Should Crystal Pepsi be re-launched?

Abstract

Crystal Pepsi was a clear Cola launched by PepsiCo in the early 1990s, following a marketing trend for clear and pure products. However, after an initial success, sales dropped drastically and the product was pulled off the market. Since then, a lot of factors like consumer preferences and the market environment have changed. The case focuses on the decision of whether Crystal Pepsi should be re-launched today or not.

Key Words

Crystal Pepsi, PepsiCo, Clear Cola, Product Failure, Product Positioning

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Images in this publication have been removed for copyright reasons.

Crystal Pepsi Product Failure

David Novak became CEO of PepsiCo North America in 1992 after a successful career in the marketing world.¹ When he detected the development of pure and clear products fad, ranging from soap to gasoline, he saw an opportunity to tap into for Pepsi. Thus, he decided to develop his idea and launch Crystal Pepsi, a colorless and caffeine-free cola that would appear more refreshing.²

By 1994, the trend was largely over and many of the products, including Crystal Pepsi, disappeared from the market due to poor sales.³

Only years later, precisely in 2007, during an interview, Novak admitted to Fast Company that while it was the “best idea” he ever had, it was also the “worst executed”.⁴

In June 2015, Crystal Pepsi fan Kevin Strahle, retweeted the letter received from Pepsi (see table 1 in appendix) showing him appreciation for his loyal love to his favorite product: "We've had customers ask us to bring back their favorite products before, but never with your level of enthusiasm and humor, … We're lucky to have a Pepsi super fan like you on our side"⁵. And Linda Lagos, marketing director for the Pepsi brand, reinforced the concept by declaring to CNN: “We have a lot of fans and they’re really enthusiastic and they’ve been asking for Crystal to come back for a long time”⁶.

If this buzz is true and is really happening, why Crystal Pepsi failed in the first place?

PepsiCo

PepsiCo, Inc. is one of the world's top consumer product companies with many of the world's most important and valuable trademarks. Its Pepsi-Cola Company division is the second largest soft drink business in the world, with a 21% share of the carbonated soft drink market worldwide and 29% in the United States.⁷ PepsiCo's product portfolio includes 19 brands that generate more than $500 million in sales each year, ten of which generate more than $1 billion annually.⁸ Overall, PepsiCo garners about 35% of its retail sales outside the United States, with Pepsi-Cola brands marketed more than 200 countries⁹ (see Table 2 in appendix). Today, after decades of new product innovation, partnerships and strategic acquisitions, PepsiCo’s diversified portfolio of iconic beverages are enjoyed all over the world. PepsiCo offers 14 billion-dollar brands that span carbonated soft drinks, juices and juice drinks, readyto-drink teas and coffees, sports drinks, and bottled waters. It is enough choices to satisfy a wide range of consumer taste, occasion, and lifestyle in over the world. Among the products brand listed under PepsiCo are Frito-Lay, Gatorade, Quaker Oats, Tropicana, Smiths Crisps Australia, Walkers Crisps United Kingdom, Naked Juice and Lipton.¹⁰

To find the origin of the company it is necessary to go back to the end of the 19th century more precisely to 1893. Indeed, in that year a pharmacist named Caleb Bradham, living in the United States in the state of South Carolina, created a drink with a pleasant taste and which was likely to cure stomach issues. Quickly the refreshing and revitalizing virtues of this drink spread throughout the country. The drink a brown colored carbonated soft drink cola was first called “Brad’s drink”, in honor of its creator. In 1898 Bradham decided to call it Pepsi-Cola instead ¹¹ and this marked the beginning of the commercialization of Pepsi-Cola and of the company "Pepsi-Cola Company".¹²

In 1934, Pepsi introduced the 12-ounce can and started to sell it for five cents, which was the same cost as six ounces of competitive colas¹³. This proved to be an instant success and sales went up very quickly, especially since the cost savings were very welcomed by the depressionworn Americans.¹⁴

Pepsi’s portfolio consists of three main products: Pepsi, Diet Pepsi and Pepsi Max, the last one being a sugar-free product. In addition, they had many special products, some of which are still sold today. Among these are sugar or caffeine free Pepsi Colas but also some with slightly different taste such as Pepsi Wild Cherry.¹⁵

Today, Pepsi is the is #30 of the World's Most Valuable Brands.¹⁶

Crystal Pepsi

Crystal Pepsi was a clear, caffeine-free cola with similar taste to the original Pepsi, lacking in preservatives and artificial colors. Crystal Pepsi wanted to attract and target the healthyconscious consumers and tap into the 90s trend of clarity and pureness, by removing the typical caramel color of colas although the drink was still loaded with high fructose corn syrup. The main ideas and explanations behind the launch of Crystal Pepsi were its strong competitive environment and Pepsi’s aim to shift consumer taste towards healthier lifestyle¹⁷.

PepsiCo invested millions of dollars and spent 15 months in finding the right formula to produce this whole new product. It was tested with a limited run, in a limited market and performed quite well. Then in April 1992 was launched.

They have great expectations for this brand-new product which was expected to reach more than 2% of the $47 billion US soft drinks market only in the first year, plus an estimated $40 million in advertising support, including the Super Bowl in 1993.¹⁸

The reality, though, was different. According to the data service Beverage Digest, Crystal Pepsi reached “only” the 0.5% of the US soft drinks market.¹⁹ The product, in fact, initially grabbed the attention but couldn’t keep the interest of the customers after the initial marketing fad. Pepsi pulled the drink off the market by fall 1993 and the final batches were delivered to retailers during the first few months of 1994.

Through its colorless formula, Crystal Pepsi wanted to target the health-conscious consumers but with its 130 calories in a 12-ounce serving, it couldn’t provide the image of a healthier and distinctive soft-drink and failed to meet consumers’ needs and wants.

Consumers responses

Right after Crystal Pepsi’s launch consumers couldn’t resist to taste this new concept of clear cola and really enjoyed trying it. Pepsi believed to have created a new niche for the cola market by simply creating a colorless cola with a different taste. It was stressing the fact that Crystal Pepsi was produced by a different formula from the regular Pepsi but after blind taste tests most consumers couldn’t really detect which one was which²⁰. Although initial sales were promising, (around $470 million in the first year), they were mostly more out of curiosity than anything else.²¹ In fact, repeat purchasers have been minimal due to the fast decline of the clear cola trend. The product was only a fad of the moment and consumers soon realized they couldn’t find any point of difference or benefits compared to other regular colas besides the difference in color.

While other colorless sodas like 7UP and Sprite had a citrus or lemon flavor, Crystal Pepsi was similar in taste to the original Pepsi and customers were not sure how Crystal Pepsi was supposed to taste.

By removing the caramel color Crystal Pepsi was aiming to target those consumers who wanted to avoid the additives in dark soda and to be considered an healthier version of the dark colas.²² Instead, those seeking healthy beverages were more likely to prefer bottled waters. Probably the colorless drink would have been taken into consideration by the healthy-conscious segment if there was the addition of proteins and vitamins.

The reality is that Crystal Pepsi failed to meet the expectations of its target market.

The importance of color

Color isn’t only a visual element, it taps into feelings, emotions and psychological aspects of the humans and by analyzing the way we react to it in certain circumstances we realize how powerful could be if used in marketing and advertising. Choosing a color for a product, logo or brand is not something random or based on preferences and trends.

For instance, when we think of a cola, we tend to think of a caramel color drink. When Pepsi created a colorless cola, following the fad of clear products, consumers were floored and “had a bad time accepting the idea of a clear cola“²³ . Doug Ivester, president of Coca-Cola's North American soft drink business, declared that attaching the Coke name to a clear beverage was never a possibility. "Clear Coke is an oxymoron," he said.²⁴ In fact, blind taste tests revealed that consumers preferred to drink Crystal Pepsi only with their eyes closed because they couldn’t see they were drinking a clear cola. This means that the color, indeed, can play an integral part in the success of a product²⁵ and shows why consumers showed little interest for clear beverages in general.

On the other hand, a report from 2014 from Consumer Reports found how some caramel colors used in many soft drinks (e.g. Coca Cola, Dr. Pepper, Brisk Iced Tea, A&W Root Bee, and Pepsi) and food products contain 4-methylimidazole (4-Mel), a chemical which may be potentially carcinogenic.²⁶ Because of the potential cancer risk, California’s proposition 65 requires manufacturers to put a warning label on their products if a daily limit of 29 micrograms of 4-Mel is exceeded (see Table 3 in appendix).

Consumer Reports tested several soft drinks in California and New York from five different manufacturers and found that some products had more than 29 micrograms in a single can and didn’t even have a warning label on them (as required of the ones sold in California).

The soft drink market: the early 90s

Back in 1993 the market of soft drinks only in the US was about $47 billion worth and PepsiCo couldn’t miss the chance to get another piece of this very profitable cake.²⁷

Pepsi realized that consumer behavior was trending towards things that were pure and natural and believed that creating a colorless and caffeine-free soda was the answer to fulfill part of consumers’ needs. It was a reflection of changing taste of the soft drinks business.

Crystal Pepsi looked like a soda that was more natural based on its clear color²⁸ but in fact couldn’t really deliver the benefits of a healthy drinks.

In the early 90s the consume of bottled water was increasing exponentially (see table 5 & 6 in the appendix) and PepsiCo thought that could exploit the trend by making a colorless soda but as Tehshik P. Yoon said “If I wanted to drink water, I would buy water, not Pepsi.” ²⁹.

Flavored, sparkling water with names like Clearly Canadian, Canadian Arctic and Quibell was introduced as well as new category in the soft drinks market of the 90s. Only few years before, New York Seltzer, a non-caffeinated line of sodas featuring natural flavors with no preservatives or artificial colors, was just about the only flavored water on the market, while in the beginning of the 90s the category took up already 8 feet shelf space at the supermarket, reducing the space of the colas³⁰.

The idea of a clear soda was nothing new. At the time of the launch of Crystal Pepsi there were already colorless drinks, like 7-Up, Sprite and Slice, on the soda market. So, Crystal Pepsi, in fact, didn’t provide anything new for the soft drink community.

In conclusion, the launch of Crystal Pepsi was a failed attempt to enter the new trend of purer and healthier lifestyle especially at a time where “full calories” sodas were gathering a negative, unhealthy image and consumers started to prefer healthier alternatives³¹.

Coca-Cola retaliation: TaB Clear

About half a year after Crystal Pepsi debuted, Coca Cola released TaB Clear, a clear cola, which only years later was revealed to has been specifically designed to fail in order to harm PepsiCo and its new, game-changer invention, Crystal Pepsi.

According to Sergio Zyman, Coke’s chief marketing officer from the time, the purpose of Tab Clear launch was to create a haze of confusion in order to quickly make all clear colas fail.³²

While Pepsi didn’t opt for a diet version, due to the misconception of diet products of the early 90s, TaB Clear came purposely only in diet formula. When it was placed on store shelves in close proximity to Crystal Pepsi, consumers would be confused into thinking Crystal Pepsi was also a sugar free diet drink. By launching a terrible tasting clear cola, named similar to an 80s Coca Cola product failure, TaB, executives at Coca Cola were creating confusion around clear colas with the intention of killing both brands. Eventually both Crystal Pepsi and Tab Clear (spring of 1993) disappeared from the market around the same time.³³

What Coca Cola didn’t take into account with the launch of Tab Clear was the risk of making consumers losing faith in the company with the failure of a “copy-cat” version³⁴, while Crystal Pepsi kept a favorable consumer attitudes towards the Pepsi name due to its innovative product.

The fall of today soda market

"The overarching context for soda companies is [that] sales are falling and falling and falling.

They've been falling consistently since 1998.” ³⁵ Over the last 20 years, sales of “full-calories” soda only in the United States have decreased by more than 25%³⁶. Soda consumption, which had huge success from the 1960s through 1990s, is now experiencing a serious and sustained decline especially due to aggressive attempts to ban the purchase of large individual servings of soda or to tax it, together with studies which revealed the adverse health effects of consuming soda. All this has been influencing the perception of soda, raised consumers consciousness and awareness and helped discourage people from drinking soda to the extent that nearly two-thirds of Americans said they avoid soda in their diet, while more than half say they avoid sugar (see table 7 in appendix).³⁷

The consumer is becoming more and more aware and conscious of the dangerous effects of the ingredients and is increasingly demanding for drinks made of low and zero calories, low and zero sugar and from natural ingredients. They are adopting health and wellness food trends and healthy drinks are becoming prominent. Therefore, soft drink manufacturers have been forced to quickly adapt and develop low-fat and low-sugar and more sophisticated soft drinks formulated using simple ingredients, lesser calories and natural sweeteners (e.g. stevia) to satisfy their health-conscious target. In other words, “They've got to find something to get people interested in soda again."³⁸ in order to gain a competitive advantage.

One of the most remarkable changes and primary growth factors for the soft drink market is a steady increasing consumption of healthy drinks and bottled water.³⁹ Mr. Bellas, who has been following the water segment’s rise since the 1980s revealed he has never seen nothing like it (see Table 6 in the appendix). According to Michael C. Bellas projection, chief executive of the Beverage Marketing Corporation, by the end of this decade, sales of bottled water are expected to surpass those of carbonated soft drinks. Sales of plastic bottled water from 1993 till 2005 have been growing at a rate of 20% and at even higher rate in the latest years⁴⁰.

The significant shift in consumers preferences has drastically reshaped the soft drink market and put the main players of the soda market, PepsiCo and Coca Cola, to test. While they both had their own bottled water labels, they instead got caught unprepared with the emerging and very profitable market of enhanced waters (flavored, carbonated and minerals and vitamins enriched).

In 2012 TalkingRain, for example, was selling already $200 million with its sparkling, flavored and vitamins enriched water named Sparkling ICE and is likely to exceeded $400 million. Mr. Kevin Klock, TalkingRain then CEO said “There’s a large market out there that wants something sparkling, something flavored, something without a controversial sweetener, and we hit that market”⁴¹ .

Coca Cola and PepsiCo recognized the profitability of this market only later when they launched respectively Dasani Drops a line of flavored waters and Smartwater, a little more than distilled water with added electrolytes in 2013, and Qua, Aquafina FlavorSplash drops and SoBe Lifewater in 2014.

In conclusion, the soda market is undergoing a controversial and tough period and manufacturers are worried of the eroding revenues of the most profitable market of the soft drinks industry. According to Barry M. Popkin, professor of nutrition at the University of North Carolina “People go toward diet, and then‘other’”. So, if in the late 90s the trend was diet drinks, lately people are switching to water⁴².

The question

More than 20 years have passed since the launch and failure of Crystal Pepsi. During this time, the soft drink market has drastically changed as much as consumers preferences have but "There's definitely been a push toward nostalgia in soda drinks".⁴³ New consumer trends have arisen while others have disappeared. Nevertheless, there are still many Crystal Pepsi fans out there patiently waiting for a relaunch of their beloved product. Should Pepsi respond to this demand and relaunch Crystal Pepsi?

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¹ http://www.referenceforbusiness.com/biography/M-R/Novak-David-C-1953.html

² http://www.businessinsider.com/crystal-pepsi-creator-david-novak-its-failure-taught-important-lesson-2016-7

³ https://www.marketwatch.com/story/crystal-pepsi-is-returning-to-store-shelves-2016-06-29-15485588

⁴ https://www.fastcompany.com/60555/winging-it

⁵ http://money.cnn.com/2015/06/11/news/crystal-pepsi-coming-back/index.html

⁶ http://www.thedrum.com/news/2017/10/31/the-failure-awards-defunct-branding-12-crystal-pepsi

⁷ http://www.referenceforbusiness.com/history2/40/PepsiCo-Inc.html

⁸ https://www.suredividend.com/pepsicos-22-billion-dollar-brands-future-growth/

⁹ http://www.pepsico.com/About

¹⁰ https://www.pepsico.com/docs/album/investor/pepsico-inc-2017-annual-report.pdf

¹¹ https://web.archive.org/web/20010415161612/http://sodamuseum.bigstep.com/generic.jhtml?pid=3

¹² http://www.pepsico.com/About/Our-History

¹³ http://www.pepsibrattleboro.com/historyofPepsi

¹⁴ http://www.pepsibrattleboro.com/historyofPepsi

¹⁵ https://www.pepsi.com/en-us/#!products

¹⁶ https://www.forbes.com/companies/pepsi/

¹⁷ https://www.inverse.com/article/17757-why-crystal-pepsi-was-clear

¹⁸ https://www.nytimes.com/1992/12/15/business/company-news-coke-adds-a-clear-cola-to-its-new-age-stable.html

¹⁹ https://www.wsj.com/articles/crystal-pepsi-is-returning-to-store-shelves-1467226242

²⁰ When Novelty wears off, soft drinks clearly will fail by David Lavinsky

²¹ Managing for Excellence in the Twenty-First Century: The Total Quality Approach Prof. Goski Alabi

²² https://www.forbes.com/sites/greatspeculations/2016/07/01/why-is-pepsico-bringing-crystal-pepsi-back/#5a4929581668

²³ Consumers show little taste for clear beverages by Tim Triplett

²⁴ https://www.nytimes.com/1992/12/15/business/company-news-coke-adds-a-clear-cola-to-its-new-age-stable.html

²⁵ http://strategicfactory.com/about-us/blog/the-psychology-of-color-how-coca-cola-captured-hearts-around-the-world.html

²⁶ https://www.consumerreports.org/cro/news/2014/01/caramel-color-the-health-risk-that-may-be-in-your-soda/index.htm

²⁷ http://www.thedrum.com/news/2017/10/31/the-failure-awards-defunct-branding-12-crystal-pepsi

²⁸ http://www.businessinsider.com/crystal-pepsi-creator-david-novak-its-failure-taught-important-lesson-2016-7

²⁹ https://www.thecrimson.com/article/1993/5/26/crystal-pepsi-the-wrong-one-baby-pbdbo/

³⁰ http://www.draudreyguskey.com/kdka-crystal-pepsi-follows-flavored-water-trend/

³¹ https://www.thecrimson.com/article/1993/5/26/crystal-pepsi-the-wrong-one-baby-pbdbo/

³² https://www.minddevelopmentanddesign.com/blog/how-kamikaze-marketing-killed-crystal-pepsi-tab-clear-anyonetenacious-d/

³³ http://11points.com/coke-made-intentionally-terrible-clear-cola-take-crystal-pepsi/

³⁴ When Novelty wears off, soft drinks clearly will fail by David Lavinsky

³⁵ https://www.livescience.com/53846-soda-consumption-america.html

³⁶ https://www.nytimes.com/2015/10/04/upshot/soda-industry-struggles-as-consumer-tastes-change.html

³⁷ http://news.gallup.com/poll/174137/americans-likely-avoid-drinking-soda.aspx

³⁸ https://www.livescience.com/53846-soda-consumption-america.html

³⁹ https://www.technavio.com/report/global-soft-drinks-market

⁴⁰ https://www.nytimes.com/2013/10/26/business/bottled-water-sales-rising-as-soda-ebbs.html?ref=nutrition

⁴¹ https://www.nytimes.com/2013/10/26/business/bottled-water-sales-rising-as-soda-ebbs.html?ref=nutrition

⁴² https://www.nytimes.com/2015/10/04/upshot/soda-industry-struggles-as-consumer-tastes-change.html

⁴³ https://www.livescience.com/55354-crystal-pepsi-weird-history-of-clear-soda.html