The Financial Times
Retailers clash with Pepsi over free music
By Jonathan Birchall in New York
March 16 2008 22:03

Pepsi is at odds with some of its biggest US retail customers over a national marketing campaign offering free digital music downloads from online retailer Amazon



The deal represents Amazon’s biggest-ever marketing partnership with another brand, and is an important part of its efforts to drive traffic to the fledgling MP3 “DRM free” music download service it launched last year.

But the partnership has antagonised rival bricks-and-mortar retailers. Amazon’s media and electronics business competes directly with Wal-Mart and Target, the two largest mass retailers, while its rapidly growing grocery business competes with major supermarkets.

“You have to ask yourself why Pepsi would team up with a company that doesn’t sell its products, and risk antagonising all the people that do sell its products,” said a source at one retailer.

The programme was launched with a high-profile television ad featuring pop-star Justin Timberlake during February’s US Superbowl. But the promotion has received little attention in grocery aisles.

In an apparent response to retailers’ concerns, Amazon’s name has been banished from the front of Pepsi bottles carrying the promotion – rendering it invisible in supermarket aisles to passing shoppers.

Similarly, Amazon’s logo is on the back of cardboard multi-pack cartons of cans that are stacked on the shelves of mass discounters and supermarkets, next to the product’s bar code and nutritional information.

The treatment contrasts with a promotion between Pepsi and Apple’s iTunes, in which the iTunes name was carried prominently.

Jeff Smith, retail consultant at Accenture, argues the tensions reflect underlying challenges for Pepsi and other brands in adapting the traditional way they communicate with retailers to accomodate new digital selling and marketing channels.

“The thing they didn’t think about is that anyone selling Pepsi in the general merchandise or electronics business is going to feel that they were promoting a competitor,” he says.

Wal-Mart accounts for 18 per cent of North American sales of Pepsi’s parent PepsiCo, while about a third of PepsiCo’s North American sales come from just five retailers. The store has its own Mp3 download service.

Both Pepsi and Amazon declined to comment.

http://www.ft.com/cms/s/0/eba1f64e-...00779fd2ac.html

yay