Scotch Whisky Johnnie Walker Develops Marketing Strategy

Case Type: marketing; business competition.
Consulting Firm: Fidelity Business Consulting (FBC) Group 2nd round job interview.
Industry Coverage: tobacco & alcohol; food & beverages.

Case Interview Question #00351: Your client Diageo plc (LSE: DGE, NYSE: DEO) is a global alcoholic beverages company headquartered in London, United Kingdom. It is one of the world’s leading manufacturers of distilled spirits with a number of major brands. Its popular brands include Smirnoff (claimed the world’s best selling vodka), Johnnie Walker (claimed the world’s best-selling scotch whisky), Jose Cuervo (claimed the world’s best selling tequila), Baileys (claimed the world’s best selling liqueur) and Guinness (claimed the world’s best selling stout).

You have been hired by the marketing department of Diageo to help them develop marketing strategy. Diageo’s Chief Marketing Officer has asked you to address two specific questions:

(1) What should the focus of their advertising budget be?
(2) What sized advertising budget would be needed to follow through on your strategy?

Possible Solution:

The first thing that I did here was to separate this case into 2 distinct parts: I first addressed the focus question and then addressed the budget issue. I used a basic 3 C’s framework to address what the focus of the advertising strategy should be.

Customers:

The first thing that they need to do is determine what their target segment is: What market segment is the client in?

I discovered that they were competing in the premium scotch segment. Once they determine this segment, they can do a detailed analysis of the demographics of this segment. For arguments sake I assumed that the scotch was Johnnie Walker Black and the target market was affluent males age 30+. Then they would need to do analysis of advertising media to determine how to reach this segment, i.e., print-ads in selected magazines, billboards, sponsorship of sporting events (golf, for instance).

Once they had data on what media effectively reaches their target segment, they would decide exactly what mix of media to use, and the specifics of the campaign to address the qualities that they wanted to associate with their brand (status, taste, distinguished, etc.). Market research could benefit the client in terms of determining what qualities they wanted to stress in their ad campaigns.

Company:

After I completed the analysis of the potential customers, I looked at the company as well as the industry: Who are the major players in this industry and where are we in the market?

I found out that currently we were the #3 brand with a little less than 20% market share, the #1 brand had a little higher than 20% and the #2 brand was a little lower than #2. The cost of advertising was not something I got too deeply into. I just noted that advertising was a significant portion of the cost structure of premium scotch brands (over 25% of sales).

Another point to note is that because of the high margins on this product, the more volume that a brand sold, the more resources the company would have to invest in advertising. There is a certain minimum scale that is required to be able to profitably advertise in this market.

Competitors:

The third issue that I addressed was what the competition was doing: How is advertising related to market share? How much do the competitors advertise?

I learned that last year, the #1 player had spent a lot of money on advertising and increased market share, while the #2 player spent nothing and lost market share. We spent a little more than nothing and increased market share a little. The distant #4 player also spent nothing on advertising.

Recommendations for Client:

Based on the above analysis, I hypothesized that there was a pretty positive correlation of ad spending and sales volume increases. Once I outlined what the focus of the advertising strategy should be, I addressed the budget issue. I proposed three alternatives to determining our advertising budget for next year:

1. The first was to match the #1 competitor to attempt to keep pace.

2. The second was to increase ours a little relative to our historical (last year) ad spending.

3. A third way would be to do a detailed cost analysis of our proposed strategy, and actually quantify what it would cost to have the number of ads and sponsorships in the types of media that we determined would satisfy our strategy.