Has Coca-Cola lost its magic formula?

After paying £95m for the exclusive Harry Potter tie-up, Coke has knocked five points off its UK market share. Critics say the deal was flawed, but it signals deeper holes in Coke’s ‘local/global’ strategy.

The owl may be a symbol of wisdom and a friend of trainee wizard Harry Potter, but was Coca-Cola’s tie-up with the hit movie such an adroit strategy for the drinks giant?

Coca-Cola’s volume share of the UK cola category slipped by 5.4 per cent in the five weeks following the launch of its Harry Potter & The Philosopher’s Stone film promotion, and rival Pepsi’s share rose by nearly eight per cent over the same period.

The blip throws into question Coke’s &£95m exclusive global marketing deal with AOL Time Warner. Critics have pointed out that Coke paid over the odds for what is a highly restrictive deal – it did not even provide for pictures of Harry Potter to appear on cans or film product placement rights.

In the UK, Coca-Cola devised Harry Potter promotions with four retail chains, to run from mid-October through November. Although Pepsi ran a price offer and a CD promotion with pop group S Club 7 at the same time, a spokesman for the brand denied that it was a huge offensive against Coke’s Harry Potter tie-up.

According to one supermarket buyer, price promotions as a mechanism to drive sales will win every time when mum is doing the shopping. He adds that in the case of three of Coca-Cola’s supermarket Harry Potter promotions there was no tangible benefit for consumers, just the chance to enter a prize draw.

The figures may be only a blip. Coca-Cola is the number one brand in UK supermarkets, according to the recent AC Nielsen/Checkout survey, with sales worth &£491.4m, up nine per cent on last year. However, these are only supermarket figures and industry statistics suggest Coca-Cola Classic is losing ground in pubs and bars where it competes against a plethora of new mixers from energy drinks to juices.

One executive from a soft drinks rival asks: “How can you be down during a promotional period with one of the biggest possible promotional devices of all time? Either it did not utilise it properly or Harry was just too big for Coca-Cola.”

While the Harry Potter movie is an undoubted worldwide smash hit, box-office momentum is slowing and the film will probably not overtake Star Wars Episode 1: The Phantom Menace (which took &£400m worldwide). Film goers are already talking about the next blockbuster and Potter fever is subsiding.

John Williamson, partner at brand analyst Wolff Olins, says: “The danger in the tie-up is that you end up promoting Harry Potter not Coca-Cola. Coca-Cola is a bigger brand than Potter.

“Why promote a fictional character when Coke has got the strongest character on the planet – its own. The brand has a story, but it is not communicating it.”

Is it just in the UK where the Potter tie-up has failed to inspire consumers? The answer should lie with the fourth-quarter volume figures announced today (Wednesday). In the US, Coca-Cola took flak from a lobby group concerned at what it says is an unhealthy product being allied with a children’s film, and this may have hampered the promotion’s effectiveness.

Coca-Cola has already revised its global volume growth projections down to five or six per cent growth this year, but Caroline Levy, analyst with UBS Warburg, says: “I think it is more likely to be four per cent. The Latin American market is under some pressure and the general global economic situation will have an impact.”

Coca-Cola has implemented literacy programmes in a number of territories and argues that these will help develop positive and meaningful associations for the brand in the long run. A spokesman says: “It’s very much a long-term brand building initiative, like our association with football.”

However, Coke’s long-established ties with football have suffered with the failure of ITV’s high-profile programme The Premiership. The show failed to grab the crucial early evening family audience on Saturday and has been shifted to the later evening slot, where Coca-Cola’s sponsorship is presumably now communicating with young men who have alcohol on their minds rather than soft drinks. Coke UK marketing director Charlotte Oades defends the sponsorship: “It’s still a significant piece of our activity and the core male 20-plus audience is key for us.”

Coca-Cola is determined to stay in the sports arena and has just signed up to be one of the Football Association’s selected five FA Partners until 2006. For an estimated &£10m a year, the deal delivers a comprehensive rights package, including the rights to supply Ball Kids and flag-bearers at England home internationals.

Perhaps Coke’s tie-up this year with News International for the Music4U ring-pull promotion will redeem the brand. The promotion closed recently and responses are still being tallied, but Oades says that the close partnership with The Sun and News Of The World gave Coke valuable access to the papers’ teenage and music-mad readers.

If steadiness of vision is a main contributor to strong performance then the drinks giant has had grit in its eye for a few years. Senior management has changed at a rapid pace at both global and regional level, sending out confusing signals about marketing strategy. Doug Ivestor, advocate of Coke’s “think global, act local” strategy, resigned the chairman-chief executive title in December 1999, after the company’s first fall in full-year profits – and only two years in the position. Doug Daft took the helm with the mantra “think local, act local”, but recent global agency shuffles for various Coca-Cola brands leave onlookers puzzled.

It appears that the UK is being left alone for now to pursue a local policy. The company spent &£19.2m on advertising the Coke brands (AC Nielsen) but won’t comment on next year’s budget. Oades says: “We are committed to making sure that we continue to connect with UK customers and deliver a communication that fully resounds and entertains them.”

Oades explains that current strategy is to work with the global agency McCann-Erickson where economies of scale can be found, but to stay with local hot shop Mother for ads speaking directly to the UK market.

But Wolff Olins’ Williamson believes the local approach is misguided and says: “There is nothing local about Coca-Cola. What people buy is the idea and it’s a universal idea.”