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Pepsi Refresh Notwithstanding, Cause Marketing Still Sells the Goods

In a post about Starbuck CEO Howard Schultz at theatlantic.com, ‘Jack Flack’ (aka Paul Pendergrass) takes a swipe about the effectiveness of cause marketing that isn’t supported by the facts.

Flack’s post is about the fact that Schultz is at the top of the ‘spin’-cycle right now. The stock is at an all-time high, in Dec 2011 Schultz was named Fortune magazine’s Business Leader of the Year and the CEO has launched some audacious initiatives that aren’t directly about selling coffee.

In September 2011 Schultz pledged that he would stop making donations to incumbent politicians until they demonstrated a credible plan to address the Federal budget deficit. More than 100 other CEOs also pledged to withhold political donations from incumbents. Later in the year Starbucks unveiled its ‘Indivisible’ wristband effort, which generates loanable funds to small businesses nationwide. I’ve covered both issues here and here.

Schultz, says Flack, is a flavor of the month. I don’t disagree. Unless Schultz is about to have a long Steve Jobs moment, it’s doubtful that Schultz and Starbucks have any direction to go from here except down, at least for the near future.

My disagreement with Flack comes as he makes his case that Schultz is over-exposed and thereby vulnerable. Here’s what he writes:
“While the emphasis about politics and jobs may be intended to draw attention away from the fact that Starbucks will surely continue to show real steeliness in delivering the promised 15-20% profit growth currently keeping the company's P/E floating above 30, such distractions tend to ultimately back-fire.’

“Just ask PepsiCo shareholders, where a much publicized shift to "cause-marketing" helped trigger substantial share losses, which in turn have triggered growing speculation about CEO Indra Nooyi's job.”
Let’s parse that out bit by bit. First off, Pepsi did make a very big deal out of Pepsi Refresh, a cause marketing effort that generated donations to causes and relied on social media and PR for activation. Second, Pepsi did lay off people and its stock has taken a terrible haircut, and Refresh has been a ready scapegoat.

But Flack’s implicit suggestion that cause marketing thereby doesn’t work is not born out by the facts.

Certainly other forces are at work. Pepsi and Coke are both mature brands now. Almost no one left on the planet hasn’t heard of them or couldn’t easily get one if they had the money. Americans drink more Coke and Pepsi than any other nation, but it’s probably not realistic to expect that the rest of the world is ever going to drink as many soft drinks as Americans do.

Second, both brands have taken a beating over the last six years, although Pepsi more so than Coke. Sales of soft drinks have been declining since before the start of the Great Recession. Simply put, there’s more competition for soft drinks than ever. Even Snapple has been taking market share from Pepsi.

Pepsi Refresh was bold but it was also experimental. Pepsi posited that by activating the campaign via social media that it could forego some portion of its traditional advertising budget and save money. Remember when Pepsi pointedly didn’t advertise on the Super Bowl because that wasn’t true to the branding premise of Refresh?

There are numerous examples of cause marketing that sells the goods; TOMS Shoes always comes to mind.

But the better counter-example is from Coke, Pepsi’s fierce competitor. Coke also does tons of cause marketing, but it never quit advertising in hopes that PR and social media would take up the slack.

Flack fingers cause marketing for Pepsi’s flameout. But I think it’s more accurate to say that social media isn’t ready to carry all the weight of activating a cause marketing campaign for a heavyweight brand like Pepsi.

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