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Call It the Pepsi Blue Generation


When 130 million viewers tune into Super Bowl XXXVII this year, PepsiCo Inc. (PEP) won't disappoint those who are counting on it to deliver a parade of glitzy and entertaining ads. What viewers won't see, though, is a single commercial devoted to Pepsi's flagship cola. Instead, three of the four slots, purchased for a cool $2 million apiece, will go to newer and narrower brands such as lemon-lime Sierra Mist and lemon-flavored Pepsi Twist.

It's the latest sign of how the soft-drink giant has reformulated its mission from bolstering core brands like Pepsi-Cola and Mountain Dew to peppering the market with niche products and brand extensions. Why the change? Pepsi's market has splintered and big brands no longer have universal appeal. To attract a younger, less cohesive generation, Purchase (N.Y.)-based Pepsi has had to rethink the way it develops and markets its wares. "The era of the mass brand has been over for a long time," says David Burwick, chief marketing officer of Pepsi-Cola North America. "It took our category longer than most to accept that."

Pepsi's response has been a raft of new products, most bearing the Pepsi or Mountain Dew names. So far, its biggest hit has been cherry-flavored, caffeine-loaded Mountain Dew Code Red. Pepsi Twist and berry-flavored Pepsi Blue have developed more modest followings. Sierra Mist is a youth-skewed challenger to Cadbury Schweppes PLC's 7 Up. Beverage execs expect to see at least one or two more launches this year--possibly including an orange-flavored Dew extension called Monsoon. Burwick says no decisions have been made, but adds that Dew, in particular, has been underexploited for too long. "It was like we had millions of dollars in the bank and had never written a check," he says.

Are these new entrants likely to become Diet Pepsi-like blockbusters? Probably not, but Pepsi isn't expecting that. Code Red, Twist, Blue, and Mist account for barely 5% of Pepsi's soft-drink sales. In the past, Pepsi might not have bothered with such small fry. Today, though, it's looking for products that can crack a hard-to-reach demographic group. Code Red, for example, has reeled in urbanites, women, and African Americans who had not previously shown any impulse to do the Dew. That could help offset flagship Pepsi's 2% volume sales decline last year.

Because these new drinks are more narrowly targeted, Pepsi has had to refine its marketing techniques. To launch Code Red in 2001, the company handed out a million samples at youth magnets like the Winter X Games and the NCAA Final Four basketball tourney before the brand was available in stores. That helped create a buzz that got Code Red off to a brisk start. For teen-oriented Pepsi Blue last fall, Pepsi went beyond hiring rock stars to appear in ads. Instead, it worked out an innovative deal with Universal Music Group: Pepsi premiered songs by Universal artists Sev and Papa Roach in ads, then made longer music videos for the studio's use. "It used to be TV, TV, TV," says Burwick. "Now, it's TV-plus."

That logic will extend to Pepsi's most mainstream TV time slot, the Super Bowl. Pepsi will use three of its four ad spots for new products. Sierra Mist, just rolling out, will get two, and Pepsi Twist will get another (with an ad starring rock paterfamilias Ozzy Osbourne). Only one will go to an established brand, Diet Pepsi. To get more bang for one of the Sierra Mist ads, Pepsi let consumers preview and vote on two versions of the ad online, with Pepsi promising to air the more popular one.

Of course, playing the niche-marketing game is full of risk. The new drinks may siphon off customers from the older brands. Code Red, for example, gets a quarter of its volume from existing Dew drinkers. Then there's execution. The last time Pepsi embarked on a new-product frenzy, a decade back, it brought out Crystal Pepsi, Pepsi AM, and Pepsi Max--all expensive flops. Burwick, though, shows no signs of wavering. With flagship Pepsi stalled, he has little choice. By Gerry Khermouch in Purchase, N.Y.


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