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PepsiCo (NYSE:PEP), which competes with The Coca-Cola Company (NYSE:KO) and Dr Pepper Snapple Group (NYSE:DPS), has lately been working to engage its customers by creating entertainment as well as sponsoring it via traditional advertising and marketing campaigns. These efforts include launching an online music label, sponsoring live music events and creating original video entertainment.

Below we discuss the significance of marketing in the beverage industry and PepsiCo’s use of branded entertainment to engage consumers.

Effective Marketing a Key Differentiator for Soft Drink Giants

PepsiCo is the world’s second largest soft drink manufacturer and the largest packaged foods product manufacturer. In terms of taste, look and price, there is little to choose between soft drinks manufactured by PepsiCo and market leader Coca-Cola. As a result, marketing and advertising are crucial product differentiators, particularly in determining how consumers perceive product value.

PepsiCo spends a significant amount of money on marketing and promoting its brands. Below are factors that make marketing so crucial to the success of PepsiCo’s beverage business.

  1. PepsiCo and The Coca-Cola Company compete in categories ranging from cola-based to citrus-based beverages as well as their diet versions. Moreover, these two companies dominate the carbonated soft drink (CSD) market share in the US. In these markets, competition boils down to ideal positioning of the brand through marketing and advertising campaigns.
  2. Soft drinks can be seen as lifestyle beverages. Younger consumers in particular tend to be influenced by ad campaigns that show these drinks being consumed by celebrities and famous personalities. PepsiCo has successfully used celebrities like Madonna and Tina Turner to promote its beverages.
  3. CSD and bottled water manufacturers face declining sales and deteriorating brands due to rising consumer awareness of the negative health and environmental impacts of their products. As a result, marketing and brand positioning are becoming even more important.

Using Entertainment to Engage Consumers and Build Brands

Whether through advertising, event sponsorship or product placement, entertainment has long been a key element in consumer engagement. Lately, PepsiCo has experimented with creating entertainment as well as advertising against it. Some of these efforts blur the traditional line between advertising and entertainment, as in a recent collaboration with NBC’s Saturday Night Live sketch comedy program in which PepsiCo sponsored SNL’s series of Magruber sketches, starring Will Forte, and also cast Forte in Magruber-themed TV ads for Pepsi that aired during the 2009 Super Bowl.

PepsiCo was a founding partner in the “If I Can Dream” series, an online reality show about aspiring entertainers living together in Hollywood that started airing on Hulu.com in February. And PepsiCo’s Mountain Dew brand has invested in content creation via its Green Label Sound, an online label that distributes artists like Neon Indian and Theophilous London, and Green Label Studios, which recently teamed up with Paramount Digital Entertainment to produce “Circle of Eight”, a supernatural thriller starring DJ Qualls, Austin Highsmith and Ryan Doom.

It’s no coincidence that Mountain Dew still dominates the citrus soda market with an 80% share despite cutting its traditional media advertising budget by half between 2006 and 2008. The chart below shows the impact of Mountain Dew’s global market share on PepsiCo’s stock price.

Meanwhile, Pepsi’s U.S. market share fell from 11.2% in 2005 to around 10% in 2009. It remains to be seen whether PepsiCo’s marketing and advertising efforts can reverse this negative trend. The chart below shows our forecast of the impact of Pepsi’s branded entertainment strategy on PepsiCo’s stock.

You can see our complete $65.49 Trefis Price estimate for PepsiCo’s stock here.

Source: Branded Entertainment Could Boost PepsiCo