless, borderless idea that defines Pepsi and its drinkers with style, wit, and attitude," remarked Brain Swette, PepsiCo's executive vice president of global marketing. "And in today's global youth culture—where styles and attitudes aren't limited by languages or boundaries—the time is right to unleash this idea on the world."

The campaign relied heavily on big-name celebrity endorsers like gargantuan NBA star Shaquille O'Neal and supermodel Cindy Crawford. In addition, Pepsi unveiled a massive promotion tied to Lucasfilm's re-release of the popular Star Wars movie trilogy. But the most far-reaching marketing partnerships were those forged with Major League Baseball and the Spice Girls, respectively.

The baseball partnership included a number of innovative marketing initiatives. For starters, the new relationship gave Pepsi exclusive rights to Major League Baseball's All-Star balloting program. The soft drink purveyor then used the balloting effort to execute a nationwide promotion tying together 6,000 7-Eleven stores and a Fox TV watch-and-win sweepstakes program. Baseball fans were able to vote online via the Pepsi Internet web site. As part of the All-Star Game festivities, PepsiCo Inc. participated at the annual All-Star Fanfest, held in 1997 at the Cleveland Convention Center. The synergy here was fortuitous because Pepsi served as the official soft drink of the Cleveland Indians and Jacobs Field, the park where the 1997 All-Star Game was played.

A baseball component was also added to PepsiCo Inc.'s popular "Pepsi Stuff " giveaway program, which provided free youth-oriented merchandise to loyal Pepsi consumers. The 1997 edition of Pepsi Stuff featured New York Yankee shortstop Derek Jeter in more than 100 million catalogs distributed across the United States. A new wrinkle to Pepsi Stuff was the inclusion of a special "fantasy prize" in which a lucky fan was awarded the opportunity to throw out the ceremonial first pitch at Game Two of the 1997 World Series between the Cleveland Indians and the Florida Marlins.

Pepsi's effort to reach out to young baseball fans was not limited to the traditional marketing avenues, however. Nontraditional initiatives included the placing of postings on Major League Baseball's official World Wide Web site. Pepsi also pledged to sponsor the MTV cable network's "Rock 'n' Jock" and "Pepsi All-Star Softball Games," as well as activity on the Channel One educational classroom network.

The partnership with Major League Baseball cemented PepsiCo Inc.'s longtime involvement in America's national pastime. In the late 1990s the soft drink maker also served as the official soft drink of the Chicago Cubs, Seattle Mariners, and Kansas City Royals, as well as the 1998 expansion teams, the Arizona Diamondbacks, and Tampa Bay Devil Rays. Pepsi also maintained relationships with almost half of America's minor league franchises.

With the Spice Girls, a Europop supergroup, Pepsi was sailing into uncharted waters, establishing a relationship with an up-and-coming entity in the hopes of tapping into the worldwide youth market. The cornerstone of this partnership was the release of a new Spice Girls song, "Step to Me," to be made available only through a Pepsi promotion and not through traditional record retailers. Tickets to the only Spice Girls concert of the year, in Istanbul, Turkey, were made available solely through a Pepsi offer as well.

The Spice Girls also agreed to appear in commercials for Pepsi. The first of these, a 30-second spot featuring the group wailing the Pepsi theme "Move Over," was screened on television and in movie theaters during the summer of 1997. A second commercial promoted the Spice Girls single and concert offers. The promotions were made available to consumers in 78 countries in Europe and Africa, and the spots were screened worldwide, including in North America, the Far East, and Australia.

Pepsi also hooked up with other bands, like 3T and Shaggy, featuring them in promotional advertising offering prizes of concert tickets and merchandise. The soda maker limited the use of these musical groups to the countries in which they were popular. In another bid to capture the youth market, Pepsi contracted with MTV to offer tickets to the cable channel's Video Music Awards in September.

OUTCOME

Public reaction to Pepsi's first batch of "Generation Next" commercials was largely favorable. USA Today's instant Ad Meter found that both the dancing bears and the Norman Pheeny spots won over consumers as their favorite commercials aired during the Super Bowl telecast. A second survey taken the next day found the Pepsi commercials were recalled by more than half of the respondents polled. Anheuser-Busch was a distant second with only a 36 percent recall score.

Industry analysts were split in their judgment on the new commercials, however. Advertising Age magazine rated the Pepsi Super Bowl spots "profoundly disappointing," claiming the spots fell "flatter than a two-liter bottle left uncapped overnight." The Florida Times-Union took the opposite tack, placing the Pepsi commercials as a group among its Super Bowl "hits." The Milwaukee Journal Sentinel seemed to call it both ways, declaring that Pepsi's "lame 'Generation Next' slogan didn't do it" but conceding victory in the ad wars to the soda maker on the strength of its commercials.

Ultimately, "Generation Next" failed to win favor with the most important audience of all: PepsiCo itself. The campaign's commercials elicited sharp criticism from Pepsi bottlers and top brass at the company's annual convention in January 1998. The spots were lambasted for failing to address a wide enough audience and not effectively showcasing Pepsi's new globe icon. Increasingly bottlers complained that the edgier, more youth-oriented spots were alienating important audience segments. In 1998 its lead agency was asked to retool a portion of the campaign, which retained the "Generation Next" tag line. The soda giant was also reportedly examining a possible consolidation of its $170 million U.S. media planning and buying efforts for Pepsi and Frito Lay.

FURTHER READING

Ashton, Robert. "Spice Girls Add Fizz to Pepsi Power." Music Week, May 10, 1997.

Benezra, Karen. "Pepsi Again Talkin' 'bout Generation." Brandweek, January 20, 1997.

―――――――. "Strategy: NEXT!" Brandweek, April 13, 1998.

Fahey, Alison. "It's a Pepsi Generation, Again." Adweek, January 20, 1997.

                                         Robert Schnakenberg

THE JOY OF PEPSI CAMPAIGN

OVERVIEW

By 2001 PepsiCo, Inc., had long been suffering the effects of consumers' quest for healthier beverages. Though the company's offerings of Gatorade, Aquafina, Propel, and Tropicana Orange Juice, as well as its diet sodas, were experiencing growth, PepsiCo's signature cola sales had been on a steady decline. Yet PepsiCo was far from giving up on its star drink. The company turned to a multimillion dollar campaign, "The Joy of Pepsi," that enlisted megastars Britney Spears, Beyoncé Knowles, and Shakira. Replacing "The Joy of Cola," the new campaign, which was created by advertising agency BBDO New York, represented a major attempt to appeal to customers' tastes, especially those in the younger age brackets.

"The Joy of Pepsi" had its premier with a television spot, "Testimonial," that ran during the 2001 Super Bowl. The intention of the spot, which starred former U.S. Senator Bob Dole, was to represent youthfulness despite age. Nearly 80 at the time, Dole claimed that Pepsi helped keep him young. Later in the campaign a younger and hipper group of spokespeople were used to persuade consumers of the youthful side of Pepsi. Spears, as seen in her debut Pepsi ad, "Britney Rooftop," embodied this approach. In the television spot, which was first aired during the 2001 Academy Awards ceremonies, she performed what was billed as her new "hit," titled "The Joy of Pepsi." Before its debut on television, the spot was given a major buildup, which included online viewing. In all, 14 television spots, as well as extensive print and online advertisements, were included in "The Joy of Pepsi."

"The Joy of Pepsi" was extraordinarily popular, especially among its target market of teens and young adults. For example, an incredible 2 million viewers saw "Britney Rooftop" online before it appeared on television. The campaign also won a number of honors from the advertising industry. But all this did not mean that it succeeded in increasing the sales of Pepsi. During 2003 Pepsi actually suffered a drop in sales of more than 5 percent. Over the longer term, from 2000 to 2003, sales of Pepsi dropped approximately 12 percent. PepsiCo did not throw in the towel, however, although it did change its advertising strategy. The "Pepsi. It's the Cola" campaign, which replaced "The Joy of Pepsi" in 2003, took a more direct and practical approach to selling the drink. Instead of relying on celebrities, who were expensive and who sometimes stole the show from the product, the new campaign highlighted the various foods that tasted good with Pepsi.

HISTORICAL CONTEXT

Pepsi was first introduced in 1893 under the name "Brad's drink." Created by Caleb Bradham, a pharmacist, the beverage was made of carbonated water, sugar, vanilla, various oils, pepsin, and flavoring from cola nuts. It quickly became the most popular drink in the pharmacy. In 1898 Bradham renamed the beverage Pepsi Cola, for the pepsin and cola nuts used in the recipe, and further success followed. But the company manufacturing the drink suffered a series of bankruptcies, including one in which Bradham lost control of the firm, before it finally became stable. Under the ownership of the Loft Candy Company, beginning in 1931, Pepsi had huge success when it introduced a 12-ounce bottle for five cents, which had formerly been the price of a 6-ounce bottle. "Nickel Nickel," the first advertising jingle ever broadcast nationwide on radio, was introduced in 1940 and was later recorded in 55 languages. The firm's stability was established, and in the following year it became a public company.

Early Pepsi advertising campaigns played off the "Nickel Nickel" jingle with such slogans as "Twice as Much" and "Why Take Less When Pepsi's Best?" Then, with a 1953 campaign called "The Light Refreshment," Pepsi shifted its focus from lower prices to a lower caloric content. Soon thereafter, however, teens and young adults began to emerge as Pepsi's main consumers, and the marketing focus shifted once again. The 1958 tagline "Be Sociable. Have a Pepsi" represented the first major targeting of youth. During the 1960s the "Now It's Pepsi, for Those Who Think Young" and "Pepsi Generation" campaigns continued the company's concentration on young consumers. The latter campaign went a step further, however, focusing not only on youth but on their lifestyle as well. For a number of years the company maintained this marketing approach. At the same time it never lost enthusiasm for advertising jingles, thus setting the stage for later campaigns that relied on music.

TARGET MARKET

The 2001 campaign "The Joy of Pepsi" was the latest in a long line of advertising efforts from PepsiCo, beginning with "Be Sociable. Have a Pepsi" in 1958, that targeted young people. The previous campaign, "The Joy of Cola," which dated to 1999, had strayed somewhat from this focus by attempting to reach both younger and older consumers. In this campaign spokespeople like Marlon Brando and Aretha Franklin, as well as the 1970s heavy metal band KISS, had turned the focus toward an older customer base. Even so, PepsiCo did not neglect younger consumers with "The Joy of Cola." The company, for example, undertook a promotional tie-in with the film Star Wars: Episode 1, which was extremely popular with teens.

Thus, "The Joy of Pepsi" was in a sense an updated return to the focus on a youthful lifestyle. The company wanted young consumers to identify personally with Pepsi, as they had done in the past with the help of campaigns that used such celebrities as Kirk Cameron, Michael Jackson, and Gloria Estefan. It was with this in mind that Spears was chosen to promote the product. The effort was reinforced in 2002 when Pepsi signed on Knowles, another illustrious pop star, as part of "The Joy of Pepsi." But the new campaign did not entirely neglect those in older age brackets, especially consumers who longed for a return to youth. Thus, the television premier of "The Joy of Pepsi" starred the far-from-young Dole, who was approaching 80, as its spokesperson. In the spot, which was titled "Testimonial," the World War II hero and former U.S. senator from Kansas who had run for president in 1996, touted Pepsi as a fountain of youth, even ending the spot with a back flip on a beach.

COMPETITION

The rivalry between Pepsi and Coke had begun in 1931 when Charles Guth, head of a chain of candy stores, became angry with the Coca-Cola Company for what he felt was their overcharging for syrup. To get even, Guth purchased Pepsi, setting the stage for what was to develop into one of the biggest corporate rivalries in history. The rivalry pitted an image of heritage (Coke) against one of taste (Pepsi). In blind taste tests among consumers Pepsi repeatedly beat Coke. Nonetheless, in worldwide sales Coke remained number one among carbonated soft drinks. Largely in response to a consumer base that continued to become more conscious of health issues, the two companies eventually moved well beyond colas to include additional types of soft drinks, as well as orange juice, bottled water, other beverages, and various snack foods. Sales of PepsiCo's soft drinks, which included Mountain Dew and Slice, fell behind Coca-Cola's, but at the same time the company's Tropicana Orange Juice, Frito-Lay snacks, and Aquafina bottled water were at the top in their respective categories.

COKE'S LOST OPPORTUNITY?

In 1931 Charles Guth, president of the Loft Candy Company, asked the Coca-Cola Company to give him a discount on the soda he bought in huge quantities for the approximately 200 stores he operated. After Coca-Cola had refused, he purchased the firm manufacturing Pepsi. Later, however, when sales of Pepsi remained flat, Guth was desperate enough to approach his old rival with an offer to sell. But Coca-Cola would not even make a bid. Then Guth began selling 12-ounce bottles of Pepsi for the 6-ounce price, sales skyrocketed, and Pepsi became a longstanding competitor of Coke.

While Spears was promoting Pepsi in the campaign "The Joy of Pepsi," such celebrities as Penelope Cruz and Courtney Cox were advocating the "real" side of Coke. Other competitors were also using celebrities to help sell their products. Cadbury Schweppes, for instance, used the actor and comedian Orlando Jones as "the 7 UP guy." There were significant differences in the fortunes of these companies, however. In 2002, for example, Cadbury Schweppes, which offered a long line of beverages and chocolate products, had sales of $8.5 billion. On the other hand, Coca-Cola's sales in 2002 were $19.5 billion, while PepsiCo's topped the group at $25 billion. Two years later sales for Cadbury Schweppes had increased to $13 billion, for Coca-Cola to $22 billion, and for PepsiCo to $29 billion.

MARKETING STRATEGY

In the 1990s sales of Pepsi, like the colas of other companies, began a steady decline. In response PepsiCo tried a number of things to improve the image of its beverage, including the signing of a variety of celebrities for its advertising campaigns. Thus, the 2001 campaign, "The Joy of Pepsi," used celebrities that appealed to young people, including Spears, Knowles, and Shakira. The campaign represented a return to a focus on youth, something the company had begun a half century earlier. But the campaign did not entirely exclude older generations, for "The Joy of Pepsi" also wanted to remind older consumers that they, too, could feel young.

Under the guidance of the BBDO agency in New York, "The Joy of Pepsi" made its debut during the telecast of the 2001 Super Bowl and did so with someone who was not a persona of youthfulness. In the television spot "Testimonial" former politician Dole offered a spoof of his earlier commercial for Viagra, a drug used to treat erectile disfunction, which claimed that the little blue pill had returned him to a feeling of youth. In the "Testimonial" spot Dole once again made the connection between a feeling of youthfulness and a "faithful little blue friend," this time referring to Pepsi. The 60-second spot ended with Dole doing a back flip on a beach.

In all, PepsiCo aired eight television spots during the first year of the campaign. These included the "Britney Rooftop" spot, which had its premier during the telecast of the 2001 Academy Awards ceremonies. It was the first in a series of spots starring the teen idol Spears, and the build-up to its debut was extensive. In conjunction with Yahoo!, online viewing of the full commercial was allowed for two hours before it had its debut on television. More than 2 million viewers watched Spears perform the song "The Joy of Pepsi" online. In addition, PepsiCo purchased all of the advertising space available on the Yahoo! home page for the entire weekend of the 2001 Academy Awards. It was the first time that Yahoo! had sold all of its ad space to a single company.

"The Joy of Pepsi" maintained its momentum throughout 2002. In an extended spot, the 90-second "Now & Then," Spears gave consumers a brief tour of the history of Pepsi advertising while performing an updated version of her song "The Joy of Pepsi." This blockbuster spot, which had its premier during the telecast of the 2002 Super Bowl, reached millions of viewers. In addition, BBDO created three shorter versions of "Now & Then." Titled "Diner," "Beach," and "Modern Day," all starred Spears. Later that year the new pop sensation Knowles replaced Spears in the campaign. Knowles appeared in four television spots for "The Joy of Pepsi," including one in 2003 titled "Tango" in which the ardent singer danced with the nerdy employee of a convenience store. This commercial was one of three aired in 2003 that marked the end of the campaign. In addition to the television spots "The Joy of Pepsi" was supported by an extensive print and online advertising campaign. In 2003 "Pepsi. It's the Cola" replaced "The Joy of Pepsi." Like its predecessor, this new campaign stressed youth, but it took a more practical approach to advertising the cola. Instead of starring celebrities, the ads in the new campaign emphasized all of the foods that would go with a Pepsi.

OUTCOME

Both among the public and in the advertising industry "The Joy of Pepsi" was an incredibly popular campaign. Millions of fans watched Spears perform "The Joy of Pepsi" online and on television. The premier of the Spears spot on Yahoo! was chosen by Adweek as the Best Online Event of 2001. In 2002 "The Joy of Pepsi" won an EFFIE, and in 2003 Spears's Super Bowl spot won adage.com's Bobby Award as the best performance by a celebrity. In addition, the campaign added to Pepsi's status as a leader in multicultural advertising, and in 2002 PepsiCo received its second Corporate Mosaic Award from the American Advertising Foundation Center on Multiculturalism. "The Joy of Pepsi" also contributed to PepsiCo's overall reputation for advertising success. In 2003 PepsiCo and BBDO New York won the American Advertising Federation's first-ever Grand Addy Award for their outstanding creative endeavors over the previous two decades, and in the same year PepsiCo was honored for continuous advertising excellence at the International Advertising Festival in Cannes, France.

The popularity of "The Joy of Pepsi" and its success in the world of advertising did not mean, however, that the sales of Pepsi grew. During each year the campaign ran sales of Pepsi actually declined. In 2003, for example, sales dropped by more than 5 percent. During the period 2000 through 2003, sales of Pepsi dropped by approximately 12 percent. Some critics claimed that stars like Spears and Knowles may have overshadowed the product, creating greater recognition for the performers than for the cola. It was thought to be more likely, however, that the cause of the decline lay in the decade-long trend away from high-calorie sodas. For example, rival Coca-Cola, the leader in the cola business, was also suffering. From 2000 through 2003 sales of Coke dropped by approximately 9 percent.

As a result of falling sales and the continuing trend away from colas, PepsiCo increasingly invested in healthier beverages. In 2003, while "The Joy of Pepsi" campaign was ending on a financially unhealthy note for the cola, PepsiCo enjoyed double-digit growth in its lines of healthier beverages, which included Gatorade, Aquafina, and Propel. The company's Tropicana Orange Juice also experienced growth and maintained its number one spot in the market. But this did not mean that PepsiCo planned to abandon its signature cola. In 2005 the "Pepsi. It's the Cola" campaign was going strong, with humorous new commercials highlighting Pepsi and the foods that could accompany it. In one, for example, two "sumo chickens" wrestled each other for the honor of going home with the guy who had the Pepsi. The commercial was a hit, especially among young consumers, although it was not known whether it made them run out and buy a Pepsi.

FURTHER READING

Day, Sherri. "Pepsi Looks to Pop Stars to Reach Minorities and Mainstream." New York Times, August 27, 2002.

Elliot, Stuart. "In a Quest for Youth, an Old Pepsi Theme." New York Times, March 21, 2002, p. C8.

Fass, Allison. "Most Wanted: Drilling Down/Commercials; Pop Goes the Ad." New York Times, June 3, 2002, p. C10.

Horovitz, Bruce. "Marketers Aim Britney Spears to Appeal to Wider Audience." USA Today, February 16, 2001, p. B12.

Leith, Scott. "Ditching Divas: Pepsi Dumps Celebrities for Simpler Ads." Atlanta Journal-Constitution, November 20, 2003, p. F1.

Michaelson, Elizabeth. "Bob Dole Owes Joy of … to Pepsi-Cola." Shoot, February 9, 2001.

"Pepsi Ads Aim at More Fizz: Campaign Uncaps Multi-Talented Beyoncé Knowles." Ottawa Citizen, December 19, 2002, p. D4.

"Pepsi Bottlers Praise New 'Joy of Cola' Ads." Beverage Digest, March 12, 1999.

"Pepsi Bounces Britney for Beyoncé." USA Today, December 18, 2002.

"Pepsi Cans Ludacris Ads." Houston Chronicle, August 30, 2002, p. 2.

"Pepsi Picks Pink to Promote Drinks Campaign." Glasgow Herald, December 24, 2003, p. 2.

Stein, Andrew. "Hot or Not? Coca-Cola." CNN/Money, June 17, 2004.

Taylor, Catharine P. "Britney Leads Super Bowl Ad Lineup." E Online, January 31, 2002.

Terhune, Chad. "Pepsi Unveils Ad Campaign Emphasizing Food and Cola." Wall Street Journal, November 20, 2003.

                                          Candice Mancini

THE NOT-SO-VANILLA VANILLA CAMPAIGN

OVERVIEW

For beverage manufacturer PepsiCo, Inc., the second half of 2003 was a time of transition for the brand identity of its signature soft drink, Pepsi. Not only did it unveil a new slogan for its core beverage, Pepsi-Cola, but a new product was also in the offing. Pepsi Vanilla was created in direct response to the successful introduction of Vanilla Coke by Pepsi's longtime rival Coca-Cola the year before. Cola volume, which had peaked in 1988 with 68 percent of the carbonated-soft-drink market, was down to 60 percent by 2002. In reaction, cola companies were expanding their soft-drink varieties to keep appealing to increasingly choice-driven consumers. BusinessWeek quoted David Burwick, chief marketing officer of Pepsi-Cola North America, as saying, "The era of the mass brand has been over a long time … It took our category longer than most to accept that." Within six months of that statement, Pepsi was set to go head-to-head against Coca-Cola in the battle for vanilla market share.

The "The Not-So-Vanilla Vanilla" campaign, created by advertising agency BBDO New York, led the charge as Pepsi Vanilla and its low-calorie counterpart, Diet Pepsi Vanilla, hit store shelves in August 2003. It had an estimated budget of $25 million. The campaign, which implied that Vanilla Coke's taste was overbearing and behind the times, was wide-reaching. The Pepsi Vanilla brand sponsored the National Football League's season-kickoff event. Ads directed at the younger population or those seeking variety were everywhere, from print to outdoor to online. Unlike in previous personality-driven Pepsi campaigns, the product was front and center. Television spots such as "Trucks," which featured a musical duel of sorts between a hip, hyper-customized Pepsi Vanilla truck and a mundane, older Vanilla Coke vehicle, succeeded in capturing critical and consumer attention.

The bulk of Pepsi's "The Not-So-Vanilla Vanilla" campaign was concentrated in the first two months of the product's introduction. Immediately following the campaign launch, Pepsi Vanilla enjoyed increased sales and dug into Vanilla Coke's market share, thereby accomplishing one of its primary goals. The campaign also won a number of ad-industry honors, including a Gold EFFIE Award.

HISTORICAL CONTEXT

The name Pepsi-Cola, coined by its creator, a druggist named Caleb Bradham, was meant to suggest a relationship to pepsin, which was used for medicinal purposes. Bradham patented his drink and founded the Pepsi-Cola Company in 1902, and Pepsi began to find its way into the marketplace as a health-promoting refreshment. Bradham sold the company under threat of bankruptcy in 1923 to Craven Holding Company, which did not fare much better. Growth stagnated further under the guidance of the next owner, the Loft Candy Store chain. Loft's acquisition of Pepsi in 1931 was the cola company's first jab at Coca-Cola. Sales were deathly slow until president Charles Guth made one bold last-ditch effort. He decided to offer his Depression-era consumers 12-ounce bottles, instead of the 6-ounce units sold by competitors, for the bargain price of a nickel each. Sales took off, and within a few years Pepsi was working its way into the national market.

Pepsi proved to be a cutting-edge self-promoter early on in the company's history, always with a youthful consumer in mind. The late 1930s and early 1940s saw the advent of popular cartoon characters Pepsi and Pete, a pair of Keystone Kop imitators who promoted Pepsi with the slogan "Cost small! Liked by all! Bottle tall!" in Sunday comic strip form and an animated short film. In this era, with Walter Mack at the helm of Pepsi, media usage was becoming a key tool. It was then that Pepsi became a radio-jingle pioneer with the hugely successful "Pepsi-Cola Hits the Spot," which soared to the top of the popular-music charts.

Many memorable slogans and campaigns carried the Pepsi banner since then, all with a similar mission to make each new generation a "Pepsi generation." In the sixties, under Pepsi marketing chief Alan Pottasch, the decision to acknowledge the widening gap between old and young consumers was made, and the BBDO agency won the Pepsi account. Lifestyle had always been a component in Pepsi ads, but under BBDO creative director Phil Dusenberry youth beach culture and fun-centered activities were featured. These sentiments were put forth in the slogan "for those who think young" and folk jingles such as "You've got a lot to live, and Pepsi's got a lot to give." In the 1970s "Join the Pepsi People, Feelin' Free" was an even more obvious reference to the political mood of America's youth. The 1980s and 1990s saw the rise of celebrity-focused campaigns. Pepsi spent millions to align its self with the music and media stars of each decade, most notably pop icon Michael Jackson, actor Michael J. Fox, and later, supermodel Cindy Crawford and teen sensation and singer Britney Spears.

The year 2003 marked an advertising shift for Pepsi's signature brand, Pepsi-Cola, which adopted a fresh slogan, "Pepsi, It's the Cola." Pepsi Vanilla would follow suit with its "The Not-So-Vanilla Vanilla" campaign. Youth was still king, but the celebrity-driven ads of the previous two decades were scaled back to reflect a new product-centered advertising philosophy. Catchy jingles would not play a primary part in the Pepsi Vanilla campaign either. Music was a background element or part of a storyline. In a November 2003 Wall Street Journal article Dave Burwick, chief marketing officer of Pepsi-Cola North America, said, "It's time we shined the light on the product itself."

TARGET MARKET

By early 2000 variety-seeking consumers had caught the attention of cola companies. Market share lost to bottled water and non-cola soft drinks was threatening the strength of flagship colas such as Pepsi. Product spin-offs were seen as an opportunity to regain fading cola sales volume, bolster signature brand identity, and retain traditionally loyal consumers whose diverse tastes might lure them in a competitor's direction. Pepsi Vanilla was created to address all these concerns.

Pepsi traditionally aimed its marketing at the youth demographic, with 25 year olds as the center of the age range, and its target audience for "The Not-So-Vanilla Vanilla" was no different. This young consumer would, Pepsi surmised, have a taste for variety and might even have a Vanilla Coke in the refrigerator. Pepsi wanted to convince these consumers to become loyal Pepsi Vanilla drinkers. Pepsi also hoped to encourage existing Pepsi drinkers to diversify their tastes and give Pepsi Vanilla a try.

COMPETITION

Throughout both their histories Pepsi-Cola and Coca-Cola were locked in a battle dubbed "the cola wars" for the hearts, minds, and dollars of beverage consumers. In 2003 the market-share leader was still Coke, with Pepsi trailing in second place. Pepsi was also facing competition from the third-largest beverage maker, Cadbury Schweppes, whose Dr Pepper was cited in Beverage Digest as the number one performing brand in its 2002 Top 10 listing. Dr Pepper's success was yet another indicator to Pepsi that consumers were willing to stray from the century-old mainstays and choose from a wider array of beverages.

In May 2002 the beverage industry witnessed the successful introduction of Vanilla Coke and Diet Vanilla Coke into the marketplace. It was Coca-Cola's first major successful new drink since it introduced Diet Coke some 20 years earlier. Coca-Cola's hope for its vanilla offerings was to gain market share among the teen market. The company implemented a major marketing push to promote the products, including television spots featuring actor Chazz Palminteri. In the commercials Palminteri's imposing, tough-guy character caught teens in somewhat mischievous situations, such as sneaking looks through peepholes, and rather than punishing the teens, he commended them on their "youthful curiosity" and rewarded them with Vanilla Cokes. The launch and the campaign were successful, and Vanilla Coke quickly gained recognition and market share. Within half a year Vanilla Coke was among the top 10 brands in the highly competitive convenience-store arena.

MARKETING STRATEGY

Pepsi sought to emulate Coca-Cola's success with Vanilla Coke. It used the fact that it was the second vanilla-flavored cola to its advantage by seizing on some critiques that Vanilla Coke was too sweet and heavy tasting. The product and the "The Not-So-Vanilla Vanilla" campaign were designed to take on Vanilla Coke directly and exploit a perceived weakness. Pepsi Vanilla wanted everyone to know that its product was lighter and more refreshing, an improvement in taste and a younger approach to flavored cola. CNN/Money writer Parija Bhatnagar reported that the number two beverage maker was confident at launch time, quoting Pepsi marketing chief Dave DeCecco as saying, "We're doing vanilla our way. If consumers want Pepsi Vanilla, they can have it now, and we want a share of the market."

Coke may have created the vanilla-cola category, but Pepsi was determined that it not only could do vanilla better but also could woo the variety seekers by equating Pepsi Vanilla with youth culture. Youthful appeal had always been a Pepsi advertising hallmark. BBDO devised "The Not-So-Vanilla Vanilla" to acknowledge that Coke's product was first while disparaging it as old-fashioned and too sweet. To specifically address this, a two-part television commercial made its debut during the MTV Video Music Awards, a highly youth-oriented program. In both ads two young men were stymied in their quest to buy a Pepsi Vanilla when the vending machine kept going on and off, preventing them from making a purchase. There was a Vanilla Coke machine nearby, but the men made it clear that the other brand was not an option. Later it was revealed that two mischievous shop workers across the street were causing the machine's malfunction. The spot's focus played to a youthful audience, referring in part to popular prank shows of the time while also positioning Vanilla Coke as an unthinkable beverage choice.

An approximately $25 million dollar advertising budget was allotted for the introduction of Pepsi Vanilla, matching in spending the Vanilla Coke launch budget from the previous year. Pepsi Vanilla's comprehensive campaign featured print, outdoor, and online advertising as well as product placement, but the highest visibility came from four television spots, only one of which featured a celebrity, singer Beyoncé Knowles. The real standout of the four was called "Trucks" and debuted in mid-August. The commercial began with a Vanilla Coke truck stopped at an intersection alongside a Pepsi Vanilla truck. The Vanilla Coke driver challenged the Pepsi driver by cranking up a 1970s rock classic by REO Speedwagon on his radio. The confident but cool Pepsi driver was then shown flicking a switch, which converted his truck into the ultimate low-rider, blasting hip-hop music, to the delight of the young New York City onlookers. The bested Vanilla Coke driver said, "That was awesome." The voice-over that followed said, "There's a new vanilla in town. Introducing Pepsi Vanilla. The perfect blend of cola and vanilla … that's not so vanilla." The "Trucks" spot represented the kind of good-natured swipe against Coke that Pepsi had worked to refine over the years.

PEPSI BLUE

One day prior to the introduction of Vanilla Coke in 2002, a surprise announcement came out of the Pepsi camp. It would launch a line extension of its own called Pepsi Blue, a berry-flavored cola with a strong bluish tint. While Vanilla Coke sales soared, Pepsi Blue proved to be a misstep. Pepsi Blue, developed with significant input by teens, may have been too narrowly focused and soon went the way of such ill-fated spin-offs as Crystal Pepsi, Pepsi AM, and Pepsi Max from a decade before.

At launch time media saturation was key. A concentration of print ads appeared daily in USA Today four weeks running, while inserts were placed in carefully selected magazines, such as Rolling Stone and Sports Illustrated. Television spots appeared during season premieres of such highly rated shows as ER, Law & Order, and Third Watch. Outdoor ads were installed in densely populated urban areas, and online efforts included a large presence on Yahoo! as well as E-mails sent to Pepsi loyalists. Sponsorship of the one-hour National Football League Kickoff festival on September 4, 2003, was also key; the phrase "presented by Pepsi Vanilla" was even included in the title of the event. It was broadcast live on ABC, prior to the season's opening game, and featured a variety of musical acts, including Aerosmith, Britney Spears, Mary J. Blige, and Aretha Franklin. The event, conceived in coordination with the U.S. Department of Defense as a tribute to troops abroad and those in public service at home, also aired on the American Armed Forces Radio and Television Service. A sweepstakes was another part of this promotion.

OUTCOME

Pepsi's attempt to steal the thunder of the slightly older brand Vanilla Coke was successful. USA Today's Ad Track weekly survey confirmed that the television spots had done their job; it reported that 25 percent of consumers polled liked the Pepsi Vanilla spots "a lot," which was above the Ad Track average of 21 percent. Ad agency BBDO also reaped the benefits of the campaign's success by winning a Gold EFFIE Award, an industry award for marketing efficacy.

Within the first two months of the campaign's introduction, sales of Pepsi Vanilla were brisk, and the product earned a market share of 1.4 percent in the convenience-store category and 1.6 percent in the mass-market channel, surpassing the company's goal of 1 percent. To Pepsi's delight, Vanilla Coke's market share dropped by approximately 1 percent immediately following the launch of Pepsi Vanilla. Sales remained strong the following year. In April 2004 the New York Times cited a new quarterly report by the Pepsi Bottling Group stating a 28 percent profit increase, specifically attributing a portion of that growth to Pepsi Vanilla.

FURTHER READING

"BBDO Strikes Gold at the EFFIEs; Wins More Gold than Any Other Agency." PR Newswire, June 8, 2005.

Bhatnagar, Parija. "Coke vs. Pepsi: What's Your Flavor?" CNN/Money.com, April 17, 2003. Available from 〈http://money.cnn.com/2003/04/17/news/companies/coke_pepsi/index.htm〉

Christy, Nick. "100 Years of Advertising Innovation." Beverage World New York, January 1998, pp. 188-94.

Gaylin, Alison Sloane. "Truck Wars: Pepsi Vanilla Takes on Vanilla Coke." Shoot, September 5, 2003, p. 16.

Howard, Theresa. "Pepsi Takes Some Fizz off Vanilla Rival." USA Today, November 17, 2003, p. 6.

Khermouch, Gerry. "Call It the Pepsi Blue Generation." BusinessWeek, February 3, 2003.

Leith, Scott. "Pepsis Uses Contests, New Flavor to Put Charge Back into Sales." Atlanta Journal-Constitution, April 10, 2003.

Lippert, Barbara. "Pepsi Gets Peevish." Adweek, September 8, 2003, p. 36.

McDonough, John. "Pepsi Turns 100: One of the World's Great Brands Has Been Shaped in Large Measure by Its Advertising." Advertising Age, July 20, 1998.

Sfiligoj, Eric. "The Birthright Stuff." Beverage World New York, January 1998, pp. 237-42.

Steinberg, Brian. "Pepsi Is Planning Promotions to Put Some Fizz into Summer." Wall Street Journal, May 1, 2003, p. B5.

Steinberg, Brian, and Chad Terhune. "Media & Marketing—Advertising: Cola Rivals' Over-the-Top Ads Yield to Down-to-Earth Spots." Wall Street Journal, November 7, 2003, p. B6.

                                           Simone Samano

ORIGINS CAMPAIGN

OVERVIEW

In 2001 PepsiCo merged with the Quaker Oats Company, giving the soda king rights to the $1.5 billion-a-year brand Gatorade. Pepsi already had its own sports drink, All Sport, but it had become clear that Gatorade's 35-year history in the market made it a formidable opponent. As such, Pepsi sold All Sport and invested heavily in the marketing of Gatorade. In 2002, after polls concluded that 60 percent of consumers had no idea where the name "Gatorade" originally came from, Pepsi had advertising agency Element 79 Partners create the Gatorade "Origins" campaign.

In 2002 Pepsi launched the first "Origins" television commercial with the straightforward desire to educate consumers about Gatorade's humble beginnings. In a style resembling a documentary, the spot showed the 1965 football field at the University of Florida, where Gatorade was invented to help the college's football team, the Florida Gators, combat dehydration. The commercial also featured a player who was on the team, the inventors of the drink, an announcer, and a sportswriter, each of whom confirmed the drink's role in the Gators' success. In 2003, with a spot called "Origins 2," the campaign moved to the NFL field, where Gatorade had also proved an early hit. In a 2005 television spot, "Testimonial," triathlete Chris Legh provided a personal account of the drink's benefits. The "Origins" campaign, which carried the ongoing "Is it in you" tagline, also included print ads with the Gator mascot, Albert, as well as retired Gator players. Throughout the "Origins" campaign, Pepsi also continued to run Gatorade's splashier campaigns featuring big-name athletes such as Michael Jordan.

While "Origins" was underway, Gatorade increased its market share from 78 to 81 percent in a sports-drink market that was rapidly growing. Gatorade's multitiered marketing approach spread the credit for such success in various directions, but "Origins" was acknowledged as an important factor. Additionally, whereas the famous-athlete ads gained more immediate attention, "Origins" offered greater long-term possibilities. It directly added authority and sincerity to the Gatorade name. "Origins" also gained attention in the advertising world, winning "Best Spots" awards from Adweek magazine in both 2002 and 2003.

HISTORICAL CONTEXT

Gatorade was invented in 1965 by a University of Florida professor of medicine, Robert Cade, to aid the university's football team. The mixture of water, salt, sugar, and lemon juice immediately helped to reduce dehydration in, and improve the endurance of, the athletes. The team's performance improved dramatically that season, even helping the Florida Gators to make it to their first-ever Orange Bowl. The overnight success drew little attention from the business world, and in 1967 the Indianapolis-based food-processing company Stokely-Van Camp bought the rights to Gatorade for just $30,000.

Gatorade's first nationwide advertising campaign was released in 1969, costing Stokely-Van Camp $4 million. At the time Gatorade's sales were in the hundreds of thousands. But sales soon rose dramatically, attracting the interest of several U.S. food giants. In 1982, with Gatorade's annual revenues at $90 million, Stokely-Van Camp became the target of an aggressive bidding war. The following year the Quaker Oats Company acquired the company for $269 million, winning full rights to the Gatorade brand. Quaker further immersed Gatorade in the sports world; in 1984 it launched the Gatorade "Thirst Aid" advertising campaign and in the meantime connected the drink brand to several professional sporting leagues, including Major League Baseball, NASCAR, the NBA, and the Olympics.

By 1990, with an approximate 90 percent share of the $635 million annual U.S. sports-drink market (which had been worth $220 million in 1985), Gatorade's advertising media budget was up to $31 million a year. Soon a significant amount of this exorbitant budget was thrown in one direction: Michael Jordan. In 1991 Gatorade signed a $13.5 million, 10-year contract with the basketball superstar, creating the "Be Like Mike" advertising campaign. Meanwhile, the U.S. sports-drink market continued to expand rapidly, to $800 million in 1992 and to $940 million in 1994. Of the latter figure, Gatorade claimed nearly $800 million. By 2000, when the U.S. sports-drink market was up to an incredible $1.9 billion—of which Gatorade accounted for 78 percent—another aggressive bidding war for Gatorade was underway. In the end, PepsiCo's $13.4 billion bid to merge with Quaker won it the rights to Gatorade. Within a year Pepsi, with its 2002 Gatorade "Origins" advertising campaign, helped the 35-year-old sports drink make its history known.

TARGET MARKET

Gatorade had been used for a variety of purposes, including hydration for athletes; relief for women in labor; a cure for the common cold, menstrual cramps, diarrhea, and hangovers; and roach-trap bait. This made Gatorade's target market incredibly diverse. Nonetheless, since its 1965 beginnings, in which Gatorade was invented to help the University of Florida's football team, Gatorade's primary focus had been on athletes.

After Quaker Oats acquired Gatorade in 1983, the drink's connection to professional athletes was fixed. In 1984 and 1985 Gatorade became a corporate sponsor of several high-profile sporting organizations, including Major League Baseball, the Olympic Track & Field Trials, NASCAR, and the NBA. The 1991 "Be Like Mike" television commercials, in which NBA superstar Michael Jordan promoted Gatorade, provided final confirmation of Gatorade's connection with serious athletes. By the time PepsiCo merged with Quaker in 2001, Gatorade had become the most-recognized drink of athletes. Gatorade's 2002 "Origins" advertising campaign reflected this focus by taking the consumer through Gatorade's history, and in particular, through its longtime connection with sports.

COMPETITION

When Quaker Oats bought Stokely-Van Camp Co. for an astounding $269 million in 1983, it was clear that Gatorade brought the possibility of big earnings. Skeptics were omnipresent, but Gatorade sales rose dramatically. Within a decade the sports drink was bringing in $700 million a year. By that time big beverage distributors wanted in on the lucrative sports-drink market, and by 1992 both PepsiCo and Coca-Cola had introduced their own lines of sports drinks. PepsiCo's All Sport fell into the number three spot in the market, where it became stuck. Even its initial big-budget national advertising campaign, featuring the immensely popular basketball superstar Shaquille O'Neal, could not move the product up the ranks. For the next decade, while All Sport sales improved, it became clear to Pepsi that, while it might be possible to overcome Coca-Cola's Powerade, it would be nearly impossible to surpass Gatorade, which controlled approximately 80 percent of the market.

WHAT IS DEHYDRATION?

Before Gatorade was invented, it was widely believed that athletes should abstain from drinking anything, even water, during games, because drinking might have caused cramps and nausea. The 1965 assistant Gator football coach, Dwayne Douglas, helped to change this perception when he asked a University of Florida professor of medicine, Robert Cade, why his players never had to urinate during games. Cade concluded that the players were sweating so much they had no fluids left to urinate. And in that moment, the idea of Gatorade was created.

In a 2001 deal costing $13.4 billion, PepsiCo merged with Quaker, allowing the soda company to take control of Gatorade. And in a strange twist to the deal, Pepsi's All Sport was sold to the root-beer distributor Monarch Beverage Company, thus turning All Sport into a Pepsi competitor. It proved to be an insignificant opponent, however. At the time of its sale All Sport held 4.4 percent of the sports-drink market. By April 2002, no longer under Pepsi ownership, All Sport's market share had dropped to 1.3 percent. In response to the slump, Monarch announced a major sponsorship with the United States Postal Service Pro Cycling Team, the only American cycling team to have won the Tour de France. Consumer promotions of the sponsorship included a grand prize trip for two to the 100th Tour de France in 2003. In a further attempt to gain market share, in 2004 Monarch introduced two low-carbohydrate versions of its sports drink. But by that year All Sport's market share had decreased to under 1 percent, making it clear that the sports-drink market, at least for the moment, would be dominated by two main competitors: Pepsi and Coke.

Coca-Cola had also attempted to acquire Gatorade, offering a bid for Quaker in 2000. But the deal did not pan out. With 15 percent of the $1.9 billion sports-drink market, Coca-Cola was far from out of the game, however. After Pepsi secured the Quaker deal, Coca-Cola was ready for battle. In 2001, while Pepsi was preparing to launch the Gatorade "Origins" campaign, Coca-Cola was aggressively marketing Powerade. First it slashed prices of the drink, making Gatorade the more expensive choice. Next Coca-Cola secured a Powerade promotional deal with the cable sports network ESPN. At the same time Coke completely overhauled Powerade's packaging and promotional materials. The total marketing push reportedly came at a $60 million price tag. In 2001 Powerade gained 2.5 percent market share. The following year Powerade achieved another feat, becoming the new official sports drink of NASCAR, a promotional position that Gatorade had previously held. Coke kept up the momentum in 2003. While Pepsi was promoting its "Origins ′' advertising campaign (a sequel to its 2001 "Origins"), Coke's sports drink, too, was involved in a sequel. Powerade became a major sponsor of the 2003 movie The Matrix Reloaded, a sequel to the 1999 box-office hit The Matrix. Still, none of Powerade's efforts were enough to hurt Gatorade's dominant market share. By 2004, when the sports-drink market grew to an astonishing $5 billion, Powerade controlled just 14 percent of the market, compared to Gatorade's 81 percent.

MARKETING STRATEGY

After it acquired Gatorade in 2001, PepsiCo conducted a poll that revealed that few consumers knew anything about Gatorade's origins. Some thought, for instance, that it was an invention of someone named Mr. Gator, while others believed it to be a concoction of alligator juice. In response, Pepsi hired ad agency Element 79 Partners of Chicago to develop a marketing campaign that would paint Gatorade's history. In June 2002 the 60-second "Origins" television commercial disclosed Gatorade's University of Florida football roots. The spot opened with a Florida Gator football player standing before a row of urinals and telling the camera that, before Gatorade, the team's coach had no idea why none of the players urinated during games. A Florida newspaper sportswriter followed, providing first-hand testimony of the team's dramatic improvement after the players started drinking Gatorade. Last, veteran sportscaster Keith Jackson was featured to add credibility to the success story. The campaign included print ads with the Gator mascot, Albert, and 54-year-old former Gators linebacker, Chip Hilton, who also appeared in the "Origins" commercial. The campaign, which incorporated the existing "Is it in you?" Gatorade tagline, was also used to celebrate Gatorade's 35-year anniversary.

In July 2003 Pepsi and Element 79 Partners followed up "Origins" with a sequel named "Origins 2." Whereas the first "Origins" concentrated on Gatorade's Tallahassee roots, the "Origins 2" TV spot took the viewer to the NFL playing field, and in particular, to the field of the Kansas City Chiefs. The Chiefs, as the commercial pointed out, was the first NFL team to use Gatorade. The 60-second spot illustrated how the journey from Gators to Chiefs helped to secure Gatorade's position as the beverage choice of athletes. The "Is it in you?" tagline continued, as it would in the next installment of the campaign, which arrived in January 2005. As the entire history of Gatorade had already been disclosed in the first two commercials, a new angle had to be explored. This time Gatorade zoomed the lens in on one particular athlete, Australian triathlete Chris Legh. Legh seemed a perfect candidate to make an argument for Gatorade, as he had collapsed from severe dehydration, just yards from the finish line, at the 1997 Ironman Triathlon World Championship. The "Testimonial" commercial revealed how Gatorade came to the rescue, helping Legh to win the 2004 Ironman competition.

Although the campaign's budget was not disclosed, PepsiCo reportedly spent nearly $130 million on Gatorade advertising from 2001 through October 2004. But during this time, the "Origins" campaign was not the only Gatorade advertising endeavor. Other big-budget campaigns coincided with "Origins," including the New Year's Day 2003 launch of the Michael Jordan tribute television commercial, in which cutting-edge technology allowed the basketball legend to compete against himself on the court.

OUTCOME

Except for a couple of Adweek "Best Spots" awards, the "Origins" advertising campaign did not win advertising awards. Ad critic Lewis Lazare wrote negatively of the campaign, stating, "As an infomercial, 'Origins' works OK. But as a compelling and entertaining sales tool, it falls short of the mark." Perhaps the commercials were overshadowed by splashier Gatorade ads starring such athletic greats as Mia Hamm, Derek Jeter, and Michael Jordan.

Besides educating consumers, "Origins" contributed to the tremendous sales growth Gatorade experienced during the campaign. From 2002 through 2005 Gatorade increased its market share from 78 to 81 percent; in a sports-drink market worth $2 billion in 2002 and $5 billion by 2005, the earnings proved incredible. Such numbers generated fierce competition in the market. In particular, longtime Pepsi rival Coca-Cola aggressively marketed its Powerade against Gatorade. Although it was the second-best-selling sports drink in the United States, Powerade was a far distant number two (holding 14 percent of the market in 2005). Gatorade and Powerade both boasted nearly identical benefits for athletes, including reducing dehydration and improving endurance, and both were promoted by huge-budget corporations. Yet Powerade was unable to catch up with Gatorade, largely because the latter had the longer history, not only in the marketplace, but also—and more importantly—on the athletic field. The "Origins" campaign successfully reinforced Gatorade's strongest advantage by establishing the brand's history in the minds of consumers.

FURTHER READING

Bonkowki, Jerry. "Gatorade Adds Jordan to Team." USA Today, August 9, 1991, p. 2C.

Chura, Hillary. "PepsiCo vs. Coca-Cola." Advertising Age, February 18, 2002, p. 5.

"Is Stokely Worth Quaker's Lofty Bid?" BusinessWeek, August 1, 1983, p. 25.

Lazare, Lewis. "Ad Tells Gatorade's Origins." Chicago Sun-Times, June 13, 2002, p. 65.

――――――. "Element 79 Scores for Gatorade." Chicago Sun-Times, July 15, 2003, p. 49.

Leith, Scott. "Atlanta-Based Owner of Sports Drink Thirsts for Larger Market Share." Atlantic Journal-Constitution, April 5, 2002.

――――――. "Pepsico Merger Positions Its Gatorade vs. Coke's Powerade." Atlanta Journal-Constitution, August 2, 2001.

Liesse, Julie, and Patricia Winters. "Gatorade Set to Bench New Rivals." Advertising Age, March 19, 1990, p. 4.

"Quaker Sees New Markets for Gatorade." New York Times, August 8, 1983, p. D4.

Rice, Justin. "Legend of UF's Link to Gatorade Grows." Palm Beach (FL) Post, June 25, 2002, p. 1C.

Rovell, Darren. First in Thirst: How Gatorade Turned the Science of Sweat into a Cultural Phenomenon. New York: AMACOM, 2005.

                                          Candice L. Mancini

PEPSI. IT'S THE COLA CAMPAIGN

OVERVIEW

In the early 2000s the cola wars were as hot as ever with number two brand Pepsi-Cola battling to catch up with the top brand, Coca-Cola. But things were not going well for any of the cola brands, including Pepsi. In 1999 Pepsi Cola's market share fell 0.03 percent to 14.2 percent, while Coca-Cola Classic remained flat with 20.8 percent, as consumers turned to other beverage choices. Sales continued on a downward spiral, and during the first nine months of 2003 sales of regular Pepsi Cola dropped 5.5 percent, and Diet Pepsi's sales fell 3.6 percent. Pepsi's mission became reversing the slip of its brands in the marketplace.

Pepsi closed out 2003 by launching a new marketing campaign, "Pepsi. It's the Cola." The new theme replaced the slogan "The Joy of Pepsi," which the company had used since 2000. The new campaign also shifted the company's advertising focus from the brand and back to the product. Pepsi's longtime advertising agency BBDO New York created the campaign, which kicked off with a series of three television commercials followed by outdoor ads displayed on billboards and bus shelters located near restaurants and fast-food establishments. Radio, print, and online advertising was also part of the campaign. The ads were humorous and drove home the campaign's message that Pepsi and food go together. One television spot featured comedian Dave Chappelle being attacked by a robotic vacuum cleaner determined to grab his Pepsi to go along with the Doritos chip it had just sucked up off the floor. A billboard ad showed a veggie wrap sandwich hugging a glass of Pepsi.

The campaign resonated well with consumers, particularly young adults, and based on sales it was a success. At the end of 2003, following the campaign's launch, Pepsi reported that sales of all its beverage brands had increased 0.4 percent to 31.8 percent. The company also morphed the successful campaign into one for Diet Pepsi: "Diet Pepsi. It's the Diet Cola."

HISTORICAL CONTEXT

When Pepsi turned 100 years old in 1998, John McDonough, writing for Advertising Age, said that Pepsi defined itself against its rival, Coke, "through the wizardry of the slogan, the jingle and the storyboard." Describing the cola wars as having little to do with cola, McDonough wrote that for Pepsi the cola wars were about "beating Coke, and the weaponry [was] not cola but advertising."

Throughout the highs and lows of Pepsi's early years, concerns focused more on the company's survival than advertising, but McDonough wrote that by 1936 Pepsi had an ad budget of $500,000, and by 1938 that budget had doubled, with most money earmarked for newspaper ads and signage. (Radio advertising was still too costly.) During the 1939 New York World's Fair, Pepsi took its marketing to the sky with a skywriting campaign over the fair's grounds.

From a comic-strip format that ran in newspapers and featured Keystone Kop-like characters named Pepsi and Pete to radio spots that featured the famous "Pepsi-Cola Hits the Spot" jingle, the company's advertising continued to evolve and its budget to grow. McDonough said that following World War II Pepsi had an advertising budget that approached $4 million. Pepsi pushed for a more glamorous image in the 1950s with themes such as "More Bounce to the Ounce," which McDonough said was a veiled reference to a well-known television actress of the time who favored low-cut necklines and plenty of exposed cleavage, and "Reduced Calories," before diet drinks were the rage. The tagline "Say Pepsi Please" was introduced in 1957 and lasted through the end of the decade. In 1960 BBDO took over Pepsi's advertising.

Under BBDO's creative direction the tagline "For Those Who Think Young" became Pepsi's theme. The "Pepsi Generation" and the "Come Alive … You're in the Pepsi Generation" campaigns followed. Other campaigns, including "Taste That Beats the Others Cold, Pepsi Pours It On" and "Join the Pepsi People, Feelin' Free," were designed to maintain the original "Pepsi Generation" idea. Shifting its focus from the baby boomer "Pepsi Generation" to younger consumers, the marketing theme in 1984 became "The Choice of a New Generation," followed by the long-running "Generation Next" campaign. According to Advertising Age the "Generation Next" theme was scrapped in 1998 as too narrowly focused for mass appeal and was replaced with "The Joy of Cola." The new campaign was well received by consumers when it was unveiled in 1999, but in 2000 the theme morphed into "The Joy of Pepsi." The company dropped its "Joy of Pepsi" theme with the introduction of "Pepsi. It's the Cola" in 2003.

TARGET MARKET

Pepsi's target market was "so broad it's hard to narrow it down, but the focus is teens and young adults," said company spokesman Dave DeCecco. He added, "Consumer research showed people were drinking Pepsi with foods anyway," so the new campaign was a way to remind them to enjoy a Pepsi with their meal. Katie Lacey, Pepsi's vice president for colas and media, told the Atlanta Journal-Constitution that research revealed people drink colas but not as often as they did in the past. The variety of other beverage choices was cited as one of the reasons for declining cola sales. The "Pepsi. It's the Cola" campaign hoped to convince consumers of all ages that Pepsi is the perfect beverage to drink with meals or anytime food is being eaten and enjoyed.

WHAT COLA WARS? NEW BATTLEFRONT IS LEMON-LIME

Pepsi-Cola and Coca-Cola drew a new line in the so-called cola wars in 2003, and the new front had nothing to do with cola and everything to do with citrus fruit—lemon-lime, to be exact. Reporting for Advertising Age, Hillary Chura wrote, "Two new lemon-lime soft drinks are hitting the market, including the first extension of [Coke's] Sprite, called Sprite Remix, and PepsiCo's national rollout of Sierra Mist." With the introduction of the two new products, Cadbury Schweppes jumped into the fray with its noncola beverage 7 UP. John Sicher, editor of Beverage Digest, told Chura, "The three-way face-off this year among Sprite, 7UP and Sierra Mist is going to be a very heated battle." Charlee Taylor-Hines, PepsiCo's brand manager for Sierra Mist, told Chura, "I see this summer as the lemon-lime wars … We'll see each brand try to create a niche for itself in marketing."

COMPETITION

In the ongoing cola wars the brand to beat was number one Coca-Cola, and in 2003 the company consolidated its $350 million media planning and buying account to maintain its competitive edge. Reporting for Advertising Age, Kate MacArthur wrote that Coke's consolidation was "another step toward enabling its plan to create the 'experienced-based, access-driven marketing' " the company's president and chief operation officer had mandated. MacArthur continued, "With the cola wars officially escalated, [Coke's] under intense pressure to connect with consumers." Coke attempted to connect with consumers when it launched its new "Real" campaign, which relied on consumers' nostalgia for the company's 1970s "The Real Thing" theme, according to Bob Garfield in Advertising Age. He noted that Coke's new campaign was more contemporary and hip than many of the company's previous campaigns, most of which had lacked a youthful flair. Garfield stated that despite its hipper appeal the new campaign repeated the mistake of earlier efforts and failed to focus on the product. And like Pepsi's "It's the Cola" campaign, Coke's campaign was created to convince consumers its beverage was great with food. Garfield commented that Coke also was great with food, "which, if we're not mistaken, is the real reason people buy the stuff."

Rather than a cola the number three soft drink behind Coke and Pepsi was 7 UP, owned by Cadbury Schweppes Americas Beverages. Instead of following the lead of Coke and Pepsi and launching a new ad campaign, Cadbury Schweppes chose to stay with its successful, award-winning "Make 7 UP Yours" campaign. John Clarke, chief advertising officer for Dr Pepper/Seven Up, told PR Newswire, "Entering into its fifth year, the 'Make 7 UP Yours' campaign continues to be a favorite among consumers, positively impacting both advertising and brand awareness." The company reported that product awareness had more than doubled since the "Make 7 UP Yours" campaign was introduced in 1999. In addition the campaign resonated particularly well with 12- to 24-year-olds, 7 UP's target audience.

MARKETING STRATEGY

Although past campaigns had been high on star power, the "Pepsi. It's the Cola" campaign took a different approach: keep it simple. The Atlanta Journal-Constitution's Scott Leith wrote, "Pepsi will dispense with the kind of flashy ads it has used in the recent past—think Britney Spears—and instead pitch itself as a food-friendly cola." Pepsi's chief marketing officer and senior vice president Dave Burwick said of the campaign, "This is a different approach for us. It's not the diva-of-the-year kind of thing." Besides a simpler theme the campaign took a different approach with its launch date. Pepsi typically released new campaigns in January, but "Pepsi. It's the Cola" debuted in November to take advantage of the upcoming holiday season, a time when people typically celebrate with family and friends and good food.

Working with the food and fun theme, Pepsi's agency, BBDO, created a series of commercials designed to showcase the product. The campaign launched with three television spots aired during NFL games and other programming that attracted a large viewing audience, such as the Macy's Thanksgiving Day Parade. Radio, print, online, and outdoor advertising was also part of the campaign.

The first television spot, titled "Summer Job," showed a young woman dressed as a giant hot dog handing out flyers to passersby, inviting them to visit a nearby restaurant. Following repeated rejections by people who didn't want the flyers, the woman, alone and dejected, moved down the sidewalk, where she encountered a soul mate—a young man dressed as a can of Pepsi. The two walked away hand in hand as a voice-over stated, "Hot dogs love Pepsi. Pepsi loves hot dogs. It's the cola." A second television spot featured Chappelle, who had gone to his girlfriend's apartment to pick her up for a date. While waiting Chappelle was attacked by the girl's robotic vacuum cleaner, which was after his can of Pepsi. The last in the series of three TV commercials was set during a pre-football game tailgate party in which a can of Pepsi was sent sailing through the air in slow motion. Outdoor ads, which were posted on billboards and bus stop shelters, included pictures of a veggie wrap sandwich hugging a glass of Pepsi and a strand of spaghetti roping a Pepsi cowboy style.

OUTCOME

During the first nine months of 2003, Pepsi's U.S. sales dropped 5.5 percent. Following the launch of the "Pepsi. It's the Cola" campaign in November, Pepsi's market share began a slow climb. In March 2004 the company reported an increase of 0.4 percent to 31.8 percent as it took away business from its competitors, including Coke. In addition the new campaign seemed to resonate with at least one consumer group: young adults. From the perspective of college students in Boston, Pepsi was a hit. One student quoted in the Boston Herald said, "Pepsi's advertising is probably attracting more of the population. The only Coke ads I can think of are the polar bears ads around the holidays." Another student added, "I think Pepsi is aimed more toward a younger crowd. Coke seems more old-fashioned." As further evidence that Pepsi was pleased with the campaign's results, for the 2004 Academy Awards the company launched a modified version of the campaign for another of its brands, Diet Pepsi. The new campaign was themed "Diet Pepsi. It's the Diet Cola." Burwick said, "People drink both Pepsi and Diet Pepsi with food and while they're having fun, so the same strategy applies to both brands."

FURTHER READING

Chura, Hillary. "Coke, Pepsi Launches: Lemon-Lime the Battle Front in This Summer's Cola Wars." Advertising Age, March 10, 2003.

Garfield, Bob. "Garfield's AdReview: Misguided Nostalgia Obscures What's Really 'Real' about Coke." Advertising Age, January 13, 2003.

――――――. "Garfield's AdReview: Pepsi Finally Acknowledges Real Point of Cola in New Ads." Advertising Age, December 1, 2003.

Kramer, Louise. "Coke, Pepsi: Don't Look for Shifts in Ad Strategy." Advertising Age, May 18, 1998.

Leith, Scott. "In Cola Wars, No Coke—Pepsi!" Boston Herald, September 29, 2004.

Manuse, Andrew. "Coke Launches New Ad Campaign." Atlanta Journal-Constitution, January 9, 2003.

――――――. "Pepsi Adds U.S. Market Share; No. 1 Coca-Cola Loses Ground." Atlanta Journal-Constitution, March 5, 2004.

――――――. "Pepsi Dumps Celebrities for Simpler Ads." Atlanta Journal-Constitution, November 20, 2003.

MacArthur, Kate. "Coke Consolidation in Line with Strategy." Advertising Age, December 1, 2003.

McDonough, John. "Pepsi Turns 100: One of the World's Great Brands Has Been Shaped in Large Measure by Its Advertising." Advertising Age, July 20, 1998.

"Pepsi-Cola Adds New Player to Super Bowl XXXVIII Commercial Roster; Spike DDB Joins the Pepsi Super Bowl Lineup." PR Newswire, January 29, 2004.

"Pepsi-Cola to Scrap 'Generation Next' Theme." Advertising Age, November 2, 1998.

"Pepsi Launches Holiday Effort." Advertising Age, November 24, 2003.

"Pepsi Unveils New Advertising Campaign: 'Pepsi. It's the Cola'; Brand's First Major Campaign Shift since 1999." PR Newswire, November 19, 2003.

"7 Up Marks the New Year with Four New Commercials from Its Award-Winning 'Make 7 Up Yours' Advertising Campaign; Comedian Godfrey Returns as the Well-Intentioned, Yet Hapless, 7 Up Marketing Executive." PR Newswire, December 29, 2003.

                                           Rayna Bailey

QUAKER-WARMS YOU, HEART AND SOUL CAMPAIGN

OVERVIEW

NOTE: Since the initial appearance of this essay in the 1999 edition of Major Marketing Campaigns Annual, Quaker Oats Company was acquired by PepsiCo and functions as a unit of its parent company. The essay continues to refer to the company's former name, as that was the official name of the organization when the campaign was launched.

For years the Quaker Oats Company had promoted the health-related benefits of its oatmeal products, and so its 1998 "Warms You, Heart and Soul" campaign was not a departure from established strategy. Indeed, a 1997 federal ruling gave increased strength to the claim, but along with this ruling came a rising firestorm of criticism from public-interest groups, such as the Center for Science in the Public Interest (CSPI). The television spots, created by Foote, Cone & Belding (FCB), showed residents of a Colorado town who took Quaker's "Smart Heart Challenge": 98 out of 100 participants, the commercials indicated, lowered their cholesterol levels by eating one bowl of Quaker Oatmeal a day. In 1997 Quaker Oats spent $35 million on advertising its oatmeal, and the figures for 1998 were reportedly much higher. The campaign included print advertising and promotion on Quaker's packaging, but the primary thrust was on television.

"Spotlighting a town and the voices of its everyday people is unprecedented in Quaker's advertising campaigns," Sally Kroha, director of oatmeal advertising for the company, told Judann Pollack of Advertising Age in 1998. As Pollack noted, however, other companies had used similar themes in recent years. Campbell Soup Company, for one, had used the tag line "Good for the Body, Good for the Soul." Nor was it new for Quaker to cite the health benefits of its cereal, a strategy it had applied as early as 1899, with an advertisement in the Saturday Evening Post that stated "How foolish to keep on eating meat to the exclusion of Quaker Oats when dietary experts agree that Quaker Oats is more nourishing and wholesome."

But while Quaker remained the nation's leading brand of hot cereal, with a 60 percent share of a $618 million industry in 1996, much else had changed in a century. Quaker had grown into a vast corporation with $4.8 billion in annual sales during 1998, a total which included such significant brands as Gatorade and Cap'n Crunch cereal, as well as its hot cereals. And while consumer interest in healthy eating had increased, so had consumer skepticism about advertising claims, an attitude that was reinforced by the work of CSPI and other groups.

HISTORICAL CONTEXT

The Quaker Oats trademark, depicting a smiling Quaker gentleman, was born in 1877. Two of the four men who organized the Quaker Mill Company in Ravenna, Ohio, claimed credit for the trademark, one of the world's most famous. William Heston later said that he got the idea from a picture of Pennsylvania founder William Penn; on the other hand, Henry O. Seymour asserted that he came upon the idea after seeing an entry on Quakers in an encyclopedia, which inspired him with "the purity of the lives of the people, their sterling honesty, their strength and manliness." In any case, the trademark has nothing to do with the actual Quaker religious sect, formally known as the Society of Friends, although in fact Heston was a Quaker.

The company underwent a series of changes, assuming its present name in 1901. Along the way, it established itself as a seminal entity in what were then almost entirely new and undiscovered fields: packaging, advertising, and marketing. Quaker was, quite simply, the first nationally advertised food brand, but its historical significance goes deeper than that: it was one of the first brands, period, and proved to be one of the most enduring.

When Quaker Oats first went on the market in the late 1800s, grocers typically sold their products unpackaged, from large barrels, which often was unsanitary. By selling its product in cardboard packages, Quaker could promote the advantage of safety. The use of cardboard packages decorated with the Quaker logo had the further advantage, of course, of making the brand highly recognizable. Then there was advertising, which at the time was considered an unseemly activity for businesses, since most advertising promoted patent medicines and other so-called miracle cures. By the 1890s, however, Quaker was advertising its name on billboards and streetcars.

By the time other companies caught on to the idea of advertising in the twentieth century, Quaker was already an established master of the art, employing leading celebrities of the 1930s and 1940s, such as Roy Rogers and Babe Ruth, to make endorsements. The midcentury also saw a rising interest in the health benefits of oatmeal. So when scientists in the 1930s discovered that oats contained a significant dose of the vitamin B-1, Quaker's sales increased by 35 percent almost overnight.

TARGET MARKET

Since its early days Quaker had claimed health benefits for its products, and it was a combination of public interest in the advantages of oats, along with the company's savvy marketing, that transformed oatmeal from a niche product to a staple of American households. Originally, Quaker's principal consumers were German, Irish, or Scottish immigrants; by contrast, mainstream Americans considered oats a food fit only for animals. By the early twentieth century, however, most people in the United States considered oatmeal a good, solid breakfast. Of course, oatmeal was far from fashionable—until the 1980s. By that time, Quaker's sales had been in a long decline, which began with the widespread introduction of ready-to-eat cereals following World War II. But revenues soared again as studies showed a link between oatmeal consumption and lowered cholesterol. During the 1980s Quaker promoted its product with the tag line "It's the Right Thing to Do" in ads featuring actor Wilford Brimley. Later, the tag line became "Every Day Should Feel This Good."

Until 1997, however, the Food and Drug Administration's (FDA) regulations prohibited companies from making specific claims about a link between their products and a reduction in heart disease. Stephen Ink, director of nutrition at Quaker's research laboratories, had been working to establish such a link for his brand since 1975, and late in 1996, as Quaker prepared for a favorable ruling, he told Stephanie Thompson of Brandweek, "In the past, health claims have required generic language like, 'fruits, grains and vegetables carrying dietary fiber may limit the risk of heart disease,' but we couldn't specifically say oatmeal"—much less Quaker Oatmeal. According to Thompson, "Quaker Oats hopes to start a new oatmeal and oat bran craze, pending a much-anticipated FDA ruling on Quaker research regarding the benefits of its core products. The firm plans to make the health pitch a major focus of new packaging and advertising by year-end."

Late in January 1997 the ruling came down, and as Janet Raloff reported in Science News, "even Quaker was surprised by the scope of the FDA's ruling." Ink admitted that although research had shown a possible link between oat bran and lowered cholesterol, this had not been proven conclusively. Nonetheless, on the heels of the ruling, the company ran a full-page ad in the Washington Post that showed the famous Quaker man portrayed in the logo along with the headline "Now he has another reason to smile. The FDA confirms the first food-specific health claim: Soluble fiber from oatmeal, as part of a low saturated fat, low cholesterol diet, may reduce the risk of heart disease."

COMPETITION

Quaker was not the only company that benefited from the FDA ruling. Raloff noted that, for instance, General Mills' Cheerios, a ready-to-eat cereal, was also covered, and indeed General Mills ran its own newspaper ads, accompanied by a television spot, which appeared before a Quaker commercial with a voice-over reporting the results of the FDA ruling. The FDA's ruling was welcome news to cereal giant Kellogg as well: earlier, the company had been required to change the name of its Heartwise cereal to Fiberwise because the FDA held that the brand name could be deceptive.

Technically, the only major competitor for Quaker as a hot cereal was Nabisco Foods Group's Cream of Wheat; but with its strong position in the category—and its offerings in other areas—Quaker was prepared to take on larger game. In January 1998 it launched a $20 million campaign, primarily on television, with spots created by FCB touting its Quaker Fruit & Oatmeal Cereal Bars as superior to Kellogg's Nutri-Grain Bars. In terms of the cholesterol claims in advertising for Quaker Oatmeal, however, the true competition came in the form of CSPI and other critics outside the industry.

In November 1996, just before the FDA ruling, Bruce Silverglade of CSPI told Thompson, "Instead of permitting claims for single foods, we have urged the [FDA] to include information on the benefit of oats within the existing claim on all foods high in soluble fiber." CSPI would become much more vocal about Quaker's advertising in 1998, but consumer groups were not the only critics. In December 1998 the Wall Street Journal speculated that although advertising by Quaker and other companies might initially draw in more consumers, the higher costs of heart-smart products—not to mention people's tendency to lose interest in a healthy eating regimen—might limit the chances of success.

MARKETING STRATEGY

In 1997 Quaker dropped longtime advertising agency Jordan, McGrath, Case & Taylor, which had handled its campaigns during the 1980s, in favor of FCB. A distinguished agency of long standing, FCB had fallen on hard times in the early 1990s, but with the Quaker account and others, analysts predicted renewed strength for the firm. Its first ads for Quaker, in 1997, used the song "Heart and Soul." During most of 1998, FCB and Quaker concentrated on Quaker Oats Fruit & Oatmeal, as well as Quaker's Dino Eggs. The Dino Eggs, a brand extension for children whose introduction was tied to Universal Pictures's release of a new film in the popular Land Before Time series, were marketed in the shape of eggs. When hot water was added to them, they "hatched" into brightly colored dinosaurs.

In the late summer and early fall, however, FCB and Quaker presented the "Warms You, Heart and Soul" campaign. Television ads included a 30-second spot and six 15-second spots, and the company supplemented these with a single print ad, as well as packaging changes. The campaign centered around the town of Lafayette, Colorado, where 100 residents were recruited to take the Quaker "Smart Heart Challenge," eating a bowl of Quaker oatmeal every day for 30 days. They were monitored by the Boulder, Colorado, Community Hospital, which reported that at the end of the month-long trial, 98 of the 100 participants had lowered their cholesterol levels by an average of 24 points.

Eleven of the participants appeared in the television spots, and pictures of six of the participating residents were on special packages of Quaker Toasted Oatmeal, Quaker Toasted Oatmeal Squares, and Quaker Instant Oatmeal. One television spot, for instance, showed Dan, a Lafayette police officer, standing in front of a sign showing a 30-mile-per-hour speed limit; as Dan explained, he had lowered his cholesterol by one less point, 29. In other spots, Lafayette residents appeared with a variety of numbers, including bingo signs and price markers that signified the amount of points by which they had lowered their cholesterol. The print ad showed the entire group seated on bleachers at Lafayette's high school.

OUTCOME

The "Warms You" campaign, Pollack reported in Advertising Age, was to be the "baseline effort supporting all Quaker's other hot cereals," beginning with its introduction in August 1998. Pollack noted that sales had not increased in the two years following the favorable FDA ruling. It remained to be seen whether the cheerful, folksy ads would activate Quaker's sales; in the meantime, the company faced renewed attacks from CSPI in 1999.

THE LEMON AWARDS

On January 14, 1999, representatives of a coalition of public-interest groups, led by the Washington, D.C.-based Center for Science in the Public Interest (CSPI), gathered to present the 14th annual Harlan Page Hubbard Lemon Awards, which were presented each year to companies that, in the coalition's opinion, ran misleading ads. CSPI nominated Quaker Oats for its 1998 commercials about the link between lowered cholesterol levels and consumption of Quaker Oats, but Quaker did not "win". That honor went to Telecom, USA, which advertised the 10-10-321 and 10-10-220 long-distance services. According to Becky Sachs of the Telecommunications Research & Action Center, "Commercials tell consumers that 10-10-321 can save them money, but what they don't tell consumers is that a call has to last at least 10 minutes for the discounts to kick in."

Other candidates for the "Lemmie" award included Miller Beer, which according to United Press International ran a commercial "showing a young man playing with a puppy, then a can of beer, and the graphic 'man's other best friend' "; the Brown & Williamson Tobacco Company, "which promot[ed] the cool, menthol taste [of an unnamed cigarette brand] without mentioning that the numbing effect of menthol in cigarettes has not been fully studied"; and the First USA credit card, which "offer[ed] low-interest checks to consumers … while closer inspection of fine print reveals buried 'transaction finance charges'." Several other brands and companies were cited; it should be noted, however, that the statements represent the opinions of the public-interest groups who participated and do not necessarily reflect the views of consumers or advertisers.

CSPI nominated the Quaker spot for the Harlan Page Hubbard Lemon Award, given annually for advertising that the consumer advocacy group and other public-interest lobbyists deemed the most "misleading, unfair, and irresponsible ads." Bonnie Liebman of CSPI pointed out that on the Quaker Web site, consumers would learn that the Lafayette study participants had combined their consumption of Quaker Oats with a program of exercise and fat reduction, but "the ads never mention [that], just the 'powerful oatmeal'." In late January 1999 CSPI demanded that the Federal Trade Commission (FTC) force Quaker to take the commercials off the air. "Quaker's ad implies that oatmeal is a 'magic bullet' that can cause impressive drops in blood cholesterol with little effort," CSPI stated in its petition. Margaret Kirch Cohen, a spokesperson for Quaker, told Food Labeling News that "the results of the Smart Heart Challenge were completely consistent with nearly 40 years of scientific studies that have demonstrated the cholesterol-lowering benefits of oatmeal." She added, "I think we took a very conservative approach to our advertising campaign and selected a wide range of individuals whose experiences varied."

FURTHER READING

"CSPI Asks FTC to Prohibit Cholesterol Claims in Quaker Oatmeal TV Commercial." Food Labeling News, February 3, 1999.

"Feeling Their Oats." Supermarket News, February 3, 1997, p. 10.

"Full-Page Quaker Oats Advertisement." Food Labeling News, January 30, 1997.

"Lemon Awards Given for Worst Ads." United Press International, January 15, 1999.

Hume, Scott. "Passing the Oatmeal Challenge." Adweek (Midwest Edition), August 17, 1998, p. 4.

O'Connell, Vanessa. "New Pitches Set for Anti-Cholesterol Foods." Wall Street Journal, December 11, 1998, p. B-8.

Pollack, Judann. "Ordinary People Star in New Fall Quaker Effort: Ads Document Cholesterol Drop among Residents of Colo. Town." Advertising Age, August 17, 1998, p. 42.

"Quaker Goes Prehistoric." Promo, December 1998.

Raloff, Janet. "FDA Allows Heart Health Claims for Oats." Science News, February 1, 1997, p. 71.

Thompson, Stephanie. "New Wave of Grain?" Brandweek, November 11, 1996, p. 1.

――――――. "Quaker: $20M Push to Disbar Kellogg." Brandweek, January 12, 1998, p. 1.

――――――. "Very Big Push for Very Berry." Mediaweek, June 22, 1998, p. 48.

                                               Judson Knight

SECURITY CAMERA CAMPAIGN

OVERVIEW

From humble beginnings in a North Carolina pharmacy a century ago, Pepsi-Cola grew to become one of the best-known products throughout the world. The company behind it grew as well, to become one of the top marketers of beverages in the world. In 1965 Pepsi-Cola and Frito-Lay merged to form PepsiCo, Inc. In the years since then PepsiCo has become one of the world's largest consumer product companies. Remarkable for a company of its size, PepsiCo has also remained a growth company, increasing its sales and its return to investors every year since its founding. Pepsi-Cola beverages were available in more than 190 countries and territories, and the company used its advertising and high-energy promotions to maintain the brand's "young" image.

"Security Camera" was the second in a series of story line spots created for Pepsi by its longtime ad agency BBDO. In the first spot in the series, which debuted during the telecast of Super Bowl XXIX in 1995, actor Joe Bays played a Coca-Cola deliveryman who refused to give back a Pepsi to a driver in a diner. The second spot, "Security Camera," was aired during NBC's telecast of Super Bowl XXX in 1996. Shot in black and white to resemble the video feed from a surveillance camera, the commercial continued the saga, as the same Coca-Cola driver was shown loading up a convenience store cooler with his product. Then, glancing up and down the aisle to make sure that no one was watching, he slipped his hand into the nearby Pepsi shelves to filch a can of the competitor's soda. Complications ensued when the shelf collapsed, sending dozens of Pepsi cans crashing to the floor around him. As a crowd of gawkers arrived, the sound track played Hank Williams's country chestnut "Your Cheatin' Heart."

"Security Camera" was consistently rated by viewers as one of the most effective and memorable spots shown during the Super Bowl telecast. It went on to win numerous industry awards and was considered one of the most successful commercials of the 1990s. Observers gave it high marks for its humor, refreshingly low-tech approach, and use of old-time music.

HISTORICAL CONTEXT

The Pepsi story began at the turn of the century, a time when the drugstore soda fountain was a popular place for people to gather for a refreshing drink. Pharmacists experimented with various mixtures of coca leaf and kola nut—thought to have extraordinary health benefits—in making their drinks. The soft drink industry was born when some of these "cola" drinks became so popular that their recipes were patented and trademarked for mass distribution to other drugstores.

During the 1890s Caleb Bradham concocted a new fountain drink in his drugstore in New Bern, North Carolina. His creation was a unique mixture of kola nut extract, vanilla, and rare oils that he named Pepsi-Cola. He advertised it as being "exhilarating" and "invigorating" and claimed that it aided digestion. Sales began to grow, and in 1902 Bradham launched the Pepsi-Cola Company in the back room of his pharmacy and applied to the U.S. Patent Office for a trademark. At first he mixed the syrup himself and sold it exclusively through soda fountains. But he soon realized that there was a greater opportunity in bottling Pepsi-Cola so that people could drink it anywhere. Business boomed until the postwar years of 1917–18, when sugar jumped from 5.5 cents a pound to 22.5 cents a pound. For Pepsi-Cola, which was retailing at a nickel per bottle, this development spelled disaster. After collapsing into bankruptcy, the company changed hands four times before winding up in 1931 as a subsidiary of Loft Incorporated, a large chain of candy stores and soda fountains.

By the mid-1950s Pepsi was enjoying an extended period of growth and expansion. Product innovation continued, and in 1958 a distinctive new "swirl" bottle was introduced. That same year, a new advertising campaign, "Be Sociable, Have a Pepsi," was launched. It was the first Pepsi-Cola campaign to focus on young people as the brand's major target and was soon followed by another youth-oriented campaign, "Now It's Pepsi, for Those Who Think Young."

In 1965 the Pepsi-Cola Company merged with the successful Dallas marketer of salty snacks, Frito-Lay, to form PepsiCo, one of the largest consumer products companies in the United States. Industry analysts began to observe that Pepsi, an upstart, aggressive company, was challenging the dominant soft drink company, Coca-Cola, with increasing success, and the media dubbed the competition the "cola wars." In the 1970s "The Pepsi Challenge," a landmark marketing strategy, was born when consumer tests confirmed that many people found Pepsi's taste to be superior to Coke's. "The Pepsi Challenge" used filmed taste tests to translate the results into advertising. The campaign was periodically reintroduced to new generations of consumers.

Throughout the 1980s a long list of stars lent their endorsement weight to Pepsi, including pop music icons Lionel Richie, Tina Turner, and Gloria Estefan and sports greats Joe Montana and Dan Marino. The actor Michael J. Fox appeared in a series of Pepsi and Diet Pepsi commercials, including the classic "Apartment 10G." Michael Jackson starred in the first ever episodic commercial, "Chase," which became the most watched commercial in history.

The 1990s ushered in a new generation of award-winning Pepsi advertising. Supermodel Cindy Crawford helped introduce a new package design, and Pepsi reminded people to "Be young, have fun, drink Pepsi." Basketball star Shaquille O'Neal carried on Pepsi's tradition of youth-oriented ads, and by the middle of the decade Pepsi advertising was pointing out that "Nothing Else Is a Pepsi." The period was an era of high-tech, effects-driven commercials, with the use of big-name celebrity endorsers de rigueur for spots aired during Super Bowl telecasts. It thus came as something of a surprise when Pepsi scored its biggest splash in years with the decidedly low-tech, celebrity-free "Security Camera."

TARGET MARKET

The Super Bowl, the annual National Football League championship game, was a chance for major U.S. advertisers to reach the largest captive audiences ever assembled. The telecast, which attracted an audience of more than 138 million viewers worldwide in 1996, was one of the few times a television set was watched by dozens of people in the same room.

Fortunes were sometimes spent on producing a single spot for the Super Bowl, and vast sums went toward buying time on the telecast. In 1998 the rate for a 30-second spot was about $1.3 million, up from $1.2 million in the previous year. The ultimate cost of airing a failed Super Bowl spot could be much more than the amount spent for air time or the millions spent to produce it. A flop could cost an ad agency business, force a marketing overhaul, and—at least temporarily—destroy a marketer's image.

On the other hand, well-done spots could be an effective way to get consumers to remember a product. This was especially true for young consumers, who in the 1990s showed an increased willingness to spend money on products like soda, chips, and candy. Thus, it was not surprising that teenagers were the target of many Super Bowl pitches from, among other products, Pepsi and Frito-Lay.

COMPETITION

Pepsi was often cited for the consistency of its message, and in the 1990s its advertising profited from the example of its closest competitor. In the 1980s Coca-Cola, stung by Pepsi's growth and prominence, had abandoned its century-old Coke recipe in favor of a new product formulated to taste more like Pepsi. Consumers, however, quickly rejected the new Coke, and in short order Coca-Cola was forced to reinstate the original product under a new name, Coca-Cola Classic.

After that debacle Coca-Cola concentrated on nurturing its brand identity. Introduced in 1994, its "Always Coca-Cola" theme succeeded by hammering its image-building message home to consumers. Clearly learning from the example of its rival, Pepsi strove for a similar consistency in its "Nothing Else Is a Pepsi" campaign. "Security Camera" was one in the second generation of Pepsi ads to end with this tag line. The ad effectively blended humor with image building to contrast the styles of the two brands. "The campaign helps Pepsi's trademark, because Pepsi's trying to stay young and paint Coke as gray," said Tom Pirko, an industry consultant.

In 1995 Coca-Cola spent $125.7 million to advertise its regular and diet colas. By contrast, Pepsi's ad spending that year topped out at $122.9 million. Marketing experts were divided over which company was getting the most bang for its buck. Some pointed to above average sales increases by both regular brands and declared a stalemate. Others felt that Pepsi was winning the marketing battle in the United States, with Coke edging ahead in foreign markets.

MARKETING STRATEGY

Pepsi and Anheuser-Busch were the biggest advertisers for Super Bowl XXX, with four minutes of spots each. For Pepsi the telecast was the kickoff for its 1996 ad campaigns. Pepsi spent $5 million to create its ads and another $11 million or so to air them. The outlay represented 10 percent of Pepsi's 1996 television ad budget for its flagship brand.

"Security Camera" was the fruit of an unusual brainstorming session at BBDO. Michael Patti, executive creative director, and Don Schneider, senior creative director/art director, were conceptualizing a new Pepsi campaign when chief creative officer Ted Sann poked his head into the office and said, "Security camera." It was not the first time that, in the middle of creative discussions, Sann had thrown out a word or phrase that later came to form the essence of a campaign. "Ted will always come up with something valuable," Schneider told Shoot magazine, "whether it's the germ of an idea, adding to the idea or killing an idea that doesn't make sense."

As originally presented to Pepsi, the commercial had a different ending. In the original the Coca-Cola driver found himself caught by an old woman in his attempt to snatch a Pepsi from the display case. The gag ended with the guilty-faced deliveryman sneaking back later to retrieve the can. After shooting the commercial in this form, Patti and Schneider decided to go in a different direction. The new slapstick ending had the driver accidentally bringing down a torrent of Pepsi cans in his effort to steal a beverage for himself. Instead of having the driver slink back to grab a Pepsi, the new denouement, improvised by actor Bays, had the deliveryman putting a lone Pepsi back on the empty shelf before fleeing the scene of the incident. According to Sann, the success of the commercial lay in its use of showing, rather than telling, its story line. "Ads that depend on visual puns tend to be more successful," he observed.

"Security Camera" was the latest in a long line of quirky, humorous Pepsi ads, most of them created by BBDO. Pepsi's traditional reliance on humor dovetailed nicely with a growing trend in advertising. The increasing complexity of contemporary society was often cited as the reason viewers wanted to be amused by television commercials. During the first eight years that USA Today's Ad Track survey measured viewer response to Super Bowl ads, only one nonhumorous spot made it into the annual list of five top-rated ads. The success of commercials like "Security Camera" represented a victory of the new thinking in advertising over what had been the conventional wisdom in past decades. "For years, Madison Avenue was deathly afraid that humor would reflect badly on their products," observed comedian Marty Ingels. "But today, you have automatic product acceptance if you can make people laugh."

BIRTHDAY BASH

Nowhere was the birthday of Pepsi-Cola more festively celebrated than in its birthplace of North Carolina. The state's celebration began on New Year's Day in 1998, 100 years after the pharmacist in New Bern had put the finishing touches on his unique concoction. The company sponsored special events and projects throughout both North and South Carolina as a way of acknowledging the region's support of the brand from its beginning.

"Generation Next" was given a special part in the anniversary. Pepsi bottlers in the two states gave one share of company stock to the first baby born at participating hospitals on New Year's Day. In addition, special packages containing such items as Pepsi baseball caps, bibs, and refrigerator memo boards were delivered to all New Year's Day babies and their parents. Nearly 135 hospitals participated in the project. Other activities included a commemorative poster contest, an art competition, a parade, a flotilla, a fireworks display, historical tours, and the exhibit of memorabilia called 100 Years of Pepsi.

OUTCOME

USA Today's Ad Track rated "Security Camera" the number one commercial of the 1996 Super Bowl telecast. In fact, the Pepsi spot came within 2 percentage points of topping the Budweiser frogs as the most popular of all campaigns rated by Ad Track since 1995. About 45 percent of respondents reported that they liked the new campaign a lot. There was, however, a difference in the response of women and men, with 51 percent of women as opposed to 39 percent of men reporting high favorability.

"It's great because Pepsi confronts Coke," said 24-year-old Erich Peters, one of 60 randomly selected volunteers who used handheld meters to chart their second-by-second reactions to the commercials. "They acknowledge that Coke is there, but Pepsi shows why they are better." Perhaps more importantly, the spot was remembered by a majority of those who watched it. Creative Marketing Consultants of Southfield, Michigan, called 493 Super Bowl viewers after the game and asked them which companies or products they remembered being advertised during the telecast. Pepsi's "Security Camera" came out ahead, with almost 60 percent of survey participants saying that they recalled the spot.

Newsday assembled a panel of seven advertising and marketing executives to review the more than four dozen commercials aired during the Super Bowl telecast. Four of them chose "Security Camera" as their favorite spot. "It was simple and it wasn't overproduced," said David Angelo, executive vice president of Cliff Freeman & Partners.

Ad reviewers responded favorably to the spot as well. "It was true and it was good," Adweek magazine's critic wrote of the use of Williams's "Your Cheatin' Heart." Another reviewer dubbed the spot "comic genius," saying that it offered a "precious glimpse of humanity in black and white, reminiscent of Candid Camera." Advertising Age magazine named the "Security Camera" spot a category winner in its annual awards. "Coca-Cola better can that guy before BBDO and Joe Pytka strike again," the magazine's editors wrote.

BBDO was awarded a 1996 gold Clio for "Security Camera." At the 1997 New York Festivals, which honored television and cinema advertising and public-service announcements, BBDO won the award for best campaign for its work on "Security Camera" and two other Pepsi spots, "Frozen Tundra" and "Goldfish." The campaign was also honored as the best soft drink series. "Security Camera" took the gold as the best soft drink commercial, for best art direction, and as the best humorous spot.

FURTHER READING

Christy, Nick. "100 Years of Advertising Innovation." Beverage World, January 1, 1998.

Goldrich, Robert. "Theory of Evolution." Shoot, September 26, 1997.

Lippert, Barbara. "The Big Game's Big Three." Adweek, February 12, 1996.

"Madison Avenue's Super Bowl Lesson Is a Knee Slapper." USA Today, January 30, 1996.

                                       Robert Schnakenberg

THAT'S BRISK, BABY! CAMPAIGN

OVERVIEW

PepsiCo, Inc., entered the ready-to-drink tea market in 1991 when it joined with the Thomas J. Lipton Company (which later became part of Unilever) to form the Pepsi-Lipton Tea Partnership to market, produce, and develop tea-based drinks. Two ready-to-drink Lipton brands defined the partnership: Lipton's Brew (later renamed Lipton's Iced Tea), a bottled, hot-brewed tea; and Lipton Brisk, a lower-priced tea manufactured after the fashion of soft drinks and sold in aluminum cans. In 1996 Pepsi began backing the latter product with a high-profile campaign dubbed "That's Brisk, Baby!" Created by ad agency J. Walter Thompson, it featured model-animated versions of pop-culture icons.

Each of the TV spots hewed closely, throughout most of the campaign's seven-year-run, to a simple story line in which a downtrodden or exhausted celebrity (living or dead) was able to revive himself dramatically by drinking Lipton Brisk. Those figures made into latex-covered puppets for Pepsi's benefit included Frank Sinatra, Sylvester Stallone, Bruce Willis, Elvis Presley, James Brown, Willie Nelson, and Coolio, among others. In 2000 integrated print and online components each assumed a substantial role in the campaign, but the surreal TV spots were the centerpiece. The budget ranged between $7 million in 1996 and $21 million in 2002.

"That's Brisk, Baby!" was a hit among consumers—especially young adults—and among ad-industry critics. Lipton Brisk increasingly dominated in the ready-to-drink tea market through 2000, but its market share and sales volume began to erode in that year. Although PepsiCo allotted more advertising money to the brand in than in any previous year, Lipton Brisk posted a record 14 percent sales volume decline. The campaign was phased out, and the brand did little advertising in 2003 and 2004.

HISTORICAL CONTEXT

The 1990s cola slump was attributed partly to the health consciousness of the decade. Baby boomers, now in their 40s and 50s, were rejecting traditional colas for more wholesome concoctions. Snapple Beverage Corporation pioneered a new kind of soft drink and inspired both Pepsi and Coke to improve the taste of ready-to-drink tea. According to an article in Marketing by Joshua Levine, the "so-called new age sodas" were expensive, with no preservatives or additives. In the 1990s, wrote Levine, "That's the highest kind of praise." The ready-to-drink tea market increased by 50 percent in 1991, and experts predicted that it would increase at least that much more over the following several years. In comparison cola sales increased just 1.5 percent in the same year. The market value for cola, however, was $34 billion, compared to a modest $600 million for tea. Still, both Pepsi and Coke were looking to the future when they began marketing tea in 1992.

Within a few years the tea market had exceeded expectations. By 1994 sales of ready-to-drink tea had reached the $1 billion mark, and on February 1, 1994, PepsiCo announced that earnings from its U.S. beverage division had risen by 17 percent to more than $900 million. Part of the increase was credited to the streamlining of packaging and to a cost-effective restructuring in which Pepsi eliminated 1,800 people from middle management and shifted them into sales. But according to analysts, the increase had more to do with PepsiCo's quest for new products.

According to a December 1992 article in Fortune, this hunger, nothing new for Pepsi, stemmed in part from a "pressure to catch up." In addition to Frito-Lay products, PepsiCo operated three profitable fast-food chains: Pizza Hut, KFC (formerly Kentucky Fried Chicken), and Taco Bell. CEO Wayne Calloway, who headed Pepsi from 1984 until 1996, regularly pushed managers to "rethink business." Under Calloway's leadership Pepsi started marketing All Sport in 1993 and testing a carbonated juice drink, Splash, in 1994. According to BusinessWeek, approximately two-thirds of Pepsi's volume growth in 1993 came from noncarbonated beverages. By 1997 Pepsi was marketing other alternative drinks, including Aquafina, a bottled water, and Frappuccino, a ready-to-drink coffee beverage created in partnership with Starbucks Coffee.

By the mid-1990s marketing experts feared that Pepsi had overextended itself with so many products that it could not concentrate on marketing its soft-drink syrup, which still constituted the bulk of its sales and profits. In 1997 PepsiCo made a decision to spin off its restaurant chains into a separate business entity so that, as BusinessWeek said, it could "focus on its core beverage and snack food business."

TARGET MARKET

In the "That's Brisk, Baby!" campaign the Pepsi-Lipton Tea Partnership targeted consumers between the ages of 18 and 39. This was the age bracket that drank the most iced tea, said Jon Harris, public relations manager for the Pepsi-Lipton Tea Partnership. "However, when we do spots, we're appealing to all," he added. Mickey Paxton of the J. Walter Thompson agency described the campaign as having a lot of what he called "breadth." "We threw out a huge net," Paxton said. "Tea is not what you drink when you're 14, 15, 16 years old. You're not as concerned about health at that age. When you're 20 to 25, though, it's totally different."

The campaign was designed to appeal to those 20- and 30-somethings that Paxton believed were looking for truthfulness. "They are very sophisticated and cynical, and you need to put it in a package they can appreciate. 'Don't treat me like an idiot' is their message," he said. "At the same time, the campaign needed to be universal. Sinatra's music is appreciated by everyone, even the 20-somethings." Harris agreed: "The Lipton Brisk campaign matched the intelligence of today's young adult. It's about talking with them, not down to them."

The campaign was, in fact, especially popular and effective with younger consumers. In a poll of 356 adults conducted by Advertising & Marketing and USA Today's Ad Track, close to 40 percent of consumers aged 18 to 29 said that they liked the ads a lot, and 21 percent called them very effective. In contrast, 23 percent of consumers age 30 to 49 said that they liked the ads a lot, while 15 percent in that age bracket rated them as very effective. No one at the Pepsi-Lipton Tea Partnership was surprised by the success of the campaign. They had expected the target audience to react "very well," said Harris, "and we exceeded our expectations."

COMPETITION

Lipton Brisk's major competition was Coca-Cola's Nestea Cool, produced by Coca-Cola Nestlé Refreshment. While PepsiCo led the market in sales of ready-to-drink ice tea, Coke commanded the beverage industry overall, outselling Pepsi both in the United States and elsewhere. According to BusinessWeek, in North America in 1997 Coke had about 45 percent of the market share compared to Pepsi's 30 percent. In other countries Coke's lead was even greater. In Europe Coke had 45 percent of the market compared to PepsiCo's 15 percent, and in Latin America 55 percent to 18 percent. While Coke earned $3.9 billion on $18.5 billion in sales in 1996, PepsiCo's beverage department reported earnings of $582 million on $10.5 billion in sales during the same year.

By 1997 marketing experts believed that PepsiCo had renewed a commitment to give Coca-Cola a run for its money, much as it did during the 1970s with its "New Generation" campaign. The decision to spin off its fast-food operations indicated one step in that direction. "Shedding its restaurants will … give PepsiCo an opportunity to boost sales of its soft-drink syrups to other restaurant chains, which have been reluctant to sell Pepsi products because it … put money in their competitor's pockets," wrote Ken Sheets in Kiplinger's Personal Finance Magazine. In 1997 PepsiCo introduced a new logo (a globe) and color (blue), evident on the Lipton Brisk can. Both were part of PepsiCo's efforts to create "a corporate icon that's as powerful as Coke's script," wrote Nicole Harris in BusinessWeek.

MARKETING STRATEGY

By 1996 Lipton Brisk commanded the number one spot in the ready-to-drink tea market. "We had the number one tea and we wanted to identify with the number one pop culture icons," Jon Harris, public relations manager for the Pepsi-Lipton Tea Partnership, said. "The biggest challenge of the campaign was deciding which icon to go with." Because Lipton Brisk was sold and distributed as a soda, the partnership felt that it needed a campaign that would appeal to the soda crowd. Marketing experts, in fact, felt that the campaign was successful because Lipton Brisk was marketed as a soda, not a tea. Tea was usually marketed for taste, quality, and processing. "Because we're competing in the soda-drinking category, we needed something that was fun and breakthrough," Paxton said. "People watching and being entertained and liking it." He added that "the whole idea was to go beyond cool, all the way to brisk. Cool people are flawed. People identify with them. And Frank Sinatra was the coolest person we could think of."

Paxton's belief that the younger consumers of the late 1990s were intelligent and high-tech led him to choose the sophisticated technology of stop-frame model animation, a method used in the feature-length films James and the Giant Peach and The Nightmare before Christmas. Each frame of the film was shot separately, with 24 frames every second. The actors were miniature latex figures. The only thing in color in the commercials was the blue Lipton Brisk can. "The black-and-white technology adds a bit of class," Paxton said.

The campaign's first spot, which debuted on June 17, 1996, showed the miniature animated Sinatra figure performing to a packed house of screaming fans, only to be too tired to do an encore. After a backstage swig of Lipton Brisk, the crooner burst out with "Ahhhh, that's brisk, baby!" and was ready to sing all night. A year later, in the week of May 8, 1997, a second commercial aired during the National Basketball Association Playoffs. This spot featured a model-animated figure of Rocky Balboa, the boxing hero of the 1976 film Rocky starring Sylvester Stallone. In the spot Rocky came up a winner because he drank Lipton Brisk tea at the 11th hour, which gave him the edge he needed to knock out his opponent.

In the spring of 1998 the campaign focused on legendary New York Yankees players and coaches of different eras, as an exhausted Babe Ruth was given an ice-cold Brisk by Reggie Jackson. Invigorated, Ruth hit the winning run. Yankees Billy Martin, Mickey Mantle, and George Steinbrenner made appearances in the spot.

I HEAR VOICES

Joe Piscopo, actor and stand-up comic, provided the voice for Frank Sinatra in the "Backstage" TV commercial. Piscopo's Sinatra imitation had been part of the performer's stand-up act for several years and was seen periodically on NBC's Saturday Night Live. Billy West played the part of Sinatra's rather eccentric agent. Sinatra's wife, Tina Sinatra, approved both the script and the voice for the commercial.

The following year, when Sylvester Stallone continued the campaign, he did his own voice. "Once we got Sinatra, Stallone was interested," said the campaign's creator, Mickey Paxton of the ad agency J. Walter Thompson. According to Paxton, being in the same category as Sinatra carried a certain amount of respect, and Stallone wanted to be a part of the series and the reputation it was earning. In "The Babe," the campaign's third commercial, Reggie Jackson and Yankees owner George Steinbrenner did their own voices.

The parody of pop-culture figures in a 1999 update of "That's Brisk, Baby!" was somewhat more pointed. One spot, released during that year's Oscar Awards broadcast, showed model-animated versions of the characters George and Louise Jefferson from the 1970s sitcom The Jeffersons accosting the actor Bruce Willis at a Planet Hollywood (a chain of celebrity-themed restaurants that the real-life Willis co-owned). "Willis," George Jefferson said, "you gonna put a George Jefferson display at Planet Hollywood, or what?" "Sorry, pal," Willis replied. "Stopped movin' on up in the '70s." The Jeffersons attacked Willis, and the action-movie star was able to vanquish them, after downing a Brisk, by causing a model whale to fall from the ceiling on top of them. Another 1999 spot showed the martial-arts movie star Bruce Lee facing off with the fictional martial-arts hero the Karate Kid from the 1984 movie of the same name.

In 2000 Pepsi and J. Walter Thompson turned their attention once again, as in the campaign's introductory Sinatra spot, to the world of popular music. In the new commercial figures from different eras and genres—Elvis Presley, James Brown, Willie Nelson, and Coolio—sang and danced to a hip-hop version of the Presley hit "Jail House Rock." A series of four print ads, one devoted to each of the musical stars featured in the TV commercial, also ran that year, marking the campaign's first significant extension into print media. Internet became an increasingly important part of the "That's Brisk, Baby!" campaign in 2000 as well, as J. Walter Thompson's interactive unit, [email protected], won the campaign's Web duties away from online specialists Agency.com, whom Pepsi had initially chosen for the work. Banner ads on popular websites were used, while TV spots and print ads directed consumers to a Lipton Brisk website where the TV spot as well as behind-the-scenes features were available for viewing.

The most significant 2001 addition to "That's Brisk, Baby!" was an online trivia contest targeting 18- to 24-year-olds, in which the model-animated James Brown and Rocky figures served as hosts of a "Total Refresh Tour." The virtual tour consisted of pop-up ads placed on five websites popular among the target group; consumers had to answer trivia questions on each of the five sites in order to qualify for the promotion's grand prize, a Ford Focus automobile. In 2002 Pepsi phased out the model-animated concept by means of an elaborate in-joke. A spot that aired during that year's Super Bowl featured an animated model of the actor Danny DeVito leading a protest of Lipton Brisk's decision to fire its puppet-spokespersons because a reformulated version of the drink "tastes so good it sells itself." A second 2002 spot showed DeVito and James Brown revenging themselves on the brand by vandalizing a parked Lipton Brisk truck, destroying boxes and cans of the product with crowbars and bats.

OUTCOME

The campaign was well received by consumers and highly lauded within the advertising industry. It won several prizes in the creative category, including Clio, British Design and Art Direction, and ADDY awards. J.J. Jordon, executive vice president of J. Walter Thompson, said, "It's different than anything on the tube." The campaign was seen by its creators as honoring things that America's heroes stood for, and they hoped to align Lipton Brisk with that kind of image. "These are forever icons," said Jon Harris, "and so is Lipton tea." The puppets became celebrities in their own right. For instance, the NBC show Dateline commemorated Sinatra's 1998 death with footage of the model-animated Sinatra from the Lipton Brisk commercials, and Sylvester Stallone appeared on The Tonight Show with the puppet version of himself in hand.

"That's Brisk, Baby!" also played a substantial role in Lipton Brisk's sales success during these years, though that success slowed substantially toward the end of the campaign's run. During the seven-year life of the campaign, Lipton Brisk helped redefine the ready-to-drink tea market, which had previously been dominated by premium-priced, hot-brewed, bottled teas such as Snapple and Arizona. By 1999 the brand was firmly at the top of the ready-to-drink tea market, and many analysts credited the youth appeal of "That's Brisk, Baby!" for spurring consistent growth. In 2000, however, Lipton Brisk's sales volume began to decline, and these declines continued in subsequent years. In 2002, when Pepsi spent more to market Lipton Brisk than it had in any previous year—an estimated $21 million—the brand's sales volume declined by 14 percent. In 2003 and 2004 Lipton Brisk's marketing profile plummeted dramatically; aside from small-scale promotions targeting urban teens, Pepsi did little to advertise the brand.

FURTHER READING

Butler, Simon. "Puppet Tea Party." Adweek (eastern ed.), June 24, 2002.

DeLory, Cherie. "The King Rocks with Lipton Brisk Iced Tea." Boards Online, March 9, 2000. Available from 〈http://www.boardsmag.com/articles/online/20000309/brisk.html〉

Enrico, Dottie. "'Ol Blue Eyes,' Sly Give Lipton Brisk a Taste of Success." USA Today, October 6, 1997.

Garfield, Bob. "While Brand Is Brisk, the Ads Are Baffling." Advertising Age, March 22, 1999.

Harris, Nicole. "If You Can't Beat 'Em, Copy 'Em." BusinessWeek, November 17, 1997, p. 50.

Levine, Joshua. "Watch Out, Snapple!" Forbes, May 10, 1993, pp. 142, 146.

McKay, Betsy, and Suzanne Vranica. "Selling Iced Tea in February: Inside One Campaign." Wall Street Journal, January 28, 2002.

Owens, Jennifer. "[email protected] Unveils Online Promo for Lipton Brisk." Brandweek, April 23, 2001.

Prince, Greg W. "Power Couple." Beverage World, March 15, 1999.

Sellers, Patricia. "Can Coke and Pepsi Make Quaker Sweat?" Fortune, July 10, 1995, p. 20.

――――――. "If It Ain't Broke, Fix It Anyway." Fortune, December 28, 1992, pp. 49-50.

Sheets, Ken. "PepsiCo Goes in Search of Its Next Pepsi Generation." Kiplinger's Personal Finance Magazine, April 1997, pp. 32, 34.

Streisand, Betsy, Eva Pomice, and Dana Hawkins. "Mixed-Up Media Messages." U.S. News & World Report, December 9, 1991, pp. 61, 64.

Zinn, Laura. "Does Pepsi Have Too Many Products?" BusinessWeek, February 14, 1994, pp. 64-66.

                                            Anita Coryell

                                              Mark Lane

THIS IS DIET? CAMPAIGN

OVERVIEW

Since the first diet soft drink was introduced in the 1960s, the diet category has been a vital part of the beverage industry worldwide. Diet Pepsi is PepsiCo's second-biggest trademark, a $3 billion brand. Yet this important brand has been at the mercy of cultural trends that have seen low-calorie sodas go in and out of style as Americans think and rethink the merits of a healthy lifestyle.

Throughout the 1980s diet soft drinks enjoyed robust sales, with the explosion of the exercise and health food industries. Diet sodas eventually cornered some 30 percent of the soft drink business. The biggest players in this category were the two giants, Diet Pepsi and Diet Coke, which together controlled about 75 percent of the soft drink business. Diet Coke invariably vied for market share on the basis of taste. Its signature slogan, "Just For the Taste of It," began running in 1982. The idea was to convince consumers that they did not have to sacrifice full cola enjoyment in their pursuit of a low-calorie soft drink. By contrast, Pepsi ads appealed to the confidence and self-image of the consumer, in what has been termed a "lifestyle" approach. The benefits of drinking Diet Pepsi were stressed with little mention of its taste. In the 1990s, however, those marketing strategies, and the fortunes of the diet category as a whole, changed dramatically.

By the middle of the decade, the diet category had been dealt a blow by the rising popularity of bottled waters and alternative soft drink flavors. Soft drink manufacturers also had lagged in their efforts to promote diet brands, perhaps in anticipation of the Food and Drug Administration's pending approval of new artificial sweeteners. Some cultural observers even blamed the declining sales on the emergence of a new hedonist ethic in American society, as abstinence, asceticism, and calorie counting went out and cigar smoking and sensual gratification came back in. The major players in the diet soda category had to rethink their marketing approaches with this new cultural move toward self-indulgence.

In April 1997 PepsiCo launched a massive creative campaign for Diet Pepsi, complete with a new tag line, packaging, and a co-promotion with Pepsi-owned snack chip manufacturer Frito-Lay. The new slogan, "This Is Diet?," heralded a national repositioning of the brand's look and image. The company introduced a colorful new bottle, which it termed "sophisticated and assertive, with classic good looks."

For the first time PepsiCo was selling its diet brand on the basis of its taste. A major confrontation with rival Coca-Cola was avoided only because Coca-Cola changed to a more lifestyle-oriented advertising strategy. This curious switch amused many industry observers, who wondered aloud whether consumers would even notice the change. As Diet Pepsi's sales continued to fall through 1998, it became increasingly clear that consumers had not noticed and that the "This Is Diet?" campaign alone would not suffice to turn around Diet Pepsi's market fortunes.

HISTORICAL CONTEXT

During its first 65 years the Pepsi-Cola Company sold only one product—Pepsi. With the post-World War II baby boom, however, the way the nation thought of soft drinks changed along with other changes in the population. For many people, soft drinks had to be not just refreshing but also a complement to diet habits. So in 1963 the company developed a new low-calorie drink that carried the Pepsi-Cola name: Diet Pepsi.

First advertised alongside Pepsi, Diet Pepsi later took on an identity of its own. One of its earliest campaigns, "Girlwatchers," was built around a catchy jingle that became so popular it was released as a commercial record and hit the Top 40 list. The diet craze soon spawned other beverages as well. In 1975 Pepsi Light, with a distinctive lemon taste, was introduced as an alternative to traditional diet colas. In 1982 Pepsi Free and Diet Pepsi Free, the first major brand caffeine-free colas, were introduced.

In 1984 Diet Pepsi was reformulated with a new artificial sweetener, aspartame, which was marketed under the trade name NutraSweet. PepsiCo also ran a series of popular television spots to advertise the new formulation. Geraldine Ferraro, the first woman to run for the office of vice president of the United States, starred in a Diet Pepsi spot following her election defeat in 1984. In 1986 Diet Pepsi's television commercial "Apartment 10G," featuring actor Michael J. Fox, was widely hailed as the commercial of the year and became an instant classic. This superbly edited commercial forced Fox to defy rain, traffic, and a menacing gang to fetch a soda for his beautiful female neighbor. Pepsi was so thrilled with the response that the Family Ties star got a reported $2 million a year deal to star in three more spots. The same year saw the unveiling of a new Diet Pepsi logo. In 1987 another Diet Pepsi commercial, "Mustang," became the first advertisement ever to appear on a movie video. In 1990 the singer Ray Charles joined Diet Pepsi campaign veterans Billy Crystal and Michael J. Fox in a new campaign called "The Right Ones." In 1991 the slogan for Diet Pepsi was modified as Ray Charles—backed up by the Uh-Huh Girls—starred in one of the most popular advertising campaigns of the time, "You got the right one baby, uh-huh!" That catch phrase remained in place until the launch of "This Is Diet?" in 1997.

Diet Pepsi sales remained stable despite fluctuations in the diet cola market. But market share sluggishness forced PepsiCo to reexamine its marketing strategy. In 1996 Diet Pepsi sales rose by 1.6 percent while overall volume in the soft drink market rose by 3.6 percent. Diet Pepsi's market share dropped from 5.8 to 5.7 percent, and the brand plummeted from fourth to seventh in brand rankings.

TARGET MARKET

Market research conducted by Coca-Cola in 1997 in preparation for its revamp of Diet Coke advertising shed light on the types of market groups targeted by both Diet Coke and Diet Pepsi. The three "attitudinal groups" of consumers were identified as "Fit and Confidents," "Reluctant Dieters," and "Aggressive Dieters." According to Coca-Cola company documents, "Fit and Confidents" were men and women in their 20s who kept their weight down but drank diet colas anyway to stave off unwanted weight gain. "Reluctant Dieters" were men and women in their 30s who were also known as the "Big Mac and Diet Coke" group because they watched their weight but valued taste as well. Finally, the "Aggressive Dieters" group was comprised of women over 35 who put a high value on staying in shape.

But diet cola drinkers who fit into those categories formed only part of the target market for Diet Pepsi. With dieting declining in importance on Americans' list of priorities, and with many more beverage options open for those who do prefer a low-calorie alternative, Diet Pepsi's marketing strategists faced the difficult task of persuading new consumers to try their drink. They decided that the best way to appeal to these consumers was on the basis of taste. The phrase "This Is Diet?" was crafted to appeal primarily to those who would not normally opt for a diet cola but who might do so if pleasantly surprised by its taste.

Not that PepsiCo gave up on dieters entirely. It hoped to win over health-conscious consumers by convincing them to drink Diet Pepsi rather than a competing beverage, whether that beverage was another diet soda, fruit juice, or bottled water. But in a climate of declining diet sales, the battle for new customers had become even more imperative than usual. Advertising, merchandising, and giveaways were all ways in which Diet Pepsi fought to persuade more Americans to start drinking its diet cola.

THIS IS SKUNKY?

One of the reasons PepsiCo was in such a rush to win FDA approval for its new artificial sweetener acesulfame potassium (also known as Ace K) was to provide an alternative for consumers turned off by aspartame, the sweetener used in Diet Pepsi. For years Diet Pepsi drinkers have complained about a certain "skunky" quality in the beverage when it has been left on the shelf for a while.

Some dismissed the skunkiness as a figment of peoples' imaginations. But studies have indicated that NutraSweet—the trade name of aspartame—can begin to taste bad in a relatively short period of time. Apparently, diet soda made with NutraSweet does not age well. In fact, as time goes by, the sweetener decomposes, allowing the other "flavor notes" in cola—mostly sour acids and bitter caffeine—to become more pronounced because they are no longer balanced by the sweetness.

Some health experts also have claimed that aspartame breaks down into chemicals that may be harmful to humans. They cite studies by the National Cancer Institute and the Washington University School of Medicine. But both the U.S. government and the manufacturer maintain that aspartame is safe and say there is no scientific evidence that it causes any health problems, even when it breaks down.

To deflect public criticism until Ace K could be introduced, Diet Pepsi began putting freshness dates on its cans. Consumers were informed that the quality of aspartame-sweetened products deteriorates within 60 to 90 days. The warmer the temperature, the quicker the deterioration. Consequently, experts recommend that diet sodas containing aspartame be stored in a cool place.

COMPETITION

While Diet Pepsi's market share slipped from 5.8 percent to 5.7 percent in 1995, Diet Coke was having its own problems. It too lost a percentage point off its share, though it remained fixed atop the market at 8.7 percent.

With the launch of the "This Is Diet?" campaign in April 1997, Diet Pepsi focused on the taste of the drink in a marketing campaign for the first time. A week later Coca-Cola announced that Diet Coke was dropping its 15-year-old tag line "Just For the Taste of It" in favor of the lifestyle-based "You Are What You Drink." A number of industry observers pointed out the irony of the two soft drink giants essentially flip-flopping their marketing positions in the course of a month.

MARKETING STRATEGY

"This Is Diet?" represented the biggest new campaign for Diet Pepsi since its "You've Got the Right One Baby, Uh-Huh" campaign in the early 1990s. PepsiCo's national repositioning of its Diet Pepsi brand was designed to emphasize what the company called Diet Pepsi's "refreshing great taste." The national ad campaign kicked off with two new commercials, "Interrogation" and "Wedding," that began running the week of April 15, 1997. Both spots were created by longtime PepsiCo Inc. ad agency BBDO Worldwide, New York, and were aired in 30- and 60-second versions.

In "Interrogation" NYPD Blue actor Dennis Franz played a tough cop questioning a suspect who is tied to a chair. He holds a cup of Diet Pepsi while he tries to intimidate the suspect, and eventually he tosses it in the man's face. The second spot, "Wedding," featured a young bride who had been left at the altar on her wedding day. In an effort to comfort his tearful daughter, the bride's father offers her a can of Diet Pepsi. Both commercials close with a moment of ironic humor as the refreshing taste of Diet Pepsi surprises the recipients, who then pose the brand's tag line question, "This Is Diet?"

In Great Britain the ads were given a distinctly British gloss. Three spots were created by Abbott Mead Vickers BBDO, doing creative work for Diet Pepsi in the United Kingdom for the first time since 1993. The spots featured a girl so swept away by the taste of her Diet Pepsi that she remains oblivious to all sorts of disasters taking place around her. The ads, which retained the "This Is Diet?" tag line, were an attempt to win over cynical British audiences who might not have related to the "Americanized" versions airing across the pond.

To further support its repositioning efforts, PepsiCo designed new packaging and logos for both Diet Pepsi and Caffeine-Free Diet Pepsi. The word "Diet" appeared in script in red and silver on Diet Pepsi cans, which had previously listed both words in blue block letters. The new logo was intended to be more contemporary and eye-catching, with new graphics that built on the brand's former look, adding depth to the design and creating a three-dimensional effect.

A Frito-Lay co-promotion was also part of the marketing effort. Beginning in late April 1997, Pepsi offered consumers savings on what it termed its "better for you" beverages and snacks. On specially-marked Diet Pepsi 12- and 24-pack cases, consumers received coupons for savings on low-fat snacks from Frito-Lay. Likewise, Frito-Lay also featured coupons on specially-marked packaging, offering savings on two-liter bottles of Diet Pepsi and on 12- and 24-pack cases. The campaign was supported with "This Is Diet?" point-of-purchase materials.

OUTCOME

"This Is Diet?" failed to stem the tide of declining sales for Diet Pepsi. As a sign of what has been called "cola fatigue," Coca-Cola Classic, Diet Coke, Pepsi-Cola, and Diet Pepsi all lost share to flavored drinks in 1997. Although Diet Pepsi's sales fell 1 percent, the other colas did post modest volume gains. Coca-Cola Classic's sales rose 2.5 percent, and Diet Coke's sales increased 0.9 percent, while Pepsi sales inched up 0.5 percent.

The "This Is Diet?" campaign also brought PepsiCo and the brand some unwanted publicity. The Dennis Franz "Interrogation" spot created controversy when the NBC network refused to air it on the grounds that it promoted rival ABC's series NYPD Blue. The commercials failed to win any industry awards and were generally deemed below the standards met by Pepsi and BBDO in previous campaigns.

A long-term solution for Pepsi's diet cola problems may have finally come in 1998 with the Food and Drug Administration's approval of acesulfame potassium, an artificial sweetener known more commonly as Ace K. The new sweetener, which has a longer shelf life than aspartame, was rushed quickly to market in a new low-calorie cola product, Pepsi One. The new drink scored higher among consumers than any new product PepsiCo had ever launched. Industry response was swift and favorable. "The diet segment has long needed a healthy dose of news and excitement," commented John D. Sicher, publisher of Beverage Digest. "I'm sure Coke is going to take a long, hard look at this."

FURTHER READING

"Cola Wars Produce New Ads for Diet Pepsi, Sprite." Tampa Tribune, April 19, 1997.

"Diet Pepsi Gets New Look, New Ads." Sentinel Orlando, April 20, 1997.

Elliott, Stuart. "Coca-Cola Will Take a New Tack To Appeal to Diet Soda Drinkers." New York Times, May 14, 1997.

"Hot Spot: Diet Pepsi: Low-Cal Relief for Stressful Situations." Advertising Age, April 21, 1997.

                                        Robert Schnakenberg

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