Baileys Irish Cream Case Study The global liquor market has changed immensely in the last 20 years. Since the early eighties, people have discovered that it is better for their health if they drink in moderation, as opposed to heavy drinking. Due to this change in consumers drinking habits, people generally drink less liquor than they used to. According to our text, the per capita consumption of liqueurs (liters per person over 18) dropped from 1 liter in 1986 to 0.90 liters in 1990. In addition to consumers drinking less, liquor makers, like Baileys, were faced with increasing tariffs and taxes. At the time of this case study, the tax margins between retailer and distributor were fairly close in the US: 15-20% for retailers and 10% for distributors.
The United States also imposed a $22 per case import duty, and state excise taxes were as high as 20%. If you were a foreign liquor producer at the time and you sold a case of liquor at a price of $150 to a retailer in the US, you would see $128 after the import duty, which forces liquor makers to greatly increase their prices up to $177. For example, the retailer has $177 case of liquor that he has to pay a 20% Paddington tax, which makes the case cost him $212.40. Now the retailer gets to add his or her profit margin to the case of alcohol, lets pretend that the retail price of the case is $250. In this case, when the consumer finally gets to buy this product he or she has to pay for the $62.40 in taxes thus far plus an additional 20% in taxes on the final retail price. Basicly a case of liquor that originally costs retailers $150, now costs consumers about $305.
American companies also have all of the taxes, just not the import duties, which can cause enough of a price increase to urge consumers to buy American. For Baileys Irish Cream, the problem was not just the US but every country in Europe had similar taxes and tariffs; in the international market it is just something that must be dealt with. Another issue in the global liquor industry is dealing with copycat competition. Due to all of the expenses involved with developing a foreign market, it is easy for other companies to make a similar product within a given country for substantially less. Five years after Baileys had been introduced to the market, their market share had dropped considerably. A market that they created was now so large that they barely owned 50% of the market share in the US.
Just as flavors of food are different in each culture, drinkers in different regions have different tastes. As discussed in our text, Cheetos changed the flavor and color of their “cheesy” product in the Asian market because they like the taste of teriyaki more. Does that mean that it is not a Cheeto any more? No. According to Cheetos, the ingredients that make a Cheeto a Cheeto are the crunch, the shape, and the fun. For Baileys, they needed to have the US flavor of Irish Cream more chocolaty than the flavor of European Irish Cream. It seems that Baileys is focused too much on the magic number of 4,000,000 cases rather than having set a realistic goal based on current industry trends.
For the company to reach its sales goal, there needs to be at least a 10% sales increase in both the US and Europe. Tara and Ken feel that it will not happen, but the odds are better for it to happen in Europe due to recent growth in the southern countries such as Spain. Ken and Tara should start doing their homework to prepare for their meeting. They need to prepare a concrete presentation to show realistic sales objectives and reasons for their conclusions. Only from analyzing the state of international economies, competition, sales trends, and consumer trends in the drinking industry can one come to somewhat of a realistic sales goal.
As the case’s appendix suggests, in the early nineties the dollar was weaker than it had been, this caused inflation in import liquor prices. The inflation coupled with higher excise taxes place increased price pressure on international firms trying to compete with cheaper American companies in the US market. Drinkers now drink less than they used to for multiple reasons. There are stiffer laws for driving under the influence. There are health benefits for drinking in moderation. Liquor prices are rising.
Industry trends have shown that more people prefer to drink lower quantities of premium liquor, rather than higher quantities of cheap liquor. All of the mentioned reasons above point to why Baileys is fighting a loosing battle with increasing sales. Instead of focusing the majority of their attention on finding new customers, they should try to keep the ones that they have and let word of mouth advertising do the rest. If they make their current customers feel special for having been a Baileys drinker for a while, it will make them want to continue the relationship with the company. Baileys is in a difficult situation. They are trying to increase their sales significantly in a saturated market.
On the one hand, they want an 11% sales increase-this year. On the other hand, they have an opportunity to develop the markets in the Far East, and it can take as much as 5 to 7 years to develop a new market. The idea of developing the eastern market seems to be a good one. From class discussion we learned that the Asian market is particularly receptive to American influence. If Baileys can find a way to show that drinking Baileys Irish Cream is an American thing to do, then that could open a floodgate of new business.
The problem with the idea of opening more East Asian markets is that, as our text suggests, it is a very difficult thing to do. In order to develop the Far Eastern market, Baileys should first do some taste evaluations in the different countries of the area. It is quite likely that the flavor used in the US will not be as well liked in Japan. There is also a good chance that the flavor used in one East Asian country will not be as well received in another. Baileys is the original Irish Cream. The more that they show to the public that they were the first and that they are still the best, the better chance of gaining some of the market share away from the competitors who have squirmed their way into the market.
This picture is taken from the Baileys web site. It suggests that there are people out there who have a “passion” for their drink. The web was not available in the early-nineties, but now that it is Baileys has the opportunity to let the public see the MANY recipes and ideas on the site. Baileys knows that they have a special product. It is their original Irish Cream that has been around since 1974.
It is not the cheapest product on the market, and it is not the most expensive. They are different from their competitors because their product has an actual cream base to it. Since the worldwide flow of liqueur has been stuck at 50 million cases since 1986, it could prove difficult to convert liquor and beer drinkers as well as nondrinkers to liqueur. To develop an appropriate marketing mix, the above factors are very important. Baileys should concentrate on keeping their existing customers and taking their competitors’ customers away from them.
The market in old markets has been sufficiently saturated that all of the products look similar, except for the price. It is necessary for Baileys to find a way to lower the price significantly, or differentiate itself from the rest of the market. Lowering the price doesn’t seem like the best way to increase sales. Baileys is a premium product, lowering the price would make consumers believe that the company is no longer as good as it once was. Baileys is a unique Irish Cream because it is made with cream, the company’s advertising scheme should revolve around that fact and that 50% of a bottle of Baileys is fresh Irish dairy cream.
Having tasting promotions in Japan and China might prove useful. In the streets of Tokyo, vendors walk around and hand out cigarettes for free. Why not set up a few booths for a month and let passerbys of legal age taste a Baileys mixed drink? This would serve three very important functions: 1. The public is exposed to a new product that it has little or no exposure to. 2. Baileys gets to see which drinks are more liked by new market, and can incorporate those drink recipes into the promotion of the product.
And 3. Baileys gets its name into the new market, both by the big booth that says Baileys Irish Cream on it, but also from word of mouth; I know if someone was giving away free mixed drinks around here I would tell everyone I know. Baileys should not try to narrow their target market down to the young to middle-aged, professional, educated 21-49-year-olds. Even though they have tried to focus their advertising in that direction, it appears that more drinkers of Baileys are from a slightly more middle-class: in the technical field and making less than $40,000 per year. Due to the current trend of fruity drinks cluttering the market, Baileys should focus on their sweetness, and fun mixed drinks. Sweet drinks are stereotypically more often drank by women, and coincidentally the majority of Baileys drinkers are women even though advertising hasn’t been directed towards them.
If Baileys directed a higher percentage of their advertising budget towards magazine ads in mainly women read magazines they could see a considerable jump in sales. Of course, there would only be a sizable sales increase if it were possible to target more women without making current male drinkers of Bailey’s think that it is a “girlie drink”.