How Coca-Cola plans to keep its fizz amid the Western world's war on sugar

Winning awards is one thing, but with the Western world embarking on a war on sugar, is the "Coke school of marketing" past its sell-by date, ask David Benady and Nicola Kemp.

In 1903, Coca-Cola had to admit that its closely guarded secret formula ­contained a social scourge: cocaine. Fast-forward to 2013 and Coke is under fire over another controversial, though far from secret, ingredient: sugar.

While it might not be a drug, sugar is fast becoming the marketing industry’s new tobacco, and, as the obesity epidemic continues to rise up the public agenda, the most recog­nisable brand across the globe is also becoming one of the most vilified. So, 126 years after Coke’s creation, the world’s biggest soft-drink brand has finally entered the obesity debate with an ad campaign tackling what it has labelled internally "the issue of this generation". It’s an issue set to test Coke’s marketers to the max; when the Western world is in the midst of a so-called "war on sugar", business as usual is no longer an option.

On 6 March this year, we entered the obesity debate; we are never going to be the whole solution, but we will be part of the solution.

Speaking at the European Sponsorship Association Summit, Paul Dwan, head of assets and experiential at Coca-Cola Great Britain and Ireland, explains: "On 6 March this year, we entered the obesity debate; we are never going to be the whole solution, but we will be part of the solution."

The obesity conundrum

A four-pronged approach to tackle obesity globally was outlined by chief exec­utive Muhtar Kent at the beginning of May. He pledged to stop advertising to children under 12, support physical activity programmes, provide transparent nutritional information and offer low- and no-calorie variants in every market.

Yet, as Coke prepares to toast its anointment as Creative Marketer of the Year at the Cannes Festival of Creativity this month, observers are questioning whether the obesity crisis will force a re-engineering not just of the company’s marketing approach, but of its entire business. Certainly there are signs that the brand is seeking not only to broaden its portfolio toward healthy options, but also to increase its CSR focus. The shift has received mixed reviews, with Alex Bogusky, the former adman who created work for Coke, tweeting: "So what’s the new tag? Coke: None of this shit is our fault."

Dwan admits that the brand has been guilty of not communicating what it is doing for society. There is no doubt, though, that Coca-Cola is putting its money where its mouth is. This shift in marketing focus was already evident in its sponsorship of the London 2012 Olympic Games. The brand joined forces with leading think tank Demos to create a model to measure the value of its sponsorship deal, based upon its social return on investment and the social value it created.

The significance of this shift should not be under­estimated. As part of it, Coke not only committed to delivering a "zero-waste" Games, but signed up to a three-year partnership with sports charity StreetGames. Its network of projects pledged to reach 110,000 young people in the most deprived areas of the country. For a company where the marketing department has long straddled the challenge of "think global, act local", Coke’s ever-more local activation comes hand-in-hand with a significant investment in CSR.

Growing pressures

Alongside these mounting social issues, the company also faces the more established pressures of fierce competition and a slowing business performance. Its results for the final quarter of 2012 showed that sales volumes had slumped 5% in Europe and 4% in China. However, worldwide volume growth hit 4%, which the company claims is in line with forecasts.

Kent acknowledged that 2013 would be tough for the company. Presenting the 2012 results, he said: "We can get even better – better at collaborating, better at innovation, at listening to consumers and our bottling partners, and, most importantly, at executing with precision."

Execution is a huge issue for Coca-Cola. Observers say it is hamstrung by bureau­cracy, with every external communication requiring sign-off by several layers of management. This can dull the creativity of marketing, and leave it looking leaden-footed versus fast-moving rivals.

Coke’s structure is certainly labyrinthine. The Coca-Cola Company is responsible for mar­keting the portfolio of brands and focusing on consumers, while bottlers in each individual market have the task of distributing the product to retailers.

As ex-Coca-Cola GB marketer Steve Cooper (pictured, right), now mark­et­ing dir­ector and co-founder of Feel Good Drinks, says: "Coca-Cola GB focuses on the consumer and building brands, while Coca-Cola Enterprises focuses on the [retail] customer. It is impressive when they come together and work effectively as a unit. But you can have a misalignment of objectives." Cooper adds that his experience of the company was positive, though occasionally "frustrating". "A company that size moves slower than you would like," he says.

The Coca-Cola Company’s global marketing is led by Wendy Clark, senior vice-president for integrated market­ing communications and capabil­ities. A former AT&T marketer and ex-client services manager at agency GSD&M, Clark has overseen the "Open happiness" campaign and spearheaded the social-media push with a "fans first" approach.

Head of ad­vertising Jonathan Milden­hall, vice-president of global advertising strategy and creative excel­lence, reports to Clark. At the helm of Coke’s marketing on the comp­any’s board is chief mark­eting and commercial officer Joe Tripodi.

The overwhelm­ing priority of these executives – and the whole Coke edifice – is to maintain the "iconic" status of its brands. Coca-Cola’s head office in Atlanta is careful to check that each piece of work fits exactly with the image designed for each brand.

As one insider says: "They are very focused on process and very strateg­ically driven, sometimes infuriatingly so. It can take a long time to develop work on Coke, it is so focused on building the brand architec­ture. Each brand’s marketing strategy is tied to a single word: for Coke Zero it’s ‘possible’, for Sprite ‘inspiration’. It takes years of work to arrive at that. They can be a quite debilitating client if you are an agency that wants to do stuff."

But this painstaking process does have its advantages for agencies. When the work is a success and pleases the bottlers, it can run in dozens or even hundreds of markets. Neil Christie, managing director of Wieden & Kennedy’s London office, an agency that has worked on Coca-Cola brands off and on for 15 years, says: "They buy big ideas and will pay for production money to do it properly."

Force for change

The big issue for the main Coke brand is to stay up to date without fundamentally changing. Maintaining consist­ency means ensuring that nothing corrupts the care­fully delineated brand.

One advertising obs­erver argues: "Atlanta can spend £1m and a year on a project that never sees the light of day because it is rejected by bottlers around the world. The problem is they don’t control the product or dist­rib­ution, only the marketing. But because the products ess­entially do not change, there is not much for the staff to do other than constantly ask each other to sign off auth­ority on different pieces of work. That’s partly why every­thing is so painfully slow."

Agencies have also had to contend with Coke’s new way of remunerating their work: VBC, or "value-based compensation". This means agencies are rewarded for hitting big targets, but stand to receive nothing at all if they’re missed. Agencies argue that the system makes them less likely to take creative risks.

Value-based compensation is fine if the ad is in development for eight weeks, but agencies stand to make very little if the process takes six months.

"Value-based compensation is fine if the ad is in development for eight weeks, but agencies stand to make very little if the process takes six months," says the source. However, if you ignore the cynics who say Coke’s Creative Marketer of the Year award at Cannes has more to do with "Buggins’ turn" than hard results, the accolade certainly suggests that the com­pensation method has not got in the way of producing good work. Campaigns such as "Happiness factory", the US Super Bowl "Polar Bowl", "Sprite shower" and the Olympic-based "Move to the beat" work seem to show that the new payment system is not having a negative effect on Coke’s creative output.

Even so, Coke can sometimes come across as rather "last century" – or the one before last – relentlessly harking back to its 126-year heritage, an old-timer revelling in memories of a squeaky-clean youth. The reliance of its marketing on TV advertising further plays into this old-world quality. However, Coke’s GB marketing director, Zoe Howorth, who is to take a year’s sabbatical from the end of this month, believes the company is at the forefront of modern-day interactions.

"We have embraced digital commun­ication and embedded consumer conver­sation and brand interaction at the heart of our marketing. Now, more than ever, consumers are partici­pating in our campaigns and shaping them," she says.

Digital diversion

Yet Coke sparked furious industry debate earlier this year when it was revealed that an internal study had found online buzz had no short-term impact on sales. Clark took to the company’s website to put the findings into context.

"No single medium is as strong as the combination of media. We see this first-hand in our campaigns that integrate TV and social," she wrote. "Reach, engagement, love and value are the markers of success we use for our campaigns. We measure these in a variety of ways, often with our media partners. In beta testing with Facebook, we’ve been able to track closed-loop sales from site exposure to in-store purchase, with very promising initial results that are above norms for what we see with other media."

Clark concluded: "For all mark­eters, integrating so many moving parts in real time and with a constantly changing brand dialogue isn’t easy. These are new skills and capabilities, and we don’t always get it right. But we’re trying, we’re learning and we’re unquestionably comm­itted to continuing the journey of executing wholly integrated campaigns, with social at the heart, to fuel better outcomes and impact for our company."

Meanwhile, in the UK, the brand is struggling through the downturn. In theory, it should be well-positioned to capitalise on consumers’ need for a cheap thrill, and Coca-Cola’s sponsor­ship of the London 2012 Olympics was a grand opportunity to build sales. But the company’s brands have lost market share, while its value growth has slowed over the past year. According to the Britvic Soft Drinks Report for 2013, value sales for Coke’s port­folio of the main brand, Diet Coke and Coke Zero grew by just 0.8% to £1.15bn via retail in 2012, compared with 7% growth the previous year; volumes fell 3.3%.

A resurgent Pepsi, with Pepsi Max, grew faster, although, admittedly, it is one third of the size of market-leading Coke. Its sales rose 7.4% to £352.2m, with volumes up 10%. Some read into this evidence of Coke’s resolve not to be drawn into savage dis­coun­t­ing just to boost vol­ume, which can result in damage to the long-term value of its brand. How­ever, one obser­ver believes Coke is caught in a trap between health con­cerns and consumers seeking value. "People who are less cost-sensitive seem to be more issue-sensitive, and those who are less issue-sensitive are more cost-sensitive," says the source.

Diversifying its portfolio with a wide range of healthier drinks remains key to the brand’s long-term strategy. This year is the 30th anniversary of the launch of Diet Coke, which has overtaken Pepsi in the US, while in the UK it overtook the main Coke brand in 2005.

The question for Coke is whether the creativity of its marketing can help it navigate some powerful headwinds.

The question for Coke is whether the creativity of its marketing can help it navigate some powerful headwinds. It has an ambitious goal of almost doubling sales by 2020 – from 1.7bn servings a day to 3bn – with system-wide sales doubling to $200bn a year. To achieve this it must battle health concerns, stronger competi­tion from rivals, the march of own-label, an ageing popula­tion, a de­clining Western ec­onomy comp­eting with the ris­ing East, con­sumers’ desire for some­thing new, and emerging categories such as energy drinks.

There is only so much that can be achieved via dis­tribution muscle and price pro­motions alone. The rest will be down to the creativity and imag­ination of Coke’s mark­eting team and the company’s ability to re-engineer its portfolio in the face of the world’s ever-expanding waistline.

Whether creativity alone can ever win the war on sugar is debatable. In another 126 years the core Coca-Cola brand could find itself well and truly sidelined in favour of healthier, more sustainable alternatives.

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