The global alcoholic beverages industry was found to have produced around 183bn litres at the end of 2004, increasing steadily at approximately 2% annually since the end of the 20th century. The industry is segmented into the different types of alcoholic drinks, and also the several different brands offered by various industry players. Over the last couple of decades, a number of mergers and acquisitions across the industry, alongside strong marketing campaigns and powerful brand recognition, have seen the emergence of a handful of large firms who have dominated the core beverage markets of wine, beer and spirits. Companies such as Diageo and Constellation Brands have established themselves as global market leaders, and have developed key marketing strategies to achieve and retain market share. This paper focuses on the highly competitive spirits market, where the top 3 major competitors hold approximately 60% of market share (Diageo Investor Conference, 2010). We look specifically at Diageo, Pernod Ricard and Bacardi, and compare the similarities and differences in the firms’ approaches to product design, packaging and promotion which enable these producers to sustain competitiveness.
1. Industry and Market Trends
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Before attempting to tackle the individual marketing approaches of the top spirits producers, it is important to comprehend the recent trends in the industry which reflect the need for, and the shape of, the marketing strategies adopted by these firms.
Competition has always been high the key alcoholic beverage producers, but the last thirty years or so have seen wave upon wave of mergers, acquisitions and strategic alliances formed amongst international and local players which have intensified competition significantly (Zorova et al, 2010). Whilst previously this may have been driven by a need to diversify portfolios and widen geographical presences, the last decade or so has seen an increasing trend amongst these firms where they are aiming to shrink their portfolios to just a limited number of global brands, and apply similar marketing strategies throughout. Whatever the reasons behind it, the spirit industry today is characterised by high firm concentration:
Spirits Industry Analysis (2008)
Adapted from Impact Databank 2009 report
Recent years have also witnessed the so-called “premiumisation” of alcoholic beverages, whereby the rising number and greater purchasing power of the middle class in established, and particularly in emerging nations, tend to be willing to spend more money on luxury spirits in order to display their new status and wealth. Strong brands and reputations have built up customer perceptions of specific brands or variants as the top premium spirits of their category (vodka, gin) and buying Smirnoff vodka or Bombay Sapphire gin for example, is seen a reflection of the consumer’s prosperity (Novak, 2004).
Finally, the global recession undoubtedly had a significant impact on the on-trade spirit sales in pubs, bars and clubs in recent times. With fewer people venturing out for drinks and a greater selection of beverage options on the shop shelves, consumers have been encouraged to challenge traditional drinking habits and mannerisms creating a kind of blurring of national drinking cultures: vodka has come under increasing pressure in its cultural base of Russia, but is thriving in the US, India and Germany where it has mushroomed in popularity amongst the new generation of spirit consumers. (Gauder, 2008).
2. Marketing strategy
Marketing mix is an important concept in modern marketing and according to Kotler & Armstrong (2006), it is the set of controllable variables or tools that a firm blends together in order to achieve the response that it desires in the target market. Thus the marketing mix strategy consists of all possible activities the firm can undertake to influence the demand for its product, and establish strategic communication between the organisation and its customers (Proctor, 2000).
The key variables which comprise the marketing mix are known as the four “P”s of marketing (Kotler & Armstrong, (2004):
Product – The physical product or service offered to the customer that may also involve additional services or conveniences, includes marketing choices on how to adjust product characteristics such as packaging, brand, service and quality in order to suit the organisations objectives and cater for demand.
Pricing – The process of effectively setting a price for a specific product or service. It is often divided into two parts: price determination (based on relative prices of similar offerings) and price administration (fitting prices to sales situations such as geographic location or sales position of local distributors).
Placement – Decisions associated with distribution channels that make the product or service available to target consumers, including choosing between direct customer access or using middlemen and choosing the number and length of distribution channels.
Promotion –Strategies to communicate the values and benefits of a firm’s offerings and sell the product or service to targeted consumers. Decisions involved revolve around advertising, personal selling, media, customer relations and the budget.
The leading producers in this market have to experiment with and adapt their marketing strategies often to maintain competitiveness. For the purposes of this paper, we will look at the two aspects of product and promotion in more detail as they are imperative for this market.
Product policy and strategy are of utmost importance to spirits producers, firstly because they determine scope and direction of company activity (and key market indicators such as profits, market share and reputation are dependent on them), and secondly because they have a profound influence on other marketing mix elements such as advertising, selling, distribution and pricing, making product both a component and a determinant of the firm’s marketing strategy (Lazer, 1971).
2.1.1Core brands and design
Diageo has taken advantage of the brand-dominated nature of the global spirits market and invested heavily in mergers, acquisitions and alliances to develop a strong brand portfolio, particularly their so-called “Global Priority Brands”. Premium brands such as Smirnoff Vodka, Johnnie Walker, Captain Morgan’s Rum and Baileys Irish Cream Liqueur are marketed and positioned separately, and in 2009 contributed to 58% of total volume produced, bringing in over ?5000m to the company over the year. In fact Diageo’s top brands account for 8 of the top 20 premium spirits brands in the world. These leading brands are generally offered as standardised, premium products in all the company’s target geographical locations because their packaging and appearance are well recognised in many countries as representing high quality, reducing the need for adaptation and increasing economies of scale (Diageo website, 2011) .
Bacardi began as a single brand company, focused on positioning and selling its own brand of premium rum through independent companies servicing different regions across the globe. However, changing economic conditions meant reorganisation into a single independent entity, followed by a merger with Martini & Rossi and the acquisitions of Dewar, Bombay and most recently, Grey Goose. Bacardi today positions its products in the high-end segment of the market, and like Diageo, they depend on the strong brand recognition and perceived quality of their products to ensure sales (Bacardi website).
According to Bacardi, its portfolio consists of six core brands: Bacardi Rum, House of Dewar’s, Bombay & Bombay Sapphire Gin, Martini & Rossi and Cazadores tequila. These products are sold worldwide and are standardised both in terms of the beverage and in terms of the packaging. Bacardi’s success with these brands is attributed to their uniform approach to marketing regardless of where their target customers are. By standardising the packaging of their products across all regions, they have managed to imprint the product image, particularly the “bat” logo (Figure 1, Appendix), on consumer minds as well as achieving economies of scale alongside other efficiencies (Cisnal et al, 2006).
The trend of premiumisation is also consistent in Pernod Ricard’s strategy who see it as a value strategy based on raising brand status and creating more upmarket categories. Today, the company see their premium brands as a response to the consumer’s desire to “drink less, but drink better”. In essence, they understand that the rising middle and upper classes, particularly in emerging economies, are searching for brands that convey class and status. Their global icons Absolut and Chivas Regal are amongst the top ten spirits in the world, whilst their strategic spirits brands like Jameson, Beefeater and Malibu and are all major players in their respective categories (PR Press Kit, 2011).
However Pernod Ricard has invested considerably, perhaps more than Diageo and Bacardi, in developing and marketing both their high-end Prestige range of products, as well as a range of strategic local brands which often lead the markets they serve. The former includes internationally recognised, fine whiskeys like Glenlivet and Royal Salute, and also well-known champagne brands like Mumm and Perrier-Jouet. The latter is comprised of brands like Clan Cambell (France) and Montilla (Brazil) which are the leading brands of their category in their respective countries (Pernod Ricard website). Thus to a further extent than the other two producers discussed, Pernod, although standardising their strategic premium and global brands, have invested in diversifying their portfolio to offer a wider range of quality products, and in adapting their offering to provide specific brands to cater for certain countries or regions, many of which are market leaders.
Diageo pride themselves in being innovators and they use the strong brand reputation as a base, from which to develop their marketing, sales and supply functions, to best suit consumer trends and drinking habits. For example, Smirnoff vodka has been transformed into variants such as Smirnoff Black and Smirnoff Norsk, whilst Captain Morgan Rum has seen varieties such as Captain Morgan Parrot Bay and Captain Morgan Tattoo. Most of these variants were created to offer something new to existing customers and to attract the new generation of spirit drinkers, many of whom preferred flavoured or sweet varieties of their spirits (Diageo website). Furthermore, in response to the rising number of consumers drinking at home in recent times, Diageo has released a range of ready-to-serve cocktails (e.g. Smirnoff Cosmopolitan) and pre-mixed spirit and mixer beverages (e.g. Gordon’s Gin & Tonic), predominantly in North American and European markets. These innovations are increasing in popularity and in the first half of 2010, accounted for 10% of net sales (Diageo Investor Conference, 2010).
By far the best example of Diageo’s successful innovation however, was the launch of Smirnoff’s best-selling flavoured alcoholic beverage (FAB), Smirnoff Ice, in 1999. Smirnoff Ice created an entirely new market segment as a ready-to-drink (RTD) variant in the alcoholic beverage market, during its introduction at the end of the 20th century. By 2003, Smirnoff Ice had gone on to attain over a third of the UK FAB market, over 40% of the US market and along with its closest rival Barcardi breezer, a dominating 88.5% of the European market, serving Belgium, Greece and Scandinavia as some of their best customers (Band, 2007).
Like Diageo, Bacardi too has used their powerful reputation base to create variants on their core spirits such flavoured Bacardi rums, which has been increasingly popular amongst young consumers. However here again, one of the companies most successful innovations has been the FAB Bacardi Breezer, introduced during the flavour fad of the 1990s, which has grown to become an established leader in the RTD category alongside Smirnoff Ice, thanks to attracting young drinkers with its sugary taste, catchy name and colourful packaging (Cisnal et al, 2006).
Pernod Ricard’s commitment to innovation has been a key growth driver and helped to build brand equity. Besides building a portfolio of leading local brands, this commitment is reflected in recent examples such as the introduction of Chivas Regal 25 Year Old, an exclusive version which was positioned at the top end of the market, fetching approximately ?160-180 per bottle. This demonstrates Pernod’s focus on “premiumising” their products and associating their brand names with wealth and prestige, as this is a powerful lever for accelerating sales and profit growth in the long run (Pernod website, 2011).
Promotion is essentially the company’s strategy to cater for the market communication process whereby the sender (firm) uses the media (TV, magazines, radio) to communicate a message (advertisement, sales presentation) to the receiver (potential customer), in the hope of landing sales (Lazer, 1971). Alcohol advertising is subject to stringent WHO regulations in the majority of countries worldwide, due to well-established links between consumption-related injuries and fatalities, as well as more recent allegations towards the industry related to the targeting of young, underage consumers by advertising their sweet-tasting, carbonated “alco-pops”. Marketers therefore, have had to come up inventive means by which to advertise their products without any hint of promoting irresponsible, underage or over-consumption (IAS, 2010).
The firms under consideration in this paper are established global spirits producers and incorporate a many methods in promoting their products. Therefore we look at each of the firms’ approaches relative to two principal marketing tools in the global spirits market: promotion via sports and entertainment sponsorship, and direct TV advertising.
2.2.1.Sports & Music Entertainment Sponsorship
Alcohol producers know that officially sponsoring an important sporting or entertainment event offers opportunities for significant brand exposure in the media, especially when the event is widely televised. During the summer months when beverage demand is high, producers ramp up marketing efforts and seek high-budget sponsorship deals with internationally recognised events in order to raise international exposure and help their brands stand out from the competition (Novak, 2004).
The sponsorship deals for major sporting events was dominated by leading beer brands in the past (such as Coors, Budweiser and Heineken) but recent times has seen the emergence of Diageo spirit brands sponsoring events such as the golf tournament, Championship at Gleaneagles (Johnnie Walker), motor-racing events such as NASCAR (Crown Royal), the ICC Cricket World Cup 2007 and has been a sponsor of the Team Mclaren F1 car since 2006.
Diageo also maintain sponsorship in the music entertainment industry, mainly through Smirnoff and non-spirit brands such as their Jamaican beer, Red Stripe. Investments in the Smirnoff Music Center, an outdoor performing arts centre in Dallas, saw several high-profile concerts take place at the venue and create a strong association with Smirnoff and popular culture. In 2010, Smirnoff launched its Nightlife Exchange Project which attempts to turn consumer-generated ideas on nightlife experiences in different countries into actual events, subtly exploiting the growing integration of national party cultures.
Bacardi capitalised on the easing of regulation over sports sponsorships as well, and has been a sponsor of the F1 Ferrari Team since 2006. In 2007, Ferrari also signed up former champion F1 driver Michael Schumacher as a brand ambassador for the spirits company’s social responsibility programme around the sport (Sport Industry, 2007)
More significantly in April of last year, Bacardi signed a 3-year, highly lucrative sponsorship deal with the National Basketball Association (NBA). The groundbreaking agreement between the two was the first time one of the four major league sports in the US had signed a spirits brand as a corporate patron, and according to experts, may act as a catalyst for other sports at a time when spirits brands have been steadily increasing their presence in “pro” teams and venues (Sports City, 2010).
Bacardi’s ventures into music sponsorship are no less impressive: the brand sponsored the 2010 world tour of the Black Eyed Peas, one of the best selling pop bands of all time. According to the tour promoter A.E.G, Bacardi was chosen due to the brand’s “long standing connection with music”. This stems from Bacardi’s music involvement such as sponsoring various festivals and music events, as well as pioneering projects such as the first brand and band partnership with well-known dance music duo Groove Armada. This project enabled Bacardi to use the band, and indeed music, as a vehicle to deliver brand messages in a cultured environment (UTalk-Marketing, 2009).
Pernod Ricard contrastingly has only very recently latched on to this trend of rising spirit brand sponsorship in major sporting events. The company predominantly views its sponsorship arm as a means to fulfil and promote its commitment to corporate social responsibility. It prides itself on sponsoring the arts, humanitarian action and science, thus encouraging creativity and entrepreneurship, respecting tradition and supporting major long-term projects (Pernod website, 2011). Last year however, the wine and spirits producer signed a deal to sponsor the 2011 Rugby World Cup, one of the largest sporting events reaching an estimated audience of 4bn worldwide.
Pernod’s promotion in the entertainment industry is relatively recent and for the most part done through its Malibu Rum brand. The brand sponsored the reunification tour of the global pop band Take That, was behind the Malibu Music Awards 2010 and most recently, launched Radio Maliboom Boom, a digital radio station transmitting Caribbean music and consumer videos, as well as performances from featured music guests, worldwide (BBC Business News, 2010).
2.2.2.Direct TV advertising
Over the past couple of decades, TV has proved to be the most influential direct advertising medium with firms investing heavily in designing and implementing advertising campaigns, as well in securing valuable airtime for them to run (Gauder, 2008). Strict WHO and EU legislation mean stringent restrictions on how alcohol can be advertised, so marketers must try to combine eye-catching visuals with a clever underlying theme or message that will stick with the customer (IAS, 2010).
Diageo’s Smirnoff has embarked variety of advertising campaigns, the most recent being the “Be There” campaign which promotes Smirnoff sponsored party events across the globe where consumers can win tickets through promotions, climaxing in the Nightlife Exchange Project described previously. However Smirnoff’s prior campaign was its largest ever (approx. ?5m in the UK) and involved large investment in creating eye-catching and memorable TV advertisements. The campaign was known as “Sea” and the advert features the sea dramatically ridding itself of all the debris deposited in it over the years (http://www.youtube.com/watch?v=ZZrReRZPjD8), bringing to life the purification lengths to which Smirnoff goes through to produce its high quality vodka. It was a resounding success and had increased retail sales value by around ?8m within the year (Talking Retail, 2007).
The recent Bacardi campaign known as the “Spirit of Bacardi” attempted to celebrate the warmth, optimism and pioneering attitude of Bacardi rum. The advert features a group of friends who build their own island to create a unique adventure and a celebration of life that can be achieved through this “island lifestyle” (http://www.youtube.com/watch?v=f4ttvygytW4). The imaginative nature of these friends reflects the inspiration and pioneering spirit of the rum which has contributed to the creation of many famous cocktails (Mojito, Pina Colada, Cuba Libre). In essence, rather like the Smirnoff example, both firms are trying to convey the intrinsic benefits and utility that can only be gained from consuming their product: in the case of Smirnoff it is the vodka itself, pure and untainted, whereas Bacardi emphasise the environment in which the product is meant to be consumed, and how the rum makes you feel.
February 2011 saw the release of the latest commercial from Chivas Regal’s “Live with Chivalry “ campaign (http://bcove.me/7cwcz615), which according to Patrick Venning, draws inspiration from the fundamental values of modern men and communicates a point of view that aims to encapsulate the Chivas Regal heritage. The campaign emphasises the luxurious and exuberant essence of the brand and reinforces consumer perceptions of fine Scotch whisky, one of the firm’s core objectives. Interestingly however, the company’s largest advertising spend was on their Emmy award-winning Absolut Anthem advertisement (http://www.youtube.com/watch?v=5O16C1ZLuyI). The underlying theme here was one of “doing something differently leads to something exceptional”. This was an interesting take on the fact that some consumers were initially averse to drinking the vodka which was made in Sweden, and even received criticisms from bars/clubs worldwide due to bartenders struggling with the bottle shape (Dodd, 2010). Despite this, the marketers involved managed to turn the products issues into individualities that defined its uniqueness and made it stand out from the rest. It was the idea that being different is not necessarily a bad thing, and marketers aimed to relate that to the vodka on a superficial level, but more profoundly related to other issues such as anti-war protests and equal gay rights for example (www.absolut.com).
The global spirits market is certainly mature, saturated and competitive making opportunities for growth, limited. In order to achieve increased sales volume, producers have to either snatch market share away from competitors or expand the overall size of the market. In fact the top players have had to raise marketing spend in a bid to differentiate their products from those of competitors, sustain competitive advantage and attract consumer attention via media that is already highly cluttered (Novak, 2004).
The rising middle class in developed and emerging nations, particularly on the back of the recent global recession, are keen to accumulate wealth and do better, as this is an inherent human characteristic. The leading firms in the global market rely heavily on brand recognition and perceived product quality as a major selling point, particularly for their core brands. This is certainly the case for Diageo and Bacardi who tend to offer a standardised premium product in the majority of locations albeit with some variants and adaptation present. Pernod Ricard also relies on its global icons but has demonstrated a greater involvement in producing a range of adapted brands to successfully cater for rising emerging markets that represent the future of the industry (Pernod Website, 2011).
Moreover in promotion, Diageo and Bacardi seem to follow similar marketing patterns that involve strong affiliation with popular sports and entertainment culture through sponsorship, and high-budget advertising campaigns to promote the core characteristics of their brands’ images which they have built up over many years. Pernod’s interaction with popular culture is a relatively more recent phenomenon but they have raised brand equity over the years (and maintained competitiveness) by building a diverse spirits portfolio and by marketing their products as sophisticated goods, synonymous with high quality and status.
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Figure 1: Bacardi Bat logo
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