The Pepsi Spire: PepsiCo’s Computerized Fountain Beverage Machine Provides a Lesson in the Factors that go into Product Development in a Competitive Environment

One of the different models of the Pepsi Spire pictured on the left and the Coke Freestyle pictured on the right

In the soda industry the first two names that will come to people’s minds are typically Coke and Pepsi. The two companies that represent these massive brands compete fiercely with each other within multiple segments of the soft drink industry. It’s not uncommon for one of them to follow the other when a successful product or product line extension has been launched with a comparable competing version of that item. In the case of futuristic fountain beverages PepsiCo is already about five years behind the Coca Cola Company and still in the process of testing and refining their equivalent in a few locations around the country.

An interesting article in AdAge provides readers with a sneak peek into the development of the Pepsi Spire; PepsiCo’s computerized soft drink vending machine that will be part vending machine and part entertainment console. Although the Spire has some catching up to do with the Coke Freestyle, it seems that Pepsi has learned a lot during the time that the Freestyle has been in the market and some of the lessons that have been learned are particularly interesting from a marketing management perspective.

Some of the differences between the two products include that the Pepsi Spire will offer 1,000 possible flavor combinations compared to the newest Freestyle, which offers 146. The Spire, like the Freestyle, will limit the options to only those that have been determined to yield combinations that consumers would find enjoyable. Another consideration in the design of the Spire includes the development of three different types of models to enable a wider range of businesses to be able to install the machine in their locations (for instance, a smaller model that can sit on a counter).  Additionally, the company is developing functionality in the product that will allow people to gift beverages to their friends and family.

While choice and interactivity are clearly elements valued by most people, they are increasingly important considerations for marketing to millenials. A past article in USA Today discusses the Freestyle from a few angles notes that some teens actually make the decision on which fast food restaurant to go on the basis of whether there is a Freestyle machine at that restaurant. Moe’s Southwest Grill, a popular chain with 540 locations (400 of which have Freestyle machines) indicates that the machine is boosting same store sales by about 4% to 6% annually with some of that growth being attributed to getting customers who in the past drank water to instead purchase a fountain beverage.

So for PepsiCo and the Coca Cola Company the reasons for investing in the technology can be seen in regards to building the business in the restaurant and entertainment space. It gets even more interesting when you think about the potential for the machines as a source of market research data that can be applied within the retail space. Of all the combinations that are carried within the Freestyle machine and will be carried within the Spire machine very few will represent products carried in bottle form.  However, since the machines are computerized they are able to collect massive volumes of data on the combinations that consumers choose.

Now let’s say you were to discover that 50% of consumption from one of these machines came from a combination that was only available through the machine. Wouldn’t you want to offer that combination at gas stations for instance when those same consumers go to get their cars filled up and stop into the gas station’s store for perhaps a beverage and a snack? The Coca Cola Company has already put the potential for data collection from these machines into play when they realized that Fanta Cherry, a product not sold in bottled form was highly popular amongst users of the Freestyle. The product was rolled this year in June. The potential to use these machines to better understand the tastes and preferences of consumers offer significant long term value for both of these companies and provide another reason why they have chosen to invest a significant amount of their resources in their development.

Clearly there are a number of benefits that can be provided by a digital fountain beverage machine for a soft drink company. From a marketing management perspective it is particularly interesting to consider what product development process entailed as well as the type of research and discussion that went into the initial decision to develop the product within both companies. With that in mind some questions to consider:

  • As one of the two major players within the soft drink industry would you rather be the first mover into the market with a Freestyle or Spire, or would you rather follow suit and learn from the first mover? What internal and external factors would you want to consider in making this decision?
  • How would you approach rolling out this product to restaurants and other businesses? Would you favor a more gradual approach or try to be as aggressive as possible in getting it into as many locations as possible? What risks are present with each approach?