Coke gets fizzical

Since rejoining Coke last year, Sergio Zyman has pushed a policy of splintering

Sergio Zyman, Coca-Cola’s chief marketing officer, is no sentimentalist. He used to work for Coke’s former agency of record McCann-Erickson on the Coke account but since reaching the top at Coke itself he’s been instrumental in destroying his old agency’s exclusive hold on the business it had held, at 15 per cent commission, for 38 years.

Whatever the real spur to the decision, Coke has now inflicted further pain on McCann by moving the $45m (28.1m) media-buying business on the Fruitopia “new age” soft drink account out of the agency and into Leo Burnett alongside the creative account for the brand which moved to Burnett from Chiat/Day a few days earlier. This is the first time Burnett has picked up US media business on a Coke brand.

Coke is turning back to global agency networks after the scattering of brands and projects to independent agencies across the globe since 1992. That’s when it stunned the agency world by appointing Creative Artists Agency – a talent business built on representing Hollywood stars – to its main brand Coke account.

The official reason for Fruitopia’s move (and Cherry Coke’s, which has yet to be given to an agency) is that Chiat/Day’s new owner, Omnicom, was concerned about possible conflict with Pepsi, handled through Omnicom’s BBDO network.

So significant is the win for Burnett that it resigned the conflicting $25m Seven-Up account – owned by Cadbury Beverages North America – something the agency says it almost never does.

“It has major expansion plans for the brand and it needed to work with a strong global network,” says a spokesman at Leo Burnett’s Chicago head office.

So, is Zyman swinging the pendulum back towards the monolithic agency structures Coke has conspicuously spurned for the past three years, while it drew up an eclectic mix of “hot shop” creative agencies to work on its various brands? Is this all part of Coke’s master plan?

Moving Fruitopia to Burnett might not be correcting a mistake but it does appear to show Coke compensating for an overreaction. It has more than made its point. Ripping Coke out of McCann sent shudders through the agency world in 1992 – the fear was that if agencies had lost the trust of the world’s biggest brand, then it must be the end. And the speculation about the mere $1m earned by Chiat/Day in New York on the Fruitopia business has driven homethe message that the company is no longer willing to pay large commission.

The key to it all is Zyman, described by one industry source as a “sprinter, not a marathon runner”. What he has done is shake the can, tug the ring-pull and stand back and watch the resultant shower of new brand approaches. Some would call it refreshing, others say it’s messy and lacks direction, but everyone who knows him says the policy is of a piece with the man.

He is, says one familiar with his methods, “a frightening person for an agency to deal with. People come to Atlanta for a one-minute meeting. I’ve never seen the gun reach his shoulder, he shoots straight from the hip. And he just can’t leave things alone”.

In a big way. Zyman was the man who was project manager for New Coke, which the company launched in 1985 to replace the world’s most successful soft drink with a new and “better” flavour (though his official biography from Coke doesn’t mention the fact). The new flavour bombed – it’s still on sale, called Coke 11, and now has under one per cent of the US soft drink market. Zyman carried the can.

Not right out of Coke’s door but into self-imposed exile as a highly-paid consultant to the company before officially rejoining in August last year, after CAA had been hired. So, McCann’s monopoly was initially broken at a time when Zyman wasn’t, officially, working for Coke.

When Zyman returned he pushed the policy of splintering Coke’s advertising roster to its limit and the company now uses about 20 agencies.

The new campaigns that resulted have been criticised for being too disparate, especially in the early executions, and for being held together only by the bottle top logo and the contour bottle which is not enough to compensate for an overall lack of strategic direction.

Coke’s answer to all this is to emphasise its results: a better-than-expected gain of 22 per cent in the first quarter net earnings, the latest in a long line of big profit rises. Net profits rose to $638m from $521m and the total volume of drinks sold rose nine per cent with more growth coming from overseas than in North America. International volume sales rose by 12 per cent – 79 per cent of Coke’s profits come from overseas – while US volume rose 3.5 per cent.

“Breaking the rules has been very good for our business,” says a spokesman at Coke’s Atlanta head office, while maintaining that Coke goes where the talent is, regardless of agency size.

Some observers trace the roots of the policy to the New Coke débâcle. Zyman lends credence to this view with his recent, corporate-speak comments on the affair: “The total-ity of the action ended up being positive.”

The gist of this argument, which analysts like Tom Pirko, president of Bevmark drinks consultancy in New York, advance, is that Coke was given a painful lesson. “New Coke woke it up; it had to do things differently and take risks in a way it had not done before,” he says.

It taught Coke, painfully, how to produce product differentiation without undermining the Coke brand name and, from consumer reaction to New Coke, it discovered the demand for different flavoured colas which eventually led to Fruitopia.

The first part of this argument might hold true, though the time lag is against it; but the second part is surely more muddled. Consumers didn’t want New Coke, they wanted old Coke and Fruitopia was a reaction to the success of Snapple which, if you believe the hype, built its success through word-of-mouth.

So Coke didn’t get there first, instead it was given a bloody nose by what was then a tiny company. Since then, Snapple has been bought by Quaker – whose sports drink Gatorade has also been copied by Coke with its Powerade drink.

“Has the advertising policy worked? The real question is what is Coke’s overall marketing strategy for both its key brand and as a corporation. Fruitopia was a copycat and things like OK soda have been dismal. They haven’t been producing enough new drinks,” says one source close to the company.

His point is that Coke’s success resulted from the strength of its distribution network, not marketing or advertising strategy. Copying a successful product and plugging it into the Coke network gives any product an enormous initial fillip.

Fruitopia’s performance backs this up. It is sold in seven countries and is about to enter the Latin American market. Its 14 flavours achieved sales of $20.4m for the year to March, says Information Resources; not bad for its first year of production.

The very success of its distribution system can lead to mistakes, however. There are those who suggest the rise of own-label colas, especially in the UK, shows that Coke had become complacent and is not backing the

distribution with marketing support. The long-term dangers could be considerable.

“It allowed Coca-Cola Schweppes Beverages in the UK to let the price of a can of Coke rise and rise so there was plenty of room for cheaper products. Nor did it back the brand with the sort of advertising spend you’d expect. It shouldn’t have been surprised by what happened, but it was,” says one insider.

While areas such as own-brand colas show Coke is vulnerable, Zyman’s tactics seem to have worked. The split with McCann signalled a change which has served Coke well; it is sufficiently confident to believe a return to working with global networks can be done without leading to the complacent relationship it used to have with McCann.