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The Strategy And Practices Of Diageo Marketing Essay

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Introduction
Diageo began as a world leader in branded foods and drinks, formed in December
1997 through a merger of Guinness PLC and alcohol and Grand Metropolitan plc
(The Gale Group Inc, 2006). In 2000 - 2002, a strategic decision by Diageo was
made to exit the company's food interests by divesting its food companies and
exclusively focusing on premium alcohol. A detailed history of Diageo plc up to and
immediately after its creation is set out in Figure ??:
Our Business - Diageo History Family Tree
Figure : The Diageo Family Tree
Source: (Diageo PLC, 2008)
Diageo is currently the world's largest drinks company by volume, net sales and
operating profit (Diageo PLC, 2012) with a large collection of brands which include
spirits, beer and wine. There are currently 14 brands which Diageo identifies as
global priority brands. These are set out in Table ??
Johnnie Walker whisky
Smirnoff vodka

Crown Royal whisky


Ciroc vodka
J&B whisky
Ketel One vodka
Windsor

Captain Morgan rum


Buchanan's whiskey
Jose Cuervo tequila
Bushmills whiskey
Tanqueray gin
Guiness stout
Baileys liqueur
(Diageo PLC, 2008)

Diageo's Current Business Strategies


Diageo owns seven of the world's top 20 spirits brands. Diageo's beer brands include
the only global stout brand, Guinness, and together these beer brands account for
approximately 20% of net sales while Diageo's wine brands represent approximately
5% of Diageo's net sales. This means that Diageo's size provides for scale efficiencies
in production, selling and marketing. This enables cost efficiencies and the
dissemination of best practices in business operations across markets and brands
allowing Diageo to serve its customers and consumers better.
From 2005 to the end of financial year 2011 (ending 30 June 2011), Diageo managed
its operations by four regions: Europe, North America, International and Asia
Pacific. In financial year 2012 (FY 2012) the International region was split into Africa
and Latin America sections, producing five geographical regions globally. This
general structure brought about good results. Analysis of Diageo's annual reports
from 2007 to 2012 shows that gross sales rose from 9,704,000 to 14,594,000, an
annual average increase of 7%.
Due to the level of continued change in global markets and the requisite innovation
necessary, it has Diageo completed an operating review in 2011 which recommended
changes in structure and focus, and this resulted in a net movement of personnel
from developed market regions to emerging market regions. The changes are
expected to be fully implemented by 30 June 2013 (Diageo PLC, 2011) (Diageo PLC,
2012) . This restructuring should allow Diageo to improve its effectiveness and the

productivity of its operations and to position resources nearer to the market and to
the geographical regions where there is a great potential for growth.
Read through and differentiate the different strategies under headings .i.e. Business
strategy- Generic strategies (Diageo uses focused and differentiation) and Interactive
strategies. Put everything under headings

Competitive Strategies
(Johnson, Whittington, & Scholes, 2011, p. 199) ?? define competitive strategy as
being "concerned with how a strategic business unit achieves competitive advantage
in its domain of activity." Therefore a Strategic Business Unit (SBU) creates
competitive advantage when it creates value for its users where the cost effectiveness
of supplying it is superior to that of rival SBUs. (Johnson, Whittington, & Scholes,
2011) ?? further add that Porter defines three generic strategies which create
competitive advantage for a company are; differentiation, cost leadership and focus
strategies.
This report has seen that Diageo uses both Focused and Differentiation strategies
when pushing its products to its target market. This is because Diageo focuses on
premium liquor that is targeted to a particular market. ?? Tools: advertising
(localisation), vertical integration, premiumisation, seasonal pricing strategy, firstmover advantage, employee training ?? SABMiller. Diageo's strategy is to drive top
line growth and margin improvement in a sustainable and responsible way, to deliver
consistent value creation for shareholders over the long term. It will do this through
its geographic breadth, its outstanding brands across beverage alcohol categories and
the expertise of its people. (Diageo PLC, 2012).

Production and supply


Diageo's supply organization is responsible for producing, distilling, brewing,
bottling, packaging and distributing its brands. It is committed to efficient,
sustainable production. Diageo has created a competitive advantage in both its cost
base and in the first class customer service it delivers. Investment in production
facilities is focused on building capacity for the production of scotch, beer and rum,
with both high speed and high volume, cost efficient production lines and with
flexible production facilities to create an industry leading supply chain for
innovation, especially in luxury products. The business recognizes that it operates in
a world where natural resources are limited. Diageo has set itself challenging

environmental targets covering water efficiency; increasing use of sustainable


packaging and reduction in pollution, carbon emissions and waste-to landfill (Diageo
PLC, 2012).

Differentiation strategy
Products
For a company to use this strategy it should prove unique products for which their
customers will be prepared to pay a premium price. This is seen in Diageo's recent
launches which focused on the consumers' wish for luxury, the tastes and increasing
affluence of the emerging middle class consumer which ultimately increased the
accessibility of spirits through flavor extensions and packaging and drink formats
(Diageo PLC, 2012). Premiumisation [jubilee scotch] innovation around RTD
products, adult progressive drinks.

Customer care and Retention


When it comes to customer care and sale of its products, Diageo works in
collaboration with its customers to drive profitable category growth, by building
partnerships with retailers and on-premise customers. The 'Diageo Way of Selling'
program equips both Diageo and its customers with the tools to be the best sales
force in the industry and to create commercial and strategic value for all parties. The
European Customer Collaboration Centre provides a state of the art facility to bring
consumer, shopper, retailer and distributor insights together to facilitate integrated
planning with customers. These tools enable Diageo to realize its ambition to become
an indispensable business partner to its customers (Diageo PLC, 2012). This means
that when the customers go to buy their products it's a fulfilling experience and they
get all their questions or suggestions met and this works well with Diageo as they use
this as feedback.

Environmental and socially responsible


Diageo being the socially and environmental responsible company, it has a history of
being a sustainable and responsible company dating from Arthur Guinness who was
responsible for philanthropic community programs and through the 1930s when its
predecessor companies marketed their brands in a responsible manner. Diageo
understands the social, environmental and economic impact of its activities and has

adopted a structured approach to manage these impacts, to build engagement across


stakeholders, to create value, especially in emerging markets; and to protect Diageo's
license to operate (Diageo PLC, 2012).

Balance of alcohol in the community


(Diageo PLC, 2012) states that the company is not all about profits and losses, it
ensures that even the employees are proud of the responsible manner in which its
brands are marketed and the role that moderate consumption of its brands can play
as part of the balanced lifestyle for millions of people. Diageo seeks to be at the
forefront of industry efforts to promote responsible drinking and works with key
stakeholders to combat alcohol misuse.

Eco-friendly technology
Diageo's production teams have created award winning technologies to meet these
targets with the aim of reducing Diageo's environmental footprint, delivering
business efficiencies and securing supply into the future. Diageo is committed to
generating prosperity in the communities in which it operates, especially in the
emerging markets by integrating its supply chain into the local community and via
direct community initiatives such as 'Learning for Life' and 'Water of Life' (Diageo
PLC, 2012).
Development of the workforce
Diageo believes that industry leading performance will be delivered through a
talented and diverse workforce and great leadership. The company has active
programs that ensure the development of its management and leaders. Great
leadership combined with a culture of good governance and ethics protects Diageo's
reputation and supports the sustainable efficient growth of the business (Diageo
PLC, 2012).

Focus Strategy
(Johnson, Whittington, & Scholes, 2011) state that focus strategy focuses on a
particular segment of market and modifies its products and services to fulfill the
needs of that exact segment while excluding others. In terms of relationships with
distributors and suppliers Diageo has strong routes to market which leverage local
expertise. In the United States Diageo is required by law to operate via a three-tier
distribution system which separates suppliers, distributors and retailers.

Diageo works with distributors who provide a substantial dedicated sales team of
over 2,900 people. Outside of the United States Diageo owns and controls the route
to market in many markets, and where Diageo has not established its own subsidiary,
the route to market is through joint ventures, associates and third party distributors
(Diageo PLC, 2012). This kind of command on distributorship and supply is why
Diageo is known for its quality products and this ensures customers get what they
pay for.

The Strategy process


Intended Strategy Development
Strategic Leadership: the role of vision and
command
In 2000, the newly appointed CEO of Diageo, Paul Walsh, embarked on a strategic
review of all operations and was determined to recreate Diageo as the world's leading
premium drinks business (Davidson, 2004). By selling off the company's food
concerns and concentrating on the marketing and innovation of its core premium
drinks brands, Paul Walsh refocused and reenergized the company (Encyclopedia of
Business, 2012). Walsh's leadership gravitates towards the visionary style since it
more closely follows one that "motivates others, helps create the shared beliefs, and
shapes more detailed strategy" (Johnson, Whittington, & Scholes, 2011, p. 400).
The development of the company up to 2000 can be depicted as in Figure ??.

[diagram with original acquisitions]

Strategic Planning
Four key pillars of the formulated strategic plans can be identified as:
Promotion of the global strategic brands
Vertical integration
Cost reduction

Acquisitions, mergers and divestments


Exploring new territories

Promotion of global strategic brands


Strategic brands (formerly global priority brands) have always been a key pillar of its
strategy. In 2007 there were eight of these
Johnnie Walker whisky
Smirnoff vodka
J&B whisky
Captain Morgan rum
Tanqueray gin
Jose Cuervo tequila
Guiness stout
Baileys liqueur
(Diageo PLC, 2007)
These are brands which Diageo considers "to have the greatest current and future
earnings potential" (Diageo PLC, 2007, p. 9). By 2012 the number of brands in this
category had risen to 14 as set out in Table ??.
In 2007, the structure of the organisation can be understood from Figure ??
[2007 structure]
Although the company was structured into four distinct geographical regions, the
global priority brands took precedence over the regional divisions. ?? ref Since the
eight brands constituted the lion's share of earnings, it was considered important to
manage these products at the highest level. Growth strategy and promotion was
engineered at the corporate level. However that did not mean that regional business
units were spoon-fed material from corporate level. There was a great deal of
localisation in promoting these products. An example of a major long-running

campaign which has been progressively adapted to different regions is the 'Walk with
Giants' campaign which in FY 2012 featured the respected long distance Olympic
champion Haile Gebrselassie in an Africa campaign.

Vertical integration
Diageo has taken considerable control of the supply chain, being involved in
developing, brewing, distilling, bottling, packaging, distributing, and marketing. It
has physical plant which covers the previously listed activities as well as specialised
functions such as malting, packaging plants, vineyards, maturation warehouses,
cooperages, distribution warehouses, and bottle manufacturers (Diageo PLC, 2007).
In Kenya the process goes as far as involvement in the growing of input cereals to
brewing ?? ref. In the USA, total vertical integration is moderated by law, which
states that there should be three levels of supply: manufacturing, distribution and
retail. In that market therefore, Diageo works to identify solid partners in
distribution, usually only one partner per state.

Cost reduction
??
Acquisitions, mergers and divestments
Strategic acquisition and sale of unfocussed business units was in Diageo's business
genes, as it was formed from a succession of such moves. It has continued to be a key
part of its growth. Since 2000 the organic growth of the company looks like Figure ??
[extend figure]
The acquisitions have extended Diageo's range, for example the acquisition of Mey
Iki in Turkey and investment in ShuiJingFang in China have opened access to four
new production sites in the middle East and production of ?? in China. ?? SABMiller.

Exploring new territories


Although Diageo had possession of many of the world's strongest liquor brands, and
could have been satisfied with continuing to depend on this 'cash cow' business, it
has as a company been quite adventurous and curious in enacting a deliberate policy
of exploring emerging markets. "Part of Diageo's growth strategy includes expanding
its business in certain countries where consumer spending in general, and spending

on Diageo's products in particular, has not historically been as great but where there
are prospects for growth" (Diageo PLC, 2007, p. 17). This arm of the business was
only delivering 20% of the revenue in 2007, despite representing considerable
complexity in management. Emerging markets can be difficult to manage due to the
relatively low purchasing power, poor infrastructure, and traditional local
involvement in distribution channels. However this persistence has clearly paid off
for the company. From a small but hopeful difference in growth compared to
developed country markets in 2007, the emerging markets have increased in
strength and importance, until in 2012 they represented 40% of revenue, which is
expected to reach 50% by ??.

.
'Diageo's strategy is to drive top line growth and margin improvement in a
sustainable and responsible way, to deliver consistent value creation for shareholders
over the long term. It will do this through its geographic breadth, its outstanding
brands across beverage alcohol categories and the expertise of its people.' (Diageo
PLC, 2012)

Emergent Strategy Development


Logical incrementalism
PESTEL reactions
Advertising in US about spirits on TV - product change

Levels of distribution.
2008 credit crunch - emerging market growth - smarter at localised promotion?
Diageo hiding behind EABL - my country my beer.

Managing Strategy Development


[figure with the five regions and amended brand strategy]
Reconfigured structure - concentrating more on emerging markets.
Overall growth highlighted - graph showing growth.

Evaluation of Innovation and Entrepreneurship


Practices
Diageo is always innovative and this is in its strategies all through the company. All
the stakeholders know what is expected of them and there is always something new
that Diageo is coming up with. Below are some of the new ideas that have been
rocking Diageo:
Innovation unlocks growth in developed markets. In Ireland, for example, we have
introduced new dispense technology to bring perfect cocktails to bars which do not
usually serve cocktails. Smirnoff Mojito is available in over 600 Irish outlets which
are now selling a total of nearly 40,000 cocktails a week (Diageo, 2012).
Diageo entered the Indian made foreign liquor segment (IMFL) with the launch of
Rowson's Reserve, a premium IMFL whisky. It is a blend of selected premium Indian
whiskies and reserve stocks of the finest aged Scotch whisky matured in American
oak casks that are mellowed to give a rich smooth finish. It has a well-rounded and
balance flavour profile, with a soft, lingering aftertaste. Its distinctly superior liquid
and premium packaging allows it to stand out as a premium offering (Diageo, 2012).
Smirnoff, the world's number one vodka, revealed an exciting new flavour variant,
exclusive to travel retail. Smirnoff Gold Collection - with the luxury of gold in every
drop - is unique, cinnamon spiced vodka. Gold cues feature prominently in all
executions and the gold etched bottle itself showcases a flurry of real, edible gold leaf
flakes, magically suspended in this truly indulgent vodka (Diageo, 2012).
Guinness Black Lager has the refreshing taste of lager, but all the character of
Guinness which consumers love. We take immense pride in the quality of our
product and ensured that we built on the Guinness legacy. The refreshing taste is
locked in by the bespoke amber Guinness bottle. The contemporary packaging design
combines premium, detailed silver and blue colour with hallmark symbols of
Guinness' brewing provenance and heritage (Diageo, 2012).
This March saw the launch of Orijin, the latest drinks innovation from Guinness
Cameroon. Perfect for all social occasions, this authentic ready to drink alcoholic
beverage ,an alternative to beer, is made from a blend of traditional African herbs
such as kola nuts, ginger and cloves, and sweet tropical fruits, giving it a refined,
bitter-sweet and uplifting taste (Diageo, 2012).

We need to offer more choices to female consumers. In Kenya, we launched Snapp.


Women there told us they didn't like drinking beer, particularly in the on trade
because both the packaging and the liquid were viewed as too masculine. Snapp is a
premium, crisp apple tasting drink that provides women with a more stylish and
sophisticated alternative to beer (Diageo, 2012).
As a darker, spiced rum from Captain Morgan, Captain Morgan Black Spiced
expands the brand's footprint into the bolder, more masculine whiskey occasion. The
brand honors the legend of the real Captain Morgan, whose spirit is said to still roam
the waters of the Caribbean today. Captain Morgan Black Spiced Rum is best enjoyed
on the rocks, but is also delicious as the key ingredient in edgy, new twists on classic
cocktails, such as Henry Morgan's Old Fashioned (Diageo, 2012).
The new frozen Ready to Serve pouch format from Parrot Bay offers consumers an
easy and affordable way to enjoy the drinks they love. Parrot Bay frozen tropical
drinks are your favourite tropical drinks perfectly mixed every time, available in Pia
Colada, Strawberry Daiquiri, and Mango Daiquiri. Just freeze, squeeze and enjoy
(Diageo, 2012).
Offering a credible, exciting new alternative to beer for British males, Jeremiah Weed
Brews is a range of two products Mash and Root Brew. The combination of an
authentic American brand, independent positioning, simple design and a unique jam
jar serve over ice has helped deliver the masculine credibility of beer with an
enjoyable taste. Jeremiah Weed has now been rolled out to 7,000 on trade outlets in
Great Britain (Diageo, 2012).
Harp Lime is Nigeria's first flavoured beer. With a clean and crisp taste, and just a
hint of lime, it is uniquely refreshing. Harp Lime has been well received, with
distribution growing steadily, and the distinctive Harp Lime advertising impacting
positively on the Harp Trademark equity. Harp Lime is available in both sleek 30cl
bottles and cans (Diageo, 2012).
The Tusker brand has been enjoyed in Kenya since 1922, and now new Tusker Lite
keeps the brand innovative and relevant by addressing today's consumers' balanced
lifestyle choices with a refreshing low calorie beer. Tusker Lite is positioned within
the same mainstream segment as the parent brand Tusker Lager (Diageo, 2012).
This year's Asian Festive season gifting design was inspired by the characteristic big,
bold flavors of the Johnnie Walker brand. The packs were launched in stages, from
India for Diwali and then across Asia Pacific for Chinese New Year. The eye-catching

limited edition gift boxes boast a beautiful design that allows each variant to stand
out on shelves, with impressive and refined packaging including an embossed box
and gold foiling (Diageo, 2012).

Conclusion
Xxxx

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