innovation at diageo Finding Opportunity in Challenging Times Masters the Science of Innovation BY KRiSten WoLFe BieLeR T hese days, it seems that hardly a McDonough is quick to point out one of month passes without a new product the positive purchasing trends that he sees: release from Diageo. That is because The premium sector of the spirits industry “For each new the world’s leading spirits company has continues to grow, which is good news for launched twice the number of new products Diageo’s core brands—Captain Morgan, product that and line extensions this year than they did Smirnoff, Jose Cuervo, Johnnie Walker makes it to the year before. Why now? “I believe that Diageo has Black Label and Baileys—which all fall in this segment. “But it is clear that consumers market there truly hit its stride on innovation, with more successful new products and line extensions are being more thoughtful about their purchases,” says McDonough. “There is more are at least that offer attractive organic growth for our of a back-to-basics attitude, and consumers flagship brands and the total company,” are looking for brands they trust, with real ten discarded says Peter McDonough, general manager of established credentials.” innovation for the company. While the company’s focus remains firmly during various The approach is not without risk, on their premium brands for this reason, the stages of McDonough explains, but so far it has paid off: Recent IRI data shows Diageo had the marketing department will continue to make smart, selective investments in the reserve development. top three new spirit launches and eight of the top 12 between September 2008 and offerings as well. Many ultra-premium and super-premium spirits categories continue to In 2008 alone, September 2009. grow and McDonough reminds that trading up still occurs in this economy: “Some of our brands we did over Understanding Today’s in this category—Ciroc, Johnnie Walker Blue Label, Ketel One and Don Julio—have real 3,000 liquid Consumer momentum, and we need to make sure we are Growth—both organic and new product- prototypes in driven—can only come with a sophisticated well-positioned when strong growth returns to the super-premium segment.” our innovation understanding of the consumer. “Consumer dynamics have changed, and now more That said, the increased consumer focus on value has pushed many of Diageo’s lower priced laboratory.” than ever, it is critical that we keep the consumer at the heart of everything we do,” brands into the spotlight, and the company sees opportunity here as well. “One of Diageo’s says McDonough. “As we adapt our annual strengths is in our range of offerings—we have plans, both from a marketing and innovation iconic brands across many price points, and as perspective, it’s important we understand consumers trade down, we’re well positioned the consumer insights that are driving new to hold them with brands such as Popov, behaviors in our category.” Gordons and Seagram 7.” New Ways to Enjoy Balancing Risk & Research: Whisky and Bourbon Smart Innovation Just in time “Consumer desire for variety doesn’t change for the winter during a recession. They are simply more months, selective in what they’re willing to try,” says Diageo will McDonough. “That’s why innovating off of launch several our flagship brands is such an important part intriguing new of our strategy. This means that we’ll do line brown spirits, extensions using trusted brands and attempt to flavor portfolio. And building off the success of designed develop new categories under iconic ones.” Jose Cuervo’s Especial Gold, Diageo recently to provide The recent introduction of Captain released Jose Cuervo Especial Silver which Bourbon Morgan 100 Proof provides another excellent will nicely tap into the growing consumer lovers with example. “Captain 100 strengthens Captain interest in silver tequila. “The silver segment alternative flavor Morgan’s appeal among men, 21 to 29, who is currently experiencing rapid growth, and profiles, as well as bring new are shifting to higher proof rums,” McDonough now represents more than 20% of total tequila explains. “Our quick work has resulted in consumers into the category. sales,” says McDonough. “More than half Captain Morgan 100’s position as a leader From Seagram’s comes of silver tequila sales are driven in the ultra- and put it on course to become one of the best premium segment, so we know that consumers Seagram’s 7 Dark Honey, a selling new rums in the market.” have a real premium quality impression of blend of whisky with a touch of Another brand benefiting from an exciting what Silver tequila represents.” natural dark honey. At 71 proof, line extension is Baileys. Since hitting stores In spite of all the consumer research it is meant to be enjoyed on earlier this year, Baileys with a Hint of Coffee behind each new launch, nothing about the the rocks, with cola or simply a has successfully broadened the brand’s appeal, innovation in the spirits category is formulaic, splash of soda water (available and stimulated new occasions for Baileys to be McDonough insists: “For each new product in: 50ml: $1.99, 750ml: consumed, including “after dinner, in small that makes it to market there are at least ten $16.99, 1L: $22.99). gatherings after work, and most importantly, to discarded during various stages of development. Under the be enjoyed during the warmer summer months In 2008 alone, we did over 3,000 liquid Jeremiah Weed as a cold drink served over crushed ice, to prototypes in our innovation laboratory.” capitalize on the growing appeal of iced coffee brand comes two beverages and cold frappuccino style drinks,” Bourbons, an McDonough shares. Giving Retailers the original and a This past year also saw the addition of Tools for Success in cherry flavor. Passion Fruit, White Grape, Melon and the New Economy Both at 90 proof Pomegranate to the popular Smirnoff Vodka One of Diageo’s most exciting areas of and made with innovation has been in response to one of the highest the most dramatic trends in consumption— quality Bourbons the shift towards home entertaining. “All from Kentucky indications are that the cocktail culture will and Indiana, the stay strong, even in tough economic times,” Jeremiah Weed McDonough says. “But this continued shift Blended Bourbon from on-premise to off-premise consumption and the Cherry has made at-home entertaining a key area of Mash Blended growth for our innovation strategy.” Bourbon are Diageo is bullish in the belief that although designed to be consumers are going out less, they still want to enjoy great tasting cocktails at home without consumed with the hassle of assembling multiple ingredients cola, on the rocks or having to prepare complicated drinks. This or as a cold conviction has made them the market leader shot (available in in the Ready-to-Serve category with cocktails 750ml, $17.99). from established brands like Smirnoff, Captain innovation at diageo Morgan, Parrot Bay and Jose Cuervo [see products, so we’ve developed thousands “Ready-to-Serve” sidebar]. of what we call ‘Cocktail Concierge’ Diageo Leads in the But it isn’t limited to new product programs that are designed to present Ready-to-Serve Category development. Diageo has worked with our new products directly to consumers Consumers have never been savvier or their retail partners to find creative point- while they are shopping.” more demanding when it comes to the of-purchase ways to capitalize on the at- Finally, Diageo’s marketing team quality of their cocktails. But research home consumption trend. “We know that will be implementing a “This Holiday at shows that they still don’t feel confident making cocktails at home can be daunting Home” program, which communicates the making them at home. The trend for many consumers so we have developed a message that “good times are still within towards at-home entertaining has retail merchandising strategy called ‘Simply reach.” It will encompass advertising for Cocktails’ which allows our trade partners Captain Morgan, Baileys, Smirnoff and created tremendous opportunity for to offer a display and merchandising Crown Royal, among others, as well premium ready-to-serve cocktails, program that helps to educate consumers as in-store merchandising and coupon and Diageo has quickly established and simplifies their purchase decision for opportunities. Innovation on its own itself as the leader in this segment. a more enjoyable shopping experience.” isn’t enough, concludes McDonough: “I believe the launch [See “Simply Cocktails” sidebar] “We support all of our products with of Jose Cuervo Golden In-store tastings is another priority. marketing plans that drive the trial and Margaritas set a new “We know that recommendations consumption needed to build a consumer standard of quality in prepared from store staff and sampling are often franchise that our trade partners need in cocktails,” says McDonough. the primary influences for trying new growing their business.” ■ “And last year we expanded our premium positioned range with four very successful offerings from “Simply Cocktails” Makes “The concept really comes to life in the Smirnoff—the Smirnoff store and it’s a powerful merchandising At-Home Mixing a Cinch Cosmopolitan, the strategy for building the business in the In an effort to dramatically alter the shopping Smirnoff Mojito, the years ahead. For shoppers, it removes the experience by making it more cocktail Smirnoff Pomegranate hassle of searching the store for various focused, rather than category or brand Martini and most recently, Smirnoff ingredients, and eliminates the perceived driven, Diageo has created the “Simply Tuscan Lemonade.” Rounded complexity of making cocktails.” Cocktails” retail solution, a fully-integrated out by Captain Morgan’s Long in-store merchandising program. Island Iced Tea, Parrot Bay There are three sections for Stirrings Tropical Mojito Citrus and In further support of the program, Diageo consumers to choose from: First is the Tropical Mojito Mango, the recently increased its investment in Stirrings, “Ready Pour” section which features range “provides bar quality makers of a premium cocktail mixer portfolio. ready-to-serve cocktails (ex: Jose Cuervo for popular cocktails that The Stirrings portfolio consists of over 50 Golden Margarita). Next is the “Easy consumers are typically products such as premium mixers (Mojito, Shake” section, which showcases enjoying when they’re out Cosmopolitan, Margarita, Pomegranate pairings of a spirit and a high-quality mixer at their favorite bar,” says Martini), cocktail garnishes (Margarita Salt, (ex: Stirrings Mojito Mix), which easily McDonough. Pomegranate, Cosmopolitan), and classic empowers the at-home mixologist to bar ingredients (Dirty Martini, Grenadine, “shake” their own drinks. Finally, “Simple Blood Orange, Bitters). Mix” pairs a spirit with its signature soda or juice mixer to allow shoppers to easily make their favorite two- ingredient drinks (ex. Captain Morgan & Cola). The program includes eye- catching graphics, end aisle, shelf sets and portable racks which will draw traffic and capture impulse purchases; it is also supported by sampling, drink recipes and food pairings.
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