The new product is described as a mid-calorie cola average, having a mix of sugar and artificial sweeteners, designed to deliver a full cola taste with reduced calories. While filling the market gap between full sugar and diet soft drinks, PepsiCo has indicated that its prime target market is lapsed cola drinkers (giving them a reason to return to the product category). PepsiCo, which owns range of high profile beverage brands in addition to its flagship brand Pepsi, appear to be highly committed to Pepsi Next providing it with strong launch and management support.
In fact, according to PepsiCo themselves, this is their most significant product launch for several years. About PepsiCo PepsiCo is the second largest food and beverage company in the world, with revenues now in excess of $60 billion. The corporation has 22 brands that achieve retail sales in excess of $1 billion each. As a result of their brand diversification, around half of PepsiCo revenue is generated from their food lines, such as Frito-Lay (snack food) and Quaker Oats. In addition, they have progressively expanded internationally and now access over 80% of the world’s population.
Their international (non-US) markets account for almost 50% of their total revenues and they still see significant growth potential from these markets, on the basis that per pita consumption of snacks and beverages in other countries is well below US market levels. As a result, PepsiCo has achieved solid growth is many international markets. While their US beverage sales fell by 2% in 2011, this has been more than offset by double-digit sales increases in Europe, Asia, the Middle East and Africa.
In terms of their overall strategic approach, PepsiCo (as highlighted on their website) see themselves as innovative and adaptive, as stated in the following website quote: “Pepsi is constantly on the lookout for ways to ensure their consumers get the products they want, when they want them and where they want them. ” PepsiCo Brand Strategy consumer behavior study case By predestinating In their Annual Report, PepsiCo NAS structured their brands around three related themes, as highlighted in the following table.
This brand structure gives some insight into the role of their brands and how they see their brand portfolio developing in the future. Emphasis of Brand Key Brands Fun-for-you Pepsi, Mountain Dew, 7-JP, Lays, Doris, Sachets, Red Rock Better-for-you Pepsi Max, Diet Pepsi, Lays (oven baked), Quaker bars Good-for-you Tropical, Quaker Oats, Storage, Nut Harvest (Note: The various terms, ‘Fun-for-you’ and so on are PepsiCo terminology, not the author’s. As you can see from PepsiCo classification of their brands, it is appears that the firm has the dual goals of supporting and leveraging its existing fun’ brands, while moving towards a broader range of healthier offerings. While this second goal may appear to be mainly related to improving their corporate image, it does have commercial intent, as explained on the PepsiCo website: “Because a healthier future for all people and our planet means a more successful future for PepsiCo. To help implement this corporate goal, across their various brands, PepsiCo has focused on roving a wider range of healthier choices, introducing more natural ingredients, reducing fat content, reducing the environmental impact of their packaging, and so on. Recent Product Innovations PepsiCo has a history of developing and launching a number of mid-calorie beverages and Pepsi Next is by no means their first attempt with this style of product.
In addition to various Pepsi variations (described in the ‘Before Pepsi Next’ section below), they have had some recent success with reduced calorie versions within their Tropical and Storage brands. One very successful mid-calorie product initiate is Troops, which was launched in 2010. Troops, as implied by its name, is a version of Tropical with 50% less sugar and calories. This new product was ranked as the 6th most successful new food/beverage product in its launch year with retail sales in excess of $70 million.
Its initial success has continued over the last two years, with the Troops product line now generating over $1 50 million in sales. And even more successful was Pepsin’s launch of Storage 62 in 2007. (Note: Pepsi acquired the Storage brand with their purchase of the Quaker Company in 2001 . ) This low-calorie version of Storage was identified as the most successful new food/beverage product n 2008 in the US market, achieving sales over $150 million in its first year.
Clearly, these fairly recent product successes with reduced calorie offerings under strong brands would have had the effect of buoying Pepsin’s confidence regarding the viability of this style of product. Hence, they believed that it was the right time to revisit a reduced calorie Pepsi variation. However, as some commentators have pointed out, it should be noted that their success (with Troops and 62) has occurred in their ‘good-for-you’ brand range, where consumers are already quite health- conscious and probably more responsive to healthier options.
Therefore, whether this perceived benefit (of less sugar) will carry to fun-for-you’ brands like Pepsi is less certain for the firm. Pepsi Next Strategy, Development and Launch As stated above, a key goal tot the Pepsi Next tottering is to try and win back cola drinkers lost to other beverages. Pepsin’s research suggests that sugar and carbohydrates is an issue for some consumers, but a reasonable proportion of these consumers have not warmed to the taste of diet colas. Therefore, these ‘sugar- avoiders’ have migrated to non-cola beverages as a better product solution for their needs and preferences.
Another important goal, as Pepsi continues to battle Coca- Cola’s range of brands for market share in the SD market, is to keep their flagship brand fresh, exciting, energize and innovative. For instance, Coke Zero was a very successful new product (a sub-brand under the Coke family brand), which also had the impact of adding excitement to the Coca-Cola product. This was achieved primarily by Coke Zero’s main communication theme that Coke Zero tasted Just like Coke.
The firm used a variety of promotional tools, including a series of humorous Youth videos with pretend (and somewhat inept) Coke brand managers who were intent on taking legal action against Coke Zero. Another important aspect to keep in mind for Pepsi Next and its likely financial viability is the overall size of the SD market. In the USA alone, sales in this market are in excess of $70 billion. And although the market is slightly falling (being in the very early stage of decline), the market is only reducing by about 1% per year, which means that it will remain a very large and profitable market for a long time to come.
With this in mind, even a fraction of market share in the SD market is significant. For instance, Coke Zero (a product munched in 2005) has a market share Just over 1% in the US, which equates to retail sales over $700 million per annum in the US alone – and based on Pepsin’s corporate fugues (where almost 50% of their revenue is achieved in international markets), they probably achieve at least equal sales revenues internationally. This should deliver good gross margins, as the product would be produced, distributed and marketed using existing infrastructure and facilities.
Of course, while Pepsi has indicated that they are taking a long-term view of the market and this product, these statements may or may not be true. In these types of markets (fun food and drinks), variety and new flavors are often used as an effective short-term tactic. For example, chocolate manufacturer Academy frequently brings out new products for a limited time only. It is also a common tactic in the fast food industry. This variety approach will help boost short-term sales, energize the main brand, generate media attention, disrupt competitor activities, give freshness to the firm’s promotional messages, and hopefully engage consumers.
Opinion The brand name selection for Pepsi Next is quite interesting as it has a significant award looking emphasis. As many people are aware, for many years Pepsi has used the tag-line, “The choice of a new generation”. This tag-line was designed to reposition Coca-Cola as an old-fashioned drink, mainly enjoyed by older people. With the use of the word ‘Next”, Pepsi are highlighting that this refers to the ‘next generation’ tot soda drinkers. And, as discussed above, Pepsi believes that health and sugar-reduction is a long-term trend that will become more prominent.
The other aspect about the brand name selection to note is that the firm decided to use the Emily brand (Pepsi) and create a new sub-brand (individual) – creating Pepsi Next. Of course, both Coke and Pepsi have had a long tradition of successfully establishing new brands, so it is always of interest when they decide to leverage their flagship brands. Obviously, even though Coke and Pepsi both have enormous brand equity throughout the world, there is still a limit to the range of offerings that each firm would want under these brands.
That is, they would want to continue to protect their flagship brands and ensure that they are clearly understood by consumers and ensure that too many products do not confuse their positioning. The new product’s promotion was based around the tag-line “Drink it to believe it”. It is a relatively major launch, which is reflective of their desire to finally achieve success with this style of product and to ensure that the new product is well received by the market in order to further enhance the brand equity of Pepsi itself.
In terms of its promotional mix, Pepsi Next was promoted via TV advertising, digital marketing, direct mail, heavy free trials and in-store point-of-promotion. The main TV commercial, which was also Estes in the test markets, shows a couple becoming very excited about the innovativeness of Pepsi Next. In the background, unnoticed by the parents, the baby does a number of highly remarkable stunts. The main message of the TV is that Pepsi Next is so amazing and innovative that nothing else seems to stand out.
Obviously, in today’s environment, a social media campaign via Faceable as well as Youth formed a key platform in their overall promotional mix. A key aspect of the Youth campaign (billed as the world’s first virtual taste-test) is the potential for consumers own taste-test videos to be parodied by a range of celebrities. This approach not only increases the profile of the campaign, but also the level of the consumer’s engagement with the new brand.
Although the actual promotional budget for Pepsi Next has not been disclosed by the firm, PepsiCo has announced that they have increased their overall marketing budget (across all their beverage brands) from $500 million to $600 million in 2012. Pepsi Next was also promoted via leveraging the firm’s relationships with retailers and tapping into retailers’ loyalty card programs. Access to this immense loyalty database has enabled Pepsi to identify nonusers that have reduced their cola consumption over time, which is stated as the target market for Pepsi Next.
Free trials/samples have also been heavily utilized. For example, in the USA, free samples of Pepsi Next were offered across 800 Walter stores as well as in 40 cities via events. In Australia, Pepsi is using several ‘challenge vans’ which will be set up in around 300 outdoor locations during the Australian summer. The main focus of the ‘challenge vans’ is for consumers to blind taste-test Pepsi Next against normal sugar cola (presumably Coke, but not explicitly stated).
Therefore, it appears that a key goal of their promotional approach is to generate initial trials, with the hope of generating a reasonable proportion of repeat customers. It is important to note that despite a significant upfront promotional investment, Pepsi are planning to support and monitor Pepsi Next over the long- term. Again, according to Angelical Krebs, UP-marketing for the Pepsi trademark, “l believe a new product is a new product for two years. We’ll be watching closely, and we’ll correct what needs to be correct this brand. ” De ere taking a long -term view tot support tort