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Advanced Marketing Strategy Questions 1, 2 & 3 Sean Borg 5/6/2013

Questions 1 & 2 1) Overview of the Current Situation

AB InBev is an organization that is a merger between InBev (Leuven – Belgian owner of Beckas and Stella Artois) and Anhe – Busch (creators of Budwiser). It owns around 200 beers worldwide and is ready to buy more brands making it the largest Beer Company in the US owning 48% of the market share. This already put the company in a good place as owning almost 50% of the beer market share seems very good on paper. On top of that they control 69% of the market share in Brazil, they are the second largest brewer in Russia and have classified as third in China. In 2011 sales declined by 8% and Coors Light sured Budweiser and took its no. 2 spot. AB InBev’s CEO Carlos Brito believes in minimizing costs as much as possible and maximizing profits. He has done this in numerous ways by doing away with certain perks such as having a company car, removing half of the BlackBerrys being used, executives had to fly commercial instead of economy, turning offices into a plain open space and so on… Perhaps the most damaging cut made was to take beers out of their country of origin and begin producing them in the States. High quality Hops such as Hallertauer Mittelfruh was one of the ingredients that the company thought that Budwiser could do without. According to hop farmers this changes the taste of the beer and has accused the company of making lower quality beer which will not change as long as people buy the beer that is being brewed. In the beginning of the article Beck’s was described as a top beer. As one continues to read it becomes apparent though that the once mighty beer has begun to fall from grace ever since it started being brewed in the US. Bass is also another beer that is not doing well with sales decreasing by 17% in food stores in the span of four weeks in the month of September 2012.

Strengths & Weaknesses

The company’s biggest strength is probably their portfolio. They have acquired a number of regional beers with loyal customers (so loyal that when taste started to change consumers started petitions asking for the old ones back). This strategic move on their part was done in order for the company to establish itself as an international global beer company which was further reinforced with the merger of AmBev in South America and Anhe – Busch in America. It has developed strong capabilities for acquiring different beer brands & slashing prices. These organizational processes have manifested in various activities particularly in pricing policies, product development and product customization (for example in making beers their own buy changing their brewing methods). Slashing prices has also helped to retain and save billions of dollars which has made their cost effective strategies a great strength of the organization. Certain aspects of their Environmental Analysis could also be considered as strength – such as General trends that are impacting the market (popular beers) - as the acquisition of popular international brands as well as the companies they merged with have all been done in a way that positioned them as a Global and International beer company. They see these brands as an opportunity to add another cash cow or star to their portfolio and may somewhat turn threats and competitors into their own strengths. Their biggest weakness probably lies in the fact that they tend to be a bit myopic in their product development. Their weak market sensing comes from the fact that the organization buys and distributes brands of beer that is most cost effective and efficient for them rather than paying attention to the important factor that consumers regard the taste of ‘imported’ beers as a very crucial factor in their beers. Growing them locally in the USA affects the taste and the beer loses its authentic and differentiated taste making the beer generic and not special. Judging from the article it does not seem as the company gives much importance to company linking as they do not take much from the consumer as was expressed in the beginning when the author stated that his comments were deleted from the Facebook page. They seem to be lacking in working within a framework of the requirements that a market driven organization should be built upon due to their alienation of their consumers. It also seems pretty clear that socio – cultural factors has become one of their weaknesses when it comes to their beer brands and the cultural or social factors that make them unique. This can be seen in the case of Beck’s that lost most of its appeal when it started being brewed in the states rather than in as well as replacing certain ingredients with ones that were not authentic as their German counterparts.

Sustaining Competitive Advantage & Growth

Their biggest competitive advantage stems from the fact that the company has some powerful, well recognized brands that have a strong following. They also control over 200 beers which give them a great share of the market. Besides this, buying these brands has contributed to their strategic business unit however I don’t think it has necessarily strengthened the company in the long run. The fact that the organization has to wire money from the successful brands is already a red flag indicating that certain brands and products in the product line could be weighing the corporation down. However owning these brands helps maintain a high global market share. The question is what’s better; investing in a lot of small beer brands and maintain a high market share or focus on the bigger brands and decrease the company’s market share? Owning so many beers could risk having these small brands to be in competition with each other. According to the PIMS Findings as market share rises sales begin to increase however, it must be pointed out that ROI has increased for the company due to Brito’s cost cutting methods and raising the prices of the products. Therefore, this begs the question how well are these products doing? I think that in order for the company to grow it needs to focus its product line more. It seems that AB InBev might be trying to stretch itself too thin by taking on a lot of products that don’t seem too profitable for the company. Sales of beer giants such as Becks, Brass and Budweiser have been suffering. AB InBev has been selling products that are not living up to consumers’ expectations at a high price. This is mostly due to the fact that some of these brands (such as Brass ad Becks) are being brewed using cheaper ingredients as well as being done locally rather than in their country of origin (for the sake of cost cutting). AB InBev owns brands that have been in the market for a long time which brings with it a loyal target market that is not happy right now as they can taste the difference from previous breweries to the low cost local one. If the company does not change things then these products will reach the decline stage of the product life cycle fast and could be well on their way on becoming a dog in the BCG Growth Matrix which would leave the company no choice but to liquidate the brand.

In order to sustain competitive advantage I think the best way to grow the company would be to minimize its product line and focus more on their most lucrative brands. The problem with the current strategy is that it is just that – current. There does not seem to be any longevity in them as consumers are not happy with the company’s products and AB InBev is just trying to make money in the cheapest way possible rather than focusing on giving their consumers high quality. It’s a great way of making money, for now, but they risk having everything crumble at this rate. Such drastic cost – cutting strategies could be implemented due to the fact that it is so expensive for them to maintain all these products. Therefore, the opportunity to growth lies in liquidating brands which are dead weight and focus entirely on those that have most potential. Focus should be brought back to importing beers from their country of origin and giving the customers the feeling of authenticity that the beers used to previously have. By doing so it would also being to create more of a relationship with the consumers. Right now it seems that interaction seems very one sided were the brand just simply changes things without taking the consumer into consideration. Taking such a step would show the consumer that the company really is dedicated to making them happy and thus would being mending the damage caused in recent years (and hopefully sales will start looking up again). Loyal customers would not mind paying a if they are happy with the product. In a way this whole debacle is actually generating more of a need among consumers for the ‘old’ tasting beer. As has been seen in the article when the brewery in Belgium was closed down and then reopened there was a bigger demand for its products. Thus sales could potentially spike, especially in the beginning if this was done. The current strategy of buying more and more brands could be seen as short sighted, especially when beers are losing their points of differentiation and becoming more and more generic. Also it is important to understand that purchasing a brand also means that the mother company must invest money in it in order to maintain it. I think that gaining market share should be more about growing the brands that they have rather than trying to gain market share by growing their portfolio. If customers are unhappy with their products then they will lose them to competitors anyway and will end up losing market share to their competition anyway.

2) Impact of InBev on Competitors

With InBev owning over 200 brands and so much of the global market share competitors must be strategic in order to survive. This is clearly a disadvantage for competing companies such as Heineken however it is also an advantage for competitors. Companies with a smaller portofoilo than InBev have the advantage that their growth can be focused whereas InBev’s growth is a bit more scattered. Currently, InBev’s prices are at a and are being made at a cheaper price. Consumers that are loyal to their beer will buy InBev’s beer brands regardless of the price which is making the company richer than competing brands. However, with recent issues of customer dissatisfaction this creates a void for competitors to step in and be competitive. This is mainly due to the fact that InBev has killed its brand’s identities that consumers were loyal to. Raising prices for a brand that people don’t know anymore will surely work against them as these beers are becoming too generic and thus hurt their brand equity. All of this has weakened the company’s value proposition which is very dangerous because brands influence consumers’ perception. InBev is running the risk of being seen as a brand whose identity is that of being a miser and inauthentic which is not something good to have people associate you with. The positioning concept of InBev is that of becoming the world’s local brewer in a sense owing all of these type of drinks which is how they are being perceived due to all the brands of beers that they own however, the question is longevity when it comes to this positioning strategy.

Recommendations for Competing Brands

Competing beers could have competitive advantage by staying true and authentic to their own brands. The points of differentiation are very important as they give them the opportunity to stand out and not be generic unlike the InBev brands. Competing brands like Heineken and SAB Miller/Coors should adopt a strategy which is the total opposite of InBev in my opinion. I think

that they should provide high quality products with authentic brewing and imports and sell them at a cheaper price rather than raise their prices trying to match InBev products. The main problem with InBev is that they are selling low quality products for a high price with a generic brand identity. Competitors must hold on to their identity as well as to the quality and taste of their products. Also after reading the article it is clear that beer consumers do not like taste changing in their favourite beers. Therefore, given that the competiton is creating beers that is changing in taste I would recommend for competitors to use the ‘original tasting beer’ as a selling point to consumers. I would recommend that they target the US as sales overseas seem to be doing better but InBev has left their US market vulnerable for attack.

Question 3 a) Problems and Challenges

The main problem that Japanese companies are facing lies in the fact that they are a company that does not understand their consumers whilst their competition does. Japanese companies create or develop products for themselves rather than for their consumers. For instance Sony’s strategy for its Libre was to sell as many copies as they could while Amazon’s Kindle focused on selling books. While being innovative is important to create new needs and wants among consumers it is also important to keep your finger on the pulse of your consumer’s desires. The ‘monozukuri’ mentality has also hurt the Japanese manufacturers as their focus was on making hardware and then developing it to be containing a feature that sured every other product in their category in the world – such as making the world’s thinnest or smallest product. However, this is not what is important to most consumers; they want great design and ease of use – such as Apple products. They are great innovators but they are not very practical. They opened up the market to one of the biggest selling product of music through the Walkman, CD and DVD but their competitors have found ways of creating their own version of the products at a better price as well as create more easy to use versions of these items. A great example of this can be

seen in the alliance between rivals Sony and Panasonic, coming together to create an OLED TV screen which was measured at one tenth of an inch-thick. Even though this was dubbed as a ‘technological marvel’ it was not a practical product to sell as it was too expensive and people were not paying the $2,500 price. At the end of the day this was just a television set.

Key Factors Driving the Consumer Electronics Market Japanese Companies Losing their competitive Advantage

The Key Factors that are currently driving the consumer electronics market is ease of use and constant product improvements (which ties in with the product’s ease of use). Competing companies are creating products that are beating Japanese ones to the punch every time just before they reach the Early Majority Stage in the Product Evolution Graph. At best they are reaching Early Adopters (if even at that) and then falling into the Chasm. They are wetting the public’s appetite just enough (with an inaccessible product) which paves the way for another brand to come in and take hold of the market share that is slipping right through their fingers – as has happened with the Libre and Kindle case. They are creating products that allow the consumer to upgrade and update their product’s software regularly (without having to build the next model) while Japanese companies focus more on hardware improvements. Language is another factor important to the consumer electronics market. As has been seen in the Libre case software was in Japanese which totally alienated the US market. Language must be appropriate for the geographical location that it is being targeted in (or at least in English). Also a varied selection is an important factor for this demographic. It seems that a consumer will pick a product that has more options or is the one with the least limitations over one that only offers a few or a couple of options. Rival companies to Japanese ones have also become better at their marketing. This is another important Key Factor because the easy integration of products with online services is in itself a marketing effort in creating a service that builds a bridge between the brand or product and the consumer. Using

channels that their consumers use and making themselves accessible makes the brand or product relatable as well as relevant to their target audience. The way they speak to their target audience is also an important factor in selling your product or perhaps even getting people to like your brand. Samsung differentiated its new line of televisions by naming them ‘LED TVs’ rather than the LCD televisions model name that Sony came out with in 2004. Samsung’s choice of words spoke more to their target audience and made it seem as if it were something new, fresh and of the now rather than the old LCD ones. This helped them gain more attention for their new product. Another key factor is to sell the benefits that the product brings with it rather than trying to sell the product itself. In the Libre case, reading books on an electronic device was the obvious benefit however, Kindle simply used reading and books as a selling point with the electronic device being the medium through which this could be made easier.

The Future?

If Japanese companies want to continue competing in this industry then they changes in their strategic processes must be made. If they want to keep things as they are – creating products that are focused on being for the company rather than practicality I suggest that they look into niche markets that would need certain requirements that match where they are going with their products. For example creating the largest touch screen remote control at a high price might not go down very well with mass market consumers (why would they need to buy it anyway?) but perhaps selling their product to a large manufacturing company that needs a large interface to be able to control the various hardware in the plant, might find this more useful. The risk with this is that sales will probably be confined to these niche markets and expanding to a mass market would probably not work out so well. Another strategic approach could be to revise their mantra and mentality of creating or innovating for the company and being working for its consumers. This would mean taking money out of their research and development and putting it into their market research to try to

understand their consumers more rather than racking their brains and going through alliances with their rivals trying to come up with something no one has ever seen before (that people might not even care about at the end of the day – money wasted).

b) Three Specific Opportunities for Growth

Accompany like Sony has many opportunities that it can embark on. I see it as the most profitable as not all Sony products have left that are still a commercial success – such as the Sony PlayStation. There is currently a huge opportunity for growth in augmented reality within mobile technology. Mobile technology has exploded all over the world and leaders in this segment have been established and it will be pretty hard for Japanese markets to compete against the Apple and Samsungs of the world. However, the next step of mobile technology is Augmented Reality. Augmented reality in mobile technology involves simply pointing your mobile phone and having a phone with the processing power to look information up about the product or place that you are pointing your phone to and having the information just pop up onto your screen without entering or asking for any data yourself (http://www.youtube.com/watch?v=tnRJaHZH9lo, 2010) – all this just by pointing your phone to the desired place, object, animal, person and so on... Search results could even be modified and made semantic showing results or options that are most applicable to you according to your likes and dislikes. The industry that has the most to gain from this is perhaps the tourism industry. Pointing your phone to a

hotel room can show images of inside the hotel room on your mobile phone as well as give you options of prices and a virtual tour of the selected room with the price and availability. Another future trend that is in the pipeline (still in line with augmented reality) is that of holographic images. There have been a lot of technological improvements in this regard. A performance by Snoop Lion recently featured a holographic image of the late Tupac on stage doing a duet with the superstar (Suddath, 2012). A company called 360 Brand Vision is also employing holographic images as one of its marketing tools. Recently they created a hologram of a model changing in the windows of a clothing store and putting on a variety of clothes after the store itself was closed (http://360brandvision.com/). Apple has also jumped on the bandwagon by showing intentions of releasing a mobile phone that can shine a holographic image of a keyboard and a screen making the mobile phone itself just a medium to project these items and blow them up on a larger screen in the air (Kunz, 2012). However such technological processes take up a lot of loading power and memory. So far no one has managed to get there but it is something that will be available in the near future. This presents a great opportunity for Sony to look into this market more or perhaps to partner up with a company like Apple in order to get back on its feet and become ‘relevant’ again. The third opportunity that is the most realistic and closer to the present would probably be 3-D television. Sony has already had a history with television production within the consumer electronics industry. 3 – D television seems to be the future of television and the first company to make this easily Integra table into a consumers life is the company that will successfully break into the market and lead this new wave of TVs. Ease of use is key when it comes to these products. Therefore a type of TV is compatible with any mobile phone or some tablet which instantly personalizes the television set would be the one that would have the most chance to succeed in my opinion. However there is no telling how well received these future trends will be, one can only assume. Growth for a company like Sony has to come from their willingness to put their consumer first and re-build consumer loyalty. Loyal consumers are the ones that are the most important as they are the ones that will buy your products and the most difficult to retain. Therefore, delivering something which they need or will like whilst keeping them happy is crucial.

Bibliography (n.d.). Retrieved from http://360brandvision.com/. http://www.youtube.com/watch?v=tnRJaHZH9lo. (2010, 12 01). Kunz, B. (2012, 08 07). http://www.businessweek.com/articles/2012-08-07/why-apple-will-turnto-holograms. Suddath, C. (2012, 04 16). http://www.businessweek.com/articles/2012-04-16/how-tupacbecame-a-hologram-plus-is-elvis-next#r=lr-fst.