Coke's PR offensive in India pays off
Protests over pesticide-tainted drinks fizzle
Duane D. Stanford, The Atlanta Journal-Constitution
Write an email about this article
View the source for this article (may require registration or a fee).
Fair Use
Coke's market research was clear. Indian consumers wanted someone credible to assure them Coca-Cola wasn't loaded with dangerous pesticides. Who better to do that than Aamir Khan, the socially responsible and bigger-than-life Indian movie star loved the country over?
In a television testimonial, a serious but humble Khan, arms crossed behind his back, told everyday Indians that he cared for their safety.
The dreamy actor donned a hairnet and looked studiously at a test tube held by a man in a white lab coat inside a Coke bottling plant. He stared into the camera and told Indians to come see the plant for themselves. And in the final act of the 60-second ad, Khan pulled a bottle of Coke Classic from the manufacturing line, popped the top and gulped fearlessly.
The approach was a far cry from three years ago, when Coke practically ran from allegations by a private research group that soft drinks produced by Coke and PepsiCo contained dangerous levels of pesticide residue. Consumers ran, too, and sales plummeted.
When the claims surfaced again in August and governments across India began banning soft drinks, Coke fought back this time with targeted ads featuring celebrities like Khan, a strategy that may have helped the company turn the corner in one of its most important emerging markets.
Coke recently reported a 4 percent increase in the number of cases sold in India during the third quarter of this year, the first uptick in sales in the country in eight quarters. Last year's third quarter brought a 22 percent decline in case volume.
"We learned from the previous round," said Venkatesh Kini, vice president of marketing for Coke India. "We knew we had to address it head on."
India's Center for Science and Environment, an independent public interest group, first made the pesticide allegations in 2003. The center said tests it conducted found dangerously high levels of pesticide residue in soft drinks being sold across India.
Trace amounts of pesticides can be found in India's water supply and in its crops, as well as in raw ingredients such as sugar. Coke says it treats the local water in its plants before using it to produce soft drinks.
The research center's director, Sunita Narain, says pesticide residue can cause cancer, birth defects and damage to nervous and immune systems if consumed over a long period.
While Coke and Pepsi denied the allegations through the media, even holding a joint news conference, the companies' marketing response to consumers was measured at best. Kini acknowledged Coke merely "hinted at the issue" in its advertising because the company didn't want to legitimize the interest group's claims.
Instead, Coke became mired in technical detail, publicizing its own tests that showed the drinks met tough European standards and pointing out that India's Ministry of Health had taken issue with the center's testing methods.
Consumers, meanwhile, protested, sometimes violently. In December 2004, India's Supreme Court ordered Coke and Pepsi to put warning labels on their products.
That was the start of a two-year slide for Coke's case sales, which Wall Street analysts and Coke say was made worse by a troubled distribution system and a decision to raise prices in the midst of the pesticide controversy.
The controversy flared up again in August of this year, when the Center for Science and Environment released new test results, saying 57 samples from 11 Coke and Pepsi brands contained pesticide residue levels 24 times higher than the maximum allowed by the Indian government in water used to make soft drinks.
The public's response was harsh. Seven of India's 28 states imposed partial bans on Coke and Pepsi. The small state of Kerala banned the drinks altogether, and officials there have ignored a subsequent high court ruling overturning the ban.
"We had a major downturn for a few weeks," acknowledged Coke Chairman and Chief Executive Neville Isdell during a recent conference call with analysts.
This time, Coke opted for a more aggressive marketing response.
Within a week of the August report by the public interest group, Coke launched the first of three rounds of newspaper ads refuting the claims. The ads were in the form of a letter from India's more than 50 company-owned and franchised Coke bottlers saying their products were safe. Similar letters were given to retailers. Merchandisers pressed stickers onto drink coolers that proclaimed Coke was "safety guaranteed."
"We had a communication that took the bull by the horns," said Kini, Coke India's marketing chief.
During this time, Coke hired researchers to talk to consumers and opinion leaders. Kini said marketing executives wanted to know what consumers "believed about the allegations and what we needed to do to convince them the allegations were not true."
Coke used the research to craft a television advertising campaign featuring testimonials by influential celebrities. The ads included the one in which movie star Aamir Khan toured a Coke plant. He said he was convinced the beverages were safe after looking at the available research himself. More than 4,300 people in August and September took Kahn up on his offer to tour the plant.
"The fact that we opened our plant to the public sent a message that we didn't have anything to hide," Kini said.
Giant posters with Kahn's Coke-drinking mug have since shown up at bus stops and the like.
While Khan's ads were targeted at the mass audience and youths, testimonial ads featuring soap star and member of Parliament Smriti Irani were targeted for housewives and adult women who make the majority of the food-buying decisions in Indian households, Kini said.
Batul Purab, a 21-year-old college student in India, said the commercials featuring Khan were convincing.
"He's very selective about his films. He doesn't do many movies," she said during a telephone interview. "A lot of people like him because he's not been caught for any controversies or anything like that."
Pepsi chose to run television ads featuring a notable scientist and the company's head of operations in India, said company spokesman Dick Detwiler. The company also ran newspaper ads making a case for the safety of its products.
Coke's Kini said the company has closely tracked consumer preferences and beliefs since the pesticide allegations resurfaced in August. He said the research shows "dramatic" declines in the number of people who believe the allegations and increases in the number of people who have gone back to drinking Coke.
"It's showing up in our sales figures," Kini said.
Investors won't really know whether the change in strategy worked until fourth-quarter sales volume numbers are released early next year.
During an interview last week, Isdell said Coke's response during the second wave of the pesticide controversy was a key reason for the recent increase in case sales. The company changed its management in India after the 2003 pesticide controversy to address a number of problems, including how the company would handle the next public relations crisis.
"What we've done is we've said, 'Look, something like this may well happen again. Are we ready? No. What do we need to do to be ready, so we have the pieces in place to be able to do that?' " Isdell said.
Two weeks ago, India's Health Ministry said in a sworn statement to the Indian Supreme Court that Coke and Pepsi beverages tested in three government labs contained little to no pesticide residue, and none of the levels found exceeded "statutory limits." A prominent government lab in the United Kingdom also reported it found none of the pesticides cited by the public interest group.
During Coke's third-quarter conference call, Isdell said the center "picked on carbonated soft drinks because that would get the headlines ... for a broader issue of pesticides in the food chain in India."
Narain, of the research center, has acknowledged she targeted the soft drink giants to bring attention to the issue but has stood by her testing.
"Our concern was that if we are finding pesticides in a product that is supposedly clean and safe, it means there is widespread contamination in India," Narain told National Public Radio's "Morning Edition" in August.
Coke has joined Narain in calling for the government to set limits on pesticide residue in finished soft drinks, not just the water used to make them.
Right now, India is a small part of the global soft drink business. In 2005, India made up about 1.4 percent of the 20.6 billion cases of beverages Coke sold worldwide. Profits on those sales were even thinner, said Wall Street analyst John Faucher of JPMorgan.
So why all the fuss?
India's importance to Coke and Pepsi has more to do with the future, Wall Street analysts say.
Sales of sugary carbonated soft drinks are on the decline in the United States, where consumers are increasingly turning away from high-calorie drinks in favor of diet sodas, water, sports drinks and other noncarbonated beverages. That means soft drink companies have to look for future growth in countries such as India, where there are lots of people and a growing economy, Faucher said.
"The Street looks at certain markets to be drivers of the growth down the road," he said.
Coke and Pepsi want to get soft drinks into the hands of as many of the country's 1 billion-plus residents as possible. Profits should follow.
"If you don't invest in those markets now, you're not going to have any growth there 10 years from now," Faucher said.
Fair Use Statement: This site contains copyrighted material the use of which has not always been specifically authorized by the copyright owner. We are making such material available, provided as informational resources only in support of the democratic process, consistent with the nonprofit, public-interest mission of Independent Arts & Media. We believe this constitutes a 'fair use' of any such copyrighted material as provided for in section 107 of the US Copyright Law. In accordance with Title 17 U.S.C. Section 107, the material on this site is distributed without profit to those who have expressed a prior interest in receiving the included information for research and educational purposes. For more information go to: http://www.law.cornell.edu/uscode/17/107.shtml. If you wish to use copyrighted material from this site for purposes of your own that go beyond 'fair use', you must obtain permission from the copyright owner.