Ararat Brandy

Transforming a Legend into a Modern Icon

08/2014-5660 This case was written by Amitava Chattopadhyay, the GlaxoSmithKline Chaired Professor of Corporate Innovation at INSEAD and Fellow of the Institute on Asian Consumer Insight, and Vadim Grigorian, Marketing Director of Creativity and Luxury, Pernod Ricard. It is intended to be used as a basis for class discussion rather than to illustrate either effective or ineffective handling of an administrative situation. Additional material about INSEAD case studies (e.g., videos, spreadsheets, links) can be accessed at cases.insead.edu. Copyright © 2014 INSEAD

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Vadim Grigorian, Marketing Director for Pernod-Ricard Russia, was lost in thought in his office as a wintry sun failed to warm passers-by in the snow-covered Moscow streets below. He had a lot on his mind. What could he do to move the ArArAt brand to the next level?

Currently the largest brand of brandy in Russia, with an enviable 32% market share and a long history, ArArAt was one of the jewels in Pernod Ricard Russia’s alcoholic beverage portfolio. After a recent product update, five key questions remained: 1. Which consumer segment(s) should ArArAt be targeted at? 2. What should be the ArArAt brand platform? 3. Which of the five advertising options before him (recent agency pitches for the ArArAt account) should he choose? 4. Should all seven sub-brands in the ArArAt portfolio feature in the campaign, or only some of them? If the latter, which ones should he select? 5. In which magazines should the ads be placed?

Pernod Ricard

Pernod Ricard, the French wine and spirits group, was co-leader (with Diageo) of the global alcoholic drinks industry. It was the world’s largest producer of cognac and brandy, the second largest producer of whisky, white spirits and liqueurs, the third largest of rum and bitters, and the fourth largest of wine. The company owned multiple well-known global brands (see Exhibit 1) and had won acclaim for its international advertising campaigns for Martell, Beefeater, Ballantine’s, Chivas Regal, The Glenlivet, Jameson, Ricard, Jacob’s Creek, Mumm and Perrier Jouet (see Exhibit 2). It also owned a number of smaller but prominent local and regional brands around the world. Since starting in France in 1975, it had grown by acquiring other producers and was listed on the Paris Stock Exchange (RI:EN Paris).

In 1998, Pernod Ricard acquired Yerevan Brandy Company, the producer of a fabled Armenian cognac/brandy, ArArAt (the names brandy and cognac were used interchangeably in different markets). ArArAt exported 90% of its production, and 85% of it to Russia. Between 1998 and 2003, Pernod Ricard had upgraded the production facilities of ArArAt but continued with the existing marketing. Over the same period, copycats had cheapened the brand, other companies tried to sell under the same name, and a number of high-end foreign competitors had entered the Russian cognac market such as Martell and Remy Martin.

Pernod Ricard faced a rapidly changing market in Russia. The strong economy, driven by high oil prices, fuelled a swift rise in personal income. By 2007, a flood of new products and new cognac brands had arrived. It was these changes that prompted the questions that Grigorian was grappling with. He had to come up with answers if the ArArAt brands were to continue to grow amid increasing competition from Armenian, Russian and Western European brands in the standard category and the growing popularity of expensive French cognac among Russian consumers.

History of the Yerevan Brandy Company

ArArAt tied its brand closely to the legends and traditions of Armenia. Sandwiched between Turkey, Iran, Georgia and Azerbaijan (see Exhibit 3), the country was proud of its ancient civilization and ArArAt brandy was amongst its most famous exports. Armenians like to boast that Yerevan, the capital, is one of the oldest cities in the world – founded in the 8th century BC – and embraced Christianity 300 years before Rome.

The vineyards near Yerevan extend across the foothills of Mount Ararat, where Noah and his family reached terra firma after the flood and settled (see Exhibit 4). The mountain, now within the borders of Turkey, remains a symbol of Armenia’s national culture and a source of vitality and identity for Armenians. The nation’s biggest football club is called Yerevan ArArAt.

From arguably the oldest vineyards in the world, the company had been producing brandy in that picturesque region since 1887. Cognac from the Yerevan Brandy Company won the prestigious Grand Prix at the Paris Exhibition in 1902 and was served at the table of the Tsar. In 1903, more than half the brandy consumed in Russia was from the Yerevan distillery. As of in 1922, when Armenia was declared a Soviet Republic, the factory was virtually a state monopoly and Moscow milked the company for tax revenues. Joseph Stalin famously presented several bottles of ArArAt brandy to British Prime Minister Winston Churchill during the Yalta Conference, prior to the end of World War II.

In 1994, with the collapse of the Soviet Union, Armenia, like the other republics that had made up the USSR, was left on the verge of bankruptcy. When its national assets were put up for sale, the Yerevan Brandy Company was bought by the French spirits group Pernod Ricard, in 1998, which spent more than US$5 million renovating the factory and updating the brand.

The ArArAt Brand

ArArAt’s history was closely tied to Russia. It was the leading brandy in Russia with a market share of 32% across all price segments. Its long tradition of quality was one of the keys to its success. Pernod Ricard valued the brand’s links with Armenia’s history (see Exhibit 5), including the biblical link, but over the past 120 years a series of tsars and other royalty, prime ministers, presidents, Russian dictators and Soviet leaders had counted among its customers. The company believed that it was these traditions that Russian consumers identified with. Tradition lived on in the way ArArAt aged its brandy in barrels made from 100-year-old Armenian oak, famous for its dense structure and vanilla essences.

Among Armenian brandies, ArArAt was considered the highest quality brand thanks to its reputation for premium production, selection of grapes (100% from Armenia), aging in its distinctive wooden barrels, and rich velvety texture. For Pernod Ricard, the brand identity was evoked by words such as status, quality, audacious, original, legendary, intense, sensual, unique, majesty, international and contemporary. It symbolized a lifestyle – it was a brand for people who lived with passion. At the same time, research had revealed that despite its authentic image, the brand lacked modernity. It was too ‘Soviet’ – far removed from the status of French cognac.

ArArAt Brand Varieties in Russia

Throughout the company’s 120-year history, Russia had been the biggest market for ArArAt cognac. With awareness in the marketplace of 90%, the company enjoyed an enviable position.

In 2005, a new branding strategy was introduced. The decision was taken to make ArArAt an umbrella brand and to simplify the ArArAt range, limiting it to seven sub-brands, each associated with a unique Armenian legend. The seven sub-brands in the ArArAt family in Russia (from the least aged/quality) were: ArArAt 3 star (3 years), ArArAt 5 star (5 years), Ani (6 years), Otborny (7 years), Akhtamar (10 years), Prazdnichny (15 years), and Nairi (20 years). See Exhibits 6 and 7.

Pernod Ricard had divided the sub-brands into three price categories: i) standard category, represented by ArArAt 3 star (matured for 3 years) and ArArAt 5 star (5 years) priced from $10 to $15 ii) premium category, represented by Ani (6 years), Otborny (7 years), and Akhtamar (10 years), which retailed from $15 to $30 iii) super-premium, represented by Prazdnichny (15 years) and Nairi (20 years), with a retail price of $30 and $50 respectively

By far the best known sub-brands were the standard cognacs, ArArAt 3 star and ArArAt 5 star. Since the standard market made up 80% of Russian cognac consumption, the brand’s dominance in this category was undeniable.

Prior to rebranding, the variants of ArArAt had similar bottles and similar label designs, with the same colours and font for the sub-brands. This made it difficult for the premium varieties to distinguish themselves from the popular standard brands. While this benefited the standard brands, clearly Russia’s status-conscious, newly wealthy consumers wanted something more exclusive.

As part of the 2005 branding initiative, ArArAt introduced new bottles. The colour of the glass was changed from green to transparent and three new shapes for each sub-category (standard, premium and super-premium) were introduced, with the younger and less expensive brandy in more traditional ArArAt bottles, while the older, more expensive premium sub-brands came in bottles more reminiscent of French cognac.

Changes to the labelling were also driven by the branding strategy. Prior to 2005, ArArAt had been a shadow endorser (see Exhibit 8), but with the new approach ArArAt was now the umbrella brand with a set of seven sub-brands. Ascending the range from standard to super- premium, the link between the master brand and sub-brands diminished – the font size of the ArArAt name grew smaller, as did the producer logo. The logo was eliminated altogether from the super-premium brands (see Exhibit 8). The new bottles and labels were designed to reflect the new thinking, evoke French brands and help the super-premium sub-brands compete more effectively with French cognacs.

The Competition

In the standard range, new competition had emerged within Russia (e.g., Kin, Nahimov, Bastion and Cherny Aist or Black Stork) and the other former Soviet republics. Some of these were reputedly made of spirits from France, and they were aided by the imposition of new import tariffs which penalized foreign brands. These new entrants competed with ArArAt’s lower end sub-brands (see Exhibit 9).

At the premium and super-premium end of the market, French and Armenian brands continued to dominate. French brands such as Martell, Remy Martin and Hennessy were considered the best by Russians (see Exhibit 10 for French competitor ads), with a brand identity evoked by words like luxury, exclusive, status, prestigious, romantic and elegant, whereas ArArAt brands were associated with words such as authentic, traditional, original and rich taste.

Surveys revealed that French brands were considered more modern and international, and appealed to Russia’s nouveau riche who aspired to imitate their Western counterparts. The marketing approach for these brands was aligned with fashion and design trends coming out of Italy and France.

Since Armenia was regarded as the ‘cradle of civilisation’, Armenian brandy was traditionally a favourite in Russia. Unlike many former Soviet republics, Armenia had remained supportive of Russia and the leadership in Moscow. Of all Armenian brands, ArArAt had a large lead and was the most recognized brand in the brandy category. Although technically speaking, Armenian brandies were imported, Russian consumers considered them almost local.

Cognacs were also having to compete with trendy new entrants in the spirits marketplace in Russia. Wine, whisky and tequila were increasingly popular – just as in Western Europe – and consumers were eager to constantly try new things.

The Russian Consumer

From 1998 to 2005, gross domestic product in Russia grew by 48%. The country’s relatively young stock market was notoriously volatile, but for investors with a stomach for risk the market index nearly doubled in five years. With oil and other commodities suddenly in demand, and oil prices showing no sign of falling, Russia was minting millionaires.

Wages in Russia rose dramatically from 2002-2006, with per capita GDP almost tripling during the period. Disposable income grew significantly. Increasingly, Russians travelled overseas for work and leisure. Most well-known international brands were regarded as fashionable and were available across the country. Russians spent $3.2 billion on luxury goods in 2006. By 2009, they were expected to account for 7% of all luxury purchases in the world, despite the fact that they were only 4% of the global population.

But the economic data told only half the story. There was a stark contrast between the largest most prosperous centres and the smaller, poorer cities and the rural hinterland. In the country as whole, average income was $244 a month, but was more than double that in the biggest

cities. And it was in those metropolises that a middle class was emerging for the first time in the country’s history.

Russia’s Luxury Market Concentrated in Five Cities

According to Forbes magazine, Moscow had 33 billionaires, more than any other city in the world, and over 88,000 US dollar millionaires. It hosted an annual “Millionaire Fair” and had sanctioned the development of a town for millionaires on the outskirts of the city, where luxury apartments sold for US$500,000. Meanwhile the average income of Muscovites was $800 per month.

With a population of more than 10 million people, Moscow was home to the headquarters of most of the big Russian and multinational companies that operated in the country. St. Petersburg had 5 million people and a thriving economy, and was a trendy international city with a rich cultural life. The other big cities, Novosibirsk and Samara, each had about 1.5 million people, and Ekaterinburg had a population of 1.3 million.

As elsewhere, wealth and opportunity drew the brightest and best from the rural areas and smaller cities to pursue careers in the big cities, just as it attracted an increasing number of expatriate Russians back to the homeland hoping to make their fortunes. These urbanites saw themselves as trendy Western Europeans and worked to dispel the traditional image of Russians as austere. Their role models and preferred brands were from France and Italy, and their tastes in music and entertainment mirrored those in the West. The post-perestroika generation wanted high-end brands that were slick, status-oriented and international – even if their dress sense could be considered overly flamboyant.

For advertising and marketing experts, years of Communist propaganda had made Russians suspicious of anything insincere. Contemporary brands had to address the aspirations of the newly affluent, newly confident consumer. Campaigns had to be presented in an authentic way with a unique message. Top brands often evoked the stylish lifestyles of young people in other European capitals like Paris or Milan while crafting a distinctive Russian message. Simply importing a successful Western slogan could be disastrous. Indeed a number of Western brands had faltered in Russia for this reason, ignoring that their brands were unknown, often faced entrenched local market leaders, and simply left consumers confused. To reach large numbers of people, slogans had to be in Russian – Western slogans didn’t translate well. With few luxury or up-market aspirational brands of Russian origin, most advertising in glossy magazines was for international brands produced abroad. Visually, Russians were accustomed to western-style codes of luxury.

The Drinks Market

The traditional image of Russians as hard drinking might on the surface seem to be supported by the figures: Russia has one of the highest rates of alcoholism in the world and the percentage of Russians who never drink is in the single digits. However, a recent survey found that 24% of Russians drank only 2-3 times a month, and as many as 20% of Russian women never or hardly ever drank. This highlighted one of the problems of the Russian market: the availability of reliable data.

Alcohol preferences were mainly determined by social and economic class and by age. Russia was world-famous for its vodka, and vodka still accounted for 90% of the country’s spirits market. Although beer was by far the most popular alcoholic beverage among young people, as well as cheap wine, older drinkers preferred vodka. Location was another determining factor: people in the five biggest cities were more likely to consume premium spirits. So was gender: women drank spirits far less than men. Only 3% of young women drank spirits 2-3 times per week compared to 18% of young men.

The spirits market in Russian was undergoing “premiumisation”: consumers switching from cheap local vodka to premium vodka, and from premium local vodka to imported spirits, and then to more premium categories of imported spirits. As incomes rose in urban centres, so the popularity mounted of new drinks categories from abroad including whisky and tequila.

Russians call brandy “con’yak”, and it ranked second only to Vodka in the spirits category. Consumption was growing 10% a year, with above-average growth among university graduates with relatively high incomes and social status. Generally speaking, cognac and brandy had a more sophisticated image than vodka. Unlike vodka, cognac was consumed almost equally by men and women, and not only as a digestive but often during dinner.

Russians consumed 32 million litres of brandy in 2004, 80% of which was lower quality. Nearly 16% of the market was standard quality, the sub-category in which ArArAt excelled, slightly more than 3% of the market was premium, and less than 1% was super-premium. However, margins in the premium sub-categories and above were much higher than in the standard sub-category, so despite lower volumes, the contribution of premium-plus varieties of ArArAt accounted for more than 40% of its bottom line (See Exhibit 11).

Research on Market Segments

Pernod Ricard commissioned a consumer study to identify and profile customer segments in the key cities so as to be able to assess which were the best targets for ArArAt. To compile a portrait of the target market they needed to know which consumers drank spirits and how often. They also hoped to learn more about how consumers regarded the ArArAt sub-brands and how different segments responded to marketing messages and branding. The research involved 2,000 face-to-face in-home interviews of about one hour each in Russia’s five biggest cities. Researchers targeted specific groups of males and females over 18 who drank hard spirits. In Moscow, they specified a minimum income of $500 per month, in the other cities $300 – in both cases this was slightly higher than the average family income.

The research uncovered five distinct segments, described as follows (see Exhibit 12):

Young Trendies (15%): These go out often to trendy places, pay attention to appearance and image and try to keep up with current design and fashion trends. Professional success is very important to this group. They are willing to take risks, like change, hate routine, like travelling and discovering new cultures. They love things that are of the highest quality, prestigious and chic.

Hedonists (23%): These are people who believe that brands express their individuality. Loyal to the brands they like, they often buy the best brands even though they are expensive. They

pay attention to their appearance and image, track the latest design and fashion trends, believe that one can get an idea of someone by what he drinks, and that ‘real men’ drink strong alcohol. Hedonists like different drinks depending on the place and occasion. They get pleasure from drinking alcohol and think they are connoisseurs. Good food is an important part of their life. They love things that are of the highest quality, prestigious and chic.

No-No (26%): No means no. This group simply doesn’t care about brands. They primarily consume less expensive drinks such as cheap vodka.

Respectable Family Man (21%): These consumers don’t overpay for prestigious brands. They are very loyal to the brands they like. When they drink, they prefer well-known brands. They have classic habits and tastes and believe the simplest things are the best. Family is where they feel most happy and comfortable. They prefer traditional spirits with a history, and feel that alcohol is ideal for a relaxing break. Followers (15%): Drinking helps this group feel less shy. For them to have fun at a party alcohol is essential. They often go out to trendy places and like big noisy gatherings.

(Details of the five segments are provided in Exhibits 13-20).

ArArAt’s Most Recent Ad Campaign

Alcohol advertising was highly regulated in Russia and was restricted to print and indoors. The company’s recent advertising campaign, “Legends of ArArAt”, featured historical figures associated with the brand. It used well-known black and white news pictures and humorous captions to draw attention to ArArAt’s long history in Russia. One ad showed Stalin sitting with Churchill and Roosevelt at Yalta, another pictured Khrushchev with Kennedy, and with Fidel Castro in another.

In 2004, Pernod Ricard also launched a temporary campaign to introduce its new branding and bottles for ArArAt. It was heavy on information to explain the branding changes to consumers who had a longstanding relationship with the brand. The copy emphasized the taste and aroma of the 3 premium sub-brands: “roses and carnations” for Akhtamar, “chocolate and orange” for Pradznichny, and “walnut and cedar” for Nairi (see Exhibit 21).

Notwithstanding the new foreign and local competitors, Pernod Ricard wanted to grow the ArArAt brand. To do this it would have to retain its current customers and attract new ones. Vadim Grigorian believed it was crucial to underline the premium positioning of ArArAt, differentiate the sub-brands, and introduce the new premium and super-premium sub-brands. In doing so, he needed to identify which segments to target and aggressively go after them. ArArAt’s 32% market share made the task challenging – the potential downside of a misstep was huge. To get ideas as to how to move forward, Grigorian had solicited pitches from the

leading advertising agencies in Paris for the ArArAt account. He received the following proposals:

1. Still Life: conveys the very soul of Armenian brandy and embodies the majesty of the brand. The newly designed bottle is the basis of this still life. It sublimates the colour of the brandy and creates an aesthetic that speaks to the origin, culture and history of the brandy. The pictures represent a truly Armenian lifestyle and symbolize the art of living passionately, the art of living dangerously, the art of ArArAt (Exhibit 22). 2. ArArAt is Everywhere: points to the origins, quality and fame of ArArAt, a brandy that goes with a high-class lifestyle. It’s for people who would never travel without the pleasure of luxury. ArArAt brandy is a must, the ultimate luxury even at the ends of the earth, a sign that a lifestyle goes beyond frontiers. ArArAt is the taste of Armenia; the essence of the country follows you everywhere – to New York, Paris or the Bahamas. This is aimed at Russians who appreciate international products. It highlights classic international codes of luxury and positions the brand among foreign super premium competitors. ArArAt is appreciated everywhere around the world (Exhibit 23). 3. ArArAt in Fashion: a fashion outlook. Fashion photography creates a visual shock when linked to a brandy, a traditional drink, and adds modernity to a somewhat classic brand. The photos make ArArAt fashionable, expressing the unique pleasure of discovering and tasting the best Armenian brandy (Exhibit 24). 4. Transparency and History: This sublimates the origins, tradition and history of the ArArAt brandy within the lights and reflections of the bottle, flickering like a flame. Within the reflection, the intensity and magic of ArArAt show through, beautiful scenes evoking a fiery Mount ArArAt, a beautiful Armenian woman dancing, or the magical eyes of a bewitching and mesmerizing feline (Exhibit 25). 5. ArArAt’s Mystical Origins: Aspirational positioning is instrumental in implementing the premiumisation strategy. Origin is perceived as a key factor of premium and luxury goods, especially wines and spirits. In a market flooded by copies and fakes, origin serves as a proxy for guaranteed quality. Russians have a highly positive image and ArArAt is the only legitimate brand that can represent Armenia. Own the most dreamlike and imaginary dimension of the Armenian culture. Legends are timeless. (Exhibit 26) To help him choose the campaign(s) to run with, Grigorian had commissioned in-theatre testing of the five campaigns (the results of these are provided in Exhibit 27). In addition to choosing which campaign(s) to run with, he also needed to choose the magazines in which to place the ads. To this end, he considered the data shown in Exhibit 28.

A Difficult Decision

Grigorian needed to balance several competing objectives: the choices he made regarding the segment to target, the ad campaign to use, the sub-brands to promote, and the magazines to activate. While it was important to maintain volume in the standard brandy segment(s) against mounting competition from within Russia and other new entrants from Eastern Europe, at the same time he had to move toward “premiumisation” by growing market share in the premium

and super-premium market against the VS and VSOP range of “big cognacs” such as Martell and Hennessy.

French owner Pernod Ricard wanted to maintain the key brand values evoked by words like proud, audacious, historic, original, natural, legendary, intense and multi-sensory. It was vital to preserve the Armenian associations of ArArAt and to retain these values with the move to establish ArArAt as the umbrella for the whole range of sub-brands, while carving out three distinct ranges (standard, premium, super-premium). Time was of the essence. Given the data at hand, what recommendations should Grigorian make?

Exhibit 1 Pernod Ricard Brand Portfolio 15 priority brands

Sustained by 30 local leaders

N° 1 Int’l whisky N° 1 Rum N° 2 Scotch N° 1 Brandy N° 2 Local whisky N° 6 Whisky in Thailand in Brazil in Korea in Russia in Argentina in India Source: Pernod Ricard

Exhibit 2 Pernod Ricard Advertising

Source: Pernod Ricard

Exhibit 3 Map of Armenia

Exhibit 4 Mount Ararat, Symbol of Armenia

Source: Pernod Ricard

Exhibit 5 Armenian Visual Codes

Armenia is the country where the culture of stone is worshipped and elevated to the level of other arts. Tuff is the primary rock used in Armenian art and architecture, being lightweight and relatively soft.

Exhibit 5 (cont’d) Armenian Visual Codes

• Ancient tradition of craftsmanship dating back several thousand years. Armenian craftsmen are good at working stone and leather, but especially metals, including gold.

Ancient (Dating to 6th Century BC)

Modern

Exhibit 5 (cont’d) Armenian Visual Codes

• Armenia boasts a long history of art going back to paintings with religious motifs back in Biblical times to contemporary paintings that are secular in nature.

Ancient Paintings

Modern Paintings

Source: Pernod Ricard

Exhibit 6 ArArAt Brand Portfolio

Source: Pernod Ricard

Exhibit 7 Sub-brand Legends ArArAt 3 star and ArArAt 5 star are named after Mount Ararat, the eternal symbol of Armenia. The Bible recounts that Noah landed on this mountain and planted vineyards after the great flood. ArArAt is the world’s highest stand-alone mountain. The first Westerner to discover the mountain was Marco Polo. It was first conquered in 1829, on September 27th, by Professor F. Parrot of Dorpat University. Ani takes its name from the capital of the ancient Armenian Kingdom of the Bagratouni dynasty. Ani, in its heyday a millennium ago, was the rival of Constantinople, Baghdad and Cairo. By the 12th century it had street lighting, drains and an underground fresh- water supply. Its bridge carried the Silk Road. It was known as the city of 1,001 churches or “city of forty gates” and had a population perhaps as high as 200,000. Otborny was created in 1902 for the Russian Tsar and was awarded the Grand Prix at the Paris Exhibition in its first year it was entered in the competition. Akhtamar is an island on Lake Van, which was home to tsars and the famed Church of the Holy Cross. According to legend, an Armenian princess named Tamar lived on the island and fell in love with a commoner. This boy would swim from the mainland to the island each night, guided by a light she lit for him. Her father learned of the boy's visits. One night, as she waited for her lover to arrive, he smashed her light, leaving the boy in the middle of the lake without a guide to indicate which direction to swim. They say his dying cries of "Akh, Tamar" (Oh, Tamar) can be heard to this day at night. The legend was the inspiration for a famous Armenian poem by Hovhannes Tumanyan. Prazdnichny was developed in 1957 just after the company’s new Yerevan factory was completed. It is the ArArAt brand that has won the most awards at international exhibitions. Nairi, located on Lake Van, was a rival of the Assyrian Empire. This nation was mentioned first by the Assyrians in the 13th century BC as 'Nairi' (Land of 'Rivers' in Assyrian). It was also known as “the Land of 23 kings”. Since the late nineteenth century, Nairi has become a synonym for Armenia among Armenians who see Nairi as one of their most ancient ancestors. Of the 7 sub-brands, 5 are based on words of Armenian origin and 2, Otborny and Prazdnichny, on Russian words meaning “Selected” and “Festive” respectively. Some consumers consider the latter less authentic than “true” Armenian names. Source: Pernod Ricard

Exhibit 8 Link between the ArArAt Masterbrand and Sub-brands

Æ “Shadow” endorsement strategy was used before 2005, when all segments were unified under the round logo which is barely readable/authenticated

STANDARD PREMIUM SUPER-PREMIUM

Æ In the new strategy, sub-brands are each granted a certain level of endorsement from the ArArAt master brand, which gradually weakens up the range from standard to super- premium

STANDARD PREMIUM SUPER-PREMIUM

Exhibit 8 (cont’d) Link between the ArArAt Masterbrand and Sub-brands

Premiums

Super-Premiums

Producer Logo

Brand Logo

Sub-Brand Signature

Source: Pernod Ricard

Exhibit 9 Advertising by Domestic Competitors

Source: Pernod Ricard

Exhibit 10 French Competitor Advertising

Source: Pernod Ricard

Exhibit 10 (cont’d) French Competitor Advertising

Source: Pernod Ricard

Exhibit 11 Competitors by Price Tier

Source: Pernod Ricard

Exhibit 12 Russian Brandy Market

Source: Pernod Ricard

Exhibit 13 Perception of Spirits in Russia

Source: Pernod Ricard

Exhibit 14 Correspondence Analysis Image Map for Brandy

Source: Pernod Ricard

Exhibit 15 Drinker Segment Map

Source: Pernod Ricard

Exhibit 16 Segment Attitudes

Source: Pernod Ricard

Exhibit 17 What Type of Spirit Consumed by Segment

Source: Pernod Ricard

Exhibit 18 Consumption Frequency per Month

Source: Pernod Ricard

Exhibit 19 Consumption Occasion

Source: Pernod Ricard

Exhibit 20 Segment Demographics

Age

Education

Exhibit 20 (cont’d) Segment Demographics

Income

Source: Pernod Ricard

Exhibit 21 2004 Campaign Sample Ad

Source: Pernod Ricard

Exhibit 22 Examples of Ads from Proposed Campaign #1

Source: Pernod Ricard

Exhibit 22 (cont’d) Examples of Ad from Proposed Campaign #1

Source: Pernod Ricard

Exhibit 23 Examples of Ads from Proposed Campaign #2

Exhibit 23 (cont’d) Examples of Ads from Proposed Campaign #2

Source: Pernod Ricard

Exhibit 24 Examples of Ads from Proposed Campaign #3

Exhibit 24 (cont’d) Examples of Ads from Proposed Campaign #3

Source: Pernod Ricard

Exhibit 25 Examples of Ads from Proposed Campaign #4

Exhibit 25 (cont’d) Examples of Ads from Proposed Campaign #4

Source: Pernod Ricard

Exhibit 26 Examples of Ads from Proposed Campaign #5

Exhibit 26 (cont’d) Examples of Ads from Proposed Campaign #5

Source: Pernod Ricard

Exhibit 27 In-theatre Test Results

Campaign #5 Campaign #4 Mystical Transparency Campaign #3 Campaign #2 Campaign #1 Martell Performance Questionnaire Topics Origins and history In Fashion Everywhere Still Life (Benchmark) Average Brand Attribution Correct Brand Recall 68 63 55 48 70 52 59 Likeability Overall Likeability 85 83 53 60 85 61 71 Ad appeals to people like me 88 85 61 72 90 66 77 Uniqueness How different from other ads 79 72 58 58 50 62 63 How original compared to other ads 76 70 48 52 53 60 60 Campaign Message A premium brand 83 81 75 89 80 86 82 A contemporary brand 75 71 79 73 68 73 73 A high quality brand 94 85 89 93 93 93 91 A reliable brand 92 79 83 85 90 86 86 A brand with strong history and tradition 88 85 69 72 70 88 79 A brand ideal for sharing woth friends 91 69 89 78 72 87 81 A refined brand 88 85 73 91 90 85 85 Clarity of statement 81 69 65 66 78 68 71 Product uniqueness 20 19 15 22 18 26 20 Brand Relationship Persuasion (first choice) 14 13 3 6 15 6 10 Persuasion (Relevant Set) 34 20 14 19 30 19 23 Insipres me to drink brand 87 83 51 73 85 69 75 Encourages me to buy brand 85 72 46 65 77 62 68 Improves my opinion of brand 63 60 48 58 61 51 57 Is a brand for me 91 81 46 79 85 76 76 Ad left me with good feeling about brand 84 76 52 82 85 77 76 Source: Pernod Ricard

Exhibit 28 Magazines in Russia

Qualitative Assessment (scale of 10: 1 - least, 5 - neutral, 10 - most) Clutter Credibility List Price Agency Actual Circulation Cover Cover (density of Title Type (Brand Prestige (1/1) Discount Price `000 '000 % spirits Fit) advertising) MEN Maxim $15,333 0.4 $9,200 monthly 390 1906 3.3 5 5 9 GQ $15,333 0.32 $10,427 monthly 100 235.8 0.4 6 9 5 XXL $10,833 0.45 $5,958 monthly 140 428.5 0.7 8 3 7 Playboy $9,830 0.55 $4,424 monthly 160 753.3 1.3 7 7 5 Medved $10,000 0.55 $4,500 monthly 85 184.8 0.3 7 4 4 TRAVEL GEO $15,785 0.53 $7,419 monthly 220 964.1 1.7 8 7 3 National Geographic $11,091 0.5 $5,545 monthly 200 1005 1.7 7 6 2 INFLIGHT Aeroflot $12,333 0.4 $7,400 monthly 100 9 8 8 S7 $9,000 0.45 $4,950 monthly 100 9 6 8 BUSINESS Profil [Profile] $9,667 0.45 $5,317 weeky 110 176.8 0.3 7 6 3 Forbes $15,400 0.4 $9,240 monthly 120 810.5 1.4 6 10 5 Newsweek $11,733 0.5 $5,867 weeky 55 217.7 0.4 7 8 3 AUTO Top Gear $16,000 0.53 $7,520 monthly 350 1078 1.9 4 8 8 Autoreview $12,333 0.25 $9,250 biweekly 220 1200 2.1 3 7 2 GENERAL INTEREST Rolling Stone $8,000 0.55 $3,600 monthly 110 410.8 0.7 3 5 7 OK $8,500 0.5 $4,250 weekly 150 557.4 1 5 5 4 Hello! $13,333 0.6 $5,333 weekly 350 353.6 0.6 5 5 5 Erevan $10,000 0.55 $4,500 monthly 140 50.6 0.6 10 9 5 WOMEN ELLE $17,783 0.39 $10,848 monthly 330 598.6 1 6 8 5 Marie Claire $11,000 0.45 $6,050 monthly 160 225.5 0.4 5 5 3 Vogue $18,333 0.25 $13,750 monthly 150 646 1.1 6 9 5 L'Officiel $15,000 0.53 $7,050 monthly 150 129.2 0.2 5 8 5 DESIGN Mezonine $9,000 0.55 $4,050 monthly 80 152 0.3 6 7 3 Interior+Design $10,667 0.4 $6,400 monthly 95 1208 2.1 6 5 2 ENTERTAINEMENT Afisha Moscow $18,333 0.45 $10,083 biweekly 95 442.7 4.8 4 7 7 Time Out Moscow $7,667 0.49 $3,910 bi-weekly 50 67.6 0.7 4 5 6 Bolshoi Gorod $21,667 0.45 $11,917 weekly 130 141.6 0.2 3 4 2 LUXURY Robb Report $12,650 0.55 $5,693 monthly 22 7 10 6 MASS MEDIA 7 Dney [7 Days] $30,317 0.22 $23,647 weekly 1010 3621 6.3 8 3 3 ТВ Парк $19,383 0.4 $11,630 weekly 510 1710 3 7 2 3 Source: Pernod Ricard • Cover is the number of people exposed to each issue. • Cover % is Cover as a function of the total number of people in Russia who claim to regularly read/buy magazines. • Credibility is a judgment; 1=not at all credibility, 10 very high credibility • Prestige is a judgment; 1=not at all prestigious, 10=very prestigious • Clutter is a judgment; 1=very high clutter, 10=very low clutter