Alcoholic Beverages / Marketing Strategies Michael Spandern

Alcoholic Beverages / Marketing Strategies Michael Spandern

Promoting Alcoholic Beverages:

The Effectiveness of Various Marketing Strategies Michael Bruno Spandern Agribusiness Consulting Bahnhofst. 81, 24582 Bordesholm Germany [email protected]

1

Introduction

The promotion of alcoholic beverages is most obviously dominated by branding efforts of various large producers1. Most campaigns noticeable to the consumer are either re-launches of already existing products aiming to adapt the image of a product to a shifting target by simply changing the product appearance (i.e. logos, colours, packaging, slogans, strap line) or the continuous output of new or seemingly new products at a high frequency. The latter generally is the domain of larger companies using the power of their company brand and market penetration and it represents a severe challenge for small producers trying to sustain their market share. Despite the tremendous success of single products this approach has lead to a continuously decreasing lifespan of products, increasing costs of entering the market and protecting innovations. Several authors believe this product orientated behaviour is even responsible for the severe losses of product groups with a rather traditional image such as beer and whisky in Western Europe. Accelerating product variety within one product category might have lead to the shift of consumers to completely different product ranges 2.

There is need for discussion regarding the dangers of alcohol consumption and regular moderate consumption by healthy adults must be strictly separated from alcohol abuse. The marketing of products, such as alcoholic drinks, needs greater care and responsibility than others particularly with reference to their availability to young people. The advertising of alcohol is usually subject to specific rules in addition to general codes 3. It is therefore crucial to evaluate the effectiveness of various marketing strategies with regard to the success of a single product or company within the context of the overall trend of consumer behaviour. The following will discuss the observations for beer and spirits.

2

Marketing strategies in the beverage industry

In past years, the alcoholic beverage industry was not known for its high degree of creativity or innovation4. Consequently the traditional established beverage market is stagnating 1. However, as -1Spandern Agribusiness Consulting www.spandern.com


sales in Western Europe started to lag and even fall in some cases, and competing beverages took away market share, the companies with leading brands began to satisfy consumer demand with more new products and extensions. In addition, some companies have initiated aggressive marketing and promotional programs to acquaint potential consumers with the pleasures of consuming alcoholic beverages. Some of the changes include using new types of ingredients, using organic ingredients, adding flavours to drinks previously only known unflavoured, creating products from a single malt or barrel, and creating healthy versions. In addition, companies use such strategies as niche marketing, packaging innovations, and tie-in promotions for sports events and social causes. To overcome the risks of the pure product orientated “tunnel view” 5 most classical marketing textbooks often demand the development and implementation of a combination of various marketing strategies or a specific marketing package 6. This in practice is mostly not the case because of the lack of scientifically proven standard processes for the selection of suitable strategies2. No generally recognised system of methods or procedures is described 7. Finding the right strategy to market agricultural goods and food products and putting such a strategy into action, is not mathematically formalisable. Strategic planning is rather a creative, often spontaneous process and very dependant on the personality of the planer or decision taker 2. In this context ROVENTA 8 describes two typical characters: 1. The manager depicted as an entrepreneur is controlling his environment, actively searching for significant opportunities and relating them to his vision of strategy 9. 2. The manager “mudding through”, is only acting when forced to and the can only consider a few convenient alternatives, each of which will only cause small non-disruptive changes in his/her organisation 5,10, 11. The British “Beer-Naturally”- campaign as an example is doubtlessly aiming at the more committed style of management, willing and able to communicate the company’s vision. Basically for main directions of market orientated product strategies are known 12, 13: 1. Market penetration: existing product for existing market 2. Market development: existing product for new market 3. Product development: new product for existing market 4. Diversification: new product for new market

All of the above are also found as classical tools of strategic planning within the food and beverage industries but not all techniques are used for all product groups and there is a strong regional variation, especially between Eastern and Western Europe. Similar to other consumer driven markets the success of marketing campaigns for alcoholic beverages underlies overall trends and temporary fashion phenomena. But amongst all foods alcoholic beverages are probably the one product group most affected by legislative interventions 14, whether through restrictions in -2Spandern Agribusiness Consulting www.spandern.com


production, such as quotas and state monopolies, or through restrictions in advertising means, such as claims and free choice of media.

2.1

Marketing beer

Beer is the most dominant alcoholic beverage throughout Europe. An average of around 40 % of the alcohol consumed annually comes out of beer (chart 1). Beers include lagers and ales. Lagers are marketed as super premium, premium, specialty, light/lite, dry, ice, malt liq uor and flavoured. Ales are marketed as super premium, premium, specialty and flavoured. Beers have always been produced with different brewing styles, but the current trend is to use new types of grains such as all barley or all wheat, particularly by marketers of specialty beers and microbrews; or hops imported from different parts of the world; or to add sweet, fruit or spicy flavours. Hemp (cannabis) as an additive or even as a replacement for hops and seasonal beers also provide new taste experiences for consumers 7. Recently the especially brewing industry in Europe puts most efforts into product development to compete with the rapidly growing group of ready-to-drink (RTD) spirits, or “alco-pops”, and uses advertising techniques clearly addressed to young people. To influence the drinking preferences of consumers between 18 and 30 is crucial for reliable predictions. It is the background for sales developments once these consumers reach an age of higher disposable income. It is noticeable, in this context, that during the past decade the consumption of beer has declined in several Western European countries (chart 2) and whilst the overall consumption of alcoholic beverages has stagnated or even increased (chart 3).

Chart1: Alcohol out of Beer in percent of total Alcohol Consumption -3Spandern Agribusiness Consulting www.spandern.com

15


Chart 2: Change in Beer Consumption

Chart 3: Change in Alcohol Consumption. The roots of beer production go back to the first agrarian societies where beer was noarmal part of the daily diet16. Laws that regulate the production of beer and protect the identity of the product -4Spandern Agribusiness Consulting www.spandern.com


have always played an essential role in the brewing trade. One of these regulations was laid down by the Bavarian dukes Wilhelm IV and Ludwig X at the State Parliament at Ingolstadt, Germany on April 23, 1516; the law was accepted and today is internationally well recognised as the German Purity Law (Reinheitsgebot). Today consumer protection and traceability are key words in the food chain and pay an essential role in marketing strategies for beer all over the world 17.

The “Beer-Naturally”-campaign in the UK is using this background trying to reverse the decline in beer sales17. It is understood that brewing companies had considerable success promoting their individual brand but paid less attention promoting the beer category 1. The campaign has two main strands: enhancing the public perception for beer and improving the drinkers experience when it is drunk. But keeping these goals in mind, the British Beer Naturally campaign primarily acts within the brewing companies themselves instead of launching new advertising series. The concept is based on clear communication of company goals, assuming that employees highly committed to their trade lead to a more confident appearance of the product category.

Keeping in mind that marketing beer is commonly based on a reputation of being natural and pure, the new group of ready-mixed or flavoured beer products is surprisingly successful 1. Especially in Germany where there is a strong consumer perception against any ingredients in beer not complying with the Reinheitsgebot, ready mixed beer-and-lemonade or beer-and-spirit products occupy an extremely rapid growing market segment. Often the image of these products is built upon the parent’s brand of both the beer and the added lemonade or spirit simultaneously 1.

An advantage of blending beer with other products seen by the brewing industry is that there is no need to change the image of the traditional product beer, and risk consumer loyalty, whilst moving into new image segments. The new product category allows the brewing industry to pick up trends with short life-cycles, such as ready mixed beer-and-caipirinjah referring to the feel of the summer holiday season and the contemporary success of Latino music in Europe 1.

Because beer contains alcohol and alcoholism is a matter of concern as well as alcohol related accidents, crime and various social problems this beverage falls into the category of products bearing a potential danger to the society or single individuals. General observations comparing beer to other alcoholic drinks show that both the industry and most consumers have a sensible and responsive behaviour when handling beer

2.2.

1,2,3,4,5

.

Marketing spirits

Spirits include white spirits which include vodka, tequila, gin, and rum; and brown spirits which include

whisky/whiskey

(American,

Scotch,

Irish,

and

Canadian),

brandy/cognac,

and

cordials/liqueurs. Spirit consumers, do not expect many new products, and experimentation might -5Spandern Agribusiness Consulting www.spandern.com


require some degree of information-gathering before their higher prices are paid. Some spirits producers are using single sources to make their products, such as single malt whiskeys and single barrel bourbons, in an effort to provide unique tastes and create a super premium product. Spirits producers are also adding flavours to some drinks in an effort to attract new younger, female drinkers18. A great challenge which always limited the success of marketing spirit was the paradigm of spirits being regarded as ingredients bringing a portion of alcohol into cocktails 19. Vodka is probably the most predominant spirit 20, Scotch, especially the single malt, is the standard bearer, congnac is the luxury spirit, and bourbon and tequila are serving a rather flat market. The turnover of gin and martini is permanently fluctuating with trends. But rum and other spirit made from molasses currently experience the greatest growth 21. The market for spirits is generally dominated by large brands. Most innovations entering the market seldom represent new producers and their concepts rather than carrying the names of internationally recognised makes representing the diversification of their product range.

The ready-to-drink products as an ideal example of diversification penetrate a market segment which is new to spirits and traditionally is occupied by beer. Small units of finished product at a price comparable to beer are directly to be enjoyed out of the bottle. These products now reach consumers who usually do not regularly purchase spirit drinks but are well aware of the various large international brands of whiskies, vodkas and rums. The “RTDs” or “alco-pops” and other ready mixed drinks on the one hand enabled a younger group of consumers to take participate in a world of famous brands which normally was only accessible to people with a higher disposable income, on the other they moved from “special occasions” and gave way to everyday drinking. The challenge for the producers of this new product category was to build up completely different and a more complex marketing strategy than the traditional promotion of mixed drinks. To be fully successful, the producer would have to build a solid business for the ready-to-drink products whilst maintaining or even rebuilding the parent’s brand reputation 22.

Sprits underlie significant governmental interventions is most markets. To overcome the obstacles of the national intervention by the German state monopoly “Bundesmonopol” the German “Korn” schnaps

distillers

have

founded

a

central

marketing

agency

the

Deutsche

Kornbrand

Vermarktungsgesellschaft, DKV. In its activities as a private enterprise, the DKV represents interests of approximately 300 “Korn” distillers under public law. Its most important task is to take deliveries of the raw "Korn" alcohol from the distilleries. After distilling it to an alcoholic content of about 96% vol., the DKV sells its potable spirits to the producers of "Korn" schnapps or other spirits based on "Korn" alcohol. As the central link between production and marketing, it also represents "Korn" schnapps in politically and socially relevant bodies and contributes to the public relations work for German "Korn" schnapps 23.

-6Spandern Agribusiness Consulting www.spandern.com


3

Conclusion

As in other businesses the marketing strategies of the beverage industries follow typical patterns of consolidation and diversification. The market is characterised by an accelerated movement towards convenience and an increasing consumer demand for transparency and safety. Under these conditions large globally acting corporations use their financial strength and the power of their brands to find new sales opportunities. Generally it can be seen t hat this strategy is very successful. It allows some global players even to act trend setters. Simultaneously as strongly branded international products are available as standards around the world, regional specialties gain popularity.

With very few exemptions all campaigns miss to promote the product category as a whole and educate consumers about the product background. Branding efforts drive all strategic planning. Similar to global fast food chains not promoting beef in general but rather their finished restaurant product, or like the dairy industry failing to stabilise milk prices and sales, the various producers of alcoholic drinks seam to fear investments that might benefit the whole industry. One explanation might be found investigating the companies’ financial structures showing that many larger producers belong to global conglomerates of investors where alcoholic beverage is only one aspect of the business.

Michael Spandern [email protected]

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CLAUSNITZER, T. 2002. Das Geheimn Geheimnss der Markenführung. Getränke, Technologie Technologie und Marketing. Feb. MSU Consulting, Hamburg Germany. BIRNBAUM, G., Consumer insights – consumer shopping behaviour in the beverage markets. 29 th EBC – Congress Dublin. 17. – 22. May. 2003. Lecture No: 60. INGHAM, A., BAKER, KBOURNE, H. BODNAR, A., BROWN, A., 2002. Responsible Marketing Marketing of Alcoholic Drinks: Regulations and Enforcement. An Overview of the Regulatory Environment for Commercial Communication of Alcoholic Beverages in Europe. Canadean Limited, Hants, UK, www.canadean.com.

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BECKER, J. 1988. Marketing-Konzeption. 2. Ed. Munich. 8 ROVENTA, P., 1979. Portfolio Anaylsis o f Strategic Marketing. Munich. 9 MINTZBERG, H., 1975. The Science of Strategie Marketing. In: McCarthy et al. S. 293 – 310. 10 LINDBLOM, C., E., 1964. The Sciene of “Mudding Trough”. In: Leavitt and Pondy. 61 – 79. 11 DRIVER, J., 2004. Canging Perceptions in Makreting Spirits. Chapter Chapter 4 in BRYCE. J.H. and STEWART, G.G. (Ed.) “Distilled Spirits” Nottingham University University Press, Nottingham, UK. 12 ANSOFF, H.I, 1966. Management Strtegie. Munich, 1996 13 MEFFERT,B., BRUHN, M., SCHUBERT, F. and WALTER, T., 1986. Marketing und ökologie – Chancen und Risiken Umweltorientierter Absatzstrategien Absatzstrategien der Unternehmungen. In: Die Betriebswirtschaft. Betriebswirtschaft. 140 – 159). 14 th LONG, D., 2003. Food Savety in the breing sector: meeting the challenges of legislative developement s and consumer behaviou r. 29 EBC – Congress Dublin. 17. – 22. May. 2003. Lecture No: 60. 15 CANADEAN LIMITED, 2002. Responsible Marketing of Alcoholic Drinks: Regulation and Enforcement. June. www.canadean.com. www.canadean.com. 16 HACKEL-STEHR, K., 1987. Das Brauwesen in Bayern. Entsehung und Entwicklung des Reinheitsgebotes (1516). Disseratation. Technische Universität Berlin. 17 th HEGARTY, P., 2003. Beer Naturally Naturally – a passion for beer. 29 EBC – Congress Dublin. 17. – 22. May. 2003. Lecture No: 59. 18 TIMMONS, B. & HEAD, A., 2003. From liqueurs to malternatives: the art of flavouring and compounding alcohol. The Alcohol Textbook, 4 th Ed., JACQUES, K., LYONS, T.P., KELSALL, D. ed., Nottingham University Press, Nottingham, UK, p193 19 DRIVER, J., 2004. Canging Perceptions in Makreting Spirits. Chapter Chapter 4 in BRYCE. J.H. and STEWART, G.G. (Ed.) “Distilled Spirits” Nottingham University University Press, Nottingham, UK. 20 DELVANTE , M.P., 2004. Rum – the commercial and technical aspects. Chapter 29 in BRYCE. J.H. and STEWART, G.G. (Ed.) “Distilled Spirits” Notting ham University Press, Nottingham,, U K Nottingham 21 DELVANTE , M.P., 2004. Rum – the commercial and technical aspects. Chapter 29 in BRYCE. J.H. and STEWART, G.G. (Ed.) “Distilled Spirits” Notting ham University Press, Nottingham,, U K Nottingham 22 DRIVER, J., 2004. Canging Perceptions in Makreting Spirits. Chapter Chapter 4 in BRYCE. J.H. and STEWART, G.G. (Ed.) “Distilled Spirits” Nottingham University University Press, Nottingham, UK. 23 DKV, Deutsche Kornbrand Vermarktungsgesellschaft,. Vermarktungsgesellschaft,. 2004.2 If You have rights”. D-59348 Lüdinghausen Website: Website: www.dkv-korn.de.

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Alcoholic Beverages / Marketing Strategies Michael Spandern

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