Pepsi Loses #2 Position - What Went Wrong?!?

If you haven't heard the news about Dr. Pepper overtaking Pepsi as the #2 soft drink, you might have been living under a rock. Mark and Lorraine dive into the reasons that might have caused Pepsi's decline. The positioning duo has a long discussion on the "Pepsi generation's" position and why moving away from it is the most likely culprit in its fall from #2. Then they finish surmising how Pepsi can reverse the decline.

Spend 30+ ish with Mark and Lorraine as they discuss all things marketing, advertising, public relations, and of course ... positioning!

Transcript

Mark Vandegrift
Welcome to the Brand Shorthand Podcast. I'm your host, Mark Vandegrift, and with me today is the pepper of positioning, Lorraine Kessler. Lorraine, after a two week pause in our podcast, welcome back. How was your July 4th celebration?

Lorraine Kessler
Well, it was great. We went to Brookside Country Club here in Canton, Ohio, and always enjoy their wonderful fireworks. And it was very good this year because I didn't break an ankle. I have a habit of going to a hospital almost every holiday for some reason. And I just missed Father's Day by that much...

Mark Vandegrift
Uh oh… What happened at Father's Day? I didn't hear this story.

Lorraine Kessler
it's, I was carrying a porcelain bowl full of water out my daughter's back patio, which is all concrete, which very, with very dangerous steps. When my husband, unbeknownst to me, placed an object right in front of the steps. So I hit that and literally I went flying in the air. I really feel like angels picked me up and I tumbled on the grass. I missed the entire 12 foot patio. I don't know how because that bowl should have broken. I would have had cuts in my wrists and the bowl was fine and I was fine. But I have no idea how that's why my son

Mark Vandegrift
You had an angelic landing, literally.

Lorraine Kessler
I swear, Mark, I felt like angels picked me up. And that's why my son calls me the master of the small accident.

Mark Vandegrift
Well, we're going to throw a curveball at our listeners today. We’re going to focus on brands in the news and what they're doing right or wrong. And this might take a couple of episodes because there's a lot of news right now but there's no bigger news than that of Pepsi sliding into the number three slot. Replaced by, drum roll please… Dr. Pepper. I'm sure my title for you today gave that away, the Pepper of positioning Lorraine. Why, tell our listeners why this hits us like a ton of bricks.

Lorraine Kessler
Well, I mean, historically for my entire life, which is longer than I hope many of our viewers, it's always been a one and two race between Coke and Pepsi. So it's almost been what I would call a fixed position, if you will, for each of them. And, you know, this is not atypical because most categories as they mature, when they get to a mature point, they become a two horse race. And so these have been the two horses all along and kind of always nip and tuck, but Pepsi always behind. 

So historically, this is dramatic news that all of a sudden, Dr. Pepper, who I've always considered kind of an outlier, right? A very, very… it was always a cult brand. It's been super popular in its origin state,

and in the south, blends a lot of unique flavors that really has a distinctive profile that either love or hate, right? It's not in between. Either love Dr. Pepper or hate. In fact, one of the early characteristics of it was from the prunes. It used prunes as one of its ingredients, at least the juice or something.

So this is… all of a sudden we have 139 year old brand that's kind of always been this outlier and it overtakes Pepsi. Now I read one article because, and it's interesting, some of the articles, and I think they're probably paid for by Pepsi PR, says they're tied. It says they're tied, but most say no.

Mark Vandegrift
Well, I do have some stats that show that. So since you brought that up, let's look at some of the stats that talk a little bit about Pepsi slip to number three. So on June 4th, and this is an article you sent me, so maybe this is the one you're talking about, but Beverage Digest reported that Dr. Pepper and Pepsi were both at 8.3 % market share.

But with the rounding numbers and all that other stuff, Dr. Pepper had technically moved ahead of Pepsi. Coke remains the market leader at 19.2 % share. And then rounding out the top five. So we have Coke, we have Dr. Pepper and Pepsi, I guess in a virtual tie, but Dr. Pepper technically is two now. Rounding out the top five are Coke's other signature brands. Number four, Sprite at 8.1%. and number five diet coke at 7.8%. So we have 19.2%, 8.3, 8.3, 8.1, and 7.8. So I mean, that's like a grouping of two, three, four, and five that are all right there together. Kind of unique for any given category, wouldn't you say?

Lorraine Kessler
Yeah, and if I'm understanding this correctly, in terms of a company's overall market share, Coca-Cola dominates by far, right? Because who owns Dr. Pepper? I know they went through some...

Mark Vandegrift
Well, Dr. Pepper's owned by Keurig Dr. Pepper. So you have Coke with one, four, and five. Then you have Dr. Pepper owned by Keurig Dr. Pepper. And then you have Pepsi there at number three. So what -

Lorraine Kessler
Okay, so Coke as a company dominates, but in terms of brands we're talking about and brand share, yeah. Yeah, okay, I just want that to be clear. Yeah.

Mark Vandegrift
And in the article that you sent, it said that the trend, and note, you know, this is only a trend, so trends can change, but Pepsi is still sliding, whereas Dr. Pepper, Sprite, and Diet Coke are all climbing. Now, I didn't mention what's going on with Coke, but Coke's so far ahead, it doesn't matter at this point. So let's talk about this.

Lorraine Kessler
What happened to Diet Pepsi?

Mark Vandegrift
I didn't mention it in there, but it must be behind Diet Coke pretty, you know, enough that it's not in the top five. So, I think most marketers reaction to this might be, well, Pepsi didn't spend enough on advertising. And in fact, they pulled back from the Super Bowl and stuff like that. But I don't think we can jump to that conclusion. Guess what Pepsi's annual advertising budget is. Any guesses?

Lorraine Kessler
More than my mortgage.

Mark Vandegrift
If you have a $3 billion home or mortgage, then I need to be living under your roof anyhow. We don't have the exact numbers on what was spent on the individual brands, you know, as you mentioned, but they have an extremely diverse portfolio. If you aren't familiar with that, let me read a few of these. They'll probably ring a bell. Mountain Dew, Aquafina, that's water, Brisk iced tea, Bubly, that's sparkling waters, Gatorade, Life WTR, and water is spelled WTR in the brand, so it's Life woot-er, Lipton, Mug root beer, Muscle Milk, Propel, Pure Leaf, Starry, which if you don't remember Starry, Starry used to be Sierra Mist, which I think was a much better name. Crush, which if you recall was the orange and grape drink when you were growing up, and I loved Crush Orange drink. And then they also have, if you go and look at their list of brands, they have Dr. Pepper listed on there. 

So I was like, why is that on Pepsi's list? So I went and I found this legal clarification, which said this, “while Dr. Pepper has had various partnerships and ownership changes throughout its history, it is important to note that it is not currently a product of PepsiCo. Dr. Pepper is owned by Keurig Dr. Pepper, a beverage company formed in 2018 through the merger of Keurig Green Mountain and Dr. Pepper Snapple Group.” So we have PepsiCo with a very broad brand portfolio, but its signature product is sipping. That was a Freudian slip. Its signature product is slipping. What can we make of this, Lorraine?

Lorraine Kessler
I think marketing comes down to more than, you know, how much you spend, right? The question is, isn't just, are you spending enough? Which for our types of clients, that's always a first question because a lot of the clients in the middle markets and smaller just tend not to spend enough. But it's also how are you spending and where are you spending? Right? So you can spend the right amount or even overabundance, but if you're spending in the wrong places or promoting the wrong messages, the wrong idea, then that's fatal.

Right? It's almost more fatal than not spending enough. So you have to ask yourself, what distinction do we hold that we want to promote? Are we stoking relevance in terms of tastes and as behaviors change, which of course that's been a big part of this … what's been going on. In other words, are the brands, are we connecting strategies and strengthening a brand meaning around that brand that has relevance?

And are we in the right places where people buy? So, you know, where are we exposed? So there's a distribution part of this as well. Like, where can people get it? And you can either be ubiquitous everywhere people are who are ready to buy with a very familiar brand, or you can play off of something scarcity and make that something. For example, we have people here in Michigan who cannot get Yuengling beers.

Right? So we bring that and they feel like we're bringing gifts to the Messiah. You know? So, but I read that Yuengling, I know, yeah, and it used to be that way with Coors when I was in college. And, but I read, and this worries me, that Yuengling now has made a deal with Molson and they're going to be in all 50 states at some point. So. I think that's going, you can't have it both. You can't have the cult and be ubiquitous. So, you know, those are things that have to be kind of balanced. 

So it doesn't, it also doesn't just come down to the consumer and the relevance to the consumer. I mean, years ago, Pepsi scared the heck out of Coke by dominating the fountain business. They literally bought their way into the fountain business for those who don't know is kind of what you get at restaurants, fast food, that kind of thing. You know, the pour spicket. And all of a sudden Pepsi made a big run at that and Pepsi started to really close the gap. And of course they closed it with their position as the alternative to the old thing or the new drink of a new generation or the Pepsi generation. 

And Coke got very scared, you know, and which resulted in their awful overshoot reaction to introduce New Coke. And we know that that was really instructive for all of us as positionist people, but also a really bad decision on the part of Coke. 

So Dr. Pepper already had, in my opinion, a distinctive market from a brand perspective. They, in reading the article, they strengthened their fountain business. They took a little page from Pepsi, right? And now, like I've gone into these QSRs, there's always a Dr. Pepper option. There didn't used to be, right?

So it's almost always there. So that shows that they're where people are buying and when they're buying. They expanded their flavors, which fits kind of today. There's all this kind of flavor explosion in all sorts of snacks and pops and waters and, you know, it's flavors like the new black. And then they have always done, but have even continued to do very notable advertising. I think the association with football, what is that? Fan night or whatever. [Mark: Fansville] Fansville has really caught on and people look forward to that. And they've always been a little off in their advertising. They've always done something a little crazy. So I don't think it's any one thing. I think it's just a lot of things that they've done right. And persistently, because this has been a slow creep. It wasn't like, you know, it happened all over the night, right?

I think one last thing I would say is all those brands that you just put under the PepsiCo flag, the PepsiCo company flag, that becomes really hard to manage. Right? I mean, you know, where do you spend, how are you spending, what roles are you assigning to those brands? Do you have too many brands? I mean, we know as positionists, the more you add, the more you detract. You can't, I think it's just an unreal deep portfolio. It seems very heavy, lots of brands. Maybe it needs to be rationalized a bit with brands having very specific rules. 

And one of the things I would say is, you know, there's a lot of rules. Here's a rule. There's a cash cow brand. And a cash cow brand would be to me Pepsi. You have a big market. It's a big seller. It's got 8.3 % or 8.4 % of that market. We want to keep it there or make it strong and not vulnerable to attack. Why? Because we make money on that and then we can use that money to fund energizer brands, new brands that go after new segments and new tastes and whatever, like Brisk iced tea. 

But I think when you have all this, it's really easy to take your eye off a ball and I think they lost their eye on while you don't want to over invest in the cash cow, you can’t afford for it to lose share. I think the game, the goal is share in this business.

Mark Vandegrift
Well, another question that could arise is this. Let's say, you know, Kodak figured out that, or didn't figure out, that the film business was no longer going to be, and maybe Pepsi is prescient and they think that dark syrupy colas are going to go away. But then if that were the case, you would think all the soft drink brands would be declining at the same rate, which is not the case. So while the soft drink category might be declining a little bit, the market share is changing as we've already noted. So people are moving around. So from iced teas to sparkling waters, and then you have the arrival of these healthy options such as we've talked about Poppi, Olipop, Culture Pop, they all have pop in it.

Traditional sodas are losing the overall beverage market share across the board. But is it possible, just asking the question, that Pepsi is simply seeing the trend and abandoning ship?

Lorraine Kessler
Well, anything's possible, but that would be ill-advised, in my opinion, because unlike the Kodak example, digital obsoleted film. So I don't think the category of a carbonated beverage, cola, is being obsolete. I think share's been taken away, and the game is to solidify your hold on the share you have. So I think it's a little different.

And that's a lot of share on a lot of dollars to give up in pursuit of something of iffy or not-equal value. I mean, listen to all the list of brands you went through. I mean, none of them equate to the share that Pepsi has, and/or Coke and or Dr. Pepper. So some are close. Like you mentioned, Sierra missed, I think it was close. Which one was?

Yeah, Starry. But, you know, that's a lot of share to just willy-nilly give up with nothing to replace it. And the problem is, as consumers seek something ever new, they also like the familiar, right? So there's like this juxtaposition… kind of conflicted. But as they seek something new, it doesn't mean they necessarily want the familiar to go away. We tend to be additive, particularly in beverages. It's not like I just a monolithic open and I only have Pepsi. I'll have Pepsi. I'll have 7up. You know what I mean? I'll have waters. I'll have Propel. I'll have this. I'll have that. So it's kind of an additive category. So I think, you know, kind of putting all your chips on exiting one when it's such a great contributor to revenue would be, to me, that would be a strange decision.

And you could take a look at, like I said, all these brands are all kind of niche. I mean, Gatorade is one of theirs, right? And that's a great franchise, and they seem to be doing a nice job with that. They have like a line extension that makes sense. Like I buy the G-Fit now because it's really low calorie. It has all the replacement energy parts that I need without sugar, it's just a really good choice for me. And it's better than water. I work in the yard a lot and it seems to replenish the electrolytes faster. 

So, but you know, there's one brand that has a lot. So, you know, when you think about the products in the portfolio, they do want to have those because they do appeal to different needs or wants like health, energy, hydration, non-carbonated, carbonated. Anyway, that's, that's just my point.

Mark Vandegrift
Yeah, and the global soft drink market, just so you know, in 2021 was valued at about $414 billion. Then by 2030, it's supposed to be $622 billion. If you do the math, Lorraine, I know you love math. That's a compounded annual growth rate of 5.23%.

Lorraine Kessler
Yeah, about my weight. My weight does that. Each year.

Mark Vandegrift
So I don't think, 5.23%. Well, PepsiCo investors probably don't want to hear that Pepsi is giving up the ghost. So I guess from that standpoint, I would say that if Pepsi is making an intentional move away from, I guess, syrupy soft drinks, then they would probably be upsetting their investors quite a bit.

Lorraine Kessler
Yeah. And you know, investors, you and I know this. Investors are notoriously reactionary. They think quarter to quarter. And the only thing they think about is money and profit. And I happen to feel that money and profit are byproducts of doing the right things for the right reason with the right people. And so you should celebrate the byproduct. But investors don't care about any of the process. They just jump to moving money from my bank to your bank kind of thing. So if you listen to investors and you get them too involved, I think you're prone to make bad decisions.

Mark Vandegrift
We've done a lot of surmising here, Lorraine. Let's get to the positioning facts, okay? We're a positioning podcast, so let's get to the positioning facts. If you've participated in an Innis Maggiore Appreciative Discovery®, and if you haven't, you should, you've likely heard the classic positioning tale of Coke versus Pepsi. Coke is the original, Pepsi's the new. 

And Pepsi positioned itself for those who are hip and have a young point of view regardless of age. And we knew their slogan well, the choice of a new generation. In fact, I think we typically referred to it as the drink of a new generation, even though that wasn't actually the slogan. We put that word in there because we think of what it is, which is a drink. So it's just amazing how minds do that. So give us a little… I guess background here on the choice of a new generation. 

I read somewhere that it was first used, I think in 1981 with Michael Jackson, or maybe it was ‘84. I think it was 1984. So give us a little context around the choice of a new generation.

Lorraine Kessler
Well, you're referring to the specific slogan, but the position, which was a drink for a new generation, really, and the first campaign, which was called the Pepsi Generation, started in 1963. And I happen to remember the commercials, and there was a jingle that went along. And the inspiration for it that the first slogan was come alive, you're the Pepsi generation. It was actually a jingle.

[Jingle: Come Alive, You’re in the Pepsi Generation]

Which we would applaud today because it's about you, not the product, right? So this was early on that Pepsi was one of the first to sell an aspirational identity rather than a product. And again, it was 1963 when they hit on the position of being the new thing against the old thing, which was Coke. 

And interestingly, the jingle, there was a contest and the jingle came from a Wisconsin housewife named Ellen Reimer. I don't know how to pronounce her name. She's no doubt long gone, but her idea has lived on. And so you can iterate slogans all you want. The idea was the Pepsi was, we're for the new generation, we're the Pepsi generation and Coke is the old generation.

And what it did from a competitive standpoint, words aside, it was brilliant because it went east to west of Coke. It said, if Coke is the old traditional original, then it can't be the new hip new thing for the new generation. It has a heritage position and it can't now try to pretend that it's the new thing on the block. And of course we know that that's exactly what Coke tried to do is have both have it all. Old coke and New coke and the people who drank regular Coke said, what have you done with the Coke I love? And the people who they were trying to attract with New Coke said, I don't believe you for a second. So they lost on all ends.

Mark Vandegrift
Well, for those who can quote Pepsi's slogan on demand, the choice of a new generation or the drink of a new generation, I'm going to have you guess, Lorraine, when was the last time that they used that, the choice of a new generation, as a slogan in one of their campaigns?

Lorraine Kessler
You know, I really couldn't tell you because I have not heard, I've not seen or heard Pepsi's commercials in a long time. And I think the only time I would see him is around the Super Bowl and they gave that up this year.

Mark Vandegrift
Yep. Well, I think you mentioned that they've spent more time refreshing their logo than doing anything with a good campaign.

Lorraine Kessler
Yeah, they have, you know, and you and I have seen this, right? Remember Tropicana, $52 million or whatever it was, more than my mortgage that they spent on that whole new packaging. And then what, in three months they had to pull it because it was, the original packaging is brilliant with the orange, with the straw. It just says, hey, this is going to taste just like the orange. And the new package to be simplified…

Yeah, so I love talking about these companies who spend millions of dollars changing their logo as if that changes the brand position. Your logo is an identifier, and I will say that so there's, yes, you can update it, you can refresh it, but you never want to lose the tie to the immediate recognition people have between that brand, that logo and what they're buying, confuse people. And I think there was study done by our Smith client that showed that only 35% of package updates work, that the rest of that 65% lose the audience, they confuse them. So, it's a very dangerous thing to be playing with your logo. And it's like playing around on the surface of things, right? So, they, and I remember in 2008 or nine, they spent a million dollars, which was a lot of money back then, to the Arnell agency to just move wavy lines and they took Pepsi out of the circle. So, they just, because they wanted it to be super iconic and whatever. And, but what they said about it was mind numbing. They said things like, “this change was inspired by the Mona Lisa.” And then Arnell wrote this psych, this is their psychobabble. Excuse me while I read this. “The vocabulary of truth and simplicity,” Mark, “is a reoccurring phenomena in the brand's history. It communicates the brand in a timeless manner and with an expression of clarity. Pepsi breathtaking builds on this knowledge. True innovation always begins by investigating the historic past.”

I love this line. This one's the best. “Going back to the roots moves the brand forward as it changes the trajectory of the future.” I'll say that again. “Going back to the roots moves the brand forward as it changes the trajectory of the future.” I mean like what? They paid a million. They must have paid by word because they paid a million for that. And then because that was so perfect in 2023, they did it all over again.

And guess what they did? They put the Pepsi back in the logo. And it all goes to... They went back to the future to revisit the path to the... I can't say that word, trajectory, whatever trajectory they're trying to get. That's a tough word to pronounce. I can read it better. But it was just crazy. So it all goes to the point that...

Mark Vandegrift
Well, I heard the word innovation in what you read. Do you think Peter Drucker would say that that innovation counts as the same intent of his famous thing that, you know, a business' job is to create a customer only two things do that innovation and marketing. I don't think that's the type of innovation he had in mind.

Lorraine Kessler
Yeah, I'm not sure it's investigating in the historic path. It might be understanding your historic path. I don't know. The whole, all of this is a lot of highfalutin. It is psychobabble. You know, million, I wish when I wrote stuff for AD reports that I got paid by the word like this.

Mark Vandegrift
Yeah. Well, so that we don't leave people hanging, you might be surprised that the last time the drink or the choice of a new generation was used was in 1991. That's 33 years ago. It was only used in the campaigns from 1984 to 1988. And then again, for a short period in the end of 1990 into 1991.

So, this reminds us that brand executives get bored with their own work. So, they make change for changes sake, which is exactly what you were just talking about with the logo. And instead of putting a new skin on a great position, they abandon all ships, and they have to bring in their own identity. And not only did they, you know, at the time they positioned themselves perfectly back in the eighties.

They poured it on with great advertising. They had some of the biggest names in entertainment like Michael Jackson, who we talked about, who launched that specific campaign. And then they had David Bowie and Lionel Richie and Tina Turner and Gloria Stefan and Michael J. Fox. I mean, you talk about a list of hot names at that time. Those were the names that kind of I grew up with because I'm a child of the eighties.

You know, before you go, well, isn't the obvious answer to bring back this position and while we're at it, the slogan, but wait, there's more to this story. Pepsi left the trademark on this slogan lapse in 2006. Maybe that's why they did the logo change in 2008. They were like, crap, we got to change something. And guess who picked it up? Better Oats. So I read this quote in the Daily Mail about this, what happened.

They said, “how did a small oatmeal startup manage to scoop up one of the most iconic soft drink slogans right under the nose of its former owner? As it turns out, they had a man on the inside, Better Oats, who was originally known as MOM Brands, or what we know as Malt-o-Meal, whose CEO at the time was a former marketer at PepsiCo Frito-Lay.” 

So, Lorraine. What in the world? So now you got to tell us what do you think Pepsi can do to recover?

Lorraine Kessler
Well, they could go back to Ellen Reimer, our Wisconsin woman. And if they can't resurrect her, they could resurrect “Come Alive, Pepsi Generation.” I mean, they can still own that they're the Pepsi Generation. And secondly, hire us and I'll charge them less per word than Arnell did.

Mark Vandegrift
Well, they should just hire us. We'll do the work for less than a million.

Well, to finish this discussion out, we could talk on the Dr. Pepper side of this brand news as a separate podcast. So we'll do that because we're already at, an over, time. And next time we'll talk about maybe in a couple podcasts down the road here, just what's going on with Dr. Pepper while they're doing some great things. You already touched on a bunch of them, but I think it's, we owe it to our listeners to say, “Hey, Dr. Pepper's doing great things.” And we'll go through that as a, as a separate podcast, but any last comments, maybe direct it to Pepsi Lorraine, if you want, and, words of wisdom in terms of the fact that they've blown it and they're now number three, what… any last words here you want to share with them?

Lorraine Kessler
Well, even if the share is tied and or even not, right? Or third, I just wake up the brand again. I would wake up the brand. They're not gonna get this to 10, 12% of a market share, but I'd want to study the ship. I want to still be number two just out of pride and out of history and whatever else. And because it's possible with just, I think with their money and with moves and make sure you study that because you have a very big portfolio, and you have to support that. And this is your flagship brand and it's the brand that stands is in the company name as well. So, for all those reasons… and I would hire us to help you.

Mark Vandegrift
And we'll tell you to go back to your position.

Lorraine Kessler
…or resurrect Ellen if you can find her grave site in Wisconsin.

Mark Vandegrift
Well, let's bring this one to a close. I had planned to cover a few other brands as well, so we'll save that for our next few episodes. I think next episode, we're going to bring on a special guest. She happened to write a PositionistView for us just a week or so ago about a brand that's doing a ton of things right. So, we'll cover that one in our next episode and perhaps one or two others.

And it'll be all focused on these companies doing fantastic jobs at positioning. So, thank you for all those who joined us today. If you haven't liked, shared, subscribe, subscribe, subscribe, subscribe, or tell your friends about the brand Shorthand podcast, please do. Until next time, have an amazing day.