It's all about competition - a war of the marketing minds!

Heineken’s original strategy ensured that its products were available in as many countries as possible. This has taken the form of physical presence, licensing agreements and imports. It remains to be seen what will happen subsequent to the recently acquired interest in Namibian Breweries, which took place after the termination of the licensing agreement with SAB Miller.

Interbrew’s growth strategy is primarily based on the acquisition of

local brands, which market it then uses to promote its premium or international brands.

SAB Miller’s focus is on developing and expanding through acquisitions. “We continue to seek opportunities to achieve growth within individual countries or geographical regions where we can build strong positions, leverage synergies and achieve economies of scale” (Graham Mackay, Business Day, 30 June 2003, p.14)

Marketing Opportunities

The top four brewing companies only have about 33% of market share worldwide. This means that opportunities to grow, abound and SAB Miller is certainly wasting no time. The company has acquired a number of additional interests since the SAB-Miller merger. (Annual Report 2003)

The Ansoff matrix (See appendix note 4) as adapted by Hamel and Prahalad reflects some of the opportunities available to the company once new competencies are identified.

Target Markets

“The choice of target market segments determines where the business will compete.” (Doyle, 2002, p.77)

• Market segmenting: SAB Miller clearly adapts its marketing strategy to the requirements of its customers. It segments its market into sectors according to needs and expectations, and customises its marketing, sales and distribution packages to the demands of each sector, e.g. Soft alcoholic drinks, because of their price premium, are targeted at young, high-income groups. (SAB, Making beer, making friends, November 2002)
• Product differentiation: With the vast range of products now available to SAB Miller, it is even able to differentiate across its own portfolio. Differentiation in this industry is largely affected by marketing techniques and here advertising plays a large role, e.g. Amstel, which is advertised as slowly brewed – 24 hours slower!
• Positioning: The company has been positioning itself over the years in emerging markets. This strategy should prove successful over time, given that the established (first world) markets are to a large degree past the mature stage in the business life cycle. This strategy alone should provide a huge competitive advantage in the medium to long-term. See Boston Consulting Group (BCG) matrix in appendix note 5.
• Customer profiles: SAB Miller uses the five W’s in determining the customer target, viz. Who, What, Where, Why and When. The company uses psychographic and lifestyle segmentation to guide its marketing strategy. See appendix note 6 for the personality segments and customer profiles as summarised from Lamb, C.W. Jr. et al. (2000) p. 138.  
• Buyer behaviour: Surveys indicate a move away from beer to soft alcoholic drinks (SAD’s) Volumes in this market almost doubled between the years 1995 and 2000. SAB Miller is well positioned in this market not to lose its departing beer drinkers to competitors in the SAD segment – or are they? Based on volumes in South Africa for the year 2000, Distell had a 68% market share of this sector and SA Breweries only had 19%. (BOE, SAB plc, August 8, 2001)
• Diversification: Doyle, 2002, p.19 states that there are different types of diversification, each with varying characteristics and levels of risk. See appendix note 7.

Analysis of the Brands’ Marketing Mix

There is concern that the four P’s concept takes the seller’s view of the market. From the buyer’s viewpoint, in this age of

connectedness, the four P’s might be better described as the four C’s ( Kotler, P. and Armstrong, G., 2001, p.68)

SAB Miller’s strategy is based on a multiple marketing approach, as follows:

      ∙ Product: Select products are chosen for specific markets.

      ∙ Price: The company is aware of the threat from Sorghum beer in South Africa and as such is continuing with its strategy of price increases in line with the consumer price index. Across the globe, in mature markets, the trend is moving towards the premium segment, and here the company is appropriately using price differentiation.

      ∙ Place: The distribution network is standardised to some extent. However, in South Africa, the owner-driver concept has proven to be successful.

      ∙ Promotion: Evidently all forms of promotion are used, media, sports events, retail outlet promotions, sponsorships, etc.

The marketing mix appears faultless. It is quite obviously customer focused and should continue to reap the benefits of its success to date.

Conclusion

The company has been very particular about identifying regions within developing or emerging markets, which are not saturated by other international players e.g. it focused its brewing operations in the northeast of China, where there was a lack of brewing capacity relative to demand. It has also carefully selected cities that it considers have major influences on national trends, to launch its flagship international brands. Acquisitions are chosen in regions

where other foreign brewers are not represented. This seems like good common sense. The question now needs to be asked. Has common sense prevailed in the acquisition of Miller Breweries by SA Breweries? Only time will tell!

QUESTION 3

                                                                                      STANDARDISATION VERSUS ADAPTATION

Introduction

The debate is infinite! What is best today may not be so tomorrow. However, it is almost certain that the argument about whether to standardise or adapt will continue through time.

Both standardisation and adaptation have their respective benefits. In fact, even proponents of global standardisation claim that international marketers should adapt products and marketing programmes. (Kotler and Armstrong, 2001, p.731) However, they qualify this statement by adding “only when local wants cannot be changed or avoided”. They believe that advances in communication, transportation and travel are turning the world into a common marketplace. Furthermore, that the resulting convergence of needs and wants has created global markets for standardised products. Given the development of the Internet, satellite TV, etc. it is difficult to argue against these viewpoints.

SAB International

SAB International, with over 70 local and international brands in its portfolio, is showing strong volume growth and significant profit margins. Could they do better by standardising these brands?

Only 5 major brands in the European region (Pilsener Urquell, Tyskie, Gambrinus, Lech and Radegast) account for over 60% of annual sales. Does this indicate that more standardisation might increase sales? Would total beer consumption drop if only Pilsener Urquell was available in this region?

Before a critical analysis of SAB Miller’s standardisation and/or adaptation strategies are undertaken, it is necessary to identify the advantages and disadvantages of these concepts.

Standardisation

       

Adaptation

Possible Standardisation for SAB Miller

The group utilises standard technology, processes, distribution and training techniques as far as possible. However, the possibility of standardising branding and packaging takes on different considerations.

• Diverse Markets: Countries vary in their ethnic and racial makeup. At one extreme is Japan, where almost everyone is Japanese. At the other extreme is the United States, with people from virtually all nations – not to mention South Africa, which even has 11 official languages. Perhaps in the distant future, this country will standardise around a single official language.
• Tastes: It goes without saying that the contents of the package, the beer itself, could never be standardised. Even the person next door, never mind another country, is most certainly likely to have different preferences. Imagine if the Jugoslavian beer with its 11% alcohol content was the only beer on the market!
• Ethnicity: It is almost certain that markets would be lost if consideration was not given to individual ethnic groups. Miller beer, for example, created television ads for the Hispanic market shown exclusively on Spanish-speaking channels. However, although they used the same visual elements across the country, the background music and voice-overs were altered to reflect differences between, for example, Cubans in New York City and Mexican Americans in Los Angeles.
• Economic environment: Some countries have subsistence economies. Some regions within a specific country face similar dilemmas. How then could a premium-priced beer be standardised across all regions? Statistics reflect that a very small percentage of the population is earning an increasingly larger share of total income. The opposite is true for the bottom end of income earners, where a relatively large percentage of people are taking home an ever-decreasing share of the pot. This phenomenon begs the question – will capitalism survive?
• Straight product extension: Heineken beer has been successful with its brand and product around the world, which is a strong case in point for standardisation. However, even this group supplements its business with other brands and products, which are differentiated from the Heineken brand itself.
• Product adaptation: There will always be people who want to be different. There are those that want to be seen as part of the in-crowd, who will buy the beer of the peer group. It is argued that the young generation prefers to be individualistic in their choice of beer brand. If this is true, the micro-brewer industry could experience a boom in the near future.
• Packaging: Consumers are frivolous! There is no better example than the changing of the Castle label as depicted in the case study. Language also plays a vital role. For example, what does the word “Castle” mean in Bulgaria? Perhaps in the unforeseeable future the entire world will speak one language, but marketing needs to cater for now and innovations for the immediate future. A classic example is the Coors (a competitor to Miller in the USA) beer slogan “get loose with Coors”, which in Spanish translates into “get the runs with Coors”.

Barriers to entry into international markets

• Cultural: SAB Miller respects the rights and dignity as well as the values and cultures of the communities in which it operates. For this reason and first and foremost its own interests, it would not consider breweries in Muslim countries – to use an extreme example.
• Demography: The age, gender, race, occupation, etc. is of utmost importance to the company because it is about people, and people make up its market. Generational marketing, however, must surely be an antiquated method and unlikely to be considered seriously by SAB Miller. After all, the baby-boomer generation, for example, spans eighteen years!
• Legal factors: Different countries, for example, have varying levels of  legislation limiting or promoting competition.
• Political factors: Government interference always raises the cost of doing business e.g. complying with liquor laws and pollution restrictions.
• Economic factors: SAB Miller, for example, carefully avoids head-on confrontation with brewers in countries where that brewer has a monopoly.

Economies of scale

SAB Miller is a conglomerate, but is it benefiting currently from economies of scale? This is certainly achievable given that the top four brewers only have 33% market share. However, there are a number of “dogs” out there that may be minimising the effect of the company attaining economies of scale. Miller Brewery is one of them.

 

Conclusion

Is it adapt or die?

Even companies with the top global brands make some adaptations. Coca-Cola is less sweet or less carbonated in certain countries. The otherwise globally successful Barbie doll had to be adapted before it became a top seller in Japan. Potential Japanese consumers thought the original doll’s legs were too long and its breasts too big. (Kotler and Armstrong, 2001)

Marginal revenues from adapting products in cases such as the Barbie doll example far exceed marginal costs. So which approach is best – standardisation or adaptation?

Surely the debate is not as profound as the literature suggests. Surely it is only a matter of to what degree they should co-exist!

SAB Miller’s standardisation/adaptation policy is difficult to fault. The group is standardising brand leverage through international brands and adapting its marketing strategy to the needs and aspirations of the target market segments.

 

                                           

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                                         APPENDIX  

       

Note 1

                            SWOT Analysis of SAB Miller

The salient points of the analysis are as follows:

• Strengths: The case study basically qualifies all the strengths listed. It might, however, be added and argued that SAB Miller’s monopoly in the South African beer market should provide entry barriers for competitors, particularly through the primary mode of greenfield entry, for the following reasons:

1. To set up manufacturing facilities and to establish new brands requires substantial capital investment.
2. The potential investor is unlikely to have intimate knowledge of the South African market, mainly due to its diversity.

• Weaknesses: Apart from the self-explanatory points listed, Miller Brewing, the company acquired by SA Breweries, appears to be somewhat of a weakness at this stage. Miller’s nine-month contribution to the group’s 12-month results to March, 2003 show that Miller accounts for 38% of turnover but only 20% of earnings before interest, tax and amortisation (EBITA). Its EBITA margin, at 7,2%, was the lowest of all the group’s businesses. Analysts calculate that an optimal margin for Miller would be 12-13%. (Mathews, C., 2003 “US business skews picture of SA-born brewing group”. Business Day. 23 May, p.13)
• Opportunities: The outcome of Heineken not renewing the distribution agreement with SAB Miller, whereby the latter company distributed Heineken under license, is surely an opportunity in disguise! It is the ideal time for the introduction of the premium brands, “ Miller Genuine Draft” and “Pilsener Urquell”, while Heineken struggles to establish alternate distribution channels.

• Threats: As the consolidation in the industry becomes more intense, SAB Miller faces increasing threats from competitors for market share and competitive advantage. The most imminent, and on its own doorstep, is Heineken, which it ousted from the position of the world’s second largest brewer. Subsequent to the termination of the licensing agreement, Interbrew of Belgium, the world’s fourth largest brewer sold its minority stake in Namibian Breweries to Heineken and Diageo. This means that Heineken now has access to brewing capacity in the SADC region and could now use the distribution networks of the “Windhoek” brands of Nambrew.

Note 2

                        PEST ANALYSIS of SAB MILLER

   

               

                                                                                                                                    PORTER’S FIVE FORCES MODEL (Note 3)        

                     

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A few of the items listed in the diagram of Porter’s Five Forces demand further discussion.

• Rivalry: The war is intensifying. The major players are all on the acquisition trail. In fact, subsequent to SA Breweries acquisition of Miller Brewery, the newly formed SAB Miller has acquired i.a., a 60 % share in Italy’s Birra Peroni and a 50% interest in India’s second largest brewer  (now called Shaw Wallace Breweries) through its 98% owned Mysore Breweries.

Even though the major players have adopted offensive global strategies and created a physical presence in most lucrative markets, there remains a threat of imported beers into these established markets.

• Threat of substitutes: In Porter’s model, substitute products refer to products in other industries. (QuickMBA, ) Apart from the threat from cell phones, which is decreasing with the maturity of this industry, and gaming, there is also the threat from drugs. BOE, in its SAB plc report of August 8, 2001 states that at any rave, for example, it is almost a challenge to find a person drinking beer. This situation is in sharp contrast to a decade ago when the drink of choice at major party events was beer.
• Supplier power: Although SAB Miller owns hops and barley farms, these farms do not produce enough for this multi-national company. For this reason, billions of Rands are spent on imports. The weather is also a significant factor in this industry, which gives suppliers the power to increase prices when supply is limited. It might be worthwhile to consider acquisitions of other farms around the world to ensure control of supply, and to have a balance of climatic conditions.

• Barriers to entry: It would be difficult for foreigners to enter the South African market through the “greenfield” route because of the capital intensity of establishing production facilities. In addition, the diversity of this market requires in-depth knowledge, which is best acquired through experience. Heineken’s approach to South Africa through a licensing agreement was probably the answer, and their new shareholding in Namibian Breweries once again appears to be the only approach – not only to South Africa, but further north as well.
• Buyer power: Buyers are fragmented and therefore do not have power in unity. In South Africa the large retail outlets, viz., Makro, Trade Centre, Solly Kramer’s etc., have some muscle. However, as SAB Miller has a 98% market share and its products are in demand by the end user, these stores can little afford not to stock these brands.

     

Note  4

                                            Ansoff Matrix (as adapted)

                                                           Market

                         Existing                                                  New

Note  5

                 Boston Consulting Group (BCG) Matrix

Stars: The market leader in this instance is “AFB” (Alcoholic fruit beverage) in general, rather than one particular brand in SAB Miller’s portfolio. The fact that this is a fast growing market and that Distell has the major share in South Africa (more than double that of SAB Miller) should be of great concern to SAB Miller.

Cash cows: Castle Lager is, no doubt, in this category in South Africa. However, it may be classified differently in India and as a question mark in new introductory markets. Similarly, Pilsener Urquell may be a star in some markets and a question mark elsewhere. It is surely a cash cow in the Czech republic.

Question marks: Also known as “problem children” (Lamb et al. 2000, p.407) Redd’s and Brutal Fruit fall within this category; Redd’s has a low market share in a high growth industry, and Brutal Fruit is certainly needing a great deal of cash investment to compete.

Dogs: No question marks here! Lion Lager continues to lose market share and has no growth potential. The plug must be pulled. It’s just a matter of time.

Note 6

                                        Customer Profiles

                                 

Note 7

                         Diversification: Levels of risk

      ∙ Forward integration: There does not appear to be any interest                       by SAB Miller to enter the retail market.

      ∙ Backward integration: The company has interests and owns some of the sources of supply e.g. SA Maltsters, which is a joint venture with the barley farming community (SAB, Making Beer, making friends, November, 2002) However, it still imports billions of Rands worth of ingredients from other suppliers. Acquiring globally diversified sources of supply could arguably give them a competitive advantage, particularly as the weather is a major factor in this industry.

     ∙ Concentric diversification: All the brewery acquisitions are examples of this form, i.e., they have synergies with SAB Miller’s existing products and markets.

     ∙ Conglomerate diversification: This is the most risky form of diversification. SAB Miller’s gaming and hotel businesses are good examples. The company is planning to dispose of these non-core interests, which all and sundry agree is the correct strategy.

                        BIBLIOGRAPHY

1. BOE, SAB : Africa site visit, 2001.
2. BOE, SAB plc, August 8, 2001.
3. Drucker, P.F., (1985) “Our changing world”
4. Ensor, L., 2003, “Competition body at odds with Liquor Bill.” Business Day. 15 May.
5. Ensor, L., 2003, “Liquor industry in a froth over bid to regulate business.” Business Day.14 May.
6. Doyle, P., (2002) Marketing Management and Strategy. (3rd ed.) London: Prentice-Hall.
7. Kotler, P. and Armstrong, G., (2001) Principles of Marketing. (9th ed.) New Jersey: Prentice-Hall.
8. Lamb, C.W. Jr., Hair, J.F. Jr., McDaniel, C., Boshoff, C., Terblanche, N.S., (2000) Marketing (South African ed.) Cape Town: Oxford.
9. Mathews, C., 2003, “US business skews picture of SA-born brewing group. Business Day. 23 May.
10. QuickMBA, .
11. SAB Miller annual report, 2003.
12. SAB, Making beer, making friends, November,2002.

               “If it doesn’t sell, it isn’t creative” – David Ogilvy