Coke TRIES TO GET ITS FIZZ BACK - Company Business and Marketing

Industry Standard, The, August 21, 2000 by Ben Hammer

The world's No. 1 soft-drink company is taking its marketing muscle online in a bid to reverse its slump.

THE COLA MARKETING WARS HAVE finally moved online. Pepsi was first to take the plunge, signing a promotional deal with Yahoo in April. In May, Coca-Cola followed, announcing its own initiative with America Online.

In addition to not leading the charge online, Coke's been a laggard in other ways. In 1999, the company missed earnings expectations two quarters in a row and experienced nearly fiat growth in market share and cases of soda sold, the key industry metric, despite 6 percent case volume growth a year earlier. So now, Coca-Cola is looking beyond its deal with AOL for ways to use Internet marketing locally to improve sales. (Coke still outsells Pepsi in the U.S. and internationally.)

"We're trying to jump-start the field," says interactive marketing director Anne Chambers. "We're looking at identifying trends 12 to 24 months in advance and getting that out to the field so they can develop their own strategy."

Given that Coca-Cola controls some of the world's biggest consumer brands, a change in direction has implications far beyond the cola in the red-and-white can.

In March, a new management team unveiled a "think globally, act locally" marketing plan that calls for boosting resources - money and staffing - for interactive marketing, even as the company cuts its workforce worldwide. It's also moving decision-making from Atlanta corporate headquarters to local operating units, pinning its hopes on a leaner organization that takes advantage of local officials' knowledge. Marketing executives are urging officials to use the Internet to target consumers in ways most appealing to the local population.

While the decentralized strategy is a major shift for the company, it's not inconsistent with its marketing past. The company has long given leeway to bottlers' franchise groups for their own marketing efforts. And it has been willing to take chances in order to reach customers in new ways: In 1993 it shocked Madison Avenue by moving most of its U.S. advertising business from traditional giant McCann Erickson to Hollywood talent group Creative Artists Agency.

Now Coke's new team of marketers is grappling with a universal problem: Traditional advertising vehicles don't have the reach they once did.

"The old model of segmenting a market and sending some messages out on TV isn't going to work," says chief marketing officer Steve Jones. "There aren't that many people listening anymore." Still, Coke's recent online moves highlight how sluggish it's been on the Internet -- until now. Until March, most of Coca-Cola's Net work focused on interactive CD-ROM games and a series of brochure-like Web sites for brands. In 1999, the company spent $1.1 million in online advertising in the U.S., compared with PepsiCo's $581,000, according to Competitive Media Reporting.

But this spring, Coke changed its tack. The company struck a deal reportedly worth $64 million over two years with AOL to exchange marketing and technology services. Coke plans to tie its products in the U.S. to AOL Moviefone. It will also link local promotions with AOL's Digital City guides. In addition, the company will promote Sprite, a drink popular with a young demographic, through AOL music properties Spinner and Winamp. VP Darryl Cobbin, who manages Coke's relationship with AOL, says the deal will make the company a much stronger online marketer.

"We don't know that much about how to market in this space," Cobbin concedes. "So we needed a partner to help us learn how to do it."

Coca-Cola spent more than $500 million on television advertising last year, Jones says. He predicts that by January, the company's online advertising spending will approach 5 percent of its total advertising budget, up from less than one-half of 1 percent today. That would amount to more than $25 million for Internet advertising, based solely on the television figure. Still, that's about what it costs the company to run a heavy-rotation, national ad campaign on the major television networks for one quarter.

Coke is trying to make up for its late online entry with creativity. Consider two ideas for its international initiative: Company research found that 1 million Peruvians age 15 to 24 access the Internet through government-subsidized connections in small, spare, public facilities in Lima. So the company devised a plan to install vending machines and decorate the bare, whitewashed walls with Coca-Cola paraphernalia. In Japan, visitors to Coca-Cola Web sites through wireless Internet service provider NTT DoCoMo can download special characters and songs. And in a central European country where the Internet is developing over wireless platforms -- Coke won't say which one -- the company is considering giving away 100,000 WAP-enabled cell phones specially programmed to receive messages from the company.

Coca-Cola recently closed a $100 million deal with Atlanta software firm Marconi to connect 500,000 vending machines in the U.S. to the Internet to improve inventory control. A side benefit: The machines can be turned into entertainment portals, offering downloadable songs and videos.