Skyy Vodka

April 6, 2013

Table of Contents

Subject Page

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I. Introduction 5

II. Should Skyy adjust its marketing campaign in the U.S.? 5

III. What are the drivers for Skyy to expand overseas? 7

IV. What are Skyy’s strengths and weaknesses? 9

V. Skyy has decided to enter the Indian market 11

VI. Should Skyy adjust its packaging for the Indian market? 14

VII. Should Skyy market its product differently in India? 16

VIII. How should the product be priced in India? 19

IX. Who is their competition in the new market? 20

X. Who are their customers in the new market? 24

XI. Conclusion 25

XII. Appendix 27

Table of Figures 3

Table of Tables 4

Table of Figures

Figure 3.1: Global demand for U.S. branded vodka 9

Figure 4.1: Current Skyy Vodka billboard 10

Figure 6.1: Snapshot of liquor packaging size in Delhi 16

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Figure 9.1: Smirnoff ‘Pure Thrill’ campaign images 22

Figure 9.2: ‘Absolute World’ campaign images 24

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Table of Tables

Table 2.1: Advertising spend of major spirits brands in the U.S. ($ in millions) 6

Table 3.1: Vodka off-trade market in Brazil, India, and China 8

Table 4.1: SWOT Analysis for Skyy / Campari 10

Table 5.1: Latent demand in India 12

Table 7.1: Sales of Spirits by On-trade vs. Off-trade Split 18

Table 9.1: Summary of Competitive Landscape using Porters Five Forces 20

Table 9.2: SWOT Analysis for Smirnoff / Diageo 21

Table 9.3: SWOT Analysis for Absolut / Pernod Ricard 22

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I. Introduction

Skyy vodka was founded in 1992 in San Francisco and has become one of the leading

spirits brands in the U.S. Its distinctive blue bottle has enabled it to stand out from other

premium vodka brands. The focus of this paper is to assess Skyy’s marketing campaign in

the U.S as well as to evaluate Skyy’s decision to enter the Indian market. Our investigation

will concentrate on the product’s marketing, packaging, and pricing, as well as an analysis of

its customers and competitors in the new market.

II. Should Skyy adjust its marketing campaign in the U.S.?

Innovation has always been a hallmark of the United States and the U.S. vodka market is

no different. One of the largest alcoholic drink sectors in the U.S. is vodka; it was worth

$10.2 billion in 2008, with a compound annual growth rate (CAGR) forecast of 3.8 percent

from 2008-2013, compared with a five-year CAGR of 4.9 percent from 2003-2008

(Datamonitor, 2009). This strong performance can be attributed to vodka’s appeal to young

adults. Marketing trends suggest super-premium vodka as an affordable indulgence. Strong

performance has encouraged many new entrants trying to capitalize on the growth of the

vodka market. “With over 130 new launches reaching the market in 2008,” manufacturers

have attempted to create differentiation through innovation to help them stand out from the

crowded marketplace (Datamonitor, 2009). For the vodka industry, innovation ranges from

unique package design to line extensions with a broad array of new flavors and designations

such as pure and organic.

Skyy is recognized as one of the leading premium vodka brands in the U.S. “Skyy aims

to be perceived as not only a premium brand but one which has the ‘cool’ factor, so that

people will want to be seen drinking its brand” (Datamonitor, 2009). Its differentiating

factors include a recognizable, consistent design as well as a unique production process that

results in a high quality product. Distinct packaging, with an iconic cobalt blue glass bottle,

has aided in developing a strong brand. In addition, Skyy has the fewest impurities among

leading brands due to its quadruple-distilling, triple-filtering process. But is this enough?

With a saturated market and a declining U.S. economy, does Skyy need to reevaluate is

approach?

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With 90 percent of its sales generated by the crowded U.S. market, Skyy’s success is

heavily reliant on its marketing strategy. Skyy is known for its uniquely targeted advertising

which primarily targets female consumers, who make up 46 percent of the market. In

addition, it has been involved with independent movie sponsorships for almost 20 years, with

prominence in popular films like “The Blair Witch Project” and “Sex and the City.” Skyy has

also successfully wooed the lesbian, gay, bisexual and transgender (LGBT) community and

has provided support by donating a portion of its proceeds from a select cocktail. These are

solid campaigns, and represent one of Skyy vodka’s strengths.

Skyy competes in the premium / upscale vodka market. “Upscale was the leading claim

in new U.S. vodka launches from 2005-2009, with over 60 percent of vodkas making this

claim” (Datamonitor, 2009). The growth of the premium market is grim due to the recession

in the U.S. which began in December 2007. Consumers may stick to familiar brands, like

Skyy, in the economic downturn although their spending generally becomes more frugal.

Campari CEO, Bob Kunze-Concewitz said, “People are entertaining more at home, but

vodka is very versatile and relatively easy to use. Skyy has been historically very strong in

the off-premise and we’re actually benefiting from the trend” (Datamonitor, 2009). New

entrants and lower-end or value spirits will threaten sales, but Skyy has a solid foothold and a

loyal customer base. At year end 2007, it was the 16th largest spirits brand and fifth largest

vodka brand in the U.S. compared with top ranked Smirnoff and Absolut, which was the

fourth largest spirit and second largest vodka brand (Eadie, 2008). Skyy has a smaller

advertising budget, but has been growing it at a significantly higher rate than its closest

competitor Absolut, as depicted in Table 2.1.

Table 2.1: Advertising spend of top vodka brands in the U.S. ($ in millions)2005 2006 2007 CAGR 2005-07

Absolut 30.0 31.5 30.1 0.2%Skyy 17.6 18.2 25.3 19.9%

Source: Eadie, 2008

To keep up with the ever increasing demand for flavored vodka, Skyy can continue its

practice of introducing new flavors each year. Skyy needs to continue marketing as an ultra-

premium vodka, with a distinct ‘cool’ look, and a price that promotes “affordable luxury.”

By targeting the female market exclusively, Skyy can gain a majority share of their 46

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percent of the market. By tapping into the LGBT community’s high disposable income, Skyy

can further increase profits. By offering a variety of flavored vodkas, they can keep their

target markets’ wants and thirst satisfied.

In addition to their current marketing campaign, Skyy will need to do some further

market analysis. They will need to know what their competitors are offering in the flavored

vodka market, but more important, what their customers desire that the market currently

lacks. This will enable Skyy to be the market leader in select key flavors, and a market

follower in flavors their customers demand.

Skyy could reasonably sell at a premium price due to its brand recognition and

undisputed purity. However, given the effects of the U.S. recession it could reconsider its

price point. Research will need to be done to see if manufactures that sell at a lower price are

experiencing increased sales due to an image of affordability. Prices of other vodka brands

range from $9 (Poland Wodka) to $60 (Stolichnaya Elit) (Klara, 2011). Skyy could also look

into its operations to see if efficiencies can be gained that will decrease manufacturing costs,

which in turn could lower the sales price while maintaining the same profit margins.

Marketing has been rapidly adopting social media in recent years. Skyy will need to

remain relevant by reaching its customers in a way that promotes and maintains the brand’s

integrity. Research will need to be done to identify the best media to reach their target

market. One example could be sponsoring a movie release party in which pictures of A-list

celebrities drinking Skyy vodka would be uploaded to Twitter and Instagram and posted to

the company’s Facebook page.

“The brand has retained high growth due to its stand-out packaging, premium production

processes and innovative marketing,” (Datamonitor, 2009) and will continue as long as they

focus on these fundamental strengths while remaining relevant with their customer.

III. What are the drivers for Skyy to expand overseas?

Skyy has many drivers to expand overseas. Vodka in general has potential for growth in

the emerging markets. Vodka sales in the off trade market has been forecasted to reach a

2008-2013 CAGR of 13.6 percent in India, 7.4 percent in China, and 4.6 percent in Brazil

(Datamonitor, 2009). Since the vodka industry is in a commanding position in the U.S.,

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which is experiencing the effects of the recession, the emerging markets could be key to

sustaining vodka growth rates in the future.

Table 3.1: Vodka off-trade market in Brazil, India, and China ($m), 2003-132003 2008 2013 CAGR 2003-08 CAGR 2008-13

Brazil 431.5 540.8 675.6 4.6% 4.6%India 83.2 204.8 386.6 19.7% 13.6%China 17.5 27.1 38.7 9.1% 7.4%

Source: Datamonitor, 2009

Table 3.1 shows the top three emerging economies of the world, which are expected to

grow at strong rate, although at a slightly lower rate than the past five years. With increasing

globalization, many foreign companies are opening offices in these markets and employing

individuals from around the world. Though emerging markets like India, Brazil and China

(including Russia, “BRIC”) have traditionally consumed dark spirits like rum or scotch,

younger generations however, are more willing to try different or new spirits. The media has

also played a role to increase awareness of the variety of spirits offered around the world.

Skyy is established in the U.S. with strong sales figures and ranks second among

companies introducing new flavors of vodka from 2005-2009 (Datamonitor, 2009). Although

Skyy has established itself in the U.S. market, it faces tough competition and low forecasted

growth rates compared with other global markets. With low sales growth and a saturated U.S.

market, Skyy needs to enter into emerging markets. With a solid brand already built, local

media should be used to drive its uniquely targeted marketing campaigns. As these markets

globalize, and become more western, the vodka market is forecasted to grow significantly as

shown in Table 3.1, and Skyy has product and reputation to capitalize.

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Figure 3.1 shows the global demand for U.S. branded vodka, which increased from 1995-

2000. Skyy’s U.S. prominence gives it an edge over many other companies. If they are the

first to launch new flavors in new markets like BRIC countries, then they will create a good

base for sales.

IV. What are Skyy’s strengths and weaknesses?

Skyy was created to be the world’s smoothest vodka. With its proprietary quadruple-

distillation and triple-filtration process, superior quality is ensured. This has allowed Skyy to

become the leading domestic super-premium vodka in the U.S. Skyy’s strengths stem from

branding and how they have developed market recognition with their distinct cobalt blue

bottle in uniquely targeted advertising. Figure 4.1, below, depicts a current billboard

advertisement used by Skyy in efforts to attract its target market on daily commutes to and

from the office.

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Despite being very strong within the Vodka industry, Skyy has some potentially

crippling weaknesses. Prior to 2009, Skyy had limited access and distribution on a global

scale compared to its competitors, due to its smaller size. Skyy was acquired by Gruppo

Campari in 2009, which helped globalize Skyy Vodka by opening up distribution

channels in Europe, emerging economies, and BRIC nations. In order to grow and reach

potential emerging markets like India, whose “alcohol consumption is expected to jump

45% between 2012 and 2016,” Skyy will have to invest in national production facilities

(Euromonitor, 2012a). Emerging markets lack infrastructure and have environmental issues that

would greatly impact Skyy’s specialized distillation process.

Table 4.1: SWOT Analysis for Skyy / CampariStrengthsImaging: Distinct Cobalt blue bottleStrong Brand and Market Identity: Recognized for natural infused fruit flavorings and highly praised in target markets. Strong Volume Growth in USAdvertising Skill: Unique, targeted advertisingQuality Reputation: Unique distillation process

WeaknessesGlobal Market Access and Market Share: Limited access to global markets as compared to competitorsSize: As compared to Diageo and Pernod Ricard, Campari overall organization size is much smallerDistribution: Limited global distribution

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reduces impuritiesPrice Point CompetitivenessDirect Access to Retail Organizations: Sales teams talk directly with bartenders and store managers

partnershipsDistillation Process: Specialized distillation process of Skyy Vodka may impact manufacturing in emerging markets where lacking infrastructure and environmental issues are prevalent

OpportunitiesGrowth: Currently #3 Vodka in USPartnership: Gruppo Campari offers access to European marketSegmentation Focus: Able to quickly adapt to target markets, comfort with using new media marketing opportunities to reach target market

ThreatsBrand Loyalty: Competitor brand recognition in emerging markets could impact sales overseasCompetition from private labels in IndiaManufacturing and Distribution: Specialized processing methods may create difficulty with global manufacturing. Lack of existing sales may make penetration into market and relationships with local distributors more difficult

Source: Datamonitor, 2009

Table 4.1 identifies the strengths, weaknesses, opportunities, and threats involved in

Skyy’s business.

V. Skyy has decided to enter the Indian market

a. Overview

When a company looks to enter a new market, many variables come into play that

will determine its success. Broadly speaking, international expansion is a common

and viable tool to increase market size, minimize geographic risk through

diversification, and expand access to resources. Skyy’s decision to enter the Indian

market indirectly addresses the challenges it faces in the saturated U.S. market by

seeking growth elsewhere. In 2008, the Indian alcoholic drinks market (which

includes beers, ciders, flavored alcoholic beverages, spirits, and wines) generated

total revenues of $12.9 billion with spirits representing 75 percent of the revenue and

resulting in an 11.1 percent 5-year CAGR. This compares to the five-year CAGR

expectation of 10.5 percent and total market value of $21.3 billion by year-end 2013

(Datamonitor, 2008b). While growth for the alcoholic beverage market in India is

expected at a decelerating rate, compared with the five-year growth prospects of the

U.S. market, the opportunity in India is still much greater and therefore must be

carefully executed.

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The table below segments the growth forecast further. Parker evaluated the latent

demand outlook for vodka across several categories for 2009. He defines latent demand as a

measure of “potential industry earnings or total revenues if [the market] is served in an

efficient manner” (Parker, 2008a-e). Here, vodka represents 62 percent of all white spirit

demand and super-premium vodka represents 25 percent of all vodka demand in India.

Table 5.1: Latent demand in India (2009)$MM

White spirits (vodka, gin, and white rum) $ 3,905.6 Vodka 2,428.1 Super-Premium Vodka 601.2 Bottled Vodka 110.0 Distilled Vodka 10.4 Source: Parker, 2008a-e

b. Do they enter the whole country or just a portion?

Immediate whole market entry into India, or any country for that matter, is ill-

advised, although Skyy could set a goal to reach the whole country over time. Similar

to the U.S., India is organized into 35 states or territories, and understanding the

demographics and market characteristics of these areas is important as Skyy evaluates

the placement of its product. Parker shows that by focusing on the five largest states

(in terms of latent demand for Vodka), it can reach 51 percent of India (Parker,

2008b). The five largest states are Maharashtra, Uttar Pradesh, Tamil Nadu, Gujarat,

and West Bengal, which are distributed across the Indian landscape from west to east

and north to south (refer to map in Appendix a). Alternatively, 41 percent of demand

across each of the categories comes from the top 100 cities (in terms of population

size) in India (Parker, 2008a-e).

To increase its presence in the spirits and wine business in India, Campari formed

a joint venture in November 2008 with Focus Brands Trading India Ltd. (Campari,

2008). Joint ventures have proven to be an effective way to enter the Indian market

because they combine the resources of a global firm with the local market expertise of

the other. Focus Brands will be able to advise on the portions of the country that

Campari should target first. Focus Brands is headquartered in New Delhi, which is

the Indian national capital city, and is surrounded by the Haryana and Delhi

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territories, which represent $161 million of latent demand for Vodka in 2009, or 6.6

percent of India (Parker, 2008b). In addition to the joint venture, Skyy could work

with industry associations such as the All India Distillers Association and the

International Federation of Wines and Spirits. Trade groups help to build awareness

and the reputation of an industry and can encourage collaboration among members.

They not only provide important competitive intelligence but also collective power.

c. What analysis and tools are required to determine the above?

Think about the U.S. A firm would not market to a consumer in New York City

the same way it would market to a consumer in rural Jamestown, North Dakota, if it

advertised in Jamestown at all. That is not to say the firm does not place its product in

Jamestown, but that its approach is tailored. It will not put the same resources, and

possibly would not even dedicate proportional resources to certain areas. In order to

decide the optimal balance, further tools and analysis are required. Firms must look

from the general to the specific and then again at the general. For example, the

population of India in 2008 was 1.1 billion (Datamonitor, 2008b). The population of

Greater Mumbai, the largest city in the largest state of India, was 13.2 million in 2008

(Parker, 2008b). That represents just 1 percent of the total population of India. Firms

would want to see population projections as well, at a minimum over the next 5 years.

Skyy must dig deeper into the data to understand the make-up of the population,

specifically their discretionary spending capacity and habits, their age, and gender.

Other telling macroeconomic indicators to consider are GDP, inflation, and currency

exchange rate, again in terms of both historical results and expected future

performance.

From general macroeconomic indicators, the firm should then look at industry

results and expectations. Some of these metrics, like the market value forecast and

growth rates, have already been presented. Other industry specific metrics, such as

market volume (consumption), are relevant for Skyy. In 2008, the Indian alcoholic

drinks market volume was 2.3 billion liters, representing a five-year CAGR of 8.6

percent. By 2013 it is expected to grow to 3.4 billion liters, representing an 8.6

percent CAGR (Datamonitor, 2008b). While the absolute level of volume is

increasing over this time, it is increasing at a constant rate.

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d. Conclusion

With the benefit of international expansion come risks due to differences in

regulatory policy, economic factors (such as currency fluctuations), and adapting to

diverse cultures. Understanding those attributes is equally important as the

quantitative data. Although the Indian market offers the opportunity to prosper,

experience has revealed that it is not as easy to dominate. This is due to different

customs, business procedures, and different regulations. One regulation that would

make a whole country expansion extremely difficult and expensive is India’s

prohibition of the movement of alcoholic beverages across different states

(Datamonitor, 2011). This would favor a targeted approach to very specific markets

where it can get effective penetration, although its joint venture with Focus Brands

will provide Skyy greater access to resources within Indian borders than if it operated

there alone. Further, the millions of consumers that Skyy seeks in these countries are

an elusive target unless Skyy is able to create value propositions that appeal to the

local market. Skyy must make important decisions on packaging, ensuring that they

can offer the same differentiating features in this new market so that it does not

compromise its brand identity, as well as their promotional tactics and pricing

strategy.

Ultimately, a good analysis would be multidimensional and depict a complete

picture across time, geographic areas, and industry dynamics. While no singular piece

of data will support the decision to enter the market wholly or through a segmented

approach, understanding the totality of the information presented will support Skyy’s

strategy in the long run.

VI. Should Skyy adjust its packaging for the Indian market?One way Skyy can appeal to the emerging market in India is to be locally responsive by

understanding its culture and customs. The influences of Hinduism have created a culture

that emphasizes established hierarchical relationships. Indian culture is conscious of social

order and their status relative to other people such as family, friends, or strangers. This is a

key element for Skyy as it considers product packaging and local responsiveness. Skyy can

develop a value proposition that allows them to gain consumers and beat competitors. This

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value proposition should focus on satisfying important consumer needs by offering benefits

difficult for competitors to imitate. For instance: according to the website, Packaging of the

World, in February 2012, Skyy launched promotional packaging to introduce Skyy vodka +

an exclusive headphone to the Brazilian market (See Appendix). A similar technique can be

applied to the Indian market. By providing benefits that enhance the consumer experience

and promote a certain level of social status relative to the competition, Skyy would further

differentiate itself.

Datamonitor’s 2009 consumer survey identified packaging as secondary to how a product tastes,

yet packaging is important in aiding premium status (Datamonitor, 2009). Skyy vodka’s blue bottle is

recognized around the world. Its iconic packaging has set the brand apart from competitors and can

resonate in the Indian market. Therefore, adjusting its identifiable packaging design may not be the

answer for Skyy, but rather focusing on the size of the packaging. Skyy’s standard U.S. packaging is

750ML, although larger sizes, up to 1.75L are available. Skyy’s counterparts in India seem to offer

smaller sizes; therefore, Skyy should take into consideration the bottle sizes when entering the

Indian market. The chart below is from a liquor store in Delhi. The sizes for Indian brands range from

60ML to 750ML.

Figure 6.1: Snapshot of liquor packaging size in Delhi

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VII. Should Skyy market its product differently in India?

a. One of the challenges Skyy faces is the promotion of its product because the

advertising of alcoholic beverages is banned in India. Advertisements for liquor

and cigarettes have been banned since 1995. Euromonitor reports that

manufacturers have opted for surrogate advertising particularly during sports and

music events. For instance the distribution of branded t-shirts, caps, key chains,

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and drinking glasses has been a popular loophole to this regulation. In addition,

just as basketball is a popular, highly marketed sport in the U.S., so is cricket in

India. Cricket is the most popular sport in India and cricketers are adored and

imitated. Manufacturers are tapping into the popularity of cricket by using Indian

cricketers such as Harbhajan Singh as brand ambassadors to drive sales

(Euromonitor 2012). Skyy could contemplate an opportunity to develop a local

partnership to promote its product

i. Skyy will compete against Absolut and Smirnoff who have significant

worldwide budgets by focusing on what David Aaker calls “ a strong

core.” According to Aaker, when firms are looking to expand their market

globally, a strong home market provides resources and experience that can

be leveraged in geographic expansion (Aaker, 2001). In addition, Skyy has

selected a market with a high likelihood of success. The alcoholic drinks

market in India is expected to be driven by the increasing proportion of

young adults with high disposable incomes who are experimenting with

semi-premium and premium brands (Euromonitor, 2012a). Despite India

being a nation that predominantly drinks brown spirits, there is a small

shift from brown spirits to white spirits, especially vodka. Younger

generations in college and business prefer white spirits. Women in India

have also started to drink and prefer white spirits, particularly vodka

(Euromonitor, 2012). This is a good correlation with Skyy’s already strong

affinity with female consumers in its largest market, the U.S.

ii. Research shows the off-trade channel contributed 79 percent of total

volume sales of spirits in 2011 in India (Euromonitor, 2012). The on-trade

has performed slightly better than the off-trade in terms of growth. This is

mainly due to the increase in consumption during the 2011 Cricket World

Cup matches.

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Table 7.1: Sales of Spirits by On-trade vs. Off-trade Split: % Volume Growth 2006-11 2010/11 2006-11 CAGR 2006/11  Off-trade 11.9 12.5 80On-trade 12 12.2 77.8Total 11.9 12.4 79.5Source: Euromonitor International from official statistics, trade associations, trade press, company research, store checks, trade interviews, trade sources

Euromonitor reports that the on-trade channel dominates sales of

imported and premium brands. State government controls the distribution

of spirits all over India except in a few cities such as Chandigarh and

Bangalore, where they have permission to sell in supermarkets

(Euromonitor, 2012). Skyy should follow a partnership model with Indian

firms to secure a position in the growing Indian market. Euromonitor

reports that modern specialist outlets such as Drops and Not Just Wine &

Cheese constitute one of the fastest emerging distribution channels in

urban cities such as Bangalore and Chennai. Upper middle-class and

affluent households are the biggest purchasers of alcohol (beer, vodka,

premium whisky) from modern retail outlets (Euromonitor, 2012).

iii. Due to the different choices of vodka in the marketplace, it is imperative

for Skyy to differentiate itself from other brands. Skyy already

experiences high brand loyalty in other markets, so this positioning in

other markets might work well when entering the Indian market. To some

extent, Skyy’s high-end premium brand can travel across geographic

boundaries because consumers tend to seek out a product that has a

reputation or status attached to it. However, Skyy’s goal should not only

be to maintain their reputation but also to have competitive advantage in

the Indian market by using some customization. According to an analysis

of global marketing strategies in distilled spirits industry, the consumers

may experiment with product line extensions of their favorite name brand,

like the new flavored vodkas, but rarely venture out of the family line

(Hemley & Musonera 2007). Moreover, retailers with limited shelf, bar,

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and storage space may be reluctant to make room for a new brand, let

alone multiple line extensions, where they are unsure if customers will buy

the product. These retailers may prefer the established brands that

consumers know, which allows them to accurately plan and forecast sales.

Consequently, Skyy should enter the Indian market with its standardized

product due to its name recognition. It can explore the flavored vodka

market once consumers have developed an association with their

standardized product.

VIII. How should the product be priced in India?

Whether growing business domestically or entering a new foreign market, setting a price

for your product that will maximize sales is important. In India, both a rise in disposable

income and increasing social acceptance of alcohol has accounted for a large increase in the

sale of spirits. We have seen a “premiumisation” of vodka brands (Euromonitor, 2012). This

is due largely to the fact that young people are drinking more, and as their incomes continue

to rise, they will look to drink more “premium” drinks. Indian consumers, especially young

professionals, will tend to drink more premium or “luxury” drinks to try to improve their

perceived social status (Shukla, 2012). Therefore, as the youth of India reaches the legal

drinking age, you can expect to see the premium and super premium brands do better than

the standard brands (Euromonitor, 2012).

In India, domestic brands continue to dominate the spirits market, due to lower price

points and heavy taxation on foreign brands (Euromonitor, 2012). In order to be successful,

Skyy will need to be priced low enough to compete with “standard” alcohol drinks, but

priced high enough to create the perception that it is a premium beverage. In order to do this,

Skyy should be priced at the premium level, which is between the super-premium and the

standard or value level.

When looking at how to hit a specific price, one needs to look at the benchmark brand,

and price accordingly depending into which category the product falls. For vodka in India,

the benchmark brand is White Mischief, and it is considered “standard” vodka (Euromonitor,

2012). After determining which brand is the benchmark, then determine how each category

(premium, super-premium etc.) is marked up or down depending on the price of the

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benchmark. Since Skyy will fall into the premium category, its price point should be 10-

29.99 percent higher than that of the benchmark (Euromonitor, 2012). Another important

factor is what the main competitors are priced at. Smirnoff, Grey Goose, and Absolut give a

better understanding on how to price Skyy. Smirnoff falls into the category of standard or

value and is priced the lowest. Grey Goose would be considered super-premium and has the

highest price point. Absolut is premium and has a price between the other two (Euromonitor,

2011). If our aim is to price our product to align ourselves with other premium brands, then it

would make sense to be at a price point similar to Absolut.

IX. Who is their competition in the new market?a. Overview

Porter’s Five Forces model provides a framework for a strategic competitive analysis and

includes: the threat of new entrants, bargaining power of suppliers and buyers, the threat of

substitutes, and rivalry among existing competitors (Porter, 2008). Table 8.1 illustrates how

these forces are at play in the Indian alcoholic drinks market and result in a moderate

competitive landscape overall.

Table 9.1: Summary of Competitive Landscape using Porters Five ForcesThreat of new entrants Moderate Retailer and on-trade businesses, with

limited shelf, bar, and storage space, hesitate to replace recognized brands with new ones

Bargaining power of suppliers Moderate Collectively strong bargaining power, but independent, small scale operations weaken influence

Bargaining power of buyers Moderate Range of brands, quality, and price generally limits buyer power

Threat of substitutes Strong Non-alcoholic beverages provide healthy alternative

Rivalry among existing competitors Moderate Strong differentiation of products, but relatively high fixed costs

Source: Datamonitor, 2008b

b. Analyze the top two competitors

Skyy recognizes itself as a super-premium grade, high quality vodka brand and

benefits from the global presence of its parent company, Davide Campari Milano

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SpA. Similarly, Smirnoff and Absolut are two strong competitors of Skyy in the U.S.

market, which also benefit from their parent companies, Diageo plc and Pernod

Ricard, respectively. These two firms emerge as Skyy’s closest competitors because

they face the same weak U.S. economy and saturated market and are looking

elsewhere for growth. They also identify themselves as super-premium and boast of

their high quality.

Emerging markets, like India, are generating the majority of profit growth for

spirits companies such as Pernod Ricard (70%), Diageo (65%), and Campari (10%)

(Gibbs, 2008). Clearly Campari, and therefore Skyy, lags competitors in the emerging

markets. Skyy’s strategy in the Indian market should consider the experience, tactics

and results, of existing competitors. Tables 8.2 and 8.3 depict the strengths,

weaknesses, opportunities, and threats for these two closest competitors, Smirnoff /

Diageo and Absolut / Pernod Ricard.

Table 9.2: SWOT Analysis for Smirnoff / DiageoStrengthsMarket leadership: Smirnoff is ranked as the #1 premium vodka and the #1 premium spirit brand in the world, by volume.Innovation: Smirnoff Source is the first low-alcohol flavored malt beverage to contain pure spring water.

WeaknessesDifferentiation: Smirnoff leans on the same differentiation tactics as Skyy, including new flavors and designations like ‘pure’ and ‘organic’. The U.S. market is not only saturated, but increasingly similar.

OpportunitiesGrowing global spirits market: International spirits market is expected to grow by around 12% by volume and 15% by value by 2009.Joint venture in India: Intends to grow in India through partnership with Radico Khaitan, specifically exploring the Indian Made Foreign Liquor segment.

ThreatsCannibalizing business: Diageo introduced a new fusion vodka brand called Hpnotiq which is directly marketed to women and could dilute the Smirnoff brand.Regulations in new markets: Strict advertising and limitations on transfer of alcohol make Indian market challenging.

Source: Datamonitor, 2008b-c

As Diageo’s highest volume brand, Smirnoff’s market leadership and access to resources

give it a strong competitive position (Datamonitor, 2008c). Diageo’s joint venture with

Radico Khaitan began in 2008. It is responsible for the local bottling and distribution of

Smirnoff in India, a model that Campari has since modeled through its joint venture with

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Focus Brands. Smirnoff’s advertising, while unique, is conceptually replicable. It utilizes a

global concept executed with local customization (Harish, 2008). The ‘Pure Thrill’ ad

campaign imaged an ordinary scene with an extraordinary twist happening through the lens

of the clear Smirnoff bottle. Figure 8.1 depicts a few of these ads.

Figure 9.1: Smirnoff ‘Pure Thrill’ campaign images

Source: Google image

While this ad concept is easily tailored and can include people and places relevant to

Indian culture, still the top 10 percent of Smirnoff’s clientele in India are expected to

trade up to a more premium brand like Skyy or Absolut (Kurian, 2008).

Table 9.3: SWOT Analysis for Absolut / Pernod RicardStrengthsUS Market Leadership & brand recognition: Advertising centered on iconic bottle design; premium price point distinguishes from competition and speaks to quality.

WeaknessesDifferentiation: Absolut leans on the same differentiation tactics as Skyy, including new flavors and designations like ‘natural’. The U.S. market is not only saturated, but increasingly similar.Premium vodka a niche market outside U.S.: Absolut may not see strong returns as it enters new markets.

OpportunitiesGrowing global spirits market: International spirits market is expected to grow by around 12% by volume and 15% by value by 2009.Recently acquired by Pernod Ricard: Pernod Ricard’s strong global distribution capabilities will enhance Absolut’s presence in global markets.

ThreatsRegulations in new markets: Strict advertising and limitations on transfer of alcohol make Indian market challenging.New entrants in U.S. markets: Challenges leading vodka brands to maintain market position.

Source: Datamonitor, 2008a,c

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In 2008, Absolut was acquired through a bidding war by Pernod Ricard. Although

the acquisition provides a great opportunity, it also represents a change in strategic

direction for the brand. Pernod Ricard has cut back on new flavor variations fearing

that they dilute the brand (Datamonitor, 2008a). Absolut’s focus on its core

competency after the acquisition is in line with the moderate buyer power in the

market due to limited shelf, bar, and storage space for additional brands, let alone

flavor variants. Similar to Skyy and Smirnoff, Absolut will use a distributor, Kyndal

India to reach the Indian market.

Shortly before the acquisition, Absolut changed its ad campaign, which had been

running for more than 20 years and featured the Absolut bottle in various artistic and

graphic depictions. The new campaign, called ‘Absolut World’, follows a model

similar to Smirnoff’s ‘Pure Thrill’ campaign. It uses a global concept that is can be

tailored to individual markets and features what an ideal, or Absolut, world would

look like (Datamonitor, 2008a). With Absolut sales increasing both after this

campaign and outside the U.S., it has strong momentum as it adjusts to the new

strategy of Pernod Ricard.

Figure 9.2: ‘Absolute World’ campaign images

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Source: Google image

At the same time, United Spirits Limited holds the second highest market share in

India, at 19.3 percent (Datamonitor, 2008b). Its vodka brands include White Mischief,

Pinky, and Romanov. Faced with increasing success of the international brands like

Smirnoff and Absolut, it has considered forming a partnership with an energy drink

brand (like Red Bull), which are popular in premium vodka mixers, in order to help

bolster sales (Sabharwal, 2008). Despite these efforts, the company fails to leverage

its market share to achieve a profitability advantage and struggles against

international competitors like Diageo and Pernod Ricard (Datamonitor, 2011).

Although its established presence across the country of India represents a significant

advantage, competitors with greater resources and brand recognition, like Smirnoff

and Absolut, present a strong and compelling case for success in India.

X. Who are their customers in the new market?An important aspect of business and marketing, especially when entering a foreign

market, is to know your potential customers. Your business will need to segment the market,

and from there determine which of these groups to target with your marketing strategy. You

will need to know who they are, what their interests and buying habits are, and what you

believe they would be willing to pay for your product. Once you have this information, you

can tailor your product to fit their needs, to create targeted marketing, and to charge a price

that to maximize sales.

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(Team 2)

In the rapidly growing spirits market in India, young working professionals and women

of all ages are the catalysts for this growth. Young college students and working

professionals between the ages of 20-30 are consuming more alcohol, particularly at sporting

events (Euromonitor, Alcoholic Drinks in India, 2012). This trend is expected to continue in

the future; according to the Euromonitor Industry Overview (2012) “The alcoholic drinks

market is expected to be driven by the increasing proportion of young adults with high

disposable incomes, who are experimenting with semi-premium and premium brands”.

Young professionals and women are gravitating more towards wine and white spirits, as

opposed to whiskey, for supposed health benefits (Euromonitor, Alcoholic Drinks, 2012).

This trend should allow for Skyy and other vodka brands to appeal to this rapidly growing

segment.

Since one’s social status is so important in India, the alcoholic beverage you consume can

impact this as well. A recent study looked at important variables which help to determine

which luxury alcohol brand an Indian consumer would be likely to buy. The variables

include social gains, which is using a specific product to gain “social mileage”, esteem

indication, which signals one’s overall worth in a social setting, and ostentation behavior,

which is showing off one’s wealth and possessions (Shukla, 2012). Understanding the

importance of social status in India and realizing how important it is to young working

professionals can help determine how to market Skyy. Since the young professional is the

driver behind the increase in the alcohol market in India, successfully branding and pricing

the product as “premium” will greatly increase the potential for success. This segment is

willing and able to buy higher end products to improve social status. Pricing Skyy in the

premium category will not only allow for a higher price but also should increase sales

volume.

XI. Conclusion

We have determined that Skyy is one of the highest quality vodka brands in the United

States, due to its unique triple-filtering process, its strong advertising strategy, its distinct

cobalt blue packaging, and many other factors. Due to a saturated U.S. market and recession,

the time has come for Skyy to expand overseas. Skyy has chosen to enter the Indian market.

Due to its large number of young working professionals, the alcohol market in India is

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(Team 2)

expanding rapidly, and is projected to continue growing in the future. As a result, Skyy can

find a lucrative market in India giving them great potential for sales expansion. In order to be

successful in this foreign market, Skyy will need to know its new customer base and tailor its

marketing strategy, packaging, and pricing to maximize sales in India. It is essential that

Skyy knows which parts of the country to enter, and how to advertise effectively to the

different consumers. The unique characteristics of India, such as the popularity of the sport

cricket, will give Skyy many areas in which to advertise. Skyy will also need to recognize its

top competitors, both in terms of premium vodka brands and spirits in general, and analyze

them extensively in order to develop its strategy. If Skyy is successful, then entering the

Indian market will allow them to stay ahead of the competition and become one of the top

vodka brands in the world.

XII. Appendix a. Map of India (source: nationsonline.org)

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b. Packaging (Source: Packaging of the World Creative Package Design)

Designed by Casa Rex, São Paulo and London

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