Is soft drink innovation getting out of hand?

New spin-offs promise to give Pepsi and Coke a summer lift - but too many SKUs can be a bad thing

It’s the time of year when some marketers are going to drive you to drink – at least that’s what they’re hoping.

Spring is the season for new beverage launches, as manufacturers look to get to market by May in order to be top of mind for the all-important summer season.

Each year consumers are presented with a bevy of new product and packaging innovations – sub-brands striving to extend loyalty or pick up a little share from the other guy. But how far can brands be stretched before they begin to lose their elasticity? Might there be a downside to all this beverage leveraging?

Geana Demone, senior consultant at Toronto-based brand strategist Second Sight Innovation, says beverage innovation has increased in recent years because new flavours and colours drive growth in the carbonated soft drink category – at least temporarily. ‘I think what we are seeing today is the limited time offers that would have been launched five or 10 years ago are now sort of brand extensions that go out into the market and make an impact for a few months, and then sort of settle into the total brand base of not very much growth.’

With Canadian soft drink consumers aging and more health conscious, Pepsi has chosen to debut a new mini-can this year. While it offers parents a chance to portion control, Pepsi’s research says the 237ml cans will be a hit with a certain segment of women 25-plus and some teen demos who are not currently buying because of serving size. Pepsi is also adding a splash of grapefruit to its lemon-lime brand and introducing 7Up Tropical Splash, following on the intro of the Tropicana Twister last month.

TV and out-of-home campaigns will begin to break shortly through BBDO Toronto (including some innovative 10-second TV spots for the mini-cans) and Pepsi is also planning more events like the recent soirée it threw at Dundas Square in Toronto with Canadian gold medalist swimmer Mark Tewksbury and the Lifesaving Society of Canada. In that hour alone, the manufacturer gave away more than 700 cans of Tropical Splash.

Down the block, Coke is hoping consumers will want to mimic their restaurant experience at home, with its new Diet Coke with lime. With outdoor already on the streets, AOR Cossette Communication Group says it is currently putting the finishing touches on TV spots which will extend the existing ‘Nothing to Justify’ campaign, one that puts Diet Coke in the guilt free, ‘I don’t have to explain my drinking habits to you, buddy’ mind-set so resonant with its female demo. Coke will also soon introduce Minute Maid Simply Orange. (Leo Burnett is the AOR for that particular campaign.)

The meaning of shelf life

But the recycling bin of history is stacked high with brand spin-offs that found a home in neither people’s hearts nor their refrigerators: the colourful Pepsi Blue, the colourless Pepsi Crystal, the head-scratching New Coke. Why should marketers think the new introductions will go any differently?

‘Not all of these brands are launched with the hope that they are ever going to become a Pepsi or a Coke or a 7Up,’ observes Stephanie Nerlich, SVP and group account director for Pepsi at BBDO Toronto.

‘They are always launched in addition to your continuous support towards building the equity of your base business…. But one of the ways to build the base business is to create sub-brands that provide the opportunity for news,’ she says.

‘Flavour innovation, colour innovation or packaging innovation are stronger pieces of news for the consumer. Where it would be a lot harder to get immediate trial on a Pepsi because that’s something that is in their fridge every day, you can get immediate trial in the short term and volume lift off a stronger piece of news.

‘If you launch something that is seen as innovative, unique and youthful for Pepsi,’ notes Nerlich, ‘it haloes the Pepsi brand. It provides momentum, it keeps the parent brand top of mind and you’re seen as a leader if you’re first to market with innovation.’

Chris Hamilton, director of marketing for Pepsi, understands that the lifespan of any one product might be finite and that’s fine by him, because he believes each innovation plays its own role.

‘A good marketer has the plan laid out for not only who is going to buy it, but how long it is going to last,’ he says. ‘You have to be very disciplined not only in what your entry strategy is, but how long it is going to be in market and what the exit strategy is going to be.’

You want what now?!?

The real problem, says Jake McCall, president of Second Sight Innovation, is that consumers are becoming permutation junkies. ‘Consumers are demanding innovation all the time,’ he says, ‘so you have to keep introducing things whether they survive or not.’

However, giving into the urge to be a chameleon invites danger, warns McCall. There are pitfalls like SKU fatigue and surface innovations. McCall points to Unilever’s recent five-year plan to slash 1,600-plus brands to 400 as an example of SKU fatigue.

He stresses: ‘The need for genuine innovation, something that taps a real, new need gets more important and more difficult.’

And, according to some, the majority of beverage sub-brands don’t fall within the ‘genuine innovation’ category.

‘The line extensions that you have seen are lazy marketing,’ states Sergio Zyman, founder of Atlanta’s Zyman Marketing Group and former chief marketing officer for Coke.

‘I think what you are doing is cannibalizing the main brand for new segments that truly don’t exist… I think launching products with lemon or lime or vanilla is looking for business that is just not there.

‘There has been nothing [new] in the marketplace [despite] all these extensions…. The reason Diet Coke succeeded at the time was because there was a segment that they were actually growing. The sad thing about it is that there hasn’t been a new product introduction to the carbonated business since Mountain Dew…. I think consumers want to have new news on the existing brands, but it is hard work. And it is not sexy.’

But BBDO’s Nerlich argues that aggregate growth justifies any small cannibalization of the base business that may happen along the way. ‘You have to look at if it is going to strengthen the overall franchise,’ she says. ‘Even if they do steal a little bit of share from your base, are they making up for it? Did they deliver a full share point and only stole point-three from your base?’

‘I don’t think it detracts from the main brand,’ says Cossette Toronto EVP and CCD Stephen Creet. ‘Maybe there is a slight downside in that you might pull people away from your main brand, but I think it’s worth the risk because you might develop some really fanatical [advocates] for the new thing.

‘It is certainly better to do that than to have people drift over to the other side.’

Second Sight’s McCall sees many of these sub-branding efforts as a rear-guard action on the part of the soda giants – an attempt to manage the decline in the carbonated beverage category in a constructive way. And with the two main players holding substantial juice, water and other non-carbonated brands, launching spin-offs that might appeal to even a limited market segment might not be all that dangerous, as long as the cannibalization remains within the family.

Says Marion Chan, VP of food and beverages at Toronto-based marketing firm NPD, ‘It is a very calculated risk. They can’t really lose…. The worst-case scenario for most of them is that consumers go to a competitive brand because the competitor came up with something that piques the consumer’s interest a little bit more. So goes the cycle. Then the other company comes back with another product that is going to pique the consumer’s interest a little bit more, just like a tennis game.’

Space: The Final Frontier

Sergio Zyman bottom-lines the argument at simple physics. There is only so much shelf space and more sub-brands mean smaller presence for the parent brand at retail. And that, he notes, opens the door for smaller, non-tier-one players.

Max Valiquette, president of Toronto youth marketing consultancy Youthography, says sights such as stand-alone Starbucks coolers have become common in convenience stores in the U.S. (Pepsi distributes some Starbucks product here in Canada.)

And smaller players such as Seattle- (née Vancouver-) based manufacturer Jones Soda is getting huge marketing play out of its tiny share of the market, pushing youth-oriented product like Fufu Berry and Chocolate Fudge sodas. The big players, notes Valiquette, ‘are in a difficult situation where they are facing, to some extent, a marketplace that values a couple of things that they just aren’t. Young people like newness and innovation and all of those things, and Coke and Pepsi are classic brands. And, at the same time, young people tend to like brands that are for them.’

But at the end of the day, all the players in the beverage category, giant or small, are trying to make their way in a beverage landscape that promises to be completely different in the next half-decade. Innovation of any sort – even call it experimentation – may suggest where consumers are heading.

Summarizes Pepsi’s Hamilton: ‘The focus on health and wellness. The focus on the aging population. The urbanization of Canada. All are big factors that marketers are taking into account as we build our plans for the next three to five years…. If you think how products will respond to those major consumer habit-changers, you will absolutely see things revolutionize in beverages going forward.’