U.S. Cola War Continues with Pepsi True Launch

Pepsi True

It seems the Cola Wars continue to expand across the calorie spectrum.  Where Coke and Pepsi used to spar over full calorie soda (Coke vs Pepsi) and zero-calorie soda (Diet Coke vs Diet Pepsi, Coke Zero vs Pepsi Max), the two beverage giants now go to war over the middle.  The contestants are Coca-Cola Life and Pepsi True, two sodas sweetened with sugar and stevia, with less calories, and green packaging.  That may be where the similarities end in this round though, because this iteration is very different from prior rounds.  Their product launch tactics differ greatly, and this particular fight appears to be highly contained with the United States.

What some people may forget is that Pepsi already has a stevia-sweetened mid-calorie soda on the market – just not in the U.S.  Remember Pepsi Next?  The American Pepsi Next contains artificial sweeteners whereas other countries with Pepsi Next have a stevia-sweetened version.  Unless Pepsi decides to discontinue the existing stevia-based Pepsi Next everywhere, this Cola War will only exist in the U.S.  And it is likely that the Pepsi True launch is primarily relevant to Americans given Pepsi Next’s presence elsewhere.  So in effect, this should be termed more of a Cola “battle” rather than a Cola “War”.  Pepsi Next against Coca-Cola Life in markets outside the U.S., while the U.S. battle will be between Pepsi True and Coca-Cola Life.

Related Post: Pepsi Next May Find More Success in Canada

Both companies are also more cautious in their launch approach.  Coca-Cola Life has experimented in multiple countries outside the U.S. first to measures its market viability, and only recently started rolling out in U.S. regions this past August.  The American rollout isn’t national and they have yet to provide marketing support welcoming Coca-Cola Life to America.  Pepsi True is taking a similarly conservative approach by not even stocking this product in traditional channels.  Pepsi’s mid-calorie soda variant is set to launch exclusively through Amazon, where shelf space is limitless, operating costs are lower, and product delivery does not come from their distributor network.  After all, Pepsi distributors work with limited storage space and a delivery system optimized for sales and profitability; carrying Pepsi Next could mean sacrificing sales of other better-selling products.  To satisfy American distributors, Pepsi indicated that they will reimburse distributors for Pepsi True sales in their regions.

Related Post: Coca-Cola Life Commercial Review: Open Your Good Nature

It makes sense for both beverage manufacturers to take baby steps first.  Launching anything in the mid-calorie segment has been challenging for over a decade.  The 2004 introductions of C2 and Pepsi Edge marketing sucralose as a sugar alternative proved unsuccessful.  The 2012 Dr Pepper Snapple Group TEN-calorie soft drink line-up hasn’t received marketing support to keep up its launch momentum.  Earlier this year, Coca-Cola’s vitaminwater reverted back to its original formula after consumer complaints about its stevia formula.  The beverage industry’s history is littered with more failures than successes when companies attempt to bring mid-calorie refreshments to the consumer.  And as much as Pepsi Next could be deemed a global success, the results undoubtedly vary between markets.

Going forward, the road will only become more difficult.  Consumer perspective toward mid-calorie soda in general has not been overwhelmingly positive.  Taste is always the first consideration and most stevia-sweetened beverages contain a bitter aftertaste.  Consumers have also persisted in choosing drinks that offer health benefits and less calories over mid-calorie soda.  Regardless of consumption trends, soft drinks are still a significant part of the beverage landscape.  Even though the Cola War has evolved, both Coca-Cola and Pepsi will find new frontiers to wage their battles.

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Revisiting the Mid-Calorie Soda Segment

Courtesy of adage.com

Does anyone still remember Pepsi Next or Dr Pepper 10?  Anyone know how well these drinks are performing?  It seems that since their launch last year, not much has been said about these hybrid-sweetener sodas.  Pepsi has been focusing on their core offerings of Pepsi, Diet Pepsi, and Pepsi Max, while Dr Pepper has been left with the task of bringing news and excitement to the entire mid-calorie segment.  So far, it seems that mid-calorie sodas have taken a backseat to regular and diet cola products.  In the past two weeks, there has been some major stories from Advertising Age (link here), brandchannel (link here), and even myself at Canadian Grocer (link here) on how mid-calorie soda is doing.  While manufacturers recognizes the importance of this segment, it’s just not gaining momentum within the consumer market.  So what is wrong with mid-calorie sodas?  What will it take to make these drinks a success?

The jury is still out on whether mid-calorie soda is a success or a failure, but it’s certain that the beverage companies have not been supporting it at the levels necessary for long term success.  It seems that marketing efforts were most prolific during the launch period to gain awareness, but has not kept pace over time when it was most critical to win consumers over: the repeat purchase.  At release, news reports indicated that these drinks endured high rates of consumer sampling.  Pepsi and Dr Pepper gave away these carbonated drinks for free to stimulate trial.  However, the repeat rate has not been mentioned as much.  That is, how many consumers given a free can of mid-calorie soda ended up purchasing these particular drinks later?  Not much apparently.  Reports have indicated that the mid-calorie drinks’ sweetener leaves a bitter aftertaste and has led drinkers to stay away from it.  Therefore, people that were given that free can may have liked it because it was free, but would choose to drink another soda (or an alternate beverage) when they have to pay for it.

Courtesy of Forbes.com

Both sodas companies should have maintained marketing support to focus on championing the benefits of these new products.  Despite the bitter aftertaste, the fact remains that fewer calories are consumed per serving.  Pepsi Next and Dr Pepper 10 should have talked up these benefits relative to other sodas in order to win over consumer perception of a bitter aftertaste.  Instead, they continued on leveraging against the humor (Pepsi Next with their Baby commercials) and gender exclusivity (Dr Pepper 10 with their Manliest Man commercials).  It would have been better to educate the consumer as an alternative to other beverage segments with an identical amount of calories, or other sodas that were sweeter but contained the most calories.

So how can they make these beverages and the overall mid-calorie segment a success?  Or are these drinks primed to quietly disappear like so many other beverages before their time?  Does anyone still remember Coca-Cola Blak?  Or Pepsi XL? Or Orbitz?

Advertising and promotions.  Both Pepsi and Dr Pepper should keep up their mid-calorie advertising efforts to maintain brand awareness.  It seems like an obvious solution to ensure mid-calorie sodas stay alive long enough to see their potential through.  However, in organizations where performance is judged by quarterly performance and not much else, there is no room for tweaking unless it’s on-the-fly.  The interim period from when a new mid-calorie sweetener will be introduced is very crucial for manufacturers to preserve their shelf space.  These beverages must be afforded marketing support and in-store promotions to drive repeat purchases.  Without consumer incentives to stimulate purchases, retailers will have no choice but to remove slow sellers from the aisle.

The fact remains that health groups have picked out carbonated soft drinks as a strong contributor to obesity.  Consumers are also more focused on the sugars and calories they put in their bodies.  Mid-calorie sodas taps into these trends very well.  These soda innovations contribute less to obesity (relative to their full calorie counterparts).  It will also meet the needs of calorie-conscious individuals that want less sugars.  Whatever the case, mid-calorie sodas are here to stay and are crucial for the survival of the soda segment.  If not Pepsi Next and Dr Pepper 10 this time, it will be something else in the near future.

Diet Coke Advertisement: Aspartame is Safe

It seems that the beverage manufacturers have to continually defend the health & safety of their products in order to keep it selling.  Most recently, energy drink manufacturers like Red Bull, Monster, and Rockstar had to defend the caffeine content of their products as well as provide a recommended daily dosage.  Prior to that, Coca-Cola ran a campaign calling for unification behind calorie consumption, to defend general claims that soft drinks contributed to obesity.  The latest defense comes from Diet Coke, defending the safety of their chemical sweetener: aspartame.

Here’s their print ad that they ran in some American publications.

Coca-Cola's Diet Coke print ad, describing the safety of aspartame from 200+ studies over the last 40 years.

While the safety debate continues to polarize consumers and manufacturers alike, it’s interesting to note the timing of the advertisement itself.  Aspartame controversies have been around since the 1970s when diet soda products have also been around, why the need to make a statement to calm consumers down?  It turns out that Diet Coke’s sales are slipping – faster than the average rate of decline itself.  When a category is in decline, the best case scenario is that your product is outperforming the category benchmark.  That is, your product itself is still growing and outpacing category performance or at least declining at a slower rate than the category.  It seems that Diet Coke is down 6% and is losing sales at a faster rate than the category.  This in effect makes this advertisement a campaign to stimulate sales, where calming aspartame fears is a means to an end.  If Diet Coke is able to change the negative consumer perception toward aspartame, it looks like they may be able to reverse their fortune.

In the meantime, Pepsi’s portfolio of products have not done anything to unite and combat against calories nor dispel the fears toward diet products.  Pepsi may be content to let Coca-Cola do the heavy lifting on these media campaign, while reaping the benefits of success if the campaigns work.  After all, if consumers regain confidence for aspartame as a sweetener, Diet Pepsi also stands to see a sales increase.

Also important to note is that Pepsi may see this momentary weakness of Diet Coke and look to restore their position as the Number 2 soda behind Coca-Cola.  If that is the goal in mind, they will indeed need to concentrate their resources on Pepsi, rather than join up with Coca-Cola to combat the negative perception toward aspartame.

Pepsi Canada Brings Back the Taste Test

Pepsi UTC - courtesy of facebook.com

Pepsi Canada has brought back the taste test, launching a Canadian-specific summertime promotion titled the “Pepsi Ultimate Taste Challenge” and supported through facebook both online and offline (link here).  Facebook offline support includes a map showing locations where Pepsi will be conducting the taste test and at which times. The online component runs a digital challenge testing you on various cultural components linked with Pepsi (slogans, word scrambles, celebrity endorsements, and more).

For those unfamiliar with the previous taste test formats, interested consumers would line-up and drink to cola samples (one Coca-Cola and one Pepsi) and guess which one was Pepsi.  The purpose of this test was to prove to consumers that in the absence of branding (red Coca-Cola packaging, blue Pepsi packaging), consumers actually preferred Pepsi more.  The test was a big success for the organization when they first ran it in the 1970s and 1980s, leading Coca-Cola to change its formula and launch New Coke (which has since become a worldwide case study on the company’s blunder).  Pepsi gained market share through its taste test and Coca-Cola’s reaction was to alter its formula, which led to pandemonium as consumers rushed to buy as much Coca-Cola as they could before it was phased out of the market.  Coca-Cola eventually caved to consumers and re-launched the original Coca-Cola (called Coca-Cola Classic).  So why would Pepsi Canada want to re-launch this taste test, have they not learned their lessons from the past?  Will this iteration of the taste test change anything?

The current taste test shouldn’t have the same adverse effects for Pepsi that they encountered in the 1970s and 1980s.  Times have changed and so have consumer soft drink preferences.  Both companies have learned their lessons and moved on from that point.  While the Pepsi Ultimate Taste Challenge is on display on a national scale, it is not in the United States.  This point alone isolates the effect that the taste test can have.  American consumption versus Canadian consumption has roughly a 10:1 ratio, therefore it would be equivalent to a 10% impact in the United States (similar to a large scale pilot test market in the United States).  Similarly, Coca-Cola has learned what would happen if they reacted to taste testing and changed their formula.  In this aspect, the Pepsi taste test should only affect Pepsi and the summer sales for both brands.

In addition, the current version’s taste test should deliver stronger results to the overall Pepsi franchise, rather than only to the Pepsi brand.  The 2012 version incorporates both Diet Pepsi and Pepsi Max, pitting the entire Pepsi franchise against Coca-Cola, Diet Coke, and Coke Zero (neither Pepsi nor Coca-Cola has a mid-calorie offering in Canada…yet).  This caters to the current beverage trends, giving calorie-conscious and sugar-conscious consumers a chance to take part in the taste test as well.

The underlying effects of this taste test should go a long way toward helping both brand’s summer soft drink sales.  The comparisons would not only increase exposure and sales for the Pepsi franchise, but also for Coca-Cola’s franchise.  Summer is definitely the season for sampling, and bringing awareness back to soft drinks at this time benefits everyone.  After all, if not promoting soft drinks during the summer, when else can it be promoted?

Pepsi Next to Launch in Test Markets

Pepsi Next - courtesy of rft3.wordpress.comA couple of months back I covered a piece on Pepsi’s intention to launch a mid-calorie cola this summer (previous post link here).  I also mentioned that it was a bad idea since their portfolio already included a full-calorie cola soda, a zero-calorie option, and a diet option as well.  As more information came out on the product, Pepsi plans to position the product on taste, which would ultimately be more advantageous to Pepsi Next and their portfolio.

Pepsi’s theory is that consumers want to limit their calorie consumption and look for substitutes for the full calorie option.  However, some consumers are disappointed with the diet or zero-calorie alternatives since it tastes different, and end up leaving the cola franchise altogether for water, juices, or teas.  By launching Pepsi Next, they can cover the cola consumer’s choice spectrum and extend their product life cycle.  Cola products typically enter a consumer’s consideration set when they’re young and carefree on calories.  As the consumer ages they want to cut back on calories so they transition to diets or zero-calorie options.  Unlike Coca-Cola (which has Diet Caffeine Free Coca-Cola to appeal to older consumers), that is the extent of Pepsi’ cola product life cycle.  Enter Pepsi Next.  Pepsi is attempting to insert Next as a bridge product between their full calorie and zero calorie options, hopefully transitioning consumers along a calorie path from full –> mid –> zero.

On the issue of taste, Bill Pecoriello, CEO of Consumer Edge Research provides us with some insight.  Pecoriello says,

“The consumer wants calorie reduction. If you can give half calorie with no taste sacrifice, there’s a product there for the consumer.  C2 and Pepsi Edge failed and taste was a major issue. [Consumers] are not willing to sacrifice taste for half the calories when you have Diet Coke and Diet Pepsi out there. Something like a Pepsi Next, if it could achieve the taste profile, could be incremental for the category.” 

Some questions come to mind from the above comments.  Will the taste of Pepsi Next differ from Pepsi and Diet Pepsi?  At a time when health and wellness have become a top-level issue, consumers may replace regular Pepsi with Pepsi Next if the taste is believed to be identical. And again, the question of cannibalization comes into play since the number of cola drinks are finite, and inserting another product to their consideration alternatives may turn into a substitution in their choices.

I believe that the tastes of Pepsi, Pepsi Next, and Pepsi Max will all be different.  Pepsi will likely engineer Next to taste more like Pepsi since it can be produced with ingredients that contain calories.

In any case, we will find out come July whether Next will be successful it its test markets.  Pepsi plans to introduce their mid-calorie cola in two cities, one each in Iowa and Wisconsin.  If any readers and Pepsi fans happen to be living in the initial launch cities, feel free to post some comments or send me an e-mail on this product should you run a taste test.

Pepsi Throwback in Canada

Pepsi Throwback CanadaRegular readers of my blog may remember that I reported on Pepsi Throwback and Mountain Dew Throwback last year, but mainly as a American limited-time only beverage.  Well I was thirsty and went into a Shoppers Drug Mart a few weeks back and was surprised to notice that there was Pepsi Throwback here in Canada.  In addition to being a soft drink that was only released in the United States, I remember that the beverage being a few years old.

After some googling, it turns out that the Pepsi Throwback was made part of Pepsi’s permanent line-up because of their strong sales and recipe.  It was also launched in Canada early 2011.  Throwback tastes different from the current Pepsi cola in that it has no citric acid and uses real sugar, compared to High Fructose Corn Syrup in the “new” Pepsi.

Initial feedback has been great for Pepsi Throwback, but as my critiquing tendencies go, do they really need another permanent Pepsi?  It almost appears that they are trying to blanket-cover the calorie and sweetness spectra with their offerings.  Pepsi, Diet Pepsi, Pepsi Max, soon to be launched Pepsi Next, and now Pepsi Throwback.  How much cannibalization will occur?  The expanded line-up means some drinks within the portfolio gets less sales.  Pepsi should beware of what vitaminwater is doing in terms of having so many available options for a consumer to choose from.  vitaminwater’s consumers to this day still gravitate toward 5 flavors out of a possible 11 flavors, making more than half of them slow movers and hard for retailers to justify the shelf space.  This isn’t to say that having Pepsi available in 5 different options is a bad idea, but each of the 5 option must be unique to avoid duplicity.  Pepsi’s differentiation between Pepsi Cola, Diet Pepsi, Pepsi Max and even Throwback would be significant, but Pepsi Next…not so much in my opinion.

While I didn’t buy a Pepsi Throwback that day (settled for vitaminwater instead) I am still interested in finding out what it tastes like and how it compares to the new Pepsi.  Has anyone ran a taste test to try both, and care to give me your two cents?

Pepsi Next – the new 60-Calorie Soda

Pepsi Next - courtesy of rft3.wordpress.com

An article from BevNet.com mentions that Pepsi will be launching another soda in the coming year (link here).  The industry critic from the linked article believes that the launch won’t meet expectations since other similar products have failed in the past (Pepsi Edge, Pepsi XL, and Coke C2 are the failed experiments).  Pepsi Next – a 60-calorie carbonated soft drink (CSD) partially sweetened with high fructose corn syrup and natural sweeteners – launches Summer 2011.  Pepsi is reported to be promoting their new product through Simon Cowell’s new tv program “X Factor” in addition to other strong advertising and marketing support.

Is there such thing as middle ground for consumers though?  Those that want full flavor will opt for the regular Pepsi, those that want diet will grab a Diet Pepsi, and those that want the full flavor with zero calories will choose Pepsi Max.  Will anyone choose mixed sweeteners and 60 calories instead of any of the already available options?  Consumers that are willing to sacrifice taste and ingest less calories will likely choose the Pepsi Max, and whereas consumers that want full taste and do not care about the calories would choose Pepsi, so where does that leave Pepsi Next?  Even Pepsi expects there to be some form of cannibalization, where one Pepsi beverage will be substituted by another Pepsi beverage.

It is clear that the soft drink market is declining and Pepsi is trying to establish a stronghold in other categories like enhanced water and energy beverages, but why would they introduce one more product into this category?  On the heels of Pepsi slipping from No.2 to No.3 in the United States, their solution appears to be introducing a new product that will cannibalize their own shares in a declining CSD market and confuse their customers with which Pepsi product to choose.  Why not focus your portfolio on the emerging products and gain a stronghold in those categories?

The old adage is that you never want to fix anything that isn’t broken, and Pepsi clearly is broken in that sense.  But with what the beverage organization has done: introducing new Pepsi beverage alternatives, a modified logo and constantly changing packaging, are any of these “fixes” actually helping the company?  I believe this is a move in the wrong direction, but only time will tell.

 

Pepsi Slips To Number 3

2010 Coke and Pepsi Market Shares, courtesy of adage.com

A few weeks ago, Beverage Digest posted the latest market share statistics for the US carbonated soft drinks (CSD) category and we found out that Pepsi had slipped to number 3 (see stats here). Industry analysts had predicted that this market share change was coming as Pepsi had lost share in the last few years, as Coca-Cola has stayed the course with their beverage unit and maintained marketing Diet Coke in traditional media (TV/print/radio) while Pepsi started promoting other beverages in traditional media, and invested in other forms of marketing

It seems that as Pepsi sought to maintain a balance beverage portfolio by promoting other beverages (such as Pepsi Max, Sierra Mist, Aquafina Plus10, Mtn Dew, Gatorade, etc) that they forgot to keep promoting Pepsi itself.  Their NFL sponsorship was recently changed from Pepsi to Pepsi Max, Superbowl advertisements followed the same course, and even the main TV commercials started promoting a Coke Zero vs. Pepsi Max cola war instead of focusing on Coca-Cola vs. Pepsi.

Was this the right decision for Pepsi – to focus on other beverages instead of their core product?  Despite Pepsi’s balanced portfolio making them more formidable to withstand declines in any one category if they promote other products, the CSD category is still the largest beverage category.  Even within the CSD category, promoting Pepsi Max, Mtn Dew, and Sierra Mist helps these brands gain traction and spread their risk if any one product sees slow sales.  However, CSDs as a category is in decline, and Pepsi has been declining more than the category.  And according to the Beverage Digest rankings, it’s not just Pepsi that lost market share, it’s also Diet Pepsi.  Your two core products are in decline, while your competitor’s two core product maintain market share in a declining market, meaning they now own a bigger share in the CSD category.  Even Sprite, another core product for Coca-Cola passed Diet Pepsi in the market share rankings.

Although this decline cannot be fully traced back to any one particular issue, I would answer that Pepsi’s decision to experiment  with their marketing and promote other brands was a bad decision.  The core of your business where you make the most money is still Pepsi and therefore you should be promoting Pepsi.  In the largest marketing venues, Pepsi should be promoted and not Pepsi Max.  Though whether they should allocate more spend at the expense of other brands is still questionable, promoting their core product more and through effective traditional media is a must.