Click to read the original article for details When we talk about legacy consumer brands, Coca-Cola is an unavoidable classic. And when we mention Coca-Cola, Pepsi-Cola inevitably comes to mind. If your impression of Pepsi is merely that of a "perennial runner-up" in the beverage industry, and you think it's a stretch to call Pepsi a great legacy consumer brand, let me share some data: (1) From a global market perspective, in 2021, PepsiCo's full-year revenue was $79.474 billion (approximately 504.977 billion RMB). Coca-Cola's full-year net revenue was $38.655 billion (approximately 245.613 billion RMB). In 2021, the revenue gap between Coca-Cola and Pepsi exceeded $40 billion. Looking at the carbonated beverage segment alone, in 2021, Coca-Cola's $31.9 billion versus Pepsi's $16.4 billion showed a revenue difference of $15.5 billion. (2) According to the 2021 Fortune Global 500 data, PepsiCo ranked 131st, while Coca-Cola ranked 370th. (3) Coca-Cola currently has over 500 brands globally, but only 21 brands with annual revenue exceeding $1 billion. In contrast, PepsiCo has fewer than 300 brands globally, but 22 brands with annual revenue exceeding $1 billion. From the above data, why is PepsiCo the stronger player in terms of brand efficiency, global ranking, and global revenue? Pepsi, born 12 years after Coca-Cola, had a turbulent start but has managed to stand tall a century later, even surpassing Coca-Cola in other areas. How did Pepsi achieve this comeback? Perhaps I can illustrate this by taking you into a familiar, ordinary scene. At 8 a.m., you're in your pajamas, scrolling through the latest Weibo hot searches while pouring milk into Quaker Oats for breakfast; At 9 a.m., after clocking in for work, you steep a cup of Lipton tea in your thermos to refresh; Half an hour before lunch at noon, you grab a pack of Be&Cheery pecans from beside your computer to tide you over; At 12:30 p.m., you head to the mall below your office building for lunch and find that Pizza Hut, KFC, and Taco Bell have all launched new meal deals, and you're torn about which to choose; During the lunch break, you open a new bag of Bugles and Lay's potato chips, chatting and gossiping with colleagues; At 6 p.m., after work, you stop by the supermarket to buy a bottle of Pepsi-Cola to make the cola chicken wings you just learned; At 8 p.m., you're at the gym working up a sweat, and you buy a bottle of Gatorade from the vending machine. In these everyday scenarios, the various brands are either PepsiCo sub-brands or have intricate connections to it. As a company that started with cola, Pepsi has managed to extend its reach into such a vast space, enter the global market, grow strong, and become a classic global legacy brand. The twists and turns along the way cannot be summed up in a few words. There's an old Chinese saying: "One excels in one's own field." After China's reform and opening up, many enterprises fell into operational difficulties due to category diversification, either going bankrupt or cutting losses to refocus on their main business. Thus, business theories like "positioning" and "focus strategy" have been revered and pursued by private business owners. Even if they have surplus funds, they prefer to invest in financial products, buy land, or simply distribute dividends and buy back shares. If a founder or professional manager doesn't focus on the main business and core categories, they are seen as half-hearted and distracted. According to common perception, a century-old legacy brand should deeply cultivate one field, undergo long-term refinement, and eventually become a classic. However, Pepsi's development has been the opposite. It hasn't been devoted to a single field but has instead spread its interests across multiple industries, yet it still sits among the "legacy consumer classics." In my view, PepsiCo's transformation from a "copycat brand" of Coca-Cola to a globally renowned legacy brand is due to its deep understanding of the ancient Chinese saying: "When circumstances change, one must adapt; adaptation leads to change; change leads to endurance." By practicing this principle, Pepsi achieved a comeback and rebirth. Next, I will focus on the topic "What can we learn from legacy consumer brands?" and analyze PepsiCo's path of "winning through change" from three dimensions: 1. Pepsi's Birth and "First Pot of Gold" 2. Adapting to Coca-Cola's Attacks 3. Pepsi's Category Diversification Expansion Path 0****1 Pepsi's Battle for Survival: Constant Following, Winning Through Change In 1893, in Bern, North Carolina, USA, a young pharmacist named Caleb Bradham accidentally invented a carbonated soft drink made from cola nuts, vanilla, and precious essential oils. The English word "Pepsi" originally meant pepsin, because this beverage could function like pepsin to aid digestion, so it was named Pepsi Cola. It came 12 years after Coca-Cola. 1. Price War: A Legendary Victory In 1902, Caleb founded the Pepsi-Cola Company. In the following years, it remained a "copycat brand" in the carbonated beverage industry, living in Coca-Cola's shadow. After several changes of hands, it faced bankruptcy during the 1931 economic crisis and was eventually taken over by New York businessman Charles Guth. However, under the impact of the economic downturn, even Guth, then the owner of the largest candy company in the US, could barely keep himself afloat. In desperation, Guth offered to sell Pepsi's assets to Coca-Cola at a low price, but Coca-Cola refused. At his wit's end, Guth decided to go all out and launched a "promotional clearance sale." At that time, Coca-Cola sold for 5 cents for 6 ounces (about 170 ml), and competitors and imitators followed suit. Guth discovered that bottled cola had a very low production cost—just syrup mixed with water. Even if he gave consumers more volume per bottle, profits wouldn't drop much. So Pepsi introduced a 12-ounce bottle of cola, still selling for 5 cents. The advertising slogan was: "Same price, double the joy." "More for the same price, hurry and grab it!" Pepsi also paired it with a catchy jingle: "Nickel, Nickel, Nickel" (five cents), which hypnotized people far and wide and was even translated into 55 languages, spreading globally. See, doesn't that slogan sound like the clearance sales at department stores? And isn't that catchy ad like the ones you hear in elevators, even more brainwashing than Mixue Ice City? Pepsi had already used these tactics over a hundred years ago. Pepsi was like a "newborn calf" taking on the beast that was Coca-Cola. It seemed it would be "killed in the cradle," but the result was a reversal. Pepsi's all-or-nothing gamble successfully turned its fortunes around. "The barefoot aren't afraid of those who wear shoes"—the saying may be crude, but the logic holds. Pepsi-Cola won a partial victory through the price war, largely because it was a "last-ditch survival" move: either die or come back to life. In its death throes, it seized any opportunity it could. In contrast, Coca-Cola was huge, with standardized operations. Its bottles were custom-made and stockpiled in massive quantities. If it had followed Pepsi's "more for the same price" strategy, the billions of bottles in warehouses would have been scrapped, costing too much. Secondly, and most importantly, Coca-Cola was far larger than Pepsi and disdained to follow its lead. After two years of "crouching development," by 1933, Pepsi-Cola had rapidly risen, opening 313 branches in 84 countries. By 1936, its annual net profit exceeded $2 million. In terms of per capita GDP, that $2 million then would be worth over $200 million today. In 1941, Pepsi-Cola's market share rose to 14%, successfully becoming the second-largest soda company in the US. 2. Seizing the Demographic Dividend and Befriending the Youth During World War II, Pepsi-Cola was hit by the wartime "sugar restriction order," and its development stalled. However, this did not dampen Pepsi's determination to actively seek change. After WWII, the phenomenon of starting families became widespread in the US. On one hand, a large number of veterans returned home, and there were many young single men and women; on the other hand, the improvement of social welfare systems and educational reforms objectively provided stable guarantees for having children. Coupled with optimistic expectations for post-war life, the fertility rate among the younger generation was very high. This was the famous baby boom. From 1946 to 1964, the population grew by 76 million over 18 years, accounting for nearly a quarter of the current US population. In 1963, Donald Kendall became CEO of Pepsi-Cola and, seeing this demographic dividend, proposed: "We don't define our products, but we can define our consumers." In Kendall's view, since Coca-Cola had already occupied the existing market, Pepsi needed to bypass it, target the incremental market, and make a big deal out of the right target audience. During WWII, Coca-Cola was the exclusive beverage supplier to the military, building a brand image of "nation, family, and classic," targeting all age groups. It had to consider the feelings of users across all ages and couldn't easily change its taste. In contrast, Pepsi had no such concerns and directly implemented bold reforms, tying itself to the youth. Pepsi's goal was to win over young people, bypass Coca-Cola's "all-encompassing" approach, and differentiate its marketing. It loudly promoted the concept of the "Pepsi Generation" , with slogans like: "Cool young people drink Pepsi-Cola, while old-fashioned parents drink Coca-Cola," directly competing with Coca-Cola for market share. At the same time, Pepsi's long-standing low-price promotions were an added plus for young people with limited money. After WWII, the baby boomers of the 1960s were the generation with the strongest sense of independence and rebellious spirit. On the surface, post-war American society was prosperous. While the industrial complex drove post-war economic development, the US and Russia were locked in a 44-year "Cold War," with both sides engaged in prolonged arms races and economic competition, creating a tense atmosphere across American society. The rivalry escalated into localized hot wars in the 1960s, and the "Vietnam War" further intensified young Americans' anti-war and rebellious sentiments, culminating in the hippie movement. This generation of young people was inherently rebellious and freedom-seeking. However, Pepsi internally hadn't noticed this at the time. The huge gap—Coca-Cola's market share was five times that of Pepsi—kept Pepsi focused on a "follow strategy." It wasn't until 1960 that Pepsi handed its advertising business to BBDO, which analyzed changes in consumer demographics and psychology, aimed Pepsi's marketing firepower at Coca-Cola's "traditional" image, and, through a combination of advertising tactics, successfully positioned Pepsi as the "young people's drink," laying a solid foundation for Pepsi's long-term marketing strategy. For example, in 1975, Pepsi-Cola conducted a taste test: they removed the labels from Pepsi and Coca-Cola bottles and had passersby blind-taste both to pick the better one. Pepsi won, and BBDO used this to loudly promote the idea, making consumers reconsider their "old cola" choices and compare with the "new cola." In 1984, BBDO and Pepsi spent $5 million to collaborate with Michael Jackson on the "most successful advertisement in history." A group of young people and children in leather jackets and pants, jeans, and T-shirts danced the moonwalk on the streets, flamboyant and rebellious. The song Michael Jackson sang for Pepsi was both catchy and brainwashing, and even today it remains highly infectious. According to Pepsi's internal statistics, in the year the ad aired, about 97% of Americans saw it, each person up to 12 times, far exceeding the "rule of seven." Young people love rebellion, so Pepsi brought in rock king Michael Jackson, pop queen Madonna, and other stars to endorse. This celebrity endorsement strategy was replicated by Pepsi in various countries, just like the "Pepsi All-Stars" when entering the Chinese market, featuring almost all the mainstream stars of the time. In packaging, Pepsi-Cola specifically designed spiral bottles and made the main visual of the logo blue, presenting a youthful and vibrant image. The taste also gradually became sweeter to suit young people's preferences. Pepsi-Cola's bet on the youth, through a combination of marketing tactics, led to soaring sales. According to third-party data, by 1970, Coca-Cola held a 29.7% share of the soft drink market, while Pepsi-Cola had successfully caught up to 19.8%. If we say that Pepsi-Cola's "founding battle" relied on following Coca-Cola's strategy, then anchoring the new generation of consumers with the "Pepsi Generation" was Pepsi-Cola's "battle for survival." 02 The "Duopoly" Pattern in the Carbonated Beverage Market "In the long run, every market will eventually become a two-horse race." When discussing market competition, Trout and Ries said in "The 22 Immutable Laws of Marketing": "From an economic perspective, multi-player competition leads to huge resource waste, which is unfortunate." In the period when new categories emerge, multiple brands run side by side, all wanting to quickly scale up during the window of "strong category awareness, weak brand awareness," and then, when the category matures, occupy the remaining two positions, forming a "duopoly" competitive pattern. In a mature product market, being "third" is an awkward position. In the herbal tea category, the "red can battle" squeezed Heqizheng out of the race. In the carbonated beverage world, Coca-Cola and Pepsi-Cola have long been the two oligarchs. Their marketing battles have lasted for decades, with Pepsi very keen on taking the initiative and confronting Coca-Cola head-on, and Coca-Cola always responding seriously. The most classic example is when both companies released videos. Pepsi's ad showed a little boy at a vending machine who first buys two cans of Coca-Cola, stands on them to reach a Pepsi-Cola on a higher shelf. After the ad aired, Coca-Cola made a response ad: the same little boy buys two cans of Pepsi-Cola, places them on the ground, stands on them to reach a Coca-Cola on the top shelf of the fridge, and then politely puts the two Pepsi cans back in the fridge. Coca-Cola's implication: my consumers are more polite. During a Halloween event, Pepsi struck first again, releasing an image of a Pepsi can wrapped in Coca-Cola packaging with the caption "Wishing you a scary Halloween," mocking Coca-Cola as hideous and unpopular. Coca-Cola then used the same image with the caption "Every ordinary person wants to be a hero," and the two companies played word games endlessly. Pepsi is often ridiculed online for its "eternal second trying to pick a fight" antics, like posters showing "even the straw resists Coca-Cola," or images of the two companies' vending machines side by side, mocking Coca-Cola's lack of customers. Some might think Pepsi's rebellious phase is too long, with a century-old brand acting like a "troublemaker." But every "provocation" by Pepsi receives a serious response from Coca-Cola. This is more like a well-planned "double act" by the two companies. Every mutual mudslinging marketing campaign between Pepsi and Coca-Cola appropriately expands people's attention to their brands, increases both sides' advertising conversion rates, and achieves a win-win situation. In business history, stories of same-category rivals loving and hating each other are not uncommon; Pepsi and Coca-Cola are just the most famous. For example, in the smartphone industry, Samsung and Apple have been tightly matched in global market share, occupying first and second place for years. A few years ago, the hot food delivery platforms have now reached the era of Meituan first and Ele.me second. Also, in German luxury cars, Mercedes-Benz and BMW—in almost all similar cases, the top two maintain absolute dominance in market share. This has almost become a law in the business world, which is the "duopoly pattern"—the tacit rule of competition between the top two in a mature category, reducing the threat of potential competitors and new entrants. In a high-growth industry, it gradually evolves from many competing companies to a few leading enterprises controlling the vast majority of market share. These leading enterprises are often the ones that determine the industry's ceiling. At the same time, the leading enterprises are interdependent; any action by one company will have a greater or lesser impact on the profits of the others. This forces leading enterprises to form a certain tacit understanding when facing competitors: before acting, they must consider how the other will react. In the cutthroat business world, the wins and losses and rankings between companies are just entertainment for onlookers. For companies, what truly matters is being responsible for revenue and shareholder wealth, and for consumer experience and product quality. As Pepsi's brand director said in a media interview: Nothing can attract consumers' attention more than putting these two brands together. 03 Carving a New Path: Building a Kingdom of Its Own As competition in the soft drink market intensified, Coca-Cola and Pepsi took the major market share. As of 2021 statistics, the two together held 70% of the US carbonated beverage market. As early as the 1960s, Pepsi had already seen that the incremental space in the cola market was shrinking and kept seeking other business opportunities. Since Pepsi was destined to be the second in the cola world, it decided to carve a new path and seize another blue ocean. In 1965, Pepsi-Cola merged with snack food giant Frito-Lay and officially renamed itself PepsiCo . Starting in 1977, PepsiCo entered the fast-food industry, acquiring Pizza Hut, Taco Bell, and KFC , and then entered a peak of over 30 years of diversified operations. However, in the 1990s, as market competition intensified and markets became more segmented, Pepsi, as a loosely diversified enterprise, faced pressure from capital chains in various branches, competitors in multiple categories, and a weakening of Pepsi Group's control, leading to a sharp decline in core brand influence. Indra Nooyi, Pepsi's chief strategy officer, with her keen market insight, began to gradually shift the company's strategy from loose diversification to related diversification contraction . Nooyi laid out Pepsi's future with a long-term strategic vision, discovering that the restaurant business required huge annual fixed asset investments, putting enormous pressure on headquarters' capital. After entering the 21st century, with the improvement of living standards, people's demand for food and beverages increased significantly, and attention to food health grew. So Nooyi quickly made a new plan—product healthification and structural balance, enabling Pepsi to achieve sustainable development. First, the market focus returned to beverages and snack foods. In October 1997, Pepsi made a major strategic adjustment. Even though the restaurant industry was still bringing in substantial profits for shareholders, Pepsi firmly spun off its restaurant business, which included Pizza Hut, Taco Bell, and KFC, into a separate publicly traded company, namely Yum! Brands . Subsequently, Pepsi began to gradually acquire companies aligned with its development philosophy. Since 2000, Pepsi has successively brought in Quaker Oats, Gatorade sports drinks, Lipton tea, and SodaStream, the world's largest sparkling water maker, while ensuring good financial performance and continuously fostering innovation to meet market demands. As early as 2000, after defeating other competitors and successfully acquiring Quaker Oats for $13.4 billion, PepsiCo's global market share in the non-carbonated beverage industry rose to 25%, 1.5 times that of its main competitor Coca-Cola. In 2020, the snack category accounted for 55% of PepsiCo's total revenue. With 22 brands each selling over $1 billion annually, the market value exceeded $160 billion, and it sold over 10 billion products daily. To date, Pepsi has successfully built its own snack and beverage kingdom. PepsiCo's ability to stand firm in building its legacy brand image over the long term is due, on one hand, to its deep understanding of marketing and communication, and on the other hand, to its painstaking efforts in product R&D innovation and predicting future consumer needs. Innovation enables PepsiCo to discover new spaces in the global market and take leading positions in many niche markets. In 2018, Pepsi established a new unit called Hive, independent of the core headquarters, aimed at nurturing small brands already formed within the company, while researching new trends and taking on the responsibility of incubating new brands. Hive provides a shelter for these products and brands. It can take over products that have achieved some success but haven't met the DSD system standards, nurture these brands, and bring them to market through appropriate channels. For example, bubly sparkling water successfully survived within Pepsi-Cola. 04 From Cola's Second to the World's Second-Largest Food Group From the "founding battle" of following Coca-Cola, to the "battle for survival" represented by the "Pepsi Generation," and then from rapid expansion back to related diversification contraction, Pepsi-Cola seized future incremental growth ahead of time. Pepsi's diversification attempts have gradually formed economies of scale. In the recently released Forbes Global 2000, Nestlé, with sales exceeding $95 billion (2021 revenue), retained the title of the world's largest food company, followed by Pepsi with annual revenue of $79.4 billion, and Coca-Cola with $38.6 billion, ranking fourth. In terms of revenue scale, Pepsi-Cola is already twice that of Coca-Cola. However, in net profit, Coca-Cola's $10.3 billion profit surpassed Pepsi's $7.6 billion. Coca-Cola's profit margin is about ten times that of Pepsi. Behind the gap in scale and profit margin are their different expansion strategies. Coca-Cola's category diversification revolves around "liquid intake," stemming from legendary CEO Roberto Goizueta's expansion strategy: "The average person consumes 64 ounces of water a day, and Coca-Cola accounts for only 2 ounces of that. Although our market share is 35.9%, our share of the consumer's stomach is only 3.12%. Expanding from the consumer's stomach, the future opportunities are limitless." Based on this, Coca-Cola's diversification is "liquid," ranging from purified water, coffee, tea beverages to sports drinks. Pepsi-Cola, on the other hand, spans beverages and snacks, aiming to cover all kinds of foods in convenience stores, with a product line encompassing hundreds of brands. As of 2015 data, there were over 20 product brands with annual sales exceeding $1 billion, including Pepsi-Cola, Mountain Dew, Lay's, Gatorade, Tropicana, 7Up, Doritos, Brisk, Quaker Foods, Cheetos, and Mirinda. In the future, Pepsi-Cola's "number one rival" will no longer be Coca-Cola, but Nestlé. Therefore, there is no secret to successful cultivation. Pepsi will never let past successes define its present and future direction. In Pepsi, which is over a hundred years old, we don't see a stubborn old man stuck in his ways, but a vibrant young man, stirring up waves in the tide of the times. The times change, the mainstream changes, consumer demands change, and Pepsi can change too. Source: Marketing Beauty (ID: yingxiaozhimei) Author: Zhao Tiantian -END-