Innovation, and why Pepsi lost the cola war

Coca-Cola passed Pepsi to claim the top two spots in U.S. cola sales for the first time in 20 years. Here's why the company's innovation strategy is to blame.
Written by Andrew Nusca, Contributor

Last week, PepsiCo's flagship soft drink ceded the No. 2 spot to rival Coca-Cola Co.'s Diet Coke.

It was a spot that the company had held for more than two decades. So what happened?

In a wonderful essay in AdAge, Natalie Zmuda digs in to understand why PepsiCo -- a successful American company and brand, no matter how you cut it -- "blinked," losing its footing against its rival. It's a tale of management woes, shortsighted strategy and confused marketing.

In a way, it's a story about lost corporate creativity.

She writes:

As war stories go, this one is epic. "It's a tale of two companies, both in the same category, both facing the same market dynamics," said one executive close to Pepsi, referring to that brand's rivalry with Coke. "One of them stayed the course and recognized that brand building is a long-term proposition. It built on its heritage, protected its brand and invested in its brand and its people. The other went into a tailspin, trying to reverse its fortunes overnight at any cost. It lost its best people, lost its continuity and, ultimately, lost its direction."

One potential bright spot for the company: its Pepsi Refresh project, a social responsibility campaign intended to foster good relationships between bottlers and their local communities.

But the big takeaway from this report is a "dearth of creative ideas surrounding" Pepsi, and too much emphasis on "flavor-of-the-day marketing" that comes with high turnover in its marketing department. Simply, no employees are able to stick around long enough to guide the brand through a long-term strategy.

The key word here? Innovation. According to one analyst quoted in the piece, PepsiCo approaches it by looking for the next big thing, while Coca-Cola sticks to reinforcing its existing products.

Invent a better product, or refine a successful one already on the market? Which one is more difficult to sell when it comes to R&D spending?

This post was originally published on Smartplanet.com

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