Cola wars begin again

Pepsi is relaunching its cola wars ad from 1995 with a new generation twist. (Click here).
Interestingly they are comparing Coke Zero with Pepsi Max.

Interesting sections of the NY Times news article:

Introduced in Britain and Italy in 1993, and widely available in Europe ever since, Pepsi Max was not introduced in the United States until 2007. The sugarless cola, which is sweetened with a combination of aspartame and acesulfame potassium, contains nearly twice the caffeine of Diet Pepsi, and also contains ginseng.

A 2009 report by Mintel, the market research firm, said the soda’s sales had been “impressive,” even during the economic downturn, “likely by attracting price-sensitive energy drink users.”

I had earlier blogged (in November 2008) about the potential of Pepsi Max in the US market (click here) due to the attractiveness to price-sensitive energy drink users. I am pleased to see that variant doing well.

Also interesting to note, from the same NYT article:

Diet Pepsi is more popular with women, but about 60 percent of Pepsi Max drinkers are men, according to Lauren Hobart, chief marketing officer of the sparkling brands division of PepsiCo. Diet sodas popular with men, like Pepsi One, Pepsi Max and Coke Zero, which many in Europe refer to as “bloke Coke,” avoid a word to which marketers believe men are averse: “diet.” (It is a widely held view in the weight-loss industry that men are more apt to say they need to “get in shape” than “go on a diet.”)

Among the company’s sugarless brands, Pepsi Max is popular with Gen X and Diet Pepsi with baby boomers.“Boomers generally grew up drinking Diet Pepsi but Gen X has been raised with more choices, and we’re trying to provide more choices that may meet their needs differently,” Ms. Hobart said.

Its interesting how demographic (gender, age) segments have distinct choice preferences and how product names can play a big role in product choice. Brand managers at both Pepsi and Coca Cola must be busy poring through their Usage & Attitude (U&A) studies to understand the segmentation better and to better target their products... Watch out for interesting positioning moves in the cola variants!!

Little Red(box) Riding Hood

Redbox, the in-store kiosk movie rental company has been blazing the news recently. Hollywood studios seem to hate Redbox or love it.

• Redbox is suing Universal studios (click here) and Fox (click here) for their attempts to instruct distributors not to supply Redbox for 30-45 days after a DVD is released.
• Meanwhile Sony (click here), Lionsgate (click here) and Paramount (click here) have signed multi-year contracts estimated to be worth hundreds of millions of dollars each, to get a share of the Redbox shelf and to ensure that used DVDs are not sold by Redbox

Its surprising to see Hollywood content owners vary so widely in their approach.

So I ask myself: Why are studios approaching this so differently? What is the right position a studio can take on this issue?

Redbox is taking revenue away from DVD sales for studios by offering daily rentals at $1. DVD sales are down 16% for the first half of the year according to Video Business Magazine (click here) whereas all other segments are growing. DVD sales account for more than 50% of all sales and rental revenue for the studios. Meanwhile Redbox quarterly revenues have grown to $189 MM (click here) and are doubling on an annual basis.

The real issue (other than rentals cannibalizing DVD sales) is that Redbox sells used DVDs at $7, often within a few weeks of the DVD being released. This has made price-sensitive customers buy recently-released used DVDs rather than shell out four times that amount for a new DVD. Electronics retailers like Best Buy are venturing into selling used DVDs and kiosk rentals (click here).

So Hollywood studios would like to limit the 'under-priced' sales of used DVDs and restrict the time when these are available to customers -- to be able to 'monetize' the time value of recently released content.

Sony seems to have played its cards well by getting a higher than representative share of the Redbox shelf and ensuring that its used DVDs are put out of circulation.

I personally think that Redbox can still rent Universal and Fox DVDs by sourcing them at retail prices and renting them at $2 instead of $1 (Note: this is not a legally informed opinion. Do not use this to make investment decisions) and selling used DVDs at higher prices. Consumers would still be attracted to the proposition.

Eventually though, I think the industry will be well-served if Universal and Fox can settle with Redbox out of court... and everyone can get back to the business of (profitably) providing compelling content to customers at the right-price in the right time window.