PEPSI-COLA SHIFTS ACCOUNTS TO 'TOTAL BEVERAGE' STRATEGY

JAMES TENSER

NEW YORK -- With some 600,000 retail customers selling its beverages nationwide, Pepsi-Cola Co. has confronted one of the nightmares of account-specific marketing -- spiraling spending on discrete consumer events that deliver diminishing business benefits.

"My one caution as we go through the process of customer-specific marketing is that it will increase your cost of doing business, it will not decrease it," warned Harry Walsh, senior marketing manager of customer marketing at Pepsi-Cola Co., Somers N.Y. Walsh said Pepsi has responded by creating "total beverage" strategies with several major retail accounts through a joint business planning process that has become a new model for the company's work with the trade.

"Consumer programs may then be a subsection of the ultimate strategic plan for that customer," he said. "It is such a secondary part of doing business now. We will do those, but it does not really have the importance that it once had back in the late 1980s or early 1990s."

Walsh spoke at a conference here on Account Specific Promotions, sponsored by the Strategic Research Institute, New York. He described how his company has been changing its approach to working with its larger retail accounts.

Pepsi's large customer base and wide distribution may have led it to confront the customer-specific spending trap sooner than some other brand marketers. While popular with the trade, consumer marketing events such as contest give-aways delivered good results at first, but parity demands from competing accounts caused them to proliferate, he said.

"It escalated over time as it evolved," he said. "Eventually we were spending over $1 million just in the state of Michigan on account-specific marketing events. That was on top of price-off activity."

Customer-specific events had become a cost of doing business, said Walsh.

"Basically, now it was expected of us to bring account-specific programs to the retailer. And there really isn't that tremendous benefit we once had back when we started. You don't see the same lifts in volume. You don't see the same incremental display activity that we used to get as leverage when we had specific events." Walsh said Pepsi has tried to refocus its marketing efforts to work with accounts to communicate a three-part message of value, variety and convenience to consumers.

"We're actually working with several customers and we have to change," he said. "They are going after that consumer. They are trying to position themselves as strategic players in their marketplaces."

Pepsi's business planning process recognizes this common interest and uses in-depth sharing of information to develop joint goals and a total beverage strategy for each account. The process is rooted in a cycle of five two-day meetings that normally take place over six months.

"Every time we have done this we have hired third-party facilitators to help us through the process," Walsh said. "A consultant keeps both sides from being parochial in the way they approach their business. He helps people to focus on outside-the-box thinking."

Each party presents detailed information from its area of expertise, including relevant financial data. The account describes what contribution it expects from the beverage category in terms of gross margin dollars, what it wants from the vendor, where beverage fits into its overall growth plans and its storewide strategic plan.

"It is important that the accounts share this financial data," said Walsh. "They share the financial data with us, on their beverage category, on the position of the beverage category within the store, and we go through that process together."

Pepsi provides research on beverage consumers, including Information Resources Inc. panel data and its own market research. It also analyzes its promotion history with the account.

"We go through the painful process of identifying all the things that we have done bad, all the things that the account has done bad, all the things we have done right. It is really a gut-wrenching process, building awareness of exactly what we need to change," said Walsh.

From this process comes what Walsh called "a total beverage position statement." It identifies whether the retailer requires beverages to be a drive category, a profit category or a traffic builder. "Basically you have to create the statement of what it is going to be and everything should fall from underneath that," he said.

Within that position statement several key business strategies are broken out, each focusing on a subcategory such as take-home multipacks, full-bottles, fountain or new age products. Pepsi and its customer set margin targets for each one of the segments, Walsh said.