Spreading cola brands too thin

Over the past 20 years, the battle for supremacy between Coca-Cola and Pepsi has resulted in the launches of numerous brand extensions. In combating decline in the fizzy drinks market, are the cola giants wise to rely on new variants to protect market share? By Mark Choueke

Drink Coca-Cola. Coke Is It. The Real Thing. Three unmistakably clear and powerful advertising campaigns once used by the soft drinks giant to stress the inimitable essence of the world’s most powerful brand. But the sheer number of Coca-Cola and Diet Coke variants now on the market – set to increase when Diet Cherry Coke launches next February – are making the straplines obsolete.

Diet Coke was launched in the UK 21 years ago as Coca-Cola’s first brand extension. Today, it is the personality of the brand may be compromised by its bastardised cousins – UK consumers can already buy five varieties of Diet Coke, depending on whether they fancy it caffeine-free, or with a dash of lemon, lime or vanilla.

Carbonated soft drink (CSD) sales are in a long-term global decline as consumers fret about obesity. With that in mind, embattled laboratory teams responsible for creating new products at Coca-Cola and PepsiCo are desperately trying to raise flagging consumer interest in the category with new permanent and limited-edition variants. Coca-Cola added Diet Coke with Lemon to its permanent range this year, only for PepsiCo to follow with lemon and lime-flavoured Pepsi Max Twist. Not to be outdone, Coke launched Diet Coke with Lime, and, as a limited-edition flavour for summer, Coke with Lemon.

A Coca-Cola spokeswoman says: “Everything we do is consumer-led and research told us Coke with Lemon is the taste of summer. Consumers reminisce about childhood summers and being treated to a bottle of Coke with a slice of lemon, so we made it available.”

Coca-Cola is determined to forge ahead with CSD product innovation in 2006. “Consumers will determine all future launches. If a product fits our positioning and is demanded by consumers, then anything goes,” the spokeswoman says.

Britvic, which is licensed to distribute PepsiCo products in the UK, adopts a more guarded approach to brand extensions and limited editions. Britvic category director Andrew Marsden says: “Limited editions add novelty and surprise to everyday categories and generate additional interest and revenue. But you have to be careful with the flavour of limited editions and how many you release. It is a risk and you need confidence in the product.”

Only Fools rush in

Marsden counsels against falling into a “race mentality” with rivals to get the next fruit-flavoured cola onto the shelves. “Success requires a long-term strategy, sensible marketing and good category knowledge. We don’t throw things at the market on a whim. Limited editions must have business sense, category context and consumer rationale, and are relatively expensive things to do well. You need to know it will add brand equity. An ill-conceived product damages relationships with both trade and consumers – I’ve seen products left in retailers’ bins.”

Britvic launched the limited-edition cinnamon and ginger flavoured Pepsi Max Punch in September, made available until the end of the Christmas period. In January, it will roll out coffee-flavoured Pepsi Max Cino as a permanent addition to its range (MW October 20).

One retailer says meaningless variants can undermine the strength of a brand, being withdrawn or left on shelves by consumers. A recent Mintel report found that although more than 80 per cent of 15- to 24-year-old Britons drink cola and other carbonates, they are relatively unadventurous. Only seven per cent try new products and just 11 per cent said they would buy varieties such as lemon or vanilla cola.

The harsh taste of reality

The source says: “We are cautious in agreeing to stock limited editions because market research is different to reality. Consumers test a product and agree it tastes very nice, but that doesn’t mean they’ll buy it.”

The source adds that his store is taking Pepsi Max Punch as a one-off for a short time in December, but warns: “We don’t want unsold cans stacking up. Coca-Cola recently told me it can’t give Coke with Lemon away – there’s a mountain of the stuff left on shelves.”

By their very nature and purpose, limited editions come in declining areas – sales of carbonates dropped by more than five per cent in 2004, according to Mintel. Companies hope limited editions and permanent variants in strange and interesting flavours will slow down waning interest in carbonates. But the retail insider says the product launches merely “prolong the pain” of general decline. He adds: “Diet Coke with Lemon did OK at first. But it’s taken a dive and I’ll be surprised if it survives the next review. It has already been discontinued in Ireland.”

However, another retail source is more positive. She says: “Coca-Cola and Pepsi are careful not to cannibalise their sales with new products, but try to bring new consumers to the category each time. Limited editions such as Coke with Lemon sell at full price with high margins for the company and retailer, providing incremental sales and something new for the consumer.”

In the US, where CSD sales fell 1.3 per cent between 2002 and 2004, the same battle is being fought. Coca-Cola marketing executives are about to take another crack at marketing Coke Zero, but the diet drink, designed to taste more like Coke than Diet Coke, has left consumers confused.

Perhaps this isn’t surprising, as American consumers can now buy more than a dozen different colas bearing the Coca-Cola name. There are seven different versions of Diet Coke, including Diet Coke with Splenda and Coca-Cola C2, a low-carbohydrate cola with 50 per cent less sugar than regular Coke. C2 was launched less than a month after Pepsi announced the debut of mid-calorie Pepsi Edge in March 2004. Neither sold well, as marketers, who had found it easy to market regular and diet versions of drinks to specific consumers, struggled to repeat the trick with a third tier of “mid-calorie colas”. Pepsi announced in May 2005 that it will discontinue Pepsi Edge next year. Coca-Cola is persevering with C2, though its 1.2 per cent share of the diet market is disappointing.

An innovation too far?

Companies exchange ideas across the countries in which they operate. Pepsi Max Punch is the British name for the similar Pepsi Holiday Spice, available in the US for a limited time last Christmas. Raspberry Coke, launched in New Zealand last May, has been touted as a future Coca-Cola product in the UK. But some ideas seem unlikely to spread as innovation becomes almost ludicrous – Seattle-based Jones Soda Company offered US dieters five limited-edition, zero-calorie, zero- carbohydrate flavours last December, including Turkey and Gravy Soda, Green Bean Casserole Soda, and Mashed Potato and Butter Soda.

Red Bull managing director Harry Drnec argues that constant innovation is devoid of meaning or principle, and says limited editions are the result of companies putting business before the brand. “Are Coca-Cola and Pepsi expanding consumer choice, or bowing to large overheads, massive payrolls and shareholders? I hope Red Bull doesn’t get into meaningless cherry flavours.”

As world trends show pure waters, juices and energy drinks to be on the increase and CSDs to be in decline, the quick-draw process of launch-promotion-sale-withdrawal of carbonate variants is being viewed with increasing cynicism by buyers and consumers alike.â¢

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