Why Coke Has Real Problems


By Dean Foust Quick, what's Coca-Cola's (KO) current ad slogan? Hmm, had to think for a minute, didn't you? "Coke is it?" Sorry, that was the jingle used back in the 1980s and early 1990s. "Always?" Apparently not. That was retired in 1999.

You probably didn't guess "Real," and that says plenty about Coke's recent woes. The venerable beverage giant hasn't had an unforgettable marketing campaign for quite some time. And even the individual commercial spots are hit or miss. While the Diet Coke ads featuring a young girl skating along the beach were uplifting, the spots showing teens taking the train back from a concert were too somber, and the one with a teen rubbing a Coke can under his armpit were disgusting to anyone but 14-year-old boys.

BREAKTHROUGH HIT? So with archrival PepsiCo (PEP) about to surpass Coke as the beverage king on Wall Street -- Pepsi's market capitalization has soared in recent years to $97.9 billion, putting it less than a billion dollars behind its rival -- the heat is on Coke. It's set to launch a new marketing campaign in March, 2006. And having had a sneak peak at Coke's investor presentation on Dec. 7 in New York, my sense is Coke may be moving in the right direction. Note the emphasis on "may."

The ads previewed were a definite improvement over what has aired in recent years, and some of the outfit's upcoming Internet initiatives look promising as well. But on the product front, Coke still appears heavily reliant on marginal brand extensions rather than breakthrough new products -- a puzzling move, given that Coke is sitting on $5 billion in cash that it could deploy either for a large acquisition or heavy support of new "category killer" drinks.

Given the continued shift by consumers away from soda -- Coke's stronghold -- and into alternative beverages like juice, tea, and water, Coke badly needs a breakthrough hit. And given that seismic shift away from soda, some analysts wonder whether even the catchiest new ads will be enough to put the fizz back into Coke.

"ONLY A COKE WILL DO." "We don't necessarily believe that new advertising, that might make consumers feel better about the Coke brand or better about the ads themselves, will actually result in consumers consuming more of the product," Morgan Stanley's Bill Pecoriello wrote in a research note the day after the investor meeting. But Coke is optimistic it can recapture its old magic, and is banking on a new tagline: "Welcome to the Coke side of life."

True to form, in the new campaign Coke eschews the celebrity endorsers that PepsiCo has long relied on, continuing to make Coke -- and its trademark contour bottle -- the star. And the ads intend to tap into what the company's marketers still believe is a unique, enduring relationship that consumers have with the iconic brand. The message: "There are certain times during the day when only a Coke will do," says Mary Minnick, the head of marketing, strategy and innovation.

There's definitely a retro feel to the new ads previewed Dec. 7 -- think Peter Max-style pop art, circle 1970. (Minnick cautioned that none of the commercials was finished.). And expect more of the slice-of-life vignettes that Coke has long relied upon.

GILT-EDGED WATER. In one upcoming spot, Coke's formula works well: A male teen sitting on a bench next to an attractive girl begins mimicking the sound of a cell-phone ring. While she gives him an odd stare, he pulls a bottle of Coke out of his backpack, pretends to answer it, then hands it to the girl saying, "This is for you." She smiles approvingly at the witty move.

A couple of Coke's other forthcoming ads need work, however.One TV commercial showing two twentysomething males shaking and then spraying a bottle of Coke Zero into the face of a friend did nothing to make me want to drink Coke Zero. I suspect that the target audience, twentysomething males, will have the same reaction.

But ultimately, the advertising is only as good as the product, and on that front, Coke's new offerings look to have just as many misses as hits. Coke will unveil a premium-priced version of its Dasani water, with flavors and bubbles, and it will probably be a hit. That's good, because given the vicious price competition in the water category, Coke needs to keep innovating on this front.

SAME OLD, UPDATED. New flavors of PowerAde sports drink will probably enable Coke to continue stealing market share from PepsiCo's Gatorade brand. And Coke is getting a little more creative with packaging, including new, distinctive aluminum bottles of Coke that will be sold in nightclubs, and an 8.4-ounce "100 calorie" version of its flagship Coke that will appeal to women who want fewer calories and will like the fact that the smaller can will fit in their purse.

I suspect other new products are doomed, including a new coffee-flavored soda called Coca-Cola Blak that I tried. Think carbonated coffee. But I'm not sure if the product, which Coke is pitching as an afternoon pick-me-up for the 35-and-over set, is going to pull people away from their afternoon Frappucino fix. Starbucks (SBUX) has a lock on the coffee category and I'm not convinced Coke is willing to spend what it would take to change that. And my hunch is that Vault, a citrus-flavored energy drink, will have just as much trouble unseating Mountain Dew among teens as did Coke's last attempt, a product called Surge.

But at least Vault is a new product. And if there's one concern I have about the bevy of fresh offerings Coke plans to launch this year, it appears that many of them are simply brand extensions. In addition to Coke Blak and Coke Zero, in January you'll also see Diet Black Cherry Vanilla Coke and Black Cherry Vanilla Coke.

SIP IT AND SEE. In France, Coke plans to use a juiced-up version of Sprite -- to be known as Sprite 3G -- as its entry into the energy drink category there. And back in the U.S., Coke is using its shopworn Tab brand as the label for a new energy drink for women. The new drink is being called Tab Energy, has an energy-drink formulation, and the same can shape as Red Bull.

Minnick told investors last week that she believes brand extensions help inspire consumers who have abandoned a brand to sample the new flavors and then, hopefully, return to the fold -- as well as encourage other consumers who have never tried a brand to give it a taste. That may work with products like Black Cherry Vanilla Coke. But marketing experts believe that Coke faces a tricky balancing act with other extensions such as Sprite 3G. The risk is confusing consumers and diluting the existing brand.

The key, says Michael Bellas, chief executive of Beverage Marketing, a New York-based research and consulting firm, is to use micromarketing tactics such as, say, extremely tight sampling or Internet marketing that goes only to a specific audience. "They have to position the line extension to the target audience and make sure the message goes only to the target audience so they don't confuse the regular drinkers," he says.

BUYING SUCCESS. Minnick has built a reputation in her 22 years at Coke as a savvy marketer, and maybe the spinoff strategy will prove smart. But I keep looking at that $5 billion cash hoard Coke is sitting on and wondering why it doesn't make a move on the acquisition front. After all, that has been PepsiCo's strategy: with Frito-Lay in the 1970s, snapping up licensing rights to create the bottled Frappucino in the 1980s, and acquiring Sobe and Gatorade earlier this decade.

And that strategy has worked well. So well that unless Minnick's upcoming marketing moves proves a smash hit, PepsiCo will soon pass Coke and become the new king of beverages.

Foust is Atlanta bureau chief for BusinessWeek


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