PURCHASE, NY: PepsiCo's move to trim the number of agencies on its roster is likely intended to drive more value from agency partners instead of being a cost-cutting move, according to agency executives.
Pepsi told PRWeek exclusively last week that it will end some agency relationships to free up resources to put back into marketing and communications for its marquee global food and beverage brands, such as Gatorade, Quaker, and Pepsi. The company also said remaining agency partners would be subject to joint-performance metrics and a pay-for-performance model.
Todd Defren, principal at Shift Communications, says the new model will likely emphasize that agencies must prove their value, particularly in terms of consumer outreach.
“In a world that's going increasingly online, it makes sense for a company with the global scale and resources of a PepsiCo to realign its priorities and agencies,” he says. “I am sure there were some legacy relationships that needed a shake-up, but I don't think it presages a consolidation trend; it suggests only what we've already known: we've got to keep proving ourselves.”
Pepsi's PR agencies include Edelman, Ketchum, Fleishman-Hillard, Weber Shandwick, and Ruder Finn. A number of firms, including Edelman, declined to comment for this article.
PepsiCo is reportedly planning to increase its advertising and marketing spend by between $500 million and $600 million this year, with most of that money earmarked for its 12 largest beverage and snack brands. During a conference call with investors, Indra Nooyi, chair and CEO of PepsiCo, said the company also plans to eliminate more than half of its 300 vendor relationships.
“Our agencies are incredibly important partners and they have incredible value,” Peter Land, SVP of communications at PepsiCo, told PRWeek. “But we want to drive as much value as possible with the consumer. The idea is to create as much consumer-facing activity as possible because that's the most productive use of our budget.”
On the call with investors, Nooyi noted the company also developed “a common way to measure brand equity” for its key brands and will intervene when appropriate to maintain and increase that equity.
That measurement strategy is key to understanding the rationale behind PepsiCo's move, explains Defren.
“I presume a lot of effort went into defining this new approach and gaining buy-in from marketing leaders,” he says. “Thus the measurement standard will determine whether Pepsi changes course with its consolidation strategy. If a year from now their brand equity metrics are disappointing, you can bet that those lagging brands will point to a lack of dedicated agency resources.”
With increased investment in consumer-facing brand activity, PepsiCo might also be setting the stage for an intensified “cola war” with rival Coca-Cola, particularly as the key summer months approach, notes Gene Marbach, group VP at Makovsky & Company.
“There is a market for healthier foods, but the heart of this company is soda and salty snacks, so what they're doing is trying to get back to their [main] game,” he says. “I'm not so sure the cola wars have abated, but they could definitely intensify as a result.”
PepsiCo has tried to introduce healthier options, including hummus and drinkable oatmeal, but that strategy has not gone over well with investors.
“Pepsi can do all the spin its likes [for healthier products], but if it can't meet its quarterly growth targets, Wall Street will kill it,” says Marion Nestle, professor of nutrition food studies and public health at New York University.
Marbach adds that Pepsi likely anticipated a backlash from health advocates, but he says the food and beverage giant needs to send a strong message to investors frustrated by the fact it is losing ground to rival Coca-Cola.
“The company is making a statement to the investment community that says, ‘Yes, we get it, and we're doing something about it,'” he says.