Executive Summary
Baileys Irish Cream is one of Diageo’s core brands which witnessed tremendous growth in its market share over the years placing it fourth in the UK spirits and liqueur market and first in the liqueur market.
Though Baileys has maintained its market leadership in the liqueur market till date, some of its market share was lost between 2005 till present.
From the PEST analysis and analysis of previous strategic management decisions, the following factors have been found to have contributed to its loss of market share:
Its price war with Tia Luso in 2004 and heavy off-trade discounts in 2007,
Lack of awareness which has led to perceptions that Baileys is a feminine drink, an occasion-led drink, lacks versatility and cannot serve as long drink due to mixability issues,
Government legislation on alcohol consumption.
In view of the above, it has been recommended that Baileys can regain its customer loyalty and hence its market share by repositioning Baileys to alter the aforementioned perceptions using the right strategy and marketing mix which will emphasize its premium image, versatility and year round use by both men and women.
Finally, it must continue to promote responsible drinking to ensure its relevance in UK’s highly regulated business environment.
Table of Content
Executive summary …………………………………………………………. 2
Table of content ……………………………………………………………… 3
Background analysis ………………………………………………………4
Current performance ……………………………………………. . 4
External audit using pest analysis ………………………………….4
Political factors ………………………………………… 5
Economic factors …………………………………….. 5
Technological factors ………………………………… 6
1.3 Internal audit ……………………………………………………………… 6
2.0 Objectives ………………………………………………………………… 7
3.0 Marketing and Brand strategy ……………………………………………. 8
3.1 Target Market …………………………………………………………….. 8
3.2 Differential advantage ……………………………………………………. 9
3.2.2 Positioning ………………………………………………10
3.2.2 Marketing mix …………………………………………. 11
4.0 Action plan ………………………………………………………………. 11
4.1 Price …………………………………………………………….. 11
4.2 Products ………………………………………………………… 12
4.3 Place …………………………………………………………….. 12
4.4 Promotion ……………………………………………………….. 12
5.0 Projected profit and loss account ………………………………………… 13
6.0 Control Measures ………………………………………………………….16
7.0 Conclusion ……………………………………………………………….. 17
References …………………………………………………………………….18
Appendix 1 …………………………………………………………………… 21
Appendix 2 …………………………………………………………………….22
Appendix 3………………………………………………………………………25
Appendix 4……………………………………………………………………..27
1.1 INTRODUCTION
The UK alcoholic market has been affected by series of event in the last decade, however, UK still remain the second largest market for Baileys Irish cream and this account for 1 million of annual sales, thus making it the market leader in the UK liqueur market with over 50 percent share of the market (Keynote, 2009). The table below shows its market share against other competitors in the UK spirits and liquor market from 2004 to 2008.
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From the table above, Baileys Irish cream appears to be on a steady increase except in 2005 compared with the brands under the spirits and liquors market. Baileys regained some its market share in 2006 and maintained a static growth at 3.1percent for 2007 and 2008. It is evidently clear that Baileys still remains the market leader among its competitors. The performance of Baileys over four years is a reflection of strategic internal and external decisions driving its business success in the alcohol and drinks industry. The PEST and SWOT analysis will be discussed in relation to Baileys.
1.2 PEST ANALYSIS
1.2.1 Political Factors
Various government legislation regulating alcohol production, consumption and promotion exist by way of taxation. This also includes indirect tax revenues from products related to alcohol. Across the UK, compared to other parts of Europe, government tax on alcohol are high to discourage excessive and irresponsible drinking and this makes alcohol expensive in the UK. In adherence government legislations on alcohol, manufacturers including Diageo, makers of Baileys Irish cream have increased its campaigns for responsible drinking. In addition to taxation, there are also legislation on the age of alcohol purchase and ban alcohol sales time during the day in off licensed premises and shops. These clearly affect the sales and consumption of alcohol drinks including Baileys Irish cream.
Economic Factors
The general economic impact has a tremendous impact on the alcohol industry and most of these occur over the long term Keynote (2009). Earning and disposable income have been found to have a direct implication on the consumption of certain alcoholic drinks. The global increase in crude prices and other imported raw materials has different translated increase on both production and sale of products. Baileys being a premium drink is on the list of the kind of alcohol affected by economic factors.
It is assumed that during recession, the demand for luxury goods drops, however, current report from Mintel (2008) shown in figure 1 contrast this. It suggested that the PDI and Consumer expenditure will continue to rise from 2003 till 2013. The report suggests that a 4 percent increase in women engaged in employment between 2003 and 2008 has resulted in the sustained growth in the liqueur market.
Figure 1: PDI and consumer expenditure, at constant prices, 2003-13 (National Statistics/Mintel, 2008).
Social Factors
Drinking is part of a social fabric and national culture of the UK people (Keynote, 2008). In the UK, changes in lifestyle and demographic have contributed to the changes experienced in alcohol consumption. The contribution of sporting events such as football and rugby being organised as all year round competitions have also been identified as changing the alcohol consumption and distribution. Nightclubs, pubs and bars have now extended their operational hours to include 24 hour service to meet the needs of young socialites across different cities of the UK. In some cases, organisations also organise events for teams either for improved performance, thus making bars and pubs as a place to visit for employees either after work or during weekends. In addition, the increased rate of people not in marriage or civil partnership has also introduced a new style to the drinking culture bars which encourage cocktail drinking and late night partying. Students and other young people between the ages of 18 – 24 years olds have increased the level of drinking through experimental or casual drinking different alcoholic brands such as Baileys. This group have been identified as the emerging market to increase market shares of alcohol brands as the UK’s ageing population is likely to affect sales.
1.2.4 Technological factors
In the production of alcohol, technology plays a relatively low role. Several drinks are still manufactured using the old techniques and methods. Technological contributions are usually in the form of packaging, distribution through extensive supply chains, marketing and promotions. The increasing use of the internet impacts on the performance of the alcoholic drink industry through opening up new opportunities for marketing activities. Consumers are being targeted online through websites, blogs, social media sites such as Facebook and Bebo for promoting and informing them of events related to alcoholic drinks. On the website dedicated to Baileys, there are several recipes for consumers on the best ways to drink and enjoy Baileys.
A recent development in health and medical research which suggests that a little consumption of alcohol is beneficial to the heart is attracting non-consumers to the market. Other ways technology affects the industry are in the areas of innovative activities such as product diversification, new product development, brand extensions and modification.
1.3 Internal Analysis
The internal analysis includes strategic management decisions taken to respond to market trends and changes to consumer behaviour. SWOT analysis and marketing mix employed by the management. The SWOT analysis deals with the external and internal business environment, it shows that its major weakness lies in people’s perceptions while the major threats facing it is increase in VAT and ageing population. However, its major strength as the market leader can be utilised together with its originality and innovativeness to pursue the opportunities which lie ahead.
1.3.1 SWOT Analysis
Strengths:
Originality and Innovations:
The innovation and originality of Baileys is a key strength in its product range in the cream liqueur business which saw it emerge as the first cream liqueur combining a blend of whiskey and cream. While other cream liqueurs have emerged after it, its taste still remains one of the most sought-after. This represents its uncompromising quality and perhaps the reason why it has the highest customer loyalty in the cream liqueur business.
Market Leader:
In the spirit and liqueur market, Baileys is the market leader in both the overall liqueur market and the cream Liqueur market.
Low cost of Production:
Its low cost of production accounts for the reason why Diageo spends a lot on its annual promotional activities.
In 1999 Baileys accounted for £5.7 million on advertising out of a total market spend of £6.9 million.
Offers Wide Scope for Usage:
It offers consumers various usages such as cocktails and desserts (Bailey’s ice cream).
Customer loyalty:
It enjoys strong customer loyalty in the liqueur market which surpasses those of its competitors indicates a sign of strong customer loyalty.
Weaknesses:
Scope for Mixability:
To be successful on-trade, alcoholic drinks need to offer a wider scope for mixability. Baileys lacks in its ability to mix with other drinks, hence reducing its scope for mixability.
Perception:
Baileys is perceived as a feminine drink by men, suggesting the reason for its low consumption rate by men in comparison with women.
It is also viewed as a luxury good and an occasional drink.
.
Opportunities:
Emergence of New style bars
The emergence of new style bars offers hope for increasing on-trade sales which is gradually declining.
Few Powerful competitors
While many companies have found their way into the liqueur market, market data from Mintel (2008) and Euromonitor (2009) indicate that competition is only intense among a few companies with Baileys having a major share of the market leaving the rest with little or insignificant share of the market.
Demographic Changes:
An increase in the rate of consumption among the 19-24 year old offers an opportunity for another market segment which Baileys can targeted.
Technology:
Government legislation on alcohol consumption stipulates guidelines on promotion, however, medical research findings which suggest that a little intake of alcohol can save the heart offers an opportunity which can be used to promote the sales of Baileys.
The internet has also created opportunities of creating awareness about the different recipes of Baileys. This opportunity should be well exploited in the Baileys awareness programmes.
Threats:
Increasing Competition with substitute products
Both on-trade and off-trade, Baileys faces competition from substitute products such as soft drinks (Due to increasing campaign for health consciousness by the government. It also faces competition from other alcohol brands such as beer, cider vodka, etc.
Perception:
The perception of Baileys as occasional drink posses a threat which is likely to lower sales outside festive periods.
Ageing Population:
As the UK population is fast ageing, the older generation may find it difficult to adapt to changing consumer trends which often leads to new product development and brand extension. They may prefer to stick to the original brand which they are accustomed to.
Government Legislation:
With the proposed increase in VAT, the on-trade marketing of Baileys is likely to be affected as any increase in price may lead to customers patronising the off-trade sales
Other government legislations on alcohol consumption and promotion also posses a threat to Baileys business.
1.3.2 MARKETING MIX
The 4Ps of marketing are essential ingredients necessary for the Baileys product to be further extended into new areas as well as consumers.
1.3.2.1 Price
The target market for Baileys is between the 25-34 year olds who are seen as stylish and affluent young working managers, thus making the price position of the drink premium to reflect class and luxury. However, Baileys entered into a price war in 2004 with Tia Luso (one of its competitors), reducing its off-trade prices thereby pushing Tia Luso out of the market. It succeeded in defending its market share on the short run while creating identity problems on the long for itself.
1.3.2.2 Product
The original brand of Baileys is the Baileys the Original. However, with the growing need for less fatty foods and Alco pop drinks, Baileys Glide was introduced in 2003. 2006 saw the addition of Baileys- Mint Chocolate and Baileys- Cream Caramel to respond to the growing need for flavoured drinks among younger consumers. In 2008, Baileys- Coffee was launched. Many recipes such as Baileys on ice and Baileys cream have also emerged to respond to the growing need for long drinks, cocktails and deserts. While the flavoured drinks and recipes have been successful, Baileys Glide was unsuccessful and has been withdrawn from the market since 2006 due to its calorie content.
1.3.2.3 Promotion
Promotional activities are extensive across print, broadcast and online marketing. Television adverts are referred to as above the line, while sponsorship programmes are below the line campaigns which are usually heaviest during special occasions like Christmas and sporting events. This has aided sales within those periods; it has also fuelled the perception that Baileys is an occasional drink, thus leading to low demand in out of season periods. Also the promotional activities have focused on women further fuelling the perception that Baileys is a feminine drink leading to low demand among men.
2.0 OBJECTIVES
The objective of this report is to the market share of the Baileys product. To achieve that, the following steps will be taken.
Increase Market share through Increasing the Volume of on-trade Sales by 2.5% in year 1 and 5% in year two: 2.5% increase in VAT by 2010 will affect the on-trade sale which is already declining.
Promote male consumption rate by 2% in year 1 and 5% in year 2: consumption rate of Baileys is higher in women than men due to its perception as a feminine drink indicating the need to increase its male consumption rate.
Promote sales outside occasional and seasonal periods: Baileys is perceived as a special occasion drink leading to increased demand during special occasions and low demand at other period.
Increase net returns by 2% in year 1 and 5% in year two.
Renew the image of Baileys as a premium drink: Loss of market share is partly blamed on the price war against Tia Lusso, hence the need to justify its premium price.
3.0 Marketing and Brand Strategy
The marketing and brand strategy for Baileys is built around the target market and differential advantage. This helps in positioning Baileys in the spirit and liqueur market.
3.1 Target Market
From the analysis, there are some areas of opportunities especially among the 18-24 year olds. This forms a huge market segment for Baileys and its family of products. The original target market for Baileys as indicated is 24-35 old females. This segment forms the second target segment. However, the marketing objectives to increase the number of male and off season consumers, Baileys will be targeted at both males and females. This signifies that all the promotional activities must emphasize its consumption for both men and women.
Target market
Segment
Where they are found
Consumption behaviour
18-24 years
Segment 1
clubs and pubs
Prefer flavoured drinks and like to increase their repertoire by mixing drinks.
25-34 years
Segment 2
New style bars and restaurants, clubs, Pubs
Prefer to drink while hanging out with friends to unwind their minds after work
Table 2: Target market
3.2 Differential Advantage
To identify the activities that will create a differential advantage for Baileys, it will be apt to understand the nature of competition in the market. Figure 2 below outlines the competitive framework for Baileys.
Baileys Irish
Cream Baileys Irish cream
Alcoholic drink
Non- alcoholic drink
Soft drinks
Spirit
Wine
Beer
Liqueur
Traditional. Liqueurs:
Malibu
Tia Maria
Cointreau
Drambui
Cream Liqueurs:
Carolan’s
Other crème liqueurs
Supermarket brands
Figure 1: Competitive framework for Baileys Irish cream
The above framework shows that Baileys has both direct competitors (Cream liqueurs and Traditional Liqueurs) and indirect competitors (Spirits, Beer, Wine, Soft drinks). However for the purpose of this plan, the traditional liqueurs and cream liqueurs will be considered as Baileys key competitors.
3.2.1 Positioning
The strategy adopted by Diageo for marketing Baileys is similar to that adopted by its key competitors (Appendix 3 ) suggesting that all fall within the same strategic group by pursuing a differentiation strategy and employing similar marketing mix for their products. Therefore to properly position Baileys to sustain its competitive advantage, a laddering strategy will be adopted to deepen the meaning of the brand and tap into core brand associations or other more abstract considerations. This would enable:
alteration of perceptions that the brand is a feminine as well as an occasion-led drink,
alteration of attribute important weights by emphasizing originality and quality of Baileys,
Alteration of the perception about Bailey’s competitors.
In view of the above the positioning statement for Baileys will read thus, “Baileys, the number one drink, perfect for the perfect people, anyhow, anytime, anywhere”. The number one drink emphasizes its originality as the first brand of cream liqueur, perfect emphasizes its premium quality, anyhow emphasizes its versatility (which is what present day consumers look out for), anytime and anywhere emphasizes that it can be drunk at anytime of the year. All these will enable Baileys to stand out from the crowd and attract customer loyalty.
3.2.2 Marketing mix
The marketing mix (section 4) will remain the same with moderations and improvements to reflect customers’ needs. While Baileys must maintain its premium pricing, current products and place of its distribution, its promotional activities must be consistent with its positioning statement.
Action Plan
The action plan for achieving the above objectives (section 2) will be reflected in the marketing mix employed for carrying out the above strategy (section 3). The marketing mix will include the 4PS (price, product, place and promotion).
4.1 Price
Baileys should maintain its premium price to assure customers of its premium quality. It should borrow a leaf from its loss of market share which is attributed to its price war with Tia Luso and off-trade discounts in 2007 and avoid future price wars as they have a long term damaging effect in that people may begin to question its quality. With the expected 2.5% increase in VAT in 2010, prices of alcohol drinks (including Baileys) will likely increase by 2.5%.
4.2 Product
Baileys should maintain its current products and avoid further introduction of new Baileys variants or brand extension. Further extension could confuse its customers. It should focus on repositioning itself to regain its identity by promoting the existing products and emphasizing their versatility through creating awareness for its new recipes for desserts and cocktails.
4.3 Place
Place refers to where Baileys is made available to its target customers. Baileys will maintain both its off-trade (Supermarkets, off-duty shops) and on-trade (Bars, restaurants, clubs and pubs) distribution channels. Off-trade shops will serve customers who wish to use Baileys for home entertainment of friends, parties, personal consumption after meals, etc. The on-trade sales will be for customers who have visited clubs, pubs, new style bars and restaurants with either friends or families.
4.4 Promotion
Promotion will involve both below-the-line and above-the-line advertising campaigns geared towards repositioning Baileys in the liqueur market to regain its identity, creating awareness among non users, altering the perception of Baileys as a feminine and occasion-led drink. It will further involve campaigns for responsible drinking to ensure its relevance in a highly regulated business environment. The promotional activities will include:
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Introduction of Baileys promotional nights across clubs, pubs and new style bars in the UK. This will involve guys and girls who will dress in Baileys T-sirts to hand out fliers about different Baileys recipes. It will also involve special offers of buy two get one free with Baileys drinking mats placed on drinking tables. This will help to create awareness, boost on-trade sales as well as project Baileys as a drink for both men and women.
Online advertisements will be used to create further awareness through the Baileys lounge which will inform its users about Baileys Promotion nights across the country. Online surveys will also be introduced to understand customer needs.
Television adverts which will span across various channels throughout the year. This will be more during festive periods like Christmas and in the evenings when the target market will be around to watch television
Bill board adverts will show where both men and women are drinking Baileys. Different places where Baileys can be drunk will be represented. These will include: house parties, beach parties, families etc. This will reflect its positioning statement. To ensure its continuous support of responsible drinking the statement on the billboards should read thus “Did you know that drinking your Baileys responsibly anytime, anywhere could save your heart”.
Activity
Timescale
Budget
On-trade Promotions
After Christmas (between February and April) to boost spring sales
£1 million
Online adverts
All year round except online Christmas cards which will be issued shortly before Christmas
N/a
Television adverts
Prior to Christmas, Easter and other special occasions
£2 million
Bill board adverts
During the summer to drive summer sales
£1 million
Table 3: List of Promotional activities with time-scales and Budget
Projected Profit and Loss Account for two years
5.1 Profit and Loss Account for Baileys Irish Cream for the Year Ended December 31st 2010
Annual Turnover £21,000,000
Direct Cost of Sales
Raw materials £1,000,000
Stock @ beginning of year £10000
_________
£1,010,000
Less Stock @ end of year £9,500
£1,000,500
Gross Profit £19, 999,500
Distribution Costs
Marketing £4,000,000
Delivery £1,000,000
£5,000,000
Expenditure
Insurance £5,000
Rent £10,000
Professional Fees £10,000
Utilities £10,000
Salary £1,000,000
Vehicle £5,000
Bank charges £2,000
Depreciation £6,000
£ 1,048,000
Net Profit before Tax £13,950,500
Net Profit after Tax @ 28% £10,044,360
5.2 Profit and Loss Account for Baileys Irish Cream for the Year Ended December 31st 2011
Annual Turnover £22,000,000
Direct Cost of Sales
Raw materials £1,020,000
Stock @ beginning of year £9,500
_________
£1,029,500
Less Stock @ end of year £9,000
£1,020,500
Gross Profit £20, 979,500
Distribution Costs
Marketing £4,000,000
Delivery £1,000,000
£5,000,000
Expenditure
Insurance £5,000
Rent £10,000
Professional Fees £10,000
Utilities £10,000
Salary £1,000,000
Vehicle £5,000
Bank charges £2,000
Depreciation £6,000
£ 1,048,000
Net Profit before Tax £14,996,500
Net Profit after Tax @ 30% £10,497,550
Control Measures
To ensure that the chosen marketing strategy is properly implemented to achieve the stated objectives, a number of control measures will be put in place. These will include: Annual plan control, profitability control and efficiency control.
The annual plan control will take the form of annual business report which will include: customer volume variances, market share variances, financial statements and customer satisfaction tracking. Financial statement will include the profit and loss account of the business. This will help to know if the objectives of increasing market share and net returns in 2010 1n 2011 are being met.
The profitability control will be used to check the profitability of the business in terms of territorial performance, product performance, market segment performance, distribution channel performance. This will help to know if the objective of increasing on-trade sales have been achieved and further know the products, territory and market segment to focus its promotional activities on.
Efficiency control will be carried out through market survey where consumers will be asked questions like:
How did you hear about Baileys?
What attracts you to Baileys?
How and when do you drink it? Etc
This will help to understand if the chosen strategy and marketing mix have been efficient in achieving the stated objectives of, rejuvenating the image of Baileys and deseasonalising its sales. The survey will also note the gender of respondents as this will help to find out if the objective of increasing male consumption rate of baileys have been met.
Conclusion
An internal and external audit of Baileys business environment have been used to identify the main factors behind its current performance. Following this, SMART objectives have been outlined. The right strategy and marketing mix have been suggested for achieving the stated objectives. Some control measures have also been put in place to ensure a proper monitoring of the chosen strategy and marketing mix. There is therefore no doubt that this marketing plan will enable Diageo to achieve its business motive for Baileys.
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