Heineken has to go big!
Brand image, logistic operation and profitability, the main aspects for introducing a Heineken 600 ml bottle
Rijksuniversiteit Groningen Faculty of Management & Organization
Mentors:
Faculty of Management & Organization:
Dr B.J.W. Pennink Prof. Dr. J. Wijngaard
Heineken:
Michiel Verhagen
Author:
Vanessa von Mühlen
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Preface
The faculty of Management & Organization at the University of Groningen requires students to write their thesis on a practical problem within an organization. The thesis lying before you has been written in the period September 2003 until May 2004 and focuses on the introduction of a new packaging format, the 600 ml bottle for Heineken in Brazil.
The period in which I have worked on this thesis marks the end of my career as a student.
During this period I had a first working experience within an International company in Brazil.
This gave me the opportunity to learn a lot about the practical and operational side of a business, develop my skills in an International business environment and improve my Portuguese. My experiences during this internship have made me more determined to pursue an International career. Apart from developing my business skills, I have also been able to develop myself as a person during a very enjoyable time in the great city of Rio de Janeiro.
I owe Heineken and all the people I have worked with a big thank you for a very nice time. A special thanks goes out to Michiel Verhagen, for providing me with support during the project and his contribution to this research report. I would also like to thank Dr. B.J.W. Pennink and Prof. Dr. J. Wijngaard from the faculty for their input and guidance during this research.
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Management summary
In 2003 Heineken developed a new strategy to strengthen its brand equity in Brazil. Besides strengthening its brand equity, Heineken also wishes to increase her 0,1% market share. At present, Heineken has a small market share in a large beer market, which has a high potential growth in its premium segment. One of the possibilities to grow market share is to introduce a 600 ml bottle, a packaging format that represents 82% of the on premise market (Horeca).
Heineken has therefore signed a principle agreement with Cervejarias Kaiser S.A. (Kaiser), where Heineken has a 20% share, to investigate the opportunities to launch a Heineken 600 ml bottle. Part of this agreement is to research the main aspects of concern for the introduction of a Heineken 600 ml bottle and to use the results of a test in Rio de Janeiro in order to determine whether or not the 600 ml packaging format should be introduced nationwide.
The objective of this research was:
To provide insight in the important aspects for a successful introduction of a green Heineken 600 ml returnable bottle for Heineken in Brazil and to give advice on how these aspects should be managed so that Heineken can make a strategic decision about a further roll out of the 600 ml bottle on the Brazilian market. During this research the results of a test market will be used.
This objective has been achieved by answering the following research question:
What are the important aspects for a successful introduction of a green Heineken 600 ml returnable bottle in Brazil and how should these aspects be managed?
The orientation phase of this research made clear what the three main aspects for the introduction of the Heineken 600 ml bottle were.
1. The effect of the introduction of a 600 ml bottle on the brand image of Heineken.
2. The organization of the logistic operation of the 600 ml bottle.
3. The profitability of the 600 ml bottle.
Brand image
The 600 ml bottle in Brazil is strongly associated with sharing and low prices. Heineken’s concern was that the introduction of such a bottle would have a negative impact on its premium brand image, where quality and price are important. After executing both a quantitative market research to investigate the current image of Heineken and a qualitative research to measure the influence of the introduction of a 600 ml bottle on the brand image of Heineken, the conclusion is that despite of the general prejudices, Heineken’s brand image will not deteriorate and even be strengthened when launching a 600 ml bottle. The bottle communicates high quality, innovation, modernity, elegance and is seen as a bottle to drink with your best friends.
Logistic operation
Heineken has introduced a green bottle in a market where all players use an amber bottle. Its concern was that, because of the uniqueness of the bottle, the percentage of loss of bottles and crates would be much higher then the other players in this segment. An efficient logistic operation was key to minimize the investment costs for the Heineken 600 ml bottle. The main stakeholders in this logistic operation are the brewery, the distributor, the truck that delivers the product, the Point of Sale and the consumers.
All other players in the market use the same amber bottle. When crates with empty bottles arrive at brewery, it is indifferent which brand was used before. The bottles are washed, refilled and new labels are applied. Because Heineken has introduced a green bottle in an amber market, a decision had to be made where in the logistic chain the Heineken 600 ml
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bottle had to be separated from the amber bottles. The Point of Sale seems the best option to separate, as separation at this point hardly costs extra time or money in comparison separating at other points in the chain. The separation at the POS will have to be carefully managed by Heineken. The staff of POS will have to be informed that they will have to separate the bottles. The sales force is essential in this communication. Moreover, a crate cover will be used to communicate the need of separation. The truck and its staff form a second check up.
Since their payment depends on the correct load on their truck (including the right bottles in the right crates), they have a direct interest in making sure the bottles are correctly returned.
After having chosen the best option for separation, the loss and rotation cycle of bottles and crates will have to be carefully monitored during the test period to then decide how many crates and bottles are needed for the roll out of the strategy.
Profitability
Although a much higher loss of bottles and crates and longer rotation cycle then other 600 ml products was estimated, the Heineken 600 ml bottle seems to give profitability to the company. When comparing the contribution margins of all packaging formats in Heineken portfolio, the 600 ml has the largest contribution margin per hl.
Conclusion
Three months after the launch of the Heineken 600 ml bottle the first results are positive.
Based on the results of the QQS and the first reaction of the POS owner and its consumers, the introduction seems to have a positive influence on the brand image of Heineken.
Separation of the bottles at the POS seems to be working effectively. At present, the percentage of bottles lost is very low. Test results show that the majority of the staff at POS is indifferent about the fact that they have to separate the bottles.
Furthermore, at this point the 600 ml has the highest contribution margin for Heineken, when compared to the other products in portfolio.
It can be concluded that at present Heineken is not encountering any problems regarding brand image, logistic operation and profitability. However, Heineken needs to await the full results of the test market after one year before a decision for an eventual roll out across Brazil can be made.
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Index
PREFACE ...2
MANAGEMENT SUMMARY...3
INDEX ...5
INTRODUCTION ...6
1 HEINEKEN IN BRAZIL ...7
1.1 THE BRAZILIAN BEER MARKET...7
1.2 HEINEKEN IN BRAZIL...8
1.3 PROBLEM DESCRIPTION...9
2 RESEARCH PLAN...11
2.1 OBJECTIVE AND MAIN RESEARCH QUESTION...11
2.2 RESEARCH PROCESS...12
2.3 RESEARCH APPROACH...12
2.4 CONCEPTUAL MODEL...13
3 THE 600 ML MARKET...14
3.1 GENERAL INSIGHT...14
3.2 HEINEKEN STRATEGY TO ENTER 600 ML SEGMENT...17
3.3 IMPORTANT ASPECTS FOR A SUCCESSFUL INTRODUCTION...18
4 THE INFLUENCE OF INTRODUCTION OF THE 600 ML ON HEINEKEN BRAND IMAGE ....19
4.1 IMAGE...19
4.2 DESIRED BRAND IMAGE HEINEKEN...20
4.3 RESEARCH METHODS...20
4.4 USAGE & ATTITUDE RESEARCH...21
4.5 U&A RESULTS; THE CURRENT HEINEKEN IMAGE...24
4.6 QUALITATIVE QUICK SCAN RESEARCH...27
4.7 QQS RESULTS; THE FIRST REACTION OF CONSUMERS ON THE HEINEKEN 600 ML BOTTLE...29
4.8 THE RESULTS OF BOTH RESEARCHES COMBINED...29
4.9 CONCLUSION...30
5 LOGISTIC OPERATION...31
5.1 PHYSICAL DISTRIBUTION...31
5.2 KEY ISSUES...32
5.3 THE DIFFERENT STAKEHOLDERS...33
5.4 STRATEGIC OPTIONS FOR SEPARATION...36
5.5 COMMUNICATION AND CONTROL AT POINT OF SEPARATION...37
5.6 LOSS OF BOTTLES AND CRATES...38
5.7 CONCLUSION...39
6 FINANCIAL PERFORMANCE ...40
6.1 VOLUME ESTIMATION...40
6.2 PROFIT & LOSS ACCOUNT...40
6.3 CONCLUSION...41
7 FIRST RESULTS TEST MARKET ...42
7.1 THE INTRODUCTION...42
7.2 PARAMETERS TO INVESTIGATE...42
7.3 RESULTS FROM QUESTIONNAIRE...43
7.4 FIRST VOLUME RESULTS...45
7.5 CONCLUSION...46
CONCLUSION...47
REFERENCES / LITERATURE...50
APPENDIX...52
6
Introduction
At present Heineken has a small market share of 0,1% in Brazil, a beer market with a high growth potential in its premium segment. To increase this market share Heineken has signed a principle agreement with Kaiser, where Heineken has a 20% share, to study the feasibility of launching a Heineken 600 ml bottle in Brazil.
This 600 ml packaging format represents 82% of the total on premise market1 in Brazil. It is therefore a great opportunity to investigate the possibilities for Heineken in this segment.
Heineken has decided to first execute a feasibility study in the city of Rio de Janeiro. In this study, the most important aspects of concern will be researched. Based on this research and the first results of a test market, Heineken will then decide whether it will roll out this 600 ml strategy to the rest of Brazil.
This feasibility study has as objective:
To provide insight in the important aspects for a successful introduction of a green Heineken 600 ml returnable bottle for Heineken in Brazil and to give advice on how these aspects should be managed so that Heineken can make a strategic decision about a further roll out of the 600 ml bottle on the Brazilian market. During this research the results of a test market will be used.
This objective will be achieved by answering the following research question:
What are the important aspects for a successful introduction of a green Heineken 600 ml returnable bottle in Brazil and how should these aspects be managed?
The first chapter of this report will give an introduction of the Brazilian beer market in general and the Heineken strategy in Brazil. Then, chapter 2 will go deeper into the research plan for this research. Chapter 3 will introduce the 600 ml market in general, which can be used as a frame of reference for the rest of this research. In chapter 4 the first important aspect, the influence of the introduction of the Heineken 600 ml bottle on the brand image of Heineken, will be investigated. Chapter 5 will analyze how the logistical chain will have to be organized.
The next chapter will show the estimated Profit & Loss account for this product. After investigating these three main aspects, the Heineken 600 ml bottle will be launched in a test market in Rio de Janeiro in February 2004. The first results of this test market will be shown in chapter 7. The last chapter will give an answer to the main research question by giving conclusions and recommendations of the introduction of the 600 ml bottle in Brazil.
1 Horeca
7
67%
30%
2%
1%
600 ml Can Long neck
Draught beer
82%
10%
4% 4%
1 Heineken in Brazil
This chapter will give an overall introduction of the Brazilian beer market. At first the Brazilian beer market in general will be described (1.1), followed by the Heineken position and its strategy (1.2). Finally the main problem and reason of this research will be introduced (1.3).
1.1 The Brazilian beer market
Brazil is the fourth largest beer market in the world after China, USA and Germany. Brazil has a population of 170 million people of which 80% is above legal drinking age. Based on the demographic variables and the (compared to other Latin countries) relative low consumption per capita (50 liters per capita)2 Brazil is a potential growth market. This, despite the fact that the total volume of beer sales has shown a decrease of two percent due to economic slowdown.
In Brazil there are 24 brewing companies of substantial size. The three largest companies control 89 % of the total beer market3.
• Ambev 62 %
• Schincariol 15 %
• Kaiser 12 %
The total consumption of beer in Brazil is approximately 83 million hectoliters per year. 70%
is sold via on premise (horeca) and 30% is sold in off premise market (hypermarkets, supermarkets, small grocery shops).
With regard to the packaging portfolio, the on premise market is dominated by the brown 600 ml returnable bottle. This packaging format is only sold in the on premise market and represents 82% of this market4 (see figure 1.1).
Total market On premise market
Figure 1.1 Packaging split in total market and on premise market
There are two segments in the Brazilian market, a premium and a mainstream segment. The segmentation of the Brazilian market started around 10 years ago, which compared to other countries, is rather late. This is one of the reasons why the premium segment, with a 3,4%
volume share is relatively small. In mature markets like Europe for example the premium segment is on average 10-12%. Nevertheless the premium segment in Brazil has shown a strong growth since 1998, due to an apparent demand of consumers for differentiation.
Ambev perfectly tapped into this trend by repositioning their Bohemia brand as a high quality, traditionally brewed brand. Today Bohemia is the number one player in the premium segment
2 Consumption per capita in the Netherlands: 83 litre
3 Source: AC Nielsen December 2003
4 Source: AC Nielsen October 2003 and internal data
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with a market share of 80%. Other brands in this segment are Carlsberg, Miller, Bavaria Premium, Cerpa, Warsteiner and Heineken.
1.2 Heineken in Brazil
Since 1992 Heineken beer is being brewed in Brazil. Until March 2002 Heineken had a 15%
stake in Cervejarias Kaiser Brasil, the other 85% was controlled by Coca Cola International and its Brazilian Coca Cola franchisees. In March 2002 the Canadian brewer Molson5, acquired Kaiser. In this new brewery group Kaiser/ Bavaria (see figure 1.2), Heineken acquired a share of 20%.
The new combination remained the second largest brewer with a market share of 17%.
Besides Heineken shareholders position, both parties concluded a trade mark license agreement for the brewing, distribution, sales and marketing of the Heineken brand as a premium beer. Other brands in the Kaiser portfolio are: Kaiser, Bavaria and Xingu.
Figure 1.2 Structure Brewery group Kaiser
Heineken market share
The current market share of Heineken within the total Brazilian market is 0,1%, from which 80% is on premise volume and 20% is off premise volume. The packaging portfolio of Heineken consists of cans (350 ml), long neck bottles (300ml) and draught beer. The target market for Heineken is the premium segment, in which it holds a share of 3%. The main reasons for Heineken’s low market share are:
• Distribution: until November 2003 the Kaiser portfolio, including Heineken, was sold by the sales force of the Coca Cola franchisees. Their priority and main skills are to sell soft drinks. As selling beer requires a different approach, sales and brand building of beer in general, let alone for a niche brand like Heineken, suffered severely when the market became more professional and competitive6.
• Taste: Brazilian beer has a lighter taste then European beers. Heineken is clearly considered as a stronger beer and therefore less popular7.
• Packaging: the 600 ml returnable bottle represents 82% of on premise market. Until now Heineken has no 600 ml packaging format and therefore misses the opportunity to grow volume and market share.
The 2002 merger between Kaiser and Bavaria also had a negative impact on the market share.
In the period before and after the merger, the situation within Kaiser was chaotic and full of insecurities for all staff. Next to this the Heineken sales force (60 people) was eliminated.
This clearly resulted in a lack of focus on the Heineken brand within Kaiser, which had a
5 The Canadian brewer Molson bought the Bavaria brand of Ambev in 2000
6 Source: Heineken management review 2002
7 Source: Heineken market research 1998 Heineken
(20%)
Molson (80%)
Cervejarias Kaiser S.A.
Kaiser Bavaria Xingu Heineken
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great impact on the sales volume. On top of this the Heineken decreased its marketing budget with more than 50 %.
The Heineken strategy
Early 2003 Heineken reviewed its strategy for the Brazilian beer market. The main conclusion was that Heineken focused too much on growing volume while the brand was not yet established enough. Besides this the Kaiser/Coca Cola structure was not structured well enough for a niche brand like Heineken.
In the new strategy, there is a focus on strengthening Heineken’s brand equity, to lay a foundation for quality volume growth in the future. It will be positioned as an International Premium brand with a unique taste, 100% natural ingredients, pure malt and will be sold in carefully selected top end on premise outlets. The target group is AB social class in the age of 20-35 years. Premium pricing, surprising promotions and innovative merchandising will be the main communication tools to differentiate the brand.
To ensure the execution of this strategy, given the shortcomings of the Coca Cola and Kaiser Sales and Distribution system, a special merchandising team was inaugurated mid 2003. Their main objective is to market the brand in the Points of Sale (POS). In this role they support the sales function, by increasing availability and visibility with relevant packaging and merchandising, concurring excellence in operation of Sales & Brand Building activities in the POS and managing premium price positioning. They are in fact a link between marketing and the POS.
Due to the geographical size of the Brazilian market, it was decided to test the new strategy on one area first, Rio de Janeiro. If this has a positive impact, Heineken will use the same strategy in the rest of Brazil. Rio de Janeiro was chosen for the following reasons8:
• Rio de Janeiro can be seen as a reference for the rest of Brazil.
• Major Brazilian tourist attraction (inner and outer).
• Concentration of top end On Premise.
• Draught beer is well accepted.
• No conflicts in Kaiser portfolio.
• Proximity to brewer.
After the overview of the Brazilian beer market and the Heineken strategy in Brazil the next paragraph will give a first introduction to the research question for this report.
1.3 Problem description
With its new strategy, Heineken is trying to strengthen brand equity. Heineken will also have to focus on increasing her 0,1% market share. At present Heineken has a small market share in a large beer market, with high potential growth in its premium segment. As mentioned before Heineken does not have a 600 ml packaging in portfolio, while this packaging format represents 82% of the volume in on premise market.
Heineken has therefore decided to investigate the opportunities to enter this segment and signed a principle agreement with Kaiser to study the feasibility of launching a 600 ml bottle.
Part of this agreement is the introduction of the 600 ml bottle in Rio de Janeiro as a test before a nationwide launch.
There are three key aspects of concern to Heineken. The first being the effect of a 600 ml bottle on the brand image of Heineken. Can Heineken maintain its premium brand image by
8 Source: Heineken management review 2002
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introducing a 600 ml bottle, since this packaging format is perceived as social and value for money? Secondly there are concerns about the logistic feasibility of the operation since Heineken will introduce a green bottle instead of a brown bottle as is used by all competitors.
Finally the profitability of the 600 ml bottle needs to be determined.
It is very important for Heineken to obtain a further insight in these variables and how these will behave in a test market. Therefore Heineken has decided to further investigate these aspects prior and during the launch in a test market. This research and its results will be presented in this report. After evaluating the results of this report a decision will be made on a further rollout of the 600 ml bottle nationwide.
The objective and central question of this research will be introduced in the research plan in the next chapter.
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2 Research plan
After the brief evaluation of the market and a first description of the problem, the research plan for this paper will now be introduced. First the objective and main research question will be given, after which the research process will be outlined (2.1). In the research process the different phases of this research will be explained (2.2). The research approach will explain the steps that shall be taken in order to answer the main question (2.3). Finally the conceptual model for this research will be shown (2.4).
2.1 Objective and main research question The objective9 of this research is:
To provide insight in the important aspects for a successful introduction of a green Heineken 600 ml returnable bottle for Heineken in Brazil and to give advice on how these aspects should be managed so that Heineken can make a strategic decision about a further roll out of the 600 ml bottle on the Brazilian market. During this research the results of a test market will be used.
The objective of this research leads to the following main research question:
What are the important aspects for a successful introduction of a green Heineken 600 ml returnable bottle in Brazil and how should these aspects be managed?
The answer of this main question will provide Heineken with strategic input on a further roll out of the 600 ml bottle nation wide.
The following sub-questions will be used as a guideline to find an answer to the main research question.
1. What is the influence of the introduction of a 600 ml bottle on the brand image of Heineken in Brazil?
1a. What is the desired Heineken image?
1b. What is the current image of Heineken in Rio de Janeiro?
1c. How will the consumer react to the 600 ml bottle?
2. How should the logistic chain of the 600 ml be organized in order to minimize the loss of bottles and crates? (under the provisioned 25%)?
2a. Which stakeholders can be identified?
2b. At which point in the logistic chain should the separation brown/green take place?
3. What is the estimated volume and profit potential of the 600 ml bottle for Heineken in Brazil?
4. What conclusions can be drawn after analyzing the first three months of the introduction period?
4a. How do consumers react on the Heineken 600 ml bottle?
4b. What is the percentage of loss of bottles?
4c. What are the actual results in terms of volume after three months?
9 Source: Verschuren, 1999: 23
12 2.2 Research process
This research can be divided in five main phases. First the orientation phase, where desk- research, observation and interviews will be used to get a better understanding of the 600 ml market. In the second phase this understanding of the 600 ml market will be used as an input to decide which aspects are important for the introduction of a Heineken 600 ml bottle. In the third phase these aspects will be further explored (sub-question 1, 2 and 3). Therefore desk- research, observation and interviews will be used. In the fourth phase the test market in Rio de Janeiro10 will start. This test market has to be used in this research because some sub- questions can only be answered by analyzing the actual results of the 600 ml bottle during the test (sub-question 4). The fifth and last phase will be used to make conclusions based on the first four phases. These conclusions will provide Heineken with a basic insight in the main aspects of the Heineken 600 ml bottle and how these should be managed. Heineken will then decide whether this strategy will be rolled out in the rest of Brazil.
The research will take place from September 2003 until May 2004. The test market will start in February 2004 and will last until end of year. This report will cover the period from September 2003 until May 2004.
2.3 Research Approach
In the next table the research types and methodology are summarized per sub-question, which gives an insight in the research approach for this research.
Table 2.1 Research approach
10 Given the status of Rio de Janeiro as being a test market for the new overall business strategy, this area is an obvious choice to execute this real life market test
Question Chapter Subject How to research
Main 1 Understanding of
the market
Analyze strategy documents, visit market and interview relevant stakeholders such as commercial management, bar owners and staff, to obtain a good impression of the beer market and its main drivers in Rio de Janeiro.
Main 3 Important aspects
for introduction
Understand 600 ml market, investigate the important factors.
1a 4 Desired image Study Heineken’s global brand strategy, by interviewing Heineken management.
1b 4 Brand Image Set up execution of quantitative Usage & Attitude (U&A) research.
1c 4 Brand Image Set up execution of Qualitative Quick Scan (QQS) to estimate consumer reaction on 600 ml bottle.
2a 5 Logistic operation Evaluate and interview all important stakeholders of distribution channel 600 ml.
2b 5 Logistic operation Analyze how logistic operation for 600 ml should be organized.
3 6 Profitability Make estimation of volume and Profit & Loss for 600 ml by interviewing Kaiser financial management.
4 7 First results Evaluate results after first three months.
Main 3 Introduction plan Combine all important aspects and describe/ evaluate the introduction of the 600 ml bottle
Main 8 Conclusions
Give conclusions and recommendations based on results of all research elements.
13 2.4 Conceptual model
The sub-questions can be visualized in a conceptual model. In this model11 one can see the influence of each element of this research on the final conclusions and recommendations whether Heineken should roll out her strategy of introducing a 600 ml bottle in Brazil.
After describing the research objective and main question the general outline of this research should be clear. In the next chapter a brief introduction in the 600 ml market will follow. This will provide a better understanding of this market, which can be used as a frame of reference for the following chapters.
11 The numbers between brackets correspondent with the sub-questions in chapter 2.1
Input on a further roll out of the 600
ml bottle nation wide Brand image
Logistic Operation
Profitability Different
stakeholders (2a) Separating green from brown (2b)
Estimated Profit &
Loss (3)
Desired image (1a)
Current image (1b)
Reaction on introduction 600 ml bottle (1c & 4)
Actual Profit &
Loss (4)
Percentage of loss bottles (4)
Figure 2.1 Conceptual Model
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3 The 600 ml market
After describing the Brazilian beer market and introducing the research plan in the previous chapters, this chapter will provide a better understanding of the 600 ml market in general.
Hereby the Rio de Janeiro 600 ml market will be used as a reference. In the first paragraph (3.1) a general insight in the 600 ml market will be given. In the second paragraph (3.2) Heineken’s strategy to enter this market will be outlined. After this the important aspects for a successful introduction of a Heineken 600 ml bottle will be given (3.3). Figure 3.1 gives an overview of the structure of this chapter.
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Figure 3.1 Build up of chapter 3 3.1 General insight
As mentioned before the 600 ml bottle is the most sold packaging format in the on premise market in Brazil. Before going into the Heineken strategy for this segment, an insight in the 600 ml market as it exists today will be given in this paragraph.
Consumer background
For a Brazilian consumer, beer supports the Brazilian joy of life. Its low price makes it accessible for all social classes and usable in a great variety of moments and occasions13. Previous research revealed that beer has all characteristics that fit into local environment, climate, culture and mentality, which is mostly reflected in its essential of bonding and
12 see chapter 1
13 Source: Qualitative research Heineken April 1999
Total beer market12
& consumer insight on beer (3.1)
600 ml Packaging (3.1) Other packaging formats
600 ml Market (3.1) Antartica Skol Brahma Antartica Original 600 ml Strategy of Heineken (3.2)
Product Promotional Support
Price Place
Bohemia
Important aspects for successful introduction (3.3)
15
sharing. Especially the 600 ml bottle plays an important role in this bonding and sharing culture, because this bottle is bought to share among friends. On the other hand it gives more value for money then other packaging formats in the market. The consumers perceive the appearance of the bottle as ‘They all have the same ugly appearance, the only thing that changes is the paper label’14.
600 ml packaging
All players in the 600 ml segment use the same type of bottle; an amber colored, so-called industry bottle. Because there is only one type of bottle it is unimportant which bottle is returned to which brewery. When crates with empty bottles arrive at brewery to be washed and filled it is indifferent which brand was used before, as new labels will be applied after bottles have been refilled.
Position of the 600 ml bottle in the Brazilian on premise market
The importance of this 600 ml bottle in the beer culture in Brazil is reflected in its 82% share in the on premise market. In the (recent) past, Brazil has known periods of hyper inflation, which made it impossible to work with a deposit system within the off premise. This has lead to the situation in which the 600 ml bottle is only sold in on premise outlets. To get a good understanding of the on premise 600 ml market, a broad description of the whole on premise market will be given.
The total on premise segment can be divided in three sub-segments (see figure 3.2).
1. Price and Sharing; In the biggest sub-segment price and sharing play a very important role. In this segment consumers are looking for an environment where they can share a beer with friends and at the same time get the most value for their money. The 600 ml bottle is the main packaging format that services consumers with this demand. The mainstream 600 ml brands play an important role in this sub-segment.
For example: a small open bar on the pavement with plastic chairs and tables, where people gather at end of the day to drink a 600 ml mainstream brand bottle with their friends15.
2. Sharing and Image; In this upcoming sub-segment image and quality are important. At the same time consumers want to be able to share a beer with their friends. This is the most important sub-segment for the premium 600 ml players in the market16.
For example: nicely decorated restaurant where people come for dinner or a drink and all sit together at a table sharing food and a 600 ml bottle.
3. Image and Individual; In this sub-segment image and therefore the individual is more important. Consumers want to see and be seen. Because of the more individual character of this sub-segment consumption is more focussed on long neck bottles and draught beer.
For example: fancy bar where people come dressed up for a real evening out and drink while dancing or chatting at the bar.
14 Source: Qualitative research Heineken November 2003
15 Also known as ‘Boteco’ in Brazil
16The majority of POS for Premium 600 ml brands will be in this segment, there are also POS which belong to segment of price and sharing but because of its public (Celebrities, etc) are interesting for Premium 600 ml brands.
Figure 3.2 sub-segments in on premise market Price and Sharing
Mainstream 600 ml
Sharing and Image Premium 600 ml
Image and Individual Draught beer, Long neck
16 The current players
Almost all brands have a 600 ml returnable bottle in portfolio. The top three brands (all Ambev) in terms of market share in Rio de Janeiro are17:
• Skol 55%
• Brahma 14%
• Antartica 10%
These three top players, representing 79% of the market are considered mainstream brands, with Skol as a clear price leader. Next to these, two other brands in particular are relevant to this study as they are clearly positioned as premium brands:
• Bohemia 1%
• Antartica Original 0,1%
As a reference, table 3.1 gives a resume of price per crate of 24 bottles, numeric distribution18 and total volume in on premise Rio de Janeiro for main players in segment (Skol, Brahma, Antartica), the biggest brand in Kaiser portfolio in this segment (Bavaria) and the two most relevant brands for this study (Bohemia and Antartica Original).
Brand Price (in R$ per crate)19
Numeric Distribution20
Volume on premise Rio de Janeiro in Hl.
Skol 37,00 74% 1.291.000
Brahma 35,84 57% 328.000
Antartica 32,00 54% 234.000
Bavaria21 39,00 17% 29.600
Bohemia 41,78 6% 23.000
Antartica Original
41,78 1% 2300 Table 3.1 Price, numeric distribution and volume
17 Source: ACNielsen November 2003
18 Source: AC Nielsen February 2004, average Aug 2003- Jan 2004: % of 600 ml outlets in Rio de Janeiro
19 Source: www.oanda.com: 1 Brazilian real= 0, 275 euro (Feb 2004)
20 Total number of 600 ml outlets in Rio de Janeiro is: 22.000
21 Note: Kaiser has a very small market share in RJ, but is a major player in Brazil. Because focussing on Rio de Janeiro, Bavaria is used as a reference
Figure 3.3 The competitors
17
Figure 3.4 Heineken 600 ml bottle 3.2 Heineken strategy to enter 600 ml segment
Because of the size of the segment and the opportunities therefore to grow market share, Heineken decided to launch a green 600 ml returnable bottle.
The 600 ml bottle can give Heineken more opportunities by22:
• Increasing distribution; availability and visibility.
• Getting into POS where until now Heineken could not get in because it did not have the right packaging format.
• Giving (Heineken) consumers more occasions/opportunities to drink, because the brand will now be sold in more types of outlets.
• Getting more possibilities to generate trial.
• Becoming part of the sharing culture, whilst remaining premium.
• Ultimately increasing volume.
Product
In all segments Heineken differentiates with its product, price, promotion and selective distribution. In order to differentiate in the 600 ml market, Heineken has developed a radical new bottle (see table 3.2). The bottle designed is made out of green glass, has a silkscreen label and is characterized by its distinctive shape as can be seen in figure 3.4 below.
Table 3.2 Heineken bottle compared to competitors 600 ml The dimensions of bottle and crate are conforming market standards.
There are 24 bottles in one crate.
Price
In order to position Heineken as a premium brand, price is a crucial tool. The selling price to the trade will be at least 15-20% higher than mainstream brands and at least equal to the main reference in the premium segment, Bohemia.
Price positioning to the consumer will be, although more difficult to control, at least on par with Bohemia. Due to the large variety in type of outlets this means that the consumer price can vary between 3 and 5 R$.
Place
In line with its strategy, Heineken uses selective distribution23. This means that the outlets are selected on several criteria defined by Heineken. With the 600 ml bottle Heineken wants to reach the sub-segment where sharing plays an important role, but image is also important (see paragraph 3.1). As this concerns a relatively small number of outlets an even more careful selection is required to get into the right outlets. The majority of these outlets will be new outlets where Heineken has not been sold yet, because Heineken did not have the right packaging format. To get in the POS, Heineken offers the outlets a special treatment with
22 Source: Heineken management review 2003
23 Source: Floor ea, 1998: 20
Heineken 600 ml bottle Competitors 600 ml bottle Green returnable bottle Brown returnable bottle Silkscreen (printed) label Traditional paper label Relief in bottle No relief
18
special merchandising. The Heineken 600 ml bottle will give outlets another possibility to offer customers a premium 600 ml brand next to the mainstream brands.
Promotional Support
Heineken uses different, high quality merchandising, to distinguish from competitors. The promotional support for the 600 ml bottle also needs to be different. Therefore sophisticated, innovating merchandising has been developed for the POS. These merchandising items will be offered to POS which will sell Heineken 600 ml, whereby the quantities will depend on the volume they sell. Examples of the merchandising are: 200 ml glasses, fridge, poster, table tents and a cooler for the bottle.
3.3 Important aspects for a successful introduction
There are three key aspects of concern to Heineken. To obtain a further insight in these variables and how these will behave in reality, a test market will be set up in Rio de Janeiro.
These aspects will then be further investigated prior and during the launch in this test market.
When successful the 600 ml bottle will be rolled out in the rest of Brazil.
The main aspects for the introduction of a Heineken 600 ml bottle are:
• The impact of a 600 ml bottle on the brand image given the fact that the segment is strongly associated with Brazilian beer attributes as low prices. Will it contribute to the main brand objective to position Heineken as a premium, international, top quality product for the AB class?
• How to structure the logistic operation given the green color of Heineken’s bottle in a market that uses a brown, so called industry bottle? All suppliers use the same type of bottle. How should logistic operation be structured to reduce loss of crates and bottles to minimum?
• What will be the estimated profitability and main factors that influence the bottom line financial results?
After this resume of the most important characteristics of the 600 ml market and main aspects for a successful introduction of the Heineken 600 m bottle, the next three chapters will further investigate these main aspects. The next chapter will first go into the influence of the introduction of 600 ml bottle on the Heineken brand image.
19
4 The influence of introduction of the 600 ml on Heineken Brand image
In this chapter an answer to sub-question 1 will be given ‘What is the influence of the introduction of a 600 ml bottle on the brand image of Heineken in Brazil?’. Figure 4.1 gives an overview of the elements involved in this question. First a definition of image will be given (4.1). Thereafter the desired Heineken image will be introduced (4.2). Then the two research methods used to find an answer to sub-question 1 will be outlined (4.3). The method and results of the first research method will be first given. This method will lead to a description of the current image (4.4 and 4.5). Then the influence of the introduction of the 600 ml bottle on the Heineken brand image can be explored (4.6 and 4.7). Finally the results will be combined to be able to give an answer to the sub-question (4.8 and 4.9).
Figure 4.1 Build up of chapter 4 4.1 Image
To operationalize ‘image’ the definitions of Blauw, van Riel, van Alsem and Heineken will be used. These will be combined in order to come up with one definition of ‘image’ which will be used throughout this research.
Blauw and Van Riel24 define image as ‘the representation of a company as it exists within the target group’. Alsem25 sees image as ‘the brand reputation that the target group actually has of a company’. Heineken refers to image as ‘what the brand ultimately stands for, in consumers minds’26. During this research, image will be defined as the brand reputation of a company (or product) as it exists in the mind of the target group.
The image of an organization is formed by direct and indirect experiences with the organization27. Direct experiences are based on own experiences with products or services, its quality, the price/ quality relation and the delivered service. These are so called controllable factors. These direct experiences with Heineken will be influenced by the introduction of the
24 Source: Blauw, 1986 : 29 ,Van Riel, 1992: 54
25 Source: Alsem, 2001: 317
26 Source: Internal Heineken communication 2003
27 Source: www.communicatiecoach.com
Image (4.1)
Desired Heineken image (4.2)
Image measurement methods (4.3)
Conclusions (4.8 and 4.9)
Current Heineken brand image (4.4 and 4.5)
Influence of introduction on current image (4.6, 4.7)
20
Heineken 600 ml bottle and should therefore be carefully managed. The indirect experiences are not influenced by the organization and form an uncontrollable factor.
4.2 Desired Brand Image Heineken
Before describing the Heineken image as it is today in Rio de Janeiro, it is important to describe the desired Brand Image of Heineken. As a multinational, Heineken aims to achieve a global image. Heineken headquarters gives directives for a global brand image and proposition. As mentioned above, experiences of the consumer set the idea they have about the image of a brand. Therefore it is very important to keep the consumer at the focal point of a brand’s efforts. ‘The most constructive way to think about our brand is to think about our consumer’28. This desired brand image model is confidential and is therefore not included in this report.
Link model and local markets
As mentioned before the image of a company or brand is influenced by direct and indirect factors. To investigate how consumers think about a company or brand, research will have to be executed. The results of the research will show if the desired image is in line with the actual image. Heineken uses the above-mentioned model worldwide. When measuring image of Heineken in a country the main values of this architecture model are translated into attributes, which can be tested during research.
4.3 Research methods
To find an answer to sub-question 1 ‘What is the influence of the introduction of a 600 ml bottle on the brand image of Heineken in Brazil?’, two different types of research have been used; a quantitative and a qualitative research method. Two types are needed because before determining the influence of the introduction of the 600 ml bottle on the Heineken image, a research has to be executed to measure the current image. These results can then be used as a base to define the influence of the introduction on this current image.
To measure the current image of Heineken in Brazil quantitative research29 has been used.
Quantitative research is used because it is an efficient method to give a general description of the market. It is normally executed within big groups. Because of its large-scale approach a more solid scientific conclusion can be drawn. Nevertheless this type of research will not give an insight in the reasons of certain outcomes30. But for the purpose of this research, namely getting an overview of the current image of Heineken within the target group, quantitative research is the most appropriate research method.
After having researched the current image of Heineken, the reaction of the consumers on the introduction of the 600 ml bottle has been investigated. As for this research an insight in the reasons of outcomes is needed, qualitative research31 will be used. Qualitative research is executed to analyze consumer behavior in a more in-depth way. Open questions are used, because it enables respondents to express their experiences, motivations and feelings regarding a product in their own terms32.
28 Source: Internal Heineken communication 2003
29 Source: Dekker ea, 1995: 144
30 Source: Alsem, 2001: 108
31 Source: Malhotra ea, 2000:157
32 Source: Malhotra ea, 2000: 158
21 4.4 Usage & Attitude research
Usage & Attitude (U&A) is a quantitative research method to investigate all aspects of the relationship between consumers and a specific product, service or market. It provides the basic fundaments for a great part of marketing activities by providing a full understanding of the market into which a product will be, or is already being sold33. Since the mid seventies, Heineken uses the U&A method to investigate the status of the Heineken brand all over the world. It is the only research that is obligatory for all Heineken organization to execute at least every two years. This method has therefore been chosen to investigate the current image of Heineken in Brazil.
Objective of this U&A research
The main objective of this research was to identify:
• Beer consumer habits.
• The brands of reference for the target group.
• Image of Heineken and most important brands.
The outcomes in this report will only focus on the image of Heineken. The other objectives have been used as a reference.
Sample
As mentioned above the U&A format is used in all countries. Because of specific market circumstances and brand stage of development, this format can, to a certain extend, be adjusted to the home country. In the case of this U&A a significant change was made in the sample. Normally the research is executed on a national scale, within all beer drinkers with an age between 20-40 years old. For this research an adaptation was made. As Heineken only has a 0,1% market share in Brazil, a national research within the above mentioned sample would not be useful, because the percentage which belongs to the Heineken target group would be so small that it would be very hard to base conclusions on these results.
For this research the composition of the sample was carefully selected (see figure 4.2) 34. Beer drinkers35 in Rio de Janeiro were chosen as the universe of the sample. To get results that are useful for Heineken, the focus was on the target group of Heineken; research was conducted among an AB social Class36 population. Hereby a distinction is made between participants that had drunk beer in the last month (referred to as non-Heineken consumers) and respondents that had drunk Heineken beer in the last month (referred to as Heineken consumers). The participant have been selected by select drawing method, whereby social class, age and gender are used as a reference.
33 Source: www.business-advantage.co.uk
34 Source: Dekker e.a, 1995: 170
35 A person who drinks beer (alcoholic or not) at least once a month
36 A system whereby the population can be divided based on economic entities. It calculates the buying power of urban families based on several criteria36. In this system AB social class is used to describe the social class with the highest buying power, represents 29% of total population (Critério de classificação Econômica Brasil).
22
The research was executed among 377 people, of which 248 non-Heineken consumers and 129 Heineken consumers. Because this research was only done among AB social class and a, in comparison to the reality, high percentage of Heineken consumers, the data were made more representative37, by weighting all outcomes to reflect its importance, relative to the total group of respondents.
Method
These respondents have been recruited by intercepts at points where a lot of people pass by.
This can for instance be in a square in town in a neighborhood where a lot of young AB social class people live or work. The interviewer walks up to a possible respondent and asks whether he or she would mind to spare some time. Amongst these respondents, face-to-face interviews have been executed, which lasted for about one hour. Pictures of different brands and products were used to make it easier for the respondent to visualize these (See appendix 1 for questionnaire). The set up of the research and the actual execution was done in cooperation with a research agency.
Attributes
As mentioned in paragraph 4.2, attributes are used to test if image in a market is in line with desired Heineken image. These attributes are statements that can be measured during quantitative and qualitative research. There are attributes which can be used to describe the personality of beer. Hereby beer is described as if describing a personality of a person.
Imagery attributes and satisfaction attributes are used to describe different aspects of the image of beer. The imagery attributes are more rational and the satisfaction attributes are more emotional. Not all attributes38 that have been measured are in line with the desired image (see paragraph 4.2). Therefore, in cooperation with Heineken International a selection has been made of the attributes that are most important for the Heineken image (from now on referred to as ‘core’ attributes); these core attributes have been derived from the core values and from the image definition. These attributes are confidential and are therefore not included in this report.
37 Source: Malhotra ea, 2000: 387
38 As used in the U&A questionnaire, see appendix x
Universe: Beer drinkers in Rio de Janeiro
Population: AB Social class
Stratification: Heineken consumers, non-Heineken consumers
Select drawing: social class, age, gender
Individuals: Men and women, AB social class, between 18-44 years old, residents of Rio de Janeiro, go out at night at least
once a week.
Figure 4.2 Universe, population, stratification, selection and individuals for research
23 Sequence of research
During the U&A study the information for the research has been obtained in the sequence shown in figure 4.3.
Figure 4.3 Sequence of U&A research
To find an answer to sub-question 1b ‘What is the current image of Heineken in Rio de Janeiro?’ the focus of this report will be on image and personality.
To measure image two types of attributes have been used; satisfaction attributes and imagery attributes. Using the satisfaction attributes the interviewees have been asked to describe their ideal beer. Then they had to give their opinion on other brands using the same attributes.
These outcomes could then be compared to the ideal beer. This report will focus on the consumers’ evaluation of Heineken beer.
Imagery attributes describe the image of beer in a more rational matter. These attributes are less qualified to describe an ideal beer, because in a description of an ideal beer more emotional factors will be used. The respondents have used the imagery attributes to describe three different brands. In the results the opinions of both Heineken consumers and non- Heineken consumers on Heineken beer will be compared.
When describing the personality of a brand, characteristics to describe the personality of people has been used. As with the satisfaction statements the respondents had to describe their ideal brand using these personality attributes, to then compare the opinion on Heineken beer to this ideal brand.
Consumption of beverage
Consumption of beer
Reference of brands
Conclusions
Visibility Consumption Image Personality
Satisfaction attributes
Imagery attributes
24 4.5 U&A results; the current Heineken image
As mentioned above these results will focus on the image and personality of the brand. But as a background several results will first be given.
Reference of brands
During the quantitative U&A research, all participants were asked which brands they knew (without mentioning brands). The first three mentioned brands are considered as top of mind.
Spontaneous awareness consists of all brands that participants came up with.
Top of mind (total sample) Spontaneous awareness (total sample)
Skol 67% Skol 90%
Brahma 10% Antartica 64%
Antartica 10% Brahma 60%
Bohemia 4% Bohemia 16%
Bavaria Premium 2% Heineken 15%
Heineken 1% Bavaria Premium 14%
Others 6%
Conclusion
These percentages show that there is a very low awareness of Heineken, even within Heineken consumers (3% top of mind, 31% spontaneous awareness).
Heineken evaluated by Heineken and non-Heineken consumers
To get an answer to sub-question 1 it is important to know how the respondents think of Heineken and whether this is in line with the desired Heineken image. Although the U&A showed results on several other aspects, this research will only go into how Heineken beer was evaluated by Heineken and non-Heineken consumers compared to the ideal beer.
In the following graphics the black line (when shown) corresponds with the ideal beer. The green line corresponds with the opinion of Heineken consumers on Heineken beer and the red line shows the opinion of the non-Heineken consumer. During the interview the interviewees had to give their opinion on a five point scale from totally agree to totally disagree. In this figure, ‘%’ correspondents with totally agree39. For example, when looking at figure 4.4, 50%
of the Heineken consumers, totally agree that Heineken beer shows that I know what I like about beer. The other 50% responded with a scale between agree- totally disagree. Only the core attributes were used in this graphics as these are the attributes which have to be in line with the desired image.
39 The Brazilians are described as easy graders, what means that the Brazilian in general agrees easily with what is proposed to him. Therefore for this results the highest agreement scale (totally agree) is used because it has the biggest sensibility.
25 Satisfaction attributes
Figure 4.4 shows that within Heineken consumers Heineken beer is evaluated with almost the same attributes as the ideal beer. Only two core attributes are evaluated less positive then the ideal beer. The non-Heineken consumers evaluated Heineken less positive then the ideal beer.
Although the Brazilians do not find it important for a beer to have an International character (only 30% mentioned it) Heineken beer is considered as a very International brand, which is one of the important aspects within the desired brand image.
Imagery attributes
Figure 4.5 shows the comparison between Heineken beer in Heineken consumers’ eyes and non-Heineken consumers’ eyes. As mentioned before imagery attributes are not appropriate to describe the ideal beer. From this figure it is also clear that Heineken consumers evaluate Heineken beer much more positive then non-Heineken drinkers.
%
0 10 20 30 40 50 60 70 80 90 100
Shows that I know what I like in beer
Appreciate unique qualities
of beer
Helps to have more pleasure
Makes me feel alive
Feel different and special
International brand
Makes me stand out from
the crowd
Ideal beer Heineken consumer Non-Heineken consumer
% = totally agree
Figure 4.4 Comparing ideal beer and Heineken using core satisfaction attributes
%
0 10 20 30 40 50 60 70 80 90 100
Interna- tional brand
Distinctive taste
Easy to drink
Always same good quality
High quality
Different from other brands
For people like me
Innovative brand
Good value for
money
Worth the extra
money
Brings new things to
market
Good advertising
Good repu-
ation Heineken consumer Non-Heineken consumer
% = totally agree
Figure 4.5 Heineken using core imagery attributes
26 Personality attributes
Figure 4.6 shows that when using the core personality attributes to compare Heineken beer to the ideal beer, Heineken consumers consider Heineken beer far more positive then the ideal beer in all attributes except for Pleasurable. The non-Heineken consumers evaluate the ideal beer more positive on these core attributes.
Conclusion
The objective of this chapter is to find an answer to sub-question 1 ‘What is the influence of the introduction of a 600 ml bottle on the brand image of Heineken in Brazil?’ As mentioned above first an overview of the actual image is needed to then discuss the influence of the introduction of the 600 ml bottle hereon.
When using all three types of attributes to compare the opinion about Heineken beer of a Heineken consumer and a non-Heineken consumer, the Heineken consumer gives more positive values to Heineken beer as to its ideal beer (when appropriate). However, the results of the non-Heineken consumer when evaluating Heineken show a low resemblance with the ideal beer.
Therefore it can be concluded that when a consumer becomes a Heineken consumer he becomes an ambassador for the brand. In other words when converted to a Heineken drinker, Heineken is evaluated almost as positive as the ideal beer and in case of the personality attributes even better.
In the U&A research respondents gave their opinion on future intentions of drinking certain brands. From the total non-Heineken consumers group, 7% would definitely buy Heineken in the future, 51% would buy it, 33% does not know whether they would buy it, 4% would probably not buy it and 5% would definitely not buy it.
This shows that there are enough opportunities for non-Heineken consumers to become Heineken consumers and therefore ambassadors of the brand. Heineken has however to create opportunities for these consumers to buy Heineken. One of the possibilities is by introducing a new packaging format, the 600 ml bottle, with which it will be possible to enter more outlets and therefore reach more consumers.
%
0 10 20 30 40 50 60 70 80 90 100
Pleasurable Active Modern Young Sexy Self
confident Ideal
beer
Heineken consumer Non-Heineken consumer % = totally agree
Playful Differen-
tiated
Honest Familiar Stylish
Figure 4.6 Comparing ideal beer and Heineken using core personality attributes
27 4.6 Qualitative Quick Scan research
Heineken will use the direct qualitative research method to measure the reaction of the consumer on its new packaging, the 600 ml bottle. A special format was introduced, by the Corporate Marketing department of Heineken, the so called Qualitative Quick Scan. This is a research protocol that allows for rapid and consistent evaluation of the consumer reaction to new marketing ideas40. This format was adapted to the local market and has been used for this qualitative research.
Objective
The main objective of the QQS was to evaluate if the new 600 ml bottle:
• Is in line with principle values and brand proposition of Heineken
• Will support a substantial growth in volume
• Is competitive to other brands in segment
• Is appealing enough
• Supports, maintains and establishes the visual identity of the brand
Hereby Heineken wants to investigate whether Heineken can maintain its brand image when launching this 600 ml bottle despite all prejudices that exist about the 600 ml segment:
Prejudices 600 ml market Heineken brand image Social, to drink with friends Individual
Quality High quality
Traditional Innovative National International Table 4.1 Comparing prejudices 600 ml market and Heineken image
Sample
The QQS has been executed within 6 mixed focus groups (see method below) in Rio de Janeiro during three days. For the same reasons as mentioned earlier only AB social class consumers have been interviewed.
Group Age Profile
1 20-26 50% Heineken consumers, 50% Bohemia consumers41 2 28-34 50% Heineken consumers, 50% Bohemia consumers 3 20-26 50% Heineken consumers, 50% Bohemia consumers 4 28-34 50% Heineken consumers, 50% Bohemia consumers 5 20-26 Premium brands consumers
6 28-34 Premium brands consumers Table 4.2 QQS sample
Method
For this research focus groups have been used. A focus group is an interview conducted by a trained moderator in a non-structured and natural manner with a small group of respondents42. The main purpose of such focus groups is to gain insight in the thoughts of the respondents by creating an ambience where they feel sufficiently relaxed to reflect their feelings and behavior. Focus groups are mostly used in new product development, advertising development and image studies. A focus group generally includes six to twelve people. A
40 Source: Manual Heineken Packaging QQS – version 2.0, June2002
41 Bohemia is the main premium brand in Brazil and the main competitor for Heineken
42 Source: Mahlhotra ea, 2000: 161
