Executive Summary
The Carlsberg Group is an international Denmark-based conglomerate of alcoholic and non-alcoholic beverages. The selected product is its Baltika beer brand which the company feels could potentially perform well in its weakest Eastern European market as the region has an affinity for casual consumption of beer without having its own dedicated production. The selected primary target market is Russia.
Its key characteristics include heavy regulation as well as intense competition from local vendors. However, the alcoholic beer market in Russia has tremendous potential, and in order to achieve success, Baltika needs to appeal to the local consumer by its fresh approach to beer and innovative marketing through cultural association. The marketing mix strategy is to utilize traditional media which is popular in Russia in combination with the growing utilization of digital, social, and direct-to-consumer marketing concepts. Following regulations and appealing to the cultural demands of drinking beer during sporting or social events can provide Baltika with an opportunity to be successful in the Russian market.
Introduction
The Carlsberg Group is a worldwide brewer with Danish headquarters and various brands spread across different countries, from Elephant Beer in India to Svyturys in Lithuania. As such, Carlsberg occupies a considerable portion of both the alcoholic and non-alcoholic drinks sales in Europe, Asia, and America (“Baltika breweries,” n.d.). Of these three, the Eastern European foreign market is one of Carlsberg’s most compelling sections, considering the macroeconomic problems sustained by it since 2007 (Carlsberg Breweries Group, 2019).
The Carlsberg Breweries Group (2018a) states in their annual report that “on volumes China and Russia are of equal size,” which actualises finding a solution for the continuous impairment of its brands in this region (p. 9). Thus, analysing the success of Denmark-based Carlsberg Group Baltika beer within the Russian market may allow making some suggestions regarding its most appropriate international marketing mix strategy.
Product Policy Decisions
The market’s demands may be one of the more essential actors of change when it comes to product policy. Throughout its growth years, the Carlsberg Group has shown a tendency of both product extension and adaptation, to varying degrees of success (“Baltika breweries,” n.d.). As such, these two product strategies were chosen for research and evaluation to produce an adequate overview of the Carlsberg Group’s tactics.
Product Extension – Communication Adaptation
Product extension could be a viable strategy with any given company that maintains ambitions for growth. For beer, the most logical expansion would be non-alcoholic production, and the one of Carlsberg holds a particular point of interest in Russia due to an existing shift in attitudes regarding alcohol (Carlsberg Breweries Group, 2018a; Mooij, 2019). The benefits of extension include saving funds that could otherwise be spent on branching out, and the positive effect of Carlsberg’s existing reputation, which plays an essential role in products’ success within established markets (Mooij, 2019; Morschett, Schramm-Klein, & Zentes, 2015).
Furthermore, the existing attitude towards the Baltika brand may allow viewing any Carlsberg product as local to the Russian market (Mooij, 2019). However, it may also be necessary to consider if the value that consumers place on the product is positive or negative. Therefore, the benefits and drawbacks of product extension both rely on the image of the original brand and its perception.
Product Adaptation – Communication Extension
Altering the final product to better suit market needs, as opposed to creating a similar-looking good, is another strategy for market occupation. This tactic of adaptation became the primary means of development for Carlsberg (Hatch, Schultz, & Skov, 2015). Disadvantages of this method are a loss of the original company’s “unique technology and/or an innovative product or service or a superior design,” which cannot be maintained locally (Morschett et al., 2015, p. 137). However, “adaptation leads to better performance” through taking into account cultural differences and consumers’ values, avoiding the pitfalls associated with standardisation (Mooij, 2019, p. 24). Therefore, product adaptation becomes a strategy that may be oriented best to achieving success by considering consumers’ cultural needs.
The Most Appropriate Product Strategy
Product extension may hold the most benefits, considering the pros and cons of both methods. In Russia, the primary means of advancement for the brewery in 2008 was “the S&N acquisition [that] brought Carlsberg majority ownership in Baltika,” a company that continues to experience severe profit loss (Hatch et al., 2015, p. 65). Carlsberg’s following success under the guise of different extensions, such as Baltika 0 and Baltika 7 Non-Alcoholic, supports the idea of adaptation as an excellent course of action (Carlsberg Breweries Group, 2018a; Stack, Gartland, & Keane, 2016).
Furthermore, Carlsberg’s internal organisation factors, such as the current ideal value chain, and current possessions within the Russian beer market, as seen in Table 1, may not allow for successful product adaptation (Hatch et al., 2015). Thus, it may be best to effectively allocate the currently available capital to advance the Carlsberg Group’s position on the Russian beer market by extending the Baltika product line.
Table 1. Local Russian Possessions of the Carlsberg Group in 2018.
Channel Decisions
Placing the chosen product on Russian markets requires outlining ways of making it publicly available through different means. The Carlsberg Breweries Group (2018a) outlines both off-trade and “DIOT – draught in off-trade” as central to Eastern European markets, with the former method now taking up to 50% of the market in Russia (p. 40). As such, both specialised traders and manufacturing importers may help integrate Baltika extensions into the Russian market effectively.
Specialised Trader Importers
As previously seen in Table 1, only eight Carlsberg-owned breweries exist within Russia, spread out from St. Petersburg to Novosibirsk. The non-existent connections of the Carlsberg Breweries Group (2018a) in Russia make establishing these crucial pathways a long and strenuous process that could only become profitable in the long term. This tactic is more suited to the needs of smaller companies, as these indirect channels allow procuring a certain level of control over distribution, and may potentially help untie some capital and costs (Mooij, 2019). Nonetheless, the individual negotiations linked with this method occupy time and other essential capital elements, which the Baltika franchise currently lacks.
Manufacturing Importers
The benefits associated with utilising manufacturing importers may be an excellent choice for a European-based company attempting to advance its profits on the Russian market. Carrying out the internationalisation of a product in this way could allow for a heightened continuity of the product (Mooij, 2019). The discipline and the heightened level of control that are interlinked with this method also make it more appealing (Hatch et al., 2015). However, its costs remain high, even in comparison with specialised trader importers.
The Most Appropriate Channel
Either choice may be a viable option, considering the costs associated with both manufacturing and specialised trader importers. However, recognising the demands related to the latter channel type, manufacturing trader importers may be a better choice that could grant a heightened degree of control and minimise production-related inconveniences (Mooij, 2019). Furthermore, the fact that the Carlsberg Breweries Group (2018a) maintains an existing presence within the Russian market through their tactic aimed at “massive communication and sampling campaign” also plays a decisive role (p. 10). Finally, the continuing popularity of various existing Baltika extensions may provide the capital necessary for supporting this channel choice.
Pricing Issues and Decisions
The Carlsberg Group is an experienced company in the international market. As such, it takes into consideration “price elasticity, local competition and inflation expectations” when pricing their product, resulting in a balance that is affordable for the consumer and profitable for the provider (Carlsberg Breweries Group, 2018a, p. 40). Thus, choosing the most appropriate pricing policy for Baltika in Russian should rely on various factors.
Currency Fluctuations and Inflationary Environment
Due to its headquarters being based in the European Union, Carlsberg relies on the conversion of revenue from rubles to euro. With an unstable inflationary and currency exchange environment, there is much to fear in terms of revenue loss on Russian markets (Carlsberg Breweries Group, 2018a). The depreciation of the ruble and the lack of market growth in Russia for 11 years carries serious business connotations (Carlsberg Breweries Group, 2019). These circumstances may not be offset by a potential redistribution of funds in the event of an emergency or project failure.
Government Controls and Subsidies
The measures applied to Carlsberg’s goods in Russia may be considered primarily restrictive. The Carlsberg Breweries Group (2018a) suffered from a change in policies, for example, “a ban on individual PET bottles larger than 1.5 litres” (p. 40). Thus, no extensive reliance on subsidies may be planned with the current level of governmental involvement in programs that are aimed to reduce alcoholism levels among the population of Russia.
Competitive Behaviour
The vastness of the Carlsberg franchise in Russia may limit local competitive behaviour, with other foreign and domestic brands experiencing the same disadvantages of selling in Russia. Thus, the company remains a prominent force on the Russian beer market, with eight breweries and a self-proclaimed #1 market position (“Baltika breweries,” n.d.). Thus, the company should experience little considerable competition until another global brand achieves a higher level of market ownership in the region.
The Most Appropriate Pricing Policy
The proposed pricing policy should take into consideration local, Russian specifics of beer consumption, competitive behaviour, and the continuing ruble-euro currency fluctuations. Doing so will allow for better coverage of the market, resulting in a heightened success of the chosen product in a new cultural environment (Mooij, 2019). As such, the estimated export pricing of Carlsberg’s Baltika may be seen in Table 2, which was uplifted from the Export Pricing Workbook.
Table 2. Estimated Export Pricing of Baltika.
Promotional Challenges and Issues
Russia is a developed market which features highly functional promotional and advertising capabilities through a variety of mediums. However, there are some challenges which international brands and advertising agencies face when promoting in the country, including standard cultural barriers, a high level of corruption, and potentially overwhelming level of government regulation. Despite vast economic opportunities for companies, Russia remains one of the most difficult markets to navigate in terms of promotion, especially for lesser-known foreign brands.
In the current political climate, there is a level of ambivalence towards foreign products, despite being higher quality, as well as a strong emphasis on tradition. For a variety of market segments, there is also strong local competition, one which commonly supported by the government and population, as well as adopting many strategies from their Western counterparts becoming highly marketable (Moorman, 2014). Many of these aspects apply strongly in the case of alcohol beverages which are one of the top domestically made products in Russia, creating tense competition.
The Implications of Legal Constraints
In terms of advertising and promotion, the legal regulations in Russia do not differ significantly from other European countries. Alcohol may not be targeted towards minors and proper warnings of harm must be shown or voiced, particularly the legal age of sale and consumption of alcohol which is 18 years old. Alcohol cannot be presented as safe or helpful to health or physical condition, including satisfying thirst. The advertisement cannot directly state the advantages of alcohol consumption (such as improving mood) nor criticise sobriety. There are some limitations to advertising media, with legislation constantly changing. For example, transport vehicles or cover pages of magazines cannot have alcohol advertisements. Certain times or conditions may lead to limited television or radio advertising of beer, with some legislative initiatives attempting to ban it altogether (Goryachev, 2019).
The Implications of Linguistic Limitations
English is not commonly spoken in Russia, so there may be some linguistic limitations. However, the alcohol market and products have a relatively limited range of terms and vocabulary which may be needed to be addressed, and most of the concepts have been translated. Commonly russification of English words and brands is popular as well, which may be utilized for marketing purposes. Language barriers are not seen as a potential limitation in the concept of a promotional mix for the Baltika brand.
The Implications of Cultural Diversity
Russia has a complex and complicated relationship with alcoholic beverages, as it is seen as both a social concept but also dangerous due to the levels of alcoholism. However, this is potentially the reason why in recent years, Russians have turned away from spirit consumption toward beer as part of their drinking culture, becoming similar to Europe in many ways (McCarthy, 2018). Russia is also a highly diverse country despite common stereotypes, with a tremendous number of ethnic groups as well as home to multiple religions. The Muslim population has a large presence in Russia, for which alcohol is not an option.
Most other ethnicities have a similar affinity for social alcohol consumption as the core Russian population. Despite the ethnic diversity, most groups and Russians rather identify themselves through nationalistic terms belonging to the broad Russian culture. Therefore, for Baltika, there should be no specific concerns in promotions regarding cultural diversity.
The Most Appropriate International Promotional Strategy
Since alcohol advertising in Russia is heavily regulated, it is important to utilise a competent promotional mix of traditional media which can effectively target key audiences in combination with other means of communication described in the next section. The market offers significant potential, but must be adapted to, including culturally, through appealing to young adults’ social habits and sporting events fans, groups who are most avid recreational consumers of beer. However, the difficult financial situation in the country along with some resentment towards foreign brands makes it a challenging promotional approach for Baltika, needing to differentiate itself both in terms of marketing, taste, and price competitiveness.
The Potential of Using Other Means of Communication
Although traditional media still dominates the Russian marketing landscape, there are rising promotional opportunities for a non-traditional marketing mix. Other means of communication including a focus on digital and social media marketing as well as direct to consumer which are appealing to the Russian population. These means of communication are key to differentiating the promotional mix and give brand recognition among the significant competition in the country.
Direct Marketing/Online Marketing
Direct marketing is extremely popular in Russia, accounting for as much as 2% of the global market and over 5 million salespeople engage in the practice in the country (United States Department of Commerce, 2018). Although alcoholic drinks are not one of the top product categories, similar strategies can be implemented. Russians have a greater understanding and desire to purchase a product if they can physically come in contact with it.
Therefore, direct marketing through tastings and product offerings at festivals, bars, and stores is a potentially vital tactic for the Baltika brand to implement. Meanwhile, online marketing is rarely successful, particularly for beverages, in Russia. Since it is not a product which can be ordered, it would be seen as a nuisance for most Russians. Typical online marketing such as website banners, emails, and others will have little return on investment.
Mobile Marketing
Mobile marketing has potential in Russia, as the country is a growing smartphone market with a greater than 60% smartphone penetration and a mobile subscriber rate of 160% (many in the population have multiple SIM cards) (OC&C Consulting, 2017). However, similar to online marketing, mobile marketing should not focus on spamming the consumer with advertisement and promotion. The most effective strategy of communication and promotion through mobile would be to partner with various companies including Russia’s internet giant Yandex which owns its own affiliates such as maps and food-related application that may offer suggestions.
Furthermore, several Russian companies focus on offering the best deals in restaurants and bars through coupons, which allows companies to partner with local pubs to offer their products at a discount while attracting foot traffic in a win-win scenario. These mobile marketing approaches are particularly appealing to younger generations that are more likely to purchase Baltika beer.
Trade Shows
Alcohol, particularly beer-related trade shows and exhibitions are relatively popular in Russia, especially among enthusiasts and business owners. Trade shows can be an effective means of direct to consumer marketing while offering a taste of the Baltika beer product. It is appealing to both, enthusiasts who are interested in making personal purchases as well as business owners of pubs and grocery chains which may see potential in the brand for resale in bulk. Trade shows are a more traditional method of connecting with consumers and industry players and can be important to an international brand entering the Russian market where personal connections are vital for generating sales and interest.
Social Media Marketing
Social media influence in Russia is prevalent, as Russians spend significantly more time on social platforms than most other industrialized countries. There are more than 60 million internet users in Russia and two large domestic social networks including Vkontakte and Odnoklassniki, along with relatively popular use of Facebook, Twitter, and Instagram especially among young people. However, typically social media advertisement typically has little impact on the Russian customer. Instead, the social media landscape is guided by popular internet influencers as well as word of mouth.
Therefore, it is critical to gain the inside track on social media communication by advertising through celebrities, popular groups, and entertaining or provocative posts. Social media is one of the most direct and effective non-traditional means of communication. However, to reach the target audience in this country, it is necessary to recognize population and market trends to be effective (RMAA Group, 2019).
Market Entry Strategy and Implementation Recommendations
The Russian alcohol market presents a significant opportunity, valued at $40 billion, with beer sales accounting for $15 billion and 7.4 billion litres output (World Food Moscow, 2019). However, beer sales have fallen significantly in recent years in favour of cheaper domestic and illegal alternatives. Furthermore, the devaluation of the ruble has made imported drinks expensive for many Russians. Nevertheless, taking advantage of recent trends of the popularity of beer at football events and casual drinking, the Baltika brand can position itself as a fresh, delicious, and cheap introduction into the mix of competitors. Implementing traditional and other means of communication should be in adherence to cultural and legal guidelines. Utilizing available traditional media and digital resources, with a focus on the intricacies of population trends can be effective at pushing the Baltika beer brand awareness and drive sales in the country.
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