Young Consumers Have Changed. How Does Pepsi Relaunch a 40-Year-Old Classic Ad Campaign?

Forty years on, a changed soft-drink market and new advertising media are pushing Pepsi to redefine what the Pepsi Challenge stands for.

In 1975, PepsiCo, then 10 years old, ran a taste test in large shopping malls across the United States and called it the Pepsi Challenge. It filled two blank bottles, one with Coca-Cola and one with Pepsi, and asked people to pick the one they preferred without knowing which was which. Most Americans said Pepsi tasted better. Malcolm Gladwell later questioned the result in The New Yorker: when people take only a small sip, he argued, most will choose the sweeter drink.

But the truth may not matter much. What mattered was that the campaign quickly made Pepsi better known and gave it a role in the soft-drink market: Coca-Cola's challenger. Pepsi built its marketing on that role for a long time afterward, and it worked. The Pepsi Challenge became one of the classic cases in advertising history.

Forty years later, Pepsi has brought the Pepsi Challenge back worldwide. On April 15 it launched the China version, a year-long campaign running through the end of October under the Chinese name "Pepsi Tiao Zan," a month after the global launch. The name swaps the second character of tiaozhan, "challenge," for zan, "great" or "like," so it reads roughly as "pick what's great."

"This is the biggest campaign in Pepsi's history. The global advertising budget runs to billions of US dollars, and the China budget to hundreds of millions of yuan," Jin Yudong, vice president of marketing for Pepsi Greater China, told QDaily.

According to Advertising Age, Nielsen, Kantar Media and other sources, Pepsi's annual marketing spending over 2011 to 2014 was US$1.84 billion, US$2.5 billion and US$2.74 billion in the first three years. Pepsi did not disclose its 2014 marketing budget but said it was higher than the year before. Yet its revenue has barely moved in four years: US$66.5 billion in 2011, US$66.68 billion in 2014.

Pepsi faces serious competition in China too. According to data Euromonitor provided to QDaily, Pepsi's products held 4.1% of China's beverage market in 2015, behind Coca-Cola, Ting Hsin, Wahaha, Yangshengtang, China Resources and Uni-President.

More competitors and a harsher market have forced Pepsi to drop the classic meaning of "challenge": the sole challenger. Pepsi, once the challenger, is now challenged by more and more brands itself.

Pepsi needs a new way in. Young people have always been the main audience for its brand messages, but they are a fickle group and hard to win. Forty years on, Pepsi faces an entirely different youth market, and whether you look at the world or at China, young people consume media in entirely different ways.

According to a survey by market research firm eMarketer at the end of 2014, American teenagers spend a third of their time on social networks. Pew Research Center surveys from 2005 to 2013 likewise show that 18- to 29-year-olds use social media most: 90% of them are on social networks, followed by 30- to 49-year-olds at about 78%.

Unlike 40 years ago, Pepsi says this campaign will put most of its weight on social media. Pepsi was also one of the first brands to try social media. During Weibo's boom, from December 2010 to January 2013, it released 12 micro-film ads on Sina Weibo and used the platform for a series of online marketing pushes.

"Chinese young people are very different from those in other countries. In a few decades they've lived through what others lived through over centuries," Jin Yudong said. That difference tells this international brand it needs a distinctly local solution.

After consulting outside firms, Pepsi identified two mistakes brands make with young Chinese consumers. The first is lecturing them like a teacher; the second is constantly pandering to them and assuming they are always right. These findings shaped the marketing plan and led Pepsi to redefine "challenge." "When we talk about challenge now, we don't mean challenging others but challenging yourself. It's an attitude young people everywhere deserve to have," Jin Yudong told QDaily.

So the 2015 Pepsi Challenge moved from urging young people to "challenge others" to "challenge yourself." That doesn't sound new, but it marks a change in the brand's stance. Youth usually means whatever is in fashion, which is why most brands want young consumers. The Chinese name "Pepsi Tiao Zan" was also chosen to tap zan, a word young people use constantly. "Beyond following trends, consumers will only create content themselves if they already care about the brand to some degree. Most people still just pick what they think is great," Jin Yudong told QDaily.

"We started working on the project planning last September. After Pepsi China talked with several other agencies, both traditional and media agencies, it settled on the name 'Pepsi Tiao Zan' and the campaign's overall direction. The Pepsi Challenge is a classic from 40 years ago, so at the global level Pepsi also wanted each region to add its own character and make this round more mature. Pepsi China has a very strong say in decisions on this project," said Zhang Lu, CEO of Yake Hudong, Pepsi's social media agency for the campaign.

Usually, Pepsi weighs global against local strategy at 50-50 or 40-60, drawing on global resources while keeping local relevance. "But in the social media era, content is what matters most," Jin Yudong said. In other words, brands no longer control their campaigns. The internet has flattened everything and handed the initiative to consumers. A campaign run in another market can spread like wildfire on the Chinese internet.

There is a further complication: China differs sharply from most of the world in both social culture and social media platforms, so how the Pepsi Challenge should work in China is an open question.

"We set six themes for this campaign: music, entrepreneurship, film, sports, design and technology. The spokespeople and the events will all follow these themes," Jin Yudong said.

To match the six themes, Pepsi launched six newly designed cans. In May it partnered with Glow Run, an event brought to China from Singapore for the first time; in July it sponsors the film Gardenia Blossoms, starring its own spokesperson Li Yifeng; and in August it will be title sponsor of Zhejiang Satellite TV's reality show Challengers League.

What sets "Pepsi Tiao Zan" apart from other campaigns is that it is organized around these six themes. Yake Hudong's 20-person project team is split by function into planning, creative, execution and KOL (key opinion leader, or influencer) management, and its members are also divided into six groups. "We have six project managers, each responsible for one theme. When we divided up the work, we looked at people's backgrounds: some are good at music, some at film. This also lets us produce more than one piece of content in every area at the same time," Zhang Lu said.

A social media agency has to react fast. The 20-person team has a war room at the company and handles fresh content in real time every day. On platforms where every second counts, Yake does not need Pepsi China to approve every move; it only has to follow detailed guidelines the two sides agreed beforehand.

Social platforms are not just fast; they also keep changing. "Pepsi Tiao Zan" had an event plan in advance, but about 30% of it stays flexible. After the six cans went on sale, for example, Yake noticed customers collecting all six limited-edition cans on their own, so it launched an official can-collecting campaign. "We still have to let consumers have the final say," Zhang Lu said.

The campaign, running from April to the end of October, follows a fairly clear schedule. In the first phase, Yake Hudong uses global resources to build anticipation; a month later the six themed cans go on sale with a relatively aggressive promotion. The campaign is expected to peak in August, when Challengers League airs. "This is Pepsi's first partnership with a reality show. Just as Yili sponsored Where Are We Going, Dad?, Pepsi is title sponsor of Challengers League, and we worked out the show's name together with Zhejiang Satellite TV," Jin Yudong said.

Pepsi is known for signing celebrities in bulk, but this time it chose 12 KOLs as spokespeople. They include stars with loyal fan bases such as Li Yifeng and Wu Mochou, as well as people you may never have heard of: Ah Cai, a social innovator; Wang Xiaobo, a member of the environmental technology team HeArt; and Xue Lai, who has a planet named after him. All of them are young. They are not necessarily famous or highly accomplished, but Pepsi wants their pull and their spirit within their fields.

Wu Mochou is a case in point. In 2013 Pepsi gave her, a year after she shot to fame on The Voice of China, a 30-second commercial of her own. The result was Thirst for Now. "We had plenty of big-name stars, and we gave her a whole TV commercial. It was certainly a risk, but that's what it takes to build a youth brand," Jin Yudong said, explaining the choice.

"Looks aren't everything. That's not a value we promote," Zhang Lu told QDaily. So the special "Pepsi Tiao Zan" bottles carry not a spokesperson's photo but something that person said. Wang Xiaobo's bottle, for example, reads: "There is no waste, only things in the wrong place."

In its global marketing, Pepsi sponsored Usher, an eight-time Grammy winner, at Rock in Rio in Brazil; hired Nicola Formichetti, a fashion designer and editor who has worked with Diesel and Uniqlo, to design new packaging; teamed up with UrtheCast, the world's first full-color ultra-high-definition camera in space, to shoot a film from orbit; and named tennis player Serena Williams and Snapchat star Jerome Jarre as the campaign's global ambassadors.

In 2014, PepsiCo's net profit was US$6.513 billion, down 3% from the year before; Coca-Cola's was US$7.098 billion, down 17%. Data released in 2015 by Beverage Digest shows Americans turning away from carbonated soft drinks. Total US consumption fell 0.9% last year, the tenth straight year of decline. Coca-Cola is still the best-selling soft drink, and Pepsi has overtaken Diet Coke to become the second-largest brand.

The fact remains that people are turning away from soda. Coca-Cola is rolling out another round of its summer nickname-bottle campaign worldwide, and "Pepsi Tiao Zan" will go head to head with it. But once the market has changed and the two companies are no longer each other's main rivals, Pepsi and Coca-Cola may be judged less on whether they can revive their cola brands than on how well they cope with brand decline.

Classics are hard to repeat. "Pepsi Tiao Zan" may well succeed as a marketing campaign, but it may do little to halt the brand's longer-term decline. How to win young people and how to face the future are questions many brands will never stop asking.

Cover image: topclassactions