KIN Summit 2007 Innovation For Marketplace Success Albert Manzone President, PepsiCo Shelf Stable Juices PepsiCo, Inc June 18-19, 2007 Innovation Has Been Critical To Meet PepsiCo Growth Target 2004-2007E ~40% of growth 061807_KIN Summit_Legal Approved Copy 2 Up To Today, We Have Been Able To Figure Out The World Around Us Innovation a relatively “simple” competitive advantage… …Relying on a “repeatable” formula that values scale, reach and speed Fast follower is enough to win Narrower portfolio and competitive pressure mostly Coke Space not a constraint 061807_KIN Summit_Legal Approved Copy 3 We Know What Works Innovation Success Formula Compelling Consumer Proposition • Deep insights • Differentiated proposition • Product and packaging fulfill consumer need Impactful Marketing • Relevant messaging and activation • Sufficient and sustained support Aligned Operating Envelope • Leverages current assets • Serve national footprint Sustained Execution • Distribution targets achieved • Right placement • Right level of instore inventory • Ongoing support Right Expectations • Clarity on innovation role Structural and Cultural Enablers 1. Risk tolerance and patience 2. Pace of innovation 3. Algorithm expectation 061807_KIN Summit_Legal Approved Copy 4 Compelling Consumer Proposition Impactful Marketing Aligned Operating Envelope Sustained Execution Right Expectations 061807_KIN Summit_Legal Approved Copy 5 The World Around Us Is Changing Consumers more savvy, sophisticated, and demand fragmenting Categories blurring Emboldened Pure Plays are true innovation leaders Stronger, more demanding customers Broader portfolio to support Space bottlenecks 061807_KIN Summit_Legal Approved Copy 6 Space Bottlenecks Have Increased Dramatically 5 Years Ago 225 Today 375 Grocery 30,000 SKUs 061807_KIN Summit_Legal Approved Copy 7 New Realities Are Challenging Our Innovation Compelling Consumer Proposition • Rushed to market • No advantage versus competition Factors Contributing To Innovation Misses Impactful Marketing • Limited launch A&M and not sustained Aligned Operating Envelope • Late alignment with conflicting messages to the system Sustained Execution • Distribution targets not achieved • Support window only • Giving up in less than 1 year Right Expectations • Push/pull unbalanced • False optimism Structural and Cultural Enablers 1. Low risk tolerance and lack of patience 2. Amount of innovation beyond sales / system capacity to execute 3. Algorithm constraints 061807_KIN Summit_Legal Approved Copy 8 In This New Environment, Innovation Has To Achieve A Better Balancing Act Fuel the Core Mostly Scale, Some Niche Expand Out Mostly Niche Initially, With Intent To Scale Internal Development / Organic External Development / M&A 061807_KIN Summit_Legal Approved Copy 9 And We Need To Find New Ways To “Expand Out” “Fuel The Core” “EXPAND OUT” M&A Fast Follower Greenfield $$$ • Few available • Scale vs. timing • Sky-high valuation • When can leverage existing assets or competitive advantage • Create future advantaged growth in emerging categories • Does not address blurring/ fragmentation • Required when no competitive advantage in category • Challenging in image-driven categories • But more difficult and requiring more patience 061807_KIN Summit_Legal Approved Copy 10 Develop More Nimble Commercialization And Incubation Incubation approach GTM Option Partner with key Customers Prove it out in a region or a series of targeted markets Pre-seed in a specific channel where we have advantaged reach Warehouse/ Distributors DSD 061807_KIN Summit_Legal Approved Copy 11 Patience And Sustained Investment Culture MM cs (8 oz) 400 Aquafina 350 300 250 Gatorade 200 150 Propel Snapple Monster 100 Red Bull 50 Vitamin Water 0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 Years from launch 061807_KIN Summit_Legal Approved Copy 12 Case Study 061807_KIN Summit_Legal Approved Copy 13 Discovery: Provide Stimuli To Targeted Consumers For Their Interpretation Show. Don’t Tell 1) Anchor in a ‘backed-up’ proposition – Product: Delicious, Natural/GFY, Unique, Stylish Design – Company With a Conscience: Global Education Fund – Company With a story (entrepreneurial, Boulder) 14 15 Discovery 2, 3, 4: Provide Stimuli To Targeted Consumers For Their Interpretation Show. Don’t Tell Anchor in a ‘backed-up’ proposition – Product: Delicious, Natural/GFY, Unique – Company With a Conscience and a Story 2) Present a premium, impeccable appearance 3) At the right places… 2) High-profile events 3) Culture-driving locations 4) Hip, premium venues 5) Retail 4) In the right hands 2) Influencers and celebrities 3) Culturally creative, discerning adults 16 IMPECCABLE APPEARANCE: consistency in Field Force creative and presentation – always beautiful, premium 17 IMPECCABLE APPEARANCE: consistency in Field Force creative and presentation – always beautiful, premium 18 PREMIUM APPEARANCE: present the ‘art’ of IZZE 19 RIGHT PLACES. RIGHT WAY – Retail demos are key 20 INFLUENTIAL EVENTS & ASSOCIATIONS Victoria Secret Tribeca Film Festival After Parties Gibson Guitar Lounges Natural Food Trade Shows Celebrity Events Guess CoPromotion Event Spa Event 21 RIGHT HANDS: (celebs and influencers) 22 The Structure: PepsiCo’s Innovation Republic Separated structures within Corporate culture! Protected resources – people / funds Aspirational leader reporting to the top Outward orientation Great set of external partners Different type of matrix 061807_KIN Summit_Legal Approved Copy 23 CORPORATE, Chief Innovation Officer FRITO LAY NORTH AMERICA PEPSI COLA NORTH AMERICA Confederation of Decentralized "States" QUAKER TROPICANA GATORADE PEPSICO INTERNATIONAL 061807_KIN Summit_Legal Approved Copy 24 Dedicated Structures Innovation Marketing CMO Split: Chief Marketing Officer/Chief Innovation Officer Dedicated resources Top management oversight Chief Marketing Officer/Chief Innovation Officer Roundtable Quarterly forum for cross-divisional opportunities Share best practices Drive innovation agenda Aligned vision 061807_KIN Summit_Legal Approved Copy 25 Non-Traditional Executive Profile Not Only Marketers: Proven problem-solvers Strong analytical minds Leveraging of external resources & partners Cultural bilingualism – balanced brain Self-motivated / creators 061807_KIN Summit_Legal Approved Copy 26 Challenging Our Thinking With Best-In-Class Partners “The Dudes” New Best-In-Class Partners Developing breakthrough innovation with best-in-class partners that challenge our thinking • New capabilities • New mindset • New insights 061807_KIN Summit_Legal Approved Copy 27 Pushing The Innovation Envelope Different Set of Matrix Risk Return C B A New Benefits New Markets Complexity 061807_KIN Summit_Legal Approved Copy 28 Marketer Of The Future Historian Ethnographer Storyteller 061807_KIN Summit_Legal Approved Copy 29