Excerpt
1. Introduction
Branding is a fundamental aspect to any business; its ability to influence and create loyalty is a vital tool which requires constant attention and extensive resources. In 2005 The Economist published a special report titled “Consumer power – Crowned at Last” (Economist, 2005) which outlined the key transition of a power shift, from producer or provider to the consumer and customer. This is a common theme which shall be explored in order to understand how brands have adapted to this transition, but with a particular focus upon how brands have been applied online and digitally. In order to establish an in depth analysis of this subject area there will be a focus upon experience brands within the alcoholic beverage industry. Diageo Plc is the third largest alcoholic company in the world (Week, 2010); and will be the company that is the focus of this evaluation. Further emphasis will consider how brands associated with tangible consumption and experiences can use this new age of branding to maximise customer loyalty but also remain competitive and manage various external threats.
2. Layout
Before considering experience branding within the product portfolio of Diageo the two variables will be explained and described with the use of academic theories; various contemporary opinions and examples. This breakdown will allow the impact that branding has upon the products that Diageo sells to be analysed critically. Section 3 will outline Diageo and its main business practices and operations, with a strong focus upon its core products and its key branding strategies. Following on from this Section 4 will provide a general outline of branding and the important concepts that are required to understand how experience branding functions; for example the price differences in private labels brands and manufacture brands. Section 5 will focus on how branding has changed and developed over time, outlining the key factors that had caused this and how it has affected overall business strategy and branding. Section 6 will develop upon the points made within the previous section and apply them in more depth with a focus upon online branding. The primary focus will be on how online business and branding has enhanced the power shift between organisations and consumers. Also the options for online branding will be explored and applied to Diageo’s business strategy in relation to experience branding. Section 7 will analyse the threats that branding online potentially has and how experience brands must beware of these threats. Finally section 8 evaluate the topic and provide recommendations for Diageo in the relation to maintaing its experience brands in the long term.
3. Brief History of Diageo
With a market capitalisation of $42 billion (BusinessWeek 2010), Diageo Plc is one the largest alcoholic companies in the world and the 13th biggest company on the London Stock Exchange (LSE, 2012). Since its formation in 1997 the company has developed into a market leader for premium drinks on a global scale. This has been achieved through numerous acquisitions of well established, rich in heritage equitable brands. For example the product portfolio includes the world’s bestselling brands of: vodka - Smirnoff, scotch whiskey - Johnnie Walker, liqueur - Baileys and stout - Guinness (Diageo Plc, 2012). As well as having a large number of premium brands; Diageo’s product portfolio has depth across a range of price points. Evidence of this is seen in the impressive sales breakdown for alcoholic beverages, for example Diageo owns 8 of the top 20 spirits brands and its beer brands account for 22% of global sales (Diageo Plc, 2012). In order to display the product portfolio Figure One is an extract from Diageo’s company report, it is clear that the brand strength of the company is a fundamental asset. For the purpose of this essay Diageo is a relevant organisation to consider due the array of brands it owns and the level of investment it allocates to experience branding.
Figure One – Diageo’s Product Portfolio
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(Diageo, 2011)
4. Brands
Brands are made up of a number of characteristics; this includes a name, symbol, term and a design. Brands have two parts the brand mark and brand name; both are interlinked and form part of any successful marketing strategy (Ferrell, 2011). Although Tedlow suggests that brands have existed since Roman times, its emergence as a marketing tool dates back 120 years to companies such as: Levi, Marks and Spencer and Coca Cola (Tedlow, 1990). Essentially brands should create associations with products and services which meets customers’ needs and conveys a positive image and message over a long period of time. The Charted Institute of Marketing defines a brand by stating “brands create a relationship with customers because they are based not just on tangible benefits but on intangible attributes that evoke strong emotional responses” (Marketing, 2011). For example German car manufactures such as Audi and Mercedes convey extremely strong messages of quality and design thus creating a strong brand image.
Broadly speaking there are two types of brands that exist: Private Label brands and Manufacturer brands. For example the supermarket chain Sainsbury’s would be described as a Private Label brand, they produce a wide range of food and non-food products to sell within stores wholly owned by the company. However Diageo has a number of Manufacture brands, for instance the vodka brand Smirnoff. The distinctive difference is that the brands will have different distribution methods and brand images. For example Sainsbury’s has a range of its own brand vodka’s which will be sold exclusively in Sainsbury stores, whereas Smirnoff vodka is distributed on a global scale and sold in most retail outlets. A key difference in the types of brand is the price customers are prepared to pay for the product or service, for example there is considerable difference Sainsbury’s and Smirnoff vodka. Sainsbury’s “Basics Vodka” 70ml is priced at £9.93 compared to Smirnoff “Red Label” 70ml which has a higher price of £15.09 (Sainsburys Plc, 2012). This price difference outlines how brands can create monetary value, and raises the issues of why customers are prepared to pay more for manufacturer brand than a private label brand. Fundamentally creating a brand can be very advantageous to a company and its product portfolio as it allows better distribution and higher prices as demonstrated. A key model which explains this is the Three Levels of Product, as outlined by Philip Kotler in 1969. The product model suggests there are three main levels of a product or service, the first level is known as the Core Product followed by Actual Product and Augmented Product (Kotler, 2002). By following these principles in relation to a Diageo brand, an understanding of how brands are vital to the success of a product portfolio. Guinness is the bestselling stout in the world, its core attribute being a drink, however what makes it a strong brand are the next two levels. The Actual attributes of the drink would be the distinctive packaging that Guinness uses in order to differ it from alternatives. The Augmented attributes would include the social media interaction that Guinness has established into order to allow the experience brand to be extended and enhanced.
Finally before focusing on brand development and the challenges that experience brands are faced with, another important aspect is brand equity. Essentially this means how much a brand is worth in monetary terms and considers the assets or liabilities linked to a brands name and symbol (Chaffery, 2006). In order to compare brand values, various studies are conducted by organisations and various stakeholders. To draw upon an example Interbrand is an organisation which primary activity is assessing and improving brands. From using key indicators Interbrand produces a yearly report on brand equity. Figure Two displays the top five brands in the world based upon equity; this enforces how important brands are to an organisation in both the long and short term. For instance Coca Cola’s revenue in 2011 was $35,119,000 suggesting that the brand value is worth more than double that (Coca-Cola, 2011).
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