SVEDKA Vodka
SVEDKA Vodka
As he waited for his wife to meet him, Guillaume Cuvelier sat in a downtown
Manhattan restaurant sipping vodka straight up. As founder and managing director of
Spirits Marque One, a liquor importer, Cuvelier wondered if patrons of such an upscale
bar would soon be ordering his new vodka by its name: SVEDKA. It was mid-1998, and
the product was set to launch in just a few months. Scanning the bar for the competition’s
vodka bottles, Cuvelier ran through the marketing campaign in his head.1
The U.S. government defined vodka as a neutral spirit “without distinctive character,
aroma, taste, or color.” As one food and beverage writer explained, “Good vodka is
considered to be one without the harsh, rubbing-alcohol fumes of ethanol.”2 The nowpopular liquor originated in the fourteenth century in either Russia or Poland (depending
on which history you believe) as a spirit distilled from rye or wheat. In the early 1800s,
the introduction of filtration and dilution techniques allowed vodka to evolve into
something more refined but no less potent.
As Cuvelier enjoyed his drink, the image of James Bond came to mind—described
years earlier by an industry observer as “the first upscale vodka drinker.”3 Consumers
were increasingly imitating Bond’s discerning taste for high-priced vodka. In this
climate, Cuvelier reviewed his own pricing, distribution, and positioning one last time.
He hoped he was right that the vodka market was ready for a mid-priced option: Was
there really an opportunity below the Bond tier and above the very low-priced products?
With a small marketing budget, Cuvelier had to be correct in his efforts to position his
brand as he created a new segment.
On Trend
Trends in the marketplace inspired Cuvelier to take a closer look at opportunities in
the spirits business (whiskey, gin, and vodka were among those classified as spirits). In
1991, he had received his MBA from the Darden School of Business at the conclusion of
a two-year hiatus from his position with LVMH’s Möet Hennessy-Louis Vuitton.
As an industry insider during the 1980s and early 1990s, Cuvelier had been inspired
by Absolut vodka’s success as a product, brand, and category leader. “Pre-Absolut, you
could say that vodka was vodka was vodka,” he said.
Cuvelier believed there was room to compete in the category by offering his own twist
on the concept of name-brand vodka. With that purpose in mind, in 1998, Cuvelier
founded a small entrepreneurial team of industry experts in New York City. That same
year, vodka was the top-selling distilled spirit, representing 24% of total spirits
consumption in the United States, up 3.6% in volume sales from 1997. The growth in
premium vodka was in stark contrast to the negative long-term trend for most other
spirits.
The Market
Branded vodka dated back to the late 1860s, when Smirnoff cultivated the
endorsement of the czar, engaged in comparative advertising with competitors, and paid
patrons of Moscow bars to demand Smirnoff and accept no substitutes. Russia’s
connection with the category became prominent in the minds of many consumers. A
leading imported vodka from Russia, Stolichnaya, had been introduced to the United
States as recently as 1965. The brand leveraged its Russian image, evoking a strong
connection to its origin and heritage. But “Stoli stumbled after the Soviet downing of
Flight 007 in 1982, [which] hurt sales of many Russian products.”4 Once a Russian
import, Smirnoff was eventually produced in the United States and came to dominate the
domestic vodka segment, capturing almost 20% of the market share by 1998. Until the
launch of Absolut, Smirnoff dominated the premium-price vodka segment with a brand
name that derived authenticity from the family’s Russian heritage.
The launch of Absolut in 1979 and its now-famous ad campaign helped the brand
attain its pop-culture status. In 1998, Absolut spent $18 million on advertising.5 Years
later, USA Today reported: “Absolut had pioneered selling distilled spirits on image,
persuading consumers to buy prestige in a bottle for $20. But the new prestige vodkas, at
$25 to $200, have become what Absolut was 20 years ago.”6
It took more than a decade for the Dutch Ketel One and American Skyy (then the only
domestic vodka priced above $10) to enter the market. New prestige vodkas available at a
high price point did indeed seem to become what Absolut once was. The Business of
Spirits stated that the price for vodka “increased to $30 with the debut of Grey Goose,
Chopin, and Belvedere in the late 1990s. Now, the debut market [was] flooded with $30
vodkas.”7
The success of Grey Goose proved people would pay $30 for a bottle of vodka; in
1998, its sales increased 50% from the previous year.8 Cuvelier had watched as
“consumers became increasingly aware about the look, quality, and origin of vodka.”
Smirnoff was not alone in its high-volume sales and market share results. Brands such
as Popov, Gordon’s, McCormick, and Barton (each priced under $10) sold the most cases
and enjoyed the largest shares.9 A significant portion of these sales was for the larger-size
plastic bottles.
Cuvelier believed that a midprice vodka could capture some volume sales from the
under-$10 market. “This standard vodka category had never been expanded to include
consumers who were willing to stretch their wallets a little bit,” he said.
The Product
Vodka could be manufactured inexpensively out of many different raw ingredients
and didn’t need to be aged. Its standard alcohol content was 40%, or 80 proof. Because
the staple ingredients were relatively cheap, vodka companies invested in more complex
distilling and filtering methods as well as flavor ingredients to distinguish their brands.
Marketing campaigns often highlighted “more exotic backstories” to justify higher prices
and profits.10 Indeed, vodka’s smoothness and thickness could vary from brand to brand.
“The burn is usually associated with inexpensive vodkas,” said Robert Plotkin, founder of
BarMedia, a beverage consulting firm.11
Cuvelier was dedicated to creating a high-quality product that could be distinguished
for its soft, silky drinkability. He selected Lidkoping, Sweden, as the manufacturing site.
Cuvelier knew the country had recently joined the European Union, causing it to
deregulate the alcohol monopoly. “My plan was to be the first to effectively develop and
produce 80-proof Swedish vodka immediately after the reopening of the market,” he
explained. “I wanted the vodka to be from Sweden so I could take advantage of the
Absolut tailwind.”
SVEDKA outsourced its production to large, established industrial facilities. The glass
bottles were imported from Germany, decorated in France, and shipped to the factory in
Sweden to be filled with vodka. The finished product was shipped in cases to the United
States.
Wine Enthusiast confirmed the quality of Cuvelier’s product, rating SVEDKA 93 out
of 100. Classifying the vodka as a “Best Buy,” the review said, “We can’t remember
using the word ‘complex’ when describing a vodka before, but this one shows a tightly
knit set of characteristics that deserve applause.”12
SVEDKA would initially be available in the standard 750ml and 1.75L bottles. Larger
and smaller sizes could be added once the business grew. “This gradual size rollout was
common industry practice, especially for a start-up brand,” Cuvelier said. While many
brands were extending their selection to include flavored vodkas, SVEDKA focused on
the core unflavored business for the launch.
The Price
In addition to the option of imitating the premium prices of recent imported vodka
successes, there was the under-$10-per-bottle market, which Cuvelier estimated was
approximately 80% of the market volume (also known as the “standard” vodka segment,
it ranged from $5 to $9 for 750ml). In fact, in 1998, 23 million cases were purchased at
retail prices less than $10 per 750ml bottle (Table 9-1). And then there was the third
opportunity: to be a midtier player between the high and low price spectrums.
13
Note: Market share calculation is based on total case volume for imported and domestic
vodka.
Data sources: Adams Business Media; Virginia Department of Alcoholic Beverage
Control; case writer estimates.
Table 9-1 Vodka Category Price, Units Sold, Market Share, and Launch Year by
Brand, 1998
Cuvelier estimated that wholesaler margins for SVEDKA averaged 25%. Retailers’
margins varied from 30% to 35%.
It was industry practice to offer retailers volume discounts. Cuvelier created Table 9-2 to
estimate the discount levels he would be expected to offer.
Source: SVEDKA.
Table 9-2 Estimated Discount Levels Based on Case Quantity Discount
To reach a final everyday suggested retail bottle price, Cuvelier had to consider the costs
along the wholesale and retail channels. The wholesaler’s net laid-in costs were the sum
of the free on board (FOB) price, the U.S. Federal Excise Tax (FET), state tax, and
freight costs. (The FET per proof gallon was $13.50 in 1998.) SVEDKA classified the
mandatory FET and individual state taxes (which varied by state) as hard production
costs.
Pricing was tricky, and critics warned Cuvelier that if the price were too low, consumers
might think the vodka was low-quality. But if SVEDKA were priced too high, consumers
might question its value. A midrange price would risk SVEDKA’s getting lost among the
more premium brands. Already, higher-priced brands were encountering competition
from the superpremium competitors. In The Business of Spirits, author Noah Rothbaum
commented on the dilemma SVEDKA faced: “Many companies with high-priced spirits
are concerned that their products soon will be leapfrogged by other, even more expensive
brands, stealing their attention and market share.”
15
The Brand
The first association consumers would have with the product was its name. Cuvelier
had searched for a word that evoked the vodka’s Swedish heritage. During his many trips
to Sweden, the word Svensk (“Swedish”) caught his attention; it appeared everywhere. He
combined it with the word “vodka” to come up with an easier-to-pronounce version:
SVEDKA. Although focus groups and the packaging agency didn’t confirm the wisdom
of his choice, Cuvelier stayed with his intuition.
The name was fitting for the product’s positioning. Cuvelier envisioned SVEDKA as a
challenger brand, with a personality like JetBlue in the airline industry or Target in
fashion: an inexpensive, chic alternative. It was a fun option that challenged the status
quo in a category that was taking itself too seriously. SVEDKA empowered the consumer
with a different choice where there wasn’t much discrepancy among the products in its
category. “The category is locked in sameness,” Cuvelier said. “Each brand relies on a
stated marketing recipe of bottle shot plus product benefit plus cocktail recipe plus
historical reference.”18
Advertising
By 2007, the industry had spent more than $200 million on advertising through
various channels, including outdoor, magazine, newspaper, and television.
TV advertising of alcoholic drinks had been controversial; indeed, for 48 years liquor
producers had chosen not to air commercials. In 1996, Seagram broke that trend with
network spots promoting Crown Royal and Lime Twisted Gin. In spite of the public
outcry that arose, other liquor brands slowly started testing cable TV spots. Eventually,
cable television came to be seen as the most suitable venue for liquor advertising.
The print ads for vodka were very sophisticated. In 1980, Absolut began featuring its
bottle’s distinct silhouette, a practice it continued for more than two decades. Its
innovative campaign prompted an account rep at TBWA, Absolut’s ad agency, to write a
book in 1996 about its print campaign.
Grey Goose won the Beverage Tasting Institute award for “best-tasting vodka” in
1998 and used the title in a series of successful print campaigns in the Wall Street
Journal and other high-end publications. In the same year, Sex and the Citycharacters
started asking for a “Grey Goose cosmopolitan,” which extended the brand’s recognition
and superpremium image.
The Campaign
Cuvelier estimated he had about $350,000 to spend in his first year on marketing
SVEDKA (not including promotions to wholesalers and retailers, which could include the
discount levels, support materials, sales force incentives, and in-store promotions). He
allocated this budget among media, point of sale (POS), trade shows, creative, and
sampling.
Until distribution reached key markets, Cuvelier did not use traditional advertising.
Generally, brands were promoted in print (with magazines as the dominant medium),
outdoor, broadcast, and electronic media at an increase of 14% over the $256 million
spent in 1997.19 Cuvelier wanted SVEDKA to achieve distribution, brand awareness, and
word of mouth before he launched a national campaign. He was left to reassess the best
use of his dollars across the following marketing methods.
Trade Press and PR
Cuvelier viewed trade relationships as the first step in communicating about his brand.
There were a small but influential group of trade magazines and writers he needed to
acquaint with SVEDKA. He bought a few full-page trade ads and entered SVEDKA in
vodka contests to drum up press. He succeeded with the Wine Enthusiast 93 rating. Such
high marks were in line with the more expensive Grey Goose (which received a 94) and
Ketel One (93) and higher than the ratings for Stolichnaya (91), Skyy (90), Belvedere
(89), and Absolut (90).20 The favorable results validated the brand in the eyes of the
wholesalers. Their excitement about SVEDKA would determine how quickly it was
embraced by the largest, bottom portion: the core consumer. All media outreach was
limited to the trade outlets. SVEDKA used its high-profile reviews to fuel favorable trade
press articles. But additional public relations efforts toward larger publications were not
scheduled for the launch.
Point of Sale
Brand visibility would thus be at the store level through POS materials. Because of the
emphasis on an off-premise distribution strategy, Cuvelier allocated marketing dollars
toward enhancing the in-store experience (midtier liquor stores). POS and store signage
(shelf, display, and window materials) helped bring the brand to life at the point of
decision making and purchasing. The Wine Enthusiast ranking was displayed on POS
pieces to provide the unknown product with credibility.
Trade Shows
SVEDKA planned to sponsor booths at top industry trade shows. Attendees at these
shows included wholesalers and retailers, as well as the media and competition. Although
trade shows were costly and time-consuming, Cuvelier believed that having a presence at
industry events would develop brand recognition as well as provide continuing insight
into industry trends.
Creative
The collateral materials that supported the SVEDKA booth at trade shows, in addition
to the POS materials and trade press kits, fell under the creative investment line item.
Cuvelier wanted all branding elements to have a cohesive look and feel for both internal
and external audiences. The same images appeared as limited ads in trade magazines such
as Beverage Industry News.
Marketing-Mix Model
SVEDKA founder Guillaume Cuvelier considered looking into historic U.S. vodka
sales to evaluate the effect of new flavors, segment membership, and advertising.
Consumer reactions to vodka advertising and pricing probably differed among the
superpremium, premium, and value segments. New brand entries also may have had
different price and advertising elasticities compared with the established brands. Finally,
new flavors could have had a direct effect on vodka sales. Cuvelier wondered if he could
quantify the financial value of his product’s Wine Enthusiast certification and 2002 and
2003 gold medals. Understanding the value generated by each of the three campaigns
from 1998 through 2005 would provide a good basis for the design of future campaigns.
And identifying brands that directly competed with SVEDKA would allow Cuvelier to
effectively allocate marketing resources. Cuvelier wanted to use historic vodka brand
sales to inform his product’s price and advertising budget.
Assignment Questions
1. Use Trend Line in Tableau to get a regression result of Dollarsales on total-ad.
Examine the trend line of each brand and discuss which brands are significantly
impacted by their advertising expenditures. The indicator is discussed in the
assigned reading – “Multiple regression in marketing”.
2. Use Tableau with R to run a multiple regression of the Dollarsales on the
marketing expenditures on Magazines, Newspaper, outdoor, and broadcasting.
Which brands does the regression model fit more (more closely predicts the
outcomes)?
3. Based on your analysis of the data, what recommendations do you have for
Cuvelier regarding the marketing mix for SVEDKA?