WATER WARS
Everyone's
familiar with the cola wars - the epic battles between Pepsi Cola and
Coca-Cola in the soft-drink market. The war has featured numerous taste
tests and mostly friendly, but sometimes not-so-friendly, television ads
featuring Pepsi and Coke delivery-truck drivers, each trying to out-do
the other. But one of the major problems that Pepsi and Coke face is to
not just out-do each other, but to maintain growth, especially when the
soda market goes flat. For this reason, both PepsiCo and Coca-Cola each
have hundreds if not thousands of brands in soft-drink and snack food
categories. Each is also constantly looking for new ideas to increase
sales.
One
of those ideas is water. In the early 1990s, the bottled-water market
was just a drop in the huge U.S.beverage market bucket. The Evian and
Perrier brands dominated the tiny niche and helped establish bottled
spring water's clean, healthy image. Pepsi took an early interest in the
water market. It tried several different ways to attack this market,
with both spring water and sparkling water, but each failed. Then it hit
on the idea of taking advantage of a built-in resource - its existing
bottlers.
Pepsi's
bottlers already had their own water treatment facilities to purify
municipal tap water used in making soft drinks. Municipal tap water was
already pure and had to pass constant monitoring and rigorous quarterly
EPA-prescribed tests. Still, cola bottlers filtered it again before
using it in the production process.
Pepsi
decided that it would really filter the tap water. It experimented with
a reverse osmosis process, pushing already-filtered tap water at high
pressure through fiber-glass membranes to remove even the tiniest
particles. Then, carbon filters removed chlorine and any other particles
that might give the water any taste or smell. However, all this
filtering removed even good particles that killed bacteria, so Pepsi had
to add ozone to the water to keep bacteria from growing. The result?
Aquafina - a water with no taste or odor-that Pepsi believed could
compete with the spring waters already on the market. Further, Pepsi
could license its bottlers to use the Aquafina name and sell them the
filtration equipment. Because the process used tap water that was
relatively inexpensive, Pepsi's Aquafina would also compete well on
price with the spring waters.
The
marketing strategy was relatively simple. Whereas Evian and the other
early entrants targeted women and high-end consumers, Pepsi wanted
consumers to see Aquafina as a "unisex, mainstream” water with an
everyday price. When the company launched the product in 1994, it was
content just to build distribution using its established system and spent
very little money on promotion. Pepsi believed that soft-drink
advertising should be for soft drinks, not water.
COME ON IN-THE WATER'S FINE
By
1999, what had been a minor trickle in the beverage market had turned
into a geyser - bottled water had become the fastest-growing beverage
category, and Pepsi had a big head start. Coca-Cola decided it was time
to take the plunge. Like Pepsi, Coca-Cola realized its bottlers were
already set up to handle a filtered-water process. Unlike Pepsi,
however, rather than taking everything out of the tap water, it wanted
to put something in.
Coca-Cola's
researchers analyzed tap waters and bottled waters and concocted a
combination of minerals they believed would give filtered tap watera
fresh, clean taste. The formula included magnesium sulfate, potassium
chloride, and salt. Coca-Cola guarded the new water formula just as it
had the original Coke recipe. Thus, it could sell the formula 2to its
bottlers, as it does Coke concentrate, and let them make the water. Like
Pepsi, Coca-Cola was content initially just to get its water, which it
called Dasani, into distribution.
HOW TO PROMOTE WATER
By
2001, however, the bottled-water category had over 800 competitors and
had grown to $3.53 billion in U.S. sales. Bottled water's market share
of the beverage industry had grown from 7.4 percent in1997 to 11 percent
in 2002. At that time, analysts were predicting that bottled water
would become the second-largest beverage category by 2004(surpassing
beer, coffee, and even milk!). There were also predictions that bottled
water would account for15 percent of all U.S. beverage sales by 2007.
And while bottled-water sales were erupting, the market share of
carbonated soft drinks had lost its fizz, remaining steady at around 28
percent.
Given
the rapid market growth rate and all the competition, Pepsi and
Coca-Cola decided they had better promote their products, just as they
did their soft drinks. In 2001, Pepsi launched a $14 million campaign
showing how water was a part of real people’s lives. Coca-Cola countered
with a $20million campaign that targeted women and used the tagline:
"Treat yourself well. Everyday.
"Not
to be outdone, Pepsi responded by more than doubling its promotion
budget to $40 million in 2002.Included in the advertising was a spot
featuring Friends star Lisa Kudrow. Lisa described how refreshing and
mouthwatering Aquafina was -emphasizing that it made no promises it
couldn't keep. She described Aquafina as "Pure nothing." The ads
featured the tagline: "We promise nothing.
"By
2003, the U.S. wholesale bottled-water market had surged to $8.3
billion, up 6.7 percent from 2002.During that same period, wholesale
sales of carbonated beverages inched up only 1.5 percent to$45.7
billion. During 2003, Pepsi spent $24 million on Aquafina's advertising,
while Coke spent $19million on Dasani's. Although these two brands were
number one and number two, respectively, with 17.7and 13 percent market
shares, all private-label brands combined took third place with a 10.4
percent market share.
One
Aquafina 2003 ad featured black-and-white images of an artist, skier,
and guitar player drinking the water and carried the tagline "Aquafina.
Purity Guaranteed." In mid 2004, Pepsi altered its purity campaign with a
new tagline, "Drink more water.” One ad showed people partying at an
English pub and a German beer garden. Instead of drinking beer, however,
they were chugging Aquafina. Coke also had an ad showing young people
sipping Dasani at a nightclub.
HAVE ANOTHER ROUND
By
2006, the beverage market trends had intensified.Soda sales were
fizzling and bottled-water sales were gushing. In 2005, U.S.
carbonated-soda volume declined for the first time ever by .2 percent,
and the drop was expected to triple in 2006. The carbonated-soda
category still reigned as the king of all beverages, boasting the
top-selling brands and a two-to-one margin over bottled water. But
analysts predicted that if trends continued, bottled water could
overtake sodas as early as 2013.
According
to a beverage industry analyst, "Thefastest growing products are the
ones people view ashealthier or better for you." Indeed, in addition
tobottled water, the categories of energy drinks, sportsdrinks, juices,
and teas were also experiencing rapidgrowth.
With
market conditions so favorable, and Aquafinanow the ninth-best-selling
beverage brand in the United States (Dasani was number-ten, but Coke
still ruled at number one), Pepsi knew that it could not rest on its
laurels. But how does a company expandon water? Well, with more water of
course. Brandsand varieties of bottled water were popping up at
amind-boggling rate. Spring water, mineral water,purified water,
sparkling water, flavored water, vitamin-enhanced water, lightly
carbonated water-the bottled-water market was fragmenting fast.
In
2003, Pepsi and Coca-Cola both introduced vitamin enhanced waters with
Aquafina Essentials and Dasani NutriWater. Both were quickly
discontinued, but Pepsi was not about to give up. It knew that it had to
stay ahead of the market. So in2005, Pepsi created two brand
extensions, Aquafina Sparkling and Aquafina Flavor Splash. Both brands
stayed true to the healthy traits that were propelling water sales (no
calories, carbs, or sugar). But Pepsi designed each to satisfy different
needs within the market. Aquafina Sparkling was carbonated,
unsweetened, and came in unflavored and lightly flavored varieties. By
contrast, Flavor Splash was non carbonated, sweetened with Splenda, and
had heavier doses of flavor, with Raspberry, Citrus Blend, and Wild
Berry varieties.
With
Coke hot on its tail with the carbonated Dasani Sensations as well as
various flavored Dasanis, Pepsi continued to promote its brands heavily.
It fielded a variety of promotional tactics. Aquafina hit the Internet,
with ads showing up on the MySpace main page and on commercial and
personal destination pages. Pepsi also invested in event sponsorship.
Aquafina became a major sponsor of the Olympus Fashion Week in New York
and the Mercedes-Benz Fashion Week in Los Angeles. Iteven ran a sweep
stakes - style promotion offering anall-expense-paid trip to these
fashion events. Pepsi also had Aquafina doing double duty at indie film
festivals, with significant sponsorship presence at both Sundance and
South By Southwest.
But
Pepsi was not about to give up on television. Two years after the
successful launch of its "Drink More Water" campaign, Pepsi continued
the water-induced jollity of the original ads. In a remake of ascene
from the cult classic Animal House, a spot entitled "The Toga" had a
John Belushi look-alike convulsing to the song "Shout," performed by the
real Otis Day and the Knights. But the big difference between the
original movie and this frat-house orgy of excess was that the partiers
slammed shots of Aquafina.
ARE THE COLA WARS OVER?
For
decades, Pepsi fought to sell more cola than Coke. It now appears that
Pepsi may have willingly conceded the number one cola honor to Coke.
Although it hasn't given up on keeping the Pepsi brand at a strong
number two, it has been quietly taking another route to kicking Coke's
can. In fact, in December of 2005, Pepsi Co surpassed Coca-Cola in
market capitalization for the first time in the 108-year rivalry. In the
five previous years, PepsiCo's stock had risen by more than a third
while Coke's had dropped by the same amount.
What
drove this changing of the guard? Without question, one of the most
significant factors is Pepsi’s lead in growth categories, such as
bottled water.” They were the first to recognize that the consumer was
moving to non carbonated products, and they innovated aggressively,"
observed the analyst. That non carbonated beverages are growing so
rapidly bodes very well for Pepsi. Some 35 to 40 percent of its beverage
sales are in non carbonated categories, as opposed to only 15 percent
for Coca-Cola.
But
while Coca-Cola seems to be putting of effort into bottled water, it
also may be overly confident in the number one brand. When asked about
the trend of sales for carbonated and non carbonated beverages, a
Coca-Cola spokesman insisted that the beverage giant is bucking the
trend. “We believe we continue to grow carbonated soft drinks," he said,
noting that Coke’s soda volume was up 1 percent in the fourth quarter
of 2005. But whereas a small increase in a huge, flat market might be
one thing, a large increase in expanding markets is quite another.
Losing the cola wars may be the best thing that ever happened to Pepsi.
Questions for Discussion:
- What markets should Pepsi target for Aquafina?
- What recommendations would you make foradvertising objectives, message strategy, andmessage execution for Aquafina?
- What advertising media recommendationswould you make for Aquafina, and how wouldyou evaluate the effectiveness of those mediaand your advertising?
- What sales promotion and public relationsrecommendations would you make forAquafina?
- What recommendations would you make forpromoting Aquafina Sparkling and FlavorSplash?
- To what extent is Aquefina's sales growthattributable to advertising and promotion versusthe growing dynamics of the market?
- Briefly examine bottled water industry in Koreaincluding carbonated soft drink market. Identifykey marketing problems and suggest yourmarketing recommendations to deal with theidentified problems.
Sources:
Kate
MacArthur, "Bleak Future Predicted for Fizz Biz;" Advertising Age, June
29.2008; KarenHerzog, "DRINK". New Beverages Join the Coke-Pepsi Wars;"
Milwaukee Journal Sentinel. June 7.2006, p. 1; Lewis Lasers,
"Aqua-Boogie Spots Hit Allthe Right Notes," Chicago Sun 71tnes, May 10,
2006,p. 71; Katrina Brooker, "How Pepsi Outgunned Coke," Fortune,
February 1, 2006, accessed online atwww.fortune.com; "Aquafina Brings
Flavor and Fizzto the Water Aisle," PR Newswire, January 24,
2005;"Beverage Industry Fact Sheet," accessed
atwww.bevexpo.comIbevtndfactsheet.asp; "NoSlowdown in Sight for Bottled
Water," BeverageIndustry, September 2003, p. 22; Betsy McKay, "In aWater
Fight, Coke and Pepsi 31y Opposite 'lacks,"Wall Street Journal, April
18, 2002. p. Al; BetsyMcKay, "Coke and Pepsi Escalate Their WaterFight,"
Wall Street Journal, May 18, 2001, p. B8.
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