The Fizzling of a Giant: How Pepsi is Losing Ground in the Beverage Industry

Recently, a situation has emerged that every B-School student would recognise from their case studies. Pepsi, a long-standing staple brand, is facing a critical juncture in the beverage industry. Over the past few years, it has encountered significant challenges in maintaining its market position. Despite its decades-long dominance, Pepsi's market share has started to dwindle, creating an opening for competitors to exploit.

In a twist that few could have predicted (except for keen-eyed observers of the space and cases), Dr Pepper has recently overtaken Pepsi to become the second-best-selling soda in the United States. This unexpected shift in the beverage industry landscape underscores Dr Pepper's remarkable ascent and highlights Pepsi's gradual decline. This article explores the factors contributing to Pepsi's decline, examining its marketing missteps and unsuccessful product introductions. Additionally, I'll highlight Dr Pepper's strategic successes and discuss PepsiCo's pivot towards snacking, as evidenced by the success of its Frito-Lay division. I will also use the Brand Equity Pyramid to assess Pepsi's current standing.

Brand Equity Pyramid Analysis of Pepsi

The Brand Equity Pyramid model, developed by Kevin Lane Keller, provides a framework for assessing the strength of a brand. The model not only enables us to dissect the components of what constitutes the relevance of a brand and its connection with consumers but also helps us peer into its current predicament. Here's how Pepsi fares in each category:

1. Brand Salience: While Pepsi maintains global solid brand awareness and recognition, its relevance in the soda market is waning, especially in the U.S. Recent attempts to innovate with unconventional flavours like s'mores and salted caramel have not resonated well with consumers, weakening its immediate recognition and relevance.
2. Brand Performance: Pepsi's core product performance has declined. The consistent drop in market share and the failure of new product launches indicate that Pepsi is struggling to meet consumer expectations in taste and quality compared to its competitors. While the brand's distribution remains robust globally, it's losing ground to more innovative competitors.
3. Brand Imagery: Historically positioned as the "cool" and "young" brand, Pepsi's image has become somewhat stale. Recent marketing missteps, such as the infamous 2017 Kendall Jenner ad, have tarnished this image, making it difficult for Pepsi to connect authentically with its target demographic.
4. Brand Judgments: Its unsuccessful flavour innovations and perceived disconnect with market trends have affected consumer judgments of Pepsi's quality and credibility. This has led to a decline in brand preference and loyalty.
5. Brand Feelings: While Pepsi evokes nostalgia for many, its recent branding efforts have failed to elicit strong positive emotions. The brand has struggled to foster a strong community compared to Coca-Cola's enduring fan base.
6. Brand Resonance: The ultimate indicator of brand health, resonance, is where Pepsi has seen significant erosion. With declining market share and consumer loyalty, Pepsi's relationship with its customers is weakening, highlighting its struggle to stay relevant.

The Rise of Dr Pepper

Dr Pepper won the silver medal in becoming the second-best-selling soda in the U.S., marking a significant industry shift. This milestone underscores Dr Pepper's strategic adaptability and effective marketing. By leveraging social media trends and engaging directly with consumers, Dr Pepper has managed to resonate with a younger audience, a demographic Pepsi historically targeted but has recently struggled to retain

In my opinion, Dr Pepper's success can be attributed to several factors:

1. Adaptability and Innovation: Dr Pepper has excelled in understanding and adapting to consumer preferences. Their 'Strawberries and Cream' flavour collaboration with rapper Young Gravy generated immense buzz, particularly on TikTok, where the announcement video garnered over 25 million views. This flavour achieved over $300 million in sales in its first year.
2. Social Media Savvy: Dr Pepper's dedicated brand newsroom allows real-time engagement with trends. For instance, when the "Pickled Dr Pepper" trend emerged on TikTok, the brand swiftly created content to capitalise on the moment, reinforcing its connection with consumers.
3. Consistent Brand Identity: Dr Pepper has clearly focused on its unique 23-flavor blend, positioning itself as a distinct and versatile option for consumers.

Pepsi's Missteps and Misses

Pepsi's struggles are exemplified by several high-profile missteps and poorly received products.

Here's something that I feel exemplifies Pepsi's struggles:

1. Failed Product Launches: Flavors like s'mores, salted caramel, and Pepsi Blue failed to gain traction with consumers, often receiving negative feedback and poor sales performance.
2. Tone-Deaf Marketing: The 2017 Kendall Jenner ad, intended to promote unity and peace, was widely criticised for being tone-deaf and was pulled within a day of its release.
3. Inconsistent Branding: Frequent logo changes and rebranding efforts have led to a lack of consistent identity, confusing consumers and diluting its brand equity.

The Shift Towards Snacking: The Role of Frito-Lay

Amidst Pepsi's beverage struggles, its Frito-Lay division has been a beacon of success. Frito-Lay's brand saliency is robust, with products like Lay's, Doritos, and Cheetos enjoying widespread popularity and loyalty. This shift towards snacking aligns with broader market trends and consumer preferences for convenient, tasty snacks; Frito-Lay's diverse product portfolio meets these demands effectively. This shift is a tactical response and a strategic pivot that underscores PepsiCo's adaptability in a competitive landscape.

PepsiCo is strategically shifting its focus towards the Frito-Lay division by:

1. Investing in snack-centric experiences, such as food trucks and innovative product launches.
2. Leveraging the strong brand saliency of Frito-Lay products to maintain market dominance in the snack sector.
3. Potentially reducing investment in underperforming beverage brands to allocate resources to more profitable segments.

Pepsico's Global Presence and Challenges

While PepsiCo remains a significant global player, its diverse portfolio of beverages and snacks faces challenges. These challenges are not limited to the U.S., as Pepsi contends with strong competition from Coca-Cola on the international stage. While PepsiCo's snacks perform well globally, the struggles in the beverage segment underscore the need for strategic adjustments to regain ground and adapt to the changing market. This is well documented with the advent of Prime challenging its stables' market-leading sports hydration product - Gatorade, with further competition expected to be seen from Lionel Messi's brand to be launched at the end of the year and in India with Amul getting into the midst as well.

The Future of PepsiCo

As Dr Pepper rises and Pepsi faces continued challenges in the beverage market, we may be witnessing a significant shift in PepsiCo's long-term strategy. The company's strength in the snack industry through Frito-Lay provides a cushion against the declining soda market. This evolution reflects broader consumer trends and positions PepsiCo for continued success in a changing market landscape.

For Pepsi to regain its footing in the beverage sector, it needs to reconnect with younger consumers through authentic engagement, innovative yet appealing product launches, and a consistent brand identity that resonates in today's digital age. However, the question remains: Will PepsiCo choose to reinvigorate its namesake brand, or will it continue to pivot towards its more profitable snack empire? Only time will tell how this beverage behemoth will evolve in the changing consumer landscape.