By Rob O’Regan and Samar Farah
Diageo is the proverbial 800-pound gorilla in the spirits industry, with prominent brands including Smirnoff, Johnnie Walker, Guinness, Baileys, Cuervo, Tanqueray and Crown Royal. The key to managing marketing resources across this broad and deep portfolio: ruthless accountability. So says Rob Malcolm, president of global marketing, sales and innovation for the $16 billion company, who spoke in late 2005 with CMO Editor in Chief Rob O’Regan and Feature Writer Samar Farah about Diageo’s strategy for investing in brands based on their potential, momentum and marketability. The following is an edited transcript of the interview.
CMO: How do you balance the need for consistency across your marketing and sales efforts with the need for Diageo’s individual brand identities to emerge?
Malcolm: It actually is not that hard. We spent a fair amount of time developing a language and a set of tools and a philosophy of building brands, which is called the Diageo Way of Brand Building. We studied the best practices from our agencies and [other businesses] and put together our own program for building brands, from consumer insight through brand equity through activation. We developed it ourselves. We trained ourselves. It’s got books, it’s got classes. A lot of people in the industry have seen it. I’ve found my books in agencies and in competitors’ offices.
CMO: This isn’t just some vague mission statement.
Malcolm: Oh, no, no, no. The 13 books of the Diageo Way of Brand Building are done simply and visually, but they encompass a very thorough set of tools and practices and beliefs and language. This allows us to approach the science and the art of building brands with a common framework and structure. But that then allows the individual brands to have very distinct personalities, positioning and marketing propositions, because the structure actually forces each and every brand to understand that. It’s a discipline, as opposed to a force-fitting, one-size-fits-all [approach] of what a brand stands for.
CMO: Talk about the economic profit valuation you’ve developed and how that helps you allocate resources across brands.
Malcolm: Part of our annual strategy process is looking at resource allocation and whether we’re spending our money in the right places – across brands, categories, geographies. Our CFO [Nick Rose] is a strong believer in making sure that we’re looking at all of the costs that a business incurs, not just the profit line, when we’re making allocation decisions.
For example, in our Scotch whiskey business, because the nature of Scotch whiskey being aged three years to, in some cases, up to 50 years, we carry a pretty heavy load of working capital in inventory. So we make sure, in the economic calculations, that we load those brands with the inventory-carrying costs. Since we don’t have that same phenomenon, say, in vodka or Bailey’s Irish Cream, [those costs] don’t get loaded. So we’re able to look at the true, fully loaded contribution of our various investments. And then we look at our spreads and the overall profitability.
CMO: How does the formula work in terms of allocating marketing spend toward the programs you’re launching?
Malcolm: Through experimentation, testing, trial and error, we’re able to determine on a geography-by-geography basis what we think are the right investment levels. For our brands that are strong and growing, we’re always testing upside potential of incremental investment and we’re always testing some reallocation and some different growth drivers. It is through that process, and the rigorous testing and learning in our annual analysis, that we determine where we should be stepping up the investment. We tend to have a philosophy of fueling those brands that have momentum.
CMO: Do you fuel that at the expense of maybe more established or bigger brands that may not have the same growth potential?
Malcolm: Absolutely. The U.S. is a good example. We have done a complete portfolio analysis within the last three to four months that has categorized the brands in different investment frameworks, based on their potential, their momentum, and their profitability. Some of our other brands will indeed be getting reduced marketing support to fuel those that have the most momentum.
CMO: So just because they’re generating 30 percent of the revenues, for example, they’re not automatically getting 30 percent of the marketing budget?
Malcolm: That’s exactly right. It’s a combination of the value, return on investment, the momentum that the brand has, and whether the programs that you have are proven to work.
CMO: Let’s talk about digital media. Are there any programs or experiments you’re doing in terms of broadband video, social networking, those types of things?
Malcolm: We are doing a few. One of the more interesting ones we’ve done recently is new advertising with Smirnoff in England. We launched it on digital, and it was on interactive TV. When we created the commercial, we created multiple endings. Using an interactive agency, we gave the consumer the opportunity to pick the ending.
We have what we call Crown Royal Television that’s in the digital space. It’s populated with a fair amount of original content – three-to-five-minute segments or longer. That’s an interesting experiment in how we can populate much more content in a brand-hosted site and deepen the relationship and the intrigue. We’re going to do more of that.
CMO: Just so I understand: It’s not advertorial-type content; it’s original content that fits into the lifestyle of whatever target audience you’re trying to reach?
CMO: Is there any tension between these experiments and the push for accountability?
Malcolm: Not at all. As we try these new things, we’re measuring them on efficiency and effectiveness. Because the immediate response around hit rate and engagement rate is so quick, we actually get more data and learning than ever. We find experiments in this space fun, engaging and very quickly measurable. This space comes closer to direct response than most of the other traditional mediums we’ve had.
CMO: Talk about TheBar.com site you recently launched.
Malcolm: The part of each of our global brand Web sites that gets visited most often is information about how to make cocktails. So we thought, What if we got much more efficient about that and, rather than rely on individual brands, [create] a common Web site where consumers could come, interact with us, begin to develop a relationship with us, and get access to anything that’s interesting and newsworthy and helpful about drinks, cocktails and brands? The ultimate portfolio Web site, if you will.
And that spawned the idea of TheBar.com, a central place where you can come 24/7, interact with our bartender, “Jack,” and learn whatever you want to learn about cocktails.
CMO: What’s the primary purpose – brand awareness?
Malcolm: It’s to make contact with our customers. And you’ll note within this there’s an opportunity for us to learn more about the consumers who come: as much information as they want to give us about their consumption interests and habits, and their brand interests and habits. Through that vehicle we can follow up and send, through the digital space, offers, promotions, information about events or about our brands to the degree that the consumer wants to opt in and receive information like that.
CMO: How does the Diageo marketing code need to evolve to reflect some of these new digital mediums?
Malcolm: Great question. We have a very rigorous code that guides who we talk to, what media we use, how we make sure that our messages are not getting to underage consumers, etc. So we don’t show our brands encouraging sexual success, over-consumption, those kinds of things.
We apply those same principals to every medium. One of the things we have to evaluate in any medium we get into is, Who’s the audience? Are they over legal drinking age predominantly – 70 percent or more? Sometimes, in some of the new [channels], it’s hard to gauge that. We get the best data that we can, and then we do some research and tracking around that to measure it.
You’ll notice that all of our Web sites are opt-in. All of our Web sites will ask you for a birthday. We’ve done a fair amount of research that shows people are pretty honest about that.
CMO: How can you determine that?
Malcolm: By follow-up research – spot-checking [registered names] against drivers’ licenses, addresses, etc., in certain states. It’s not a perfect mechanism, but everything that we do is more of what I call permission opt-in, with a clear warning saying, “This isn’t for anyone under legal drinking age. If you are, please leave.” And one of the things that we do know about the younger generation is that if it’s a hassle, they won’t do it. So if we increase the hassle factor just enough, it can be helpful.
CMO: But it is still heavily reliant on an honor system, right?
Malcolm: It is. But again, we’ve put some rules around what can go on Internet content, what kind of downloads would be appropriate, to try and avoid things that would be disproportionately appealing to the inappropriate-age consumers.
CMO: What’s the danger of having more government legislation [around Web content] as opposed to self-regulation?
Malcolm: You do lose some degrees of freedom. There’s no question about that. And I think you may get inappropriate overreaction. We believe appropriate consumption of alcohol is a part of a healthy and happy lifestyle. So we don’t think that should be forbidden. Others would challenge that assumption.
In North America, it’s pretty interesting. We apply 20 percent of our above-the-line spend to positive branded messaging on a social responsibility agenda. You will see our Crown Royal advertising saying, “Set the pace. Drink responsibly.” We think that if some of this [advertising] is restricted, it will actually restrict us from having positive social impact.
CMO: Is the line between what falls into the marketing code and what doesn’t pretty clear to everyone? How often does a campaign gets pretty far along the development stage, and then it crosses your desk and you have to kill it?
Malcolm: It doesn’t happen often. I would say four or five years ago, as we began our journey around this, it might have happened more often. But we’ve done an awful lot of training – every new employee who comes in to market our brands, every agency, etc., goes through pretty rigorous training around that.
There will be cases where judgments need to be made. One of the things that’s quite interesting is that different cultures have different views on what is acceptable. For very conservative cultures, we limit [our messaging] even further. In some markets, we can’t advertise. We always tend toward the conservative side.
Reprinted by permission of CXO Media Inc., 2006. All rights reserved.