Crosscut Advisory: Culture and Commerce Report: Vodka

Copyright 2009-2010, Crosscut Advisory, LLC. All rights reserved. For demonstration only. Culture & Commerce is a registered trademark of Crosscut, LLC.

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The Economic Benefits of ‘Clarity’ in the Culture of Fast-Moving Consumer Goods.

The value of Clarity in vodka is a translucent but important characteristic of choice - the preference of alcoholic beverage is an affirmation’s of one’s fundamental values and Culture.

In 2009 the Culture of Intoxicant

Consumption was mostly driven by

consumers’ “trading-down” drinking

‘value’ brands of bourbon, vodka and

tequila, much to the expense of the super-premium category. Add to that,

consumers are drinking more at home

than in the past, impacting overall per

capita consumption.

This shift in American alcohol

consumption (and global to some

extent) is altering the vodka segment,

forcing Masterbrands to innovate

traditionally positioned marque brands

at lower price points and for new

occasions.

The vodka category is being

commoditized much in the same way

U.S. bottled water brands experienced proliferation in the 90’s based on

benefits ranging from taste, purity, and

even ‘Green.’ Vodka is heading the

same way, but what is more

concerning for the world’s most

recognizable and widespread spirit is

that the product has little barriers to

entry. This further complicates Clarity

in the Culture of Intoxicant

Consumption. What isn’t vodka?The value of all spirits sold in the

U.S. in 2009 was $18.7 billion

according to the Distilled Spirits

Council of the United States (DISCUS),

and vodka accounted for roughly 25%.

While vodka, as a product, may be an

obvious choice for alcohol

consumption, for its ease of mixing,

brand selection is more complicated.

More than 250 new vodka brands

have debuted in the past five years, fueling its growth and popularity.

Key Performance

Indicators

‣ P4W consumption

‣ Agree: Smirnoff is the vodka I think of

when I think of vodka

‣ Brand strength on/off-premise

‣ Product performance - ‘Purity’

‣ Brand perception - ‘Original’

‣ Image - ‘Unexpectedness’

‣ Good to enjoy with friends

SMIRNOFF CULTURE DASHBOARD

Smirnoff Innovation - Jeffery Fink, U.S. Director (646) 223-2000

MEDIACELEBRITYINFLUENCE

SUCCESS

93 89 82 77

INTOXICANTCONSUMPTION

Smirnoff

Grey Goose

Absolut

Google Trends Vodka Search Activity


But is vodka becoming too

ubiquitous and accessible? It has been

the driver of spirits for the past 10

years and will be so for the next five

years. With new innovation and occasions the Clarity of vodka can only

become more distorted to new

entrants.

Vodkat, a schnapps-based product

with 22% vodka distributed by

Intercontinental Brands, recently lost a

High Court case where Vodkat was

viewed as “...deceiving the public that it

is vodka...”While vodka appears to

finally have protection as does whiskey and champagne, more intrusions via

innovation should be expected.

Super-Premium & Luxury

Grey Goose led super-premium vodka with a 48 share. Grey Goose was the fastest brand to reach 1MM in cases at a significantly high price point. But how it achieved this feat is of particular interest to Crosscut - Grey Goose grew exponentially faster than other vodka brands because the brands luxury image was carefully nurtured.

Grey Goose’s success can be

attributed to the successful integration

of the Culture dimensions of Celebrity

Influence, Media, Success, and

Intoxicant Consumption replacing

purity, taste, flavor, provenance, and

tradition as preference drivers.

The Luxury vodka segment has the highest cache, but it has sparked

many competitors with similar product

and brand experiences - Ketel One,

Ciroc, Belvedere, Stolichnaya Elit, etc.

Is the consumers palate so

sophisticated in a challenging market?

Can these brands demonstrate Clarity

to a discerning consumer?

‘Bottle service’ is the modern

equivalent of 17th century Czardom where liquid, vessel and service defines

status and ritual. Brand selection is a

key element in the process akin to the

decanting of wine. But does bottle

service facilitate repurchase and

loyalty? Or are brands simply “renting

volume” for the easiest and most

accessible consumers?

Ciroc has brazenly omitted bottle

for tuxedo, selling image rather than substance. Its unique selling

proposition, the first vodka from

grapes, is incidental at best. It’s about

the party. And ‘taste’ in class not in

product. But the success of Ciroc is

inextricably linked to Diddy and his

continued popularity as an aspirational

celebrity personality.

Tastemaking Democratized

In recent years vodka’s innovation

has followed the bell curve model, with

diffusion originating from Innovators

and slowly spreading to Laggards. And

with the majority of consumption from the middle - Early and Late Majority -

mainstream vodka portfolios are best

positioned to capture new occasions,

experiences, and opportunities. The

trick is not to dilute the trademark

franchise. However, this feat is often

harder to do that said.

Smirnoff, is the most recognized

vodka and spirits brand in the world.

As a mainstream premium vodka, its portfolio is more flexible and suitable to

meet the growing and diverse range of

taste, price, occasion, environment,

and experience of the modern spirits

drinker. In fact, ‘trading-down’ is a

huge opportunity for Smirnoff to

innovate and gain share from less agile

vodka brands. Because of it’s wide

‘share of occasions’ Smirnoff also has

minimal business and market risk than its competitive set.

Vodka is being used in more ways

today than ever before. The versatility

of vodka and its ability to invigorate

taste and sensation only heightens the

use of the product. As ritual, tradition,

and custom, vodka is used in as many

ways as there are Cultures.

Crosscut believes that the future

of vodka is reliant on mainstream taste and preferences. And we believe

Smirnoff is in the best position to

continue momentum as the global

vodka category experiences further

fragmentation. Growth, we believe, will

be generated from low-end/price-value

vodka and super-premium vodka - a

dumbbell effect.

A cursory scan of industry figures

will show that U.S. vodka grew 4.4% in 2008, albeit at a slower rate than

previous years (1990-2000s). But

most of the growth is from super-

premium vodka, which grew almost

14% in the same period. Pernod

acquired the Absolut brand and is

finally getting its new distribution and

organizational strategies in place.

Despite all of the above, there are at

least 600 vodkas in America with most of the innovation occurring in the

super-premium segment.

Flavor is the easiest way to

innovate and line extend in vodka and it

is the most obvious delivery system to

define drinks experiences as they

relate to a specific target. Flavor also

permits a brand to either line extend

or add new variants to its portfolio

across its ‘value spectrum.’ And flavor

tends to be gender-neutral which

means increased consumption of

‘shared interests.’

Lastly, “Green” as in eco-

consciousness, is becoming more of an option for vodka drinkers who are

mindful of our environment. It is an

innovative positioning but far from

mainstream as its price points renders

it to super-premium and even luxury.

Managing Vodka

Managing a brand for success in the vodka category requires a keen

vision and the ability to decipher

between trend and Culture. The

‘cocktail culture’ isn’t really a Culture,

so to speak - Culture are tangible

things that humans share.

The ‘cocktail culture’ is a trend,

and more importantly it is a descriptor

for how people behave. For example,

there is the ‘Culture of spirits’ and the spirits culture; the difference is the

former is universal, enduring and

attached to something, while the latter

is temporary activity. In other words,

you cannot innovate successfully for a

long period of time off of the ‘cocktail

culture,’ because it will end.

The U.S. is a mature drinks

market which is being driven by a mix

of LDA-29 drinkers who are feeling a multitude of emotions independently

and collectively. American drinkers are

slightly optimistic yet cautiously careful

as they live life today. It’s not the same

as yesterday, in the 2000’s. They are

more concerned about everything in

life - this extends from attitudes to

their behavior. Today, spirits

executives must do more than manage

their portfolios, they must manage new consumer expectations.

To do that one must better

understand human and Culture

dynamics that are shaping how

Americans consume vodka and spirits.

Key Brand Performance Indicators

should be aligned to measure the

impact Culture has on the business -

case sales and brand equity and

performance. Understanding why and how current trends are shaped by

higher human order benefits, is

intelligence the vodka marketplace is

omitting in its marketing mix. With

600 vodka brands in the United

States, how many clear, articulate

value propositions can there be?

Clarity is not only the single most

important attribute of vodka, it is also

the single most important element in vodka brand messaging. Crosscut

Advisory, LLC.


Business Objectives

Drive brand growth in volume and equity, to broaden Smirnoff’s U.S. franchise in Super-to-Premium Vodka, and Adult Beverages.

1.Consumer Objective: (A)

Persuade X% of adorers and X%

of adopters to increase

consumption by 16 and 8

servings respectively; (B) Grow

x% of available and X%

acceptors in trial. All by FYE11.

2.Marketing Objective: Significantly

increase the percentage of adorers and adopters who agree

to the statement “Smirnoff is the

first vodka I consider when

choosing any vodka.”

3. Innovation Objective: (A) Devise

simpler, faster, and better ways

to create new products and

occasions for Smirnoff’s portfolio

from Bar-to-Home; Measure the

impact from innovation

4. “Be There” Campaign Objective:

Engage, Experience, and Extend

the Smirnoff value proposition of

“There” to LDA-29 available and

acceptor spirits drinkers aspiring

to new social experiences.

5.Media Objective: Position

Smirnoff as a trusted source,

providing long-term utility via

relevant social media, digital, and mobile applications.

6.Social Responsibility Objective:

Leverage the consumption of

Smirnoff to advance the

message of responsible drinking.

7.Trade Objective: Educate and

motivation trade/gatekeeper,

business line, x-trade channel,

and national accounts on

Smirnoff quality credentials and distinctiveness; Focus - “trading-

down’ and ‘switching across

portfolio’; On-premise proximity.

8.CRM Objective: Increase

Smirnoff user data base for

future one-to-one relationship

and direct marketing efforts.

9.Mitigation Objective: Innovate

Smirnoff across the ‘vodka value

spectrum’ to meet expectant and future lifestyle and life stage

spirits needs and occasions.

10. Culture Objective: Evaluate,

Measure, and Apply Smirnoff’s

Culture dimensions, integrating

new intelligence into decision

making and business planning.

Situation Analysis

The American drinker is changing how s/he drinks. An anemic economy

combined with lower real disposable and discretionary income has effected what

consumers are willing to trade-off (product benefits, brand aspiration, substitute

and adjacent product experiences) in order receive the best value for their

drinking dollar. This phenomena is evident on and off-premise, as more consumers choose

and prefer to entertain and drink at home. Spirits consumption patterns,

behaviors, and attitudes are dynamically expanding and contracting in correlation

with unemployment, consumer confidence, and market sentiments.

Whether through attrition or consolidation, the American vodka category

needs to ‘weed out’ unprofitable brands, to give consumers more clarity. Vodka

repertoires are expanding as innovation in flavor and occasions multiply. So the

current economic impact will be beneficial in the long-term with the strongest

brand franchises owning increased shares of all vodka occasions.

The future of vodka lies with LDA-29. Innovation must literally ‘bottle’ the experience they will seek tomorrow. New rituals, customs, language and

traditions are emerging influencing and motivating how we consume vodka. As

RTDs encounter slower growth, Smirnoff will require new innovation to combat

smaller brands such as Svedka and Skyy, and increase share from Absolut.

Opportunity

Smirnoff has an opportunity to become a 10+MM case-a-year brand in the

United States and accelerate its strategic growth code, by incorporating Culture

into its decision making as a Key Performance Variable.

Challenge

To persuade LDA-29 vodka drinkers, not to ‘trade’ within the vodka category,

but to ‘profit’ from it by adopting and adoring Smirnoff. Despite the economic

climate, premium and super-premium products are seeing the fastest growth

rates, with Smirnoff TM in the most optimal position to recruit new vodka users.

Risk Management

The highest risk is to brand health. An over-extension of the vodka product

can create distortion in what vodka symbolizes, blurring brand and category

positionings and experiences. The Smirnoff franchise should only be stretched so

far, leading innovation, not keeping up with it. The ‘cocktail culture’ trend is a

limited window and should not be pursued to the demise of core vodka values.

0.5

2.4

4.3

6.2

8.1

10.0

2005 2006 2007 2008 2009 2010E

Smirnoff Absolut Grey Goose Skyy Svedka

Annual U.S. Vodka Case Sales by Brand

(Millions, 9-Liter Cases)


Smirnoff Culture & Commerce Dashboard

Culture dimensions are evaluated, measured, and applied on quarterly and annual basis to: Key performance indicators, target consumer understanding, activity and consumer goals, search and spin, adapt and apply, growth code strategies, and annual business planning.

Key Departments: Innovation, Brand management, Sales, Consumer planning, R&D, Trade marketing, Social responsibility.

CELEBRITY

INFLUENCE

CULINARY

HABITS

CURRENT EVENTS

DESIGN

DIVERSITY ENVIRONMENT FAITH FAMILY

FASHIONFAVORITE

ENTERTAINMENT

GAMING & HOBBY

HEALTH & FITNESS

INNOVATIONINTOX

CONSUMPTIONLANGUAGE MEDIA

MUSIC TASTE ROLE MODEL SEXUALITY SUCCESS

Spirits Consumption Dynamics

‣ ‘Trading-down’ as consideration

‣ Private label included in ‘At Home’ repertoire and occasion

‣ Vodka as the center of ‘social’ gravity

‣ Dual usage of gin and vodka favoring vodka as All Purpose/Occasion

‣ ‘Reality’ as Release occasion

Enriching Key Brand Benefits with Culture

The power of Culture influences

purchase. People, not consumers,

share Culture through mutual or mass

experiences, eg. word of mouth or

social (media) networks. The need to share is primal, and has only been

accelerated with technological invention

and application.

Today, Culture is one of the single

most important variables effecting the

consumer Acceptance-to-Adoration

dynamic. Despite the advancement in

marketing sciences and media,

Culture’s innate and intuitive delivery

system is far superior. Society, and especially consumers, have grown

accustomed to Culture informing and

encouraging them to participate with

the masses in experiences that

transcend psychographics.

But what is Culture, really? And

how do brands who compete in

saturated categories truly find a Point

of Difference to incorporate into their

business model and value chain?The risk of attaching a Key Brand

Benefit to the wrong Culture is

apparent throughout a brand’s

marketing mix - communication, media,

message, and even value proposition.

Consumers buy Culture today, not just

brand and product; when brands adopt

Culture into their planning, intuitively

they will satisfy emergent consumer

expectations and reasons to believe.

Culture Applied to Consumer Understanding

Creating new marketing properties

that are directly reflective of the

business needs and consumer positioning are best suited to

economically benefit from Culture.

Smirnoff, and brands in the wider

Super-Premium-to-Value vodka

segments, are switching from

product-centric ‘purity’ propositions to

‘lifestyle’ focused aspirations. “Be

There” communicates to LDA-29 vodka

drinkers a better vodka brand

positioning in a more effective way, allowing the brand/product to touch

the consumer in a way traditional

marketing programs could not deliver.

Both product and consumer are

obligatory for ‘be there’ to be

experienced.

The Culture dimensions of Celebrity

Influence, Intoxicant Consumption,

Media, and Success best reflects

Smirnoff’s “Be There” campaign. Consumers, and vodka drinkers, are

constantly looking for new experiences,

and ways in which to connect with like

minded peers globally. Culture is

driving their motivations as they enter

and exit new lifestyle and stage

segments. Market trends highlight

underlying Culture value.


Culture Dimension Evaluation: “Be There”

CELEBRITY

INFLUENCE

SUCCESS

INTOXICANT

CONSUMPTION

MEDIA

“Be There” is entering its second year. The direct call to action, inspiring consumers to overturn

convention in pursuit of one-of-a-kind experiences with Smirnoff, will be ultimately correlated with the

movement of Culture. Today, relevancy and access are determining factors in consumer choice.

How does Smirnoff measure “Be There” and Smirnoff’s KPIs to Culture? ‘Being their’ and ‘in the moment’

requires understanding which attributes and values of Culture can be applied to Smirnoff’s business and

marketing models. What is the Culture insight of “Be There” and what Culture context will create these

experiences?

Culture drives and impacts consumption and performance as it happens in society, specifically: (1)

Awareness, (2) Trial, (3) Preference, and (4) Adoption.

‣Hollywood Cocktails - celebrities extend their brands with aspirational lifestyles;

more than 50 celebrity brands launched from 2007-2009

‣Celebrity as ‘Character’ - Reality TV enters its 10th year; 1 of 4 networks shows is

reality format

‣Celebrity “Hope for Haiti” raised $19MM using network television

‣Celebrity Tweets becomes new broadcast medium in 2009

‣Social media has become trusted sourced, evolving from peer-to-peer to

Community

‣Consumers are controlling digital dissemination and message, brands must ask

permission

‣Mobility of device and application create new brand experience in lieu of product

‣Brands using social media as ‘social commercial transaction platforms’

‣ “Celebrity Rehab” over indexes for LDA-29 consumers

‣Binge drinking increases as ‘at-home’ consumption rises

‣Marijuana as a legal and medicinal substance become legal in several states in US

‣Serious national discussion to lower the federal alcohol age limit

‣ “Mad Men” influences a new generation to old world masculine values - drinking

and smoking as real life

‣Green becomes an aspirational value; substance vs consumption

‣Counterfeit swiss luxury watch industry worth $250B up from $5B in 2005

‣ Ivy League MBA admission applications have surged by 20% from 2007-2009

‣Self-Help is the fastest growing segment of religion

‣Reward and discernment are personal but shared experiences, especially in a

digital age


Culture Dimension Measurement

CELEBRITY

INFLUENCE

MEDIA

INTOXICANT

CONSUMPTION

SUCCESS

93

89

82

77

‣ (90) Reality-based media content

‣ (89) Blogs about celebrities

‣ (84) Products celebrity use

‣ (80) Sound bytes and new language celebrities use

‣ (77) Movies, filmed, and video entertainment

‣ (62) Sports stars crossing-over into entertainment

‣ (60) Television - cable and network

‣ (86) Social media

‣ (81) Blogs

‣ (77) Viral video

‣ (70) Broadband services

‣ (65) Television and film

‣ (63) Polls and surveys

‣ (60) Publishing

‣ (88) Sobriety and detox

‣ (80) Mating and dating

‣ (78) Ritual and customs

‣ (76) Fictional character portrayal

‣ (71) Prescription drugs

‣ (70) Caffeinated alcohol products

‣ (69) Stress

‣ (83) What I give back to society

‣ (75) Luxury car

‣ (72) What I order to drink

‣ (70) Health

‣ (64) Designer clothes

‣ (60) Name brands

‣ (57) Money


Culture Dimension Application

CELEBRITY

INFLUENCE

MARKETINGPROGRAM

INVESTMENT

CUSTOMERMINDSET

MARKETPERFORMANCE

SHAREHOLDERVALUE

Value Stages

Measurement

CulturalApplication

CulturalRelevance

CulturalInsight

•Product

•Communication

•Trade

•Employee

•Other

•Awareness

•Associations

•Attitudes

•Attachment

•Activity

•Price premium

•Price elasticities

•Market share

•Expansion success

•Cost structure

•Profitability

•Stock prices

•P/E ratio

•Market capitalization

•Clarity

•Relevance

•Distinctiveness

•Consistency

•Competitive reactions

•Channel support

•Customer segment

•Market dynamics

•Growth potential

•Risk profile

•Brand contribution

Crosscut ValueStages

CulturalContext

Recommendation

Three Areas to Focus Culture in the Smirnoff Value Chain

Crosscut has identified three key areas where Smirnoff can leverage Culture as business intelligence: Product, Activity, and Extension. We have further determined the most optimal and efficient methods to implement and integrate the Culture dimensions - Celebrity Influence, Media, Intoxicant Consumption, and Success - into a successful and engaging consumer campaign and marketing mix.

To access the Culture solution contact Chappy at Crosscut Advisory, LLC:

[email protected]

mailto:[email protected]

mailto:[email protected]

Crosscut Advisory: Culture and Commerce Report: Vodka

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Transcript of Crosscut Advisory: Culture and Commerce Report: Vodka