Freed from Cadbury in 2008, it has been cutting costs while building up brands and sales

In the soda wars, Dr Pepper Snapple Group (DPS) (DPSG) has long run a distant third to Coca-Cola (KO) and PepsiCo (PEP). But the beverage maker is experiencing a surprising renaissance. Its stock is up 154% since March, compared with a 33% climb for Coke and a 32% rise for Pepsi. Sales of its flagship brand, Dr Pepper, are bucking the industry trend, rising almost 3% in the first half of this year while overall soda consumption dropped by that much, according to Beverage Digest. Analysts expect the company to post a $498 million profit this year, up from a $312 million loss in 2008.

For CEO Larry D. Young, the turning point in DPSG's fortunes came with the Plano (Tex.) company's spin-off from Cadbury (CBY) in May 2008. That allowed Young to cut costs and invest the savings in building up long-neglected brands and distribution networks. His team no longer has to wait months for decisions to be vetted by the U.K. parent or kick up profits when London management came "dialing for dollars," as Young puts it. (Cadbury declined to comment.) Now he's focused on bringing more attention to his 58 brands, which include A&W Root Beer, 7Up, and Canada Dry, along with Dr Pepper and Snapple.


"THEY HAVE TO BE SCRAPPY"

That means more money for quirkier and more plentiful advertising, a push for new products, and wider distribution. Much of the company's efforts are focused on the austere, all-white laboratory housed on the first floor of headquarters. Here a team of 75 food scientists, chemists, microbiologists, and engineers team up to create the next generation of DPSG products. Their $17 million budget comes nowhere near PepsiCo's $388 million for research and development, but it has had an impact, with seven new products launched last year. When research showed that parents were watering down their children's juice to cut back on calories, the team created a new version of its Mott's apple juice with 40% less sugar but the nutrition of full-force juice, called Mott's for Tots. That hit a note with moms worried about empty calories, prompting Young to add new flavors and product sizes.

DPSG is also working more closely with retail partners like 7-Eleven. Young moved the research team from Connecticut to Texas partly to integrate customer feedback better. "They're aggressive, and they understand that they have to be scrappy," says 7-Eleven CEO Joseph DePinto. Another hit: Canada Dry Green Tea Ginger Ale, which boosted volume 2.6% in the ho-hum category of soda. Though Snapple sales continue to sink despite resizing the bottles to fit into a car's cupholder, a switch to sugar from corn syrup, and new advertising, Young is determined to reverse that trend: "If it's going to be in my company's name, by God, we're going to do something with it."

He has upped his marketing budget while rivals have cut back. Eric Hirshberg, president and chief creative officer at Deutsch LA, DPSG's advertising firm, argues that "Coke and Pepsi, all they have to do is remind you why you like the brand. Dr Pepper has to tell you why you should drink this more."

But the biggest key to success is distribution. Recently Dr Pepper scored a coup: a fountain spigot in McDonald's (MCD) 14,000 U.S. restaurants. And staffers like Tony English, DPSG's director of supermarket sales in Dallas-Fort Worth, where people drink more Dr Pepper than Coke, spend their days hustling from one store to the next. His team's only day off: Christmas. Young would have it no other way. "Strategy is fantastic," he says. "But execution is what brings the results in."




[businessweek]

Coke’s Interactive Soda Fountain

Ever had one of those moments where all you wanted was a Diet Black Cherry Vanilla Coke, but all the fountain could offer you was regular old diet? Coca-Cola is doing away with that problem by introducing a new beverage dispenser. Heralded as the “fountain of the future” by Coke PR flaks, the “Freestyle”–which was first unveiled under the code name “Jet” back in April–offers more than 100 flavor options. There are traditional sodas, flavored waters, carbonated or noncarbonated beverages, energy drinks and so on. Even flavors not currently available in the United States.

This video is the first look at the Freestyle’s touch screen interface, which is designed by Bsquare Corporation. Select a Coca-Cola product, such as Fanta, and the screen offers several flavor options. Choose the one you want (Grape, please!) and the machine mixes the drink right then–it can even mix flavors in ways that are not traditionally offered.

The machine is more technologically complex than you’d imagine. The “PurePour” technology was originally developed to measure extremely precise amounts of dialysis and cancer drugs. Beyond that, RFID scanners are used to match cartridges to dispensers, and the onboard computer confirms everything is in place. Existing soda fountains use five-gallon concentrate bags and lots of backroom labor. Now all that is required is a highly concentrated 46-ounce cartridge inside a self-contained machine.

Another perk is the business data the dispenser sends back to Coke’s headquarters in Atlanta. The machines upload data about beverage consumption, peak times, and popular locations. Coke can also talk back to the machine, letting it know if a particular flavor needs to be discontinued or recalled and causing it to stop serving the drink immediately.

Freestyle machines are currently being tested in Georgia, California, and Utah. Coca-Cola has said it plans to place 60 test dispensers around the country by the end of the summer.

[fastcompany]

I’ve been a fan of the vitamin C-infused Coca-Cola Plus for some time now, but that’s probably because it seems so tame compared to its beverage brethren these days.

Typically it isn’t Coca-Cola straying from their undeniably solid brand image, but Pepsi seems to have no problem playing around with colors, themes, and all kinds of flavor innovations on an regular basis. We all remember Crystal Pepsi many years ago, but recent years have brought us Cucumber, Blue Hawaii, Yogurt, and various other combinations of Coke’s ambitious rival.

On the end of the image above are two latest cola variations in Japan: The upcoming Shiso-flavored Pepsi and the just-released Coca-Cola Plus with Green Tea flavor. The latter we had today, and it’s hard to tell the difference much since Coca-Cola isn’t going to go too crazy, but the shiso will surely be an interesting trial when it comes out in the next weeks.

Of course, it’s not just in the cola world where odd beverages pop up left and right, and there’s a method to the madness that ties into innovation, core-brand boosting, and creative destruction. It’s a wild and wonderful world when the drink choices change all the time, and disappointing when one of them gets you hooked and then vanishes without a trace!

[trendsinjapan]

Urges Industry to Let Shops Profit Only if They Hit Established Targets.



Coca-Cola Co. is trying to start an industrywide movement toward a "value-based" compensation model like one it's adopted that promises agencies nothing more than recouped costs if they don't perform -- but profit margins as high as 30% if their work hits top targets.

Usually tight-lipped Coke disclosed its plans at the Association of National Advertisers Financial Management Conference in Phoenix on April 20, saying it wanted to nudge the industry into adopting value-based models as a standard practice. If it succeeds, agencies accustomed to being able to book profits long before they deliver work won't have that sort of certainty anymore.

"We want our agencies to earn their profitability, but it's not guaranteed," said Sarah Armstrong, Coke's director of worldwide media and communication operations, the driver behind the move for Coke, which spends some $3 billion a year on global advertising. "We need them to be profitable and healthy, but they have to earn it through performance."

Coke's shift from paying a flat fee based on hours worked began in five markets last year. The model is rolling out in at least 35 more this year and will encompass all of the company's ad- and media-agency relationships by 2011. The concept of value-based models has been a hot topic in the industry for at least a decade, but few marketers have attempted to apply it. (Procter & Gamble is perhaps the furthest along but uses it on only 12 of its brands.)

Ms. Armstrong took pains to note that the process involved considerable give and take with agencies that were briefed on Coke's plans and were given opportunities to voice concerns. "There were some pointed questions," she said. "But our agencies read the trades, and they know what P&G did. They knew at some point someone would take this path; they just didn't know it would be us."

Put into action
Coke's agencies include some of the most creative in the media and agency worlds, including Wieden & Kennedy, Crispin Porter & Bogusky, Starcom MediaVest Group and Mother, among dozens of others. Some agency executives, speaking privately, said they couldn't argue with the theory behind the shift, but had concerns about how it might work in practice.

"Look, if you're talking about getting paid more because you're adding value to a project, I think that's terrific," said a senior executive at one Coke agency that has yet to switch to the new model. "The tricky part is how you define value."

Traditionally, defining the value of an assignment has been the job of the agency, which tells its client how many people and how much time it'll need to accomplish a given project. Under its new model, Coke will determine the value of assignments based on a range of factors including the work's strategic importance, the talent involved and whether other agencies could duplicate the work -- if they could, it's worth less.

After those factors are used to set the value of a project, the agency's performance and the business results that follow determine what, if anything, the agency deserves to be paid beyond its upfront costs (which, in practice, are sometimes inflated). If all targets are hit, the agency could make as much as 30% on a project; if all targets are missed, the agency won't make any profit at all.

Supporters of the approach acknowledge that it's not a perfect approach to measure the value agencies add, but they call it a massive improvement over a status quo that equates hours spent with value delivered. "I'd rather be approximately right than precisely wrong," said Tim Williams, founder of the agency-compensation consultancy Ignition.

Effort vs. value

Other major marketers present perked up at Ms. Armstrong's presentation. "It got my juices flowing," said Keith Levy, VP-marketing at Anheuser-Busch, which slashed agency fees earlier this year. "We agree with Coke that [agency] effort doesn't necessarily equal value ... but it also shows you how much time and effort it takes to get there."

Though the shift comes amid a brutal economic downturn that has prompted many marketers to slash agency fees to save money, Ms. Armstrong said cost savings had little to do with Coke's move to a new compensation model. It's "ironic," she said, but the shift began in 2006. She declined to comment on whether Coke saw any savings in the five test markets -- Australia, China, Germany, the U.K. and the Philippines -- in which it deployed the new model last year.

However, cost reductions have been a priority at the company of late. Last summer, CEO Muhtar Kent said Coke would look to save between $400 million and $500 million a year by the end of 2011. Marketing was said to be a primary focus. The company also has been looking to optimize its use of agencies, slashing its global roster by more than half in the past 18 months. Despite that, Coke spent $3 billion on advertising globally last year, a $200 million increase from the previous year.

The new model, in theory, ought to better align the quality of Coke's advertising with the size of its budget, but the approach is not without its risks. Will Coke's agencies be willing to take the same creative risks if striking out means they'll see no profit for their trouble? "That has not been a concern," Ms. Armstrong said. "I have a fundamental belief that our agencies are competitive enough that they are going to bring their A-games no matter what."


How Coke's new compensation system works

BEFORE: Agencies and Coke negotiate in advance how much profit the former will see on a given project.

AFTER: Agency is guaranteed only recouped costs, with any profit coming only if certain targets are met.

BEFORE: Agency decides what Coke should pay for a project based on the time it expects to expend on it.

AFTER: Coke tells agencies how valuable a project is based on strategic importance, whether other agencies could deliver the same outcome, and other factors.


[adage]