Magazine article Marketing

COLA GIANTS' NPD FRENZY: Coca-Cola and Pepsi Have Taken Their Fight to the Area of Innovation, as They Seek Growth through Spin-Off Products

Magazine article Marketing

COLA GIANTS' NPD FRENZY: Coca-Cola and Pepsi Have Taken Their Fight to the Area of Innovation, as They Seek Growth through Spin-Off Products

Article excerpt

The 'Cola War' has now been raging for more than a century, but the past year will go down as the battle of the flavours.

After a complete absence of core brand spin-offs for an eight-year stretch - the last was Pepsi Max in 1993 - we have seen five new variants in the past 12 months alone.

It began with lemon-flavoured variant Pepsi Twist, introduced to the US in October 2001, followed shortly by Diet Coke with Lemon.

Then this summer we saw Vanilla Coke launched in the US to a feverish media. Pepsi responded by launching Pepsi Blue, a berry-flavoured variant, a few weeks later. Finally, last month, Diet Vanilla Coke hit stores in the US.

The variants have begun to arrive on these shores. Diet Coke with Lemon and Pepsi Twist appeared on the UK market in the summer, with more sure to follow.

So what is behind this flurry of new product development activity? Ultimately, of course, it's about growth. For decades the cola giants were able to turn in incredible levels of growth; initially in the US, then in Europe and Asia.

But this has begun to slow of late. Western markets have matured and Eastern European countries, the great white hopes in the early 90s, failed to embrace the cola companies as 'symbols of Western freedom' as they had hoped.

The cola market continues to grow, even in mature markets. Britvic/ACNielsen's Soft Drinks Report 2002 shows 3% UK growth last year in value terms.

But other soft drinks - bottled water, energy drinks - are growing much faster. Zenith International's most recent report shows the UK bottled water market grew by more than 10%.

'To analysts, cola brands appear stable, almost stagnant, in comparison with bottled water and fruit juice-based drinks, which are showing tremendous growth,' says a senior executive in one of Coca-Cola's ad agencies.

Colas, so long seen as the pinnacle of affordable treats for kids, are now seen as one of a portfolio of choices. They therefore need to generate more excitement to stay salient.

But why has the innovation been so sudden? Part of the answer lies in Coca-Cola's share price, which hit a serious low in early 2000 - just over dollars 43, prompting a change of leadership and culture within the world's biggest brand.

'When Doug Daft took over (as chief executive) in the middle of 2000 there was an important shift,' says Steve Jones, Coke's Atlanta-based chief marketing officer. 'We shifted from being a global company to a local company and became more customer-centric. We repositioned Coca-Cola as a total beverage company and a great growth company. 2001 was a year of testing. We learned that consumers loved Coke, but wanted their own way of drinking it. Now the results of that innovation are appearing.'

Customer needs

Coke put its money where its mouth was in late 2001 with the launch of Diet Coke with Lemon - its first new cola flavour since Cherry Coke in 1986 - though Pepsi, as challenger brand, got its retaliation in first.

Jones, however, is keen to stress that flavours are only a small part of the new innovation culture that he believes will boost Coke's fortunes.

The re-introduction and extension of Fanta into Western markets over the past two years has proven successful. This year's Biggest Brands survey by Marketing/ACNielsen revealed Fanta as the UK's fastest growing brand.

It put on around pounds 75m in sales in the year to April 2002, a 69% increase.

Jones also points to new types of packaging and serving devices, and a breakthrough in the occasions where consumers can encounter its drinks.

'There's a move from demographics to need states - in the lunchbox, on the street, in bars - where cola can score more often with consumers,' agrees the Coke ad agency executive.

Indeed, insiders say that Coke is even starting to address the needs of the mature drinker. …

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