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Tucked into a corner of PepsiCo's (PEP) sprawling campus in Purchase, N.Y., is a space known to insiders as Adam's room. Decked out with couches upholstered in silver leatherette, a flat-screen TV, and an Xbox 360 video game console, the onetime conference room is designed to resemble the natural habitat of a prototypical 22-year-old male, right down to the pair of sneakers carelessly tossed on the floor.
This is where the crew in charge of PepsiCo's SoBe line of teas and flavored waters retreat when they need to commune with the spirit of their core customer: the demographic category known as millennials. It seems to be working. Sales of SoBe's leading product, a concoction of fruit flavors, vitamins, and herbal extracts named Lifewater, are up 85% in the past year, while overall sales of bottled water are off 5%.
PepsiCo has been trying to reinvigorate SoBe, a brand it acquired in 2001 from South Beach Beverage for $370 million. That effort took on new urgency in the wake of rival Coca-Cola's (KO) $4.1 billion acquisition of Glacéau Vitaminwater in 2007. As the recession was biting, PepsiCo shaved 4 cents off the price of Lifewater, reducing it to an average of $1.18 across different unit sizes. The lower price helped get SoBe into more hands at retail outlets such as Target (TGT). Lifewater's small share of the bottled water market nearly doubled, to 3.8 percent, for the year ended on May 16. (The data don't include sales at Wal-Mart Stores (WMT).)
Vitaminwater, meanwhile, hiked prices by 4 cents and saw its hold slip to 11.4 percent from 14 percent for the same period. "I have been surprised by the way the performance gap has shifted," says Mark Swartzberg, an analyst for Stifel Nicolaus, a New York investment bank. "The amount of emphasis they have placed on Lifewater has a lot to do with the success." Vitaminwater says its focus is on building a premium brand, not on fending off lower-priced rivals.
Much of the credit for the reversal goes to Tom Silk, a former U.S. Navy man who traded in his regulation whites 17 years ago to eventually market brands from Pine-Sol to Guitar Hero. PepsiCo beverages chief Massimo d'Amore hired Silk, 42, a year ago and soon put him in charge of the "hydration" portfolio, which includes Aquafina water and Tropicana juices. With SoBe, Silk's mission was to reconnect with the brand's target customers: people born between 1980 and 1995. Says Silk: "SoBe was a trendy brand when the company got it, and over the years we may have lost some of the true essence and meaning."
Even before Silk came on board, PepsiCo had tried its hand at refreshing the brand. For Lifewater, which commands $239 million a year in sales, it designed a new molded-plastic bottle with a wraparound lizard—the reptile is SoBe's mascot. Then, amid headlines about an obesity epidemic, the company introduced a no-calorie version, helping lift sales. Coca-Cola has since introduced a zero-calorie Vitaminwater.
Silk, who oversaw the marketing of video game hits such as Call of Duty while at Activision Blizzard (ATVI), has spent much of the year retooling SoBe's advertising. He recruited Ashley Greene, a star from the vampire movie Twilight, to pose in nothing but strategically applied body paint for an ad that ran in Sports Illustrated's swimsuit edition. Videos of the shoot were posted on YouTube (GOOG) and got pickup across the Web. TV spots featuring Greene in what PepsiCo has dubbed her "skinsuit" began airing in May on cable networks such as ESPN, MTV, and Comedy Central. Silk says he's using the Web to discover what resonates with consumers and, "when things get really interesting," put it on TV. "Brands may say that," he says, "but very few people have been successful in doing it."
The bottom line: A price cut and Web-savvy advertising are key ingredients in PepsiCo's recipe for boosting sales of the SoBe brand.