Communication decisions (promotion strategies)

Transcription

1 17 Communication decisions (promotion strategies) Contents 17.1 Introduction 17.2 The communication process 17.3 Communication toos 17.4 Vira marketing 17.5 Internationa advertising strategies in practice 17.6 Impications of the Internet for communication decisions 17.7 Summary Case studies 17.1 Hey Hansen 17.2 Chevroet 17.3 Video case study: BMW motorcyces Learning objectives After studying this chapter you shoud be abe to do the foowing: Define and cassify the different types of communication too. Describe and expain the major steps in advertising decisions. Describe the techniques avaiabe and appropriate for setting the advertising budget in foreign markets. Discuss the possibiities of marketing via the Internet. Expain how important persona seing and saes force management are in the internationa marketpace. Define and expain the concept of vira marketing. Discuss how standardized internationa advertising has both benefits and drawbacks Introduction Communication is the fourth and fina decision to be made about the goba marketing programme. The roe of communication in goba marketing is simiar to that in domestic operations: to communicate with customers so as to provide information that buyers need to make purchasing decisions. Athough the communication mix 541

2 Part IV Designing the goba marketing programme carries information of interest to the customer, in the end it is designed to persuade the customer to buy a product at the present time or in the future. To communicate with and infuence customers, severa toos are avaiabe. Advertising is usuay the most visibe component of the promotion mix, but persona seing, exhibitions, saes promotions, pubicity (pubic reations) and direct marketing (incuding the Internet) are aso part of a viabe internationa promotion mix. One important strategic consideration is whether to standardize wordwide or to adapt the promotion mix to the environment of each country. Another consideration is the avaiabiity of media, which varies around the word The communication process In considering the communication process we normay think about a manufacturer (sender) transmitting a message through any form of media to an identifiabe target segment audience. Here the seer is the initiator of the communication process. However, if the seer and the buyer have aready estabished a reationship it is ikey that the initiative in the communication process wi come from the buyer. If the buyer has positive post-purchase experience with a given offering in one period of time this may dispose the buyer to rebuy on ater occasions: that is, take initiatives in the form of making enquiries or pacing orders (so-caed reverse marketing). The ikey deveopment of the spit between tota saes voume attributabe to buyer and seer initiatives is shown in Figure The reative share of saes voume attributabe to buyer initiative wi tend to increase over time. Present and future buyer initiatives are a function of a aspects of a firm s past market performance: that is, the extent, nature and timing of seer initiative, the competitiveness of offerings, postpurchase experience, the reationships deveoped with buyers as we as the way in which buyer initiative has been deat with (Ottesen, 1995). Figure 17.1 The shift from seer initiative to buyer initiative in buyer/seer reationships 542

3 Chapter 17 Communication decisions (promotion strategies) Key attributes of effective communication The rest of the chapter wi be devoted to the communication process and communicative toos based on seer initiatives. A effective marketing communication has four eements: a sender, a message, a communication channe and a receiver (audience). The communication process in Figure 17.2 highights the key attributes of effective communication. To communicate in an effective way the sender needs to have a cear understanding of the purpose of the message, the audience to be reached and how this audience wi interpret and respond to the message. However, sometimes the audience cannot hear ceary what the sender is trying to say about its product because of the noise of riva manufacturers making simiar and often contradictory caims about their products. Another important point to consider in the mode of Figure 17.2 is the degree of fit between medium and message. For exampe, a compex and wordy message woud be better for the press than for a visua medium such as teevision or cinema. Other factors affecting the communication situation Language differences A sogan or advertising copy that is effective in one anguage may mean something different in another anguage. Thus the trade names, saes presentation materias and advertisements used by firms in their domestic markets may have to be adapted and transated when used in other markets. Figure 17.2 Eements of the internationa communication process 543

4 Part IV Designing the goba marketing programme There are many exampes of unfortunate transations of brand names and sogans. Genera Motors has a brand name for one of its modes caed the Vauxha Nova this does not work we in Spanish-speaking markets because there it means no go. In Latin America Avoid embarrassment Use Parker Pens was transated as Avoid pregnancy Use Parker Pens. Scandinavian vacuum manufacturer Eectroux used the foowing in a US ad campaign: Nothing sucks ike an Eectroux. A Danish company made up the foowing sogan for its cat itter in the UK market: Sand for Cat Piss. Unsurprisingy, saes of the firm s cat itter did not increase! Another Danish company transated Teats for baby s bottes as Loose tits. In Copenhagen Airport the foowing poster coud be seen unti recenty: We take your baggage and send it in a directions. A sogan thus used to express the desire to give good service might cause concern as to where the baggage might end up (Joensen, 1997). Economic differences In contrast to industriaized countries, deveoping countries may have radios but not teevision sets. In countries with ow eves of iteracy written communication may not be as effective as visua or ora communication. Sociocutura differences Dimensions of cuture (reigion, attitudes, socia conditions and education) affect how individuas perceive their environment and interpret signas and symbos. For exampe, the use of coour in advertising must be sensitive to cutura norms. In many Asian countries white is associated with grief; hence an advertisement for a detergent where whiteness is emphasized woud have to be atered for promotiona activities in, say, India. Exhibit 17.1 In Musim markets ony God is great One of the major car manufacturers was using Muhammad Ai in one of its Arab advertising campaigns. Muhammad Ai is very popuar in the Midde East, but the theme was him saying I am the greatest, which offended peope because the Musims regard ony God as great. Source: Harper, Lega and reguatory conditions Loca advertising reguations and industry codes directy infuence the seection of media and content of promotion materias. Many governments maintain tight reguations on content, anguage and sexism in advertising. The type of product that can be advertised is aso reguated. Tobacco products and acohoic beverages are the most heaviy reguated in terms of promotion. However, the manufacturers of these products have not abandoned their promotiona efforts. Came engages in corporate-image advertising using its Joe Came. Reguations are found more in industriaized economies than in deveoping economies, where the advertising industry is not yet as highy deveoped. Competitive differences As competitors vary from country to country in terms of number, size, type and promotiona strategies used, a firm may have to adapt its promotiona strategy and the timing of its efforts to the oca environment. 544

5 Chapter 17 Communication decisions (promotion strategies) 17.3 Communication toos Earier in this chapter we mentioned the major forms of promotion. In this section the different communication toos, isted in Tabe 17.1, wi be further examined. Advertising Advertising is one of the most visibe forms of communication. Because of its wide use and its imitations as a one-way method of communication advertising in internationa markets is subject to a number of difficuties. Advertising is often the most important part of the communications mix for consumer goods, where there are a arge number of sma-voume customers who can be reached through mass media. For most business-to-business markets advertising is ess important than the persona seing function. The major decisions in advertising are shown in Figure We wi now discuss these different phases. Objectives setting Athough advertising methods may vary from country to country the major advertising objectives remain the same. Major advertising objectives (and means) might incude some of the foowing: Increasing saes from existing customers by encouraging them to increase the frequency of their purchases; maintaining brand oyaty via a strategy that reminds customers of the key advantages of the product; and stimuating impuse purchases. Obtaining new customers by increasing consumer awareness of the firm s products and improving the firm s corporate image among a new target customer group. Budget decisions Controversia aspects of advertising incude determining a proper method for deciding the size of the promotiona budget and its aocation across markets and over time. Tabe 17.1 Typica communication toos (media) One-way communication Two-way communication Advertising Pubic reations Saes promotion Direct marketing Persona seing Newspapers Magazines Journas Directories Radio Teevision Cinema Outdoor Annua reports Corporate image House magazines Press reations Pubic reations Events Lobbying Sponsorship Rebates and price discounts Cataogues and brochures Sampes, coupons and gifts Competitions Direct mai/ database marketing Internet marketing (WWW) Teemarketing Vira marketing Saes presentations Saes force management Trade fairs and exhibitions 545

6 Part IV Designing the goba marketing programme Figure 17.3 The major internationa advertising decisions In theory the firm (in each of its markets) shoud continue to put more money into advertising, as an amount of money spent on advertising returns more than an amount of money spent on anything ese. In practice it is not possibe to set an optimum advertising budget. Therefore firms have deveoped more practica guideines. The manager must aso remember that the advertising budget cannot be regarded in isoation, but has to be seen as one eement of the overa marketing mix. Percentage of saes method The firm wi automaticay aocate a fixed percentage of saes to the advertising budget. Affordabe approach/percentage of saes These budgeting techniques ink advertising expenditures directy to some measure of profits or, more commony, to saes. The most popuar of these methods is the percentage of saes method, whereby the firm automaticay aocates a fixed percentage of saes to the advertising budget. Advantages of this method are as foows: For firms seing in many countries this simpe method appears to guarantee equaity among the markets. Each market seems to get the advertising it deserves. It is easy to justify in budget meetings. It guarantees that the firm ony spends on advertising as much as it can afford. The method prevents good money being thrown after bad. Disadvantages of this method are as foows: 546

7 Chapter 17 Communication decisions (promotion strategies) It uses historica performance rather than future performance. It ignores the possibiity that extra spending on advertising may be necessary when saes are decining, in order to reverse the saes trend by estabishing a recyce on the product ife cyce curve (see section 14.4). It does not take into account variations in the firm s marketing goas across countries. The percentage of saes method encourages oca management to maximize saes by using the easiest and most fexibe marketing too: price (that is, owering the price). The method s convenience and simpicity encourage management not to bother investigating the reationships between advertising and saes or anaysing criticay the overa effectiveness of its advertising campaigns. The method cannot be used to aunch new products or enter new markets (zero saes = zero advertising). Competitive parity approach Dupicating the amounts spent on advertising by major rivas. Competitive parity approach Competitive parity approach invoves estimating and dupicating the amounts spent on advertising by major rivas. Unfortunatey, determining the marketing expenditures of foreign-based competitors is far more difficut than monitoring home country businesses, whose financia accounts (if they are imited companies) are open to pubic inspection and whose promotiona activities are obvious the moment they occur. Another danger in foowing the practice of competitors is that they are not necessariy right. Furthermore, the method does not recognize that the firm is in different situations in different markets. If the firm is new to a market its reationships with customers are different from those of existing domestic companies. This shoud aso be refected in its promotion budget. Objective and task approach Determining the advertising objectives and then ascertaining the tasks needed to attain these objectives. USP Unique seing proposition is the decisive saes argument for customers to buy the product. Objective and task approach The weaknesses of the above approaches have ed some firms to foow the objective and task approach, which begins by determining the advertising objectives and then ascertaining the tasks needed to attain these objectives. This approach aso incudes a cost/benefit anaysis, reating objectives to the costs of achieving them. To use this method the firm must have good knowedge of the oca market. A research study (Hung and West, 1991) showed that ony 20 per cent of companies in the United States, Canada and the United Kingdom used the objective and task approach. Athough it is the theoreticay correct way of determining the promotion budget it is sometimes more important to be operationa and to use a percentage of saes approach. This is not necessariy a bad method if company experience shows it to be reasonaby successfu. If the percentage is fexibe it aows different percentages in different markets. Message decisions (creative strategy) This concerns decisions about what unique seing proposition (USP) needs to be communicated, and what the communication is intended to achieve in terms of consumer behaviour in the country concerned. These decisions have important impications for the choice of advertising medium, since certain media can better accommodate specific creative requirements (use of coour, written description, high definition, demonstration of the product, etc.) than others. An important decision area for internationa marketers is whether an advertising campaign deveoped in the domestic market can be transferred to foreign markets with ony minor modifications, such as transation into the appropriate anguages. Compete standardization of a aspects of a campaign over severa foreign markets is rarey attainabe. Standardization impies a common message, creative idea, media and strategy, but it aso requires that the firm s product has a USP that is ceary understood by customers in a cross-cutura environment. 547

8 Part IV Designing the goba marketing programme Exhibit 17.2 Deveoping the Me and my Magnum campaign: the power of persuasion In 1989 Uniever aunched the ice-cream brand Magnum in a number of European countries. A specia and unique reationship arose between Magnum and the customer due to the backbone of the advertising campaign Me and my Magnum, which was deveoped in by Barry Day, creative consutant at Lintas, together with Langnese-Igo s marketing director, Kaus Rabbe, and Michae Bronsten, Ice Cream Group advertising member. The ironic thing about the advertising and the key to its success, says Barry Day was that The Magnum campaign was not dreamt up by some ad man: the consumer wrote it. The advertising is based on what consumers were saying about the brand. The advertisement contains three eements, two visua and one audio. The first visua eement surrounds one particuar aspect of Magnum: its size. Consumers have reated that Magnum s size makes it awkward and unwiedy. Thus, they say, it cannot be eaten quicky: time is needed to consume a Magnum and this specia moment shoud not be interrupted. They have aso confessed that eating it can be quite an erotic experience. These two eements come together in the second visua image: the Me and My Magnum advertisement, German version body anguage of the Magnum consumer, who eats it sowy and with great care, genty toying with the crisp, cracking chocoate before teasing out the ice-cream underneath. Binding these two visua eements together is a soundtrack that gives the consumer icence to induge, says Barry Day. It consists of genuine testimonies from consumers refecting on what Magnum means to them. The advertisement works, Barry Day beieves, because the words it uses to describe the experience of eating a Magnum reay do accord with those of the consumer. This recognition is transated into a cose affinity between one Magnum consumer and another. It gives the viewer the feeing that he or she is part of some sort of éite or cub the Magnum Cub, he expains. It is, however, a singes cub. Magnum is a purey persona indugence: peope eating one are not going to share it with anyone ese. Where does the Magnum advertising go from here? Barry Day fees that future campaigns can go deeper into the psychoogy of the brand, but shoud never take away from the vaues that have made Magnum the success it is today. Source: Shey, Standardizing internationa advertising can ead to a number of advantages for the firm. For exampe, advertising costs wi be reduced by centraizing the advertising campaign in the head office and transferring the same campaign from market to market, as opposed to running campaigns from different oca offices. However, executing an advertising campaign in mutipe markets requires a baance between conveying the message and aowing for oca nuances. The adaptation of 548

9 Chapter 17 Communication decisions (promotion strategies) OTS Opportunity to see tota number of peope in the target market exposed to at east one ad in a given time period ( reach ). Frequency Average number of times within a given timeframe that each potentia customer is exposed to the same ad. Impact Depends on the compatibiity between the medium used and the message (the impact on the consumer s brain). GRPs Gross rating points Reach mutipied by frequency. GRPs may be estimated for individua media vehices. Media panning is often based on cost per 1000 GRPs. goba ideas can be achieved by various tactics, such as adopting a moduar approach, adapting internationa symbos and using internationa advertising agencies. Media decisions The seection of the media to be used for advertising campaigns needs to be done simutaneousy with the deveopment of the message theme. A key question in media seection is whether to use a mass or target approach. The mass media (teevision, radio and newsprint) are effective when a significant percentage of the genera pubic are potentia customers. This percentage varies consideraby by country for most products, depending on, for exampe, the distribution of incomes in different countries. The seection of the media to be used in a particuar campaign typicay starts with some idea of the target market s demographic and psychoogica characteristics, regiona strengths of the product, seasonaity of saes, and so on. The media seected shoud be the resut of a carefu fit of oca advertising objectives, media attributes and target market characteristics. Furthermore, media seection can be based on the foowing criteria: Reach. This is the tota number of peope in a target market exposed to at east one advertisement in a given time period ( opportunity to see, or OTS). Frequency. This is the average number of times within a given time period that each potentia customer is exposed to the same advertisement. Impact. This depends on compatibiity between the medium used and the message. Penthouse magazine continues to attract advertisers for high-vaue-added consumer durabes, such as cars, hi-fi equipment and cothes, which are geared primariy to a high-income mae segment. High reach is necessary when the firm enters a new market or introduces a new product so that information about, for exampe, the new product s avaiabiity is spread to the widest possibe audience. A high eve of frequency is appropriate when brand awareness aready exists and the message is about informing the consumer that a campaign is under way. Sometimes a campaign shoud have both a high frequency and extensive reach, but imits on the advertising budget often create the need to trade off frequency against reach. A media s gross rating points (GRPs) are the resut of mutipying its reach by the frequency with which an advertisement appears within the media over a certain period. Hence it contains dupicated exposure, but indicates the critica mass of a media effort. GRPs may be estimated for individua vehices, for entire casses of media or for a tota campaign. The cost of running a media campaign aso has to be taken into consideration. Traditionay media panning is based on a singe measure, such as cost per thousand GRPs. When deaing with two or more nationa markets the seection of media aso has to take the foowing into account: differences in the firm s market objectives across countries; differences in media effectiveness across countries. Since media avaiabiity and reative importance wi not be the same in a countries pans may require adjustment in cross-border campaigns. As a way of distributing advertising messages through new communication channes, co-promotion has a strong foothod (see Exhibit 17.3). Let us now take a coser ook at the main media types. 549

10 Part IV Designing the goba marketing programme Exhibit 17.3 Co-promotion in practice: McDonad s and LEGO In 1994 LEGO carried out its then argest European co-promotion with McDonad s as coaborator. The famiy restaurant s chidren s menu Happy Mea contained a LEGO product for four weeks, one every week. The activity was marketed on teevision and in print media. The campaign incuded 16 countries in Europe pus Turkey and Israe. LEGO s motives for an increasing interest in co-promotion, says brand manager Carsten Sørensen, are twofod: There is increasing competition in media that are becoming more and more crowded. Co-promotion offers the opportunity of getting more vaue for money from the marketing budget. In some markets LEGO needs an increased market share. The more it is in contact with consumers, the better they know the company. Co-promotion can thus be a reevant too if a company is introducing a new product in an existing market or existing products in new markets. Source: Nørmark, Teevision Teevision is an expensive but commony used medium in attempting to reach broad nationa markets. In most deveoped countries coverage is no probem. However, teevision is one of the most reguated of communications media. Many countries have prohibited the advertising of cigarettes and acoho other than beer. In other countries (e.g. in Scandinavia) there are imits on the number of minutes that TV advertising is permitted. Some countries aso prohibit commercia breaks in TV programmes. Exhibit 17.4 Mercedes uses Janis Jopin s hit to market its cars in the United States Oh, Lord, won t you buy me a Mercedes Benz. My friends a drive Porsches, I must make amends. Worked hard a my ifetime. No hep from my friends. So, Lord, won t you buy me a Mercedes Benz. Some 30 years ago rock singer Janis Jopin begged the Lord for a Mercedes Benz. The voca version of a poor woman s evening prayer was a hit then and is sti payed frequenty on radio stations a over the word. Buying power of the generation of 1968 The generation of 1968 have now reached an age with purchasing power, and the German car company has decided to et the prayer be heard as part of a huge advertising campaign. Mercedes Benz has bought the rights to use the song in its advertisements in coming years. The campaign has aready been aunched on US TV, where Jopin s whisky voice accompanies the deicate pictures of two of Mercedes newest uxury modes. Many cassic rock hits from the 1950s and 1960s have been used commerciay in advertisements during recent years. But Jopin s hit is different in two ways. First, it mentions the product directy. Second, the song was originay a satire of the poor s dream that happiness was found in one of the day s most materiaistic status symbos. It was never meant to be taken seriousy, songwriter Bob Neuwirth recoects, who back in 1970 heped Jopin fabricate the song in a break between two concerts. He has nothing to do with the song today and has not been asked for advice. But I am surprised that it took them so ong to think of the idea, he says, and maintains that Jopin had no desperate persona need for an expensive status symbo. 550

11 Chapter 17 Communication decisions (promotion strategies) Drove Porsche In those days, Jopin owned a Porsche. Mercedes Benz has chosen Jopin as part of an attempt to reach a younger audience through advertisements that, according to the director for Mercedes North American department Andrew Godberg, create an instant emotiona and physica connection to the product. The reactions of a test audience have documented that the song produced warm, nostagic feeings and created a more positive attitude towards Mercedes. What she meant by the song 25 years ago can be freey interpreted by anyone. But when a customer sees the advertisement it is soey about emotions and not socioogy, says Godberg. Janis Jopin became a word name with the group Big Brother and the Hoding Co. at the end of the 1960s, but died from an overdose of heroin on 4 October Six months ater her soo LP Pear was reeased. It contained among others the Mercedes song, which a chucking Jopin finishes with the words That s it, after the famous refrain: So Lord won t you buy me a Mercedes Benz. Exacty as she is doing now a quarter of a century ater in the advertisement. Source: transated from an artice by Jan Lund in the Danish newspaper Jyands-posten, 24 March Radio Radio is a ower-cost broadcasting activity than teevision. Commercia radio started severa decades before commercia teevision in many countries. Radio is often transmitted on a oca basis and therefore nationa campaigns have to be buit up on an area-by-area basis. Newspapers (print) In virtuay a urban areas of the word the popuation has access to daiy newspapers. In fact the probem for the advertiser is not having too few newspapers, but rather having too many of them. Most countries have one or more newspapers that can be said to have a truy nationa circuation. However, in many countries newspapers tend to be predominanty oca or regiona and, as such, serve as the primary medium for oca advertisers. Attempting to use a series of oca papers to reach a nationa market is consideraby more compex and costy. Many countries have Engish-anguage newspapers in addition to oca-anguage newspapers. For exampe, the aim of the Asian Wa Street Journa is to suppy economic information in Engish to infuentia Asian business peope, poiticians, top government officias and inteectuas. Magazines (print) In genera, magazines have a narrower readership than newspapers. In most countries magazines serve to reach specific segments of the popuation. For technica and industria products magazines can be quite effective. Technica business pubications tend to be internationa in their coverage. These range from individua businesses (e.g. beverages, construction, texties) to wordwide industria magazines covering many industries. Marketers of internationa products have the option of using internationa magazines that have regiona editions (e.g. Newsweek, Time and Business Week). In the case of Reader s Digest, oca-anguage editions are distributed. Cinema In countries where it is common to subsidize the cost of showing fims by running advertising commercias prior to the feature fim, cinema advertising has become an 551

12 Part IV Designing the goba marketing programme important medium. India, for exampe, has a reativey high eve of cinema attendance per capita (few have teevision at home). Therefore cinema advertisements pay a much greater roe in India than in, for exampe, the United States. Cinema advertising has other advantages, one of the most important being that it has a truy captive audience (no channe hopping!). The probem, of course, is that peope know that commercias wi be shown before the fim. So they wi not turn up unti the main feature begins. Outdoor advertising Outdoor advertising incudes posters/biboards, shop signs and transit advertising. This medium shows the creative way in which space can be sod to customers. In the case of transit advertising, for exampe, a bus can be sod as an advertising medium. In Romania transit advertising is very effective. According to a survey by Mueer (1996), in Bucharest 91 per cent of a consumers surveyed said they remembered the content of transit advertisements, compared with 82 per cent who remembered the content of print adverts. The use of transit media is expanding rapidy in China as we. Outdoor posters/biboards can be used to deveop the visua impact of advertising. France is a country associated with the effective use of poster/biboard advertising. In some countries ega restrictions imit the poster space avaiabe. Agency seection Confronted with the many compex probems that internationa advertising invoves, many businesses instinctivey turn to an advertising agency for advice and practica assistance. Agencies empoy or have instant access to expert copywriters, transators, photographers, fim makers, package designers and media panners who are skied and experienced in the internationa fied. Ony the argest of big businesses can afford to carry such peope in-house. If the internationa marketer decides to outsource the internationa advertising functions they have a variety of options incuding the foowing: Use different nationa (oca) agencies in the internationa markets where the firm is present. Use the services of a big internationa agency with domestic overseas offices. In Tabe 17.2 the different factors favouring a nationa or an internationa agency are isted. The singe European (pan-european) market is used as an exampe of an internationa agency. The criteria reevant to the choice of a nationa or an internationa agency incude the foowing: Tabe 17.2 European agency seection: nationa (oca) or pan-european (internationa) Nationa (oca) Supports nationa subsidiary. Investment in existing brand best handed nationay. Coser to marketpace. Smaer size more conducive to personaized service and greater creativity. Diversity of ideas. Pan-European (internationa) Refects new European reaity and trends. Economies of scae in new product deveopment and branding. Uniformity of treatment across Europe. Resources and skis of major European or goba agency. Easier to manage one agency group. Source: adapted from Lynch, 1994, Tabe

13 Chapter 17 Communication decisions (promotion strategies) Poicy of the company. Has the company got any reaistic pans for a more standardized advertising approach? Nature of the advertising to be undertaken. Corporate image advertising might be best undertaken by a singe arge mutinationa agency that operates throughout the word via its own subsidiaries. For niche marketing in speciaist country sectors a oca agency might be preferred. Type of product. The campaign for an item that is to be presented in a standardized format, using the same advertising ayouts and messages in a countries, might be handed more convenienty by a singe mutinationa agency. Advertising evauation Advertising evauation and testing is the fina stage in the advertising decision process shown in Figure Testing advertising effectiveness is normay more difficut in internationa markets than in domestic markets. An important reason for this is the distance and communication gap between domestic and foreign markets. Thus it can be very difficut to transfer testing methods used in domestic ones to foreign ones. For exampe, the conditions for interviewing peope can vary from country to country. Consequenty, many firms try to use saes resuts as a measure of advertising effectiveness, but awareness testing is aso reevant in many cases, e.g. is brand awareness of crucia importance during the eary stages of a new product aunch. Testing the impact of advertising on saes is very difficut because it is difficut to isoate the advertising effect. One way to sove this probem is to use a kind of experiment, where the markets of the firm are grouped according to simiar characteristics. In each group of countries, one or two are used as test markets. Independent variabes to be tested against the saes (dependent variabe) might incude the amount of advertising, the media mix, the unique seing proposition and the frequency of pacement. This kind of experiment is aso reevant for testing other types of communication too mentioned in Tabe Exhibit 17.5 Baieys Irish Cream iqueur: saes expansion with market and product deveopment In 1993 R&A Baiey and Co. decided to increase saes of its brand in Europe by expanding usage of the drink. A crossborder teevision advertising campaign, Baieys with ice, was deveoped to reinforce the contemporary a-year-round image of the drink and to distinguish it from the stuffy image of traditiona iqueurs with their mainy after-dinner roe. The appea was to younger consumers to drink Baiey s on a greater number of occasions. Specia promotiona packs were aso deveoped, consisting of a one-itre botte together with two free iqueur gasses. In eary 1993 Baieys was aso aunched on the Japanese market after a period of test marketing. The reguar brand was offered in addition to a speciay deveoped brand for the Japanese caed Baieys God, which was deveoped with ten-year-od mat whiskey to appea to the Japanese taste for premium-quaity spirits. This Baieys God was aso priced at doube the price of the reguar brand. Source: MacNamee and McDonne,

14 Part IV Designing the goba marketing programme Pubic reations Word-of-mouth advertising is not ony cheap, it is very effective. Pubic reations (PR) seeks to enhance corporate image buiding and infuence favourabe media treatment. PR (or pubicity) is the marketing communications function that carries out programmes designed to earn pubic understanding and acceptance. It shoud be viewed as an integra part of the goba marketing effort. PR activities invove both interna and externa communication. Interna communication is important to create an appropriate corporate cuture. The target groups for pubic reations are shown in Tabe The range of target groups is far wider in pubic reations than it is for the other communications toos. Target groups are ikey to incude the main stakehoder groups of empoyees, customers, distribution channe members and sharehoders. For companies operating in internationa markets this gives a very wide range of communication tasks. Interna communications in different country subsidiaries, empoying peope from a number of different countries, with different cutura vaues, wi be particuary chaenging. In a more market-oriented sense, the PR activity is directed towards an infuentia, though reativey sma, target audience of editors and journaists who work for newspapers/magazines, or towards broadcasting aimed at the firm s customers and stakehoders. Since the target audience is sma it is reativey inexpensive to reach. Severa methods can be used to gain PR. Such methods incude the foowing: Contribution of prizes at different events. Sponsorship of events (sporting, cutura, etc.). According to Meenaghan (1996), the wordwide sponsorship market grew from $2 biion in 1984 to $13.02 biion in In 1994 Europe and the United States together accounted for 32.6 per cent of wordwide sponsorship expenditure. Press reeases of news about the firm s products, pant and personne. Tabe 17.3 Target groups for pubic reations Pubics or target groups: domestic markets Directy connected with the organization Empoyees Sharehoders Suppiers of raw materias and components Providers of financia services Providers of marketing services (e.g. marketing research, advertising, media) Customers of the organization Existing customers Past customers Those capabe of becoming customers Environment The genera pubic Government: oca, regiona, nationa Financia markets generay Extra internationa dimensions: internationa markets Wider range of cutura issues The degree of remoteness of the corporate headquarters Is this to be handed on a country-bycountry basis, or is some overa standardization desirabe? May have ess knowedge of the company The country-of-origin effect wi infuence communications Wide range of genera pubics Host governments Regiona grouping (e.g. EU), word groupings Source: Phiips et a., 1994, p Reprinted by permission of Thomson Pubishing Services Ltd. 554

15 Chapter 17 Communication decisions (promotion strategies) Announcements of the firm s promotiona campaigns. Lobbying (government). The degree of contro of the PR messages is quite different. Journaists can use PR materia to craft an artice of so many words, or an interview of so many seconds. How materia is used wi depend on the journaist and the desired story ine. On occasions a thoroughy negative story can resut from a press reease that was designed to enhance the company image. Hence PR activity incudes anticipating criticism. Criticisms may range from genera ones against a mutinationa corporations to more specific ones. They may aso be based on a market: for exampe, doing business with prison factories in China. Saes promotion Saes promotion is defined as those seing activities that do not fa directy into the advertising or persona seing category. Saes promotion aso reates to so-caed beow-the-ine activities such as point-of-sae dispays and demonstrations, eafets, free trias, contests and premiums such as two for the price of one. Unike media advertising, which is above the ine and earns a commission, beow-the-ine saes promotion does not. To an advertising agency above the ine means traditiona media for which they are recognized by the media owners, entiting them to commission. Saes promotion is a short-term effort directed primariy to the consumer and/or retaier, in order to achieve specific objectives: consumer product tria and/or immediate purchase; consumer introduction to the shop; encouraging retaiers to use point-of-purchase dispays for the product; encouraging shops to stock the product. In the United States, the saes promotion budgets for fast-moving consumer goods (FMCG) manufacturers are arger than the advertising budgets. In Europe, the European Commission estimates that the rate of growth of spending on saes promotions was doube that for conventiona advertising throughout the period (Bennett, 1995, p. 321). Factors contributing to the expansion of saes promotion activities incude the foowing: greater competition among retaiers, combined with increasingy sophisticated retaiing methods; higher eves of brand awareness among consumers, eading to the need for manufacturers to defend brand shares; improved retai technoogy (e.g. eectronic scanning devices that enabe coupon redemptions, etc., to be monitored instanty); greater integration of saes promotion, pubic reations and conventiona media campaigns. In markets where the consumer is hard to reach because of media imitations the percentage of the tota communication budget aocated to saes promotions is aso reativey high. Here are some of the different types of saes promotion: Price discounts. These are very widey used. A variety of different price reduction techniques is avaiabe, such as cash-back deas. Cataogues/brochures. The buyer in a foreign market may be ocated at quite a distance from the cosest saes office. In this situation a foreign cataogue can be very effective. It must be abe to cose the gap between buyer and seer in the way that the potentia buyer is suppied with a the necessary information, from prices, sizes, 555

16 Part IV Designing the goba marketing programme coours and quantities to packing, shipping time and acceptabe form of payment. In addition to cataogues, brochures of various types are usefu for saespersons, distributors and agents. Transations shoud be done in cooperation with overseas agents and/or distributors. Coupons. Coupons are a cassic too for FMCG brands, especiay in the United States. A variety of coupon distribution methods exists: door-to-door, on pack, in newspapers. Coupons are not aowed in a European countries. Sampes. A sampe gives the potentia foreign buyer an idea of the firm and quaity of product that cannot be attained by even the best graphic picture. Sampes may prevent misunderstandings over stye, sizes, modes and so on. Gifts. Most European countries have a imit on the vaue of the premium or gift given. Furthermore, in some countries it is iega to offer premiums that are conditiona on the purchase of another product. The United States does not aow acohoic beer to be offered as a free sampe. Competitions. This type of saes promotion needs to be communicated to the potentia customers. This can be done on the pack, in stores via eafets or through media advertising. The success of saes promotion depends on oca adaptation. Major constraints are imposed by oca aws, which may not permit premiums or free gifts to be given. Some countries aws contro the amount of discount given at retai eve; others require permits for a saes promotions. Since it is impossibe to know the specific aws of each and every country, internationa marketers shoud consut oca awyers and authorities before aunching a promotiona campaign. Direct marketing According to Onkvisit and Shaw (1993, p. 717), direct marketing is the tota of activities by which products and services are offered to market segments in one or more media for informationa purposes or to soicit a direct response from a present or prospective customer or contributor by mai, teephone or persona visit. Direct marketing covers direct mai (marketing database), teephone seing and marketing via the Internet. A number of factors have encouraged the rapid expansion of the internationa direct marketing industry (Bennett, 1995, p. 318): deveopments in maiing technoogy, which have reduced the costs of distributing direct-mai iterature; escaating costs of other forms of advertising and saes promotion; the increasing avaiabiity of good-quaity ists of prospective customers; deveopments in information technoogy (especiay database technoogy and desktop pubishing) that enabe smaer companies to produce high-quaity direct marketing materias in-house; the increasing avaiabiity throughout the deveoped word of interactive teevision faciities, whereby consumers may order goods through a teetext system. Direct mai Direct mai is a viabe medium in many countries. It is especiay important when other media are not avaiabe. Direct mai offers a fexibe, seective and potentiay highy cost-effective means of reaching foreign consumers. Messages can be addressed excusivey to the target market, advertising budgets may be concentrated on the most promising market segments, and it wi be some time before competitors reaize that the firm has aunched a campaign. In addition, the size, content, timing and geographica coverage of maishots can be varied at wi: the firm can spend as much or as 556

17 Chapter 17 Communication decisions (promotion strategies) itte as necessary to achieve its objectives. There are no media space or airtime restrictions, and no copy or insertion deadines to be met. A aspects of the direct-mai process are subject to the firm s immediate contro, and it can experiment by varying the approach used in different countries. Direct mai can take many forms etters, cataogues, technica iterature and it can serve as a vehice for the distribution of sampes. A major probem in the effective use of direct mai is the preparation of a suitabe maiing ist (marketing database). European marketers are sti far behind the United States in expoiting the medium and aso with regard to the response to direct mai in the form of mai orders. Per capita mai-order saes in the United States are more than doube those of any European country (Desmet and Xarde, 1996, p. 58). The use of direct mai in Japan is aso beow that in the United States. One reason for this discrepancy is that the Japanese fee printed materia is too impersona and insufficienty sincere. Direct mai is not ony reevant for the consumer market. However, effective use of direct mai for business-to-business purposes requires the preparation of an accurate customer profie (marketing database), incuding industry cassification, size of target company (measured, for exampe, by turnover, number of empoyees or market share), the peope to approach in each business (purchasing officer, project deveopment engineer, product manager, etc.), industry purchasing procedures and (where known) suppier seection criteria and the buying motives of prospective customers. Teemarketing is today used for both consumer and business-to-business campaigns throughout the industriaized word. The teephone can be used both to obtain orders and to conduct fast, ow-cost market research. Teemarketing covers cod caing (unsoicited cas) by saespeope, market surveys conducted by teephone, cas designed to compie databases of possibe saes prospects and foow-ups to customer requests for further information, resuting from print and broadcast advertisements. Currenty, the majority of cross-border teemarketing campaigns focus on business-to-business contacts, essentiay because of the combined teephone/fax/database faciities that an increasing number of companies possess and, in consequence, the greater reiabiity of business-to-business communications. The administration of internationa teemarketing normay requires the use of a commercia teemarketing agency. Language skis are required, pus considerabe skis and experience in identifying decision makers in target firms. In some European countries cod caing of consumers is under cose scrutiny in the name of consumer protection and respect for privacy. For exampe, Germany has prohibited cas on the grounds of privacy invasion, and this ban even appies to an insurance saesperson s announcement of a visit. In the ight of the deveopment in Internet technoogies it is very reevant to consider the Word Wide Web as a direct marketing too. This issue was discussed in Chapter 14. Persona seing The differences between advertising and persona seing were indicated in Tabe Advertising is a one-way communication process that has reativey more noise, whereas persona seing is a two-way communication process with immediate feedback and reativey ess noise. Persona seing is an effective way to se products, but it is expensive. It is used mainy to se to distribution channe members and in business-to-business markets. However, persona seing is aso used in some consumer markets for exampe, for cars and for consumer durabe products. In some countries abour costs are very ow and here persona seing wi be used to a greater extent than in high-cost countries. 557

18 Part IV Designing the goba marketing programme Figure 17.4 Combination of direct mai (database marketing) and persona seing If persona seing costs on business-to-business markets are reativey high it is reevant to economize with persona seing resources, and use persona seing ony at the end of the potentia customer s buying process (Figure 17.4). Computerized database marketing (direct mai, etc.) is used in a customer screening process, to point out possibe customers, who wi then be taken over by saespersons. Their job is to turn hot and very hot customer candidates into rea customers. Assessing saes force effectiveness There are five essentia questions to ask in assessing saes force effectiveness: 1 Is the seing effort structured for effective market coverage? Organization. Size of saes force. Territory depoyment. 2 Is the saes force staffed with the right peope? Type of internationa saes force: expatriates/host country/third country. Age/tenure/education profie. Interpersona skis. Technica capabiities. Seing technique. 3 Is strong guidance provided? Written guideines. Key tasks/mission definition. Ca frequency. Time aocation. 558

19 Chapter 17 Communication decisions (promotion strategies) Peope to be seen. Market/account focus. Territory panning and contro toos. On-the-job coaching. 4 Is adequate saes support in pace? Training. Technica back-up. Inside saes staff. Product and appications iterature. 5 Does the saes compensation pan provide the proper motivation? Tota compensation. Spit of straight saary/straight commission. Incentive design/fit with management objectives. Non-cash incentives. In the foowing we wi go into further detais regarding questions 1 and 2. Internationa saes force organization In internationa markets firms often organise their saes forces simiary to their domestic structures, regardess of differences from one country to another. This means that the saes force is organized by geography, product, customer or some combination of these (Tabe 17.4). A number of firms organize their internationa saes force aong simpe geographica territories within a given country or region. Firms that have broad product ines and arge saes voume, and/or operate in arge, deveoped markets may prefer more Tabe 17.4 Saes force organizationa structure Structure Factors favouring choice of organizationa structure Advantages Disadvantages Geographic Distinct anguages/cutures Cear, simpe Breadth of customers Singe product ine Underdeveoped markets Incentive to cutivate oca business and persona ties Breadth of products Trave expenses Product Estabished market Product knowedge Trave expenses Broad product ines Overapping territories/customers Loca business and persona ties Customer* Broad product ines Market/customer knowedge Overapping territories/products Loca business and persona ties Trave expenses Combination Large saes voume Maximum fexibiity Compexity Large/deveoped markets Trave expenses Saes management Distinct anguage/cutures Product/market/ geography overap * By type of industry, size of account, channe of distribution, individua company. 559

20 Part IV Designing the goba marketing programme speciaized organizations, such as product or customer assignment. The firm may aso organize the saes force based upon other factors such as cuture or anguages spoken in the targeted foreign markets. For exampe, firms often divide Switzerand into different regions refecting French, Itaian and German anguage usage. Type of internationa saes force Management shoud consider three options when determining the most appropriate internationa saes force. The saespeope hired for saes positions coud be expatriates, host country nationas or third country nationas. For exampe, a German working for a German company in the United States is an expatriate. The same German working for a US company in Germany is a host country nationa. They are a third country nationa if assigned to France. Expatriate saespersons. These are viewed favouraby because they are aready famiiar with the firm s products, technoogy, history and poicies. Thus the ony kind of preparation they woud need is a knowedge of the foreign market. Yet this may be a great probem for the expatriate saesperson. Whereas some may enjoy the chaenge and adjustment, other expatriate personne find it difficut to come to terms with a new and unfamiiar business environment. The faiure to understand a foreign cuture and its customers wi hinder the effectiveness of an expatriate saes force. The famiy of the expatriate may aso face adaptation probems. However, very expensive items often require seing directy from the head office, which usuay invoves expatriates. Host country nationas. These are personne who are based in their home country. As native personne they have extensive market and cutura knowedge, anguage skis and famiiarity with oca business traditions. Since the government and oca community undoubtedy prefer that their own nationas be hired instead of outsiders, the firm can avoid charges of expoitation whie gaining goodwi at the same time. Using oca saes representatives aso permits the firm to become active more quicky in a new market because the adjustment period is minimized. Third country nationas. These are empoyees transferred from one country to another. They tend to be born in one country, empoyed by a firm based in another country and working in a third country. The advantages and disadvantages of the three types of internationa saes force are summarized in Tabe Expatriates and third country nationas are sedom used in saes capacities for ong periods of time. They are used for three main reasons: to upgrade a subsidiary s seing performance, to fi management positions and to transfer saes poicies, procedures and techniques. However, most companies use oca nationas as their saes personne. They are famiiar with oca business practices and can be managed accordingy. Trade fairs and exhibitions A trade fair (TF) or exhibition is a concentrated event at which manufacturers, distributors and other vendors dispay their products and/or describe their services to current and prospective customers, suppiers, other business associates and the press. It appears from Figure 17.5 that trade fairs are mutipurpose events invoving many interactions between the TF exhibitor and numerous parties. TFs can enabe a company to reach in a few days a concentrated group of interested prospects that might otherwise take severa months to contact. Potentia buyers can examine and compare the outputs of competing firms in a short period at the same pace. They can see the atest deveopments and estabish immediate contact with suppying businesses. 560

21 Chapter 17 Communication decisions (promotion strategies) Tabe 17.5 Advantages and disadvantages of saes force types Category Advantages Disadvantages Expatriates Product knowedge Highest costs High service eves High turnover Train for promotion High training cost Greater home contro Host country Economica Needs product training High market knowedge May be hed in ow esteem Language skis Importance of anguage skis decining Best cutura knowedge Difficut to ensure oyaty Impement actions sooner Third country Cutura sensitivity Face identity probems Language skis Bocked promotions Economica Income gaps Aows regiona saes coverage Needs product/company training May aow saes to country in Loyaty assurance confict with the home country Source: Reprinted from Industria Marketing Management, Vo. 24, Honeycutt, E.D. and Ford, J.B. (1995) Guideines for managing an internationa saes force, p. 138, Copyright 1995, with permission from Esevier. Traditionay TFs have been regarded as a persona seing too, but Sharand and Baogh (1996) concude that TFs are an exceent environment for non-seing activities such as information exchange, reationship buiding and channe partner assessment. TFs offer internationa firms the opportunity to gather vita information quicky, easiy and cheapy. For exampe, within a short period a firm can earn a considerabe amount about its competitive environment, which woud take much onger and cost much more to get through other sources (e.g. secondary information). We concude this section by isting the arguments for and against participation in TFs. Figure 17.5 Three conceptions of trade fairs: major interactions for a oca exhibitor Source: adapted from Rosson and Seringhaus, 1996, p. 1181, with kind permission of P.J. Rosson, Dahousie University. 561

22 Part IV Designing the goba marketing programme Arguments for participation in TFs Marketers are abe to reach a sizeabe number of potentia customers in a brief time period at a reasonabe cost per contact. Orders may be obtained on the spot. Some products, by their very nature, are difficut to market without providing the potentia customer with a chance to examine them or see them in action. TFs provide an exceent opportunity to introduce, promote and demonstrate new products. SMEs without extensive saes forces have the opportunity to present their outputs to arge buying companies on the same face-to-face basis as arge oca rivas. Finding an intermediary may be one of the best reasons to attend a TF. A show is a cost-effective way to soicit and screen candidates to represent the firm, especiay in a new market. Athough many technica speciaists and company executives refuse to see or take teephone cas from outsiders who try to se them things at their paces of work, these same managers often do attend trade exhibitions. The customer goes to the exhibition in order to see the seer. This is aso an important aspect in the concept of reverse marketing or buyer initiative (see, for exampe, Figure 17.1). An appearance aso produces goodwi and aows for cutivation of the corporate image. Beyond the impact of dispaying specific products, many firms pace strong emphasis on waving the company fag against competition. This facet aso incudes supporting the morae of the firm s saes personne and intermediaries. TFs provide an exceent chance for market research and coecting competitive inteigence. The marketer is abe to view most rivas at the same time and to test comparative buyer reactions. Visitors names and addresses may be used for subsequent maishots. Arguments against participation in TFs There is a high cost in terms of time and administrative effort needed to prepare an exhibition stand in a foreign country. However, a marketer can ower costs by sharing expenses with distributors or representatives. Furthermore, the costs of cosing a sae through trade shows are estimated to be much ower than those for a sae cosed through persona representation. It is difficut to choose the appropriate trade fairs for participation, but this is a critica decision. Because of scarce resources many firms rey on suggestions from their foreign distributors on which TFs to attend and what specificay to exhibit. Coordination probems may arise. In LSEs with mutipe divisions more divisions may be required to participate in the same TF under the company banner. In SMEs coordination is required with distributors and agents if joint participation is desired, and this necessitates joint panning. Furthermore, the firm faces a ot of practica probems; for exampe, most peope visit exhibitions to browse rather than to buy. How does the exhibiting firm obtain the names and addresses of the caers who infuence major buying decisions within their companies? Second, gimmicks may be highy effective in attracting visitors to a stand, but they can attract the wrong peope. An audience may be greaty impressed by the music, dancing, demonstration or whatever is provided, yet not be remotey interested in the product. Third, how can the empoyees who staff a stand be prevented from treating the exercise as a hoiday, paying more attention to the socia aspects of their invovement with the exhibition than to finding customers? What specific targets can staff be given and how can the attainment of targets be measured? Whether a marketer shoud participate in a trade fair depends argey on the type of business reationship it wants to deveop with a particuar country. A company ooking ony for one-off or short-term saes might find the TF expense prohibitive, but a firm ooking for ong-term invovement may find the investment worthwhie. 562

23 Chapter 17 Communication decisions (promotion strategies) 17.4 Vira marketing Vira marketing Onine word-of-mouth is a marketing technique that seeks to expoits existing socia networks to produce exponentia increases in brand awareness. Goba seing and buying is part of a socia process. It invoves not ony a one-to-one interaction between the company and the customer but aso many exchanges of information and infuence among the peope who surround the customer. For exampe, diffusion occurs when an innovation is communicated through certain channes among members of a socia system. An innovation is an idea, practice, or object that an individua or unit of adoption perceives as new (Rogers, 1995). According to Rogers, mass media channes are reativey more important for earning about an innovation, whereas interpersona communication is especiay important for persuasion. Thus, consumers communicating via emai may be persuadea more readiy than those via mass media advertising. Passing aong emai is even easier than writing comments. Beyond this, pass-aong emai seems particuary we suited for the spread of images and/or verba content that is too detaied to be disseminated via word of mouth. The Internet has radicay changed the concept of word-of-mouth, so much so that the term vira marketing was coined by venture capitaist Steve Jurvetson in The term was used to describe Hotmai s e-mai practice of appending advertising for itsef to outgoing mai from its users. In the Hotmai case each e-mai sent arrived with the appended message Get your private, free e-mai from Hotmai at The assumption is that if such an advertisement reaches a susceptibe user, that user wi become infected (i.e. sign up for an account) and can then go on to infect other susceptibe users. Whie e-mai may have been the origina catayst, the advent of socia networks, onine communities and chatrooms provide the abiity to distribute information exponentiay faster than ever before. Where word-of-mouth marketing coud take weeks or months to reach a thousand peope, vira marketing can reach hundreds of thousands or miions in a matter of days or hours. The spread of an effective vira marketing campaign is akin to an epidemic outbreak of a virus, imited ony by the potency and reevance of the marketing message. Hotmai discovered that a persona recommendation is more powerfu than any advertising campaign, and vira marketing s strength is based on the fact that peope are more ikey to respond to a marketing message or take interest in a product if it comes with the endorsement of a friend. In the Hotmai case, the vira activity turned out to be one of the most successfu vira marketing campaigns of a time: simpe text advertisement appended to each user s e-mai. The free e-mai service spent a mere $50,000 on traditiona marketing and sti became the word s eading e-mai provider amost overnight, with 75 miion users (Pheps et a., 2004). Definition Vira marketing can be defined as a marketing technique that seeks to expoit pre-existing socia networks to produce exponentia increases in brand awareness, through vira processes simiar to the spread of an epidemic. It is word-of-mouth deivered and enhanced onine; it harnesses the network effect of the Internet and can be very usefu in reaching a arge number of peope rapidy. From a marketing perspective, it is the process of encouraging individuas to pass aong favourabe or compeing marketing information they receive in a hypermedia environment: information that is favourabe or compeing either by design or by accident. 563

24 Part IV Designing the goba marketing programme Exhibit 17.6 Trojan Games The Trojan Games vira marketing campaign ( with its award-winning sex-and-games spoof video content, has been seen by over 38 miion peope gobay since the site aunched in October In its first month aone, over 6 miion peope visited the site. Ony sites such as Googe and Yahoo reach more peope over such a time period. The foowing brand benefits were reveaed in a consumer survey: 77 per cent recaed the Trojan brand after seeing the campaign; 73 per cent positive rating of the overa impression of the campaign; 80 per cent perceived the campaign to be unique; 50 per cent woud be more ikey to consider the Trojan brand after seeing the campaign. Source: Adapted from MindComet (2006). Motives for vira marketing The creation of technoogies such as SMS technoogy, sateite radio and Internet ad bocking software are driving a fundamenta shift in the way the pubic consumes media and the advertising often tied to it. Teevision ads, radio spots, onine ads and even e-mais are facing increasing competition for effectivey capturing the viewer s attention and provide positive ROI for the marketer. Additionay, consumers are becoming increasingy immune to mass marketing and advertising, so this form of marketing offers something that does not fee ike they are being sod to, making them more receptive to the offer. This competition, couped with the rising cost of media buys, has caused marketers to search for an aternative means to reach the customer. Vira marketing is an attractive soution because it utiizes the free endorsement of the individua rather than purchasing mass media to spread the word. Because the distribution mode is free, vira can potentiay be ower cost and more effective than traditiona media. A study by Sharpe Partners (Business Wire, 2006), an award-winning interactive marketing agency, reveaed that 89 per cent of adut Internet users in the United States share content with others via e-mai. Sharpe Partners study on vira marketing aso found that 63 per cent of the respondents share content at east once a week, with 25 per cent sharing daiy or amost daiy, and as many as 75 per cent of the respondents forwarding this content to up to six other recipients. In addition to highighting the rampant frequency of content sharing, the study generated some interesting resuts regarding the type of content that is sent. The most popuar content is humorous materia, with 88 per cent forwarding jokes or cartoons. The second most popuar category is news (56 per cent), foowed by heath care and medica information (32 per cent), reigious and spiritua materia (30 per cent), games (25 per cent), business and persona finance information (24 per cent), and sports/ hobbies (24 per cent). For companies ooking to empoy a vira marketing programme, the study found that adding overt brand messages ony sighty reduces the ikeihood that the content wi be shared. Some 56 per cent of the respondents are ess or sighty ess ikey to forward such content, whereas 43 per cent said they are more or sighty more ikey to send marketing-reated messages. Ony 5 per cent refuse to share content that contains a cear brand message. Advantages of vira marketing It incurs very itte expense since the individua passing on the referra carries the cost of forwarding the brand message. Vira marketing offers SMEs the 564

25 Chapter 17 Communication decisions (promotion strategies) opportunity to target a whoe new set of customers whie keeping distribution costs to a minimum. Unike traditiona advertising vira is not an interruptive technique. Instead, vira campaigns work the Internet to deiver exposure via peer-to-peer endorsement. Vira campaigns, whether utimatey iked or disiked, are often wecomed by the receiver. The act of forwarding eectronic messages containing advertising is vountary rather than a paid testimonia or a mass ad campaign and thus may be viewed more favouraby by the recipient. The focus is on campaigns containing materia that consumers want to spend time interacting with and spreading proactivey. Those forwarding the messages wi be more ikey to know which of their friends, famiy members and work coeagues have simiar interests and are thus more ikey to read the message: hence, more effective targeting. Here, the term interests refers not ony to the narrow sense of just the product or service but aso incudes the way the message is presented, such as the humour, the artwork, or the medium itsef. Disadvantages of vira marketing Vira marketing, ike a marketing is hit or miss. However, vira marketing by nature is often more risky or controversia than traditiona marketing. If done impropery vira marketing can backfire and create negative buzz: If particuar software is needed that is not widey used, then peope wi not be abe to open or view the message Many peope receive vira marketing messages whie at the office, and company anti-virus software or firewas can prevent peope from receiving or viewing such attachments For a vira marketing campaign to be successfu, it must be easy to use. For exampe, if the promotion is some sort of game or contest, then asking for referras shoud be an option immediatey after the game, not as a condition to pay. Exhibit 17.7 Honda UK The Cog vira marketing campaign In 2001 Honda took a ook at its 3 per cent market share and reaized the brand needed to communicate ceary that a car is not a car. The company understood that consumers never reaize much of what goes into making a Honda car: the number of parts, their coordination, and the precision engineering that makes this coordination possibe. The question was how to create a good market position without foowing traditiona communication formats and themes. The campaign aso needed to connect with those who might infuence the purchase decision, such as famiy, friends, work coeagues, and even the oca mechanic, in order to gain brand support. In other words, the ad had to be reay good to cut through the cutter, encourage a favourabe attitude toward the brand, and encourage consumers not ony to buy but to tak as we. The resut of the creative effort was an ad in 2003 known as The Cog that featured hundreds of individua pieces of a new Honda Accord connecting with each other as though they were a big tumbing domino dispay. Given the nature of the Internet, the unintended consequence of this vira campaign was the spread of communication beyond the United Kingdom. In the United States, where the cost of running a two-minute ad on nationa teevision is substantia, or even prohibitive, it was reported that the ad was widey viewed over the Internet, with hits to the US website quadruping to 55,000 a week and brochure requests triping. After three months The Cog was aso screened on Austraian teevision, sparking a renewed spread of the ad across the Internet. Senders emaiing the ad to friends and coeagues added their stamp of approva to the Honda brand. In cases where a recipient had recenty purchased a Honda, receipt of the ad coud be seen as the sender s approva of the brand choice, reinforcing the message that the consumer had, indeed, made the right choice in purchasing a car with such quaity precision parts. In summary, Honda used mutipe forms of media, incuding TV advertising and Web-based messages, enabing The Cog to cross between word-of-mouth and traditiona media. As an extra, the ad was often discussed on teevision chat shows! Source: Adapted from Dobee et a. (2005). 565

26 Part IV Designing the goba marketing programme Deveoping a vira marketing campaign Vira marketing is by no means a substitute for a comprehensive and diversified marketing strategy. In empoying vira marketing to generate peer-to-peer endorsement, the technique shoud not be considered as a standaone mirace worker. Whie the messaging and strategy ranges radicay from campaign to campaign, most successfu campaigns contain some commony used approaches. These approaches are often used in combination to maximize the vira effect of a campaign. Successfu vira campaigns are easiy spread. The key is to get your customers to do the hard work for you by recommending your company or its promotiona offers to friends and coeagues, who in turn wi recommend it to their friends and so on. An effective vira marketing campaign can get your marketing message out to thousands of potentia customers at phenomena speeds. When creating a campaign marketers shoud evauate how peope wi communicate the message or campaign to others. 1 Creating compeing content Creating quaity content can often be more expensive than simpy offering a free product, but the resuts are often better. Fun is often a vita part of any vira marketing campaign. The genera rue of thumb is that the content must be compeing, it must evoke a response on an emotiona eve from the person viewing it. This fact aone has aowed many smaer brands to capitaize on content-based vira campaigns. Traditionay, arger brands are more reserved and risk adverse to the possibiity of negative reaction. Centra to the success of these campaigns is one or more of the foowing: their entry timing (eary), their visibiity or the simpicity of the idea. The Honda Cog exampe (see Exhibit 17.7) broke a compex idea into a simpe engaging one: each car component forming part of an eaborate domino-type setup. 2 Targeting the right audience If a campaign is skewed towards a certain audience or certain regions (countries), marketers shoud make sure they seed towards that audience. Faiure to due so may ki a campaign before it ever gets off the ground. The infuence and, in some cases, the power of reference groups or opinion eaders in individua decision making is significant. 3 Campaign seeding Seeding the origina message is a key component of a vira campaign. Seeding is the act of panting the campaign with the initia group who wi then go on to spread the campaign to others. The Internet provides a wide array of options for seeding, incuding: e-mai/sms onine forums (Googe groups) socia networks (MySpace.com) chatroom environment (MSN Messenger) bogs podcasts. When determining where to seed it is important that marketers consider the audience they are aiming for. Is the target audience using the above-mentioned media (technoogies) and to what degree? Companies often use a combination of technoogies to spread the virus. Many use SMS. An exampe of an SMS campaign is that of Heineken, which inked an SMS 566

27 Chapter 17 Communication decisions (promotion strategies) promotion with the British pub tradition of paying quiz games. Heineken combined both onine and offine promotions through point-of-sae signs in pubs, inviting customers to ca from their mobie phones, type in the wordpay and receive a series of mutipe-choice questions to answer. Food and beverage prizes were awarded for correct answers. From a promotiona perspective, the idea was successfu as customers tod others what they were doing, prompting them to ca in too. 4 Contro/measuring resuts The goa of a vira campaign is exposive reach and participation. To measure the success of a vira marketing campaign, estabish specific and obtainabe goas within a timeframe. For exampe, you woud ike to see a 20 per cent increase in traffic to a website within three months or to doube your subscriber rate to an e-mai newsetter in one year. Marketers shoud aso be adequatey prepared to meet the needs of participants in the event that the campaign is successfu. Server space, bandwidth, support staff, fufiment and stocking shoud be taken into consideration we in advance of campaign aunch. The marketer shoud have the abiity to capitaize on the fu success of the campaign. Exhibit 17.8 Phiips Quintippio vira ad campaign (created by advertising agency Triba DDB) In November 2005 a vira website with a fictiona 15-baded razor was deveoped in order to create some buzz and make fun of the rea-ife introduction of the four-baded Schick Quattro and the five-baded Fusion by Giette in October 2005 ( the website was removed). On the website it was possibe to downoad an ad that had run aso on TV. The script of the commercia procaimed: Looking for a cose shave? Then you re ooking for the new Quintippio Mega Shave, now with 15 extra arge bades! A new product, Quintippio Muti-Shave opens the spot and we find out that it has 15 bades. Then a puzzed man ooks at it, wondering how he is going to shave his face with it. A voiceover says, Everyone s taking more bades we re taking ess irritation. The seing point is an eectric shaver that has a pump for dispensing Nivea skin cream as a shaving ubricant and moisturizer. The spot ends with the caim, As cose as a bade with ess irritation. The commercia is genuiney funny it uses humour to serve the advertising strategy and reinforce the brand positioning. Phiips makes fun of both Giette and Schick for their muti-bade obsession. Here is what works: Noreco makes the category eader ook out of touch athough the end-benefit of muti-bade is supposed to be cose shave, it is not cear that either Giette or Schick remembers this. Giette s macho, tech-oriented advertising is so obsessed with the product that it seems to forget the consumer in the process. Coo Shave focuses on a reevant, ownabe endbenefit We re taking about ess irritation which presumaby is a secondary benefit for many users Ë 567

28 Part IV Designing the goba marketing programme Exhibit 17.8 continued Figure 1 Source: The Economist, 16 March The Economist Newspaper Limited, London ( ). but not owned by any mae shaving system. This spot does a good job of using humour, voiceover, visuas and co-branding (with Nivea) to reinforce this end-benefit. The humour is used to reinforce the brand positioning. Humour reinforces the brand positioning Showing that Giette and Schick don t get it with their badespawning razors and focusing on a different benefit is words more effective than trying to argue that rotary shavers have more bades than muti-bade razors, for exampe. That the issue raised in the commercia is reevant is underined by the serious magazine The Economist, which took up the Bade running issue. The artice discusses whether Moore s aw can be transferred from computer chips to number of razor bades. The artice concudes that the most ikey projection is that, if the so-caed power-aw curve is foowed then the 14-baded razor shoud arrive in year But as we have seen, the fictiona Phiips 15-bade razor is aready here, and so are the discussions in the media and among internet users so Phiips has reached its goas for its vira marketing campaign. Sources: Adapted from: WordNetDaiy.com (2005) Razor wars: 15-bade fever, 26 November; The Economist (2006) The cutting edge A Moore s aw for razor bades, 16 March Internationa advertising strategies in practice In the introduction to Part IV the question of standardization or adaptation of the whoe marketing mix was discussed. Standardization aows the reaization of economies of scae in the production of advertising materias, reducing advertising costs and increasing profitabiity. On the other hand, since advertising is based argey on anguage and images, it is mosty infuenced by the sociocutura behaviour of consumers in different countries. In reaity it is not a question of either/or. For the internationay oriented firm it is more a question of the degree of standardization/ocaization. A study by Hite and Frazer (1988) showed that a majority (54 per cent) of internationay oriented firms were using a combination strategy (ocaizing advertising for some markets and standardizing advertising for others). Ony 9 per cent of the firms were using totay standardized advertising for a foreign markets, much ower than in previous studies (Sorenson and Weichman, 1975; Boddewyn et a., 1986). This coud indicate a trend towards ess standardization. A tota of 37 per cent of the firms reported that they were using ony ocaized advertising. Many of the goba companies using standardized advertising are we known (e.g. Coca-Coa, Inte, Phiip Morris/Marboro). 568

29 Chapter 17 Communication decisions (promotion strategies) Standardized advertisements from Cathay Pacific The Cathay Pacific advertisements show that the company uses a standardized strategy in the South-East Asian area. The ony eement of adaptation is the transation of the Engish text into Japanese. Exampes of adaptation (ocaization) strategies Courvoisier Cognac: Hong Kong/China versus Europe The Chinese ove affair with western acoho goes back a ong way. The first imported brandy arrived in Shanghai in 1859 when Hennessy unoaded its first cargo. Then in 1949 the favourite drink of the Paris of the East suddeny became a symbo of western capitaist decadence; acoho shipments came to an abrupt hat and did not resume for the next 30 years. However, when foreign iquor once again became avaiabe in the ate 1970s, cognac quicky resumed its pace as a guest at the Chinese banquet tabe. Today cognac and brandy sti account for about 80 per cent of a imported spirits in China. Most of the imported brandy goes through Hong Kong via grey markets (see aso section 17.8). Chinese awareness of brand and category of cognac is particuary high in the South, where the drinking habits of visiting Hong Kong businessmen set a strong exampe. This impact is reinforced by acoho advertising on Hong Kong teevision, avaiabe to miions of viewers in Guangdong province. The key to Chinese consumption patterns ies in the importance of face. Whatever the occasion, be it the father of the bride toasting his son-in-aw s famiy in Beijing or a Shenzhen entrepreneur s night out on the town, brandy is of paramount importance. Unike their western counterparts, who ike to cur up on the couch with a snifter of brandy, the Chinese consider cognac drinking an extremey socia and conspicuous pastime. Two different Courvoisier advertisements are shown: the one for the western European market shows coupes drinking cognac with their coffee; the Asian advertisement shows peope drinking cognac from beer gasses during the mea. 569

30 Part IV Designing the goba marketing programme Habits of cognac drinking in Western Europe and Asia Fokore as much as marketing has propeed the growth of cognac saes. Cognac has ong had the inestimabe commercia benefit of being widey regarded by the Chinese as enhancing a man s sexua prowess. And much to the deight of the iquor companies, the Chinese beieve that the oder (and pricier) the cognac, the more potent its effect. Source: adapted from Business Week, 1984; Bafour, Prince cigarettes: UK versus Germany The Danish cigarette company House of Prince has high market share (50 90 per cent) in Scandinavian countries, but outside this area its market share is very ow, typicay 1 2 per cent. The House of Prince cigarettes images show advertisements used in the UK and Germany. The UK version is based on an invitation to try the product ( I go for Prince ). The target group is aso above average in education and income. The German advertisement is somewhat different. Prince is promoted as an origina import from Denmark. Apparenty there is no buy German mentaity working against the use of this sogan. In the German consumer s mind Danish cigarettes are strongy positioned compared to ight German cigarettes. Therefore the product s position is emphasized as men s business, with Viking associations and ideas of freedom. Incidentay, the two products Prince and Prince Denmark are not identica. The German Prince Denmark has a mider taste than does Prince. Gamme Dansk (Danish Distiers/Danisco): Denmark versus Germany The Danish bitter Gamme Dansk has a 75 per cent share of the bitter market in Denmark. Thus the product has a high degree of recognition there (neary a Danish aduts know the abe). The objective of the Danish advertisement has therefore primariy been to maintain Gamme Dansk s high degree of recognition. Athough the market share in Denmark is very high, Gamme Dansk does not have any position worth mentioning outside Denmark. In Germany the situation is totay different. Here the knowedge (and tria share) is at a minimum. The Germans have 570

31 Chapter 17 Communication decisions (promotion strategies) Advertisements for Prince cigarettes in the UK and Germany their own Jägermeister and competition is tough. The strategy behind the German campaign has therefore been to make peope try Gamme Dansk by etting them fi out a coupon. By sending it in they receive a itte botte of Gamme Dansk and two origina Gamme Dansk gasses. Advertisements for Gamme Dansk in Denmark and Germany 571

32 Part IV Designing the goba marketing programme LEGO FreeStye: Europe versus the Far East The LEGO images show European and Far Eastern versions of an advertisement for LEGO FreeStye. The Asian version, Buid your chid s mind, appeas to Asian parents desire for their chidren to do we in schoo. The Asian educationa system is very competitive and ony those with the highest grades are admitted to university. In many paces in Asia it is a defeat for parents if their chid does not do we in schoo. The Asian version has been run in Hong Kong, Taiwan and Korea (preferaby in the oca anguages because the majority of consumers do not understand Engish). In Hong Kong the advertisements are run in Engish or Chinese (depending on the anguage of the magazine). The European version impies creativity when paying with the different FreeStye bricks: What wi your chid make of it? Advertisement for LEGO FreeStye in the Far East, 1997 Advertisement for LEGO FreeStye in Europe, Impications of the Internet for communication decisions In the physica marketpace different communication toos are used in the buying process of customers (see Figure 17.6). Traditiona mass communication toos (print Figure 17.6 The roe of Internet communication in the buying process of customers 572

33 Chapter 17 Communication decisions (promotion strategies) advertising, TV and radio) can create awareness and this can resut in consumers identification of new needs. From then on other eements of the communication mix take over, such as direct marketing (direct marketing, persona seing) and in-store promotion. Unike marketing in the physica marketpace the Internet/e-commerce encompasses the entire buying process. Market communication strategies change dramaticay in the onine word. On the Internet it is easier than ever to actuay communicate a message to arge numbers of peope. However, in many cases, it is much harder for your message to be heard above the noise by your target audience. Various strategies for conducting onine marketing have been deveoped in the past severa years from the most common (website inking) to the most expensive (banner advertising) to the most offensive (e-mai spamming), and everything in between. It is amost certain that a continua stream of new market communication strategies wi emerge as the Internet medium evoves. Athough some companies do business excusivey on the Web, for most the Internet offers exciting opportunities to deveop an additiona saes channe. This new channe can extend a company s reach significanty, enabing it to do business with a new customer base that was previousy unreachabe. Customer preferences are driving e-commerce because many consumers simpy prefer onine shopping because of the convenience, reach and avaiabiity of products and services. Companies that do not deveop an internet presence risk osing these customers to more aggressive competitors. Deveoping a successfu onine marketing programme bois down to the same objectives as in the physica word: how to create an audience. Audience deveopment is the preferred phrase for onine marketing, because it more precisey communicates the point of the activity. How, then, can a web audience be created? The web audience deveopment process consists of the foowing six phases: 1 integration; 2 design requirements that are unique; 3 techniques for audience creation; 4 methods of advertising the site; 5 effective promotions that attract attention; 6 measurement and anaysis to ensure ongoing success. 1 Integration of Internet strategy into an overa business strategy Before a company buids a site it shoud determine how the site wi fit into the company s overa business strategy. A hoistic approach does not ook at the site in isoation, but in the context of overa marketing and saes efforts. Marketers must understand the roe of each medium within the company s marketing mix and utiize the strengths of each. Creating the right onine corporate identity is the first step for audience deveopment, the step from which a other components of a successfu web marketing programme fow. Synergy and consistency are essentia. Athough individua messages may vary to appy the unique strengths of each medium, the overa favour shoud be consistent across media. A marketing and saes activities shoud work together, and each marketing objective shoud be supported across mutipe media where possibe. A company shoud cross-promote among media, for exampe promoting its website in brochures and print advertising. 573

34 Part IV Designing the goba marketing programme 2 Design requirements that are unique Given the free fow of information in the market space and the potentia for overoad, the marketer with the best-designed information package wi generate the competitive advantage. Whie audience creation, advertising and promotions drive traffic to a site it is the design that either encourages visitors to expore or drives them away in frustration. A good design is, of course, aestheticay peasing. More importanty, though, it engages visitors, makes it easy for them to navigate the site and compes them to expore the site further, purchase products and return another day. Attractive graphics that support the company s message are important, but arge graphics that take a ong time to oad frustrate users. Many visitors wi not wait ong enough for the graphic to finish oading. Additionay, visitors are ess ikey to return to a site that has confusing navigationa cues. The design shoud use cear, consistent navigationa cues that make it easy for visitors to determine where they are within the site structure. With more than a miion sites competing for users attention, first impressions are critica. A confusing, poory organized site structure can negate even the highest quaity content. Web design differs significanty from design for other media. The most important difference is that the Web is interactive, incorporating hyperinks and devices for immediate visitor feedback. Some sophisticated designs incude dynamicay generated pages that are custom-taiored to each visitor s interests, preferences and buying habits. 3 Techniques for audience creation Deveoping traffic on a site requires expert knowedge of the numerous onine search devices. The audience creation methods described in this section are highy cost effective for generating a arge number of repeat site visitors: Search engine optimization. Search engines and directories pay a critica roe in internet marketing, because the majority of web surfers rey on these navigation guides to conduct their research. Because users typicay expore ony the first ten or 20 sites on the ist, an understanding of how search ranking works can make a huge difference in traffic voume. Effective optimization of search engine resuts requires carefuy designed meta tags and other HTML code and pointer pages speciaized for individua search engines. Editoria pacement in new media. In addition to using the Internet as a communication too to contact traditiona journaists, companies can reach out to the new and rapidy increasing breed of onine-ony news media. Most onine stories contain hyperinks to the sites of featured marketers. Because onine stories are typicay archived in news databases and indexed by search engines they provide a source of new visitors for an indefinite period. Strategic inking. A major differentiator between the Web and other media is the use of hyperinks, in which a user cicks on a ink and is instanty transported to another site. The more inbound inks a company estabishes on other sites, the more quaified visitors the site wi attract. Unike banner ads, inks frequenty stay in pace for months and bear the credibiity of editoria seection. Best of a, they are usuay free. Some of the best investments of time marketers can make is to contact web masters of affinity sites in an attempt to pace inbound inks on their sites. Web masters of many popuar sites activey seek out quaity sites to which they can ink. 574

35 Chapter 17 Communication decisions (promotion strategies) Interactive pubic reations. Interactive pubic reations faciitates wordwide new deivery as we as direct interactivity with individuas. Newsgroups, maiing ists, forums, buetin boards and other virtua communities are important sources of visitors for a site. One method for tapping into virtua communities is to empoy interactive pubic reations with materias such as eectronic press reeases or other stories that may be of interest to specific groups. 4 Methods of advertising the site To take fu advantage of the power of Internet marketing companies must understand the differences between onine advertising and other, more traditiona media. Banner advertising. Onine banner ads use eye-catching mutimedia effects such as animation, interactivity, sound, video and 3D to attract attention and draw visitors to a site. Even in-the-banner commerce transactions are becoming common. With onine advertising companies can target ads with far greater precision than with any other medium. Today s ad server technoogy offers highy sophisticated, automatic targeting that uses factors such as demographic data and visitor behaviour whie at the site. In addition, technoogy is emerging that aows onine ads to be taiored automaticay to each individua visitor. Marketers can take advantage of this targeting capabiity to pace banner ads on sites that attract visitors who match the demographic profie for companies products. As a resut they can increase brand awareness among a carefuy targeted audience and drive highy quaified traffic to their site. Sponsorships. Excusive sponsorship of site content is a growing trend. Sponsoring strategic editoria content is an effective way to estabish ong-term brand identification among target audiences. Sponsorship of content or pages on certain sites for exampe a site maintained by an infuentia industry group or a eader in a particuar industry associate a company with that group or industry eader. This association ends credibiity and heps increase customer interest and brand awareness. Barter advertising. In addition to paid advertising, many sites are performing banner exchanges and ad barter arrangements. Even among top content sites bartering is a common, cost-effective way to boost traffic. Companies can take advantage of this ow-cost advertising method by estabishing persona reationships and negotiating barter deas with other sites. 5 Effective promotions that attract attention Promotions offer an exceent opportunity for pubic reations exposure and onine community awareness. These promotions can take a variety of forms: Contests. Quizzes, sweepstakes and other contests are sometimes effective components of onine marketing. Companies can use contests for a variety of purposes, incuding saes generation, brand recognition estabishment, customer oyaty buiding and market research. Loyaty programmes. It is we known that the cost of retaining a current customer is about one-tenth that of acquiring a new one. As a resut, customer oyaty programmes can have a dramatic impact on the bottom ine. Loyaty programmes and 575

36 Part IV Designing the goba marketing programme simiar onine campaigns can hep retain customers and motivate them to recruit new customers by recommending a company s site or products to friends and associates. Onine events. Live events (for exampe ive sporting events) in which users from around the word participate have proven tremendousy popuar with the onine pubic. Promoters have seized on this trend to capture audiences for a variety of onine events, incuding ceebrity chats, ive concert broadcasts, virtua conferences and auctions. Such events can be effective for gaining mind share among new users and positioning a company or site at the cutting edge of its market. 6 Measurement and anaysis to ensure ongoing success The Internet is one of the most measurabe of a communications media. The abiity to monitor the effectiveness and continuay fine-tune sites and campaigns is one of the medium s greatest benefits. Pau (1996) argues that the Web has the abiity to compie statistics about the reach (how many peope have viewed each advertisement) and exposure time (how ong the viewers have ooked at the advertisement). This heps companies to measure the effectiveness of their advertisements. Server ogs and other performance data are vauabe indicators that can be used to deveop insights which are far beyond what any print circuation figures or TV ratings data can provide. It is important, however, to combine these quantitative measures with quaitative measures to achieve a meaningfu evauation of effectiveness. Tracking which externa sources refer the most visitors to the home page is usefu when evauating the success of ad banners, affinity inks and other promotiona campaigns. Audience quaification Counting web page hits aone is not sufficient to determine effectiveness of audience deveopment strategies. It is more important to determine who the visitors are. Are they prospective customers or simpy confused and curious surfers who wi never return? How many pages past the first home page does the average visitor expore from a particuar banner ad? What percentage of visitors return again, and which ones become paying customers? Customer feedback Perhaps the most vauabe form of anaysis comes not from technoogy but directy from site visitors. Sites that post their e-mai addresses or teephone numbers to encourage contact from visitors are sending a strong message that invites reationship buiding with prospects and customers. An interactive process that incorporates visitor feedback enabes the company to raise the site to its fu potentia and keep it there. Marketers can get information on visitors perception of the site through onine visitor surveys. Because they are convenient and even fun to respond to, response rates are typicay high. For additiona opinions marketers can monitor discussions about the brand and genera product category on discussion boards in newsgroups as we as other independent forums. Such feedback is a natura by-product of many onine marketing activities and can be effectivey incorporated into the other components of audience deveopment. 576

37 Chapter 17 Communication decisions (promotion strategies) 17.7 Summary Five ingredients of internationa communication have been presented in this chapter: 1 advertising; 2 pubic reations; 3 saes promotion; 4 direct marketing; 5 persona seing. As internationa marketers manage the various eements of the promotions mix in differing environmenta conditions decisions must be made about what channes are to be used in the communication, the message, who is to execute or hep execute the programme, and how the resuts of the communication pan are to be measured. The trend is towards greater harmonization of strategy, at the same time aowing for fexibiity at the oca eve and eary incorporation of oca needs into the communication pans. Hence an important decision for internationa marketers is whether the different eements of the communication shoud be standardized wordwide or ocaized. The main reasons for seeking standardization are as foows: Customers do not conform to nationa boundaries. The company is seeking to buid an internationa brand image. Economies of scae can be achieved. The few high-quaity creative ideas can be expoited as widey as possibe. Specia expertise can be deveoped and expoited. However, some communication toos, especiay persona seing, have to be ocaized to fit conditions of individua markets. Another reason for the ocaization of the persona seing too is that distribution channe members are normay ocated firmy within a country. Consequenty decisions concerning recruitment, training, motivation and evauation of saespeope have to be made at the oca eve. The process of seecting agencies has aso been considered. The requisite bend of oca knowedge, cutura understanding and management expertise across internationa markets is eusive. Too much centraization and standardization resuts in inappropriate marketing communications. A very important communication too for the future is the Internet. Any company eager to take advantage of the Internet on a goba scae must seect a business mode for its Internet ventures and estimate how information and transactions deivered through this new direct marketing medium wi infuence its existing distribution and communication system. Vira marketing is by no means a substitute for a comprehensive and diversified marketing strategy. Vira marketing is a credibe marketing tactic that can deiver positive ROI when propery executed as a component of an overarching strategic pan. Marketers shoud utiize vira marketing when the messaging can coincide and support a measurabe business goa. 577

38 Part IV Designing the goba marketing programme CASE STUDY 17.1 Hey Hansen: Sponsoring fashion cothes in the US market On a warm autumn day in 1997 Johnny Austad, President of the Norwegian cothing manufacturer Hey Hansen Co. (HH), arrives at the company s US subsidiary. Johnny can sti not quite understand the incredibe deveopment that HH has seen in the US market. During the ast coupe of years Hey Hansen USA has had an increase in turnover of 10 per cent per year, but in 1996 turnover doubed, amounting to one-third of HH s wordwide saes. How it a started Hey Hansen Co. was founded in 1877 by the Norwegian captain Hey Jue Hansen. During the era of the saiing ship he fet the forces of nature when he had to stand at the hem in a kinds of weather. Many hours were spent oiing cothes so they woud become waterproof before rough weather set in. However, the cothes became stiff and American rap group Bad Boys in Hey Hansen cothes Source: A/S Hey Hansen. sticky, so when Hey Jue Hansen finay went ashore he decided to deveop better rain cothes for Norwegian saiors. Today HH ses its products in more than 20 countries. Production takes pace in the company s own factories in Norway and Portuga, as we as in the Far East, and via contract manufacturing. Design of the new coections takes pace at the company s headquarters in Norway. From a producer of functionaistic cothes to a suppier of fashion cothes to the US underground The honourabe 100-year-od Norwegian producer of functionaistic cothes for saiors has by chance become the suppier of fashion cothes to back hiphoppers in New York s underground. The abe, which for generations has been connected with wind and waterproof eisure wear, and work cothes for the quaity-conscious consumer who ikes to be dressed sensiby, has now become a symbo of the avant-garde and the different. The young think the cothes are smart and don t care if they have taped seams and that it might be difficut to breathe through four ayers of waterproof coating. In earier days, the first and ast thing that HH thought of when making jackets was functionaism. The resut was a very arge coection of jackets with sma speciaized differences that ony rea enthusiasts coud appreciate. HH s prices, on the other hand, became unreasonaby high. By gathering severa of the functions in the same jacket HH is abe to make aowances for its choosy customers, as we as producing at a price that a arger part of the market is abe to pay. Where HH used to direct its coections toward apine skiers, fishermen, sea sportspeope and snow boarders, it is now beginning to ook more at current fashion trends. HH is trying to ink its ook to street fashion and hopes that in this way its core customers wi fee smarter, whie new customers wi be encouraged to buy because of the ook of the cothes. Before Johnny Austad gets on the pane back to Norway, the US subsidiary receives an enquiry about sponsorship from one of the most we-known rap groups in the United States. The manager of the rap group in question is seeking $200,000 from HH 578

39 Chapter 17 Communication decisions (promotion strategies) for Bad Boys to perform in HH cothes at a their concerts in the next six months as we as in their coming music video. Questions As a newy empoyed marketing assistant in the US HH subsidiary, you are asked to take care of this enquiry. You are specificay asked the foowing questions. 1 Woud you recommend that HH sponsors Bad Boys? Give reasons for your answer. 2 How can an eventua sponsorship be integrated into the tota marketing pan for HH cothes in the US market? CASE STUDY 17.2 Chevroet: Heping to create a goba brand via an European onine (and CRM) strategy History The brand with the egendary bow tie ogo has European origins. Swiss engineer and racing driver, Louis Chevroet ( ) gave his name to the Chevroet Motor Car company in Detroit in 1911 and, as a resut, to miions of cars. Zürich-based GM Daewoo Europe was formed in ate 2002 to distribute vehices buit by GM Daewoo Auto & Technoogy Co., a Korean subsidiary of GM. In eary 2004, GM decided that Chevroet shoud become a truy goba brand and that GMDAT s cars (branded as Daewoo cars) shoud in future be marketed under the Chevroet brand in Europe. Another decisive factor was that the GM Daewoo products were a perfect fit with Chevroet s goba positioning. The product range at that time had the potentia to grow beyond its previous imits and GM woud thus be abe to reaize this potentia in Europe much faster as part of a wordwide brand. The Chevroet brand provided the growth opportunity. With this objective, an ambitious project caed MIDAS was aunched to manage the brand transition from GM Daewoo to Chevroet. This project integrated a major functions of the pan-european organization to faciitate consumer reassurance, retai buy-in, media acceptance, business continuity and continued voume and share growth. In September 2004, the name change to Chevroet was announced at the Paris Motor Show. Chevroet was reintroduced into Europe in eary 2005 as GM s goba affordabe entry brand with products offering durabiity, high quaity, expressive and friendy design and, above a, outstanding vaue for money a attributes summarized by the term expressive vaue. In 2005, Chevroet Europe set a new company record for European saes. The division sod above 240,000 units in 2005, up 26.5 per cent over It was the first time that Chevroet had reached the significant 1 per cent market share miestone in passenger cars in Europe. (See Figure 17.7.) By the end of 2005, Chevroet Europe had 1,904 deaers in its retai network. Of these, about 750 were combined with another GM brand, and approximatey 300 were paired with a non-gm brand. The remaining points were standaone Chevroet deaerships. In Eastern and Centra Europe, Chevroet had 380 deaers, of which about 300 were muti-branded. Why is seing onine so important to Chevroet Europe? Firsty, because more than three-quarters of Internet users who are in the process of buying a car use the Internet to assist them with their purchase (see Figure 17.8). Secondy, the majority of these onine buyers actuay discover modes via the Internet that they were previousy unaware of. This is of benefit to a brand with imited product famiiarity, ike Chevroet in Europe. And, finay, more than haf of a onine car buyers change their minds as to their fina choice due to the Internet (according to Cartrack IV by Cospirit, February 2003). Therefore, the Internet has been identified by Chevroet Europe as an effective medium for reaching in-market consumers. The chaenge Chevroet Europe s chaenge was to buid an effective onine (and CRM) capabiity from scratch and quicky, too. Capapiity in this area was indeed rather poor at the time of the takeover, with imited Ë 579

40 Part IV Designing the goba marketing programme Figure 17.7 Saes in Europe Source: interna Chevroet materia. Figure 17.8 The importane of the Internet in the car-buying process Quicky buid a common Pan-European foundation based on quick wins. Adopt GME mutibrand capabiities when it makes business sense. Use common processes and metrics. Focus on marketing versus system issues. Buid networking and expertise. Faciitate best-practice sharing across markets. Source: Cartrack IV, February expertise across the organization, inconsistent processes, and various and weak infrastructures across Europe. To face the chaenge, Chevroet Europe deveoped the foowing pragmatic approach: Transfer earning and expertise from GM Europe (Dos and Don ts). Share a cear common vision throughout the organization. What are Chevroet s onine communication objectives? Chevroet Europe has used the Internet to achieve a positive impact at each step of the saes funne. Through the Internet, Chevroet aims not ony to increase awareness, famiiarity and consideration of the Chevroet brand in Europe, but aso to prompt actions from the visitor and engage them in diaogue. For each onine activity, Chevroet Europe has defined a specific roe in the saes funne (see Figure beow). The Chevroet Europe Onine process consisted of five steps: Step 1: Buid an effective Pan-European web patform An effective Pan-European web patform was constructed and roed out rapidy prior to the brand transition. As a resut, over 30 European countries are now on the same web patform with the same 580

41 Chapter 17 Communication decisions (promotion strategies) Figure 17.9 Specific roes Source: Interna Chevroet materia. months) and prior to the aunch date of Chevroet. However, it required a significant effort to secure the registration of a Chevroet web domain names, due to the fact that some of them were aready registered by third parties. The redesigned website here is the homepage of the Spanish website functionaities, ook and fee. This uniformity of approach brings significant benefits for the brand such as: brand consistency across Europe; significant cost saving and ead time; avaiabiity of advanced functionaity to potentia buyers in Europe (even in smaer markets); sharing of best practices between markets; fu integration with the CRM database. Step 2: Migration of websites from GM Daewoo to Chevroet Thanks to the common patform, it was possibe to achieve the migration of a countries websites (incuding redirection of GM Daewoo properties to Chevroet) in a very short space of time (three Step 3: Enhance onine customer experience As soon as the migration to Chevroet had been competed successfuy, work started on a website redesign project. The strategy was to buid upon the websites strengths and to address the weaknesses of the GM Daewoo websites. The new website has been designed to refect the Chevroet positioning, and to provide reevant product and service information to visitors via improved navigation. A specia effort has been made to ensure that the site is goa-oriented. In other words, it has been designed to stimuate responses from visitors through the use of retaier ocator queries, car configuration, brochure and test drive requests. Optimizing the new website for search engines ike Googe and Yahoo! was another important objective. A new and sophisticated content management too has aso been deveoped. The idea behind this was to transfer the contro of managing and ocaizing content according to the needs of each market to the oca Chevroet subsidiaries/importers themseves. Ë 581

42 Part IV Designing the goba marketing programme Chevroet aunch maiing pack eements Step 4: Drive quaity traffic to the Chevroet websites and Promo- Micro sites To compement the natura search optimization, Chevroet Europe has Captiva emai campaign aso deveoped severa initiatives to drive traffic to the websites, such as a centraized pay per cick program (search engine marketing) which is up and running in 18 countries. Search Engine Marketing activities have been combined with oca initiatives such as onine ads, e-newsetters and e-mais, as shown in the screenshot above. In addition, key benefits have been gained through consistency, cost effectiveness, and best practice-sharing through centraized expertise. Step 5: Buid Chevroet awareness and product famiiarity Chevroet Europe deveops onine materias that each country can adapt for its own needs. One exampe is the Chevroet Sudoku game which won a 2006 Future Marketing Award, for best brand/ product integration into a game. These materias are designed to hep European consumers to make a connection between the Chevroet brand and its fu product range through active earning and experience of the products. Onine (and CRM) have contributed to the brand transition from GM Daewoo to Chevroet. Immediatey after the pubic announcement, current owners of Daewoo cars were sent a corporate etter which incuded Q&As and an opportunity to re-quaify their data. In the etter, the owners were invited to access a specific Daewoo owner web porta ( to obtain additiona information. The fact that the Internet has been fuy integrated with the other reationship marketing channes has been of the utmost importance. The primary objective was to reassure and retain the owner base which was essentia for the future growth of Chevroet. It aowed Chevroet to optimize the country customer databases through a customer data requaification process in the owner porta. In eary 2005, the Internet and CRM were aso drawn upon to support the Chevroet aunch. Each eement in the communication package had its own purpose as foows: Communication eement Purpose Letter and brand Introduction to the brochure Chevroet brand Brand CD-rom Interaction with the Chevroet brand Retaier network map Bridge with the Chevroet retaiers Incentive fyer Showroom traffic buider Data capture Lead generator 582

43 Chapter 17 Communication decisions (promotion strategies) Sources: Stein, J. (2006) Chevroet wi increase European deaer network, Automotive News, 10 Apri; Moon, I. (2006); GM Sees More Than the USA in a Chevroet, Business Week onine, 11 May; Samon, A., Stein, J. and Hamprecht, H. (2006) Chevroet wants 300,000 saes by 2007, Automotive News Europe, 23 January; www. chevroeteurope.com; The author woud ike to thank: Wordbank ( especiay Gordon Husbands and Rebecca Hampton for access to Chevroet Europe; Chevroet Europe ( especiay Eric Wepierre and his team, CRM and Internet, for their vauabe contributions to the case. Questions Chevroet Europe is in the process of evauating the effectiveness of the onine approach, which is why the European marketing manager has approached you as an internationa marketing expert. 1 What are the advantages and disadvantages of rebranding from GM Daewoo to Chevroet and having ony one goba brand Chevroet? 2 Propose some communication measures/metrics which Chevroet may be abe to use to measure the effectiveness of the onine channe. 3 Which other marketing toos woud you propose to improve market share for Chevroet passenger cars in Europe? VIDEO CASE STUDY 17.3 downoad from hoensen BMW Motorcyces Bayerische Motoren Werke (BMW) ( is one of the eading manufacturers of premium passenger cars and motorcyces in Europe. Athough car buyers are extremey famiiar with the BMW brand, the brand has a much ower profie among motorcyce buyers. This is a major chaenge for BMW Motorcyces, which has been producing high-end motorcyces for more than 80 years. The company s main promotiona goa is to attract serious riders who are ooking for an exceptiona riding experience. To do this, its marketers carefuy coordinate every promotiona detai to convey a unified brand message positioning the BMW motorcyce as the utimate riding machine, as its advertising sogan states. Questions 1 What are the advantages of using more persona advertising copy and encouraging customers to become missionaries for BMW motorcyces? 2 Shoud BMW use standardization or adaptation in promoting the motorcyces outside the United States and Germany? 3 Why is BMW using its website as a virtua showroom rather than aso seing onine directy to consumers? 4 Shoud BMW deveop and promote a new motorcyce brand to differentiate its motorcyces from competing motorcyce brands (i.e. seing to new target groups) as we as differentiating them from BMW cars? For further exercises and cases, see this book s website at Questions for discussion 1 Identify and discuss probems associated with assessing advertising effectiveness in foreign markets. 2 Compare domestic communication with internationa communication. Expain why noise is more ikey to occur in the case of internationa communication processes. 583

44 Part IV Designing the goba marketing programme 3 Why do more companies not standardize advertising messages wordwide? Identify the environmenta constraints that act as barriers to the deveopment and impementation of standardized goba advertising campaigns. 4 Expain how persona seing may differ overseas from how it is used in the home market. 5 What is meant by saying that advertising reguations vary around the word? 6 Evauate the percentage of saes approach to setting advertising budgets in foreign markets. 7 Expain how the mutinationa firm may have an advantage over oca firms in training the saes force and evauating its performance. 8 Identify and discuss probems associated with aocating the company s promotion budget across severa foreign markets. References Bafour, F. (1993) Acoho industry: companies in high spirits, China Trade Report, June, pp Bennett, R. (1995) Internationa Marketing: Strategy, panning, market entry and impementation, Kogan Page, London. Boddewyn, J.J., Soeh, R. and Picard, J. (1986) Standardization in internationa marketing: is Ted Levitt in fact right?, Business Horizons, pp Business Week (1984) Advertising Europe s new Common Market, Juy, pp Business Wire (2006) Neary 90 per cent of Internet Users Share Content via Emai According to Sharpe Partners Study on Vira Marketing, 25 January. Desmet, P. and Xarde, D. (1996) Chaenges and pitfas for direct mai across borders: the European exampe, Journa of Direct Marketing, 10(3), pp Dobee, A., Toeman, D., Beverand, M. (2005), Controed infection! Spreading the brand message through vira marketing, Business Horizons, 48, pp The Economist (2006) The Cutting edge A Moore s aw for razor bades, 16 March. Harper, T. (1986) Poaroid cicks instanty in Mosem markets, Advertising Age (specia report on Marketing to the Arab word ), 30 January, p. 12. Hite, R.E. and Frazer, C. (1988) Internationa advertising strategies of mutinationa corporations, Journa of Advertising Research, 28, August September, pp Honeycutt, E.D. and Ford, J.B. (1995) Guideines for managing an internationa saes force, Industria Marketing Management, 24, pp Hung, C.L. and West, D.C. (1991) Advertising budgeting methods in Canada, the UK and the USA, Internationa Journa of Advertising, 10, pp Joensen, S. (1997) What hedder it now on engesk?, Poitikken (Danish newspaper), 24 Apri. Lynch, R. (1994) European Marketing, Irwin, Homewood, IL. MacNamee, B. and McDonne, R. (1995) The Marketing Casebook, Routedge, London. Meenaghan, T. (1996) Ambush marketing: a threat to corporate sponsorship, Soan Management Review, Fa, pp MindComet Corporation (2006), Vira Marketing understanding the concepts and benefits of vira marketing, White Paper, Orando, pp vira_marketing.pdf Mueer, B. (1996) Internationa Advertising: Communicating across cutures, Wadsworth, Bemont, CA. Nørmark, P. (1994) Co-promotion in growth, Markedsføring (Danish marketing magazine), 14, p. 14. Onkvisit, S. and Shaw, J.J. (1993) Internationa Marketing: Anaysis and strategy (2nd edn), Macmian, London. Ottesen, O. (1995) Buyer initiative: ignored, but imperative for marketing management towards a new view of market communication, Tidsvise Skrifter, 15, avdeing for Økonomi, Kutur og Samfunnsfag ved Høgskoen i Stavanger. 584

45 Chapter 17 Communication decisions (promotion strategies) Pau, P. (1996) Marketing on the Internet, Journa of Consumer Marketing, 13(4), pp Pheps, J.E., Lewis, R.; Mobiio, L., Perry, D. and Raman, N. (2004) Vira marketing or eectronic word-of-mouth advertising: examining consumer responses and motivations to pass aong emai, Journa of Advertising Research, 44(4), pp Phiips, C., Pooe, I. and Lowe, R. (1994) Internationa Marketing Strategy: Anaysis, deveopment and impementation, Routedge, London/New York. Rogers, Everett M. (1995) Diffusion of Innovations (4th ed), New York: The Free Press. Rosson, J.R. and Seringhaus, F.H.R. (1996) Trade fairs as internationa marketing venues: a case study, paper presented at the 12th IMP Conference, University of Karsruhe. Sharand, A. and Baogh, D. (1996) The vaue of non-seing activities at internationa trade shows, Industria Marketing Management, 25, pp Shey, B. (1995) Coo customer, Uniever Magazine, 2, pp Sorenson, R.Z. and Weichman, V.E. (1975) How mutinationas view marketing standardization, Harvard Business Review, May June, pp WordNetDaiy.com (2005) Razor wars: 15-bade fever, 26 November. 585

46 CASE STUDY IV.1 Absout Vodka: Defending and attacking for a better position in the goba vodka market On a ovey day in March 2007 the President of V&S Absout Spirits packs his suitcase for the third time in the month for a business trip to the subsidiary in New York, The Absout Spirits Company Inc., which imports ABSOLUT into the US and distributes the brand through Future Brands, a joint venture with Jim Beam Brands. Whie packing he thinks of how hard the company must fight to keep and increase its market share for Absout Vodka in the United States and other markets. In the ast five years Absout Vodka has increased its word market share, but can it continue? Unti 1994 Absout Vodka was distributed by Carion Importers, with the charismatic Michae Roux in charge. In 1994 the Absout Company entered into an agreement with the somewhat arger Seagram Co. to distribute Absout Vodka in the United States and a number of other countries. Seagram is the word s fourth argest distributor of spirits, with oca distributors in 150 countries and wordwide saes of neary $6 biion. In the United States it distributed such we-known abes as Chivas Rega, Coyote Tequia and Marte Cognac but it needed a we-known vodka abe in its portfoio. The shift from Carion Importers to Seagram Co. has not been without probems and drama. Michae Roux was very upset when he heard he had been fired as importer for the US market. As a countermove, he has taken the Russian competitor Stoichnaya into his portfoio, thus intensifying the vodka war. In 1995 the Latin American and south-east Asian markets were transferred to Seagram. In January 1996 Canada was aso transferred to Seagram. In 2000 Pernod Richard and Diageo acquired the Seagram wine and spirits business. Then in March 2001 Vin & Sprit (V&S), Jim Beam Brands Wordwide and Maxxium announced a set of agreements that estabished new goba distribution for V&S. Together, V&S and Jim Beam Brands Wordwide, a unit of Fortune Brands, Inc., the US-based consumer products company, have created a joint venture for the distribution of the companies brands in the United States. With the creation of Future Brands LLC the new US distribution joint venture both V&S and Jim Beam Brands wi reap the revenue and cost benefits of greater scae in a consoidating industry whie retaining the ownership and marketing responsibiities for their respective brands. With a combined US saes voume of approximatey 21 miion 9-itre cases in 2005, the partners brands wi drive the second highest case voume in the United States. Absout accounts for more than haf of a imported vodka saes in the United States and the bourbon, Jim Beam, is the no. 1 whisky in the country. Wordwide, Absout Vodka is the third argest internationa premium spirit and is avaiabe in 126 markets. Among premium vodkas Absout Vodka is no. 2 wordwide, after Smirnoff. V&S has aso become the fourth equa sharehoder in Maxxium the distribution joint venture of Jim Beam Brands, Rémy Cointreau and Highand Distiers which wi hande distribution of Absout Vodka and the other brands outside the United States. When Bengt gets on the pane at Stockhom s airport bound for New York, there are two things that worry him: 1 Apparenty the market share of Absout Vodka in the United States has reached saturation point. Has V&S Absout Spirits reached its maximum market share in that country or is it time for a fronta attack on the number one brand, Smirnoff? 2 Unti now, the market share for Absout Vodka in Europe (especiay in eastern Europe) has been a ot smaer. This can be a probem, as 80 per cent of the word s vodka is consumed in Russia and the other countries of Eastern Europe (see Tabe 1). On his way over the Atantic Bengt thinks back on the story and adventure of Absout Vodka. 586

47 Case IV.1 Absout Vodka The history of Absout Vodka The Swedish state-owned Vin & Sprit AB can justy ca the aunch of its Absout Vodka an absoute success. Absout Vodka is probaby the biggest success story in the word of spirits. It has become an icon. The shape of the botte The shape of the botte dates back to the mid-eighteenth century, but is based on a traditiona design: in the sixteenth century, Swedish pharmacies sod a cear, distied iquid as a cure for aiments such as coic or even the pague. The custom was to ingest it by the spoonfu, not by the shot gass. Rediscovered in an antique store in Stockhom by Gunnar Broman, of the now defunct advertising agency Carsson & Broman, the cear medicine botte has since been fine-tuned by Absout s team of shrewd marketers. The neck was engthened, curves were adjusted and abes were repaced by printed typeface. To top it off, a medaion bearing the portrait of Lars Osson Smith, known as The King of Vodka, was stamped on each botte. In 1879, Smith successfuy broke Stockhom s spirit monopoy by distiing and marketing Absout Rent Bränvin (that is, Absoute Pure Vodka). His tippe was the beginning of a dynasty. The current Absout famiy consists of the foowing ten variants/favours: 1 Absout Vodka has a rich taste, and is smooth and meow with a distinct character of grain. Introduced in Absout Peppar is aromatic, compex and spicy. The peppery favour is a combination of the spicy components in the capsicum pepper famiy and the fresh green jaapeño pepper. Introduced in Absout Citron is favoured with citrus fruits. Lemon is dominant, but other citrus favours are added to give a fuer body. Absout Citron has a distinctive character made up of emon and ime with a hint of sweetness. Introduced in Absout Kurant is favoured with backcurrant, a distant cousin to the grape. This is a fragrant dark berry that grows on shrubs up to six feet in height. Absout Kurant has a distinct character, with a hint of tartness and sweetness. Introduced in Absout Mandrin is favoured with citrus fruits. Mandarin and orange are dominant, but other citrus favours are added to give a fuer body. Absout Mandrin has a distinctive character with a hint of sweetness. Introduced in Absout Vaniia has a rich, robust and compex taste of vania with notes of butterscotch and hints of dark chocoate. Introduced in Absout Raspberri is rich and intense, reveaing the fresh and fruity character of ripened raspberries. Introduced in Absout Apeach is smooth and meow, with a sophisticated and fruity character of peach. Introduced in Absout Ruby Red is smooth and fruity with a crisp and refreshing character of zesty grapefruit. Introduced in

48 Part IV Designing the goba marketing programme 10 Absout Pears has the fresh and cear aroma of meow pears with a sight touch of sweet amonds. It s fruity, smooth and fu-bodied with a ong and sighty dry aftertaste. Introduced in Introduction to the US market Independent market research in the United States concuded, in 1979, that no one woud buy Swedish vodka. Nevertheess the first shipment of Absout Vodka was sent off to that country in Apri 1979; its destination was Boston. Some 90,000 iters were sod wordwide in 1979; and in 2005 wordwide saes were 82.9 miion iters, of which about 50 per cent was exported to the United States. Apart from the United States, the most important markets are (in decreasing order of importance): Canada, Greece, Spain, Germany, Mexico, Poand, the United Kingdom, Israe and Sweden. The marketing of the botte For more than 25 years advertisements for Absout Vodka have been based on the same fundamenta concept, with the focus being on the product. The very first advertisement, Absout Perfection, was created in 1980 and today it is the one which is used most often. Since Andy Warho, patron saint of pop art, created his first Absout painting in 1985 ( Absout Warho ), artists around the word have been asked to render their interpretation of the botte. Distinctive advertising campaigns such as Absout London, in which the door of 10 Downing Street resembes an Absout botte, have made the vodka brand neary as famous as Coca-Coa or Nike. In the advertisement Absout Essence magazine readers were abe to fod back the cover and sme the scent of Absout Kurant. Most countries maintain strict rues concerning acoho advertisements to consumers, but Absout s PR machine has miked the free pubicity that its advertising generates. The Absout Vodka President s thoughts have become dream-ike on the pane to New York, but he wakes with a start when passengers are asked to bucke their seat bets. To use his time sensiby before anding, The President takes a report out of his suitcase describing conditions in the US and word markets. The foowing is the essence of the report, which aso describes recent Absout Vodka initiatives in this market: The word market for vodka Tabe 1 shows that eastern European countries account for 86 per cent of the word s tota vodka saes, and the area s average consumption per capita per year is aso high (5 iters). In Poand the average vodka consumption per capita per year is about 10 iters, whie the average in the Confederation of Independent States is 5 iters. By comparison, average consumption in the United States is 1.3 iters and in the United Kingdom 0.6 iters. It shoud be noted that a these figures are based on registered saes and don t incude home-made products which are distied in quite a arge part of eastern Europe as we as in Sweden and Finand. The markets of eastern Europe are distinguished not ony by their high vodka consumption but aso by how much consumers know about acohoic beverages and 588

49 Case IV.1 Absout Vodka Tabe 1 Distribution of word vodka saes voume and vaue V&S Absout Spirits market share The Absout Voume: Vaue: $ miion The Absout Company Absout market miion itres miion itres share voume WORLD 3,600 % of tota 16,600 % of tota 82.9 % of tota 2.3 % Eastern Europe North America Western Europe Latin America Africa & the Midde East Asia-Pacific Austraasia Tota Source: adapted from Impact Internationa and Euromonitor. their appreciation of quaity. However, poitica uncertainty and the ack of a we-functioning infrastructure in severa eastern European countries make short-term deveopments difficut to predict. For severa years Absout Vodka has been exported to most eastern European countries, and in 1995 the brand was introduced into Poand. Ten years ater (in 2005) Poand was the seventh argest Absout Vodka market. Thus Absout Vodka is now represented in a the major vodka markets of the word. The US market for vodka In the ast 15 years the consumption of acoho in the United States has decreased by 20 per cent. There are severa reasons for this. One of the main reasons is the heath trend in the country, which has ed to a greater awareness of the harmfu effects of acoho. At the same time a tendency has deveoped for drinking ess but better ; thus many peope now drink ceaner and more pure acoho. This has meant that the sae of superpremium (high-quaity) brands has not faen but has been stabe in the ast five years. As neary a imported brands are in the super-premium segment this is the main reason that vodka imports have not faen. Source: 2007 V&S Vin & Sprit AB (pub). A rights reserved. Athough the vodka importers share of the tota market is ony per cent, the gross margin on imported vodka represents about 40 per cent of the tota gross margin of a vodka saes in the United States. Historicay vodka has not been a differentiated product, but more and more favoured brands have graduay been introduced to the market, incuding Absout Citron, Absout Peppar and Absout Kurant. However, it is risky introducing new brands into the American market, as consumers tastes there are so voatie. A producer can introduce a favour that is popuar one year and unpopuar the next. Product segments The different product segments are as foows: Patinum. The most expensive category, with prices around $25 per botte or more. Brands in this category incude Stoichnaya Crista. This segment accounts for ess than 1 per cent of tota US vodka consumption. Super-premium. Neary a brands are imported, the eaders being Swedish Absout, Russian Stoichnaya, Finnish Finandia, and French Grey Goose. The price eve is $15 20 per botte. This category s share of the tota vodka consumption in the United States is about 10 per cent. Premium. Here we find the word s most popuar vodka, American Smirnoff, sod for $10 12 a botte. This group s share of the United State s tota vodka consumption is 22 per cent. Standard priced. Here are the two Engish abes Gibey s and Gordon s which are sod for $7 8 a botte. This category s share is 14 per cent. Popuar priced. This is the argest group. Its share of tota US vodka consumption is about 54 per cent, and the group consists of a number of oca abes at about $6 a botte. 589

50 Part IV Designing the goba marketing programme Source: 2007 V&S Vin & Sprit AB (pub). A rights reserved. Wordwide, the three argest imported brands are Absout (number two), Stoichnaya (number six) and Finandia (number fifteen). Absout s main competitors are Smirnoff, Finandia and Stoichnaya, which may be characterised as foows: Stoichnaya (brand owner: Sojuzpodimport). The pioneer among imported vodka brands, this was the first vodka into be introduced in the United States, in Stoichnaya was at the time a good aternative to the USA-produced vodka brands as it tasted mider due to a more refined distiing process. But Stoichnaya s popuarity has been dependent on the poitica cimate between the United States and the former USSR. Today, Stoichnaya is distributed by Absout Vodka s former importer, Carion Importers. Finandia (brand owner: Ako Group). This brand was introduced into the United States in Despite many marketing campaigns, Finandia has never been abe to get a grip on the vodka market. In the trade it is estimated that Finandia has the most exposed position, as a new importers go for the esteemed third pace (which seems to be a reaistic goa for a new brand). In 2002, Findandia ceebrated its 30th anniversary in stye by forming a partnership with MGM Pictures for their James Bond fim, Die Another Day. Bond sti ikes his martinis shaken, not stirred, but his vodka in that particuar fim was Finandia, not Smirnoff. Smirnoff (brand owner: Diageo Pc) Diageo was created in December 1997, foowing the merger of Guinness pc and Grand Metropoitan pc. Among the wine and spirits companies incuded in the merger were Carion Importers Ltd, The Paddington Corporation, UDV, Genmore, Schieffein & Somerset, Heubein Inc., and Internationa Distiers & Vintners North America. Guinness/UDV s primary US division is United Distiers & Vintners North America (UDVNA). In 2000, UDVNA was the second argest spirits company in the US market, with a 13.5 per cent voume share. Three of the top ten US spirits brands in 2000 were UDVNA brands: Smirnoff vodka, José Cuervo tequia, and Gordon s gin and vodka. After a four-year interruption, Smirnoff was confirmed itsef as the vodka of choice for James Bond in the new fim, Casino Royae. The renewed strategic aiance between Smirnoff and Bond invoved a fuy integrated muti-miion doar goba media campaign. In severa countries, the campaign incuded on-pack promotions offering two-for-the-price-of-one cinema tickets to Casino Royae and a fuy interactive Casino Royae microsite. One of the newcomers to the super-premium segment is Grey Goose. It is distied in Cognac, France from French wheat, then imported by the Sidney Frank Importing Company based in New York. In 1997, it quicky gained a reputation for quaity and has won severa prestigious awards in distied spirit competitions. In 2004, Sidney Frank sod the manufacturing rights to Bacardi for $2.2 biion. The distribution system for vodka in the United States Generay, the sae of spirits goes through the distribution system shown in Figure 1. For US producers, the roes of producer/suppier and importer/agent coincide. The retai ( off-premise ) sae of wine, spirits and beer takes pace through two different distribution systems. In open states (icensed states) the market is free, and spirits are distributed via iquor stores, supermarkets or other grocery stores where the owner has a icense to se spirits. In controed states spirits can ony be sod in iquor stores owned by the state, simiar to the Nordic monopoy system. The importer/agent usuay has ony a sma saes force, which concentrates on seing to and servicing a distributor. An importer/agent usuay cooperates with one distributor in each state (athough one distributor can Figure 1 The genera distribution system for spirits in the United States 590

51 Case IV.1 Absout Vodka hande severa states), and in arge states a distributor can have up to 500 saespeope (geographicay divided). Generay these saespeope pay for their own car and receive a ow basic wage, pus commission. The saesperson in the area concerned visits both the whoesae and the retai market, often once a week, taking orders and in exceptiona cases deivering goods and coecting payment. Absout Vodka New advertising campaign in 2006 A new range of superpremium brands such as Grey Goose has nibbed into Absout s image of cooness in a botte. To fight back, V&S roed out a new marketing campaign in January 2006 to raise the brand s profie with a new generation of vodka drinkers. The mutimiion doar push in the US was Absout s first a-new campaign in 25 years and it aso marked the first time the brand was advertised on TV. The ads from Absout s goba agency, TBWA/Chiat/Day in New York, positioned the iquor as The Absoute Vodka, whie highighting other cassics that are absoutes in pop cuture. One spot featured footage from the Apoo moon anding under the banner Absoute Road Trip. Another showed Mariyn Monroe entertaining troops with the tag ine Absoute Morae Booster. The 30-second spots were shown on cabe channes such as Comedy Centra, Fox Sports Net, and E! Absout wi aso continue its iconic print ads starring the Absout botte dressed up by fashion designers, famous photographers, and artists, with a two-word tag ine. As part of the new marketing push in the US, Absout aso commissioned rock musician Lenny Kravitz to come up with his own interpretation of the Absout brand. The resut is a dance track. Kravitz recorded a new song entited Breathe, which wi be featured in the campaign. The resut is a track that is a transition from Kravitz s traditiona rock and ro to a distincty dance music sound, with minima yrics (no mention of Absout of vodka anywhere in the yrics), a memorabe meody and pusating beat. Word market shares for top vodka brands (retai channes) If we incude vodka saes through a distribution channes (retai + HORECA (HOte, REstaurant, CAtering) and duty free) brands such as Stoichnaya and Moskovskaya woud be very highy ranked. But in reaity these brands do not reay exist as discreet products: in Russia, Stoichnaya, for instance, is produced by 800 distieries and in various botte and case sizes. Moreover, products differ widey between distieries. Thus, brands such as Stoichnaya are ony brands when exported, when contro is under a singe organisation, Sojuzpodimport. The eader of the word retai market for vodka is Krista, with around 7 per cent share of the word market. Krista is a oca Russian brand but it is ony being sod on the word s biggest vodka market Russia. Diageo s Smirnoff is the eading internationa brand of vodka. These are the ony two brands of vodka wordwide commanding more than 5 per cent of goba saes. Western Europe Smirnoff, with a regiona market share of 16 per cent, was the cear brand eader in western Europe in Its nearest riva brand, Gorbatschow, hed just over 8 per cent of regiona saes. Ony three brands in Western Europe Smirnoff, Gorbatschow and Absout account for more than 5 per cent of regiona vodka saes in Eastern Europe The vodka market in Eastern Europe is arge and diverse, with hundreds of brands on the market. Consequenty regiona eader Krista controed ony 7 per cent of regiona saes in 2005, with its nearest riva brand, Smirnov, hoding 4 per cent of saes. Diageo s Smirnoff was the argest internationa brand on the market. North and Latin America Diageo s Smirnoff brand was the eader of the North American vodka market in 2005, accounting for 18 per cent of regiona saes. Its main riva was the premium Absout brand. Smirnoff was aso the argest vodka brand in Latin America, where it controed over 24 per cent of the regiona market. Smirnoff has few serious rivas in Latin America. Its cosest competitor, Oso Negro from José Cuervo, hed ony 8 per cent of regiona saes in Rest of the word In the rest of the word Smirnoff is the dominant brand of vodka. In 2005, it ed the market in Asia-Pacific, Austraasia and Africa and the Midde East. Having read the above report, the President of V&S Absout Spirits acknowedges that it is necessary to get externa input on some essentia strategic questions. Besides the above information you aso have access to data about the competitive situation in different parts of the word. When the President ands in New York he has written down the foowing questions, which he asks you to answer. Absout Vodka enters the FAB market The market for RTD (Ready-To-Drink) pre-mixed acohoic beverages or FAB (Favored Acohoic Beverages) has deveoped at a rapid pace in the ast few years. It is aso a market that Absout Vodka has entered. The internationa FAB market Demand for FAB has grown sharpy in the United Kingdom with spirit-based beverage brands Bacardi Breezer and Smirnoff Ice being the key brands driving the market. 591

52 Part IV Designing the goba marketing programme A significant proportion of FABs are consumed icensed premises, with modern town bars and nightcubs being the most popuar venues for consuming these products. They are perceived as trendy, desirabe products and are particuary popuar among image-conscious consumers within the age group who drink directy from the botte. To a arge extent, it is through strong branding that the industry has managed the transition from acopops, with its connotation of under-age drinking, to the positive, premium image FABs currenty enjoy. The use of energy drinks in combination with acoho has become a popuar trend in nightcubs and bars. Consumption of FABs generay decines steadiy with age (particuary after the age of 35), athough this category is beginning to attract a wider audience: consumer research, for instance, shows that brands such as Smirnoff Ice are popuar with consumers right up to the age of 65! It is cear that there is scope to push the category further among consumers of a ages and backgrounds. Athough women continue to consume more than men, the difference in consumption eves according to gender is narrowing. Opinion eaders form the segment of the consumer base that is sociay infuentia in terms of fashions, and the product is taken to paces where opinion eaders congregate an attempt to secure acceptance by these trend-setters. Consequenty, this expands the appea of the product to consumers who are driven by more peer-ed drinking. In the designer acohoic drinks market opinion eaders tend to be young professiona aduts who frequent city-centre bars. In the internationa FAB market the cub scene (on-premise) is aso very important aying a product with the nightcubbing market increases brand exposure and means that the product acquires acceptance from the sociay infuentia nightcub audience. Both of these are integra to the deveopment of designer acohoic drinks. The trend for going to styish bars and drinking expensive cocktais mixed at the bar is another affirmation of weath and stye and it has experienced a resurgence due to rising disposabe incomes. Cocktai cuture has infuenced favour trends, especiay in the premixed spirits market. The cut of the individua is aso a major aspect of cuture and is a growing trend across a markets. This term refers to the trend for individuaity in consumption. For instance, rather than drinking the same brand as one s peers, consumers drink something that is particuar to their own consumption habits in order to assert their own character and individuaity. This trend is manifesting itsef in both an assertion of individuaity and a rejection of banket marketing. This is a strong driver for saes of designer acohoic drinks, even though brands have targeted opinion eaders in an attempt to capture more peered consumption. Utimatey, the brands contribution to the consumers perception of their own individuaity is key to the success of designer acohoic drinks, despite the inherent contradictions in this. Consumers are becoming more adept at discerning which products are quaitativey better than others; they are aso becoming quicker to abandon those that do not appea to them. This is increasing the pressure on producers to create products that are obviousy better than others. Despite the importance of image, poor quaity in the premium market is ess toerated among consumers now. Absout Vodka enters the internationa FAB market As consumer preferences evove, Absout Vodka sees an opportunity for aunching a more sophisticated product into the internationa FAB market. In 2004, V&S entered the internationa FAB market by starting to se Absout Vodka in Canada. Here the 7 per cent abv (acoho by voume) vodka drink was aimed at the more mature drinker rather than the younger generation traditionay targeted by RTDs offering the ease of a pre-mix but with a ess sugary taste. V&S intend to take a more mature approach in its advertising, moving away from the image-based campaigns of other brands, so frequenty criticized for gamorizing acoho consumption and tempting underage drinkers. The product is to be the centre piece of any advertising rather than the image. By the end of 2006 the Absout Cut had been aunched in three favours: 1 Absout Cut, containing a fresh citrus favor. 2 Absout Cear Cut, containing a mandarin favor enhanced by kiwi. 3 Absout Crisp Cut, containing a crisp appe favor and a fresh finish of ime. Absout Cut has the same distinctive botte shape as its parent brand and was roed out to both the on- and off-trade FAB markets in Canada, Austraia and UK Questions 1 Which aternative marketing strategies does V&S Absout Spirits have to increase its market share for: (a) Absout Vodka in the USA? (b) Absout Vodka in Europe (incuding eastern Europe)? (c) Absout Vodka in other parts of the word (incuding eastern Europe)? 2 In which region (country) of the word woud you recommend V&S Absout Spirits to aocate more marketing resources? 3 Does Absout Vodka have the right competences for achieving internationa success for its Absout Cut? 4 Which new geographica regions woud you recommend for the internationaization of the Absout Cut? 592

53 CASE STUDY IV.2 Guinness: How can the iconic Irish beer brand compensate for decining saes in the home market? Beer is a acohoic beverage made by brewing and fermenting cereas, especiay mated barey, usuay with the addition of hops as a favoring agent and stabiizer. One of the odest of acohoic beverages (there is archaeoogica evidence dating to c.3000 BC), beer was we known in ancient Egypt, where it may have been made from bread. At first brewed chiefy in the househod and monastery, it became in ate medieva times a commercia product and is now made by arge-scae manufacture in amost every industriaized country. Athough British, European, and American beers can differ markedy in favour and content, brewing processes are simiar. A mash, prepared from crushed mat (usuay barey), water, and, often, cerea adjuncts such as rice and corn, is heated and rotated in the mash tun to dissove the soids and permit the mat enzymes to convert the starch into sugar. The soution, caed wort, is drained into a copper vesse, where it is boied with the hops (which provide beer with its bitter favour), then run off for cooing and setting. After cooing, it is transferred to fermenting vesses where yeast is added, converting the sugar into acoho. Modern beers contain about 3 per cent to 6 per cent acoho. After brewing, the beer is usuay a finished product. At this point the beer is kegged, casked, botted, or canned. Beers fa into two broad categories: Lighter beer (agers). These are made with yeast that ferments more quicky at warmer temperatures and tends to rise to the surface. Lagers use yeast that ferments more sowy at cooer temperatures and tends to sette, and they are aged at cod temperatures for weeks or months, hence the name (German, Lager = storage pace). Lagers are the most commonyconsumed beer in the word, with brands ike Budweiser, Heineken, Fosters, Carsberg, Becks, Caring, Kronenbourg and Stea Artois. Darker beer. Incuded in this broad category are aes, stout and porters. Stout (and porter) are dark beers made using roasted mats or roast barey. Porter is a strong and dark beer brewed with the addition of roasted mat to give favour and coour. Stout (today more or ess identica to Guinness) is normay darker and matier than porter, has a more pronounced hop aroma. Porter was first recorded as being made and sod in London in the 1730s. It became very popuar in the British Ises, and was responsibe for the trend toward arge regiona breweries with tied pubs. Originay, the adjective stout meant proud or brave, but ater, after the fourteenth century, stout came to mean strong. The first known use of the word stout about beer was in 1677, the sense being that a stout beer was a strong beer. The expression Stout-Porter was appied during the 1700s for strong versions of porter, and was used by Guinness of Ireand in 1820, athough Guinness had been brewing porters since Stout sti meant ony strong and it coud be reated to any kind of beer, as ong as it was strong: in the United Kingdom it was possibe to find stout pae ae, for exampe. Later stout was eventuay associated ony with porter, becoming a synonym of dark beer. During the end of the nineteenth century, stout porter beer (especiay the so-caed mik stout a sweeter version) got the reputation of being a heathy strengthening drink, so it was used by athetes and nursing women, whie doctors often recommended it to hep recovery. Stouts can be cassed into two main categories, sweet and bitter, and there are severa kinds of each. Irish stout or Dry stout is the origina product, equivaent to the Guinness beer. It is very dark in coour and it often has a toast or coffee-ike taste. Major brands in this broad category incude Murphy s (Heineken), Caste Mik Stout (SAB Mier) and of course Guinness (Diageo). Diageo UK-based Diageo was formed in 1997 through the merger of Guinness and Grand Metropoitan. Both companies were themseves products of earier mergers and acquisitions Guinness had acquired Distiers in 1986 whie Grand Metropoitan had diversified from its origins as a hote chain into spirits (IDV), food (Pisbury), restaurants (Burger Kings) and pubs. Diageo quicky in to pick up as many brands it coud. Pisbury and Burger King were sod off; and the Guinness business was integrated into the goba spirits organization. Today Diageo is a Fortune 500 Company isted on both the New York Stock Exchange and the London bourse. The firm is the word s eading premium drinks enterprise, with a broad seection of 593

54 Part IV Designing the goba marketing programme Tabe 1 Key financia figures of Diageo, m m m Tota net saes 9,281 8,891 9,036 Profit before taxations 1,955 1,969 1,822 brands. It currenty occupies a 30 per cent share of the goba market, and owns nine of the word s top 20 spirit brands, incuding Smirnoff vodka, Bushmis Irish whiskey, Johnnie Waker Scotch whisky, Captain Morgan rum, Gordon s dry gin, J&B Scotch whisky, Crown Roya whiskey and Baieys cream iqueur. The portfoio aso incudes Guinness stout. The company has over 25,000 empoyees, and trades in over 180 markets around the word. Its annua turnover in fisca year 2005 reached 9 biion, with a tota market capitaization of over 20 biion. The financia deveopment of Diageo during the ast three years is iustrated in Tabe 1. Diageo Pc has one major beer brand: Guinness, which is the word s eading stout brand. However, in the word beer market the stout ony account for 1.1 per cent of the word beer saes (see Tabe 2). As a resut of Guinness status, Diageo Pc s beer performance is heaviy reiant on the fortunes of the Guinness brand. However, cracks have started to appear in the brand as an aggressive price increases poicy was empoyed to mask voume decines in key markets. Diageo Pc fais to discose operating profit figures for its beer sector or for the fagship Guinness stout brand. However, it is estimated that beer accounts for 20 per cent of company saes, whie its contribution to profits is thought to be smaer, at around 15 per cent. Diageo top-management has growing concern over the company s principa beer brand, Guinness. The company reported a voume saes decine of 2 per cent for the brand in 2005, with vaue saes growth of 5 per cent ony being achieved as a resut of aggressive price increases in its main markets. The adoption of such a strategy has raised doubts of the sustainabiity of brand profitabiity. The Guinness brand has suffered on a number of eves, being hit by deteriorating demographics, with younger drinkers turning away from stout in genera, a growing preference for wine and spirits, and a shift towards off-trade consumption (buying beers in the shops and drink them at home), which puts the on-trade (pubs and bars) skewed Guinness at a distinct disadvantage. One of the reasons for this shift away from traditiona pub consumption towards home drinking experiences is the banning of smoking in pubic paces, both in United Kingdom and Ireand. Nowhere have these trends been more evident than in the brand s key markets of the United Kingdom and Ireand. In genera, Diageo Pc in 2005 reported a 2 per cent decine in Guinness wordwide voume saes, whie in the United Kingdom and Ireand the fa was steeper, at 3 per cent. Nevertheess, on the back of notabe price rises, vaue growth of 4 per cent was achieved in both markets. Guinness an iconic Irish brand As an adopted Irish nationa icon (though it is actuay not Irish-owned), the Guinness brand is readiy recognized throughout the word, even by non-consumers. Indeed, it is one of ony a few truy goba beer brands, possessing a geographic coverage that spans a internationa regions. Brewed in over 50 countries, the Guinness recipe is modified to suit different market tastes in type and strength, with around 20 different variants sod wordwide. Its prime ine is Guinness Draught, aunched in 1959 and marketed in over 70 countries. This subbrand accounts for around 55 per cent of a Guinness sod wordwide. Widget technoogy saw Guinness Draught move into cans in 1989, and into bottes in To entice younger ager drinkers to stout, Guinness Draught Extra Cod was added to its range in its core markets of the UK and Ireand in The subbrand actuay comes from the same barre as Guinness draught but goes through a super cooer on the way to the gass, and is served at a temperature around one-third ower than reguar Guinness. This product is generay served in more modern outets, where peope prefer their beer cooer than standard. Other ine extensions incude Guinness Bitter, a dark beer primariy sod in the United Kingdom, Guinness The Guinness Surger 594

55 Case IV.2 Guinness Extra Stout, which is mainy distributed in Europe in bottes and cans and Guinness Foreign Extra Stout. The atter is a higher strength, carbonated stout with a strong oaky favour and no head, which is distributed throughout Africa, Asia and the Caribbean. Mata Guinness, an acoho-free beer sod in Africa, and Guinness Extra Smooth, a smoother and creamy variation on traditiona Guinness Draught, compete the Guinness portfoio. The word market for beer and stout Athough Guinness is hoding 55 per cent of the word stout market the brand accounts for ess than 1 per cent of the tota word beer market (see Tabe 2). Guinness s market share has decined sighty, however, faing from 58 per cent in This was caused mainy by the South African Breweries/Mier merger in 2001, which gave impetus to brands such as Caste Mik Stout and Tyskie Porter, which have encroached on Guinness. Competitors Despite recent regiona decines, the goba strength of Diageo Pc s Guinness brand has eft itte room for other major brands to become estabished in stout. Its main internationa rivas are SAB Mier s Caste Mik Stout, Heineken with its Murphy s brand and, to a esser extent, Scottish & Newcaste s Beamish. Tabe 2 Word market for beer and stout, 2005 Beer/stout 2005 Western Eastern North Latin Asia Austraia Africa and Word Europe Europe America America Pacific and Asia Midde East tota Beer voume saes 30,290 19,543 26,154 21,918 43,656 2,075 6, ,596 (miion itres) Stout voume saes ,734 (miion itres) (1.1% of tota beer saes) Brand (company) market shares % % % % % % % % Guiness (Diageo) Murphy s (Heineken) Zywiec Porter (Heineken) 14 2 Ket (Heineken) 8 1 Beamish (Scottish & Newcaste) Carsberg (Carsberg) Okocim Porter (Carsberg) 4 1 Danish Roya Stout 5 (Carsberg) Lvivske (BBH) 12 1 Batica 6 Porter (BBH) 5 Tyskie Porter (SAB Mier) 10 1 Caste Mik Stout (SAB Mier) Morenita (CCU) 97 1 Speight s (Lion Nathan) 12 Monteith s (Asia Pacific 12 Breweries) Hite Stout (Hite Brewery) 10 1 Others Tota Beer distribution % % % % % % % % On-trade (bars, pubs etc.) Off-trade (retai) Tota Source: Adapted from Euromonitor. 595

56 Part IV Designing the goba marketing programme Caste Mik Stout (SAB Mier) Caste Mik Stout is ony present in South Africa but it is very strongy paced here. This country has a considerabe base, equivaent in size to the US stout environment, and, combined with reativey ow consumption of stout on a goba eve, this means that Caste Mik Stout had a heavy infuence on the goba market, with a voume share of 20 per cent in The product s performance of ate has been dramatic. Under the guidance of SAB Mier, the brand is by far the eading stout product in South Africa, with a share of 89 per cent, a notabe eap from the 74 per cent posted in It appears that Diageo Pc s decision to cut back marketing spend and impement aggressive price increases has backfired in South Africa. Murphy s (Heineken) Murphy s features in most markets across Western and Eastern Europe and North America, but most significanty it hods a 7 per cent voume share of the argest stout market: the United Kingdom. Here, Murphy s has exerted imited pressure on Guinness in recent years, athough its own share is partiay under threat, facing simiar probems in appeaing to younger demographics. Conversey, notabe brand growth in 2004 was evident in Sovakia, whie forward momentum was maintained in Itay, France, the Netherands, Norway and Russia. Beamish (Scottish & Newcaste) Beamish remains the most popuar stout after Guinness in Ireand, posting a notabe increase in voume share in 2004, up from 7 per cent to 8 per cent. Beamish is ess of a threat in the United Kingdom, and is aso present in the smaer stout markets of Canada, Portuga, France, Spain and the Ukraine. In 2003, Beamish was aso introduced to the Finnish off-trade environment. Carsberg is another internationa payer in stout, but its competitive position is diuted by the fragmentation of its brand portfoio, which incudes Carsberg, Danish Roya Stout and Okocim Porter. Loca brand competition Other oca brands that generate reasonabe voumes incude Zywiec Porter in Poand and Ket in Sovakia. Both of these brands are owned by Heineken and contributed to the company retaining its position as the number three payer in stout, with a voume share of 8 per cent in That said, it remains some way behind the two eaders. Asahi Stout and Kirin Stout in Japan are aso strong ocaized brands. Across eastern Europe, Asia-Pacific, Austraasia and Africa and the Midde East, Guinness has to contend with strong oca brands. Aside from Caste Mik Stout, SAB Mier s other key brand is Tyskie Porter, which is hugey popuar in Poand. Overa, SAB Mier sits in second pace in goba saes of stout, refecting the strong performance of Caste Mik Stout in its domestic market. Guinness market shares across regions As seen in Tabe 2, Guinness is the market eader in four of the seven regions: western Europe, North America, Asia Pacific and Austraia and Asia. In the remaining three regions Guinness is No. 2 or 3. Western Europe Focusing on stout, in Western Europe, Diageo Pc ed every nationa market with the exception of Denmark and Greece. Despite this strength, the company experienced its second successive year of voume saes decine in the region. At the heart of this downward trend in 2005 was a notabe voume saes decine in Ireand, at 5 per cent and stagnation in the United Kingdom. Aso the other markets in the region are decining. Key to this decine is the ageing profie of stout drinkers, with younger consumers faiing to connect with the product. In addition, wine and spirits have grown in popuarity, taking share from beer, and momentum behind the offtrade sector has grown, pacing the on-trade-focused Guinness brand at a disadvantage. Eastern Europe The strength of oca brands aso poses a probem to Guinness in Eastern Europe, with imited market shares in markets such as Poand (10 per cent in 2005), the Ukraine (3 per cent) and Sovakia (4 per cent). Guinness voume share of stout is at 12 per cent in the region, its second owest showing, with ony its presence in Latin America smaer. Notaby, Diageo posted a steady increase in its voume share of stout 596

57 Case IV.2 Guinness between 2004 and 2005 as consumers enjoyed rising disposabe income eves and ooked to trade up from ow-to-midde end oca brands. In contrast, Heineken, in poe position with its standard brand (Zywiec Porter), steadiy ost share over the same period. North America Guinness aso suffered a decine in North America, with saes voume faing in Poor US beer market conditions, with a price war taking pace among eading payers, were the main reason behind the downbeat performance, as performance in Canada was stronger. Nevertheess, the company remained the dominant force in stout in the region, with a voume share of 86 per cent in Latin America In Latin America a reativey new arriva in stout is Cía de Cervecerías Unidas SA (CCU) in Chie, athough its goba presence is negigibe. CCU s entry with its Morenita brand has knocked Guinness off the top spot. Asia-Pacific Demand for stout is underdeveoped in Asia-Pacific, where an amost tota ack of demand in the popuous markets of China and India is a notabe barrier to growth. The Guinness saes voume decined in Hong Kong as we as a marked dip for Guinness in Indonesia and Thaiand. A key force behind Diageo Pc s decine was the success of oca payer Hite Brewery Company Ltd, whose Hite Stout products quicky and confidenty gained voume share of stout foowing its entry in Given its performance to date, this product comprises a considerabe threat to Diageo Pc in the region. In addition, other oca payers performed we in recent years, negativey affecting Diageo Pc s regiona position. Despite the dip in voume share, Diageo Pc remained the number 1 payer in stout, even maintaining the top spot in Hong Kong, where decine was at its steepest. Another source of positive momentum in 2004 was Japan, where the company took its voume share to over 40 per cent. This growth was a notabe achievement given the extent of oca competition from Asahi and Kirin, which both have riva products to Guinness (Asahi Stout and Kirin Stout) and both enjoy significant price advantages. Austraia and Asia This region is one of the strongest markets for Guinness, which enjoys a market share of 66 per cent in the region as a whoe. Africa and Midde East This regions is one of the most important for the company in terms of growth potentia as the eve of stout consumption is among the highest in the word and much growth is expected in the short term. At the centre of Guinness troubes in Africa and the Midde East is the growing strength of SAB Mier and its Caste Mik Stout brand, in particuar in South Africa, where Guinness saw its market voume share decine from 20 per cent in 2004 to 12 per cent in Esewhere, Nigeria is a major market for Guinness, as is Cameroon, where it has invested in increased production and distribution, and dominated saes. The internationa marketing strategy In the foowing, Guinness initiatives within the internationa marketing mix wi be expained. New product innovation/packaging Diageo Pc moved its Guinness Draught into bottes in ate 1999 foowing the deveopment of a new rocket widget, which enabed Guinness to retain its distinctive foamy white head when consumed from its packaging. Presented in ong-neck bottes, this ine positioned Guinness aongside premium agers and favoured acohoic beverages, such as Diageo Pc s popuar Smirnoff Ice. The beer market in the United Kingdom is seeing a dynamic shift away from traditiona pub consumption towards home drinking experiences, partiay due to the banning of smoking in pubic paces. The impact of banning smoking in pubs in Ireand and the United Kingdom was indicating a switch from on-trade (pubs, bars) into off-trade as more peope opted to smoke and drink at home. In February 2006 the Guinness Surger was aunched. It is a pug-in unit promising to deiver the perfect pint at home by sending utra-sonic sound waves through the specia Guinness Draught Surger beer. By reeasing this new product, Diageo is aiming to recreate the pub experience in consumers own homes, as the idea of pubs in which peope can smoke wi be a thing of the past. Consumers purchasing drinks for at-home occasions want to mimic the on-trade experience as much as possibe, particuary in terms of presentation and quaity (Carey, 2006). The new Surger gadget deivers exacty this, as we as having a shareabiity factor to enhance consumers at home drinking experience through the novety of using the utrasound device. The price in the United Kingdom is 17 for the starter kit which incudes one Surger, a pint gass and two cans of Surger Beer. Guinness Draught Surger coud hep Diageo to capitaize on the growing movement towards the off-trade. The product has aready been reeased with success in Japan and Singapore, and wi be the focus of a 2.5 miion marketing campaign in the UK. 597

58 Part IV Designing the goba marketing programme Distribution Diageo Pc handes its own distribution as a rue. However, in many countries, stout occupies a very sma niche in the beer environment, making it uneconomica for Guinness to set up its own production and distribution network. It therefore operates in partnership with a number of oca and internationa brewers. Sometimes the company appoints third party distributors or agrees a joint venture for the purpose. Distribution agreements most often incude icensing and distribution agreements for beer. These incude both Guinness and riva brands. For exampe, with Carsberg it is aowing them the production of their beer in Ireand. In return Carsberg heps Guinness with distribution in some countries. Japanese Sapporo beer is aso produced in the Guinness breweries. As compensation, Guiness gets access to Japanese distribution. Diageo has aso entered into a three-way joint venture with Heineken and Namibia Breweries Limited in southern Africa, caed Brandhouse, to take advantage of the consumer shift towards premium brands. The company is aso aiming to merge its business in Ghana (Guinness Ghana Limited) with Heineken s Ghana Breweries Limited, to achieve operationa synergy benefits. Diageo terminated its rights agreement for the distribution of Bass Ae in the United States with effect from 30 June According to the origina agreement Diageo had the rights to distribute Bass Ae in the US unti After negotiation, the distribution rights reverted to the goba brand owner, Interbrew, for 69 miion. Advertising of Guinness Guinness advertising spend has been reduced in recent years, faing in both 2004 and In the atter, it stood at 1,023 miion, compared to 1,039 miion, a fa of 2 per cent. Whether this caution is a wise move in times of increased competition remains to be seen. As a argey unique product that eads its category, Guinness has historicay been supported by a high degree of creative and ground-breaking marketing and advertising, beginning with the Guinness for Strength girder-man in 1934, and its ong-surviving Toucan character, which ran from 1935 to Guinness has increasingy deveoped beow-the-ine campaigns to target existing and potentia consumers with the deveopment of customer reationship marketing (CRM). However, above-the-ine spend in 2002 was notabe, with Guinness s first ever goba campaign entited beieve. This focused on the concept of sef beief and beief in Guinness, and was created by BBDO. The campaign featured a ogo with the V in beieve repaced with the Guinness harp, and was designed to reinforce brand oyaty among existing consumers and, of course, attract new ones. Advertising in the United Kingdom and Ireand Especiay in the United Kingdom and Ireand, the Guinness marketing campaigns have been very high profied, turning the brand into one of the most successfu fast-moving consumer goods in the UK, with very strong top-of-mind reca awareness. In Ireand, however, repeated attempts to reinvigorate the Guinness brand have met with imited success. In February 2004, Diageo Pc aunched a new advertising campaign for Guinness in the UK caed Out of Darkness Comes Light. The first advert in the series Moth represented the start of a campaign marking a new chapter in the heritage of Guinness advertising. This advert was foowed up by the Mustang execution, which has a the epic drama and scae characteristic of Guinness advertising. It was supported by a tota media spend of 15 miion, and first appeared on nationa TV in September In 2005, Diageo Pc aunched a new advertising campaign for the core Guinness brand in the United Kingdom and Ireand ate in the year. The Evoution campaign features an advert depicting three men in a bar taking a sip of Guinness and then being transported back in time, going back through the main stages of evoution. The new advert had a more contemporary and youthfu fee than previous showings, suggesting that Diageo Pc has responded to the probem of deteriorating demographics affecting the brand. As the biggest growth markets for Guinness are African countries, the greatest marketing innovation generated by Diageo Pc are being impemented here. Guinness spent more than 25 miion on advertising in Africa, where the brand commands premium pricing through its reputation. Foowing on from Saatchi & Saatchi s 1999 creation of character Michae Power in a series of five-minute action thrier advertisements, the concept has cuminated in a fu-ength promotiona fim production shown across Africa. Guinness Nigeria shot a new Michae Power fim, which was screened in In a further dispay of commitment to this growth region, Guinness Nigeria has worked with oca communities to provide them with cean, safe water. Royaties from the Guinness-sponsored feature fim Critica Assignment, which highights the need for cean drinking water, have heped fund a Water of Life project. How to attract young consumer Despite its previous marketing successes, Guinness is suffering from a ack of take-up among younger consumers in preference for more fashionabe agers and FABs. An interesting trend in Diageo Pc s marketing strategy was a further change in the way the company marketed its fagship Guinness brand. For a period on its Guinness.com website, the company activey 598

59 Case IV.2 Guinness encouraged consumers to mix Guinness with other products to produce various cocktais. This was ceary a further effort to appea to the youth segment given that many consumers in this age group find the taste of Guinness too bitter. Exampes of mixers suggested by the company incuded champagne, backcurrant juice, ime juice or curacao, cacao and Dubonnet. Sponsoring In 2005, Guinness made a notabe investment in sports sponsorship, putting its name to the 2005 tour of the British and Irish Lions rugby union team to New Zeaand and paying 20 miion to sponsor the 2005/2006 season of top eague domestic rugby union in the United Kingdom. In addition, the brand was the sponsor of the G8 Summit in Geneages, Scotand. Investments in a new Irish-theme pub concept Guinness consumption rose party because of the deveopment of the Irish-theme pub. In the UK, Diageo Pc invested 13 miion in 2001 in deveoping a new bar concept that it encouraged independent owners of Irish-theme pubs to adopt. The idea was to make traditiona pubs ess cuttered and more contemporary, ighter and ceaner, and thereby more appeaing to women. This new concept aso put a stronger focus on spirits rather than draught beer, thereby signaing that Diageo Pc saw its spirits brands driving future revenue growth rather than Guinness beer. The top management in Diageo is reay in doubt, what to do about the Guinness in future. Shoud they continue the miking strategy by withdrawing marketing resources (owering costs) and increasing revenues (by increasing the end-consumer prices)? At east that woud maximize profits over a shorter term and Diageo coud use the financia resources in acquiring other beer brands. Or shoud Diageo instead make a ong term investment in deveoping the brand, by impementing new goba marketing initiatives? Sources: Wiggins, J. (2006) Guinness sti posing sow saes probems at Diageo, Financia Times, 30 June; Choueke, M. (2006) Dark times for the back stuff?, Marketing Week, 15 June; Carey, B. (2006) Is Guinness sti good for Diageo? Sunday Times (London), 9 Apri; Questions As an internationa marketing consutant you are asked to give an independent assessment of Guinness opportunities in the word beer market. You are specificay asked the foowing questions: 1 How woud you expain the Guinness pricing strategy and the underying assumptions about consumer behaviour when Diageo reports for 2005 that in the United Kingdom and Ireand the Guinness saes voume fe by 3 per cent, but a vaue growth of 4 per cent was achieved in both markets, mainy due to price increases? 2 Motivated by the success of this pricing strategy shoud Diageo continue to increase the price of Guinness? 3 In Choueke (2006) an anonymous beer retai buyer comments on Guinness decreasing saes voume: Guinness has an oder profie of drinker and with an ever-increasing avaiabiity of continenta agers and a fast-growing range of acopops, the younger generation of drinkers simpy haven t bought into it. Innovation widgets and gadgets wi keep the brand aive for a whie but where ese can Diageo go? Favored Guinness? No thanks. It is in decine and Diageo s best minds can t do much about it. The brand may have ony a coupe of decades worth of ife in it and I woud mik it for everything before getting rid of it and concentrating on spirits Do you agree with this statement? Expain your reasons. 4 What eements of the Guinness internationa marketing strategy woud you do differenty, in order to increase both goba saes voume, vaue and profits. 599

60 CASE STUDY IV.3 Dyson Vacuum Ceaner: Shifting from domestic to internationa marketing with the famous bagess vacuum ceaner The Dyson history It is impossibe to separate the very British Dyson vacuum ceaner from its very British inventor. Together they are synonymous with innovation and ega battes against estabished rivas. James Dyson was born in Norfok in He studied furniture design and interior design at the Roya Coege of Art from 1966 to 1970 and his first product, the Sea Truck, was aunched whie he was sti studying. Dyson s foray into deveoping vacuum ceaner technoogy happened by chance. In 1978, whie renovating his 300-year-od country house, Dyson became frustrated with the poor performance of his conventiona vacuum ceaner. Whenever he went to use it, there was poor suction. One day he thought he woud find out what was wrong with the design. He noted that the appiance worked by drawing air through the bag to create suction, but when even a fine ayer of dust got inside, it cogged its pores, stopping the airfow and suction. Source: Matthew Fearn/PA/EMPICS. In his usua stye of seeking soutions from unexpected sources, Dyson notice how a nearby sawmi used a cycone a 30-foot-high cone that spun dust out of the air by centrifuga force to expe waste. He reasoned that a vacuum ceaner that coud separate dust by cyconic action and spin it out of the airstream which woud eiminate the need for both bag and fiter. James Dyson set out to repicate the cyconic system. Over the next eight years, Dyson tried to icense his Dua Cycone concept to estabished vacuum manufacturers, ony to be turned down. At east two of these initia contacts forced him to fie patent infringement awsuits, which he won in out-of-court and in-court settements. Finay in 1985, a sma company in Japan contacted him out of the bue after seeing a picture of his vacuum ceaner in a magazine. Mortgaged to the hit and on the brink of bankruptcy, Dyson took the cheapest fight to Tokyo to negotiate a dea. The resut was the G Force vacuum ceaner, priced at $2,000, which became the utimate domestic appiance status symbo in Japan. In June 1993, using money from the Japanese icence, Dyson opened a research centre and factory in Mamesbury, Witshire. Here he deveoped the Dyson Dua Cycone and within two years it was the fastestseing vacuum ceaner in the UK. Dyson was neary bankrupted by the ega costs of estabishing and protecting his patent. It took him more than 14 years to get his first product into a shop and it is on dispay in the Science Museum. Other products can be seen in the Victoria & Abert Museum, the San Francisco Museum of Modern Art and the Georges Pompidou Centre in Paris. Dyson went on to deveop the Root 8 Cycone, which removes more dust by using eight cycones instead of two. In 2000, he aunched the Contrarotator washing machine, which uses two drums spinning in opposite directions and is said to wash faster and with better resuts than traditiona washing machines. In 2005 the company s saes reached 470 miion, roughy two-thirds of which came from outside the United Kingdom, whie pre-tax profit for the year was 103 miion, up 32 per cent on Amost a the saes come from vacuum ceaners a product in which Dyson has buit arge saes in the United States, Japan and Austraia. 600

61 Case IV.3 Dyson Vacuum Ceaner Marketing of the Dyson vacuum ceaner Dyson beieves the most effective marketing too is by word of mouth, and today the company caims 70 per cent of its vacuum ceaners are sod on persona recommendation. An enthusiastic sef-pubicist, Dyson beieves that if you make something, you shoud se it yoursef, so he often appears in his own advertisements. When a Begian court banned Dyson from denigrating od-stye vacuum ceaner bags, he was pictured wearing his trademark bue shirt and hoding a Dyson vacuum ceaner in a press advertisement that had the word bag backed out severa times. A note at the bottom said: Sorry, but the Begian courts won t et you know what everyone has a right to know. Dyson has sometimes shunned advertising atogether. For exampe, in the company spent its marketing budget sponsoring Sir Ranuph Fiennes soo expedition to Antarctica, and gave 1.5 miion to the charity Breakthrough Breast Cancer. As rivas started to manufacture their own bagess ceaners, Dyson knew he woud have to advertise more aggressivey and in 2000 he appointed an advertising agency to promote the 2 miion business. The marketing strategy, however, remains true to Dyson s origina principes, with an emphasis on information and education rather than brand-buiding. Moreover, it seems to be working, one in every three vacuum ceaners bought in Britain today is a Dyson. See aso Tabe 1. Tabe 1 Vacuum ceaners: market voume and market shares (2005) Market/%/ Germany Itay Sweden France Spain UK Netherands Tota United Manufacturers (brands) Western States Europe Tota market + others 3.0 Voume = (mio. units) % types: Cyinder Upright Hand-hed Tota Market shares (%): BSH (Bosch-Siemens Hausgeräte) Eectroux (Eureka in US) Miee Dyson Appiances SEB Group (Rowenta + Mouinex) Maytag (Hoover) 20 Candy SpA (Hoover) Phiips De Longhi 15 2 Matsushita (Panasonic) Daewoo Group 8 1 Samsung 6 1 Eectromomésticos Soac SA 10 1 Private abe Others Tota Comments: Two different companies in Europe and United States own the Hoover-brand. In United States the brand is now owned by the Whirpoo, but in 1995 Maytag sod its European operations to Itaian Candy Spa, which owns the brand in Europe. The SEB group took over the Rowenta brand in In 2001 the SEB Group took over Mouinex SA and the SEB Group now markets the Mouinex vacuum ceaner. Source: author s own, based on Euromonitor. 601

62 Part IV Designing the goba marketing programme The word market for vacuum ceaners The use of vacuum ceaners is argey reated to nationa preferences for carpets rather than foor ties. In many warm countries instead of carpets foor ties are more usua, and these can be swept rather than vacuumed. In countries where houses are predominanty carpeted, such as in Northern Europe, Eastern Europe and North America, the number of househods owning vacuum ceaners is high. In 2005 app. 95 per cent of househods owned vacuum ceaners in Begium, Germany, Japan, the Netherands, Sweden, the United States and the United Kingdom. Many Begian househods possess more than one vacuum ceaner, as traditiona vacuum ceaners are often compemented with hand-hed ceaners (ceanettes). In parts of Eastern Europe, it is aso common to carpet was, which provides additiona demand for vacuum ceaners. Few vacuum ceaners are sod in China and India. Vacuum ceaners have ony been avaiabe in China for ten years, but ownership has not become widespread. In India many of the rura popuation do not have the means for such appiances and power suppy is erratic. The Asia-Pacific market for vacuum ceaners (not shown in Tabe 1) is 11.1 miion units per year. The word market for vacuum ceaners is fairy mature and stabe. As average prices fe throughout , vaue growth amounted to ony 2 per cent overa. In 2005 the number of vacuum ceaners sod throughout the word was 74 miion units. Demand is driven mainy by repacement purchases at the end of a product s ife cyce (the commercia ifetime of a vacuum ceaner is about 8 years), athough new product deveopments such as bagess modes spurred growth in some markets. The most sod vacuum ceaner types are the upright and the cyinder types. The distinction between upright and cyinder vacuum ceaners became ess cear in recent years, with the addition of hoses and toos to the upright version and cyinders mimicking uprights by adding turbo brushes to eradicate dust from carpets. Cyinder, or canister, vacuum ceaners make up the majority of the goba market, but do not take a strong ead, accounting for 65 per cent of European voume saes in 2005, compared with 25 per cent for upright modes (see Tabe 1). As upright vacuum ceaners are more expensive, their share is higher by vaue, amounting to 33 per cent of the market by vaue. Generay, the saes of upright vacuum ceaners grew faster than cyinders over the five-year period from 2000 to This argey refected trends in the US, which was the word s eading market for vacuum ceaners (especiay upright vacuum ceaners). Here, the addition of new features fueed the upright subsector, incuding bagess operation, HEPA (High Efficiency Particuate Air) fitration and sef-propusion, which are avaiabe in various combinations on modes seing for ess than US$200. In other markets, such as in Eastern Europe, cyinder vacuum ceaners are the most popuar type, as they are more practica for use on wa carpets, which are common for exampe, in Russia. The handhed vacuum ceaners do not pay an important roe in the market, so they are negected in the rest of this case. The market for vacuum ceaners tends to be dominated by eading white goods manufacturers. Eectroux was uncontested word eader in this sector with a voume share of 14 per cent in 2005, through its brands Eureka and Eectroux. In recent years one of the most significant deveopments in the market was that of bagess technoogy. Dyson UK pioneered its dua cycone technoogy back in 1993, Dyson s technoogy is protected by patent, but other manufacturers were quick to deveop bagess versions. In the United States, bagess vacuum ceaners increased their unit share from just 2.6 per cent in 1998 to over 20 per cent in Eectroux owes its goba dominance to its eadership in both Western Europe and North American markets, though in the atter market its position is strongy contested by Maytag and Roya Appiance Manufacturing (under others in Tabe 1). Between them, these three manufacturers accounted for 60 per cent of the North American market in Eectroux aso ed the emerging market in Africa and the Midde East, and ranked second in Latin America behind Swiss manufacturer Kobenz Eectrica. The Western European market is more fragmented. Dyson was some way behind Eectroux with a share of 9 per cent (see Tabe 1), cosey foowed by the premium appiance manufacturer Miee, whie BSH and Candy aso had strong shares. Though Dyson s overa market share is not high it used to be one of the dominating brands in the high-priced segment. The Asia-Pacific market for vacuum ceaners is highy concentrated, with the top five payers accounting for 80 per cent of saes in These were a Japanese companies, ed by Matsushita. The atter aso ed the Austraasian market, sighty ahead of Dyson. Interestingy, Samsung did not rank among the top five Asian manufacturers in 2002, athough it ed the eastern European market. In the United States Dyson now ses 1 miion units, equa to a tota market share of 4 per cent. However, in the high-priced segment ($400 pus) Dyson (in 2005) pushed Hoover to a second pace with 21 per cent of the market against Hoover s 15 per cent. Dyson is taking market shares in the high-end, which Hoover used to 602

63 Case IV.3 Dyson Vacuum Ceaner dominate, and at the same time Hoover ost the owcost market to non-brand Asian competitiors. Competitors The foowing describes the five most important payers in the word vacuum ceaner industry: BSH (Bosch-Siemens Hausgeräte) Bosch-Siemens Hausgeräte ( was estabished in 1967 by the merger of the domestic appiance divisions of Robert Bosch Hausgeräte and Siemens. During the 1990s, the company was argey geared towards improving its internationa presence. This was achieved mainy through organic growth, with a cautious approach taken towards acquisitions (e.g. Ufesa). Ufesa is the eading manufacturer in Spain and Portuga of sma appiances such as vacuum ceaners, irons and coffee makers, and has a good export network to Latin America. The acquisition aowed BSH to improve its production and distribution arrangements. Bosch-Siemens Hausgeräte (BSH) is entirey focused on the production and servicing of domestic eectrica appiances, incuding arge kitchen appiances and sma eectrica appiances. Tota revenue for the group amounted to a6,289 miion in 2002, of which a sma proportion (4 per cent) was derived from customer services. The rest came from eectrica appiances. The operating profit in 2002 was a434 miion. The company is invoved in a five sectors of the arge kitchen appiances market, in which cooking appiances are the most important with 28 per cent of saes in This is foowed by refrigeration/freezing appiances and washing/drying appiances, which each took 20 per cent of the tota. Dishwashing appiances accounted for a further 16 per cent. Other business activities centred on the production of consumer products, incuding sma kitchen appiances such as food processors and coffee makers and sma appiances such as vacuum ceaners and hair dryers. BSH remains highy focused on Western Europe, especiay its domestic German market. Germany aone accounted for 28 per cent of tota saes in 2002, which was down from 30 per cent the previous year. This was due to the difficut trading environment, which ed to a 4 per cent decine in saes in this market. The rest of western Europe took a further 54 per cent of saes in 2002, up by two percentage points on 2001 as saes in the region rose by 8 per cent. This was due to particuar growth in France (8 per cent), the United Kingdom (10 per cent), Spain (8 per cent) and Itay (11 per cent). Turkey aso continued to see very high growth of 9 per cent, despite the impact of economic and poitica turmoi in this market. Saes in markets outside western Europe were minima, with North America, eastern Europe and Asia- Pacific each accounting for 6 per cent of the tota, and Latin America just 3 per cent. Eastern Europe recorded above-average growth rates, especiay Russia with over 21 per cent. Saes in Latin America continued to decine, due to the ongoing economic crisis in Argentina, and both Brazi and Argentina causing significant foreignexchange-reated osses. However, doube-digit growth was achieved in China, where the company saw saes rise for the fourth consecutive year. Eectroux Eectroux (headquarters in Sweden) com is the word s second argest manufacturer of arge kitchen appiances behind American Whirpoo, in terms of revenue derived from this activity. The company produces a wide range of arge kitchen appiances, as we as vacuum ceaners, and heating and cooing equipment. In addition, Eectroux manufactures products outside the scope of this report, such as garden equipment, food service equipment and chainsaws. Eectroux dates back to 1901 when its predecessor, Lux AB was formed in Stockhom as a manufacturer of kerosene amps. The company changed its name to Eectroux AB in 1919, foowing coaboration between Lux AB and Svenska Eektron AB. The company shifted into eectrica appiances in 1912, when it introduced its first househod vacuum ceaner, the Lux 1. In 1925, this was foowed by the aunch of the first Eectroux absorption refrigerator. The company was quick to expand internationay, and by the 1930s was seing refrigerators and vacuum ceaners across the gobe. Between the 1940s and the 1980s, Eectroux expanded into a areas of the arge kitchen appiances, foor care and garden equipment sectors through a wide range of acquisitions. In the 1990s the company worked to expand its appiance business internationay. From 1997, Eectroux entered into a restructuring programme to improve profitabiity. In ine with this, severa divestments were made, incuding industria products, sewing machines, agricutura impements, interior decoration equipment, recycing, kitchen and bathroom cabinets, professiona ceaning equipment, heavy-duty aundry equipment, eisure appiances, baking equipment and eectric motors. Furthermore, the programme aimed to streamine the product portfoio down to a smaer number of we-defined brands. Concurrenty, the company made some further notabe acquisitions in core areas. The company is divided into two major business areas: 603

64 Part IV Designing the goba marketing programme 1 Consumer durabes, incuding arge kitchen appiances and air conditioners, foor care products (vacuum ceaners) and garden equipment (such as awn mowers, garden tractors and awn trimmers). 2 Professiona products, incuding foodservice equipment, aundry equipment for apartment/house aundry rooms, aundrettes, hotes and institutions, components such as compressors, forestry equipment such as chainsaws and cearing saws, and other products such as andscape maintenance equipment, turf-care equipment and professiona-use power cutters. In 2002 the Eectroux Group had a tota saes of a14,500 miion, of which a800 miion was eft for operating profit. Consumer durabes accounted for 84 per cent of tota saes, and 7 per cent came from vacuum ceaners. Eectroux s business is argey spit between Europe and North America, which together accounted for 87 per cent of saes in the consumer durabes division in The company has achieved a good baance between these regions, with simiar saes eves. Miee Miee ( is a German-based, famiy-run company, which produces a range of premium househod appiances (e.g. vacuum ceaners), commercia appiances, components and fitted kitchens. Car Miee and Reinhard Zinkann estabished Miee in Gütersoh, Germany in The company has, since its inception, been focused on producing highquaity appiances at the premium end of the market. The company began producing washing machines in 1900, with vacuum ceaners and dishwashers added to the product portfoio in the 1920s. During the 1950s and 1960s the company began to produce fuy automatic washing machines and dishwashers, as we as tumbe dryers. The 1970s saw further advances in technoogy, with the aunch of buit-in washing machines and condenser dryers and microcomputer-controed appiances. Since then, the company has produced a number of innovative appiances incuding washing machines with hand wash programmes for wooens, and during the 1990s, vacuum ceaners with the HEPA fiter and Seaed System. Over the past decade, Miee has focused on expanding its business overseas, especiay in eastern Europe and Asia-Pacific. The company opened a branch office in Hong Kong in 1998, foowed by offices in Poand and Russia. In 1999, Miee opened its US headquarters in Princeton, New Jersey and in 2001 it opened saes offices in Singapore and Mexico. Miee has made few significant acquisitions through its history. Its argest acquisition was that of Imperia in 1990, a German company speciaising in buit-in appiances and catering equipment. Miee products are marketed throughout Europe and aso in the United States, Canada, South Africa, Austraia, Japan and Hong Kong, through subsidiaries, and esewhere in the word via authorized importers. The company s range of domestic eectrica appiances covers vacuum ceaners, arge kitchen appiances such as home aundry appiances, refrigeration appiances, arge cooking appiances, microwaves and dishwashers, and other sma appiances such as rotary irons and coffee makers. The company speciaizes in producing innovative products within these sectors. As a private company, Miee does not reease detaied financia resuts. In 2002, company revenue reached a2,200 miion, up by 3.2 per cent on the previous year. This occurred despite a difficut operating environment, particuary in its domestic market of Germany. Miee does not pubish detaied financia resuts by geographic region. However, for the 2002 financia year, the company reported that saes in Germany fe back by 1 per cent to reach a800 miion. Outside Germany, saes increased by a strong 6 per cent to reach a1.4 biion. As a resut, internationa saes accounted for 65 per cent of tota saes in The company ists its highest gross overseas market as the Netherands, foowed by Switzerand, France, Austria, the United Kingdom and the United States. The United States recorded especiay swift growth at doube-digit rates. Doube-digit growth was aso achieved in Greece, Finand and Ireand, whie other markets showing above average growth, incuded the United Kingdom and Norway. Russia aso showed extremey good growth, athough to date the company has ony focused on Moscow and St Petersburg. SEB Group SEB Group of France ( is one of the word s eading producers of sma domestic equipment. The company is entirey focused on this area, manufacturing househod goods (cookware), as we as sma eectrica appiances such as cooking appiances (steam cookers, toasters, coffeemakers, and gris), home appiances (vacuum ceaners and fans), and persona care appiances (hair dryers, scaes, and eectric toothbrushes). SEB s key brands incude T-Fa/Tefa, Rowenta, Krups and SEB. The tota saes of SEB Group in 2002 were a2,496 miion. Groupe SEB s origins date back to 1857, when the tinware company Antoine Lescure was founded. The company graduay expanded its activities to incude 604

65 Case IV.3 Dyson Vacuum Ceaner products such as kitchen utensis and zinc tubs, beginning to mechanize its production at the beginning of the 20th century. In 1953, the company aunched the first pressure cooker. The company has since grown by acquisition. This began with Tefa in 1968, a company speciaising in nonstick cookware, and continued with the acquisition of the Lyon company, Caor, a maker of irons, hair dryers, sma washing machines and portabe radiators in In 1973, a group structure was formed under a ead hoding company, SEB SA, which was isted on the Paris Stock Exchange two years ater. Groupe SEB made a significant push into internationa markets when it acquired Rowenta in 1988, a German manufacturer of irons, eectric coffee makers, toasters and vacuum ceaners. In 1992 and 1993, it took advantage of the opening up of Eastern Europe, setting up marketing operations to make inroads in these countries and gain a foothod in the Russian market. In , Groupe SEB entered South America with the acquisition of Arno, Brazi s market eader in sma eectrica appiances. Arno speciaises in the manufacture and sae of food preparation appiances (mixers/benders), non-automatic washing machines and fans. In September 2001, Groupe SEB s main domestic riva, Mouinex, fied for bankruptcy. The company submitted an offer for a partia takeover of the business assets of Mouinex, for which it finay received approva by both the European Commission and the French Finance Ministry in Mouinex had purchased one of Europe s eading brands, Krups, in the eary 1990s, and was a good fit with Groupe SEB s existing businesses. Exampes of new SEB vacuum ceaners introduced in 2002 are: The new Neo vacuum ceaner, with a futuristic and compact design and very high performance which heraded the arriva of a new utra-modern range. The reaunch of Mouinex vacuum ceaners in a market segments, incuding the Boogy supercompact vacuum ceaner with an automatic bag ejection system; and the Ato high-power compact vacuum ceaner. Groupe SEB is one of the few sma eectrica appiance manufacturers to have achieved a truy goba presence. Furthermore, the company has a good geographica baance of saes. Athough its domestic market in France accounted for the highest proportion of saes, 26.4 per cent in 2002, a further 30.6 per cent of revenues was derived from other EU countries. The Americas represented 23.2 per cent of saes, with the rest of the word accounting for the remaining 19.8 per cent. Groupe SEB has stated its intention to expand in emerging markets which offer high growth potentia, such as Brazi, Korea, the CIS countries and China, athough it aso sees potentia for deveopment of high added-vaue niche products in deveoped markets such as the EU, North America and Japan. Growth was achieved in a regions in 2002, which was argey due to the partia acquisition in that year of Mouinex-Krups. Whirpoo In 2006 Whirpoo announced that it had taken over Maytag s Hoover vacuum ceaner division. Whirpoo cosed its takeover of Maytag in March, after passing an extended Justice Department antitrust review. Hoover was acquired as part of its $1.68 biion purchase of Maytag Corp. The company operates under the premium brands Maytag, Jenn-Air, and the ower-end brands Magic Chef, Amana and Admira. It operates mainy in the United States, but has saes subsidiaries in Canada, Austraia, Mexico, Puerto Rico and the United Kingdom. Maytag Corp traces its roots back to 1893 when FL Maytag began manufacturing farm impements in Newton, Iowa. In order to offset seasona sumps in demand he introduced a wooden-tub washing machine in The company diversified into cooking appiances and refrigerators after the Second Word War in It introduced its first automatic washing machine in 1949, and its first portabe dishwashers in One of the most famous brands in the vacuum ceaner industry Hoover dates back to 1907, when it was deveoped by the Hoover famiy in Canton, Ohio. The Hoover Company began seing its products wordwide in Maytag took over the Hoover brand in 1989 when they merged with Chicago Pacific Corporation. In 1995, Maytag sod the European Hoover operations to Itaian appiance manufacturer, Candy. In the vacuum ceaner sector, Whirpoo operates ony under the Hoover brand, which has a strong heritage and is the eading brand in the US market. Hoover manufactures a wide range of vacuum ceaners, incuding uprights, canisters, stick and handhed vacuums, hard surface ceaners, extractors and other home care products. In mid-2006 Whirpoo Corp. announced that it panned to se the Hoover vacuum ceaner business. The Hoover brand, with its 3,000 empoyees, does not fit with Whirpoo s core products aundry, refrigeration and kitchen equipment. Distribution of vacuum ceaners The situation in Dyson s domestic market, the UK, is as foows: 605

66 Part IV Designing the goba marketing programme Department stores are the most popuar source of sma eectrica goods in the UK, with many trusted names (e.g. Co-op Home Stores and John Lewis) who are abe to stock a sufficient variety of competitivey priced goods to attract consumer oyaty. Their share has increased sighty over recent years, as department stores in genera have become more fashionabe again. Speciaist mutipes have the second argest share, athough not far behind are the independents which have a arger share of the sma eectrica appiances market than they do of arge appiances. Smaer high street stores in sma and medium-sized towns attract buyers of sma eectrica appiances, ike vacuum ceaners, since consumers are ess motivated to drive to a retai park for these items, than they are say, for a fridge. Grocery mutipes, such as Tesco and Asda, se vacuum ceaners and generay offer advantageous deas on a narrow range of goods. Cataogue showrooms such as Argos aso benefited from increasing their range and from ow pricing and onine shopping faciities. Distribution of vacuum ceaners has become hugey extensive, with supermarkets and grocery stores stocking the cheaper to mid-end of the market. For eectrica retaiers sti seing smaer items, their domain ies more in the pricier, higher-end of the market. The distribution of vacuum ceaners in most other major countries is imited principay to speciaist househod appiance store chains and department stores. Huge retai chains ike Eectric City, Best Buy and Sears more and more dominate the distribution of vacuum ceaners in United States. Latest deveopment During the ast years, Dyson has decided to move most of its vacuum ceaner production from the United Kingdom to the Far East (Maaysia). Athough Dyson is sti a eading vacuum ceaner brand, it is beginning to ose out to cheaper machines that have deveoped their own bagess technoogy. The diemma Dyson faces is dropping its own prices or reinforcing the power and quaity of its brand. The oyaty of Dyson s customers has dropped off and the company s market share in UK by voume has aso decreased. Besides vacuum ceaners Dyson is aso trying to make headway in washing machines, an industry with goba annua saes of 15 biion and with big competitors incuding Whirpoo of the United States and Japan s Matsushita. Dyson gained success in vacuum ceaners through high price and styish machines that featured a new way of sucking up dirt without a bag, which appeaed to consumers desire to try something new. Then in 2000 Dyson unveied a nove type of washing machine caed the Contrarotator because it featured two drums spinning in opposite directions. Most industry anaysts say that the compexity of manufacturing washing machines, which feature a host of sophisticated mechanisms incuding pumps and motors that have to work reiaby, is a ot higher than for the reativey simpe design of a vacuum ceaner. Dyson s washing machine is very expensive, retaiing at more than 500, or twice the price of a standard washing machine sod in the United Kingdom. And whether consumers wi pay significanty extra for a new design even if its performance is better is open to question. Even in its best year for saes in 2002 the Contrarotator accounted for saes of ony 18,000 units in the United Kingdom, out of tota washing machine saes of some 2.2 miion a year. In 2005, the number of Contrarotators sod sumped to 2,500. Counting ony those saes of up-market washing machines retaiing at above 500, the Dyson product chaked up a creditabe 21 per cent share of the market in But by 2005, when the machine was quiety withdrawn, this figure had faen to 2 per cent. Dyson insists that a new type of washing machine now being worked on by a research and deveopment team at Dyson s headquarters in Mamesbury, Witshire wi be better than the first one. He says: We wi deveop a new machine and then see how many peope want to buy it. I am sure it can be a success. (Marsh, 2006) Sources: Marsh, P. (2006), A 10-year strugge to cean up in the appiance market, Financia Times, 27 June, p. 26. Questions 1 Unti now Dyson has concentrated its efforts in the United Kingdom, the United States, Japan and Austraia. In your opinion, which new internationa markets shoud be aocated more marketing resources, in order to deveop them into future Dyson growth markets? 2 In the US market Dyson achieved its market share by moving into the mass retai channes, ike Eectric City and Best Buy. Some industry speciaists are critica towards this the ong-term strategy for Dyson s high-priced product. Evauate the Dyson distribution strategy in the US market. 3 Do you think that James Dyson can repeat the internationa vacuum ceaner success with the new washing machine? Why? Why not? 606

67 CASE STUDY IV.4 Triumph Motorcyces Ltd: Rising from the ashes in the internationa motorcyce business When Maron Brando ed a group of outaw bikers in the 1950s fim, The Wid One, he rode a Triumph. It was the obvious choice back then. Britain was the biggest motorbike maker in the word and ed the motorcycing word in performance and engineering innovation with such bygone makers as BSA, Matchess and Vincent, to name just a few. And aso Triumph was winning every race in sight. But after bad management and botched rescue attempts by successive governments Triumph went bankrupt in However, the marque is back, starring in fims such as Mission Impossibe 2. When Tom Cruise roared on to the screen on a seek motorcyce it wasn t a Harey or a Honda but a Triumph, which is aso featured in Arnod Schwarzenegger s Terminator 3. It is estabished that the Triumph has captured approximatey 75 per cent of the Hoywood market, one of few US markets where Triumph is the market eader. Product segments in the motorcyce market Motorcyces were often cassified by engine capacity in three categories as foows: 1 ightweight (50 cc 250 cc); 2 middeweight (251 cc 650 cc); 3 heavyweight (651 cc and up). Triumph s motorcyces are in the middeweight and heavyweight category ony, competing mainy with companies such as Harey-Davidson, Ducati, BMW and of course the main Japanese motorcyce manufacturers. Motorcyces were aso cassified by types of use, generay separated into four groups: standard, which emphasized simpicity and cost; performance, which focused on racing and speed; touring, which emphasized comfort and amenities for ong-distance trave; and custom, which featured stying and individua owner customization. The standard modes tended to have the smaer engines, whie the performance motorcyces often had an engine capacity of more than 251 cc. The touring modes typicay had a comfortabe seating position and their engines ranged from middeweight to super heavyweight types. History The credit for Triumph s rebirth goes to John Boor, a buider who bought the company s remains (the Triumph brand name and the company s designs and tooing) for about $200,000. He has invested 80 miion on, among other things, a new pant in Leicestershire. The product has been competey revamped. New engines were crucia. Most have a distinctive three-cyinder ayout, which makes them more powerfu than the two-cyinder bikes made in Europe and the United States, and more reaxing than the highrevving four-cyinder bikes made in Japan. Boor was betting on the nostagic power of the Triumph brand. Back in the 1950s and 1960s, Triumph and Harey-Davidson were fierce rivas. The origina Triumphs offered ighter weight and better handing than Harey s machines, and saes of the British bikes were stronger in the United States than they were in their home market. The bikes are aso part of US fokore. Despite what fag-waving Harey guys in bars may mistakeny caim, Steve McQueen in The Great Escape and Maron Brando in The Wid One rode Triumphs. James Dean had one too. Legend and myth and the power of branding do not come any better. Boor s first act as a prospective motorcyce manufacturer was to hire three empoyees of the origina Triumph company who had been invoved in deveoping new modes. Boor reaized that the engine is everything 607