Pepsi Upsets Retailers Over Amazon Deal
By Tom Ryan
Pepsi’s promotional deal with Amazon’s digital music store has come under fire from some traditional bricks-and-mortar retailers who not only sell Pepsi, but also offer CDs and, in some cases, their own digital download services.
Pepsi in early February began offering 1 billion free MP3s through Amazon’s new downloadable music service. Free song codes were put on 5 billion bottles of Pepsi shipped out to stores; each free download requires five codes. The promotion was launched with a high-profile television ad featuring pop-star Justin Timberlake during February’s Super Bowl.
The deal represented Amazon’s biggest-ever marketing partnership with another brand.
According to The Financial Times, however, critics of the deal note that Pepsi’s traditional retail partners like Wal-Mart and Target are increasingly selling more and more Pepsi through their expanding supercenters. At the same time, both sell CDs and Wal-Mart, which accounts for 18 percent of Pepsi’s sales, recently launched its own MP3 download service. Amazon doesn’t sell any soda.
“You have to ask yourself why Pepsi would team up with a company that doesn’t sell its products, and risk antagonizing all the people that do sell its products,” said a source at one retailer.
In an apparent response to retailers’ concerns, The Financial Times noted Pepsi has made the promotion all but invisible at the grocery level. Amazon’s name has been banished from the front of Pepsi bottles carrying the promotion. Similarly, Amazon’s logo is fairly hidden on the back of cardboard multi-pack cartons of cans that are stacked on the shelves of mass discounters and supermarkets, next to the product’s bar code and nutritional information.
The treatment contrasts with a promotion between Pepsi and Apple’s iTunes, in which the iTunes name was carried prominently.
Jeff Smith, retail consultant at Accenture, said Pepsi and other brands are being challenged in adapting the traditional way they communicate with retailers to accommodate new digital selling and marketing channels.
“The thing they didn’t think about is that anyone selling Pepsi in the general merchandise or electronics business is going to feel that they were promoting a competitor,” he said.
Discussion Question: What do you think of the Pepsi/Amazon free MP3 download campaign? Was Pepsi wise or overly-cautious in downplaying its free MP3 download campaign with Amazon at retail?
The fact of the matter is that the retailer has more to fear from Pepsi Customers than Pepsi has to fear from retail retaliation. Would the offending retailers want Pepsi to publish an apology in Sk8ter World for making Wal-Mart, Target, et al, mad and advising the readers of Sk8ter World that they would no longer be able to download free MP3s because of the protest by these retailers? If the retailers really want to get even, they will all run to Coke and get Coke to do a program with them that trumps Pepsi’s program. That should cause KO to rise dramatically and I will finally make some money off this….
I think this is the third major downloaded music promo from Pepsi, with the first two in association with iTunes. The iTunes promos got more TV time, but then again the whole concept was a lot newer, and the traditional outlets didn’t think much of the new channel as competition at the time. Indeed, far fewer songs were given away than the promotion had available.
Pepsi does seem to be navigating more carefully this time, but that’s not necessarily to their detriment, or unplanned. The promotion is actually tied into the Pepsi Stuff program–you can use Pepsi points for songs or a lot of other things like DVDs, Pepsi logo wear, electronics, etc. It appears the whole program is now run with Amazon (as it once was tied in with Yahoo). The Pepsi Stuff program has been running for many years, and Pepsi can afford to keep channel partners happy while still providing a lot of value to its partner Amazon.
Pepsi developed a promotion to increase exposure to their products and to reach a target audience of primarily young consumers who use MP3s and download music all the time. Surely that can’t be all bad as some have implied.
I think its a catch 22 for Pepsi. Let’s say they teamed up with Wal-Mart instead of Amazon. Target and Kmart would be annoyed seeing WM’s logo all over Pepsi boxes and vice versa.
Amazon was probably their best choice as they are not really related to any bricks and mortar chain. Pepsi could have done a better job of downplaying the promo buy just plastering ‘Free Song’ all over the box and having a linkup to Amazon through Pepsi.com.
But I do understand the retailers’ frustration over this. With shelf space already at a premium, the last thing chains want to do is promote a non-related website that sells stuff!
3 words to ‘offended’ retailers: “Get over it.”
Tough call for Pepsi. Initially I would say that this is more an insecurity issue with Wal-Mart. If Wal-Mart is fearful of losing CD sales to a promotion by one of its vendors, maybe they need to look in the mirror. After all, it was Wal-Mart that pressured the Eagles to make their “Long Road Out of Eden” CD available exclusively from them. And we all know Wal-Mart cared little for the impact of this on other retailers.
Soda and music go hand in hand. Both Pepsi and Coke have relied on music promotions to drive sales for years. The music business has migrated from in-store to on-line. If Pepsi is going to connect with its consumers using music, they must use the consumers’ medium of choice, the Internet.
Retailers always complain about slights, either real or perceived. In this regard, Pepsi is smart about playing down the connection with Amazon. At the same time, knowing Pepsi, they are running a number of account specific promotions that have nothing to do with the music giveaway.
This is a strong promotion. It echoes other successful promotions Pepsi has done in the past. Well done, Pepsi.
Here’s an idea: sell Pepsi on Amazon. It can be shipped Fedex, and packed in ice to keep it cold.