Cie Nicholson: Rapid-Fire Strategic Perspective
November 12, 2007
Around Pepsi-Cola North America headquarters in Purchase, N.Y., Cie Nicholson is known for talking at machine-gun speed. And that's a good thing, because Pepsi is a company known for moving fast - for launching new brands, creating brand extensions, and developing entire product categories at breakneck pace.
Why are Pepsi-Cola North America and its chief marketing officer in such a hurry? Because the company's beverage markets themselves are characterized by perpetual and hurried change. Generations X, Y, and Z - not to mention their boomer parents - seem to develop new tastes in beverages almost weekly. Some may find it hard to think of Pepsi as something other than the number two cola brand, but, in fact, PepsiCo's dozens of different beverage brands (ranging from carbonated soft drinks to water, tea, bottled coffee, and energy drinks) make its portfolio larger than Coca-Cola's in North America.
A former boss calls Nicholson "the complete marketer," a tribute to her prowess in marketing creativity as well as analysis. With a degree in bioscience from the University of Illinois and an MBA from Indiana University's Kelley School, she joined Pepsi in 1997 after nine years with R.J. Reynolds, where she served in a number of marketing roles, including director of new brands. Nicholson admits she has been somewhat spoiled by having worked for two companies where marketing is the overwhelming focus. Her pointed advice for CMOs at companies where marketing is something of an afterthought: You need more than a seat at the table; you need to have a point of view on absolutely everything.
Strategy+Business (S+B): What makes a Pepsi marketer?
Nicholson: Pepsi people want to do things first. We wanted to be first with Apple iTunes and we always want to be first to do a tie-in with the latest movie or with companies like Yahoo. We want to push the envelope. We love big ideas that drive the brand, and we love the kind of innovation that excites our sales and bottling systems.
Yet our marketing is not as homogeneous as you might think. On the one hand, carbonated soft drinks (CSDs) are very much an image-based category. On the other, we have many functional brands in health and wellness categories - waters, juices, teas - and they all need differentiation. So we work at both ends of the spectrum, image-based and functional.
Our portfolio is big, broad, and changing every day. It's no longer just Pepsi. We have Aquafina, Mountain Dew, Starbucks, Lipton, Dole, and now Izze and many others. We have three different lines of tea that have to be marketed and priced differently. And often different products with the same brand need different marketing campaigns - Pepsi and Diet Pepsi, for example.
S+B: Is there a difference between the support and respect that marketing receives at Pepsi and the way the discipline is managed in comparably sized companies?
Nicholson: A lot of marketing people seem to ask, "How can I get a seat at the table?" The problem in some industries is that companies have gotten used to growth through acquisition. Then one day they find they have to grow organically, and suddenly marketing matters.
My perspective is probably skewed by having worked for two marketing-driven companies. When you're at that table, don't just limit yourself to marketing. Have a point of view on everything - from sales and operations to innovation. Ask the strategic questions, like "Why are we doing this?" and "Why aren't we doing that?" You have to bring a more rounded perspective to the job in order to be effective.
S+B: Pepsi has something else that some companies don't: a big, conspicuous competitor whose barrel you look down every day. That was true for you at R.J. Reynolds, too. How does that affect the way you go about your work?
Nicholson: There's nothing like having a common foe. Being the number two player in CSDs unites us and helps us come to work each morning with a fighter's mentality. It also helps drive our growth agenda. We're all about growing our base brands and creating new ones, developing line extensions, and entering incremental spaces. Most of our focus used to be on carbonated soft drinks, but now the growth of CSDs is slowing, while non-carbonated brands are growing explosively.
S+B: How has Pepsi been ahead of the pack in understanding the trend toward non-carbs?
Nicholson: As long ago as the early 1990s, we forged important partnerships with Unilever for tea and Starbucks for ready-to-drink coffee. Back then, a lot of people doubted anyone would want to buy bottled water, but we got into that category as well, and now Aquafina is the number one brand in the U.S. A number of our new brands had to be incubated; they remained small for quite some time, but now they are significant.
People need invigoration, so sales of our energy drinks have been growing by more than 50 percent a year. People are also drinking more tea because they like the idea of antioxidants. They obviously love water and feel they should be drinking more of it, but not everyone wants unflavored water because it can seem boring. That's why the category is starting to fragment - with sparkling waters, flavored waters, and flavored sparkling waters. We expect continued strong growth in these products.
S+B: How much of Pepsi's innovation is marketing-driven?
Nicholson: Innovation is integral to our marketing program, but it's actually part of a separate innovation and insights group. That might sound like an unusual arrangement, but it works well. If you don't have a separate group, it may get lost because of other things that come up in a given day.
Even though we have a dedicated innovation team, we work together hand in glove. They handle innovation and insights; I'm responsible for brand strategy, advertising, sports marketing, national promotions, customer marketing, digital promotions and media, and management of joint ventures. Everything the innovation team does is somehow linked to a brand, and the groups work closely together. In addition, someone who's working for me today might rotate into their group tomorrow, and vice versa.
S+B: Does innovation have any drawbacks?
Nicholson: Yes, and one of the challenges is knowing how much innovation is too much. Innovation is exciting, fun, and sexy, but after a while it can go boom-splat. How much Pepsi with lime in it will people really want? It's hard to know. There are times when we make ourselves less productive because an innovative product does not turn as fast as the existing products do.
At first, almost every innovation tends to look like a good thing because it gets more store displays. In the long run, though, few of our products turn faster than Pepsi or Mountain Dew. So making innovation work can be a challenge, and you always have to ask whether it's worth pulling something off the shelf in order to add something new.
S+B: Pepsi has a sterling record in new product launches. How do you deal with all the complexity?
Nicholson: We have to keep innovating. But when we find ourselves wanting to introduce, say, dozens of new products a year, we do have to ask if our system can handle all that additional complexity. Prior to 2001, we didn't have much product innovation, as it was limited to diet or caffeine-free options. Then we introduced Mountain Dew Code Red, which became one of our biggest brands.
So with each new innovation, we try to ask whether we are giving consumers something of value, something that's differentiated. Still, we're planning a lot more innovation in the future, especially in non-carbonated brands, such as ready-to-drink teas and coffee, flavored and enhanced bottled water, juice, and energy.
S+B: How has the health and wellness trend affected the Pepsi brand?
Nicholson: Pepsi is still the name on the door and our crown jewel. It's been around for more than 100 years, and it's going to be around for many years to come. However, trends in health and wellness have caused us to step up our innovation, particularly around our diet CSDs and our non-carbonated portfolio. In the future, you'll see continued emphasis on Diet Pepsi, but trademark Pepsi will remain the flagship.
S+B: Where do new consumers come from?
Nicholson: There's no simple answer. We attract consumers who've been drinking something made by a competitor or by providing new products to fulfill an unmet need or usage occasion. We don't make hot coffee, for example, but we can attract new consumers by getting hot coffee drinkers to try our bottled Starbucks drinks. It's a question of finding new spaces and new needs.
In the 1970s and '80s, carbonated soft drinks were what was available. And not long ago, if you wanted water, you had to drink from the tap. Unless you were at home, you weren't likely to go looking for a glass that you could hold under the faucet. Nowadays, there's hardly a kid on campus who doesn't have a bottle of water in his backpack. It's become an accoutrement.
These days, when you eat a hamburger, you'll still want a Pepsi to drink with it, but when you finish playing tennis, you'll probably want a Gatorade or an iced tea because those drinks are now available in ready-to-drink form.
So the availability of new categories and new brands actually changes what people drink.
S+B: The marketing landscape has changed. Is it getting harder to find the right people?
Nicholson: I can't say we've had trouble finding good marketers, but there's no doubt that the marketing landscape has changed. We don't take a cookie-cutter approach to hiring. We look for people with different perspectives - people from different industries and different schools. Some of our people come to us with technology backgrounds and others with agency backgrounds. They might be stronger in one area than another, but we look for people with both creative and analytical strength. We also look for people with fire in the belly, people with an innate desire to do the coolest things first.
And they also have to be flexible, because the world is changing all around us. In late 2005, Steve Jobs announced that you could now download music videos and TV shows to your iPod for $1.99. Two weeks later, one of the networks announced that you could buy its shows for 99 cents, but with commercials included. And then pretty soon you could download programs for free and without the commercials. Within 100 days, the media world had been turned on its head, and it's hard to know where things will stop.
Which marketing skills will be most important in the future? It's hard to say, but adaptability will be important, along with the ability to figure out how to deliver the right messages through new technologies.
S+B: What else has changed during your first 10 years at Pepsi?
Nicholson: The 30-second commercial isn't what it used to be, because television watchers now multitask; they're on the Internet and their cell phones at the same time they're in front of their TVs. So while the number of TV hours watched may have risen, people are no longer watching passively.
Our people are evolving along with this changing media model. We do a lot more grass-roots work now. We've always done sampling, but when we bought SoBe Beverages in 2001, it brought us tremendous expertise in that area. We've also gained sophistication in the digital arena and in customer marketing, and our innovation skills have improved as well.
Also, consumers are savvier; they see through things right away. And they are more in control, especially when it comes to how they watch and consume media. Ten years ago, if you wanted to watch Friends, you had to be in front of the television set at 8 P.M.on Thursday. But now consumers can watch The Office on their iPods whenever they want - with or without commercials. In this new era of user-generated content, consumers really have a voice in how a brand is shaped. People are coming up with their own commercials and their own blogs.
S+B: For many companies, the downside of so many points of contact with customers is a fear of turning control over to the consumer. Is that a concern at Pepsi?
Nicholson: Perhaps, but certain well-positioned products seem to lend themselves to it. Mountain Dew is an example. People know what the brand stands for, and it has a core following - almost like brand apostles. Mountain Dew has a lot of these core brand followers because we've stayed true to the brand over a long period of time. And as these loyal consumers gain more influence over a brand they like, the last thing they'll want to do is bastardize it.
S+B: But don't all these activist consumers demand new marketing approaches?
Nicholson: We've learned to play in many of their digital spaces and we've found ways to include them in our marketing and advertising. For example, late last year we launched MDX, a carbonated soft drink with energy credentials. To support it, we used a "Stay Sharp" campaign that quizzes consumers on their alertness. We showed them a user-generated video taken from YouTube, and then afterward we asked them a question about what they just saw. In one very cool spot, a guy is sitting there while everything changes around him. He's happy, he's sad, he's eating a pizza, he's drinking. At the end, the advertisement asks: "How many pieces of pizza did he eat?" And you have no idea, but you can go on the Internet to find out. In another spot, we show two Claymation figures dancing, and one is a policeman. At the end, we ask how many prongs he had on his badge.
Again, this is user-generated content. We're using video that people have put online. We decide what we'll use, so we're turning over creative control in a way that makes us comfortable.
S+B: Is it too early to know what works and what doesn't in new media?
Nicholson: Some metrics aren't yet there to tell us. So you have to trust your instincts. One initiative we're proud of is called The 9. It's a five-minute program on Yahoo at 9 each morning. It shows you the nine coolest things that were put on the Web the night before. It's like Good Morning America for the millennial generation, and it's been getting about 5 million unique visitors per month. Someone brought us the idea, and we said, "Cool. Let's do it!"
S+B: How much confidence do you have in traditional media?
Nicholson: We're following the consumer's lead, so our television spend is going down while our digital spend is going up. At the same time, the cost of TV advertising keeps rising. It's rising because you can no longer advertise on just one show and expect to hit every consumer. Nevertheless, TV is still very important to us. It's less cost-effective than it once was, but it's still highly effective. Will TV play less of a role as people watch more on their TiVos and download TV shows to their cell phones? Maybe, but people will still watch when a funny Mountain Dew commercial comes on, and they'll turn away when there's a boring ad for something else.
I also think there has to be a balance between entertainment and advertising, even in movie theaters. People come to see the movie, and when you show them advertising, you have to ask whether you are doing more harm than good. But we'll continue to see how branded entertainment and product placement works in the traditional media. And there are lots of other subtleties. When people tune in to sporting events, they usually watch them live, and then it's much more likely they will watch the advertisements along with the game.
S+B: Has the proliferation of media opportunities changed the way an efficient marketing group goes about its work?
Nicholson: It was certainly easier when you could just make a couple of TV ads and run them nationally. Within a couple of weeks, everyone knew what Pepsi's new message was, and that was it. On the other hand, we now have the ability to reach consumers in more intimate situations. In fact, it's often the consumers who initiate the interaction by telling us what they want to see. That creates a great deal of opportunity, but it means we have to have a message that's appropriate for each new dialogue and each new vehicle.
S+B: How are advertising agencies adapting to this new environment?
Nicholson: In the future, it will be harder for a marketing company like Pepsi to brief many different ad agencies on a given assignment and ask them all to come back with a consistent idea. As more agencies put their own interpretation on things, the less likely it is that everything will look consistent. Ideally, agencies will learn to work better with one another, and the agencies that play better with the others will benefit. They'll be the ones that can help us create more cohesive ideas and strategies.
S+B: What are the important lessons you've learned at Pepsi and R.J. Reynolds?
Nicholson: The biggest thing is the importance of staying open to new ideas. If people can see that you're open-minded, they won't hesitate to tell you, "I've got a crazy idea." A lot of their ideas will be crazy, but some won't be. I've learned that my job is not to come up with the ideas, although I like to think I can lob one in there from time to time. My real job is recognizing good ideas and keeping my door open so that people feel comfortable coming in and saying, "This might be zany, but...."
The second thing is the importance of collaborating across the company, as well as our bottling system.
The third important thing I've learned is to trust my instincts. At the end of the day, when you've looked at the analysis and you're still unsure, go with your gut.
"Cie Nicholson: Rapid-Fire Strategic Perspective." Edward Landry, Alonso Martinez, and Will Waugh. In "CMO Thought Leaders: The Rise of the Strategic Marketer. A Strategy + Business Reader." Edited by Geoffrey Precourt. Booz Allen Hamilton, 2007.