Ararat Brandy
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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 COPIES MAY NOT BE MADE WITHOUT PERMISSION. NO PART OF THIS PUBLICATION MAY BE COPIED, STORED, TRANSMITTED, REPRODUCED OR DISTRIBUTED IN ANY FORM OR MEDIUM WHATSOEVER WITHOUT THE PERMISSION OF THE COPYRIGHT OWNER. 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. Copyright © INSEAD 1 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. Copyright © INSEAD 2 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).