Marketing Paper Heineken Essay

Heineken is a Dutch beer brewery company, which was founded in 1863, when Gerard Adriaan Heineken bought a small brewery in Amsterdam called â€Å"The Haystack†. In 1900 the company came up with it nowadays famous five-point star. In 1914 the company began expanding, starting with the production of their own bottled beers. By 1914 the company was one of the most loved import beers in the United States. From around 1948 Heineken began promoting their beer on a large scale. With slogans as â€Å"Heerlijk helder Heineken† (meaning: Delicious clear Heineken) and â€Å"Good people bring home Heineken†. In 1968 Heineken comes up with an innovation that will be used for over 30 years, the barrel with an attached draft pipe. This way an innkeeper only has to connect the barrel from the outside. In the same year Heineken also takes over their rival company Amstel. However, Amstel will keep its own identity and they will both follow different strategies. In the early 1980’s Heineken is available in 145 countries around the world. After the fall of the Wall in 1989, Heineken will even expand further into Eastern Europe. For instance, Heineken acquires Brau Beteiligungs A.G. (BRAG), in 2003. Until now, that is still the largest acquisition in Heineken’s history. In 2005 Heineken comes up with an innovative system that would take over the markets once more: The portable Heineken Draught keg. In 2010 Heineken is active in 170 countries and still trying to expand. They have 120 breweries globally, and employ 54.000 people. In the 120 breweries Heineken owns, Heineken brews more than 200 different kinds of beers and ciders, Heineken Premium beer being the most famous one. In Heineken’s Annual Report of 2009 Heineken has stated that 18 percent net growth in net profit. They reported revenue of â‚ ¬14.701 million; their net profit was â‚ ¬1.055 million. Their revenue of â‚ ¬14.701 million came from a consolidated beer volume of around 125 million hectoliters.[1] Heineken N.V. and Heineken Holding N.V. Stock exchange and management scheme Heineken N.V. and Heineken Holding N.V. are both represented on the Stock exchange list. Heineken Holding holds 50.005 % interest in Heineken N.V. FEMSA holds a 9.245% interest in Heineken N.V. The free float interest in Heineken N.V. is 40.75%. L’arche Green N.V., is owned by the Heineken family for 88.75% and by Greenfee B.V., which owns the remaining 11.25%. L’arche Green N.V. holds a 50.075% interest in Heineken Holding N.V. FEMSA holds a 14.94% interest in Heineken Holding N.V. Free float interest in Heineken Holding N.V. represents 34.94%.[2] We have put a stock exchange and management scheme in Appendix A. Products, Geographical Markets and Market Positions As Heineken brews around 200 different kinds of beers and ciders, we will first state a couple of recognizable brand names. However after that, we will focus on the Heineken Premium Pilsner, or Heineken Premium segment. We will differentiate on the premium segment because otherwise our paper will become to elaborate. Products Heineken most famous brand is Heineken Premium Beer. Below I will mention other brand names that Heineken brews in their breweries. I chose to name the products they brew in Western Europe; this is due to the fact that Heineken is Europe’s largest and leading beer brewer. In Europe the most brewed beers and ciders that Heineken brews are: – Heineken – Amstel – Desperados – Gà ¶sser – Strongbow – Edelweiss For a total overview of all the beers that Heineken brews in the worlds, you can visit http://www.heinekeninternational.com/products_brands_brands.aspx For the relevance of this paper, it is not necessary to name all these brands. Geographical Markets Below you will find a table with the geographical distribution of consolidated beer volume, this is off al of the beers and ciders Heineken brews in the world. |In thousands of hectolitres[3] |2010 |% | |Western Europe |45,394 |31.1 | |Central and Eastern Europe |42,237 |29.0 | |Africa and the MIddle East |19,070 |13.1 | |The Americas |37,843 |25.9 | |Asia Pacific |1,328 |0.9 | |Consolidated beer volume |145,872 |100 | The premium segment is listed below. |Segment |Volume |Percentage | |Western Europe |7,600 |29,3% | |Central and Eastern Europe |2,800 |10,8% | |Africa and the Middle East |2,100 |8,2% | |North and South America |9,000 |34,7% | |Asia Pacific |4,400 |17,0% | |Total |25,900 |100% | Market positions Western Europe In Western Europe Heineken is market leader in countries including The U.K., The Netherlands, France and Italy. Heineken is the number two as beer brewer in countries such as Belgium, Finland, Ireland, Spain, Portugal and Switzerland. Western Europe is a highly important segment for Heineken as a company, Europe as a whole has about 850 million inhabitants, and together they are consuming 40,1 percent of the total premium segment, on average only the America’s are drinking more premium beer. Central and Eastern Europe In Central and Europe Heineken is also the largest beer brewer. Being the market leader in several countries Heineken brews 42.237 million liters of consolidated beers and ciders. The volume of Premium beer however is slightly low, only 10,8 percent. Africa and the Middle East Heineken is becoming more and more successful in countries in Africa, after starting the Heineken Africa Foundation the brand has become highly popular in sub-Sahara countries. Due to the high population of expatriates, Heineken is able to sell premium beers in African and Middle Eastern countries. North and South America This is the only segment Heineken does not own a market leading position. Heineken does enjoy number two positions in Mexico, Brazil, Chile and Argentina. In 2010 their position was strengthened after buying FEMSA. Asia Pacific The Asian market has been growing for multiple consecutive years. Heineken holds strong positions in Thailand, Vietnam, Australia, New Zeeland, Singapore and Taiwan. The fact that Heineken is a strong brand in Singapore is because of the earlier mentioned reason, the reason being expatriates. Cultural issues affecting Heineken When researching cultural issues, we thought of a case we had to deal with in the International Management II course. This case dealt with expatriates in Saudi Arabia. The common belief in Saudi Arabia is the Islam; their holy book is the Koran. The Koran states: Regarding Alcohol – The Holy Quraan states: â€Å"They ask Thee concerning Wine and Gambling, Say: In them is great sin, and some profit, for men; but the sin is greater than the profit.† (Surah Al-Baqarah:219) This means that all Islamic people should refrain from alcohol. The fact that Islamic people should refrain from alcohol makes it hard for Heineken to find a market in Saudi Arabia for Heineken beers or other ciders containing alcohol. However, Saudi Arabia is a country in which a lot of expatriates live and work. Expatriates are (mostly) western people, who do live according to the Koran. This means that these expatriates are able to drink a beer after work. The fact that this is able for expatriates makes it easier for Heineken to sell their brews in countries such as Saudi Arabia. However, this is the kind of problem Heineken mostly has to deal with. These kinds of problems are not hard to solve. We were not able to find more problems, only those that are similar to the problem we described above. We can conclude that Heineken is a very large MNE, Multi National Enterprise, however, we have not jet reviewed Heineken’s current performance. In the following section of our report we will analyse the performance of Heineken N.V. over the last five years. Therefore, will balance their financial performance against another large brewer’s performance, namely SABMiller. |Revenue (Change in % of the year before) |Heineken |SABMiller | |2010 |9.7% |4% | |2009 |2.7% |6% | |2008 |27.3% |15% | |2007 |6.2% |22% | |2006 |9.6% |19% | In this table the growth of the revenue is reviewed since SABMiller’s total revenue is more than Heineken’s. Although Heineken kept growing their revenue in the last five years, their competitor’s revenue kept growing as well. SABMiller generated even a bigger growth of their revenue compared to Heineken. Therefore we can state that although Heineken has increased their revenue in times of financial crisis, this does not imply that the performed extraordinary well compared to their competitors. According to John Hagel III, John Seely Brown and Lang Daviso in their blog article on ‘The Best Way to Measure Company Performance’ (2010), the return to equity ratio is not the best way to measure company performance. A different view is the one from the shareholders; since ROE focuses on the net income per share, it is a very commonly used method to measure company’s performance by shareholders. Therefore, this method is used in this paper and if we would use other methods our paper will become to elaborate. Concluding from this table we can state that Heineken performed better over the last five years then one of its main competitors in terms of Return on Equity. ROE’s between 15% and 20% are considered desirable; Heineken met this standard very well. Although SABMiller is not coping with a low Return on Equity, they are nevertheless unable to meet that standard. |ROE (Return on equity) |Heineken |SABMiller | |2010 |14,1% |12,6% | |2009 |19,7% |13,4% | |2008 |22,7% |12,2% | |2007 |20,7% |12,5% | |2006 |18,6% |11,5% | To summarize, both Heineken and SABMiller maintained a high level of growth over the last five years; their revenue kept growing. Despite both companies kept growing their revenue, a look at the Return on Equity ratio shows that Heineken is more profitable then SABMiller. It is save to state that Heineken has financially performed well over the last five years. International market segmentation International market segmentation can be described as the process of dividing the entire market into smaller market segments. According to Hollensen’s Essentials of global marketing (2008) there are 4 steps a company has to take while segmenting the right market, these steps can be found in appendix B. In this section, Heineken’s international segmentation strategies are discussed following these four steps. Hollensen’s first step is â€Å"the selection of the relevant segmentation criteria,† every market has it’s characteristics, Heineken had to select the criteria that were relevant for them. Heineken had to take in account measurable factors such as the geographic location, language, industrial structure and political factors. In addition, they had to take in account factors that have a low degree of measurability, such as cultural characteristics and attitudes and tastes. Not all these factors are relevant for Heineken; the language is not that relevant to a brewing company, however, the taste of the consumer is. Heineken also segmented their export market using other characteristics. Important characteristics for Heineken are age, e.g. minimal drinking age; alcohol consumption, e.g. heavy or casual drinker; tastes, e.g. they might prefer sweeter beer to Heineken and geographic location, e.g. the distance to the brewery. The second step is the development of appropriate segments. In this step Heineken had to find markets and market segments that match their relevant selection criteria. The third step is the screening of segments to narrow down the list of markets/countries to choose from and make a decision. This screening process can be divided into two steps, first the preliminary screening, countries/markets both external criteria and internal resources have to be taken into account. Secondly the fine-grained screening where the firm’s competitive power in different markets should be taken into account. Heineken selects in this step the market segments where they want to participate in. The forth step is â€Å"to develop subsegments in each qualified country and across countries.† In this step Heineken turns it’s macro segments from step three to micro segments; they further define their market segments. Market targeting Targeting is the process of evaluating potential identified segments to select the one with the highest potential (Hollensen, 2008). Heinekens target markets consist of younger to middle aged people. Heineken’s marketing activities are focused on this segment; they want their market segment to relate Heineken beer to sport events, festivals and nightclubs. Heineken is successful in addressing this consumer segment; they are the preferred premium beer for a large market share. This target market does not differ a lot among countries, although they adjust their marketing to each market, these adjustments are minor ones. Market positioning Market positioning can be defined as the process of creating a preferable brand image in the minds of the target groups of a company. It is not only preferable for companies to establish a positive brand image, but a positive identity for their products and organization as well. Market positioning is important to Heineken; Heineken puts many resources in advertising and positioning projects. When a company considers market positioning, they are likely to use the four P’s, Product, Price, Place and Promotion. We will briefly introduce these concepts and we will examine them further in a different section of this article. The four P’s are the marketing mix; all these aspects should be taken in consideration when constructing a marketing program that delivers superior value (Kotler & Armstrong, 2005). Heineken is actively using its marketing mix to position themselves as a positive brand for their target market. Heineken is involved in several market positioning activities, for example, Heineken is one of the main sponsors of the UEFA Champions League, one of the largest soccer leagues in Europe. Their goal with sponsoring this league is for their target market to relate Heineken with this sport event, therefore creating a positive brand image. Another example of a market positioning activity that Heineken is involved in will be the sponsorship of a concert hall in the Netherlands, namely the ‘Heineken Music Hall.† Again, their goal is that their targeted customers are gaining affection with the positive experience of the concert and the brand Heineken. In addition, Heineken is opening and sponsoring fully branded bars around the world. Heineken sponsors these bars and you can find their brand logo almost everywhere. Heineken allocates many resources to their marketing department in order to do this around the world; this results in brand recognition everywhere. This is again a promotional activity conducted by Heineken to establish a better market position. Product strategies The product strategy is a marketing plan of a specific product accommodated to for instance the target market, desired product positioning within the market, and profit objectives. Almost always product strategies are based on the four P’s, financial targets, and budgets of the producing company. Now, a deeper look in the product strategies of Heineken shall be made.Firstly, Hollensen(2008)[4] states that there are three levels of a product. These three levels include: the core product benefits, the core attributes and the support services (figure below). As the figure shows there is a high possibility of standardizing elements of products at the level of â€Å"core product benefits, medium possibilities to standardize in the â€Å"product attributes† level, and a low possibility of support services being standardized. [pic]The most eye-catching core product benefits of Heineken include the technology, most important: the patented technology used to brew the beer and giving it the distinguishable taste Heineken is known for. Heineken does not change the brewing process in any foreign market it explores (Anthony Ruys, 2005)[5] so no matter where Heineken is consumed the taste will be exactly the same. Also the perceived value is a major core benefit for Heineken, Heineken is such a large brewery with so many (geographically dispersed) market that it is recognized all over the world, people in foreign markets see Heineken as a luxury beer and this is exactly what Heineken intended when entering the market, for example Heineken promotion strategy in when entering the USA market: Heineken hired a vast amount of actors to go to luxury bars and hotels and keep asking for a â€Å"Heineken† beer, when this continued over a long period those bars and hotels were almost forced to use Heineken. Salient detail: a test with blindfolds regarding several breweries, Heineken finished almost at the bottom of the list, when the same experiment was conducted with the names of the breweries in sight Heineken was the undisputed number one. (Peters, 2001) [6] Looking at the product attributes it is remarkable that Heineken maintains almost the exact same size, looks , and lay out in every foreign market to get a high recognition rate. So the design, packaging, and quality are practically the same in every foreign market, this way their brand name and status is strengthened. Because of this Heineken also tries to keep the product attributes standardized. Hence two slogans of Heineken: â€Å"Serving the planet†; and â€Å"meet you there†, meaning wherever one may go the familiar Heineken beer will be around.Finally there is the support services level, this is the level with the lowest standardization in the company. Heineken has many marketing involvements in bars and hotels and host numerous events. The biggest example of Heineken’s support service in their home country the Netherlands is the â€Å"Holland Heineken house†, It is a portable bar which is up and running on the scene at major sporting events (world cup soccer etc.). these events and marketing opportunities are not as easy to standardize like for instance the production process. For the simple reason that it is an unpredictable aspect of the company. Market entry and distribution strategies Heineken started exporting in 1876 with regular shipments to France, twelve years after taking over â€Å"de Hooiberg† (another dutch brewery established in 1592), but Heineken kept a low profile concerning the export. Only after the son of Gerard Adriaan Heineken took over, the export of Heineken experienced a big growth with market entries in for example the United States. The United States were a vast growing market but it came to a sudden hold in the 1920’s when the prohibition act or â€Å"Volstead act† was initialized. By 1970 however Heineken was available in 70 percent of retail outlets in the United States mostly because of Heinekens distribution process. After this success Heineken began exporting to practically every corner in the world. According to Hollensen (2008) entry strategies for foreign market are divided in two groups. When a company goes abroad and has to choose a entry mode a distinction should be made in internalizing and externalizing foreign investment strategies. As can be seen in Appendix C[7]. hierarchical modes offer to most internalization where export modes require the most externalization. Between these two extremities are the intermediate modes. These modes will be discussed in the next paragraphs and will show which mode Heineken adapted. Firstly, the hierarchical modes which covers the internal factors. This includes the international experience of a company and what the size of the company is. When Heineken went to the United States it had very limited international experience. Also, back then, Heineken was the largest brewery in the Netherlands, but compared to the world The Netherlands is a very small market so Heineken had a restricted size. It also includes product complexity and differentiation. The product complexity when Heineken expanded to the United States was very low, after all at that time it only produced Heineken beer, only later on the made products adjusted to several foreign markets and product differentiation was created. Secondly, the export modes which cover the external factors. There are a vast amount of external factors with the most important one: the social an cultural distance between the home and the host country. Cultural and social distance between countries like The Netherlands and Belgium or Germany are not that big, however there were a lot of competitors present in the same branch in that period so Heineken decided to expand elsewhere. For instance in the United States there were few competitor because of the prohibition. But when a â€Å"western† company wants to expand in Asia or in Arabic countries there is a huge social and cultural distance. In the 1970’s Heineken started to pay more attention to the foreign markets and built up their social awareness which decreased the â€Å"sociocultural distance†. The mode with the most externalization is the export mode. In this mode the company has the choice between direct-, indirect-, and cooperative export entry mode. With the indirect export entry mode the company is mildly interacting with the foreign market due to the fact that an independent organization will distribute the company’s product. There is low risk and low commitment but there is also low control of the local distributer etcetera. Furthermore there is the direct market entry mode, in this mode the company is directly selling to a importer in the desired foreign market. The exporter will be in charge of the ins and outs and the up- and downstream functions and maintain well supported ties with the foreign market. When both the indirect- and the direct mode are not applicable the cooperative mode comes in the picture where there is a local importer dealing with the downstream functions (marketing, sales, services) and the exporter is in charge of the upstream functions within the local company (for example: the R&D department). Heineken started off in the export mode not only because there was limited experience in foreign markets up till then. The company had to keep expanding because the market for breweries became ever more competitive, Heineken founded a new brewery in the Netherlands but also founded the Malayan breweries and breweries in Venezuela, Zaire and Italy. Furthermore Heineken took over several foreign breweries. Nowadays Heineken adopted a Hierarchical mode for the market entry this means that it is fully owned and controlled by the company, but also the company bears the risk of its actions. Every market Heineken operates in. Heineken’s headquarters are stationed in the Netherlands but there are several subsidiaries in foreign markets because the general assumption is that geographically dispersed markets differ a lot and many will require a different approach which are than dealt with by the subsidiaries. Promotion Strategies According to Hollensen (2008) â€Å"†¦ important are the promotion or the performance promises that the organization makes for its product or service in the target market†. Regarding to product decisions, promotion of products can be adapted or standardized to foreign markets. Figure 1 (see appendix D), provides an overview of how products can be promoted in foreign markets. With regard to figure 1, Heineken seems to fit in the box of ‘Straight Extension’, since both the product and the promotion strategy of the company are standardized (one product, one message worldwide (Hollensen, 2008)). This is also stressed by Heineken’s general promotion strategy across the globe, which effectively creates a connection between the brand and the customers. In addition, Herwin van den Berg, Marketing Director of Heineken in the Netherlands states that: â€Å"Marketing is about attracting, inspiring and binding consumers and ensuring timely wake-up calls to your own organization†. Firstly, the Heineken company includes besides the well known Heineken brand, over 170 different, often local, brands as well. This multi-brand strategy proves to be simple, but effective. The main idea of acquiring other suitable, local brands, is to serve Heineken as a premium beer alongside the acquired local brand. If some local brand proves to have a significant growth potential, the brand is of interest of the Heineken company. This policy actually creates a global position for, because the Heineken brand becomes recognized as being a premium beer. Secondly, according to the Heineken website (www.heinekeninternational.com), the company has developed a policy of ‘Selling beer safely’, this policy holds that professional Beer Promoters (BPs) sell and promote Heineken beer directly to the (potential) consumers This policy proves to be a successful promotion strategy in most countries, because this policy manages to satisfy all different constituencies of the company. Despite the use of BPs, Heineken strives to improve the overall safety and health of the Beer Promoters, since promoting beer can be quite hazardous. Therefore, Heineken developed policies in their breweries that cover all aspects that are influencing the working conditions of the BPs. In order to instruct and train the BPs for their job as a effective Beer Promoter all over the world, Heineken developed all kinds of training tools, varying from instruction DVDs and manuals, to leaflets and booklets. These training tools are continually being improved and redesigned to maintain a proper basis for implementing the right strategy. Additionally, these training tools are translated in several languages, in order to maintain a general promotion strategy all over the world. Thirdly, when comparing the Heineken websites in different countries, it is obvious that Heineken uses the same promotion campaigns all over the world (examples: Draught keg, Extra cold, Beertender) . What stands out are Heinekens green (premium) beer bottle on the homepage on each website, the use of bright green colors, a direct link to Heineken’s Facebook page, and depending on the country, promotion campaigns such as Heineken Music or the UEFA Champions League. Besides the use of global marketing campaigns, some websites display local, country specific content as well (such as the new Heineken Ellipse glass). Additionally, most websites are fully translated, and some only partially in the foreign country’s language. Fourthly, when comparing the TV-commercials (www.youtube.com) of Heineken in different countries, it is obvious that the company promotes its premium beer and new products in quite the same way across the globe. The company actively promotes what seems to be the ‘Heineken experience’ which holds that Heineken premium beer is being drunk in the same way by people all over the world. However, the company does produce country/region specific ads, with slight adjustments, mostly for the major markets. In Asia for example, the commercials seem to reflect that a Heineken premium beer can be gained after a hard day at work. In Hispanic countries, a Heineken premium beer stands for intimacy and closeness, and in the image of Heineken in Western countries is that nothing stands between a man and a Heineken premium beer. To conclude with, â€Å"Heineken portrays itself as a global brand that makes the world just that little bit more enjoyable through its mentality and innovative products† (Heineken Case, Sister.) Pricing Strategies â€Å"Pricing policy is an important strategic and tactical competitive weapon that, in contrast to the other elements of the global marketing mix, is highly controllable and inexpensive to change and implement† (Hollensen, 2008). The Heineken company sells premium beer, which holds that the beer is priced in upper segment of the beer market. By premium pricing, customers become perceived that Heineken beer is different from all other brands, in the sense of being of a higher quality. And so, the relative high price can be established simply because customers are willing to pay the higher price for the real and perceived quality. Moreover, by pricing the product relatively high, the product position in de minds of customers becomes on the desired (high) level. Since Heineken premium beer is a standardized product, there are little additional costs concerning modification of the product to foreign markets. Therefore, Heineken can adjust its prices easily to the purchasing power in a foreign market and so maintain its brand image of being a premium beer, by setting the price to the relative upper segment of a country’s local beer market. By conducting this policy, Heineken maintains a global image of being a premium beer. Moreover, in some foreign markets Heineken even has the advantage of the so called country-of-origin effect. Which holds that customers perceive a product made in a certain country of being of a desired quality. Apparently, the Netherlands have a high reputation in the global beer market, since, for example, the customers in the United States are willing to pay significantly more for Heineken premium beer. On average, for every 100 liters of Heineken beer shipped to the US, Heineken’s profit is estimated on about 21 euro’s. In contrary, the average profit per 100 liters of Heineken beer in other countries is estimated on about 11.70 euro’s (Elsevier website). In short, Heineken is able to maintain its image of being a premium beer through both the general perception of being of a high/premium quality, and the corresponding price that has to be paid for Heineken’s premium beer. Source: Based on Keegan, 1995, pp. 489-94 and p498, Table 13.1 ———————– [1] http://www.annualreport.heineken.com/nl/Een_kort_overzicht/index.html#financials [2] http://www.heinekeninternational.com/ownership_cg.aspx [3] http://www.annualreport.heineken.com/Other-information/countries-and-Brands/index.html [4] Svend Hollensen: Essentials of global marketing [5] http://www.alcoholpreventie.nl/bestand/2005MarketingphilosophyofHeineken.pdf [6] Peters and Van Dam: Dienen en verdienen (serve and earn) (2001) [7] Svend Hollensen: Global Marketing (p. 280)