absolut vodka, developing high brand loyalty-marketing strategy

1 | ABSOLUT MARKETING- Pernod Ricard Term Paper, Group 4


Absolut Vodka by Pernod Ricard- Establishing Brand Loyalty

ABSTRACT:

With several hundred different choices of flavoured/non-flavoured, domestic/imported, and

super-/ultra-premium Vodkas out in the marketplace, the need to develop strong brand loyalty

becomes vital to the survival of these brands. The focus of this paper is to evaluate the marketing

strategies of Absolut vodka, a product of Pernod Ricard. Our analysis on Absolut vodka will

concentrate on possible means to develop high brand commitment towards Absolut.

INTRODUCTION

Vodka accounts for nearly one-quarter of all distilled spirit sales, and continues to show growth

despite the assertion by many marketers that it is in the mature phase of its life cycle. Vodka can be

classified into 3 groups: premium, super premium and ultra premium. Standard vodkas all have one

element in common: they all are 80-100 proof, or have 40-50% alcoholic content by volume . The

voluntary ban of hard liquor advertisements on television has made mass marketing difficult for

vodka companies. As a result, vodka companies have sought innovative avenues of marketing in

order to effectively promote their products. One of the world’s most successful vodka brands is

Absolut by Pernod Ricard.

ABOUT PERNOD RICARD

Pernod Ricard holds one of the most comprehensive and premium portfolios in the industry. Some

of their key products include ABSOLUT, Ricard anise and Scotch whiskies led by Chivas Regal,

Ballantine’s, The Glenlivet, Havana Club rum, Beefeater gin, Kahlúa and Malibu liqueurs, Jacob’s

Creek, Brancott and Graffigna wines. Pernod Ricard has made up scaling its brands and creating

more premium categories its strategic priority. The Pernod Ricard organisation is made up of Brand

Companies and Market Companies representing more than 18,000 employees in 70 countries.

PERNOD RICARD IN INDIA

For Pernod Ricard, as the world’s second-largest spirits maker, India has now emerged as the fifth-

largest market for the company by value and profit. The country could soon move past Spain to

become the fourth-largest after the US, China and France. The French giant's domestic operation,

which had volume sales of just 1.5 million cases in 2001, is reporting annual volume sales of over 20

million cases almost a decade after starting operations in India. The robust growth of Pernod Ricard

in the past one decade has boosted the confidence of international spirits firms that have struggled

to shake off Vijay Mallya-led United Spirits' dominance in the domestic market

Three local whiskies- Royal Stag (10.6), Imperial Blue (7) and Blender's Pride (2.6)-are Pernod

Ricard's mainstay. International blended scotch whiskies Chivas Regal 12-Year-Old, Ballantine's and

Absolut Vodka, besides locally bottled scotch whisky 100 Pipers, are the other key products for

Pernod Ricard India.


With 20 million cases now, Pernod Ricard is just one-sixth of its domestic leader United Spirits by

volume but reported a higher profit before tax in FY10. The local unit's operating margin, estimated

at 24%, is way ahead of its domestic rivals USL and Radico Khaitan, as it continues to build

distribution clout focused on the profitable segments of India's spirits market

EXTERNAL ENVIROMENT of PERNOD RICARD

Threat of competition – Moderate and growing

United Breweries is the market leader with 43% market share ( volumes) with second best Pernod

Ricard India Pvt Ltd (previously Seagram India Ltd), which had an 8% volume share of spirits in 2010.

wine in the mid-to-high price range compete on the basis of quality and branding.The quality with

respect to the taste of the wine is a basis of competition for individual brands, winemakers and

enterprises. By volume, industry sales are dominated by bulk wine, which compete primarily on the

basis of price. Given the importance of price, economies of scale and scope, the size of the wine

manufacturing enterprise plays an increasingly important role in competition.

This is a competitive industry in which companies are always fiercely competing for brand

recognition and awareness.The best way to gain a competitive advantage is through brand

awareness and appeal, via marketing. Pernod Ricard has exemplified this and has positioned

itself well by marketing and developing its diverse set of brands in many markets to capitalize on

fluctuations in consumers preferences’. Threat of competition therefore is present, but not

overbearing or interfering with Pernod Ricard’s growth strategies.

Threat of new entrants – Low

The spirits industry is dominated by those companies which posses brands with high brand

equity and market presence. Brand equity and market presence require very capital intensive

oriented marketing campaigns to achieve, thus eliminating the threat of new entrants to a great

extent. Although the industry has moderate operating capital requirements, crores must be

spent on frequent marketing-related projects. The alcoholic beverage industry is highly

concentrated with only a few well-positioned companies dominating market share (there are

numerous companies in the industry, but the majority of market share is controlled by only a

few). To maintain financial stability, an industry player would do well to diversify by broadening

their geographical and categorical scope, thereby mitigating currency risk and regional financial

downturns. Therefore, companies with broad reach and economies of scale not only deter new

entrants, but they are better-positioned to acquire smaller players and avoid takeovers

themselves. The industry is also highly regulated and highly taxed due to the risk profile of the

product. All of these factors contribute to what has to be categorized as a low threat of new

entrants industry.

Threat of substitutes – Low

The alcohol industry as a whole has almost no substitutes, so the threat of substitutes should be

categorized as low. However, the fact that 73% of Ricard’s revenue comes from spirits suggests

that other alcoholic beverages, especially ones lower on the pricing scale, could be substitutes.


In particular, since they are primarily premium spirits producers, lower end spirits could outgain

the premium category in sales volume. Furthermore, consumers will most likely not substitute

premium and midstream spirits for lower-end brands due to the importance of brand

recognition. Finally, the alcoholic beverage industry is generally characterized as selling a

primarily inelastic product, so the industry should not expect consumers to begin favouring non-

alcoholic beverages. Therefore, threat of substitutes are at a low level.

Power of suppliers – Low

Input costs to alcohol-producing companies come from agricultural products (wheat, grain,

grapes, etc.). Farm suppliers are geographically-diverse with much competition, their prices

dictated by supply and demand. Ultimately, suppliers have hardly any pricing power. Rising

commodity prices certainly hurt spirits producers’ margins, but the recent relaxation in such

prices have eased such concerns. Additionally, many spirits have to be fermented as much as a

decade in advance of end user consumption. This time lapse delays any immediate financial

stress and allows for smoothing across financial statements. As a hedge, companies can buy

more when agricultural prices are low, and buy less when agricultural prices are high. Due to

such opportunities and the limited influence of agricultural producers, the power of suppliers is

low.

Power of buyer’s – Moderate

Similar to the threat of substitutes, aggregate alcoholic beverage demand is mostly a staple

product and fairly inelastic relative to its price. The power of buyers to set prices is low and

producers such as Pernod Ricard certainly have pricing power. However, if prices rise in one

beverage category (beer, wine, spirits), it would not be unusual to see consumers shift their

preference to a less expensive alcoholic beverage category. Additionally, since the company’s

immediate customers are primarily wholesalers, they may have to rely on promotional

discounts and favourable payment terms in order to maintain steady revenues. While many

consumers’ preference will not change, the frequency with which they purchase spirits could

decline. Premium-plus brands suffer most from decreased consumption at restaurants and bars,

where consumers opt for cheaper brands, or they frequent such venues less and less. Still,

Pernod Ricard products have among the highest brand equity, and their premium brand pricing

strategy borders midstream, or average, prices. Thus, there is only moderate concern in the

current economic downturn, and the power of buyers remains as such.

PEST ANALYSIS of PERNOD RICARD

Political/Legal Environment

The Indian Constitution: Promoting prohibition of alcohol consumption- In Indian constitution

under Section 47 it is written that “the State shall endeavour to bring about prohibition of the

consumption except for medicinal purposes of intoxicating drinks and of drugs which are

injurious to health.


State authority over alcohol production, distribution and sale – Under Section 47 of the

Directive principles of the Indian Constitution; selling, distribution and production of alcoholic

beverages belongs to state governments. It means in some of the states PernodRicard cannot

sell or distribute if the State does not allows. Also, the company has to target each States

differently depending on the laws in the State.

Shaky TV Commercial Ban – Alcohol companies in India cannot advertise directly about alcohol

consumption in India. So, the companies have to advertise indirectly which can result in

miscommunication to the customers about the product.

Concern of drunk driving – Rise in drunk driving numbers recently has forced the government to

enforce stricter laws regarding alcohol consumption. A frequent check by the police for drunk

drivers has made the consumers drink judiciously.

Economic Environment

Rising Indian Tiger – India is a trillion dollar economy with a large population of 1.1 billion

people. Indian economy is expanding and the average personal wealth is increasing. The

country has the highest GDP growth rate among the developing countries with a large pool of

youth. Along with this overall progress and increase in economic activity, the spirit market in

India is on the rise. Consumption, product availability, disposable income, and education are all

up. This is a good sign for PernodRicard as it provides a large market which is growing

economically.

International Trade Liberalization – Increasingly countries around the world have become more

economically interdependent. India is one of the favourite destinations in the emerging markets

for the foreign companies. As more foreign professionals are coming to India they are bringing

the culture and knowledge of the drinks also. Also many of the Indians have international

experiences and lifestyles (either through studies, travel or work) that they have brought back to

the country. These changing tastes and preferences, coupled with high disposable income

provides an opportunity for a foreign company like PernodRicard in India.

Social Environment

Changing social values –In the past, according to traditional Indian values and culture

consumption of alcohol was strictly not encouraged. But in modern times with the world

becoming a global village, this trend is slowly changing. Nowadays socially drinking is becoming

acceptable. The presence and mixture of foreign cultures is attributing to this factor.

Evolution of family structure – The traditional joint family structure is becoming less noticeable

in India. Youth are becoming more autonomous and they take active participation in family

decisions. Many women are more independent economically. This change in the family structure


KEY PRODUCT LINES

Strategic groups:

The Various strategic groups within Pernod Ricard are

Global Icons

Premium spirit brands

Prestige spirits and champagne brands

Premium wine brand

Key local brands

The 2 brands viz. Chivas Regal and Absolut have been identified as ‘Global Icons’ and hence are of

highest priority in the brand building across all markets.

The next level contains the 7 Strategic Premium Spirits Brands and the 5 Strategic Prestige

Champagne Brands. These 12 brands are tagged as brands with international standing.

The lowest level of the pyramid is formed by the 18 Key Local Brands. These brands are the brands

that are given first rate standing in the distribution networks thus enabling Pernod Ricard to devote

more time and energy to building the global brands viz. Chivas Regal and Absolut. These 18 brands

are local leaders in their markets.


PRODUCT IN REVIEW: ABSOLUT VODKA

ABOUT ABSOLUT VODKA

Absolut Vodka is a brand of vodka, produced in southern Sweden owned by the French firm Pernod

Ricard since July. Absolut is the third largest brand of alcoholic spirits in the world

after Bacardi and Smirnoff, and is sold in 126 countries

ABSOLUT POSITIONING AND SEGMENTATION

FRAME OF REFERENCE OF ABSOLUT

Target

Targets the profile of the target consumers for Absolut has been the same the world over. The

Swede vodka brand talks to young people in the age bracket of 25-35 years. These young people are

the trend setting lot who have a high average disposable income.

Absolut’s presence in events related to arts, fashion and music is a step to catch its consumers in the

areas of their interest and aligning the brand’s image with that of other activities that this consumer

segment indulges in.

VALS model: Innovators

Taking a cue from the VALS model, the target audience for Absolut can be described as innovators –

people who are successful, active, and like to take charge of their life. These people, through their

choice of product, often reflect cultivated tastes for relatively upscale and niche oriented products

and services.

http://en.wikipedia.org/wiki/Vodka

http://en.wikipedia.org/wiki/Sweden

http://en.wikipedia.org/wiki/Pernod_Ricard

http://en.wikipedia.org/wiki/Pernod_Ricard

http://en.wikipedia.org/wiki/Bacardi

http://en.wikipedia.org/wiki/Smirnoff


What is the nature of competition?

The nature of competition is the entire gambit of alcoholic beverages segment. The brand is not only

concerned about the presence of other vodka brands in the fray, it also has to handle the threat

from substitute products.

Category convention and image:

- The world economy is expanding and the average personal wealth is increasing worldwide.

With the booming economy and increasing consumption capability, the consumers are

increasingly becoming heavy spenders, seeking better quality and experience.

- Association with these brands works as a statement of the consumer’s lifestyle. Most of the

alcoholic beverages are fighting for the mind space of consumers by projecting an

aspirational brand appeal. However, in the process, the marketplace becomes extremely

crowded.

- A crowded marketplace strife with too many close competitors.

- High customer loyalty for vodka, but loyalty is low as far as brands are concerned. It can

easily be seen that consumers for vodka prefer the type of drink, but fail to champion a

brand while choosing a drink.

- A non-conducive environment for marketing, as the government does not allow for

marketing of these products. In India there is a blanket ban on advertising of alcoholic

beverage brands, therefore most of these brands resort to sponsorships and ‘surrogate

marketing’.

Points of Parity:

- In a regulated market like India, most of the brands take the route of advertising through

music and other forms of entertainment.

Points of Difference:

- One of the biggest points of difference for Absolut, is the presence of Vodka in a medicine

bottle. Absolut’s packaging has been a major differentiator for the brand and it is one of

those points of difference which has been hard to dilute by the other brands.

- Instead of going through the traditional way of surrogate advertising, the brand is known to

have built associations.

- Many of the Vodka companies try and keep a low cost positioning, Absolut does not follow

the same rule and has positioned itself as a aspirational product carrying a premium price

tag.


MARKETING STRATEGIES OF ABSOLUT

Although Absolut has primarily cornered the print ad market with their innovative approach to

“marketing as art”. The global brand has produced some of the finest and impacting ads representing their

proprietary bottle design.Some of the various ways absolut and its competitors have reached out to its

target are as below. Absolut, one of the manufacturer’s under analysis, has created the seventh

most successful marketing campaign in the 21st century, according to Advertising Age The print ads

used taglines like “Absolut Perfection” and had respected artists (like Andy Warhol and Keith Haring)

creatively interpret Absolut’s medicine bottle

Brand Extensions

The appeal of flavored vodkas is definitely adding considerable recognition to the family’s anchor

brand name. Absolut has started experimenting with flavours like raspberry, ruby red, pears and

many more to encourage sampling. The consideration of these “repertoire drinkers” or those who

enjoy many different types of alcohol but don’t decide what to drink until the last minute, is the

focus of their strategy. A spirits friendly environment, will encourage bars and to promote the

appeal of these flavored alcoholic beverages.

Mass Marketing Mediums

Absolut Vodka has always focused on Print innovation as a medium to target the masses. At the

focal point of their communication is their legendary medicine bottle. Absolut has introduced the

Absolut blank campaign throughout the world.

Absolut Blank:

Absolut Vodka has initiated ABSOLUT BLANK, a global initiative which is made up of 20 artist

collaborations, films, print and outdoor ads, and events aimed to inspire creativity.

In ABSOLUT BLANK, ABSOLUT has converted its iconic bottle into a blank canvas to inspire artists

throughout the world to fill it with creativity. Artist collaborators from a variety of disciplines

converted the pure white canvas into exceptional pieces of art. The result depicts how artists and

creativity are inspired through ABSOLUT

Sponsorship of Lifestyle Events

Brand managers of Absolut strategically create cross-promotional activities in order to establish a

subconscious association with regards to a specific lifestyle. Absolut aims to create an association in

the minds of the consumer that vodka is indicative of a fashion accessory. Absolut has always been

associated with fashion due to its continuous sponsorship of key Fashion Shows in New York City. A

recent cross-promotion with Revlon emphasizes this emphatically. In their Absolutely Fabulous Lip

Cream campaign, Revlon hosted a series of upscale parties in order to promote a new line of lip

colors. Using Absolut to create cocktails entitled “Absolut Temptress” and “Absolut Vixen” reflected

a marketing program that synergetically combined elements of product, indulgence and fashion

(Bittar, 2001). Vodka by definition is not a commodity product, but rather is representative of luxury

http://www.absolutblank.com/


items in which consumers pull the product. This notion of global standardization of a product serves

these vodka manufacturers well around the world.

Websites

The Absolut website is very slick and directed at the youth segment of this market. Absolut’s website

includes the aforementioned pseudo motion picture promos. A unique feature on the website

directly connecting to the drinker is being executed called “drinkspiration”. Confused drinkers can

browse through a wide variety of cocktail options on their iPhone or iPad.

THE PROBLEM: ESTABLISHING BRAND LOYALTY

Vodka drinkers are traditionally known to be shift-loyals or wandering customers and they showcase

a very low degree of brand loyalty unlike scotch and whiskey drinkers. Since much of vodka’s brand

loyalty is driven by fads and perception what are the key decisions that brand managers at Pernod

Ricard will have to take to influence and acquire loyal customers.

SUGGESTED SOLUTION

Health and Energy- Based vodkas

In order to maintain its exiting dominance, vodka companies must persevere in further fragmenting

the market in order to meet the needs of all of its consumers and build loyalty. There are visible gaps

where these focuses are not being addressed. More importantly, defining new niche segments, like

Health and Energy-based vodkas, creates segments where customers can be highly loyal to the

brand

Vodka is known as a startup drink and as the trend would follow drinkers would gradually shift to

another spirit eg. Scotch or whiskey. This trend needs to be reversed and a connection targeted to a

deeper level of the individual needs to be developed.

Targeting the younger generation

Absolut has utilized various positioning strategies to get people to drink absolute and commit to the

same brand. As the world population is growing, young consumers are considered the major

segment for all the alcoholic companies. The young generation tends to be more independent in

valuing the benefits of product consumption. Since there is a growing number of younger drinkers,

Absolut needs to utilize this to their benefit and build brand loyalty at the initial stage as vodka is

considered as a startup drink and it is easier to influence the fads and perception of the younger

generation. Most marketing programs have a definitive life cycle, and it would be prudent for

Absolut to be proactive in developing strategies that concentrate on positively influencing the fads

and perception of the targeted segment.


Absolut ‘Connect’

Customising drinks that shall connect the consumer to his childhood roots or his esteem needs by a

unique proposition called “Absolut Connect”. Custom drinks that shall connect to a particular

attribute of the consumers delight need. This shall ensure high brand loyalty. This shall be divided

into

(a) Absolut “LOCATIONS” and (b) Absolut “CARS”. Locations and Cars are two factors that can

define a particular person in society

(1 )Absolut “LOCATIONS”:

Eg. ABSOLUT GOA would have goan drinkers all over the world with a high degree of affinity and

loyalty for the brand due to the deep connection with the name.

(2) Absolut “CARS”:

ABSOLUT MERCEDES would have Mercedes lovers and car lovers developing a high degree of loyalty

to the brand

Custom menus for different geographic areas/cars should ensure sampling of the same. Involving

the general public to send in their suggestion and having them involved with the drink shall ensure

positive word of mouth and shall generate goodwill amongst desired segments

CONCLUSION

Vodka has entered the mature stage of the product life cycle. It is hence necessary for Absolut to

define new niche segments like Health and Energy-based vodkas and create segments where these

weaknesses in coverage can be minimize.

Absolut must persevere to target the younger generation of the population and formulate strategies

that will connect them to their grassroot delight needs. The basic philosophy for the brand has been

consistent throughout decades.

Absolut still maintains the same business concept it held in the past: To offer the consumers a

Swedish produced vodka of highest quality with high level of communication at a premium price. But

this segment needs to be further segmented and inorder to pull customers from other loyal

segments like scotch and whiskey. Absolut should influence the fads and perception of this segment

at a deeper level via innovative activities like Absolut “Connect”.

This perception change strategy also intends to increase the proportion of vodka drinkers by

converting current non-drinkers of their products

Brand loyalty can also increase the amount of vodka consumed by the average consumers by

increasing the drinking frequency or developing varied ways to easily access to the products.

absolut vodka, developing high brand loyalty-marketing strategy

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