Introduction

When local markets mature and opportunities are not coming up as they used to, firms must reallocate their position and their strategy. Entering new markets offers advantages and developing opportunities. In order to achieve profitability Michael Porter established a 4 strategy matrix, three of which might be found very useful to a company that wishes to follow international headway (Michael Porter, 1980). Through this assignment Porter’s matrix and his proposals are about to be presented as a helpful tool for any enterprise that whishes development off its country’s borders. Two major companies, worldwide known for their products in beverage market segment are about to be analyzed as representative examples of their differentiative and cost leadership character. VIN and Spirit, a Swedish firm which was the creator of Absolut Vodka compared with Diageo, Smirnoff’s enterprise. VIN and Spirit Company without the basic knowledge of a global strategy, it managed to obtain one of the leading market beverage segments being also a very representative example of advertising and packaging differentiation (Vin & Spirit Annual report, 2007). The second company, DIAGEO is producing popular products ne of which is Smirnoff Vodka. Because of its well known products worldwide, Diageo does not concentrate on a specific product (DIAGEO Annual Report, 2007).Instead it uses very good organized mechanisms of production, promotion packaging and distribution with lowest cost which offers the advantage of selling cheaper than the competitors, without spoiling product’s quality (Michael Porter, 1980). Information about the mentioned enterprises was taken from their 2008 annual report, before VIN & Spirit sold “Absolut” to Pernoid Ricard Company.

Differentiation versus low cost

Companies that are sharing the same market haven’t necessary the same targets or assets. Enterprises own different positions in the market depending on their marketing strategy. Michael Porter (1980) suggested 4 strategies that could be followed by enterprises, three of which are profitable and successful. Forth strategy usually leads to failure thus it doesn’t been taken into consideration. According to cost leadership theory, the firm is trying to achieve the lower possible cost in production and distribution facilities so that it could set the prices lower than those of the competitors, owning that way the highest market share (Michael Porter, 1980). Additionally, in a price war time, firm can maintain its profits while competitors will suffer looses. While the market matures and the prices decline, the enterprise will still be profitable while its cost production is already low. Companies using that kind of strategy can easily target broad markets (Sumit Kumar Chaudhuri, 2006).

Sententiously their strengths are: • They have good access to the capital that is required to make a significant investment. • Designing product skills so that manufacturing would be more efficient • High level of expertise in production area • Efficient distribution channels (Michael Porter, 1980). Cost-leaders can face a number of dangers some of, are: • There is a possibility that the competitor’s prices would get lower. • If the firm has already low prices then the competitive advantage is lost and the firm face looses (Kotler, Armostrong, Saunders and Wongm, 2008). Acting differentiative, M. Porter (1980) supports that attention into a very different product line should be paid. Using that strategy product’s leadership in the specific segment could be achieved. The idea in this strategy is that the customers should prefer the brand than the price (Sumit Kumar Chaudhuri,2006).
The Internal strengths of the company that follows such a strategy are: • access to leading scientific research • highly skilled and creative product development • strong sales team • Corporate reputation for quality on innovation (Michael Porter, 1980). On the other hand the risk that might face a cost leading company is: • The imitation and the possibility of changing customer’s preferences. • Focused planning firms may some times achieve even greater differentiation in their segment (Sumit Kumar Chaudhuri, 2006). [pic]

Source: http://www.quickmba.com

Global Marketing

International markets cannot be ignored in times that the business environment continuously changes. Global markets are important when the local are matured and they are no more offering opportunities for development (Karen Asner,2006). Additionally, since the global trade becomes liberalized, firms are facing the external competitor in the home market more often than it used to be in the past. So they must develop the capability of standing against the foreign competitors or to find new opportunities in global market area (Lydia Bals, Heather Berry, Evi Hartmann, 2008). Despite the opportunities, Global marketing has a number of risks as well. Low cost, inflation and idleness led a lot of countries to instable governments and weak currency which restraint the trade. A strong currency helps the product’s movements in contrary to a weak currency. War, Profit Variance and terrorism are some additional problems that a firm might come up with in a foreign country (Kotler, 2006).

Today, international companies are attempting not only on exportation, but furthermore, on becoming strong global enterprises. Global enterprise activities that concentrate in more than one country, achieves to take advantages on research and development cost, on production, marketing and financial costs, and in addition they manage to retain a remarkable reputation that it is more than difficult for a local competitor to obtain. A global firm faces the world as a unique market. This, minimizes the gravity of national borders, and increases the capital, the product assets and gives the opportunity to the firm to sell its products where the demand is higher. In accordance with the above, global marketing interferes with the implementation of the needed activities in international market places (J. Larimo, J. Pulkkinen).

Vodka Market

Vodka is a clear drink, distilled from cereals (wheat, barleys, rye or a mix) and in some cases potato. The vodka which is made only from barley is characterized by its high quality. Apart from the different kinds of flavors, vodka is a product made of water and alcohol. The conciseness of alcohol is about 35% to 50%. Russian vodka has 40% vol.! (Kotler, 2008). The quality of that drink is characterized of its color, flavor and taste neutralism. The crystal-clear distillate which took over the world, made its first appearance at the northeast Europe, where the need of an alcoholic drink was a great necessity in order to pass through the hard and tough winter. Wine and beer were inappropriate since they were turned into ice. People needed something “stronger” and because of its high conciseness in alcohol, vodka, was the most adaptable non- freeze alcohol that could warm them up fast and with ease (Kerry Kubilius, 2007).

Vodka has a number of attractive characteristics that makes it desirable. It is very famous in young adults who like its versatility. It is a drink that can be drunk in shots, tall drinks, martinis, with juices etc. it has variety (Sven Hollensen, 1998). It is an easy drink to be mixed and bartenders prefer it. It is also easier to enter successfully a market than colored spirits. Furthermore, its variety of bottle shapes gives the customers the cheer of buying different brands for their home minibar. Especially when economy slows and people stays in instead of going out to drink their favorite flavor, beautiful and unique “packages” attracts the most. And this is the time for smaller brands to differentiate themselves and stand apart from bigger brands (Garrett Peck, 2008).

Vodka remains the leading category for its solid, unabated growth in the distilled spirits industry. Vodka’s high consumption is in US. Its drinkers are the key markets that take the spirit higher and quicker than others. One thing seems common in all kind of vodkas: they get introduced in New York and the northeast and then they spread global (Garrette Peck, 2008). As David Ozgo, the chief economist at the distilled Spirits council, observes, Vodka sales were 4.3 billion or 23.6% of the 18.2 billion US spirit market (Bob Bradford, 2005).

The following appendixes prove the leading position of vodka spirit in the rest food and drink industry. Moreover, “a staggering 93% of responders believe alcoholic drinks to be of high/very high market value in comparison toy ambient, chilled, frozen, confectionery and dairy…” (The Alcoholic Drinks Market Outlook, 2003).

[pic]

How financially significant is the alcoholic drinks market compared to the rest of the food and drinks industry? Source: The Alcoholic Drinks Market Outlook
Consumption of Distilled Spirits (%) by category
Category Volume Share
Vodka 26.2%
Rum 12.3%
Cordials & Liqueurs 12.1%
Canadian 9.7%
Straights 8.4%
Gin 6.9%
Cognac & Brandy 6.2%
Scotch 5.7%
Tequila 4.8%
Prepared Cocktails 4.0%
Blends 3.4%
Irish & Others 0.3% Source: Adams Liquor Handbook 2004

[pic]

Research conducted in 2007 for Vinexpo by The International Wine and Spirit Record

Absolut Case

Company history

Sweden is the third country in the world in the consumption of vodka and owns the credence in producing it since 15th Century. At those times, a high degree distillate, named “brannvin”, was been produced which was an ingredient, combined with black gunpowder, for that time’s musketries. Later on, despite the fact that drinkable distillery products were constructed, gunpowder’s industry had the first place in taking permission of distillation and production. That pushed people to develop home distillation (Cecil Munsey, 2006). At 1830, 175.000 distilleries where reported in a country with no more than 3.000.000 people. Nowadays Sweden is among the leader in the international vodka market. It is actually very interesting how it managed to achieve such a premiership. The current production of Swedish Vodka is made exclusively by Vin and Spirits which was also a Governments monopoly (Vin & Spirit Annual report, 2007).

In 1994, the Absolute Company entered into agreement with Seagram, the larger distribution company in order to distribute its product in USA and other countries (Sven Hollensen, 1998). American people tended to prefer crystal – clear beverages (like Vodka, gin and rum) in accordance to black/dark drinks. Crystal clear drinks where supposed to be healthy and purely (Bob Bradford, 2005). The first shipment of Absolut Vodka was sent to USA in April 1979. At that time “..90.000 liters were sold worldwide in 1979and in 1995 world wide sales were 41.5 million litters. About 70% of this amount, were exported to the USA” (Sven Hollensen, 1998). The other most important markets for Absolut were Sweden, Canada and some certain markets in Europe (Garrett Peck, 2008).

In early 2008 Pernoid Richard bought the Absolut Vodka over the Swedish Government. It paid more than 8 billion for the widely – recognized global brand. “We anticipate the brand will retain its distinct character and culture of creative innovation” remarks Sarah Bessette, an Absolut spoke person (Garrette Peck, 2008).

Company sales

In 1979 Absolut was imported in the American market and became the Spirit with the highest sales. In 1997 Vin and Spirit exported 5.5 million boxes containing 9 liters of Vodka through the world (Cecil Mundey, 2006). The sales of the product during its first 5 years of its life was low, came in conflict to the sales that were achieved in the following years (Vin & Spirit Annual report, 2007). Despite Absolut’s success, Vin and Spirit’s profits were less than 1% in 1993. Furthermore, at the end of 1994 it lost its monopoly in Sweden. The company had no longer the exclusivity in Vodka production, leading that way at the lost of the controlling the wholesaling to the government retail company. In 1995 Stockholm’s distillation factory was shut down in order to give more attention to the three industries left. Additionally, the personnel were minimized by the 1/3 (Kotler, 2006).

While in Sweden, investments and capital’s costs are holding back, the USA’s department is planning to enter European’s, Asia’s and Ocean pacific’s markets. Last year, Vin and Spirit’s products and licensees were bought by Pernoid Ricard Company, one of the biggest beverage’s industries in the world (Pernoid Richard Annual report, 2008).

Distribution of world vodka sales
Region % of distribution
(IS (the former USSR) 60
East Europe 20
USA 12
Others 8
Total 100
World's total vodka sales 2,250 million liters Source: Impact International.

Absolut Vodka Top Ten markets 2007
Country sales
USA 5027
Canada 377
Spain 343
Great Britain 324
Germany 319
Mexico 313
Greece 265
Poland 362
Israel 218
Sweden 162
Total Volume Globally 10731
Source: V & S Group, Annual Report 2007

How differentiation is achieved.

The method that Absolut used to enter the market was very different than those of the competitors. Since then, advertisements were either in a space where a grove of happy people are joining an event, or presenting a celebrity holding a glass or presenting an old family’s moments (Kotler, 2006). Absolut came up with “Absolut perfection” in 1981, one of the most often use advertisements (Sven Hollansen, 1998). In order to be different, an even newer way of advertising came up. Taking into account magazines’ promotion, a worthy collaboration was achieved with the famous artist Andy Warhol. Since he painted his first bottle of Vodka at 1985, a lot of other artist showed their interest following his step. Today, more than 3.000 works of art are using this brand. It should also been mentioned that the absolute advertisements were so successful that were shown even in places where drinking wasn’t allowed (Sven Hollansen, 1998).

Supplementary, bottle’s size and shape helped in vodka’s success. The final “packaging”, was an idea of Gunnar Broman, who came up with this by watching 18th’s century pharmaceutical bottles. This shape was very different from the competitors’ and because of it’s diachronically, its fine tiny design lines and its very clear glass, Absolut stand out of the competition (Kotler, 2006).

Smirnoff case

Company history

The first Moscow’s distillation established at 1864 from Pyotr Smirnov (article in www.superbramdseastafrica.com). In a community where Vodka was criticized, Pyotr managed to raise its market merit by participating in charities. 2/3 of Moscow people suddenly loved vodka, included the Tsar himself. When Pyotr Smirnov passed away, his son Vladimir Smirnov took over the venture, and managed to achieve very high sales by producing annually 4 million boxes of vodka. During the October revolution, the distillation was distained by the government. In 1920 Vladimir reestablished its fabric at Istanbul. 4 years later he transferred his production at Poland and he started selling his product with the French name “Smirnoff”. This new product faced a big success and until the end of 1930 “Smirnoff” entered most of Europeans markets. In 1925 a distillation of Smirnoff Vodka was established in Paris. An acquaintance with Kummer, a Russian immigrant helped the product to reach USA. Despite the good selling in Europe, USA’s trade was unsuccessful. That pushed Kummer to sell the licenses to John Martin, the president of Heoblein. At the decade of 1990, Vladimir’s son, started the production of vodka in Ukraine, claimed that his product was “the only real Smirnoff”. A prosecution war started which winner was Smirnoff (Kotler, 2006).

Nowadays Smirnoff is a global brand and it has grown to achieve leadership in alcoholic drinks market. Smirnoff brand targets in fulfilled young adults, aged 18 to 34 (Kotler, 2006). Supplementary its fine mix ability won bartender’s preference (Garrett Peck, 2008). Apart from the Red Label has a variety of other successful spirits like Smirnoff Blue Lebel with slightly higher alcohol content and the very popular Ready To Drink (RTD) products, some of them are fruit- flavored and others bottled famous cocktails. Those were entered the market in 2000 (article in www.superbramdseastafrica.com).

Company Sales

Smirnoff is the leader in the premium Vodka segment controlling over 90% of the premium vodka segment. Smirnoff ice on the other hand controls 70% of the RTD category according to research International Data (article in www.superbramdseastafrica.com). In 2007 was the second larger spirit, surpassed only by Bacardi Rum, selling 9 million cases, according to Adams Advance 2008, with 6% increase in volume (Garrette Peck, 2008)

Source: 2007, Diageo Annual Report

A cost leadership example

At 2006 DIAGEO, a beverage’s leading company worldwide, entered into agreement with CMHPNOF Company. DIAGEO was established 10 years before this cooperation by the utilization of Grand Metropolitan and Guinness. 4 years later, new spirits were added, wine production from Seagram and even more recently new products joined the list of DIAGEO’s drinks. The brand list of DIAGEO is not stable. Using an active program of research and development new products is continuously imported (Kotler, 2006).

DIAGEO’s headquarters are in London, from where it trades its products in 180 markets. In 2006 Financial times nominates DIAGEO as one of the 150 top companies internationally. Its functions, sales and marketing are organized in 4 different places: North America (in which in 2007 generated approximately 37% of the final profit) Europe (32%), Asia (9%) and internationally (22%). There is a supply company from which production, packaging and brand’s warehousing is controlled. A considerably big percentage of production (80%) is been produced strait from DIAGEO, that owns 35 distillations, 15 breweries and 15 wine houses, supported by 20 packaging factories and 19 warehouses (DIAGEO Annual Report, 2007). DIAGEO has a very good organized distribution system, which gives the advantage of better market penetration and lower costs. At this point of view, it could be said that Smirnoff is an example of cost leadership strategy result (Kotler, 2006).

Criticism

Cost leadership and product differentiation are two widely used competitive strategies. The relation between these strategies has not been examined thoroughly. In particular, there are still lacks in-depth analysis of the economic implications and there relevant factors affecting with that way the selection of the proper competitive strategy (Kokkinis). As per Mr Kokkinis believes, professor of the Business Administration Department in the University of Kozani, Greece, the improvement of consumers’ s utility could be the basic criteria in selecting the proper strategy. Generally speaking, as Porter (1980) is also supporting, using only one kind of competitive strategy is not efficient enough. When we refer to strategies, it is quite difficult for somebody to find a correct opinion or suggestion, or even to find only one strategy (Kokkinis). Mintzberg and Quinn (1991) ended in the conclusion that a combination of more than one competitive strategy could be more efficient and it is definitely a more realistic scenario.
The mentioned combination was used in both enterprises that were examined above. Each firm focused on one strategy and in the meanwhile it adopted some of the other’s strategy’s characteristics.

Top brands of spirits rating (2004)

Vodka – Top Brands and market
Brand Market Share Bottled Supplier
Smirinoff 17.3% US bottled Diageo
Absolut 10.8% Foreign Bottled (Sweden) Absolut Spirits (V & S Group)
Stolichnaya 4.5% Foreign Bottled (Russia) Allied Domecq
McCormick Vodka 4.4% US bottled McCormick Distilling
Popov Vodka 4.3% US bottled Diageo
Skyy 4.1% US bottled Skyy Spirits USA
Barton Vodka 3.6% US bottled Constellation Brands Source: Adams Liquor Handbook 2004

Top 10 Distilled Spirits Brands 2002-2003 (thousands of 9-liter cases)
Rank Brand Category Supplier 2002 2003 %change

1 Bacardi Rum Bacardi USA 7800 8140 4.4
2 Smirinoff Vodka Diageo 6933 7185 3.6
3 Absolut Vodka Absolut 4475 4448 -0.3
4 Captain Morgan Rum Diageo 3933 4215 7.2
5 Jack Daniels Straight Brown Forman Beverages 3770 3935 4.4
6 Jose Cuervo Tequila Diageo 3180 3246 2.1
7 Crown Royal Canadian Diageo 3058 3195 4.5
8 Jim Beam Straight Jim Beam Brands 3150 3100 -1.6
9 Seagram’s Gin Gin Pernod Ricard USA 2791 2820 1.0
10 DeKuyper Cordial Jim Beam Brands 2590 2735 5.6 Source: Adams Liquor Handbook 2004

Conclusion Two of the most important beverage enterprises were examined hereinabove. Two representative strategies were also analyzed showing the ways that the mentioned enterprises used in order to achieve their aims and targets in the global market. On a first glance, Vin and Spirit seem to be a good differentiation example since they used very good and progressive ways of promoting and packaging their new product. On the other hand DIAGEO could be characterized as a cost leadership company, because of its excellent and cheap distribution channels, production and packaging. Having a closer look though, strategies are more complicated. Vin and Spirit created a unique product and promote its uniqueness efficiently. In order to become even more successful and win more market shares, replaced its distribution channel’s partner, lowered their selling prices (not as low as Smirnoff was) and tried to become more innovative (Cecil Munsey, 2006). Absolut Vodka acquired flavors, packaged in beautiful bottles (Sven Hollensen, 1998). DIAGEO, on the contrary became innovative in a different way. It entered the market with new products called “Ready to drink” (RTD), which are mixed alcoholic drinks with juices bottled together. This of course opened a new sector in the beverage world (article in www.superbramdseastafrica.com).

Enterprises are organisms that are developing, changing, growing, loosing. Since competition is very tough in the global market, managers have to be awake and in train to every possible change. New opportunities can be shown up, or be created. Having a well organized research and development sector a firm can be always on the ball and be profitable.

Bibliography:

• Bradford Bob (2005)Vodka 2005, article in BaverageBusiness.com • Cecil Munsey (2006) Collectible 3-D Vodka bottle , pg 29-44 • DIAGEO Annual Report 2007 • Garrette Peck (July 2008)Vodka’s Room to run, article in http://www.bevnetwork.com • Jorna Larimo, Johanna Pulkkinen, Global orientation, Competitive advantages and export strategies of different types of SMEs: empirical evidence from Finland, dissertation • Hollensen Sven (1998) Designing the Global marketing programme, case IV.2 “Absolut Vodka”, Prentice Hall • Karen Asner (2006), What makes a global Firm, Bylined article, White and Case LLP • Kerry Kubilius (2007.)A Short History of Vodka, 11-February more: http://eeuropeanhistory.suite101.com/article.cfm/a_short_history_of_vodka#ixzz0PnetyyRj • Kotler, Armostrong, Saunders and Wongm (2008). Principles of Marketing, Prentice Hall • Kotler & Keller(2006). Marketing Management 12e, Prentice Hall • Lydia Bals, Heather Berry, Evi Hartmann (2008). What is a born global firm? dissertation • Marla Capozzi, Associate Principal McKinsey & Company (6-7 2007. Leadership, Innovation and the Global Firm, Kellog Innovation network fall Dialogue • Michael Porter (1980).Competitive Strategy: techniques for analyzing industries and competitors, New York, The Free Press. • Mintzberg, Henry & Quinn, James Brayan (1991). The strategy process, 2nd edition. New Jersey: Prentice Hall International • Sumit Kumar Chaudhuri (2006.Competitive strategies – Volume 1, ICFAI Business School Case Development Centre • The Alcoholic Drinks Market Outlook (2003). New profit opportunities on beer, cider, wine, spirit and FABs, Business Insights • V & S Group, Annual Report 2007 • www.Superbrandseastafrica.com

| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |