Pepsi Push Into Soviet Union a Textbook Case in Marketing

When Pepsi-Cola went on sale here nearly 15 years ago, the first American consumer product to be sold widely in the Soviet Union, Pepsico faced an unusual marketing problem.

How could it create demand for a new product without most of the modern marketing techniques--without television advertising or radio commercials, without big giveaways or supermarket promotions, without the lure of entertainment celebrities or top athletes?

“We found ourselves going back to the marketing strategies of the ‘30s and updating,” Richard Norton, Pepsico International’s vice president for Eastern Europe, said in reviewing Pepsi’s steady growth to more than 1 billion servings here a year.

“Very few marketing people remember it, but there was a pre-television era. This was a time when marketing was based largely on the distribution and sales network you built up rather than on media blitzes creating demand almost simultaneously with your ability to supply it.

“But that is what we found ourselves doing--assuming that there would be a market for Pepsi if we could get the product to the consumer, establishing production capacity to meet this anticipated demand, setting up the distribution network and only then telling people this great product was there for them.”

And Pepsi’s approach, perhaps adapted to the recent political, economic and social changes sweeping the Soviet Union, is likely to be the model for most of the other Western companies that are now joining it in the huge but difficult-to-sell Soviet consumer market.

Coca-Cola, Fanta and Astro Pizza are already here. McDonald’s, Baskin-Robbins, Pizza Hut and even Visa, among others, are coming within a few months.

Negotiations are under way on a variety of other brand-name consumer products, including cosmetics, toiletries, prepared foods and leisure clothes.

And Japanese electronics companies are positioning themselves for a future market in foreign televisions, stereo and video equipment, household appliances and cameras.

“The old assumption with consumer goods,” a veteran American business representative here commented, “was that you basically sold the deal to your Soviet partners, that they then established production and worked out distribution, and that the product, by virtue of being foreign and superior to anything local, would sell itself.”

That was largely Pepsi’s experience.

After the first plant opened in 1974, Pepsi found that it could open one or two additional plants each year, and that its product was quickly accepted but with a different sort of marketing than it uses in most other countries. There are now 20 plants, with two more due to open this year.

As much effort went into maintaining Pepsi’s worldwide quality standards as in to developing product awareness and brand consciousness, Norton said.

Distinctive Kiosks

Marketing efforts focused on sponsorship of sports functions, including soccer, gymnastics and ice hockey, where spectators would be able to buy Pepsi easily and television viewers would see the Pepsi name.

With its Soviet partners, Pepsico also established a network of 73 distinctive blue, white and red kiosks in Moscow, largely around subway stations and in other high-traffic spots; in summer, the average kiosk sells 4,000 servings a day, and Pepsico hopes that those consumers like it enough to order it in restaurants and buy it in groceries.

Consumers pay the equivalent of 40 cents for a 12-ounce bottle of Pepsi.

Advertising, until recently, was limited to placards on bus, area newspapers when a local plant opened and an occasional billboard.

“There they were, with a 10-year monopoly on foreign colas in the second-biggest economy in the world, and all they could do to develop the market was move from city to city, opening plants and selling the product as it came off the assembly line,” said an American business executive who admits that he has grown disenchanted with trying to break into the Soviet market with a variety of consumer products.

“The Pepsi story should be a warning to anyone who has big ambitions about this market. After 15 years, their sales work out to about one bottle per capita every three months. No doubt they are making money, but it’s equally clear that as a return on the effort of doing business here, versus many places in Eastern Europe or the Third World, their profits are probably minimal.”

Changes are coming, however, as more Western companies compete to enter the Soviet market, and the government here sees new benefits in competition.

Pepsi is facing competition from Coke, Fanta will get competition from Tanets (a new soft drink from Pepsi) and Pizza Hut, Astro Pizza and Roma Pizza all want to start franchise operations with Soviet partners.

Link With U.S. Life Style

And last month Pepsi bought television time for five 60-second commercials during a special series of shows on American life that were broadcast to estimated prime-time audiences of 150 million before the Soviet-American summit meeting here.

“We thought that, with all the changes, the time had come to do something bigger and bolder,” Norton said. “I don’t know whether we sold any more Pepsi, but I think we did manage, in ways that we had not been able to do before, (to) link Pepsi with the American life style, with youth, with enjoyment, with fun,” he said.

“These commercials were entertaining, they were lively, they were exciting, and they were fun, particularly those with (singer) Michael Jackson, and that’s the message we wanted to get across.”

Although Pepsi got free air time during international athletic competitions that it co-sponsored here two years ago, this was the first time the Soviet State Television and Radio Committee had sold time to foreign companies. Sony Corp. and Visa cards also advertised, though their products and services are not available here yet.

“The Pepsi commercials were some of the best I have seen,” Soviet broadcaster Vladimir Posner, the host of the America series, said later. “Many people who watched them were amazed by the creativity and artistry involved.

“We do not have much of a history of advertising or of marketing in the Western sense. Our ads generally say: ‘Here’s a product, here’s what it does and here’s where you can buy it if you want.’

“As our economy goes through a process of reform and state enterprises and cooperatives begin to compete among themselves, advertising will become much more important. The commercials last month, particularly the Pepsi ads, may mark a breakthrough of sorts.”

The State Television and Radio Committee will probably agree to selling more air time in the future, Posner said, and U.S. and other companies introducing the consumer products in the Soviet market will certainly be among the first to buy time.

“No one would want to go completely commercial here, but there is room for advertising on Soviet television, particularly as our economy changes and marketing campaigns become as important here for some products as they are in the United States,” he said.

Selling Trade-Off

Norton pointed out, however, that the major restraint on Pepsi’s growth has not been the lack of television advertising or the difficulty in mounting a traditional marketing campaign but in Pepsico’s need to help the Soviet Union earn dollars to pay for whatever it buys.

So, as part of its original 1972 agreement with Soviet trade companies, Pepsico sells Soviet vodka in the United States to earn the hard currency necessary to finance its syrup sales and the establishment of new bottling plants here.

“We have been very successful in selling Stolichnaya vodka in the United States,” he said, explaining the way that Pepsi sales are tied to vodka exports to make the deal self-financing from Moscow’s perspective. “We have gone from 30,000 cases a year 15 years ago to nearly a million, positioning it at the top of the vodka market where it is No. 1 or 2,” he said.

“And that makes Stolichnaya the biggest brand-name Soviet product in the United States, just as perhaps Pepsi is in the Soviet Union. If we mounted a real marketing campaign, it was in the United States for Stolichnaya, more than for Pepsi in the Soviet Union.”

But there are limits to vodka sales, and those in the United States have fluctuated sharply--down with the Soviet invasion of Afghanistan in 1979, up sharply with the recent Soviet-American summit meetings--so that Pepsi’s growth here has been less predictable than first envisioned.

“Our new agreement, doubling our production, is a major step forward because the expanded production will be financed not only by vodka but other drinks and other products and sales in other than the U.S. market,” Norton said.

Those plans call for further Pepsico imports of Soviet brandies and wines and of new apple and grape juice concentrates.

“Marketing in the Soviet Union has not been a great problem for us, though it is a different sort of operation,” Norton said. “From the first two or three plants we built, we have been successful--wherever we built a new plant, we found there was always a demand for Pepsi.”