Pepsi's Aim is True

Would you shop for a soda online? Seems like a silly question. Of all the

products for sale in the universe, soda is probably the last one shoppers will

want to buy on the Internet. Even frozen food has more e-potential. But soft

drinks? They’re cheap. They require no research to purchase. And they’re

available on every street corner in America.

So why is Pepsi-Cola trying so hard online? While many traditional

advertisers have dabbled in the Net, Pepsi has a range of programs on the

virtual air, from music sites to banner ads to Internet sweepstakes. Though only

about 3% of its estimated $400 million soft drink ad budget goes online, that

belies the emphasis the company places on the Web. "This medium is here to

stay, and we buy that,’’ says John Vail, director of digital media and

marketing for Pepsi-Cola.

One reason: Despite the difficulties in measuring online ad performance,

Pepsi has crafted deals that already show benefits. In a barter arrangement with

Yahoo! this summer, Pepsi plastered the portal’s logo on 1.5 billion cans. In

return, Yahoo took the cola company’s already established loyalty program,

Pepsi Stuff, to new heights. A co-branded Web site, PepsiStuff.com, let

consumers collect points from bottle caps. The points were redeemable on the Web

site for prizes–everything from electronic goods to concert tickets.

The results were considerable. Three million consumers logged on and

registered at the PepsiStuff site, giving the cola company detailed consumer

data that normally must be paid for in market research or gleaned from focus

groups. Information that once took months could now be had in days. What’s

more, Vail was able to tweak the program while it was in progress, maintaining

the right inventory of the most popular prizes. "Instead of lag-time data,

we had real-time, and we could react to it,’’ says Vail. Sales volume rose

5% during the online promotion and the cost was about one-fifth what it had been

as a mail-project.

Pepsi has no intention of slowing its Internet rush. The Web is the medium of

choice for Pepsi’s prime demographic audience–those under 25. "They are

going to where their customer hangs out and flashing their name,’’ says Tom

Pirko, a beverage consultant for Santa Barbara-based Bevmark. "This is

aimed at flipping the next generation. For Pepsi, the Internet is serious. It’s

not a toy.’’

No, but it’s a work in progress. Pepsi’s online marketing road has been

long and bumpy. In February 1996, the company launched Pepsi World, a Web site

of sponsored content designed to attract the youthful consumer. Sports and music

news was mixed with online games and animation. A seven-figure publicity budget

backed the debut. But it quickly became clear through focus groups and traffic

numbers that Pepsi hadn’t reached its target. Eyeballs were too fleeting,

visitors too fickle. By the summer of 1997, Vail revamped the site to be less of

a sports news digest and more of a vehicle to promote Pepsi-sponsored athletes,

such as NASCAR driver Jeff Gordon.

Going forward, Pepsi plans to expand on the Web site-centric marketing

efforts. While banner ads and other more traditional ad buys have had some

success, it’s the creation of engaging Pepsi Web sites that has given the

brand the most traction online. For example, Vail would like to bring a virtual

experience to other promotions, such as Choose Your Music, a current in-store

create-a-CD promotion. "We’re looking ahead to the next evolution,’’

says Vail.

For consumer Shane Erstad, 29, that’s good news. Intrigued by the prizes

and the ability to collect the points online, he became devoted to Mountain Dew

and a fan of the PepsiStuff site. Even now that the game is over, he hasn’t

cut back. "I hope they repeat the promotion.’’ Count on it.

By Ellen Neuborne in BusinessWeek. Copyright 2001 by The McGraw-Hill Companies, Inc

Divine overhaul

Some of the cash-rich, market-cap-poor companies are taking the opposite

approach. Realizing their original business plans were failures, they’ve done

180-degree turns and overhauled their strategies. Divine interVentures, for

example, went public as an incubator and started up more than 50 companies. In

February, with its stock market value lower than the $190 million in cash on its

balance sheet, Divine announced plans to remake itself into a software company–CEO

Andrew Filipowski’s area of expertise. It even changed its name to Divine. The

moves have helped a little: The stock of the Chicago outfit has climbed from its

low of $1 a share to $1.69, although that’s still well off the $9 a share at

which the company went public last July.

In December, the California company, Ventro, closed two of its online

business-to-business marketplaces–the Chemdex market that allowed companies to

buy and sell chemicals on the Net and the Promedix market for medical supplies.

Ventro then said it would change its focus to helping other companies build

marketplace sites. So far, they haven’t convinced investors that its new plan

is any more viable than its last one. Its market capitalization is still only

$50 million, even though it has a treasure trove of $235 million on its balance

sheet.

Then there are those companies that are sticking to their guns. They simply

think the stock market is unfairly punishing them and, if they perform well,

their stocks will recover. Consider Neupert at Drugstore.com. "We’ve made

a lot of changes in the last six months–laid off a substantial part of the

workforce, dramatically reduced marketing plans, and reconstructed the business

model to break even," he says. That’s why he’s confident his business

will survive, even though its stock has dropped from $67.60 in 1999 to $1.31.

Autobytel is staying the course, too. The company, with $82 million in cash

and a $41 million market valuation, expects investors will become bullish once

it hits operating profitability in the third quarter. "We are well enough

established that we aren’t taking down marketing costs, nor are we

anticipating any large-scale layoffs," says CEO Mark Lorimer. "After

all, we’re going to post profits in a few (months)."

Despite the risks, cash can be a powerful lure for potential acquirers. If a

purchase can be completed quickly, the leftover cash can help fund the

operations of the surviving company. The women’s site iVillage acquired

Women.com Networks for stock in February, partly to get its hands on its

one-time rival’s $30 million in cash. The two sites combined some operations

to reduce expenses and now should have plenty of money to make it to the third

quarter when the business is expected to begin generating cash. "The deal

that we cut with Women.com makes sure that we have enough dollars for a rainy

day," says iVillage CEO Douglas McCormick.

There may yet be a handful of deals like McCormick’s in the wings. But it’s

a treacherous market these days and potential acquirers will have to weigh the

risks carefully–before moving licketysplit. The free cash is disappearing

fast.

Pallavi Gogoi–BusinessWeek