Svedka bottle won t open

Financial Accounting

6. Run a regression of the natural logarithm of change in sales on the natural logarithm of previous period’s prices, and the natural log of marketing expenditures on print, outdoor, and broadcasting.

7. To understand the influence of vodka quality, run a regression by adding the tier 1 and tier 2 dummy variables (that indicate whether a vodka brand belongs to first- or second-quality tiers) to the set of independent variables in question 6.

8. To understand the influence of competition and brand power, run a regression by adding the sum of sales of all the competing brands in the previous year (“lagtotalminussales”) to the independent variables in question 7.

9. To measure the sales growth of new brands compared with the existent ones, include the variable “firstintro” to the independent variable set in question 8. “Firstintro” is equal to one in the first three years after a brand is introduced and is zero elsewhere.

10. Why does the coefficient of price and advertising change in the above regressions?

11. Based on your analysis of the Vodka data, what recommendations do you have for Cuvelier regarding the marketing mix for SVEDKA?

SVEDKA Vodka (A)

As he waited for his wife to meet him, Guillaume Cuvelier sat in a downtown Manhattan restaurant sipping vodka straight up. As founder and managing director of Spirits Marque One, a liquor importer, Cuvelier wondered if patrons of such an upscale bar would soon be ordering his new vodka by its name: SVEDKA. It was mid-1998, and the product was set to launch in just a few months. Scanning the bar for the competition’s vodka bottles, Cuvelier ran through the marketing campaign in his head.1

The U.S. government defined vodka as a neutral spirit “without distinctive character, aroma, taste, or color.” As one food and beverage writer explained, “Good vodka is considered to be one without the harsh, rubbing-alcohol fumes of ethanol.”2 The now-popular liquor originated in the fourteenth century in either Russia or Poland (depending on which history you believe) as a spirit distilled from rye or wheat. In the early 1800s, the introduction of filtration and dilution techniques allowed vodka to evolve into something more refined but no less potent.

As Cuvelier enjoyed his drink, the image of James Bond came to mind—described years earlier by an industry observer as “the first upscale vodka drinker.”3 Consumers were increasingly imitating Bond’s discerning taste for high-priced vodka. In this climate, Cuvelier reviewed his own pricing, distribution, and positioning one last time. He hoped he was right that the vodka market was ready for a mid-priced option: Was there really an opportunity below the Bond tier and above the very low-priced products? With a small marketing budget, Cuvelier had to be correct in his efforts to position his brand as he created a new segment.

On Trend

Trends in the marketplace inspired Cuvelier to take a closer look at opportunities in the spirits business (whiskey, gin, and vodka were among those classified as spirits). In 1991, he had received his MBA from the Darden School of Business at the conclusion of a two-year hiatus from his position with LVMH’s Möet Hennessy-Louis Vuitton.

As an industry insider during the 1980s and early 1990s, Cuvelier had been inspired by Absolut vodka’s success as a product, brand, and category leader. “Pre-Absolut, you could say that vodka was vodka was vodka,” he said.

Cuvelier believed there was room to compete in the category by offering his own twist on the concept of name-brand vodka. With that purpose in mind, in 1998, Cuvelier founded a small entrepreneurial team of industry experts in New York City. That same year, vodka was the top-selling distilled spirit, representing 24% of total spirits consumption in the United States, up 3.6% in volume sales from 1997. The growth in premium vodka was in stark contrast to the negative long-term trend for most other spirits. (See Exhibit 9-1 for vodka sales from 1975 to 1998 and projections for the category.)

The Market

Branded vodka dated back to the late 1860s, when Smirnoff cultivated the endorsement of the czar, engaged in comparative advertising with competitors, and paid patrons of Moscow bars to demand Smirnoff and accept no substitutes. Russia’s connection with the category became prominent in the minds of many consumers. A leading imported vodka from Russia, Stolichnaya, had been introduced to the United States as recently as 1965. The brand leveraged its Russian image, evoking a strong connection to its origin and heritage. But “Stoli stumbled after the Soviet downing of Flight 007 in 1982, [which] hurt sales of many Russian products.”4 Once a Russian import, Smirnoff was eventually produced in the United States and came to dominate the domestic vodka segment, capturing almost 20% of the market share by 1998. Until the launch of Absolut, Smirnoff dominated the premium-price vodka segment with a brand name that derived authenticity from the family’s Russian heritage.

The launch of Absolut in 1979 and its now-famous ad campaign helped the brand attain its pop-culture status. In 1998, Absolut spent $18 million on advertising.5 Years later, USA Today reported: “Absolut had pioneered selling distilled spirits on image, persuading consumers to buy prestige in a bottle for $20. But the new prestige vodkas, at $25 to $200, have become what Absolut was 20 years ago.”6

It took more than a decade for the Dutch Ketel One and American Skyy (then the only domestic vodka priced above $10) to enter the market. New prestige vodkas available at a high price point did indeed seem to become what Absolut once was. The Business of Spirits stated that the price for vodka “increased to $30 with the debut of Grey Goose, Chopin, and Belvedere in the late 1990s. Now, the debut market [was] flooded with $30 vodkas.”7

The success of Grey Goose proved people would pay $30 for a bottle of vodka; in 1998, its sales increased 50% from the previous year.8 Cuvelier had watched as “consumers became increasingly aware about the look, quality, and origin of vodka.” (Exhibit 9-2 shows the number of new vodkas introduced from 1996 to 1998.)

Smirnoff was not alone in its high-volume sales and market share results. Brands such as Popov, Gordon’s, McCormick, and Barton (each priced under $10) sold the most cases and enjoyed the largest shares.9 A significant portion of these sales was for the larger-size plastic bottles.

Cuvelier believed that a midprice vodka could capture some volume sales from the under-$10 market. “This standard vodka category had never been expanded to include consumers who were willing to stretch their wallets a little bit,” he said.

The Product

Vodka could be manufactured inexpensively out of many different raw ingredients and didn’t need to be aged. Its standard alcohol content was 40%, or 80 proof. Because the staple ingredients were relatively cheap, vodka companies invested in more complex distilling and filtering methods as well as flavor ingredients to distinguish their brands. Marketing campaigns often highlighted “more exotic backstories” to justify higher prices and profits.10 Indeed, vodka’s smoothness and thickness could vary from brand to brand. “The burn is usually associated with inexpensive vodkas,” said Robert Plotkin, founder of BarMedia, a beverage consulting firm.11

Cuvelier was dedicated to creating a high-quality product that could be distinguished for its soft, silky drinkability. He selected Lidkoping, Sweden, as the manufacturing site. Cuvelier knew the country had recently joined the European Union, causing it to deregulate the alcohol monopoly. “My plan was to be the first to effectively develop and produce 80-proof Swedish vodka immediately after the reopening of the market,” he explained. “I wanted the vodka to be from Sweden so I could take advantage of the Absolut tailwind.”

SVEDKA outsourced its production to large, established industrial facilities. The glass bottles were imported from Germany, decorated in France, and shipped to the factory in Sweden to be filled with vodka. The finished product was shipped in cases to the United States.

Wine Enthusiast confirmed the quality of Cuvelier’s product, rating SVEDKA 93 out of 100. Classifying the vodka as a “Best Buy,” the review said, “We can’t remember using the word ‘complex’ when describing a vodka before, but this one shows a tightly knit set of characteristics that deserve applause.”12

SVEDKA would initially be available in the standard 750ml and 1.75L bottles. Larger and smaller sizes could be added once the business grew. “This gradual size rollout was common industry practice, especially for a start-up brand,” Cuvelier said. While many brands were extending their selection to include flavored vodkas, SVEDKA focused on the core unflavored business for the launch.

The Price

In addition to the option of imitating the premium prices of recent imported vodka successes, there was the under-$10-per-bottle market, which Cuvelier estimated was approximately 80% of the market volume (also known as the “standard” vodka segment, it ranged from $5 to $9 for 750ml). In fact, in 1998, 23 million cases were purchased at retail prices less than $10 per 750ml bottle (Table 9-1).13 And then there was the third opportunity: to be a midtier player between the high and low price spectrums.

Note: Market share calculation is based on total case volume for imported and domestic vodka.

Data sources: Adams Business Media; Virginia Department of Alcoholic Beverage Control; case writer estimates.

Table 9-1 Vodka Category Price, Units Sold, Market Share, and Launch Year by Brand, 1998

Exhibit 9-3 shows the supplier case prices for vodka. In 1998, according to a Standard & Poor’s survey of the alcohol industry, operating margins for U.S. alcohol beverage companies were about 20%, “well above the 12% to 14% range for packaged food companies.”14

Cuvelier estimated that wholesaler margins for SVEDKA averaged 25%. Retailers’ margins varied from 30% to 35%.

It was industry practice to offer retailers volume discounts. Cuvelier created Table 9-2 to estimate the discount levels he would be expected to offer.

Table 9-2 Estimated Discount Levels Based on Case Quantity Discount

To reach a final everyday suggested retail bottle price, Cuvelier had to consider the costs along the wholesale and retail channels. The wholesaler’s net laid-in costs were the sum of the free on board (FOB) price, the U.S. Federal Excise Tax (FET), state tax, and freight costs. (The FET per proof gallon was $13.50 in 1998.) SVEDKA classified the mandatory FET and individual state taxes (which varied by state) as hard production costs.

Pricing was tricky, and critics warned Cuvelier that if the price were too low, consumers might think the vodka was low-quality. But if SVEDKA were priced too high, consumers might question its value. A midrange price would risk SVEDKA’s getting lost among the more premium brands. Already, higher-priced brands were encountering competition from the superpremium competitors. In The Business of Spirits, author Noah Rothbaum commented on the dilemma SVEDKA faced: “Many companies with high-priced spirits are concerned that their products soon will be leapfrogged by other, even more expensive brands, stealing their attention and market share.”15

Target Customer

Despite the risks he identified, Cuvelier was optimistic. “I believe that SVEDKA is the only brand in the vodka category to bridge the two ends of the category, appealing to both upgraders and consumers looking for the best possible value,” he said. “I see SVEDKA as being at the crossroads of the market.” SVEDKA wanted to capture the new vodka drinkers as the category was expanding, along with the “upgraders” who were looking for an opportunity to drink something better than the standard offerings. SVEDKA could be the vodka of choice for both price-driven groups.

In addition to considering consumer price sensitivity, Cuvelier segmented vodka drinkers into two large groups based on age and consumption behavior. Regular vodka drinkers tended to be price-conscious and loyal to a brand; consumers in this first segment were mostly older males. The second group consisted of the 21-to-35-year-old consumer, who represented 40% of the vodka market. (Exhibit 9-4 shows the breakdown of distilled spirits drinkers by category and age group.) Cuvelier thought this target group was also price-conscious, but not so brand-loyal. He was confident that SVEDKA, if positioned properly, would be able to tap into this younger crowd.

Distribution

Off-premise (or off-trade) channels were the liquor and retail stores, while on-premise (or on-trade) channels included bars, hotels, and restaurants. Brands were usually launched simultaneously in both the on-trade locations and retail outlets. The on-premise percentage of volume was higher for premium brands because consumers often ordered drinks mixed with a specified brand-name vodka. For example, in 2003, 51% of Ketel One’s volume was from on-premise. The percentages of on-premise consumption for Grey Goose, Absolut, and Stoli were 48%, 38%, and 37%, respectively.16

The spirits industry was a highly regulated business. Producers and importers could not sell directly to the retailers; instead, they were required to sell to licensed liquor wholesalers, who then serviced retailers. Licenses were issued by the state and therefore restricted wholesaler distributors from operating beyond any given state’s jurisdiction. Cuvelier relied on a small internal sales team to manage the distributors as key clients. By leveraging relationships within the industry, “I tried to overcome the biggest hurdle of getting distributors on board,” he said.

Another obstacle in distributing liquor was the issue of control states (also known as monopolies). In 18 U.S. states, accounting for about 25% of the population, state governments exercised monopoly control over the wholesaling and/or retailing of alcohol (Exhibits 9-5 and 9-6). These states, among them North Carolina, Vermont, and Washington, were scattered across the country. Michigan, Pennsylvania, Washington, and Virginia were not only control states, but also ranked among the top 15 states for retail spending on distilled spirits.17 Most control states had higher taxes and prices than noncontrol states. For marketers, obtaining distribution meant persuading each independent state liquor commission to carry their brands.

In all cases, pricing was uniform and dictated by the state, leaving very little room for promoting brands. In most control states, retail prices were much higher than those in “open” neighbor states, but there were a few notable exceptions, such as New Hampshire and Pennsylvania. Temporary discounts and displays were allowed but highly regulated (and each state has its own set of rules) and needed to go through a lengthy approval process with the local liquor board. Shelf positioning was not negotiable. Another limitation in control states was the lack of convenience: Many had an insufficient number of stores, often with poor locations and limited operating hours.

Off-premise retailers were divided into food, drug, and liquor stores. Food stores included groceries, delis, and larger wholesale clubs. Drugstores such as Walgreens comprised the drug category. Liquor stores were further divided into the independent and control-state-owned liquor stores. Cuvelier estimated that the breakdown was 35%, 20%, and 45% for food, drug, and liquor stores, respectively. “The big chains, across all categories, were harder to penetrate, since they required high margins and heavy marketing support and established market share,” he explained. “These bigger outlets relied on strong consumer pull for top brands.”

For vodka, independent retailers were responsible for significant volume sales. And they could give the brand strong and sustained support because they generated higher margins on SVEDKA than high-volume established brands while offering a very competitive price. The pricing of SVEDKA, Cuvelier thought, would be attractive to them—which translated into eye-level shelf positioning, floor displays, and spontaneous retailers’ recommendations. By prominently displaying SVEDKA alongside key competitors, store owners could give the brand invaluable credibility. And so SVEDKA planned to concentrate sales efforts on these midmarket retail outlets. In particular, Cuvelier intended to focus on landing the family-owned operations, considered midtier stores in terms of traffic and business, and devote very little effort to the chain stores such as large grocery and drug chains that also sold liquor in noncontrol states.

The distribution strategy for SVEDKA required a network of wholesalers and brokers. Cuvelier thought it would be difficult to gain a foothold among large wholesalers in the biggest states, so he looked for what he called “challenger” distributors where he could get more attention and support from management and sales. These operated primarily in open states. (See Exhibit 9-5 for retail sales of vodka in the top 25 states by retail sales in 1998.) Robust collateral pieces explaining the benefits of the product, brand, and company were given to all retailers as education materials.

Cuvelier believed that, given his limited budget, launching SVEDKA in the midmarket off-premise locations was the most effective strategy He instructed his sales force to secure distribution in liquor stores only. But he still harbored doubts about which particular states he should select and the order in which they would receive SVEDKA shipments.

The Brand

The first association consumers would have with the product was its name. Cuvelier had searched for a word that evoked the vodka’s Swedish heritage. During his many trips to Sweden, the word Svensk (“Swedish”) caught his attention; it appeared everywhere. He combined it with the word “vodka” to come up with an easier-to-pronounce version: SVEDKA. Although focus groups and the packaging agency didn’t confirm the wisdom of his choice, Cuvelier stayed with his intuition. (Exhibit 9-7 shows the SVEDKA bottle with its original logo, which has since been updated.)

The name was fitting for the product’s positioning. Cuvelier envisioned SVEDKA as a challenger brand, with a personality like JetBlue in the airline industry or Target in fashion: an inexpensive, chic alternative. It was a fun option that challenged the status quo in a category that was taking itself too seriously. SVEDKA empowered the consumer with a different choice where there wasn’t much discrepancy among the products in its category. “The category is locked in sameness,” Cuvelier said. “Each brand relies on a stated marketing recipe of bottle shot plus product benefit plus cocktail recipe plus historical reference.”18

The Campaign

Cuvelier estimated he had about $350,000 to spend in his first year on marketing SVEDKA (not including promotions to wholesalers and retailers, which could include the discount levels, support materials, sales force incentives, and in-store promotions). He allocated this budget among media, point of sale (POS), trade shows, creative, and sampling.

Until distribution reached key markets, Cuvelier did not use traditional advertising. Generally, brands were promoted in print (with magazines as the dominant medium), outdoor, broadcast, and electronic media at an increase of 14% over the $256 million spent in 1997.19 (Refer to Exhibit 9-8 for the total advertising expenditure in 1997 and 1998.) Cuvelier wanted SVEDKA to achieve distribution, brand awareness, and word of mouth before he launched a national campaign. He was left to reassess the best use of his dollars across the following marketing methods.

Trade Press and PR

Cuvelier viewed trade relationships as the first step in communicating about his brand. There were a small but influential group of trade magazines and writers he needed to acquaint with SVEDKA. He bought a few full-page trade ads and entered SVEDKA in vodka contests to drum up press. He succeeded with the Wine Enthusiast 93 rating. Such high marks were in line with the more expensive Grey Goose (which received a 94) and Ketel One (93) and higher than the ratings for Stolichnaya (91), Skyy (90), Belvedere (89), and Absolut (90).20 The favorable results validated the brand in the eyes of the wholesalers. Their excitement about SVEDKA would determine how quickly it was embraced by the largest, bottom portion: the core consumer. All media outreach was limited to the trade outlets. SVEDKA used its high-profile reviews to fuel favorable trade press articles. But additional public relations efforts toward larger publications were not scheduled for the launch.

Point of Sale

Brand visibility would thus be at the store level through POS materials. Because of the emphasis on an off-premise distribution strategy, Cuvelier allocated marketing dollars toward enhancing the in-store experience (midtier liquor stores). POS and store signage (shelf, display, and window materials) helped bring the brand to life at the point of decision making and purchasing. The Wine Enthusiast ranking was displayed on POS pieces to provide the unknown product with credibility.

Trade Shows

SVEDKA planned to sponsor booths at top industry trade shows. Attendees at these shows included wholesalers and retailers, as well as the media and competition. Although trade shows were costly and time-consuming, Cuvelier believed that having a presence at industry events would develop brand recognition as well as provide continuing insight into industry trends.

Creative

The collateral materials that supported the SVEDKA booth at trade shows, in addition to the POS materials and trade press kits, fell under the creative investment line item. Cuvelier wanted all branding elements to have a cohesive look and feel for both internal and external audiences. The same images appeared as limited ads in trade magazines such as Beverage Industry News.

Sampling

And finally, when the product was to be introduced in a new store, SVEDKA intended to host sampling events. SVEDKA wanted to put its own twist on the customer-engagement tactic by designing customized, branded barware test tubes. Cuvelier was certain that the ROI on these 1,000 to 1,500 sampling events per year (two to three hours per event with a small staff and collateral materials) was enormous. SVEDKA had only one shot at the launch campaign, and Cuvelier was confident in his tactics. But he did find himself reexamining his budget in the final days before his product’s debut.

Exhibit 9-1a Projections: Vodka Versus Total Distilled Spirits (In Thousands of 9L Cases)

Exhibit 9-1b Vodka sales, 1993 to 1998 (in millions of 9L cases)

Exhibit 9-3 Supplier Vodka Case Prices

Exhibit 9-2 New Distilled Spirits Introductions by Category, 1996–1998

Note: Includes consumers age 21 and older only.

Sources: Simmons Market Research Bureau, Spring 1998 Study of Media and Markets; Adams Liquor Handbook 1999, 291.

Exhibit 9-4 Consumers of Distilled Spirits by Category and Age Group (In Percentages)

Exhibit 9-7 SVEDKA bottle with original logo

Exhibit 9-6 Map of control (dark) and open (light) states

Exhibit 9-5 Retail Sales for Vodka in Top 25 States, 1998 (Dollars in Millions)

Exhibit 9-8 Total Advertising Expenditures for Vodka, 1997–1998 (In Thousands of Dollars)

SVEDKA Vodka (B)

SVEDKA had sold 25,000 cases by the end of 1998. Initial volume sales results, press coverage, and sales force feedback validated Guillaume Cuvelier’s assessment of SVEDKA’s market opportunity. Retailers and consumers responded to the product’s value and appealing price. SVEDKA had identified and fulfilled a need for a high-quality imported vodka at a midlevel price point.

By 1999, SVEDKA was available in 15 of the states in its market. The number increased to 44 within three years, and, by 2003, the brand had achieved national distribution. Cuvelier told BIN magazine in December 2003: “As a marketer, it is most exciting for me to see the product so well displayed in store. A good product, well marketed, intrinsically translates to high volume.”21

The Results

In 2006, SVEDKA reached an important industry benchmark, selling one million cases. That same year, vodka was the largest growth category of any major international spirits sector.22 According to a 2008 Information Resources, Inc., report, SVEDKA ranked fifth in the combined liquor, food, and drug categories for imported vodka (Table 9-3).23

Notes: This data is useful for market shares but not for total volume or dollars sold; YAG = year ago.

Data source: Information Resources, Inc.

Table 9-3 Premium Imported Vodka for the 52-Week Period Ending March 23, 2008

The Product

Cuvelier believed that flavored vodka was a necessary step if the brand were to be viewed as a major force in the category, even if the standard vodka contributed to the majority of sales. After focus group testing, SVEDKA extended its brand, offering citron, clementine, raspberry, and vanilla flavors in 2003 and 2004. In the summer of 2009, a cherry flavor was added. These flavored versions were 37.5% alcohol, or 75 proof, whereas standard vodka was 40% alcohol, or 80 proof. All flavor varieties were priced the same as the regular vodka. Around the same time, the 200ml and 375ml sizes were introduced. And in 2008, SVEDKA tweaked the bottle design. (Exhibit 9-9 depicts the newer packaging and various flavors.)

SVEDKA continued to receive favorable product reviews, which added to the credibility it had established with the high Wine Enthusiast marks. For example, F. Paul Pacult’s Spirit Journal gave SVEDKA four stars, deeming it “an outstanding value.”24 The brand won numerous awards, such as the gold medal at both the 2002 International Wine and Spirit Competition and the 2003 World Spirit Competition.

Distribution

Cuvelier attributed much of the brand’s success to his focus on distribution in the early years. “SVEDKA has essentially emerged from a core independent retail network,” he said. “They have made the brand what it is today.”25 After a few years of making inroads in the off-premise channel, it became clear that SVEDKA needed a presence in the bars and restaurants as well. By 2004, Cuvelier wanted his team to focus on trendy bars where the opinion leaders decided on the next hip brand. Given SVEDKA’s limited resources, this initiative targeted select accounts in key urban markets such as New York and Los Angeles, where the brand was sampled, promoted, and featured consistently.

Each year, more high-profile restaurants and clubs were added, including Starwood Hotels and Resorts Worldwide, including its trendy W luxury hotel chain, and Ruth’s Chris Steak House. These were important wins for the brand. A bar’s willingness to carry the product validated that SVEDKA had generated enough consumer knowledge and pull.

The Brand

When SVEDKA hit the shelves, Cuvelier wanted to ensure that the product created an emotional connection beyond the vodka itself, a phenomenon similar to Absolut’s. During a SVEDKA corporate presentation, he said that “SVEDKA had to mean more than a product to its core audience. It was an experience, a lifestyle, and above all a fun brand.”

Unlike other brands, which looked to the past for justification, Cuvelier wanted SVEDKA to suggest the future, the language of its core target. (See Exhibit 9-10 for SVEDKA’s assessment of competitors’ marketing campaigns from 2007–2008.) Absolut marketed its bottle silhouette in its advertisements, and other competitors such as Stoli used the heritage angle. Cuvelier believed the “tradition” message didn’t make much sense for the category. Vodka, unlike other spirits such as Cognac, was not aged, so the tradition would not play an important part in the purchaser’s decision.

SVEDKA’s positioning as a high-quality imported vodka at an affordable price, to be enjoyed while having fun with friends, focused on the end benefits of vodka rather than telling a story about the vodka itself. SVEDKA promoted itself as both a rational and aspirational product, and Cuvelier wanted his vodka to be equated with the festive social occasions during which consumers would enjoy it.

The first step in communicating the brand was explaining it to the internal team. The sales team was trained on the product’s core promises, brand attributes, and competitive positioning. Words such as freedom, fresh thinking, and flirtatious were used in presentations to describe the brand’s essence. The SVEDKA consumer was described internally as a sophisticated, “casual-cool,” iconoclastic, and authentic person. Above all, the brand strategy—a light-on-the-wallet yet high-quality vodka—was reinforced.26

Trade Campaign (1998–2002)

In keeping with the brand’s origin, the first campaign featured two young, Nordic-looking blond women, “the SVEDKA sisters,” who urged consumers to “try something Swedish tonight.” (See Exhibits 9-11 and 9-12 for examples of sales collateral and a tent card from this campaign.) The very first target audience was the trade, specifically the wholesalers’ salespeople, most of whom were middle-age males working on commission. The goal was not only to get their attention but also to show that the brand was spending money to promote the launch in bars and stores. Given the limited budget, the campaign had to feel bigger than it really was, hence a provocative message supported with numerous point-of-sale materials. In 2000, the marketing budget of less than $350,000 covered the posters, logo roll banners, table tents, T-shirts, case cards, and shelf talkers. Each year thereafter, additional funds were allocated to support more media, public relations, and promotions.

In 2001, Cuvelier began working with a small marketing firm to execute promotions, bar nights, and sampling events. The marketing budget had more than tripled from 2000; since 1998, resources had been allocated to selling and developing the distribution network. SVEDKA models gave free Swedish massages to drum up interest in trying the product; that way, the consumer could actually experience the provocative and fun nature of SVEDKA. A limited radio buy supported the efforts in targeted local markets; however, Cuvelier spent most of the $500,000 budget to run 15 bar nights per month in three select markets.27 The 2002 media spend was more than 100% above the previous year’s. The entire SVEDKA marketing budget was up more than 30%.

National Campaign 1: PR (2003)

As sales grew, Cuvelier faced a common marketing dilemma: how to bring his brand mainstream without alienating his initial customer base. He wanted to maintain SVEDKA’s brand equity and integrity but also become known to the masses. “We think we can remain provocative and fun, but still speak to a broader group,” Cuvelier told the Wall Street Journal in September 2005.28 Image-conscious 21-to-30-year-old consumers remained the core audience. The answer would be to speak loud and clear in a different way. In the fall of 2003, Cuvelier was ready to take risks, invest more dollars in marketing, and introduce the brand’s first national campaign. The objective was to get noticed by opinion leaders. SVEDKA relied on making noise with its ads to put itself on the map.

Marina Hahn was brought in as marketing director and applied her years of experience of building brands at Pepsi and Sony to managing SVEDKA’s advertising campaign. Themed “Adult Entertainment,” the ads featured such images as a nude, goose-bumped woman holding a shot glass between her breasts as someone splashes vodka into it and down her torso.29 SVEDKA won Impact magazine’s 2003 Hot Brand Award. SVEDKA became a brand regularly mentioned in People, US Weekly, and the New York Post as the vodka of choice among the young celebrity crowd.

National Campaign 2: Advertising (2005)

To many, SVEDKA was known for its 2005 advertising campaign, created by the New York-based agency Amalgamated. Building on the PR campaign, marketing wanted to push things even further. SVEDKA_Grl was introduced as the futuristic and provocative mascot (Exhibit 9-13). Her sexy image appeared on the website and in advertising and buzz marketing pieces. The brand rallying cry “Voted #1 Vodka in 2033” was used in the ads to offer social commentary on hot topics of the day. SVEDKA_Grl set her own rules and delivered tongue-in-cheek messages on current events such as stem cell research and smoking bans. She appeared on billboards, bus shelters, and wallscapes in key markets such as New York, Chicago, San Francisco, and Boston.

Once again, the press responded. This time, industry associations weighed in as well. SVEDKA’s ads twice drew censure from the Distilled Spirits Council (DISCUS) for using sex to sell alcohol. Although the industry’s self-regulating body didn’t impose a fine or require that ads be pulled, all major liquor companies that were DISCUS members voluntarily pulled or altered censured ads. SVEDKA was not a DISCUS member and did not retreat from its ad strategy. “We’re not talking about Pampers here,” Hahn told the Wall Street Journal. “We’re talking about vodka.”30 SVEDKA’s growth rates accelerated from 35% to 40% to 60%. Perhaps just as important as the sales results, the campaign brought life and awareness to the brand. SVEDKA had a clear personality that consumers recognized across all the marketing vehicles.

Competition

While SVEDKA was growing, so was the number of vodkas in the market. In 2003–2004, other brands began to follow SVEDKA’s strategy, updating their angles to reflect the hip, cool, and social target consumer. “This was an indicator that we had been successful,” Cuvelier said. In 2005, 761 different vodka stock-keeping units (SKUs) were for sale, an increase of almost 56% from 2000, according to DISCUS.31 The new additions reflected the trends of the times. Organic vodkas and energy vodkas entered the market in 2007.32 Celebrity endorsements emerged as an important seal of approval: In 2007, Sean “Diddy” Combs agreed to become the spokesperson for Cîroc, which had been introduced in 2003.

The market’s dynamics were changing. (Refer to Exhibit 9-14 for sales figures.) Industry data pointed to the fact that Absolut was slowing down, while Grey Goose was gaining ground.33 Trying to protect its share of top-shelf sales, in 2004 Absolut introduced Level.34 One thing that was increasing for the majority of brands (2005–2007) was ad spend. The top three competitors outspent SVEDKA by as much as 7 to 1 (Exhibits 9-15 and 9-16).

Exhibit 9-9 Flavor extensions and new packaging (2009)

Exhibit 9-10 Competitive Review (2007–2008)

Exhibit 9-11 Sales collateral (2004)

Exhibit 9-14 Leading Brands of Vodka, 2002–2007 (In Thousands of 9L Cases)

Exhibit 9-12 Trade campaign (2000–2002)

Exhibit 9-13 Print advertisement (2008)

Exhibit 9-15 Advertising Spend, 2005–2007 (Dollars in Thousands)

Exhibit 9-16 Media Spend (Dollars in Thousands)

SVEDKA Vodka (C): Marketing Mix in the Vodka Industry

Associated with sophistication ever since James Bond first ordered a vodka martini “shaken, not stirred,” vodka enjoyed tremendous success over the decades leading up to SVEDKA’s debut. The vodka-enthusiast women of the hit HBO series Sex and the City provided renewed energy for vodka in early 2000, just as the more-than-40-year bump Mr. Bond had provided was losing its luster. In 2007, Smirnoff was the highest-selling spirit brand worldwide (25.7 million cases) and in the United States (9 million cases). U.S. vodka sales topped $7 billion in 2007, and two spots in the top five spirit brands worldwide belonged to vodka brands Smirnoff and Absolut.35

Product

Between 2000 and 2007, the number of vodka brands increased from 14 to 26. Flavors and packaging were the more popular product variations introduced. Absolut was the first to introduce flavored vodka in 1986, using three types of peppers. The company called it Absolut Peppar (peh-PAR) and proclaimed it to be perfect for a Bloody Mary. Smirnoff and Absolut introduced the most flavors, and by 2007, Smirnoff’s product line included 20 different flavors while Absolut had more than 10. Innovative packaging evolved, starting with Absolut’s recognizable shape, inspired by a vintage Swedish apothecary bottle. By 2011, brands such as Vox and Cîroc were bottled in elegant frosted glass.

Price

In 1997, Grey Goose invented the superpremium category, marketing a 750ml bottle of vodka priced above $30. Vodka retail prices varied across states because of taxes and the regulation of distributors. The wholesale price of a 9L cases of vodka was above $200 for the superpremium brands such as Chopin, Belvedere, Grey Goose, and Level, whereas the prices of some value brands such as Aristocrat, McCormick, Barton, and Crystal Palace were below $35 per 9L case.36

Advertising

By 2007, the industry had spent more than $200 million on advertising through various channels, including outdoor, magazine, newspaper, and television.

TV advertising of alcoholic drinks had been controversial; indeed, for 48 years liquor producers had chosen not to air commercials. In 1996, Seagram broke that trend with network spots promoting Crown Royal and Lime Twisted Gin. In spite of the public outcry that arose, other liquor brands slowly started testing cable TV spots. Eventually, cable television came to be seen as the most suitable venue for liquor advertising.

The print ads for vodka were very sophisticated. In 1980, Absolut began featuring its bottle’s distinct silhouette, a practice it continued for more than two decades. Its innovative campaign prompted an account rep at TBWA, Absolut’s ad agency, to write a book in 1996 about its print campaign.

Grey Goose won the Beverage Tasting Institute award for “best-tasting vodka” in 1998 and used the title in a series of successful print campaigns in the Wall Street Journal and other high-end publications. In the same year, Sex and the City characters started asking for a “Grey Goose cosmopolitan,” which extended the brand’s recognition and superpremium image.

Distribution

In 1919, a constitutional amendment banned the manufacture, sale, and transporting of alcohol in the United States. With the repeal of Prohibition in 1933, U.S. alcohol distribution was highly regulated via a three-tier system that restricted producers from direct distribution of alcohol. Producers were required to supply distributors, who then supplied retailers; consumers could purchase alcohol only from the retailers. Some states, called control states, had a monopoly over the wholesaling and/or retailing of some or all categories of alcohol. In those states, consumers could obtain alcohol only from state-run Alcohol Beverage Control stores. By 2011, there were 19 control states.

The marketing-mix model for vodka was therefore focused on balancing product line, price, and advertising decisions. Temporary price reductions were generally not allowed by the U.S. government. Further, distribution was not under alcohol producers’ control.

Conclusion: Marketing-Mix Model

SVEDKA founder Guillaume Cuvelier considered looking into historic U.S. vodka sales to evaluate the effect of new flavors, segment membership, and advertising. Consumer reactions to vodka advertising and pricing probably differed among the superpremium, premium, and value segments. New brand entries also may have had different price and advertising elasticities compared with the established brands. Finally, new flavors could have had a direct effect on vodka sales. Cuvelier wondered if he could quantify the financial value of his product’s Wine Enthusiast certification and 2002 and 2003 gold medals. Understanding the value generated by each of the three campaigns from 1998 through 2005 would provide a good basis for the design of future campaigns. And identifying brands that directly competed with SVEDKA would allow Cuvelier to effectively allocate marketing resources. Cuvelier wanted to use historic vodka brand sales to inform his product’s price and advertising budget.`

Assignment Questions

1. What gave Cuvelier the idea that there was a market for $10.00 vodka?

2. Are there brands you can point to that have used strategies similar to those employed by SVEDKA?

3. What is the brand positioning statement that might guide integrated marketing communications? How has the positioning evolved over time? Where is it headed?

4. What advice would you give Cuvelier for SVEDKA’s rollout strategy?

5. Which elements of his total marketing strategy is he relying on for success in this market?

Use the vodka industry data set to evaluate the effect of price and advertising on sales by answering the following:

6. Run a regression of the natural logarithm of change in sales on the natural logarithm of previous period’s prices, and the natural log of marketing expenditures on print, outdoor, and broadcasting.

7. To understand the influence of vodka quality, run a regression by adding the tier 1 and tier 2 dummy variables (that indicate whether a vodka brand belongs to first- or second-quality tiers) to the set of independent variables in question 6.

8. To understand the influence of competition and brand power, run a regression by adding the sum of sales of all the competing brands in the previous year (“lagtotalminussales”) to the independent variables in question 7.

9. To measure the sales growth of new brands compared with the existent ones, include the variable “firstintro” to the independent variable set in question 8. “Firstintro” is equal to one in the first three years after a brand is introduced and is zero elsewhere.

10. Why does the coefficient of price and advertising change in the above regressions?

11. Based on your analysis of the Vodka data, what recommendations do you have for Cuvelier regarding the marketing mix for SVEDKA?