Heineken’s entrée in the UK Market

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Heineken’s entrée in the UK Market

A study on Heineken UK Marketing effectiveness and

efficiency

Author: Kay Schreuder

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Heineken’s entrée in the UK Market

A study on Heineken UK Marketing effectiveness and efficiency

University of Groningen

Faculty of Management and Organisation

Author: Kay Schreuder

Supervisor Heineken UK: Chris Duffy

Supervisors RuG: 1e: Dhr. J. Berger 2e: Dhr. H. Stek

December 2005

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“…Visitors to an art museum first consider a painting

holistically, roaming over the entire canvas with their eyes to

take in the gestalt of the work, its image, mood, and theme.

Only afterward might attention be focused on a particular

attribute – say, the coarseness of brushstrokes, the intensity of

hues, the flow of lines. In other words, we appreciate a

complex system first through synthesis, perhaps only later

through analysis (even though it might have been created in

the opposite order). Only a world controlled by a malevolent

deity would force us to perceive systems in the reverse order,

for example, having to study a painting a square inch at a time

before putting it all together ourselves. In such a world, either

paintings would be very small or museums would be very

empty. The main reason the museums of organizational theory

have been so empty (even though its archives are rather busy)

is that most of the writings ask the reader to do just that –

survey the attributes of organizations one at a time without

ever exposing the whole…” (Minztberg, 1996)

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Preface

This thesis results from research that has been undertaken during a six-month period in London for Heineken UK. With this thesis I finish my specialisation Marketing within the Master of Science in Business Administration.

Half a year I have had the pleasure of working in a fantastic group of enthusiastic people. I have had the opportunity to not only learn about the processes of the marketing department but also see many more facets of the business, which was one of the largest advantages of working in a relatively small and young company. I have great respect for all Heineken UK employees who all work so hard in an extremely difficult environment for the success of their pride, the best beer in the world, Heineken.

I would like to thank Rob Marijnen who made it possible for me to undergo this amazing experience. My company-supervisor, Chris Duffy has also helped me so much. He has not only guided me in my project but also taught me some important lessons in the art of sales. He impressed me with his performances during contact with external parties!

I especially want to thank Duncan, Jamie, Sarah and Toby. They have always been very helpful and kind, they never ceased to answer the many questions I had, and they have always tried to involve me in their activities where possible. I have really enjoyed working with them and hope that our paths may cross in the future.

Last but not least I want to thank my University supervisors, Hans Berger and Huib Stekfor their guidance and suggestions.

Kay Schreuder December 2005

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Management Summary

The Heineken UK operating company has been operational since February 23rd 2003. Before this start Heineken beer was sold under license, the Heineken Cold Filtered beer with a low alcohol percentage. In order to answer the change in consumer needs, Heineken Cold Filtered stopped existing and the 5% premium lager was launched. In February 2003 Heineken UK started building up the company from scratch, with no distribution or sales whatsoever, and a (negative) brand image heritage from Heineken Cold Filtered. Heineken UK has been working since then, trying to develop distribution, drive penetration and volume and change the brand image in the minds of the consumer in a highly competitive environment.

The need that arose within the Management Team was a need for management information that could enable them to make well based investment decisions. They find that the marketing information currently at hand is not answering their needs. At the same time the Channel Marketing Controller has identified a need to increase the insight in effectiveness and efficiency of the marketing communication activities exploited by the Channel Marketing Team. The positive effect of an increase in this insight is twofold, the first is being able to make better budget allocation decisions, the second being the opportunity to learn from past experience. The objective of this research is providing more insight, answering the following research question

How can Heineken UK’s Channel Marketing Team become more performance driven, better evaluating communication activities to increase effectiveness and efficiency of these activities considering the relatively small size of the company, and better enable the management team to evaluate marketing business processes in order to better reach Heineken UK’s strategic objectives?

The investigation undertaken on the organisational context, focussing on the internal contextual factors of influence on change, the supporting role of the internal context was found. The organisational strategy, structure and culture are supporting changing into a more standardized organisation where performance is measured and decisions are based on more than intuition alone. It was also found that the organisational context, especially the context and strategy could be better used for the benefit of Heineken UK.

Heineken UK can make more and better use of the organisational structure that they are part of. The Heineken headquarters, but also other Operating Companies should be used as knowledge centres.

The Marketing Team can also work more effective and efficient when they increase their understanding of the Heineken Brand Strategy. Working within the set preconditions and understanding that Heineken UK’s actions can snowball around the world can also enhance effectiveness and efficiency.

Through observations and interviews insight was gained in the desired and current insight in Marketing Communication activities and the process of the Channel Marketing Manager working on a Marketing Communication Activity. It was recommended to not measure activity effectiveness but the employee performance. The Balanced Scorecard has been identified as a means through which the organisation can change the focus from activity measurement to performance measurement. One of the main problems inhibiting measurement is the lack of objective setting. Key Performance Indicators that have to be set in light of the Balanced Scorecard answer this impediment. Participation in the change to performance measurement is very important for success. The Channel Marketing Controller and the Channel Marketing Manager together decide on objectives for the KPI’s, at the same time also enhancing the communication streams.

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Lastly attention has been given to the management of resistance to change. Even though the perception is correct, the most important aspect is the message efficacy. It is very important to make the Channel Marketing Team aware of their crucial value in relation to the change and that their cooperation is necessary. They have to feel that they have the skills and the ability to deal with and take on the change through the participation in the development process of the plan for the systematic execution of business operations.

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Index

Preface 4 Management summary 5 Index 7 Introduction 9 Chapter 1 Introduction 10 1.1 Introduction 10 1.2 Heineken 11

1.3 The UK Beer Market 12

1.4 Heineken in the on-trade 13

1.5 Heineken in the off-trade 14

Chapter 2 The research 15

2.1 Introduction, problem background 15

2.2 Marketing business processes 15

2.3 The research 17 2.4 Problem statement 18 2.4.1 Research objective 18 2.4.2 Research question 18 2.4.3 Limitations 18 2.5 Conceptual Model 19 2.6 Sub questions 22 2.7 Methodology 22 2.8 Research design 23

Chapter 3 Theoretical frame 26

3.1 Introduction 26

3.2 Effectiveness 26

3.3 Efficiency 27

3.4 The Planning function 27

3.5 The Control function 30

3.6 KPI’s 34

3.7 Learning 37

3.8 Resistance to change 40

3.9 Strategy 42

3.9.1 The brand strategy 43

3.10 Structure 43

3.11 Culture 46

3.11.1 Observing organisational culture 47

Chapter 4 Findings 50

4.1 Introduction 50

4.2 Strategy 50

4.2.1 Organisational goals 50

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4.3 Structure 55 4.3.1 Heineken Global, the diversified organisation 56 4.3.2 Heineken UK, the entrepreneurial organisation 56

4.4 Culture 57

4.5 The desired insight 59

4.6 The present insight 59

4.7 The existing problems 60

Chapter 5 Conclusion 62 5.1 Introduction 62 5.2 Strategy 62 5.3 Structure 63 5.4 Culture 64 5.5 Conclusion 64 5.6 The process 65 5.6.1 Planning 65 5.6.2 Control 65 Chapter 6 Recommendations 67 6.1 Introduction 67

6.2 Measuring performance instead of activities 67

6.2.1 The balanced score card 68

6.3 Systematic execution of business operations 68

6.4 Managing change 70

Chapter 7 Reflection on the research 73

Literature 74

Figures 78

Abbreviations used 78

Appendices

Appendix 1 Beer market development in the last 20 years

Appendix 2 On and Off trade share division and beer share division Appendix 3 UK population development by age

Appendix 4 Heineken in the On Trade Appendix 5 Heineken in the Grocery Channel Appendix 6 Heineken Corporate organisation chart Appendix 7 Heineken UK organisation chart Appendix 8 Interviewed Heineken employees

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Introduction

This report presents the findings of the research project entitled ‘Heineken’s entrée in the UK Market, A study on Heineken UK Marketing effectiveness and efficiency. This research project is a Master Thesis Project for the study programme ‘Master of Science in Business Administration within the specialisation area ‘Marketing’ at the faculty of Management and Organization at the University of Groningen. The research for this project has been carried out at the Heineken office in London.

Background

For a long time marketers have not been held accountable for showing how marketing expenditure adds to the organisational goals. There is an increasing pressure on the performance of the Heineken Operating Companies due to retailer and competitor pressure in addition to evolution of the off versus the on premise structure. The trade is becoming more professional and demanding, competition increases and media costs increase above inflation rates. Consumers are more demanding and less easy to target. Traditional Above The Line investments are becoming less effective and Below The Line investments (promotional pressure) increases. The Heineken UK management team has identified a need to increase insight in the effectiveness and efficiency of the Marketing Team’s work, needing more information for better decision making. The Channel Marketing Team has also identified the same need for the purpose of learning from past experience and improving their performance. Heineken UK only started up in 2003 and started from scratch with no distribution and an incorrect perception of the Heineken brand.

Problem definition

Heineken UK is a non-producing company. They import their beer from Holland, they are a commercial organisation with their marketing and sales activities at heart. The Channel Marketing activities have not been evaluated over the first two years. Both the Channel Marketers as the Management Team have identified the need for a change with which they have more insight in the Marketing performance. There is a need to become more performance driven but they have not been able to identify how to change in order to reach their needs. Therefore the research question has been formulated as follows:

Approach

On the basis of interviews, internal data and observations information was gathered on the organisational context that influences organisational change. The process of the Channel Marketing Team has been evaluated with the information gathered through the reviewing of existing documents, interviews and observations. The findings of the research have been measured against the results from the previously undertaken literature study. These activities have lead to the conclusions and recommendations.

Report structure

The first chapter consists of a description of the Heineken UK Company and the UK beer market. In chapter 2 the research project is built up. The motive for the undertaking of the research is explained, the research statement is made and the conceptual framework is built up, based on Pettigrew’s process approach for organisational change. In chapter 3 the theoretical framing takes place of the concepts used in this research. The fourth chapter describes the findings of the research. The chapters five and six reflect respectively the conclusions and the recommendations. In the seventh chapter a reflection is given on the

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Chapter 1 Introduction

“I had the idea of conquering the European market with Heineken around 1970. And no sooner did I have the idea, than it was put into practice. People often said to me: that is not very sensible, you shouldn’t try it. I always

answered: It’s not very sensible, but do it anyway.” (Freddy Heineken)

§ 1.1 Introduction

In 1863, the 22-year-old Gerard Adriaan Heineken started negotiations for the purchase of the brewery The Haystack, located at the ‘Nieuwezijds Voorburgwal’ in Amsterdam. The company had been founded in 1592 and had once been among the most prestigious breweries in Holland, though had heavy losses for years. Gerard Adriaan Heineken wanted to find a suitable investment for the family money and reached an agreement with the Supervisory Board of The Haystack on December 16.

In 1914 Dr. Henry Pierre Heineken was appointed as a director, three years later he was appointed chairman. Individual beer consumption grew during the 1920s, but unfortunately reflected inverse in the 1930s. The economic crisis affected the brewing industry, making it necessary to think about different alternatives; starting an international structure.

In England, the Dutch brewery had to compete against a typical beer culture after the Second World War. The English primarily drank top-fermenting ales and only very exceptionally pilsner or, as the English call it, lager beer. English lager is, with an original wort content of 1030, also weaker than the Heineken pilsner, with a content of 1048. In 1951, the brewery decided to market a Heineken lager adapted to English tastes. This solution was, of course entirely contrary to the brand’s philosophy being a high quality premium beer, but the brewery yielded to the wishes of the obstinate English beer drinkers. In order to avoid consumer orientation, the Heineken lager was packaged differently and sold at a lower price1.

The success of the Heineken lager did not mean that all in the garden was rosy. The awfully plain British Heineken contrasted considerably with the prestigious character of Heineken sold worldwide. Due to international travelling the difference between the two types of beer became more known

After numerous years of selling Heineken Cold Filtered to the UK market under license of Interbrew, Heineken has changed its direction. On February 23rd 2003 the new Heineken Premium Lager was launched.

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§ 1.2 Heineken

Heineken Corporate

Heineken is positioned as a premium lager beer around the globe, a premium quality beer that has a higher price. Heineken Corporate wants to enable people to experience the same Heineken around the world. There is a commercial policy developed by Heineken corporate, but all operational companies are responsible for their own execution of these uniform sales, distribution, marketing and communication tools. Progress was made in 2003 in the harmonisation and refining of systems and definitions used in formulating commercial policy and developing and improving the brand performance indicators2.

The marketing communication of Heineken is always premium and aims for the Heineken Point Of View (Heineken POV, the Heineken image, the experience, the feeling), reaching the consumer with communications that have that ‘extra touch’. There is however a desire to improve quality and comparability, the analysis of the performance and vitality of the brands, brand portfolio’s and brand portfolio management methods, to ensure more efficient deployment of people and resources within the operating companies’ commercial organisations, and to make brand communication more effective and efficient3.

In the middle of 2003 Heineken undertook a reorganisation, “Taking Heineken to the next level”. Heineken wants to maintain and enhance its position as one of the most successful brewers in the world. Key to success is operating very closely to the market and enhancing the bond with customer, consumer and employee, in maintaining one of the most international brewers in the world and in increasing organic growth. The three key aspects that Heineken wants to achieve through the reorganisation are firstly a structure change in order to be more alert, secondly a performance driven organisation, thirdly an innovative culture.

One of the tangible results of the reorganisation is the birth of the department of Commercial Excellence (Heineken CE). Consolidation on the market has effects on the commercial investments made in the market to protect the market position and there is a continuing pressure on prices and margins. The competition in developing markets is also strong, specifically in the area of marketing and sales.

Heineken UK

In the UK, Heineken has been around since 1961 when the company entered into a partnership with the British brewery group, Whitbread & Co. In 1969, it was granted a licence to brew Heineken locally in the UK. Because, at that time, UK drinkers preferred ales and weaker beers and rarely drank pilsner (lager beer), Heineken produced a weaker version of its popular beer, called Heineken Cold Filtered. It was packaged and brewed differently to the original product and sold at a lower price to avoid confusion. The decision in 2003 to replace the Heineken Cold Filtered and Export with the Dutch brewed premium 5% variant marked the end of this relationship and the beginning of a new era for the Heineken brand. Heineken Cold Filtered and Heineken Export began to disappear from UK shelves after 34 years on the market.

In the UK, the old Heineken is one of the longest established and best-known lagers on the market. It has a special place in the nation’s heart, thanks to some of the classic advertising supporting the brand in the 1970’s and 1980’s. ‘Heineken refreshes the parts other beers cannot reach’ was one of the longest-running and most famous campaigns in British advertising. Even people that have never seen the advertising know this phrase.

Positioning Heineken on the UK market is different as segmentation is based on Alcohol percentage rather than the product position Heineken was used to in other countries. As Heineken Cold Filtered was a 3.4%

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alcohol lager it was classified as a ‘standard lager’. The re-branding of Heineken as a premium 5% lager is very difficult because of the associations with the former Heineken cold filtered lager. Before the re-launch Heineken Cold Filtered was associated with; weak and watery, a drink for my dad, comfortable, not confident and not fashionable.

The desired associations with the new Heineken premium lager are; high quality, brand for me, worth paying more for, great tasting lager, imported, one of the world’s best brands. The brand personality should be perceived as friendly and approachable.

In the long run, Heineken UK goal is becoming the most valued brand in the premium lager market within 10 years.

Heineken UK is dependent on Heineken Corporate and the Multi Market Organisation (MMO) North West Europe. Heineken UK has a responsibility to report to the MMO on a monthly basis, giving insights into the business processes. All strategic and operational plans are submitted to get approval. The employee development in MMO’s moves rather quick. It is possible that 3 year strategic plans have been approved by one person and then get rejected by the MMO successor. Although it is said that operating companies have great autonomy, all TV and print communication activities must be approved by Heineken Corporate. One member of the board of directors, Mr. M. Bolland is responsible for ‘corporate brands’. These implications will have an effect on the freedom of working for the UK marketing employees working on the Heineken brand. They must make clear that a specific TV or print communication activity is indeed positive for the Heineken brand. This is sometimes very difficult because these decisions are not made on objective research only. There is a grey area where feelings on what is or what is not correct for the brand will have decisive influence.

§ 1.3 The UK Beer Market

For the last twenty years the UK beer market has been in decline (Appendix 1). But beer is still the biggest drinks category and consumers regard it as traditional, thirst quenching/refreshing, cold, relaxing and more versatile for informal occasions. Its consumption is estimated at some 5.8 billion litres in 2003 and market value at approaching £16 billion (23 billion Euros) at current prices. Beer accounts for 46% of household expenditure on all alcoholic drinks expenditure on beer is 30% higher than expenditure on wine, the next-largest sector, and represents 2.7% of all consumer expenditure in the UK4.

The ales/stout share of the beer market is broken up into pubs, clubs and hotels (the “on trade”) as well as in the retailer and impulse channel (“off trade”). The tastes of British are changing; they are more often choosing a stronger, fuller-flavoured lager. British people are also changing their customs; there is a tendency to buy more to drink in home, so as a result the on trade is losing share to the off trade.

In the on trade standard & premium lager share are more or less stable, and in the off trade standard & premium lager share are increasing. (Appendix 2)

The beer industry is not the only industry consolidating. The retail consolidation has had an effect on retail-bargaining power. The beer category is heavily promoted, and the long term value of the industry is undermined by this under pricing. Additionally the on-trade retail pricing has moved ahead of inflation levels but this is changing and there are signs of price deflation in the on-trade5.

Lager is the most widely drunk beer, it represents 74% of consumption. It has been very successfully marketed to younger drinkers, the only consumer group whose drinking habits are still unformed and therefore open to change. Customers become more brand aware, quality conscious and lager biased, both opportunities as threats to the industry.

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Beer-UK Consumer Goods Intelligence, 2004 5

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In common with all European countries, the UK has a generally ageing population; by 2007, the over 45s are forecast to account for 41.6% of the population, compared with 39.2% in 1998 (Appendix 3). This appears to have a negative impact on growth in beer consumption, especially lager, as older people tend to drink less lager. However, the all-important 15-25 year old category will account for 13.1% of the total population by 2007, against 12.0% in 1998. The consumer base for lager, particularly premium draught and packaged lines is expected to expand.

Beer also has inherent weaknesses, notably its image which is still linked with the ‘pint culture’: the limited number of serving measures available: the fact that beer is still linked with ‘sessioning’ (drinking several hours in a row for the sake of drinking, instead of drinking one or two pints during a talk) and considered too informal and not special enough for some people. The ‘sessioning’ image is hindering appeal to older people and women.

The last issues to be addressed are mainly governmental ones. Health (as well as violence and public disorder) is a major governmental issue, and has impact on a number of laws and taxes. From January 2004 smoking in for example pubs and restaurants was prohibited in Ireland. Although the impact of this legislation on beer sales has been very small in Ireland it can have an effect on beer sales in the UK. Taxes on cigarettes are very high, as a way to make smoking less attractive. It could very well be that the smoking restriction law will be implemented in the UK as well. Furthermore there might be a change in license for the selling of alcohol. Heineken is aware of the problems that can arise from 24-hour drinking licenses. If binge drinking (drinking very much in a relatively short time and getting very drunk) increases, and there are more problems regarding alcohol, this 24 hour drinking can backfire at companies such as Heineken. In France there is already a restriction on advertising alcohol, comparable with the restriction on advertising in the tobacco industry in Holland.

§ 1.4 Heineken in the on-trade

The on trade used to be characterised by extreme ‘vertical integration’. Major brewers owned large pub estates, but this system was dismantled at the end of the eighties by the Monopolies & Mergers Commission’s Beer Orders. As these massive pub estates came onto the market, they were bought by a new breed of Pub Company. The on premise structure from AC Nielsen gives an overview of market share division (Appendix 4).

Heineken UK is active in the Pubs and Hotels/Other Bars/ Restricted area. Heineken draught is available in 2338 outlets6. Compared to the total amount of 132.951 outlets Heineken is present in 1.75%. When clubs are left out, because Heineken does not aim to be present there, Heineken reaches a distribution of 2.35%. It is an enormous challenge for Heineken UK to gain distribution.

In the on-trade Heineken is sold in bottles and in draught. The competition differs significantly in the bottles market and draught market, because not all beer brands provide their beers in both ways (Appendix 4).

The on trade is losing share to the off trade. In the on trade the link between pubs and beer drinking has been weakened by the nature of the pub itself. There is a shift in attention from drinks to food, and people often think wine is a better accompaniment to food than beer.

The on trade is often the battleground for attracting new consumers for alcoholic drinks, given that the profile of heavier drinkers is biased towards the young. Still prices paid will continue to rise, the price sensitivity when consuming outside the home is low.

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§ 1.5 Heineken in the off-trade

The Heineken market share in the off trade is 0.8%. Because of consolidation in the Retail/Grocery channel it is difficult for their suppliers to negotiate with them. Heineken is a relatively very small player which makes it difficult to negotiate. With little to no power Heineken has to try to arrange distribution, shelve space, promotions etc.

Besides the Retail/Grocery channel (Appendix 5) there are more distribution channels: Convenience, Specialist, Independents and Wholesale.

The strong growth that is noticed in the off trade is due to a whole host of factors such as the changing demographics, strong price and other promotions, evolving social habits, behavioural changes with regard to entertaining at home and the ‘one-off’ triggers, such as sporting events.

Packaging in the UK is different from other countries. Beer is sold in numerous sizes (Bottles: 65cl, 330ml 4-pack, 330ml 6-pack, 330ml 12-pack, 330ml pack, 207ml pack, 44cl 4-pck, 44cl 12-pack, 44cl 24-pack, 50cl 4-24-pack, 33cl 6-24-pack, 44cl 6-pack Cans: 330cl 6-24-pack, 330cl 24-24-pack, 440cl 4-24-pack, 440cl 12-pack, 440cl 24-12-pack, 500cl 24-pack). Price-packaging mechanics in the off trade are very important, so with this wide range of packaging and price changes there are many ways in which beer brands try to compete are.

The brands that Heineken wants to compete with have a broad range of packaging to choose from. For Heineken UK it is important to be able to give its consumer this same broad range as well. Not only to be taken seriously by its customers as a real premium lager beer (instead of a specialty beer, which normally doesn’t sell in the broad range mentioned above) but also to be able to compete. Heineken UK started the introduction of the new Heineken beer with a 500ml can at a premium price. The price-difference that comprised of the difference between sizes plus a difference in price per litre was too large from a consumer perspective (quote T. Shaw).

The possibility of introducing new packages is always dependent on the production capacity in Holland as all UK beer is imported from Holland. The percentage that goes to the UK is very small so it might not be of main importance for Holland to produce the packaging sizes that the UK needs.

Distribution in the on trade is not the only challenge that still faces the UK office. “The off-trade market is our priority for the coming period, there is fierce competition as price is a primary weapon in this challenge for consumer preference. I’m convinced that Heineken is heading for success in the UK”7(Mr. R. Marijnen, 2003)

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Rob Marijnen, Managing Director, 27 November 2003, publisher Heineken international, www.heineken.com (12-01-05)

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Chapter 2 The research project

Heineken UK is still a relatively young company, as it has only started trading in February 2003. It is still developing and refining its business processes. It is competing against major beer brewers with large sales forces, large product portfolios and highly developed business processes. The UK beer market is heavily promoted and large beer brewers benefit from economies of scale, being able to lower the price. Heineken is imported and is therefore by definition more expensive.

Heineken beer is positioned as a premium lager with a premium quality and also with a premium price. One of Heineken UK’s challenges is to get the consumers to perceive Heineken as a premium beer that they are willing to pay more for. This proposition is a very important aspect influencing the relationship with the off trade. Retailers that offer a premium beer with a premium price can have a higher profit margin in comparison to brewers that continue to lower their price. Heineken UK has invested heavily in rebranding; trying to reach the consumer with the message that Heineken has changed. “There is a lot of affection for the brand, but not for the beer”, said Leslie Meredith, Heineken UK’s Marketing Director. “It isn’t seen as special as other premium beers like Stella Artois, Carlsberg and Kronenbourg.

Since Heineken UK is still in the embryonic stage, business processes are still being updated, monitored, reviewed and improved on an ongoing basis. Nevertheless a rather large change was permitted, as personnel within the Channel Marketing Department wanted a change in jobs. Heineken UK is a very flat organisation with little opportunity for promotion but jobs could be rotated within the department after a period of 17 months to keep Channel Marketing managers satisfied. It is common in Great Britain for employees to change companies and jobs within two to three years.

Heineken Corporate has made the decision to start an Operating Company (OpCo) in the United Kingdom, Heineken UK. Heineken Corporate has set several goals and objectives to be reached. In the start-up phase there was a relatively large amount of money to be invested in the rebranding of Heineken. Heineken UK has spent money on a wide range of consumer and trade marketing communication activities, such as TV, Radio and Cinema advertising, Promotion On Site (POS) and in store activity. The marketing department has strong beliefs that some promotional and marketing communication activities were good, some were not so good and some were poor investments but these beliefs are very rarely supported by any analysis (Mr. C. Duffy, Channel Marketing Controller).

After the initial phase where evaluation of individual promotional or marketing communication action was not feasible, the UK management team is now raising its demands regarding the justification of results of actions undertaken. Heineken UK resources are limited and they still operate on a small share of the market. They are continuously looking for the maximizing of their resources to gain distribution, volume and penetration, and for building their brand equity. Heineken wants to be able to better invest its money in activities that will deliver the maximum return on investment and help hit key commercial targets. As a result there is a need to have a fundament on which budget-allocation decisions can be made.

§ 2.2 Marketing business processes

In general the most underestimated part of the marketing business processes is the evaluation of the consumer and trade marketing communication activities. They are not measured consistently over time, nor shared and fed back to the organization to learn from. This especially appliesto Heineken UK when it is considered that evaluation of consumer and trade marketing communications does not have a high

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“Developing a new system has taken an enormous effort. One important thing is to communicate with the people that are going to be using the system in the future. After talking to people I knew that I had a great challenge in keeping the system as user friendly as possible. It is very difficult to get a new system embedded in the organisation; it takes a lot of effort from all parties involved. I know that it will not be used if the payoff is not clear to them.” (Miss. E. Baker, IT manager)

Evaluation

Evaluation of marketing communication activities, both trade and consumer activities are one element of a larger process that must be understood. Heineken CE has started with several initiatives to improve evaluation of marketing activities, one of them being a sales promotion process with examples of best practices from all over the world.

Understanding Overall strategy Sales Promotion Process

Consumer/shopper

objectives if Sales

promotion is decision making development implementation evaluation

part of the strategy then

OpCo customer

objectives objectives

Stage 1 stage 2 stage 3 stage 4 stage 5

Figure 1. The sales promotion process

Why should Heineken UK want to evaluate marketing communication activities? By continuously looking at the effect of the marketing communication activities they will be able to spend their money more effectively and efficiently. It will be able to give answers to the following questions:

- Did you achieve the set goal?

- What did the promotion deliver, in terms of profit, volume, exposure, trial or other outcomes? - Is the promotion worth repeating?

- Was the right mechanism used? - Were all the internal parties aligned? - Was the customer satisfied?

- Did you stay within the budget? - What can we improve next time?

Heineken UK will be able to enhance their performance: increasing profit and value, and building stronger and more valuable consumer and customer relationships. This will result in the ability to better reach Heineken’s strategic objectives8. With this example it is clear that it isn’t Heineken UK only who wants to better map Marketing Activity effectiveness in order to learn from and increase marketing performance on one side and better allocate budgets on the other side.

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§ 2.3 The research

Condensed, a research had to be conducted to gain knowledge in the improvement of measurement of Marketing Communication Activity effectiveness and efficiency, which can be used as a tool to enhance business operations. An assessment has to be made on how operational marketing communication can be optimized to best execute targets resulting from strategic marketing management plans, in order to better reach strategic business objectives.

The effectiveness of marketing communication actions undertaken over the past two years were to be evaluated making it possible to learn from the results. Extrapolating this knowledge to the future could mean changes in budget allocation and actions to be undertaken. After a first orientation it became clear that the actual evaluation of past marketing activities was not possible due to a lack of information. This kind of problem can be described as a problem that was a result from a very great expectation or objective and thus not a problem to be worked on (De Leeuw, 1986).

After a further orientation through interviews with the channel marketers it became clear that there was also a question regarding the usefulness of an evaluation system. It became clear that evaluation was last on the list when it came to prioritising work load. Especially as this research was to target the marketing communication activities such as trade shows, sponsorships, pr and sampling. In a trial, to make Channel Marketing Managers aware of their subjective approach in decision making and of opportunities to enhance a more objective and professional approach, response was close to zero. This gave another impulse to re-consider the research.

The importance of brand building activities (such as TV advertising) and in store sales promotions is clear, and because investments in these communication activities are relatively high they are being evaluated more extensively. Greater emphasis is put on evaluation within the top accounts. Some activities undertaken are focused on a very small part of the market, and because of this costs to evaluate these actions do not outweigh benefits.

After discussion with the Channel Marketing Controller it was decided that the research had to be adjusted. The Channel Marketing Team is part of a bigger network with skills and knowledge. The development of a measurement system for trade shows, sponsorships, pr and sampling should be seen in a bigger light.

It is not the question how communication activity effectiveness can be measured that will increase the channel marketer’s effectiveness without a change in orientation. The Channel Marketing Managers need to work performance driven. The Channel Marketing Controller feels responsible for the solution of the problem, and he really experiences the problem. He is the ‘problem-owner’ (literally translated from De Leeuw, 1986) with a problem that can be worked on. The instrumental problem is the lack of a measurement system but the functional problem is the lack of insight in effectiveness and efficiency (De Leeuw, 1996)

Instead of the focus on delivering an actual measurement system with which effectiveness and efficiency can be measured this research will focus on insight in the Marketing Communication Activity evaluation process, investigating all aspects that in combination are of influence in a change to a more performance driven Channel Marketing Team. It will focus on the identification of possibilities to enhance this process of evaluating Marketing Communication Activity.

Goal of this research also becomes identifying the opportunities to enhance the usefulness of the Global Heineken World in which Heineken UK works, tying into the goals of the new Commercial Excellence

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§ 2.4 Problem statement

§ 2.4.1 Research objective

The research objective embodies the relevance of the research. Heineken UK wants to have better trade and consumer marketing communication activities evaluation to increase effectiveness and efficiency to better reach strategic objectives, in effect driving sales, volume and penetration as well as building a stronger brand. Therefore the objective of this research is:

To provide Heineken UK insight in their Marketing Communication Activity evaluation process and propose recommendations for improvements of this process.

§ 2.4.2 Research question

The research question will link the research objective to the research process. The answering of the main research questions will enable Heineken UK to improve their Marketing Communication Activity evaluation process.

The concepts used in this research question must be able to be measured. They have been made ready to be used, defining exactly what will be meant and taken into account.

Marketing communication activities are all marketing communication activities aiming to drive sales, volume, penetration or build the brand. Examples of Marketing Communication Activity instruments are advertising, sponsoring, personal selling, direct-marketing communication, trade shows, marketing-pr, promotion, and in-store communication (Floor and Van Raay, 2002). When Marketing Communication Activity is mentioned further in this research it will mean sponsoring, trade shows, marketing-pr and sampling.

The degree of effectiveness can be defined as the extent to which set objectives are achieved. Efficiency means being effective with the use of the least possible means. Marketing business processes are the day-to-day activities performed by people in the marketing department. Heineken UK is a relatively small company compared to its competitors in the UK.

§ 2.4.3 Limitations

• The research has to be completed within a six-month period, starting from January 2005 to June 2005.

• The research takes place at Heineken UK in London • Recommendations made have to be founded by theory • Recommendations made have to be feasible and useful

• Financial resources are bounded; therefore availability of information will define the degree of depth of the research.

• Heineken’s Supervisor, Chris Duffy holds the right to define what information will remain secret before the research report will end up at the library. The supervision from the Rijksuniversiteit Groningen will have a complete version in possession.

• The research and the reporting of the research will have to be executed in conformity with the demands of the Rijksuniversiteit Groningen

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§ 2.5 The Conceptual Model

There are many theoretical approaches for organisational renewal. Whittington (1993) tried to place these differing theoretical approaches on the basis of the distinction between results and processes in which these strategies are created. Results can mean profit optimalisation or being multiform. Processes can be purposeful or emergent.

The process approach focuses on the actual course of strategic change processes, and the way these processes can be initiated and steered, fitting well with the research topic.

In this approach there is a high interest for events in time (the process) and bounded rationality is taken into account. In this approach there are more motives then profit maximization and the change process is characterised more by negotiation then ordering. There is a lot of attention for the political dimension and the importance of rational analysis is relativized. Other characteristics of this approach are that small steps are taken, and experimenting and learning is important, and next to change there is also attention for continuity (Wolpert, 2002). Heineken UK does not have a distinct beginning and end for their change process but it is clear that there has been a defining of direction. Heineken UK has not got the time nor the money to work hard on the development of and implementation of a radical change program. The entire research has been process oriented as both researcher and members of the organisation stood in the middle of the process of researching the context and process.

Bower (1970) first clearly stated the power of a process approach. He said that the most effective strategies come into existence through an iterative process, a step by step process. In his view the organisation can experiment and learn from series of small incremental commitments and not from a global formula of a complete strategy found on a rational, analytic basis.

Pettigrew (1985), who is considered as one of the most important representatives of the process approach (Wolpert, 2002), is even more strongly convicted to the opinion that the strategic change processes cannot be seen as a process in a vacuum shaped in a rational analytic way. Pettigrew’s critique is that so much empirical research on strategic change processes is “a-historical, a-contextual and a-processual”.

Pettigrew (1985) states that strategic change processes should be described from three points of views; the context, the process and the results. He formulated, based on empirical material, that the essence of strategic change processes means: “Formulating the content of a strategic change crucially entails managing its context and process”.

Pettigrew (1985) makes a distinction between front stage decision making and back stage decision making. Front stage decision making means the decisions that are visible, and actions and occasions. The second, back stage decision making means that new ideas regarding desirable renewal are being entered and receive legitimacy in the organisation or are repressed and never result in a shape in which they can be openly discussed, decided and translated into action. As a result Pettigrew (1985) states that the real problem is the anchorage of the new experiencing of reality, new issues that need attention, new ideas for a debate and decision-making, and the mobilising of concern, worry, energy and enthusiasm. The new legitimized ideas have to be accepted and translated into a contextual responsible action.

Pettigrew’s perspective, being one of the most important representatives of the process approach shines through in the conceptual model of this research. It gives a short overview of the factors and relationships that should be taken into account to provide an answer to the research question. The conceptual model reflects his three points of views for the undertaking of research on organisational change processes: the context, the process and the results.

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Figure 2. The Conceptual Model

This conceptual model can be explained as follows: The Channel Marketing Team works on marketing activities within the context of the Marketing Team and the organisational context. The external organisational context has already been reflected in chapter one, so further attention is given to the internal organisational context.

The effectiveness and efficiency of activities is currently unknown to the organisation and they want to improve this insight. The process, the continuous sequence of actions that shape the process of the Channel Marketing Team is the second aspect taken into account. The composure of the process comprises of Planning and Control activities. They are important in the process of evaluation of Marketing Activity effectiveness and efficiency and are not fully developed within the Marketing Team.

When evaluation takes place there is an opportunity to learn from the past experience. To be able to do something with this knowledge, in effect changing to improve, it can be difficult to achieve this change because of apparent employee-resistance to change. This is the third point of view, the results that can be defined. Organisational Context Marketing Team Channel Marketing Team Marketing Activity Control Planning Effectiveness Efficiency Learning Change Resistance

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Channel Marketing Team: Part of the Marketing Department Marketing Team: Heineken UK’s Marketing Department

Organisational Context: The organisational context that shapes the way the Marketing Team and thus the Channel Marketing Team can execute their work, and support or resist organisational change. Marketing Activity: Marketing actions are the business processes that the Marketing Team executes. Marketing communication activities are instruments the channel marketer uses in order to reach their goals. Marketing Activity in this research means the marketing communication activities that are worked on by the Marketing Team. It is the tangible communication activity that results from the effort of the Marketing Team.

Planning: Planning is a continuous process, making present decisions systematically and with best possible knowledge of their futurity. Planning is organizing systematically the effort needed to carry out these decisions against expectations through organized feedback (Drucker, 1959). Its purpose can be seen as an attempt to impose a degree of structure upon behaviour by allocating resources in order to achieve organisational objectives (Wilson et al, 1992).

Control : The process of monitoring the proposed plans as they proceed and adjusting where necessary (Lynch, 1997). Control attempts to bring unity of purpose to the diverse efforts of a multitude of organisational subunits so as to steer the overall organisation and its managers toward its objectives and goals.

Effectiveness: The extent to which objectives are achieved

Efficiency: The resources used to reach the achieved effectiveness

Learning: When an activity is evaluated and effectiveness and efficiency have been determined it is possible to learn from this activity. Learning means getting to know what went wrong and right and why it went wrong or right.

Change : When an organisation learns about the effects of their marketing activities it is possible identify opportunities to change for the better, it means the intentional changing of (a part of) the organisation.

Resistance: There have been sufficient signals from Heineken UK employees that they do not feel that there will be time to actually measure effectiveness and efficiency. That is why there must also be attention for employee resistance against organisational change

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§ 2.6 Subquestions

The subquestions flow from the Conceptual Model. The question

-How can Heineken UK’s Channel Marketing Team become more performance driven, better evaluating communication activities to increase effectiveness and efficiency of these activities considering the relatively small size of the company, and better enable the management team to evaluate marketing business processes in order to better reach Heineken UK’s strategic objectives?-

should be able to be answered with the answers on the subquestions stated below: 1. How can the Channel Marketing Team’s context be described?

2. What kind of insight is wanted in effectiveness and efficiency of Marketing Communication Activity? 3. What insight is present about effectiveness and efficiency of Marketing Communication Activity? 4. What insight is not present yet about effectiveness and efficiency of marketing communication

activity and why not?

5. What changes can be made in order to reach the wanted insight in effectiveness and efficiency of Marketing Communication Activity?

6. How can these changes be best implemented, managing the resistance to change?

§ 2.7 Methodology

The way the research question is answered is clarified with the description of the research design. The research process has been visualised in the prior paragraph.

Type of research

First the research approach is defined. This will help with the definition of the research design. This is not only the methods by which data are collected and analysed. It is the overall configuration of a piece of research: what kind of evidence is gathered and from where and how such evidence is interpreted in order to provide good answers to the basic research question. It will also help in thinking about research approaches that will work in this research. It can also help when knowledge of the different research traditions enables you to adapt the research to cater for constraints such as limited access to data or a lack of knowledge of the subject.

The knowledge that was first asked for by Heineken UK was very specific and practical knowledge. The type of knowledge that is needed is actually a different one. De Leeuw developed five types of research that tune Management and Research based on the knowledge needed (1990).

1 Problem solving research 2 Policy supporting research 3 Policy relevant research 4 Socially relevant research 5 Pure scientific research

This research is policy supporting research; it is aimed to provide knowledge that is useful in a specific situation of a demonstrable client, which satisfies part of the total needed knowledge (De Leeuw, 1990). It is also possible to define the type of research between testing or explorative research, in this research there will be an exploring and shaping of ideas. Exploratory research is suitable when new insights have to be found out by asking and looking at or assessing phenomena in a new light (Saunders et al, 2003) Next to the client Heineken UK there is another client of this research, the University ‘Rijksuniversiteit Groningen’. Both these clients define limitations for the content of this research.

The classification by Saunders, Lewis and Thornhill (2003) of the research approach is the inductive and deductive approach. In the deductive approach theory and hypothesis is developed and then a research strategy is designed to test the hypotheses. The inductive approach develops theory as a result of the

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analysis of the collected data. The inductive approach will be mainly used in this research. The purpose is to get a feeling of what is going on in order to better understand the nature of the problem. It means going on to the work-floor and interview the employees and their supervisors about the experience of working at the company. The researcher must make sense of the interview data collected by analysing the data. Result of this analysis is the formulation of a theory. Researchers in the inductive tradition are more likely to work with qualitative data and to use a variety of methods to collect these data in order to establish different views of phenomena (Easterby-Smith et al, 2002). Induction emphasises gaining an understanding of the meanings humans attach to events. This means that the research context has to be very well understood and that qualitative data will be collected. There is less concern with the need to generalise (Saunders et al., 2003).

The current situation that Heineken UK is in, can be characterised as an ever changing process. Business processes are to be refined more and more as days go by. The purpose of this research is to find out what can be changed in what manner to improve the insight in Marketing Communication Activity effectiveness and efficiency. Management of change is one of three themes that deals with action research, a qualitative research method. In addition to this first theme there is the involvement of the researcher and the members of the organisation. This suits very well the situation in which the research took place. A lot of information will not become known by a researcher when there is no involvement with members of the organisation or with the purpose of the research (Saunders et al, 2003). In this research the researcher was part of the organisation within which the research and change process had to take place. The last theme suggests that action research has to have implications beyond the immediate project. Even though the Heineken UK situation is very specific it is possible that other Heineken Operating Companies in their early start-up years could also benefit the research outcomes. Next to the Heineken world it is adamant that knowledge management is a topic that is high on the agenda of many other multinational organisations. Action research, combining the gathering of information and the facilitation of change therefore fits this research.

§ 2.8 Research design

Part of the research process has been visualised below to clarify how Pettigrew’s process and results from the conceptual model are researched. Part of this research is descriptive, part is explorative of nature. This is logical, as it is necessary to have descriptive knowledge before it is possible to start explaining (Verschuren and Doorewaard, 2002).

The research design shows the way in which the necessary information is gathered to answer the research question. Each subquestion is treated separately below. The collection of necessary data can be achieved through collecting and using existing data, collecting data through observation and through verbal interviews or interviews by letter.

When there is not enough existing data the researcher has to observe in order to obtain the needed data. When knowledge, attitudes or opinions are sought after it is best to collect data through interviews. Behaviour can be best observed (Baarda and De Goede, 1999).

The research process is reflected in the figure below. The way the research question is answered is clarified with the description of the research design.

What does Heineken UK know and

want to know about their Marketing Activity?

What are the causes for this difference?

What are possible solutions? What is the (internal) organisational

context and does it support change?

R E S U

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Sub question 1. How can the Channel Marketing Team’s Context be described?

The first question is descriptive in nature. Information is gathered through the use of interviews and internal documentation. There was sufficient documentation that could be used as a basis for de description. Unstructured interviews are used to generate additional specific information in the search for a general image of the organisation. Heineken UK employees from all functional areas were interviewed for this purpose. This form of interviewing is used to explore a general area more in depth. There is not a predetermined list of questions to work through but there is a clear idea about the aspect or aspects that have to be explored (Saunders et al., 2003). This type of interview can also be labelled ‘informant interview’ since it is the interviewee’s perceptions that guide the conduct of the interview (Easterby-Smith et al., 2002).

Subquestion 2. What kind of insight is wanted in effectiveness and efficiency of Marketing Communication Activity?

The second question is descriptive in nature and the answer is based on information gathered through interviews and internal documentation. The interviews were semi-structured, they are not standardized but a list of themes was used that had to be addressed during the interview. This form of interviewing is helpful because it is a flexible form of questioning; the amount of questions and the sequence can be adjusted with every new person to be interviewed.

In order to get to know the more specific information needed to define what kind of insight in effectiveness and efficiency is needed, semi-structured interviews were held. The Marketing Team consists of ten employees that are interviewed in order to find out these needs, it is not necessary to use a sample. It is even possible to enlarge the research population, for example with business analysts.

Subquestion 3. What insight is present about effectiveness and efficiency of Marketing Communication Activity?

Heineken UK has only been operational for a relatively small period of time. The period that will be looked at is defined as the actual time that Heineken UK is operational. Existing data and print information were evaluated to know what insight is present about effectiveness and efficiency of marketing activities. The level of insight that is available was determined through the analysis of the availability and quality of the documents that are present regarding the marketing activities from the past. The information that is available to measure effectiveness and efficiency has also been determined in order to create the opportunity to look at possibilities to evaluate activities that were not evaluated.

Subquestion 4. What insight is not present yet about effectiveness and efficiency of marketing communication and why not?

The difference between the answers on the subquestions 3 and 4 defines a gap between the insight wanted and yet available. This subquestion is explorative in nature, as it seeks to find answers for the absence of wanted insight.

The research strategy that was used in answering this subquestion is the ‘grounded theory’. It is often thought of as the best example of the inductive approach (Saunders et al., 2003). But it is better to think of it as ‘theory building through a combination of induction and deduction to not make this simplistic conclusion. Grounded theory procedures are designed to build an explanation or to generate a theory around the core or central theme that emerges from the data. Grounded theory may be approached as a strategy as much as a set of procedures. Such an approach may therefore result in the process of analysis being conducted in a less formalised and proceduralised way while still maintaining a systematic and rigorous approach to arrive at a grounded explanation or theory. The grounded theory’s concrete implications are the disentangling of information, the developing of concepts on the basis of the information and the reintegration of information through the use of these new concepts (Saunders et al., 2003). Next to semi-structured interviews observation is a method that is used. Observation is enabling to identify actual behaviour, including unwanted or unintentional behaviour. Observation is very suitable to complete these areas in interviews. It is relatively easy to make observations as a researcher when

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participating in the day-to-day activities of the organisation. ‘the researcher attempts to participate fully in the organisation or community. This enables the researcher to share their experiences by not merely observing what is happening but also feeling it (Gill and Johnson, 1997).

Literature study is the last way of information gathering in order to answer the subquestion. The literature will mostly be used to elaborate on insights found during the research conducted in the organisation.

Subquestion 5. What changes can be made in order to reach the wanted insight in effectiveness and efficiency of Marketing Communication Activity?

Subquestion 6. How can these changes be best implemented, managing the resistance to change?

The answer on subquestion four is used in subquestion five. Most of this research is explorative of nature, but subquestions five and six are more prescriptive. Answers on these questions will be sought after in the existing literature and based on the analysis that has taken place in the organisation. Next to the specific findings of the research it is possible to apply general insight that others have reached. An eye has to be kept on the limitations of the outcomes, in effect the time, effort and money it will take.

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Chapter 3 Theoretical Frame

The conceptual model can be disentangled into distinct aspects that must be further investigated. This chapter focuses on the theoretical grounding of the research. Literature study has been undertaken and several theories have been combined in order to understand the concepts used in the conceptual model. Effectiveness and efficiency of current marketing activities is unknown. This chapter will first treat these two concepts. The process of working of the Channel Marketing Team is planned and controlled. The concepts planning and control are therefore the next two treated concepts. Key Performance Indicators are important in the process of planning, controlling and measuring effectiveness and efficiency. This concept is treated next to the explanation of the Balanced Score Card.

Learning and the resistance to change are two concepts very closely linked. But as stated earlier, the organisational context was also researched. When an organisation or individuals within the organisation wants to change there are several aspects that support or resist organisational change. The external context has been clarified in chapter one but for the research on the internal context the last three concepts have been researched theoretically, namely the Strategy, Structure and Culture. In the following chapters this knowledge can then be applied to Heineken UK.

§ 3.2 Effectiveness

Effectiveness is a frequently used word in the literature without explaining the actual meaning of the word. The idea behind effectiveness in marketing performance is that any measure of performance should incorporate the objectives of the decision maker (Clark, 2000). The Oxford Reference Online gives a very broad conceptual definition; the degree to which a purpose is achieved9. Effectiveness can be defined as successes versus competitors, which is a common goal framework in marketing management (Armstrong and Collopy, 1996). Easily said effectiveness means results versus expectations, or as Drucker described ‘doing the right thing’(Drucker, 1974). It is clear that there are many conceptual definitions of effectiveness, and that at heart all definitions mean the same thing.

The word effectiveness has been defined as a concept after the explaining of the conceptual model, as the extent to which set objectives are achieved (Keuning and Epping, 2000). It is desired to operationalize the definition of effectiveness to enable the correct understanding of the intended meaning of the word in this research. For the establishment of the meaning of effectiveness an effectiveness-norm has to be discussed. An effectiveness-norm is a standard with which you can express the realisation of the set goal. The concrete content of an effectiveness-norm is defined by the concrete content of the sub-goal or part of the goal. The establishment of an effectiveness-norm can only take place when quantitative goals are defined. There needs to be an indication of the extent of improvement in comparison with the actual situation that is wanted (Bogaert and Kuypers, 1969).

The conceptual definition can be transformed in a mathematical equation where effectiveness becomes a number. Effectiveness = actual output/ targeted output * 100%.

The actual output is the output realised and the targeted output is the output that was set as an objective. It is clear that the effectiveness will be 100% when the set objectives are fully achieved. Effectiveness is positive around and above 100%. When the objectives are over-achieved the number will rise above 100% and when objectives are under-achieved the number will fall under 100%.

In this research the targeted output is the objective of a Marketing Activity that is set during the planning phase of the Marketing Activity. The actual output is the realised result or actual measured outcome of the

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