Individual Case Study Analysis €“ Absolut Vodka

1. Discuss why Absolut has launched a flurry of new products such as Level and Absolut Cut. (25 Marks)
2. Discuss the benefits and pitfalls associated with utilising the Absolut brand as the basis for brand extensions as a means of developing new products (35 Marks)
3. Suggest further new product development opportunities for Absolut, given its core competencies and experience. (40 Marks)

Absolut Vodka is known the world over as one of the world’s premier vodka brands.  Over several decades, it has become a global brand icon, recognised in hundreds of countries across the world.  For a brand owned by the Swedish government it has achieved unparalleled success.  Absolut became synonymous with premium vodka, and literally created the market for premium vodka.  As vodka became more fashionable in the drinks industry, more competitors emerged.  Now even more prestigious vodka labels have emerged proclaiming greater purity and better taste, with even higher price tags.  Vodka by its very nature is colourless, odourless, and flavourless.  So how can distillers differentiate their products creating sought after brands, that people are willing to pay premium prices for?  Trying to convince buyers to pay over 50% more for a product with no discernable differences, showcases how branding really works.

The Absolut brand was created by Lars Ollsson Smith in 1879, when he sold a new variant of vodka using a different distillation process.  In 1917, the vodka industry was nationalised by the Swedish government.  The brand lingered for several decades like many state run enterprises. Then in 1979, the Absolut brand was re-launched as a new premium range of vodka.  The production and bottling of Absolut takes place in Åhus / Nöbbelöv in Sweden.  This new range took off in popularity, thanks in large part to its classic advertising campaign, which became internationally renowned, and became a huge international success.  Its marketing success showed that positioning was vital, in that the brand successfully crafted a niche €“ the premium vodka category.  One that never existed before.  Its owner V&S is heavily dependent on Absolut’s success as it is the company’s only international brand.  The company has enjoyed considerable success, and the Absolut brand is now the second largest global vodka brand, behind Diageo’s Smirnoff.

Figure 1 €“ Absolut Vodka €“ At a Glance

Owned by Vin& Sprit AB.
Sold in 126 countries.
Established since 1879.
Is totally owned by the Swedish state government.
Employs 2,500.
81 million litres of Absolut Vodka are shipped yearly
Estimated to have 0.4 % of global spirits market.
Absolut Vodka is produced in Åhus, Skåne in southern Sweden.
Third largest spirit brand behingBarcardi& Smirnoff.
In 2004, they sold their billioneth bottle of Absolut vodka
The US market accounts for 60% of sales.

Vodka has increased in popularity, as it has become a highly compatible and popular mixer, used extensively in cocktails.  The cocktail culture is thriving in many global markets.  Sales of vodka in the heartland of Eastern Europe has seen a notable decline in popularity, yet in Western Europe its popularity has continued to surge through a mix of strong branding, popularity of cocktails/long drinks and product innovations, such as the incorporation of flavours.  Total global sales of vodka are on the decline, yet the total value of vodka sales has grown.  This highlights manufacturers developing a high value added product, and consumers’ willingness to pay for it.  Crucial to success is achieving great distribution coverage, and for the product to be exposed in the right exclusive setting, getting bar tenders to use the vodka in their cocktails.  The late 90’s saw the emergence of super-premium vodkas such as Grey Goose & Belvedere.  Vodka drinkers were prepared to pay very high prices for these new brands, based on the marketing message that they were purer, and tasted better.  Creating this perception of luxury is vital, necessitating high prices and classy packaging.  Grey Goose, a super premium vodka brand ships their vodka in classic wooden containers.

The Swedish Absolut brand had created this exclusive image two decades earlier in export markets.  Absolut became famous through its iconic advertising and packaging design.  The star of their adverts was not the drink, but the bottle it came in.  Here the distinctive shape of the simple Absolut bottle was pervasive in every single press or magazine advert.  It became ubiquitous.  The classic campaign was devised by advertising agency, TBWA and over 1,500 ads using this creative execution have been created, making it one of the longest ever advertising campaigns.  The ad campaign has adorned art galleries, and popular culture exhibitions around the world, won numerous advertising accolades, and spawned Absolut advertising books.  The campaign has won over 150 advertising awards.  The first ad went with the catch-line Absolut Perfection.  Since then other catch-lines have included Absolut Season, Absolut Optimist, Absolut Profile, Absolut Subliminal, and Absolut Manhattan.  The adverts themselves leaped the artistic divide and became art pieces in themselves rather than purely commercial advertising.  The company has collaborated with artists such as Andy Warhol, Damien Hirst, and fashion designers such as Jean-Paul Gaultier, Stella McCartney, and Gianni Versace.  Their latest campaign ties in with iconic moments in popular culture such as The Absolute Road Trip (The first moon landing).

There are now over eight different Absolut vodka brands incorporating a variety of flavours, including Absolut Peppar, Absolut Citron (lemon flavoured), Absolut Kurant (blackcurrent flavoured), Absolut Vanilia, Absolut Raspberri, Absolut Apeach, Absolut Mandarin, and Absolut Ruby Red.  Absolut Pepparbecome the first of the brand extensions launched in 1986, with subsequant flavours rolled out over the intervening period.  AbolutCitreon and Absolut Mandarin are the firm’s best selling brand extenstion flavours.  The company has launched a television advertising campaign to Find Your Flavour.  The lack of a distinctive taste from trditionalvodka, made it very condusive for flavours to be added.  Now Absolut has launched Absolut Cut, Absolut Clear Cut & Absolut Crisp Cut, which are mixes of vodka, spring water, and citrus, that the firm sells in small bottles.  This is a clear positioning strategy against the successful Smirnoff Ice range of premixed vodka drinks.  The firm sees this brand extension as having a high chance of success.  Here the firm is launching a lower alcoholic content product, targeting a mainly female audience, and are also reaping high margins.

Table 1 €“ Absolut’s Main Vodka Competitors
Smirnoff    Stolichnaya    Grey Goose
Owned by Diageo.
Vodka brand leader.
Strong core brand with successful brand extensions.
Recently redesigned look to give it a premium feel.
Launched Smirnoff Penka, its entry into the market.
Seen as a premium brand in export markets in comparison to domestic markets.
Launched the super premium brand Stolichnaya Elit    Bacardi bought brand for estimated $2billion.
A super€“premium vodka brand.  Known for its quality and price.  French origins, with a replaceable cork ing.
Finlandia    Skyy    Belvedere
Bought by Brown-Forman owners of Southern Comfort & Jack Daniels.
High profile premium vodka.  Launching similar vodka brand extensions.
Super premium vodka brand popular in the US.  Emphasis on the purity of its vodka.    The Original Luxury Vodka.  Emphasis on Polish origins. Priced circa $40 a bottle
Its latest creation is Absolut Level, its attempt to create a super premium brand of vodka.  To the chagrin of many vodka aficionados, Absolut believes it can create a premium brand of vodka, and command a super-premium price.  Their Absolut Level brand is marketed as being extra pure.  In their marketing pitch, Absolut claims that this vodka is produced to the highest standard, using two production methods.  Absolute Level was launched in a slim, frosted, tall bottle, which retained the silhouette of the iconic Absolut bottle.  Level is an elongated version of the classic bottle design with a heavy base.  Central to the firm’s strategy is avoiding cannibalisation between the Absolut and Level brands. A bottle of Level would sell in the US for $30 a bottle, whereas Absolut would sell for $20 a bottle.  It utilises the catch-line of the perfect blend of smoothness and character.  So people want to think they are buying the best, and use price, and the quality of the packaging as their primary inference into the quality of the brand. Absolut hoped to sell 100,000 cases of Level in its launch year.

In the US, super-premium brands began to emerge such as Grey Goose and Skyy in the late 90’s.  Other drinks sectors have noticed a similar move towards super premium brands such as with gin, where brands such as Beefeater Wet, 1800 Silver Tequila Reserva, and Gordon’s Distiller’s Cut have been launched.  Some drinks brands are also trying to capture the hearts and minds of health conscious customers by launching fewer calories and less potent alcohol combinations.  The super-premium sector vodka market is estimated to be worth 6% of total vodka sales.  One of the major lures of the sector is the exorbitant premiums accrued.
Some of the key challenges facing Absolut are the quest for continued growth as the market reaches maturity.  In an effort to overcome this Absolut needs to focus on the core brand, and seek out product/packaging innovations.   The launch of Absolut Level was such an innovation and by so doing it hoped to garner extra market share and revenue.  Critics of the strategy would argue that it takes away emphasis from the core brand, possibly cannibalise sales, and prove fruitless.  Some would argue that Absolut has responded too late to the super premium vodka category launching it in 2004, when other like Skyy and Grey Goose have several years head start.  It was seen as a reaction to these brands’ success rather than a clearly defined business vision.  Furthermore consumers are becoming more and more health conscious, which could possibly see them turn away from strong alcoholic drinks such as spirits.  In some markets, consumers are continually migrating to lower alcohol drinks such as beer or wine.  Drinks companies are faced with increasing regulation from national governments, as they want to negate the harmful effects of alcohol, such as alcoholism, liver damage, binge drinking, harmful societal effects and drink driving.  Governments are considering curtailing promotional options available to drinks companies, and considering heavier excise duties.  In a pre-emptive strategy, drinks companies are launching drink sensibly and sip sensibly campaigns to placate regulators.  Ironically Sweden has a very high alcohol taxation regime, and there is a state monopoly that sells all alcohol at a retail level.

Now drinks firms are launching premium equivalents, which place a huge importance on branding/packaging to signify that it is a premium brand.  Drinks brands are under significant pressure in the value sector of the spirits industry.  The black and grey market is rampant in certain geographic markets, meaning that legitimate value brands are suffering.  Furthermore counterfeiting of legitimate spirits is taking place, with counterfeiters copying the packaging of premium labels.  Also retailers have launched their own brand equivalents in a bid to capture the value end of the business (e.g. Lidl& Tesco).

Spirits manufacturers are trying to lure younger drinkers to their brands, in an effort to maintain market share, and boost a brand’s contemporary image.  The launch of flavoured spirits by Absolut was a determined effort to gain access to a younger demographic profile.  In emerging markets, consumers are seeking with greater frequency Western premium alcoholic drinks rather than local alternatives. Rising affluence in these markets sees consumers wanting to buy prestige brands, as an expression of their newfound wealth and aspirations.

Probably one of the biggest concerns facing vodka manufacturers is that although Vodka is €˜in-fashion’ at the moment, demand for goods that are fashionable are notoriously fickle, and consumers may migrate to the next fashionable drink.  More importantly can all of Absolut’s brand extensions co-exist with the core brand, into the future, and do they contribute to its future success?