tag:theconversation.com,2011:/au/topics/pepsico-25868/articlesPepsico – The Conversation2024-01-10T00:46:26Ztag:theconversation.com,2011:article/2206462024-01-10T00:46:26Z2024-01-10T00:46:26ZAs Australian supermarkets are blamed over food costs, French grocer Carrefour targets Pepsi for ‘unacceptable’ price rises<figure><img src="https://images.theconversation.com/files/568517/original/file-20240109-22-jcbhlh.jpg?ixlib=rb-1.1.0&rect=89%2C116%2C4495%2C3327&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">
</span> <span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/bucharest-romania-0501-shopping-carts-belonging-1983538025">Cristi Croitoru/Shutterstock</a></span></figcaption></figure><p>French supermarket Carrefour has fired a warning shot in a price war with global food brands, dropping PepsiCo products last week because of “<a href="https://www.washingtonpost.com/business/2024/01/04/pepsi-lays-carrefour-grocery/">unacceptably high</a>” increases. </p>
<p>This has seen Pepsi soft drinks removed from stores across Europe, as have Doritos, Quaker breakfast cereals and other food produced by the multinational.</p>
<p>It is usually the job of shoppers and consumer advocates to call out corporations for overstepping the mark on pricing, often targeting retailers. But this time, in a pre-emptive strike against the source of the increases, Carrefour pushed back, showing they were not the problem.</p>
<p>This is a radical departure from the usual policy of retailers passing on costs directly to consumers.</p>
<p><div data-react-class="Tweet" data-react-props="{"tweetId":"1743082147081040226"}"></div></p>
<p>Refusing to carry producers’ brands – known as delisting products – can be risky for retailers, prompting customers to move to competitors who stock their favourite goods.</p>
<p>In Australia, <a href="https://www.huntexportadvice.com/post/australia-market-overview-2021#:%7E:text=Market%20Share,-The%204%20main&text=The%20Woolworths%20Group%20is%20the,10%25%20and%20Metcash%207%25.">65% of the grocery retail sector</a> is controlled by Woolworths (37%) and Coles (28%), raising concerns about market dominance and a lack of real competition.</p>
<p>Strict rules set by the <a href="https://www.accc.gov.au/business/industry-codes/food-and-grocery-code-of-conduct/obligations-and-protections-under-the-food-and-grocery-code#toc-delisting-products">Australian Competition & Consumer Commission</a> (ACCC) govern the requirements for delisting to ensure there is no abuse of market power. </p>
<h2>Market share vs brand value</h2>
<p>In <a href="https://cmaconsulting.com.au/power-in-negotiation-taking-control-of-how-the-cookie-crumbles/">2015</a> biscuit and snack food producer Arnott’s raised prices on 54 products by 10% and Coles refused to carry them.</p>
<p>This decision to stand up to the multinational (contradicting the stereotype it took advantage of its market dominance) was welcomed by many consumers.</p>
<p>However, some were not willing to go without their Tim Tams and Coles ultimately agreed to let Arnott’s raise the prices of 44 products.</p>
<p>Woolworths had a similar issue with Arnott’s in <a href="https://www.afr.com/companies/retail/arnott-s-in-stand-off-with-woolies-20190926-p52v61">2019</a> over prices and promotions, refusing to pass through an increase due to drought and currency fluctuations.</p>
<p>The opposite, however, happened earlier in the same year, when <a href="https://www.heraldsun.com.au/news/victoria/supply-issue-blocking-uncle-tobys-products-getting-to-woolworths/news-story/596260691208f93d2724726a05dc0c5e">Uncle Toby’s </a>withheld inventory from Woolworths because they did not agree to pass on price hikes.</p>
<h2>Runaway prices</h2>
<p>Carrefour’s dispute with PepsiCo should be viewed in the context of the cost of food in Europe blowing out over the past two years, with <a href="https://think.ing.com/articles/food-inflation-is-cooling-down-after-a-hot-summer/#:%7E:text=A%20typical%20EU%20consumer%20currently,by%20'only'%2019%25.">average prices up 30% since 2021</a>.</p>
<p>These increases have prompted retailers to be more transparent with consumers about how their profits compare to those of producers. </p>
<p>Revealing the cause of the price increases, and refusing to pass them on, distances the retailers’ business model from the producers’ opportunistic attempts to increase profits.</p>
<h2>Price gouging or legitimate cost increases?</h2>
<p>This week, Treasurer <a href="https://www.smh.com.au/politics/federal/cost-of-living-relief-on-chalmers-to-do-list-20240108-p5evun.html">Jim Chalmers</a> echoed calls from the Coalition to investigate supermarket pricing and review the ACCC’s grocery <a href="https://www.accc.gov.au/business/industry-codes/food-and-grocery-code-of-conduct">code</a> to ensure savings are passed on as costs abate.</p>
<p><a href="https://www.afr.com/policy/economy/chalmers-threatens-to-punish-supermarket-price-gouging-20240108-p5evuh">Data from the ABS</a> shows wholesale food costs only rose 0.7% in the most recent quarter, while the price for a typical basket of consumer food items rose 3.2%.</p>
<p>This gap also appears in Europe, where the percentage of “unexplained” rises in food prices increased from <a href="https://www.allianz.com/en/press/news/studies/230503_Allianz-High-food-prices-Great-interest-in-Allianz-research-study.html">3% to 10% from 2022 to 2023</a>.</p>
<p>Bigger production costs did not account for all of the increases, leading to the conclusion producers were taking advantage of consumers, blaming the war in Ukraine, increased transport costs and global supply chain disruption to rationalise higher prices on the shelf. </p>
<p>In a 2023 report into European food inflation, Allianz said this was “<a href="https://www.allianz.com/content/dam/onemarketing/azcom/Allianz_com/economic-research/publications/specials/en/2023/april/food-inflation/2023_04_14_europe_food_inflation.pdf">catch-up profit-taking</a>” to recover losses from previous years. </p>
<h2>The rise of shrinkflation</h2>
<p>So-called “shrinkflation” – where the price of goods doesn’t change but they are sold in smaller quantities for the same price – has also made consumers groups sceptical.</p>
<p>In Australia, it is factored into the calculation of inflation for household goods and services as measured by the Consumer Price Index. The ABS characterises shrinkflation as a “<a href="https://www.abs.gov.au/articles/quality-change-australian-cpi">quality decrease</a>”.</p>
<p>Consumer advocacy group CHOICE has noted shrinkflation in Australia since 2016 in its <a href="https://choice.community/t/the-groceries-shrinking-and-getting-more-expensive/27465/14">Community Forum</a>, citing size reductions in products ranging from chocolate bars to breakfast cereals.</p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/amid-allegations-of-price-gouging-its-time-for-big-supermarkets-to-come-clean-on-how-they-price-their-products-219316">Amid allegations of price gouging, it's time for big supermarkets to come clean on how they price their products</a>
</strong>
</em>
</p>
<hr>
<p>In Europe, Carrefour instituted a bold in-store campaign last year of naming and shaming brands that downsized products using <a href="https://www.bbc.com/news/business-66809188">signage that highlights the shrinkage.</a> </p>
<p>This allows consumers to make informed decisions without limiting their buying options. But it also risks backlash from producers over how their goods are displayed on the shelf.</p>
<p>Without regulation, or a similar campaign from retailers, Australian consumers must check unit prices to ensure they are not paying more for less.</p>
<h2>A chance to generate goodwill</h2>
<p>Carrefour’s stand against a global brand and decision to delist their products recognises consumers everywhere are feeling the impact of higher prices.</p>
<p>At a time when the <a href="https://www.aph.gov.au/Parliamentary_Business/Committees/Senate/Supermarket_Prices/SupermarketPrices">Senate</a> is investigating claims of price gouging by Australia’s largest supermarket chains, more transparency would be a welcome change.</p>
<p>From negotiations at the farm gate to the multinational boardroom, there is an opportunity for the big grocery retailers to pass on savings where possible, and increase brand loyalty.</p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/the-cost-of-living-is-biting-heres-how-to-spend-less-on-meat-and-dairy-206703">The cost of living is biting. Here’s how to spend less on meat and dairy</a>
</strong>
</em>
</p>
<hr>
<img src="https://counter.theconversation.com/content/220646/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Garritt C. Van Dyk does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Pressure for greater transparency by food producers and retailers about costs is increasing as rising grocery prices hit the hip pocket.Garritt C. Van Dyk, Lecturer, University of NewcastleLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1057712018-11-06T23:09:28Z2018-11-06T23:09:28ZAll-you-can-eat food packaging could soon be on the menu<figure><img src="https://images.theconversation.com/files/243539/original/file-20181101-83632-qxzwlj.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Plastic packaging could soon be compostable or edible.</span> <span class="attribution"><span class="source">(Shutterstock)</span></span></figcaption></figure><p>Within a year, single-use plastics and excess packaging have become Public Enemy No. 1.</p>
<p>A recent Greenpeace-led audit looked at the companies behind the waste lining Canadian waterways. Much of the plastic trash cleaned up from Canadian shorelines this fall was <a href="https://www.greenpeace.org/canada/en/press-release/5375/press-release-coca-cola-pepsico-and-nestle-found-to-be-worst-plastic-polluters-worldwide-in-global-cleanups-and-brand-audits/">traceable to five companies</a>: Nestlé, Tim Hortons, PepsiCo, the Coca-Cola Company and McDonald’s. All these companies are part of the food industry, which is hardly surprising. </p>
<p>With consumers looking for convenience and portable food solutions, this problem will not go away anytime soon. In fact, it could get worse if nothing is done. </p>
<p>The number of meals in Canada consumed outside the home is only increasing. Canadian households spend roughly <a href="https://www.dal.ca/news/2017/12/13/canadians-will-spend-more-in-restaurants-in-2018--canada-s-food-.html">35 per cent of their food budget</a> outside a grocery store, and that percentage is <a href="https://www.dal.ca/news/2017/12/13/canadians-will-spend-more-in-restaurants-in-2018--canada-s-food-.html">increasing every year</a>. </p>
<p>The number of people walking around with plastic containers and bags, wrappers and cups will likely increase, and the food service, retail and processing sectors are all <a href="https://www.timhortons.com/bcrecycles/">fully aware</a> of this environmental conundrum. </p>
<p>What is brutally unclear for companies is how to deal with it. But making the issue of plastic use a political one is creating some movement, everywhere around the world.</p>
<h2>Compostable containers</h2>
<p>In the food industry, conversations about green supply chains focus on compostable and even edible solutions. Plenty of technologies exist. </p>
<p>On the compostable front, we have come a long way in just a few years. In 2010, PepsiCo Canada came out with the <a href="http://www.pepsico.ca/en/PressRelease/SUNCHIPS-INTRODUCES-THE-WORLDS-FIRST-100-PERCENT-COMPOSTABLE-CHIP-BAG02032010.html">first compostable chip bag for SunChips</a>. This new package was meant to completely break down into compost in a hot, active compost pile in approximately 14 weeks. <a href="https://www.greenbiz.com/blog/2014/03/18/pepsis-biodegradable-backlash-snack-bag-was-too-noisy">Some tests concluded that it did not</a>. </p>
<p>But what really attracted the attention of consumers to this novelty was how noisy the bag was. An <a href="https://www.socialmediatoday.com/content/fritolay-sunchips-packaging-debacle-lesson-when-not-listen-your-customers">influential social media campaign led to the bag’s downfall</a>. The company pulled it from the market less than a year after its introduction. </p>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/243541/original/file-20181101-83651-1jlmbw4.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/243541/original/file-20181101-83651-1jlmbw4.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/243541/original/file-20181101-83651-1jlmbw4.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/243541/original/file-20181101-83651-1jlmbw4.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/243541/original/file-20181101-83651-1jlmbw4.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/243541/original/file-20181101-83651-1jlmbw4.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/243541/original/file-20181101-83651-1jlmbw4.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">A volunteer collects trash for the Greenpeace plastic polluter brand audit in Halifax in September 2018.</span>
<span class="attribution"><a class="source" href="https://media.greenpeace.org/">(Anthony Poulin/Greenpeace)</a></span>
</figcaption>
</figure>
<p>Since then, pressure from cities has helped boost the presence of compostable packaging. With cities increasingly accepting <a href="http://www.macrothink.org/journal/index.php/rae/article/view/10071">food packaging in organics bins</a>, retailers shouldn’t shy away from promoting these green solutions. They might even adopt new green packaging schemes for some of their private-labelled products. </p>
<h2>Milk wrap</h2>
<p>Edible packaging is also gaining currency around the world. Imagine one day walking into a grocery store, and everything you see on store shelves can be eaten. </p>
<p>Research has come a long way, but it has not been easy. The first generation of edible packaging was made of starch, which often failed to keep food fresh. </p>
<p>The Unites States Department of Agriculture (USDA) has been working on a new generation of edible packaging that may get the attention of food industry pundits. <a href="https://thinkprogress.org/usda-edible-food-packaging-9caa16d7d4fd/">Casein-based food packaging</a>, made from milk proteins, isn’t just edible, it’s also more efficient than other types of packaging as it <a href="https://foodtank.com/news/2018/09/have-your-food-and-eat-the-wrapper-too/">keeps oxygen away from the food for an extended period</a>, keeping it fresher for longer. The casein-based edible fabric can be infused with vitamins and probiotics. This technology from the USDA should be ready in 2019. </p>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/243542/original/file-20181101-83632-tx6blu.JPG?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/243542/original/file-20181101-83632-tx6blu.JPG?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=401&fit=crop&dpr=1 600w, https://images.theconversation.com/files/243542/original/file-20181101-83632-tx6blu.JPG?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=401&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/243542/original/file-20181101-83632-tx6blu.JPG?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=401&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/243542/original/file-20181101-83632-tx6blu.JPG?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=504&fit=crop&dpr=1 754w, https://images.theconversation.com/files/243542/original/file-20181101-83632-tx6blu.JPG?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=504&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/243542/original/file-20181101-83632-tx6blu.JPG?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=504&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Indonesian company Evoware is producing seaweed-based packaging.</span>
<span class="attribution"><span class="source">(Evoware)</span></span>
</figcaption>
</figure>
<p>Another organic matter getting attention is seaweed. We have wrapped sushi with seaweed for centuries, so it is only natural to extend the practice beyond Japanese delicacies. Costs and availability are still unclear. </p>
<h2>Eating your garbage away</h2>
<p>While these may be promising technologies, no business model has yet been developed and we still don’t know how edible packaging will affect retail prices. This is certainly of great concern to retailers and restaurants. </p>
<p>Other issues have come up as well when considering edible packaging. Taste and food safety are obvious ones. </p>
<p>The idea that we can reducing plastic waste by eating more packaging is intriguing, but not every consumer would think of such a concept as appetizing. A case has to be made for consumers to eat their garbage away. </p>
<p>Logistics are certainly an issue with edible packaging. Throughout the supply chain, temperatures tend to vary greatly, which makes it challenging for any edible packaging to preserve the integrity of products that may travel thousands of kilometres around the world.</p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/how-to-clean-up-our-universal-plastic-tragedy-98565">How to clean up our universal plastic tragedy</a>
</strong>
</em>
</p>
<hr>
<p>Start-ups looking at this issue are rampant. According to Transparency Market Research, a global research firm, <a href="https://www.transparencymarketresearch.com/pressrelease/edible-packaging-market.htm">demand for edible packaging could increase on average by 6.9 per cent yearly until 2024</a> and could become a market worth almost US$2 billion worldwide. </p>
<p>As consumers, we will be given an opportunity to save the planet from plastic waste as we eat our food.</p>
<p>In the mean time, Greenpeace can continue to blame companies for the rubbish we find in oceans and waterways, but it’s actually all of us who are responsible for this mess. </p>
<p>If we want more compostable or edible packages, we may be asked to pay more for our food, to pay for a “planet premium,” once these new technologies come around. Regardless, it may be worth it.</p><img src="https://counter.theconversation.com/content/105771/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Sylvain Charlebois does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Much of the trash on Canadian shorelines can be traced to five food companies. We could soon see more compostable and edible packaging.Sylvain Charlebois, Professor in Food Distribution and Policy, Dalhousie UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1025242018-08-31T18:38:16Z2018-08-31T18:38:16ZCoca-Cola’s swoop for Costa Coffee will cut its exposure to sugar and plastic bottles<figure><img src="https://images.theconversation.com/files/234458/original/file-20180831-195325-vclo4f.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Costa plenty. </span> <span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/shenzhen-china-circa-may-2016-close-459541168?src=6Ut5asThcPK5xD4HGmyBKQ-1-2">Sorbis</a></span></figcaption></figure><p>Coca-Cola’s £3.9 billion acquisition of Costa Coffee has <a href="https://www.cnbc.com/2018/08/31/whitbread-to-sell-coffee-chain-costa-to-coca-cola.html">made quite a ripple</a>. Atlanta-based Coca-Cola is obviously best known for its soft drinks portfolio, found in supermarkets, kiosks, hotels, bars and restaurants around the world. </p>
<p>Costa, headquartered in the UK, has 3,800 coffee shops in over 30 countries with about two-thirds in its UK home market. Both companies might be all about beverages, but that’s about the only overlap in their operations. </p>
<p>The logic for Costa’s current owner, Whitbread, is straightforward enough. It was coming under investor pressure to focus on its <a href="https://www.whitbread.co.uk/our-brands/premier-inn">hotel business</a> and get out of coffee. Its chief executive, Alison Brittain, <a href="https://www.telegraph.co.uk/business/2018/08/31/whitbread-sells-costa-coffee-coca-cola-39bn/">says the</a> price tag achieved a substantial premium over the alternative, which was to simply demerge it – Costa was <a href="https://www.thetimes.co.uk/article/whitbread-agrees-to-sell-costa-coffee-for-3-9-billion-to-coca-cola-hzmqsdr99">previously valued</a> at around £3 billion. A far more interesting and complex issue is what makes Costa so attractive to Coca-Cola that it was willing to pay such a premium.</p>
<h2>Coke’s problems</h2>
<p>The Coca-Cola Company has relied on its famous cola beverages for growth since its inception in 1892. The strength of the Coca-Cola brand – <a href="https://www.interbrand.com/best-brands/best-global-brands/2017/ranking/cocacola/">valued at</a> almost US$70 billion (£54 billion) by Interbrand – has always been a double-edged sword. A small percentage of growth in cola could bring enormous dollar impact on revenue and profit, and therefore may be prioritised over brands with high growth potential, but smaller current sales volumes. </p>
<p>Coca-Cola has more than 500 soft drink brands, from Fuse Tea to Oasis to Lilt to Powerade, but none is anywhere close to the Coke brand in awareness, revenue and profit. When Coca-Cola’s chief executive, James Quincey, <a href="https://www.coca-colacompany.com/stories/quincey-at-cagny-we-are-going-to-be-a-total-beverage-company">says</a> he wants The Coca-Cola Company to be a total beverage company, he’s attempting to address this difficulty. Though the company already has a couple of minor coffee brands in particular countries, the Costa acquisition is on a different level: it communicates to everyone in the company and beyond that he is serious. </p>
<p>The unevenness of the portfolio is not the only reason for the total beverages strategy. The company’s strength is still primarily in sparkling carbonated drinks. Sales of carbonated drinks as a whole are still growing globally, but <a href="http://www.softdrinksinternational.com/userfiles/file/SDI_GlobalReview2018.pdf">only at</a> between 2% and 3%. And in developed markets <a href="https://themarketmogul.com/global-soft-drinks-market-new-trends/">such as</a> the US, they’re declining. As people switch to healthier lifestyles, the worry is that this will start happening everywhere. </p>
<p>At the same time, global drinks growth has been <a href="https://www.linkedin.com/pulse/global-still-drinks-market-gain-momentum-from-decreasing-kadam/">primarily</a> in still drinks – water, juice and coffee. Worldwide coffee sales are <a href="https://www.mordorintelligence.com/industry-reports/coffee-market">expected to</a> grow at 6% a year for the next few years. Selling coffee to coffee drinkers will seem like an easier task than convincing them to drink Coca-Cola.</p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/234459/original/file-20180831-195322-1m499u9.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/234459/original/file-20180831-195322-1m499u9.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/234459/original/file-20180831-195322-1m499u9.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/234459/original/file-20180831-195322-1m499u9.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/234459/original/file-20180831-195322-1m499u9.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/234459/original/file-20180831-195322-1m499u9.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/234459/original/file-20180831-195322-1m499u9.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/234459/original/file-20180831-195322-1m499u9.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Mmmm sugar.</span>
<span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/donetsk-ukraine-june-05-2017-coca-655555003?src=zCMDYnChhsHuFpu4Ish0eA-1-38">Mizin Roman</a></span>
</figcaption>
</figure>
<p>Coupled with this are the threats to the main Coke business from negative publicity. The Coca-Cola Company primarily sells ready-to-drink beverages in cans or plastic bottles. And it has come under enormous pressure from <a href="https://edition.cnn.com/2017/04/10/europe/coca-cola-greenpeace-protest/index.html">activists</a> who are worried about the environment. </p>
<p>Arch-rival PepsiCo has only just announced a US$3.2 billion <a href="https://www.bloomberg.com/news/articles/2018-08-20/pepsico-to-buy-drink-machine-maker-sodastream-for-3-2-billion">acquisition</a> of Sodastream, whose chief executive Daniel Birnbaum <a href="https://www.campaignlive.co.uk/article/sodastream-ceo-plastic-bottles-will-cigarettes-generation/1439746">recently said</a>: </p>
<blockquote>
<p>Plastic bottles deserve the treatment of cigarettes. These bottles deserve to have warning labels on them. Single use bottled water should be illegal, and I believe there will be a time in our lifetime when it is. </p>
</blockquote>
<p>PepsiCo clearly wants to turn up the eco-friendly dial. Since Costa makes coffee on site, rather than ready-to-drink packaged coffee, Coca-Cola will enjoy this benefit too.</p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/why-pepsico-is-splashing-out-us-3-2-billion-on-sodastream-101929">Why PepsiCo is splashing out US$3.2 billion on SodaStream</a>
</strong>
</em>
</p>
<hr>
<p>Then there is sugar. Soft-drink manufacturers have come under mounting pressure from governments and campaigners for the amount of sugar in their products. <a href="https://www.verdict.co.uk/sugar-taxes-changed-countries-around-world/">Some countries</a> have introduced a tax on sugar. While it’s common to drink coffee with sugar, coffee is not in the firing line in the same way as fizzy drinks are. </p>
<p>True, Coca-Cola may be buying itself a new headache with the ethical issues that come with coffee farming. But Costa <a href="https://www.pointfranchise.co.uk/news/costa-coffee-wins-most-ethical-brand-award-1571/">wins awards</a> for its coffee ethics, so Coca-Cola does not appear to be buying someone else’s problem. The deal also increases the company’s exposure to drinks businesses that rely on raw ingredients whose price can be volatile – whereas the production price of Coca-Cola is pretty stable, a drink that relies on coffee beans is somewhat less so. No doubt the board would argue that the pros outweigh the cons, however. </p>
<h2>Customer closeness</h2>
<p>With Costa comes a plethora of capabilities The Coca-Cola Company does not yet possess. Costa is a retail company. It’s in the service business. It sells to consumers directly. Nespresso, another product that sells direct to consumers, was unique at Nestlé, which otherwise sold only to resellers like retailers and wholesalers. The experience of going direct with Nespresso, and what they learned in doing so, <a href="https://www.marketingweek.com/2017/02/17/nestle-focuses-going-direct-consumers-ecommerce-sales-hit-5/">encouraged</a> Nestlé to sell other products to consumers online. </p>
<p>Coca-Cola has a well developed network of third-party bottlers that manages manufacture, sales and distribution of its beverages (full disclosure: I have educational links with one of them). So when it comes to increasing the links between The Coca-Cola Company and its ultimate consumers, arguably it could benefit even more than Nestlé. </p>
<p>In sum, the intent of the acquisition looks well founded – access to growth, diversification, broadening of product portfolio, environmental and health benefits. But what about that premium? </p>
<p>Quincey <a href="https://www.businesswire.com/news/home/20180830005927/en/Coca-Cola-Company-Acquire-Costa">says</a> the company can create opportunities to grow the Costa brand globally. This would take it beyond its core UK presence to potentially more than 30 other countries.</p>
<p>Costa’s business model is primarily to franchise its stores rather than to own them directly. This is a business model Coca-Cola is very familiar with as it does the same with its bottler network. Leveraging the potential for these two sets of third parties to work together – for example, selling a broad portfolio of Coca-Cola’s brands in Costa locations – might add some complexity. But if there’s enough profit to go around, all issues can be resolved.</p><img src="https://counter.theconversation.com/content/102524/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>John W Walsh has developed and delivered educational programmes for a third-party Coca-Cola bottler. The views here are entirely his own. </span></em></p>The growing loathing for the white stuff must keep soft drinks execs awake at night.John W Walsh, Professor of Marketing, International Institute for Management Development (IMD)Licensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1019292018-08-22T12:57:10Z2018-08-22T12:57:10ZWhy PepsiCo is splashing out US$3.2 billion on SodaStream<figure><img src="https://images.theconversation.com/files/233082/original/file-20180822-149469-8jhwt1.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">
</span> <span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/background-cola-ice-bubbles-163528064?src=KODhy54GFDiPaK50Sr7axQ-1-21">Shutterstock</a></span></figcaption></figure><p>PepsiCo announced it would acquire SodaStream for <a href="https://techcrunch.com/2018/08/20/pepsi-is-buying-sodastream/">US$3.2 billion</a>, a 10% premium on SodaStream’s stock price and a 100% increase since the beginning of 2018. </p>
<p>On the surface, it could be that a large, diversified food and beverage company like PepsiCo is simply looking to go even further by expanding into related, but new markets. After all, PepsiCo is more than 100 times the size of SodaStream. As well as owning drinks like Pepsi-Cola and Gatorade, it includes Lay’s, Walkers and Doritos crisps. </p>
<p>But we believe this acquisition is much more than that. It is a bold statement by outgoing PepsiCo CEO Indra Nooyi regarding her legacy and what she wants the future of PepsiCo to be – more socially minded, with a greater emphasis on sustainability.</p>
<h2>SodaStream’s value</h2>
<p>SodaStream, headquartered in Israel, is no ordinary company. Under the leadership of Daniel Birnbaum, CEO since 2007, it has succeeded in operating by its stated values and challenging the status quo of the drinks industry.</p>
<p>Birnbaum has remained steadfast in his commitment to creating economic value through social values, not in spite of them. In many SodaStream initiatives over the past decade, he has championed the Judaic concept of <em>tikkun olam</em> (“repairing the world”), which entreats individuals to promote the welfare of society as a whole, and he has <a href="https://www.youtube.com/watch?v=KDdH_7GjW40">instilled this attitude in his employees</a>. </p>
<p>SodaStream took on soft drinks industry behemoths Coca-Cola and Pepsi, emphasising convenience, health <a href="https://www.prnewswire.com/news-releases/sodastream-wins-2017-business-intelligence-group-sustainability-award-300544035.html">and environmental sustainability</a>. By providing people with the tools to make their own carbonated drinks, it encourages them to drink sparkling water in reusable bottles.</p>
<p>Birnbaum <a href="https://www.news.com.au/finance/business/manufacturing/its-propaganda-its-hate-sodastream-chief-accuses-boycotters-of-antisemitism/news-story/b21da26c77132ee92b966963d64217f7">challenged activists</a> within the Boycott, Divestment and Sanctions Movement, who maintained that SodaStream’s factory in the occupied West Bank, where Arab and Jewish employees worked side by side, perpetuated Israel’s oppression of the Palestinian people. He also fought Israeli Prime Minister Benjamin Netanyahu to grant Arab workers permits when the company <a href="https://www.bloomberg.com/news/features/2017-12-20/how-sodastream-makes-and-markets-peace">moved to a new plant in Israel</a>. </p>
<p>Birnbaum has led SodaStream with the conviction that focusing on societal values will create long-term economic and financial value. Given that SodaStream’s stock traded at US$11.40 in August 2015 and this acquisition values SodaStream at over US$140 per share, it seems that his conviction has paid off. </p>
<h2>A more sustainable future</h2>
<p>While SodaStream’s DNA has been shaped by its commitment to societal impact, PepsiCo was better known for sugary beverages and salty snacks – neither of which are very healthy and connected with a growing global obesity epidemic and mass farming practices that by their very nature cause environmental damage.</p>
<p>This is something PepsiCo CEO Nooyi recognised and <a href="https://www.fastcompany.com/3066378/how-pepsico-ceo-indra-nooyi-is-steering-the-company-tow">since she became CEO</a> in 2006 she has prioritised more sustainable strategies over the long term – economically, socially and environmentally. Under her leadership, PepsiCo has acquired several healthier food companies, including Sabra Hummus, Naked Juice <a href="https://www.fool.com/investing/2018/06/01/pepsico-continues-its-push-into-healthy-snacks.aspx">and healthy snacks brand Bare</a>. It has also redesigned its production and supply chain activities <a href="http://www.pepsico.com/sustainability/sustainable-sourcing">to become more green</a>. </p>
<figure class="align-right ">
<img alt="" src="https://images.theconversation.com/files/233086/original/file-20180822-149466-m7zv5y.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=237&fit=clip" srcset="https://images.theconversation.com/files/233086/original/file-20180822-149466-m7zv5y.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=900&fit=crop&dpr=1 600w, https://images.theconversation.com/files/233086/original/file-20180822-149466-m7zv5y.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=900&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/233086/original/file-20180822-149466-m7zv5y.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=900&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/233086/original/file-20180822-149466-m7zv5y.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=1131&fit=crop&dpr=1 754w, https://images.theconversation.com/files/233086/original/file-20180822-149466-m7zv5y.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=1131&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/233086/original/file-20180822-149466-m7zv5y.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=1131&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Socially conscious Indra Nooyi.</span>
<span class="attribution"><a class="source" href="https://www.flickr.com/photos/maysbusinessschool/5170476032/in/photolist-8SU3ou-8SQXfv-Zg8F93-byhidA-8SU3hw-8SU3iA-8SU3ho-8SQXeZ-Zg8FwY-Z1BjKQ-8SQXkp-8SQXkz-YVMLUU-ZjYuuW-4LTx1c-Z1BmnY-ZjYwDW-8SQXmR-YjE9sJ-CigfFS-FCP6U1-ZmquTQ-ZjF5w4-CigxaU-26ZXeNk-YG6LuV-27h9tGo-Z1BtkW-Z1AWL9-Z1vUjL-Zj3Yra-YjybJ9-Cigo6b-Zmvvfw-YjEgjj-Zk52SA-ZenTQQ-Z1BdZ1-Yo8dnV-Yo8ske-Yd6HU5-ZmqggQ-ZpkrXR-ZhJF8V-YjxJ5C-YjDFv7-ZpkNFV-Z1vQqo-Zf1Q7U-YU2hG5">Mays Business School / flickr</a>, <a class="license" href="http://creativecommons.org/licenses/by-nc-nd/4.0/">CC BY-NC-ND</a></span>
</figcaption>
</figure>
<p>This latest investment shows PepsiCo’s continued commitment in this direction. Although Nooyi is retiring in October, incoming CEO Ramon Laguarta is the face of the acquisition, committing to SodaStream’s operations and employees. Just as Birnbaum has championed his values to create economic value at SodaStream, Nooyi and Laguarta believe the same can be done at PepsiCo – even if it is a much slower process.</p>
<h2>Culture change</h2>
<p>Because changing a company’s culture is so difficult, there’s no obvious way to do it. One approach is to use acquisitions. For example, in 2000, Unilever acquired social impact pioneer Ben & Jerry’s <a href="https://www.bbc.co.uk/news/business-18167345">for over US$300m</a>. In 2007, Clorox bought natural care company Burt’s Bees <a href="https://www.theguardian.com/sustainable-business/burts-bees-clorox-sustainable-change">for almost US$1 billion</a>. In both cases, the much larger acquirers made it clear that they were buying both the operations and the social values, to learn from the values and leverage them in their other operations. </p>
<p>In the strategy and acquisitions realm, this is known as David influencing Goliath. Few large companies have embedded sustainability and social impact into their operations, investments and values <a href="https://foodinstitute.com/blog/sustainability-name-game-unilever">more effectively than Unilever</a> has in the 18 years since it bought Ben & Jerry’s. And PepsiCo’s acquisition of SodaStream is an investment towards decision-making based on social and economic impact. </p>
<p>Over the long term, with investments like this and with enough nudging and support, corporate cultures can change. Leaders like Paul Polman at Unilever, Nooyi at PepsiCo and Birnbaum at SodaStream have demonstrated that it’s possible for corporate cultures to adapt and evolve, letting investments with a social impact drive economic success. </p>
<p>Of course, it’s too early to tell whether PepsiCo’s decision to buy SodaStream will pay off. But it’s easy to see why the company is making this acquisition and it’s easy to see the significant intangible value it could have for PepsiCo.</p><img src="https://counter.theconversation.com/content/101929/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>The authors do not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and have disclosed no relevant affiliations beyond their academic appointment.</span></em></p>It’s a bold move from outgoing Pepsico CEO Indra Nooyi.Shlomo Ben-Hur, Professor of Leadership and Organisational Behaviour, International Institute for Management Development (IMD)Brian Bolton, Associate Director, Global Board Centre, International Institute for Management Development (IMD)Licensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/849672017-10-17T22:02:17Z2017-10-17T22:02:17ZEnabling innovation: Lessons from Crystal Pepsi<figure><img src="https://images.theconversation.com/files/190044/original/file-20171012-31422-smf49y.jpg?ixlib=rb-1.1.0&rect=0%2C9%2C1022%2C706&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Crystal Pepsi, seen here on sale recently as part of a nostalgia campaign, was considered one of Pepsi's epic fails. </span> <span class="attribution"><span class="source">(Creative Commons)</span></span></figcaption></figure><p>We tend to think that innovation is driven by new discoveries or advances in technology. Yet the problem with new products is often not an engineering challenge, but a psychological one. </p>
<p>In fact, it seems to be much easier to develop a new product than it is to find people who are willing to buy it. In the consumer packaged-goods business alone, approximately 33,000 new products are introduced every month (<a href="http://www.mintel.com/global-new-products-database">Mintel Global New Products Database</a>). Too many of them fail.</p>
<p>Crystal Pepsi is a classic example. </p>
<p>Almost 25 years ago, Pepsi introduced a new clear cola, believing it would quickly <a href="https://www.wsj.com/articles/crystal-pepsi-is-returning-to-store-shelves-1467226242">grow to be a billion-dollar brand</a>. They named it Crystal Pepsi because it was bottled without the dye that gives standard Pepsi its caramel hue. </p>
<p>The new product was launched in 1993 with a Super Bowl commercial claiming: “You’ve never seen a taste like this,” accompanied by Van Halen’s hit song <em>Right Now.</em></p>
<figure>
<iframe width="440" height="260" src="https://www.youtube.com/embed/KPvyq_KmXhc?wmode=transparent&start=0" frameborder="0" allowfullscreen=""></iframe>
</figure>
<p>Unfortunately for Pepsi, consumers weren’t buying it — not “right now,” not weeks or months later. By 1995, the product was discontinued. </p>
<p>In hindsight, pundits have argued that Crystal Pepsi failed, in large part, because <a href="https://www.fastcompany.com/1805208/what-were-they-thinking-when-fizz-went-flat-crystal-pepsi">no explanation was given</a> for its atypical colour. The company didn’t help consumers make sense of the new product and, in turn, consumers rejected it.</p>
<h2>Too weird?</h2>
<p>Stories like this are surprisingly common. </p>
<p>Although innovation is critical to economic growth and societal progress, novel products too rarely succeed. Even a single atypical feature is often enough for consumers to reject something as too weird. </p>
<p>There have been countless examples of such failures, ranging from Orbitz soda to Ford’s Edsel. </p>
<p>Orbitz soda didn’t catch on because consumers felt uncomfortable drinking a beverage with colourful edible candy balls inside the bottle —it looked like a lava lamp. </p>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/190043/original/file-20171012-31418-13hop2l.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/190043/original/file-20171012-31418-13hop2l.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=354&fit=crop&dpr=1 600w, https://images.theconversation.com/files/190043/original/file-20171012-31418-13hop2l.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=354&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/190043/original/file-20171012-31418-13hop2l.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=354&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/190043/original/file-20171012-31418-13hop2l.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=445&fit=crop&dpr=1 754w, https://images.theconversation.com/files/190043/original/file-20171012-31418-13hop2l.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=445&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/190043/original/file-20171012-31418-13hop2l.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=445&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Mmmm. Globules in a soft drink!</span>
<span class="attribution"><span class="source">(Handout)</span></span>
</figcaption>
</figure>
<p>The Edsel was rejected by consumers because of its odd body styling and unusual push button start (sometimes what seems strange is just ahead of its time).</p>
<p>We tend to resist products that fall too far outside the familiar. As a result, even though companies are constantly innovating, people struggle to keep up with the many changes that innovation can bring. This is a challenge for innovators and entrepreneurs — one that can be met with a better understanding of the psychology that underlies our natural response to radical novelty.</p>
<h2>Why the resistance?</h2>
<p>In a series of recent studies, my co-authors — <a href="http://schulich.yorku.ca/faculty/theodore-j-noseworthy/">Theodore Noseworthy</a> and <a href="https://www.uwinnipeg.ca/business/faculty/fabrizio-di-muro.html">Fabrizio Di Muro</a> — and I investigated why this happens.</p>
<p>At the risk of oversimplification, we found that consumers tend to be curious when products are different from what they expect. However, when the new product is extremely incongruent with what consumers think is typical of the category, it creates anxiety. </p>
<p>Consider, for example, replacing your current coffee with one that has vitamins added. That idea makes most people a little uncomfortable. In our research, we didn’t just ask people how they felt, we evaluated their reactions by measuring their pulse rate and skin conductance response (small changes in the amount of secretion from sweat glands).</p>
<p>The bottom line? They weren’t happy. <a href="http://www.kylemurray.com/papers/NDM-JCR14.pdf">People get anxious</a> when products are too radically atypical.</p>
<p>That led us to test an idea we had about how to improve consumer response to extremely incongruent new products. In a series of laboratory and field studies, we demonstrated that companies <a href="http://kylemurray.com/assets/noseworthy-murray-dimuro-jcr-2018.pdf">could use “enablers”</a> to make new product designs seem less radical.</p>
<p>In our research, an enabler was a product feature that helped consumers make sense of another, otherwise extreme, feature. For example, we found that people were more willing to accept vitamin-enriched coffee that was coloured green. </p>
<h2>Making products seem less radical</h2>
<p>That might be surprising, because neither vitamin-enriched nor green coffee sound particularly appealing. But when they are combined, the colour green helps people make sense of the vitamins. </p>
<p>Basically, people tell themselves that this is a different coffee subtype. It doesn’t replace or maybe even directly compare to regular coffee; it is a category of its own, related to regular coffee but also quite distinct. As a result, people felt less anxious about the new product.</p>
<p>We looked at other incongruent products, but my favourite study revisited the classic case of Crystal Pepsi. </p>
<p>To do so, we set up a taste-test booth at the entrance to a busy mall just after a very limited re-release of Crystal Pepsi (which, it turns out, almost no one knew about). </p>
<p>We told our taste testers that this was a new cola; we didn’t want any bias to be introduced by the Pepsi brand. And we examined what people thought about the regular cola (caramel-coloured Pepsi) versus the clear cola (Crystal Pepsi).</p>
<p>Consistent with Crystal Pepsi’s original market failure, people didn’t like the clear cola. But when we added an “enabler,” things changed. Specifically, when we enabled understanding of the clear colour by telling people this cola was made with natural spring water, they liked it a whole lot more. </p>
<h2>Spring water a game-changer</h2>
<p>In fact, in that experimental situation, they liked the clear cola as much as the regular one. Telling people that regular cola was made with natural spring water had no effect, but for the clear cola, adding that natural spring water detail made it easier for them to make sense of the colour.</p>
<p>Many new products have features that change the look and feel of a beloved product in ways that may appear extremely odd. As a result, these offerings often fail to find a foothold with consumers. </p>
<p>For example, Renova <a href="https://www.myrenova.com/c/1/colors">sells toilet paper in colours</a> like black, brown and purple, which people tend to find unappealing. One of the largest milk producers in the United Kingdom recently announced that it is going to start making <a href="http://www.telegraph.co.uk/news/2017/09/23/fizzy-milk-could-hit-supermarket-shelves-boost-milk-sales/">sparkling milk</a>. Prior attempts at similar beverages have failed, as consumers tend to dislike carbonated milk.</p>
<p>Our findings reveal how minor design or promotional changes can significantly improve evaluations when it helps consumers make sense of otherwise unappealing innovations. </p>
<p>That’s not to say that we could turn Crystal Pepsi into a billion-dollar brand, but we have certainly found a way to make what seems like an extremely weird product much more attractive to consumers.</p><img src="https://counter.theconversation.com/content/84967/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Kyle Murray receives funding from SSHRC insight grant #435-2015-0100. </span></em></p>It can be much easier to develop a new product than to actually get people to try it, even for big established brands. Where did launches for products like Crystal Pepsi go wrong?Kyle Murray, Professor of Marketing, University of AlbertaLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/750332017-04-03T14:47:50Z2017-04-03T14:47:50ZGoogle’s YouTube battle with big brands could shake up how content is shared<figure><img src="https://images.theconversation.com/files/163640/original/image-20170403-21938-1c52o4k.jpg?ixlib=rb-1.1.0&rect=3%2C0%2C1000%2C613&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">
</span> <span class="attribution"><a class="source" href="https://www.flickr.com/photos/burningmax/2096518838/in/photolist-4cgd1w-9CYEG6-68GHaL-dDuW4C-9shrxM-uBUKwq-ohAYe7-4nWKDi-8s6j1B-dX4wFM-7cymcP-nnEpB-sDRDww-dgZu6y-adaghs-7z3Z8i-deN843-p3Zh9E-7cAKFm-f2qxd-a6xLt-aNtKKt-7mmtWg-oXAjCs-2EyvES-wYXg9-emp7wE-wYXbh-2bCsZi-dgZu4K-53n3x4-7vsL1G-8tsBYc-cYbxaj-wYWZX-6gNoYT-9JqKhB-8s9nsd-7cyJBL-9VtUmi-7cuCkc-e1yuBz-7cy19t-dX4sAR-bF4WiT-fko77Y-7cA4tu-7cA55C-5rSZk-qAYCK1">burningmax/Flickr</a>, <a class="license" href="http://creativecommons.org/licenses/by/4.0/">CC BY</a></span></figcaption></figure><p>Leading brands are boycotting advertising services on Google’s YouTube after their ads were placed alongside content they deemed inappropriate and – even worse – were charged for the privilege. The long list includes household names such as Starbucks, Pepsi, Walmart, Tesco, the BBC and <a href="https://www.theguardian.com/technology/2017/mar/19/google-braces-for-questions-as-more-big-name-firms-pull-adverts?CMP=share_btn_tw">the UK government</a>. Some have even suggested that they may have inadvertently sponsored extremist and hateful groups to the tune of more than <a href="https://www.theguardian.com/technology/2017/mar/17/extremists-ads-uk-brands-google-wagdi-ghoneim?CMP=share_btn_tw">£250,000</a>.</p>
<p>To understand how, it’s helpful to recall how Google services such as YouTube work. When we watch a video clip we may see ads and we often skip them. But for Google the ad is the important thing – <a href="https://www.theguardian.com/technology/2015/aug/10/google-alphabet-parent-company">something like 90% of its revenue</a> comes from selling ads. When an ad is placed around a YouTube video, Google charges the advertiser and shares some of the revenue with the user who posted the video. Vloggers such as <a href="http://www.cosmopolitan.com/uk/entertainment/news/a41923/beauty-vlogger-zoella-earns-thousands-a-month/">Zoella</a> make a pretty penny from this. Google’s targeting technologies can allow advertisers to place their ads around specific types of videos or present them to specific groups of viewers.</p>
<p>So what’s the problem? Surely it is acceptable for brands to choose which content they sponsor? Isn’t this what happens on traditional media? Given that brands can target their ads already perhaps something else is going on.</p>
<h2>Over the firewall</h2>
<p>Brands certainly have the right to demand which content their ads appear alongside. On traditional media, a brand might not want its ads placed alongside a report about a terror campaign, for example. But it is not considered acceptable for them to say that the newspaper shouldn’t report such events at all. To get around this, traditional media companies separate news and information operations from advertising operations.</p>
<p>The problem with services like Google and other social media platforms is that such organisational firewalls <a href="http://triple-c.at/index.php/tripleC/article/viewArticle/255">don’t exist</a>. As a result, there are potential hidden biases that can come about when advertisers insist that content matches their “<a href="https://www.theguardian.com/technology/2017/mar/24/walmart-starbucks-pepsi-pull-ads-google-youtube?CMP=share_btn_tw">company values</a>”. Ironically enough, this problem is spelled out pretty well <a href="http://infolab.stanford.edu/%7Ebackrub/google.html">in a 1998 paper</a> by Google’s founders <a href="https://en.wikipedia.org/wiki/Sergey_Brin">Sergey Brin</a> and <a href="https://en.wikipedia.org/wiki/Larry_Page">Larry Page</a>. </p>
<p>They wrote that the “goals of the advertising business model do not always correspond to providing quality search to users”. The example they cited from a prototype version of Google saw a search for mobile phones pull up a study which went into detail about the risks of speaking on a phone while driving. They concluded that a search engine company which was taking money for mobile phone ads would struggle to justify that kind of search result to paying advertisers. Brin and Page concluded that:</p>
<blockquote>
<p>Advertising funded search engines will be inherently biased towards the advertisers and away from the needs of the consumers.</p>
</blockquote>
<p>That belief underpins why Google search separates out advertising sponsored links from organic search results. On YouTube, however, responsibility for the content of videos and the placement of ads is delegated onto viewers, users and brands through its <a href="https://www.youtube.com/static?gl=GB&template=terms">terms of service</a> and <a href="https://support.google.com/youtube/answer/6162278?hl=en-GB">advertising policies</a>. </p>
<figure>
<iframe width="440" height="260" src="https://www.youtube.com/embed/BNHR6IQJGZs?wmode=transparent&start=0" frameborder="0" allowfullscreen=""></iframe>
</figure>
<p>Indeed, from my analysis of 45 published cases by the UK’s <a href="http://www.asa.org.uk">Advertising Standards Authority</a> that involved YouTube, there were 44 in which YouTube responded that users, viewers and brands were responsible for the ads people saw on the service – not them. In just a single case, did YouTube accept that an ad should be taken down following a complaint to the ASA.</p>
<p>So, <a href="http://adage.com/article/digital/wins-loses-youtube-s-falling-brands/308450/?utm_campaign=SocialFlow&utm_source=Twitter&utm_medium=Social">one way</a> of looking at the current boycott is that’s it’s a case of brands pushing responsibility for content and placement back onto Google/YouTube who, up to now, have been very successful in passing this responsibility onto brands and user. </p>
<h2>Weeding</h2>
<p>There is another way of looking at it, and that is as an indirect way for brands to claim more power over the type of content that people can share online. If Google has to “weed out extremist views” (as politicians such as <a href="https://www.theguardian.com/technology/2017/mar/20/google-ads-extremist-content-matt-brittin?CMP=share_btn_tw">Yvette Cooper</a> have requested), it has to define what is extremist.</p>
<p>The problem here is that Google’s approach to consulting with other institutions about how it operates <a href="http://deadline.com/2015/08/google-david-garrett-film-piracy-you-tube-edinburgh-1201509204/">is often spiky</a> – as their engagement with the ASA illustrates. If they only listen to what brands want, it leaves them very susceptible to the types of insidious biases that Brin and Page spoke about in their 1998 paper: see its definition of “<a href="https://support.google.com/youtube/answer/6162278?hl=en-GB">advertiser-friendly content</a>”. Might they start to direct viewers towards advertising-friendly content? They could, for example, push other content down their search results and recommended video lists. </p>
<p>So what does Google do next in the stand off with the big brands? Chief Business Officer <a href="https://www.bloomberg.com/news/articles/2017-04-03/google-updates-ads-polices-again-ramps-up-ai-to-curtail-youtube-crisis">Philip Schindler told Bloomberg</a> that the firm has improved its ability to flag offending videos and immediately disable ads. He also revealed that giant health products firm, Johnson & Johnson, has rolled back its boycott in some major markets. More broadly though, the solution is for Google to be far more transparent and engaged in the societies in which it operates. It needs to respond to brands and consumers but other social institutions as well. We all have to decide what is acceptable, not an algorithm, brands, politicians or individual YouTube viewers.</p><img src="https://counter.theconversation.com/content/75033/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Robert Cluley does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>The search engine’s founders saw this one coming 20 years ago. So how should they react now?Robert Cluley, Assistant Professor in Marketing, University of NottinghamLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/553312016-03-23T11:12:34Z2016-03-23T11:12:34ZDesigners are seizing Wall Street – but can they improve your life?<figure><img src="https://images.theconversation.com/files/115325/original/image-20160316-30247-1idifj.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Much mightier than any sword</span> <span class="attribution"><a class="source" href="http://www.shutterstock.com/cat.mhtml?lang=en&language=en&ref_site=photo&search_source=search_form&version=llv1&anyorall=all&safesearch=1&use_local_boost=1&autocomplete_id=&search_tracking_id=OmwFcCe1ZicL1NYIQSRfGw&searchterm=pencil%20weapon&show_color_wheel=1&orient=&commercial_ok=&media_type=images&search_cat=&searchtermx=&photographer_name=&people_gender=&people_age=&people_ethnicity=&people_number=&color=&page=1&inline=264283169">vexworldwide</a></span></figcaption></figure><p>From unreasonably cool open-plan offices in San Francisco and New York, they are orchestrating an international business revolution. Casually dressed and armed with MacBooks, a new generation of design executives have emerged from their studios to cross into the corporate mainstream. They are aiming to undercut, outperform and ultimately overthrow incumbents across the business world. And they want to improve your life.</p>
<p>An <a href="http://www.designdisruptors.com">upcoming documentary</a>, Design Disruptors: How Design Became the New Language of Business, promises to tell the story of how designers were integral to the success of new-media giants like Google, Facebook, Pinterest, Dropbox, Airbnb, Netflix and Twitter. In recent years, they have also become the darlings of the wider business elite. With executive titles like “vice president, design” “VP of product” and “director of design”, their brief has been to integrate design philosophy into the biggest multinationals from the boardroom down. Such is their confidence that many believe there is nothing their designs cannot fix. But, as we will see, there is a lot they have to prove first. </p>
<p>The rise of these designers is a tale of two buzzphrases – “design thinking” and “disruptive innovation”. Disruptive innovation is a <a href="http://www.claytonchristensen.com/key-concepts/">concept from</a> Harvard Business School, characterising small businesses that often begin in obscure corners of markets. They don’t initially appear a threat, but begin to offer more mainstream services which are better and cheaper than those offered by incumbents. By the time the incumbents respond, often by mimicking the innovation, the disruptors have already taken over.</p>
<p>Design thinking, meanwhile, is the idea that non-designers can learn to think more creatively using methods based on how designers work – rapidly and repeatedly prototyping ideas and celebrating and embracing failures. A few years ago this began to be adopted by start-ups in Silicon Valley. According to the documentary, the key to their runaway success was combining this philosophy with disruptive innovation, plus the secret ingredient of excellent designs that focused on the experience of the user. </p>
<p>Take Airbnb, which disrupted the holiday-lettings industry by providing a cheaper service that was more enjoyable for users. Founded by two designers, the company has always had design thinking at its core. The success of the website and app is in small design details which allow sceptical travellers to see strangers not as risks but as welcoming hosts. Subtle hints like the size of text boxes for communications between users and prospective hosts encourage messages with just the right level of detail that come across as friendly rather than secretive or over-familiar. This is not simply web design: <a href="http://www.ted.com/talks/joe_gebbia_how_airbnb_designs_for_trust">this is</a> design for human relationships.</p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/115331/original/image-20160316-30247-sekntg.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/115331/original/image-20160316-30247-sekntg.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/115331/original/image-20160316-30247-sekntg.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/115331/original/image-20160316-30247-sekntg.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/115331/original/image-20160316-30247-sekntg.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/115331/original/image-20160316-30247-sekntg.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/115331/original/image-20160316-30247-sekntg.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/115331/original/image-20160316-30247-sekntg.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Duly disrupted.</span>
<span class="attribution"><a class="source" href="http://www.shutterstock.com/cat.mhtml?lang=en&language=en&ref_site=photo&search_source=search_form&version=llv1&anyorall=all&safesearch=1&use_local_boost=1&autocomplete_id=&search_tracking_id=oCfG7GDEOcMKKCoxPRYYBA&searchterm=airbnb&show_color_wheel=1&orient=&commercial_ok=&media_type=images&search_cat=&searchtermx=&photographer_name=&people_gender=&people_age=&people_ethnicity=&people_number=&color=&page=1&inline=387129184">AmsStudio</a></span>
</figcaption>
</figure>
<p>Many other big businesses watched these successes with great interest. They started buying into the idea that any individual or organisation that learns to think like designers can transform not only their products and services but also their processes, corporate strategies and underlying institutional structures. Through design thinking, went the argument, they would become more creative and more able to become disruptive innovators themselves. </p>
<p>Whether design thinking actually lives up to these promises is contentious, but many heavyweight corporations have been turning themselves into “design-led businesses” with integrated “design cultures” – often backed by serious investment. IBM is a good example. Under Phil Gilbert, the head of design, it has opened a string of design studios worldwide in the past three years. It hired over 1,100 designers and <a href="http://www.nytimes.com/2015/11/15/business/ibms-design-centered-strategy-to-set-free-the-squares.html?_r=1">aims to reach 1,500</a>. Apple’s success is often attributed to Steve Jobs’ belief in the power of design and trust in lead designer <a href="http://www.fastcodesign.com/3042524/fast-feed/22-things-you-need-to-know-about-apples-jony-ive">Jonathan Ive</a>. But recently, less obviously design-oriented businesses such as 3M, Philips, Pepsico, Barclays and Johnson & Johnson have all hired a “chief design officer” too. Where once design was just a service that provided style and functionality to products, now it is a core business value. </p>
<h2>Bow down?</h2>
<p>Design at its best can significantly improve how we interact with the world. When the Design Disruptors film goes live in the coming weeks, it should be commended if it brings this story of the positive impact of design to a broader public. Yet there is a danger in getting slightly carried away, like some of the design executives towards the end of the <a href="http://www.designdisruptors.com">trailer</a>. </p>
<figure>
<iframe width="440" height="260" src="https://www.youtube.com/embed/W4AViRgrgkU?wmode=transparent&start=0" frameborder="0" allowfullscreen=""></iframe>
</figure>
<p>As music swells to an uplifting crescendo, Braden Kowitz, design partner at Google Ventures, states:</p>
<blockquote>
<p>The questions now aren’t, can we build it? Cause more and more the answer’s yes, we can build anything. The question is, what is the future that we want to build together? For me that’s the power of design.</p>
</blockquote>
<p>This is indeed a good question: if everything really is possible, what should designers do with this power? Companies like Google, Spotify and Airbnb certainly make our daily lives easier, more efficient and more pleasant by disruptively improving on old designs. But the list of problems facing human society is as long as ever. Injustice, poverty, prejudice, displacement, corruption, conflict, fear, disease – take your pick. Why aren’t the design disruptors tackling some of these issues? </p>
<p>To give just one example of how disruptive design can make a truly meaningful impact, <a href="https://www.mfarm.co.ke">M-Farm</a> is a text-based service for farmers across Africa. It allows them to access accurate real-time information on market prices and weather; share and connect with previously inaccessible experts and the wider farming community; and sell their products at the best price. In an era where mobile-phone ownership has exploded in Africa, the service <a href="https://www.youtube.com/watch?v=K6RLvnLyZ9g">has been</a> very successful in helping farmers that were previously isolated and exploited. M-Farm has been designed to meet an important need, but it has had no significant input from high-flying designers.</p>
<p>Design should be about more than just making comfortable lives more comfortable. If this is a story of how designers won great power and ultimately squandered it, what a pity that would be. Utopian optimism from the likes of Kowitz is one thing, but actions speak louder than words. Design can make a difference in the world, but designers must choose what this difference will be.</p><img src="https://counter.theconversation.com/content/55331/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Peter Buwert does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>The generation of designers broke out of their studios and took the business world by storm. Their skills could also be turned to bigger world problems.Peter Buwert, Lecturer, Graphic Design, Edinburgh Napier UniversityLicensed as Creative Commons – attribution, no derivatives.