Investor Conference - 17 November Marketing. Peter McDonough, Chief Marketing and Innovation Officer

Transcription

1 Investor Conference - 17 November 2011 Marketing Peter McDonough, Chief Marketing and Innovation Officer Slide 1 Title slide No script. Slide 2 Good morning, I m Peter McDonough and I serve as our Chief Marketing and Innovation Officer for North America. I joined Diageo five years ago overseeing our Innovation Team and 18 months ago my responsibility expanded to include Brand Marketing as well. The combined responsibilities make for an exciting role, and as you ll learn this morning. I m proud of the work our Brand and Innovation Teams are engaged in to improve our brand performance and strengthen Diageo s broader market leadership. Slide 3 In Ivan s discussion, he highlighted the broader business capabilities that position Diageo for sustained industry leadership. In my conversation this morning, I ll focus on how we are building and leveraging world class marketing capabilities to strengthen the leadership position of our brands, and drive our top line growth. Slide 4 Ivan touched on the breadth of our portfolio earlier and highlighted several of our brands holding the number 1 position in their respective categories. It s an impressive portfolio and we have exciting plans against each of these brands to strengthen their leadership position. Slide 5 These # 1 Brands serve as important pillars within our broad portfolio that allows Diageo to compete across price tiers ranging from the high end ultra premium segment down to the popular value priced segment. And we tailor our marketing to optimize each of the brands within these category segments and pricing tiers, to ensure we re well positioned to build our brands in good economic times, as well as the more challenging economy we now face. Slide 6 And with a portfolio as large as ours it s critical we remain focused on the priorities that drive our overall success. This chart highlights how we prioritize brand investments to drive optimal performance of the total portfolio. It should come as no surprise that our prioritization begins with the four core brands of Smirnoff, Crown Royal, Captain Morgan and Jose Cuervo. Each of these four brands are exceptional in their share of value creation for Diageo, and we are aggressively investing in fully integrated marketing platforms to strengthen their consumer franchise and accelerate growth.

2 Our second tier of investment is focused on what we call our Driver Brands. Like the core four brands above, our DRIVER brand portfolio features iconic brands that play critical roles in strengthening our leadership in key segments within spirits, beer and wine. The third box identifies examples from our Strategic Brand portfolio where we invest in select brands that we think hold real promise for growth and eventually capture a large scale consumer franchise similar to our Driver brands. The final box at the base of this chart, contains examples of our work in Innovation, represented here by programs such as our new Black Lager from Guinness and frozen cocktail pouches from Parrot Bay. As well as our new Qream Liquer developed with music icon Pharrel Williams and our program with Raphael Yakoby on Nuvo. A section of our portfolio that is not shown on this chart is a tier we refer to as our Commercial Sector, which is composed of brands positioned in popular and value priced tiers. Brands within our commercial tier play an important role for consumers seeking quality at value price points. Our commercial tier brands have strong tactical trade support rather than consumer marketing and advertising. Slide 7 Given our portfolio strategy, you can see here how our spirits portfolio has developed across each of the pricing tiers. Our investment strategy places much of our focus on developing our position within the Premium and Super Premium segments. And as Ivan mentioned earlier, we are also investing to expand our presence and drive double digit growth within the Ultra Premium segment with brands like Cîroc, Johnnie Walker higher marques, Crown Royal XR, Don Julio and Zacapa Rum. The two lower tiers represent significant volume but smaller value and they are not the focus of our growth strategy. And consequently we under index within these segments as we focus attention against higher margin and value creation opportunities within the premium through Ultra premium price tiers. Slide 8 So that s the portfolio, let s move now to our approach to marketing, which we believe differentiates Diageo from the competition. In his earlier discussion, Ivan showed our capabilities drive a holistic, cutting edge marketing approach to strengthen our brands. It starts with best in class consumer engagement, and I ll highlight how we do this using examples from Captain Morgan and Smirnoff in just a moment. And it includes industry leading expertise in innovation, not just in a single category but across our TBA portfolio with examples shown here in malt beverage expertise with Jeremiah Weed and vodka flavors with Cîroc. And you ll see throughout my brand discussions today, that we are developing powerful capabilities in multicultural marketing, examples here being Smirnoff s work with African Americans and Buchannan's scotch targeting Hispanic consumers.

3 Ivan also showcased the impressive performance and growth we re driving behind our Reserve and Luxury brands. And throughout my upcoming discussion we ll discuss numerous examples of how we are pioneering digital marketing and social media. We re fortunate to have a deep roster of more than a dozen dedicated, world class advertising and marketing agencies that constantly inject new ideas and implement the most advanced practices to build our brands. Our scale also allows us to build powerful alliances that create programs like our exclusive partnership with Delta for their Sky Luxury Lounge, or ground breaking media alliances with a leader like Univision, or partnering with Facebook to set up tests that allow us to understand the influence of social media on our sales. And lastly, is our strength in driving activation in retail aisles and on premise accounts to connect consumers with our brands to generate trial and purchase. Collectively, these capabilities position Diageo with unique strength in building our brands and enhancing our industry leadership. Slide 9 This morning, I am going to focus our conversation on four of these areas in more detail, by showing how we have applied these cutting edge capabilities to 2 of our biggest brands, Captain Morgan and Smirnoff. Slide 10 First, I want to explain our consumer engagement strategy which is outlined in the framework of this chart. The left hand side showcases examples of the paid and owned programs that each brand creates to communicate and connect with consumers On the right hand side is where our brands create opportunities to engage consumers in interactive dialogue within the digital and social media space. And when our brand programs create strong emotional connections, the activities in the lower right corner come to life as consumers amplify our message by writing about our brands in their blogs, tweet about us, and post supportive brand comments on their Facebook. Slide 11 So let s turn now to take a look at an example of how our cutting edge marketing approach is re-igniting consumer passion for Captain Morgan. Slide 12 After 25 years of consecutive growth, Captain Morgan lost its momentum two years ago and its performance began to stall. Consumer research indicated that our brand humor, which for so many years had been a successful element of the brand s communication platform, was losing it s appeal among our target consumer. Recognizing the problem, earlier this summer we initiated an entirely new communication platform, and introduced an epic new advertising campaign that positions Captain Morgan in a more authentic and aspirational manner. Slide 13 In May, we launched our new To Life, Love and Loot campaign, which positions Captain Morgan in an aspirational and legendary fashion.

4 The new campaign brings the heroic story of Captain Henry Morgan to life for our target male consumer. Captain Morgan was a real man, and an incredible and charismatic leader on the high seas as well as on land. In addition to being one of wealthiest men in the Caribbean, he was knighted by the Queen of England and served as the Governor of Jamaica. Our new campaign leverages a fully integrated engagement platform, bringing the Captain s legend to life in an appealing and relevant way for our target consumer. On the left of this chart... are examples of new brand assets that connect with consumers including new advertising for TV, print, OOH and radio as well as new in-store and on premise activation programs such as managed bar nights, local sponsorship programs and consumer sampling events. On the right of this chart, to amplify our new message, we ve created ground breaking digital programs to engage consumers on Facebook and YouTube and partnered with external sports and music properties to create exclusive offers and rewards or loot as the Captain likes to call it for our consumers engaging with the brand on line. And as a result of this integrated program, we are seeing exciting consumer advocacy for Captain Morgan on social media networks such as Facebook and Twitter. In fact, during September s MLB Baseball playoffs, Captain Morgan was the second most mentioned brand among all CPG brands on Twitter. Slide 14 We introduced three new TV spots earlier this summer that were filmed by The King s Speech academy award winning director Tom Hooper. Hooper is masterful at creating period films and his attention to casting and set design was just what the Captain needed. The consumer response to our new campaign has been nothing short of phenomenal and we have plans in place to introduce two new advertising spots this coming spring. If you read the free flowing comments on Facebook and Twitter its clear we are building strong emotional connections and have reignited consumer advocacy for our Captain Morgan Rum. So let s take a look at two of these spots starting first with our launch spot called Dive which created a huge digital buzz and had 22 million exposures before the spot aired on traditional TV. And we ll follow the Dive spot with a spot called Glass which we launched virally in a partnership with YouTube before putting it TV. Let s see the videos now. Slide 15 We re excited by the comments consumers are posting about our new advertising on their social media networks. And I m pleased to share that consumer research confirms the new Life, Love and Loot advertising message is significantly more engaging than the advertising being aired by our competitors. This chart highlights how our new advertising stacks up against some relevant benchmarks in beverage alcohol.

5 As you can see, Captain Morgan s Dive spot was significantly stronger than the category norm for beverage alcohol. Achieving an Ace Metric score of 636 for overall brand message versus the industry norm of 434. And stronger scores in overall message, persuasion and likeability than the advertising on air from Bacardi. Stronger than the recent Dos Equis Beer Game Face spot within their Most interesting Man in the world Campaign. And significantly stronger than the new Jameson s Irish Whisky creative which recreates stories about their founder. So, I am really excited about the feedback we re getting on our new campaign, and I m confident we are setting up Captain Morgan for accelerated growth moving ahead. Slide 16 Advertising research is helpful in determining whether your message is coherent. But another true test of whether advertising is effective comes from the consumer behaviour it stimulates and we have seen impressive momentum building for our brand in social media. And to leverage this buzz, we have an aggressive digital marketing program that involves mobile phone apps, communication programs for social networks, and optimized brand placement using internet search engines so that we engage consumers with a message from the Captain across all digital, mobile and social networks. Since our campaign launched in May, we have secured millions of clicks-to play for our videos on Facebook and YouTube. And we have more than doubled our Facebook fan base to capture nearly 900K fans. Slide 17 And while it s nice that consumers are chatting about our brand in social media. We know the real proof of our work is in our market performance. Since the launch of the Life, Love and Loot campaign in May, our brand performance has improved significantly. As you can see from this chart, during the 52 weeks leading to May 15 th, Captain s Original Spiced Rum sales within IRI markets were down 2.3 percent. Following the May introduction of our new campaign, the brand has posted SEVEN consecutive periods of growth versus prior year. And, we are now the leading rum brand, in gaining IRI value and volume share gains through October. So we are clearly making progress in getting Captain Morgan back into growth. But we are NOT, however, declaring victory for the progress that is now underway. So our plan is to boost the impact of our engagement platform with an exciting innovation launch from Captain Morgan this coming spring. Due to the confidential status of this project, I can t share the program details at this time but you ll soon learn that the new product will further premiumize our brand image and strengthen its heritage, masculinity and quality cues to broaden Captain Morgan s appeal with year old males.

6 The new innovation launch will be supported by dedicated advertising within the Life, Love and Loot campaign next spring and our market research projects the program will be a powerful catalyst for accelerating our brand s growth momentum. Slide 18 I d now like to highlight our work on Smirnoff. As you know, Smirnoff is the world s best-selling and largest vodka and nothing short of an iconic trade mark in Global Spirits. Yet in recent years, Smirnoff s growth slowed and our image was beginning to lose it s social currency. To address this, we ve created a comprehensive program to improve Smirnoff s performance, and we re excited about the brand momentum we re beginning to see in market. Slide 19 As I ve outlined here, there were three challenges that needed to be addressed in strengthening Smirnoff s performance and we created three action plans that were integrated into a consumer engagement platform called I Choose Smirnoff. The first challenge, was that consumer perception of the brand s quality and image was beginning to soften and this was reducing our ability to recruit new consumers. To address this, we launched an aggressive campaign to remind consumers of Smirnoff s authority as the world s best-selling and most awarded vodka and presented the brand in a contemporary way that gave consumers reason to feel proud to declare I Choose Smirnoff when they were out with friends. The second challenge, was with our multicultural consumers where Smirnoff was losing affinity with African American consumers. To address this, we developed an innovative marketing platform to strengthen Smirnoff s image in contemporary nightlife and among African American DJ culture and club scene. Our third challenge was in the area of flavor innovation. While Smirnoff remains the largest flavored vodka brand in the US, in fact twice the size of its nearest competitor, our flavor innovation pipeline was primarily focused on fruitflavors while smaller, edgier vodka brands enjoyed rapid growth in more provocative flavor territories. In response, we rebuilt Smirnoff s innovation pipeline to include provocative new flavors that will strengthen the brand s leadership across ALL vodka flavors. So I ll now share examples of our work in each of these three action plans. Slide 20 In developing the I Choose Campaign, we acted on an insight learned from consumer blind taste tests which confirmed Smirnoff was consistently selected as the preferred choice against nearly every premium imported vodka. So we implemented a new communication plan around a Taste Challenge and a cutting edge engagement platform that connected with consumers using new advertising and instore and on premise sampling programs daring consumers to take our taste challenge and declare that they choose Smirnoff. The new campaign has been in place about a year, and it is clear from the advocacy we are seeing on Facebook and Twitter that consumer perception of Smirnoff is improving,

7 and new consumers are being recruited and proud to announce their preference for the brand. A clear sign of this recruitment is the explosive growth Smirnoff has seen on Facebook. Where the Brand now has more than a million US fans and represents the largest on line community in spirits. Slide 21 As you can see from this chart, consumer affinity is on the rise! Following the introduction of the new, I Choose campaign, the brand has shown steady improvement in its affinity scores since the start of the campaign in June This slide highlights the scores from our quarterly brand tracking study. And reveals that each quarter, more and more consumers, are now stating Smirnoff is a brand for people like me!! Slide 22 But what is really exciting is the fact that Smirnoff s sales performance is clearly improving. This slide highlights the significant improvement in IRI sales during the last six monthly periods as our new engagement platform takes hold and strengthens brand affinity. So personally I am very excited about the early stages of the turn around we are seeing in Smirnoff s performance. But what is equally exciting is the fact that the next two areas of our new cutting edge engagement platform have only been in market for a few weeks. So we have even more stimulus coming ahead to build Smirnoff a growth momentum moving forward! Slide 23 So let s turn now to our work in multicultural marketing and our Master of the Mix program which we developed to strengthen Smirnoff s brand image with African American consumers. Our research revealed that Smirnoff s historically strong affinity among African Americans had started softening in To address this, we established an innovative engagement platform by creating the industry s first branded reality TV program called Master of the Mix which we produced in partnership with the Black Entertainment Television Network. And rather than explain this program in PowerPoint. I ll share a video that was created earlier for our sales team to get them excited about this programme... So remember this was made for our sales team. Don t be confused by the voiceover near the end of the video that says so we re counting on you, to make this big!... So get out there and sell Now clearly if making this video for today s audience I would have the voiceover say... Hey, this is going to be big!!...go out there and buy!! Let s see the video. Slide 24 After Season 1, it was clear we had a powerful idea worthy of investment for Season 2... which just started last week.

8 And this year, we now have trade marketing plans in place to aggressively drive, on and off premise activation programs in our top 15 urban African American markets. I am excited by this work, and believe this program will make a significant impact to strengthen Smirnoff s Affinity with African American consumers. Slide 25 Our third action plan on Smirnoff involves a powerful new innovation program. And our plan here is to move from our historic focus on fruit flavors and enter the rapidly growing confectionary space, with our launch of Fluffed Marshmallow and Whipped Cream Flavored Vodkas. We are quite confident our new flavours are superior to anything offered by the competition, and our cutting edge launch plan will drive rapid sales for these flavours across the nation. Slide 26 As you see in our Consumer engagement framework, the Fluffed and Whipped flavors launch will connect with consumers by leveraging Smirnoff s I Choose communication platform. The advertising and engagement platform features the stunning nightlife celebrity Amber Rose, to highlight the notion that our new flavors offer two distinct choices: The sweet and innocent delight of delicious Fluffed Marshmallow, contrasted by the mischievous indulgence associated with Whipped CreaM. Let s take a look at one of the two new advertising spots, that just debuted on TV this week. Slide 27 Captain Morgan and Smirnoff are just two brief examples of exciting work underway across each of the priority brands. In the past 12 months, each priority brand has undergone an analysis to create a cutting edge engagement platform that will drive stronger emotional connections with our target consumers. And an important foundation of our consumer engagement strategy lies in the pioneering work we are doing within digital marketing and social media. Slide 28 The old models, of a one way broadcast message to consumers has long passed! Today s beverage alcohol consumer spends more time on line and on their mobile phone than they do surfing TV channels. Which allows Diageo to connect with consumers using a new model that creates an interactive dialogue between consumers and our brands. And our work in digital marketing plays an important role to recruit multicultural consumers. Because we know from research that African American and Hispanic consumers significantly over Index on social media networks such as Twitter compared to their Caucasian counterparts. And they are far more likely to purchase a smart phone rather the traditional cell phone which remains the top choice for Caucasians. And we know that 51% of Hispanics now

9 access the Internet using a mobile device, which is more than 50% higher than their Caucasian counterpart. Slide 29 The core themes of our Digital Marketing strategy are highlighted on this chart. In the area of Social Media, we will continue to expand our platform with an intent to further expand our Facebook and Twitter programs to strengthen our engagement with multicultural consumers. We re also developing new programs like social gaming. In mobile, we have to own the phone. Mobile phone penetration has reached nearly 90% of Americans of legal drinking age. We re building new apps beyond our early work with Apple on the iphone, to develop powerful apps on the Android platform and mobile apps in Spanish to target our Hispanic consumers. And our third emphasis in Digital is in Local Programming. This is not just about geography. This is about relevancy. Delivering messages and partnerships that are tailored to engage consumers with local content and customized promotions or special offers. Our work in these three digital areas represents a powerful new way to engage consumers in one on one conversations with our brands. At the break, I encourage you to visit our Digital Marketing Booth and meet Kristin Ganong who is our Vice President of Digital Marketing and who be accompanied by our strategic partners from FaceBook and Google /YouTube. Slide 30 Our annual investment in Digital marketing now represents more than 20% of our total media spend, and we re actively analyzing how digital and social marketing programs help to drive sales. For example, we re working with Facebook and Neilsen to evaluate Facebook s advertising impact on consumers within the Neilsen HomeScan database. And we re working on a study with Google and IRI, to evaluate the effectiveness of paid search on our brands within IRI markets. And before I share a brief video of our exciting programs. I want to remind you of Diageo s commitment to stay responsible, especially in the ever changing environment of social media. We remain responsible, not only through internal governance, but also through external partnerships. And we are adamant in ensuring every program has proper age gates in place so that we are confident our message is focused only against Legal Drinking Age compliant sites. So, I d now like to share a video showcasing some of the exciting work we are doing in a digital and social media space As you view this video, you will notice there is a lot of unique content created specifically for social media that you will never find on TV. Such as Ketel One s music tie-in with the band Alberta Cross, which is the band that plays the soundtrack on our advertising.

10 Or you will see influencer programs with well known celebrities that are only shared on social networks and never on TV Or even special promotional programs like our Toast Around the World celebration on St. Patrick s Day for Guinness A lot of really powerful content that is developed and only shared through the social media space and unless you match our brands target consumer profile you re probably not exposed to much of the content that you ll see here So let s see the video. Slide 31 The next area I ll highlight, is our multicultural work. In building our brands to appeal to an increasingly diverse consumer population. Slide 32 Last year we drove increased focus and mandated that every one of our driver brands start their planning process with an emphasis in recruiting a more diverse and multicultural consumer franchise. The behavior we embedded in our business and the disciplined planning and activation we drove is outlined on this chart. In the interest of time, I ll simply call your attention to the End Goal that we are focused to deliver. Which is, that our multicultural expertise and capabilities will prove to be the core foundation of our long term growth strategy. And with the presumption that you re well aware of the recent census data outlining the rapid growth of multicultural consumers. I ll cite one simple, but compelling statistic, that mandates why our expertise in multicultural marketing is critical to our long term success. Slide 33 And that statistic is highlighted on this chart, which projects that between now and 2015, 80% of the category value growth in sprits will come from multicultural consumers. And 52% will come from Hispanic consumers alone! As such, our expertise in building a diverse consumer franchise is critical in outperforming our competitors in the long run. Slide 34 Our multi-culture programs are developed using a three prong framework to ensure success. Starting first, by ensuring that we create relevant and engaging messages for the specific segment of consumers we target. Our second prong, mandates that our communication platforms are supported by sustained community outreach programs.to ensure our marketing initiatives are not viewed as simply opportunistic. And the third prong of our framework, drives superior commercial execution in the smaller, independent urban accounts that serve as the primary outlets for many of our multicultural consumers. Slide 35 We ve made significant strides to strengthen our programs for multicultural consumers. And we now have 35% of our media spend dedicated to in-culture communications directed at Hispanic and African American consumers.

11 And our dedicated spend against these two consumer groups has grown and is up 300% from just two years earlier. In addition to our investment targeting Hispanics and African Americans we have additional programs targeting the GLBT community as well as Asian American consumers. Slide 36 You may have read about Diageo s recent partnership with Univision which created a ground breaking program for the spirits industry by extending our ability to deliver our brand messages to reach more than two thirds of Hispanic households. This program is just one great example of the industry leading work we are engaged in to build a more diverse consumer franchise for our brands. Slide 37 And as this chart shows, our focus is beginning to accelerate our growth with key multicultural segments. The top chart shows the most recent IRI audit analyzing sales within retail accounts catering primarily to Hispanic consumers. As you can see our Diageo sales growth of 3.1 % indicates our spirit brands are growing at rate 70% faster than the total category and Diageo PABs are growing more than three times faster than the category. The lower chart reveals Diageo s internal segmentation analysis of On and Off Premise accounts catering primarily to either Hispanic, African American or GLBT consumers. And here we see that our depletion rates in these accounts are significantly ahead of our general market performance. So our up weighted multicultural investment and focus is really beginning to make a difference! So let s turn now to a brief video highlighting examples of our programmes to engage multi-cultural consumers And you ll see in this video a number of influencers and celebrities associated with our brands such as Jermaine Dupris Pharell Williams, Big Boi, Alo Black and several others that support our brands in targeted in multi-cultural programmes but are not part of out general market communications platforms. You will also see examples of Spanish social media and hispanic brand advertising that for most of the people here today you would not have exposure to in your personal TV viewing habits. There is a lot of great work here. Slide 38 My last area of discussion highlights our expertise in innovation. And I must say, we re quite proud of our status here in the US as the annual industry leader in bringing new products to market. Slide 39 We deliver a consistent stream of new products using a systemic approach to build a multi-year new product pipeline. Our 6 stage gate process isn t proprietary but the discipline and capabilities we bring to managing the development process ensures that only the strongest ideas make it through the multi gate system and that the packaging and liquids we develop are best in class. And we have honed this process to enable some new product programs to accelerate from concept to market launch in roughly six months.

12 So while it may look cumbersome on this chart, it is, in fact, a disciplined process that allows us to innovate with impressive speed. Slide 40 Our F12 Innovation strategy is briefly outlined on this slide. First, it involves an emphasis for continued focus to drive the growth of earlier launches. Second, it highlights our focus on key categories and priority trademarks to drive efficient investment and leverage existing assets. Our third focus is in the area of new programs specifically targeting multicultural consumers. And lastly, it identifies our initiatives to address new market trends or key consumer occasions that can best be satisfied with new product programs. Slide 41 Our innovation expertise has delivered tremendous value for Diageo. And we are annually the market leader in new product launches and in fact, in 2009 for example, we captured more than half of the top 10 new spirit launches tracked by IRI. And as Ivan mentioned earlier, our innovations from 2002 to this year would place Diageo innovation at a size similar to suppliers such as Patron, Skyy and William Grant. Slide 42 And judging by the market response for the new products we launched this Fall, I am confident we will have another banner year. In your break-out session for DGUSA later today, Sheila will discuss the exciting launch of our new black lager from Guinness and a frozen pouch program from Parrot Bay. The innovation examples you see here, only represent what is planned before the holiday season. And for the purpose of preserving confidentiality, I have not shown several powerful innovation programs planned for this spring. But as you ll learn in the months ahead, we have exciting new programs for Captain Morgan, Jose Cuervo and Crown Royal that will be launched in So I have no doubt it will be another banner year to solidify our reputation as the industry leader in innovation. Slide 43 I hope in my brief discussion this morning, I have provided you with enough examples to demonstrate that we are aggressively building powerful capabilities to provide a holistic and cutting edge marketing approach to building our brands. I encourage you to visit our Digital booth at the break to see additional examples of our pioneering work within digital marketing and social media. And I hope you now share my belief that we are building powerful capabilities to strengthen our multicultural expertise and recruit a diverse consumer franchise for our brands. And lastly, at the break, I encourage you to visit our innovation booth to learn more about our capabilities and exciting new product programs. Slide 44

13 Collectively, I am confident we will continue to strengthen each of the capabilities on this chart to deliver cutting edge engagement platforms that will strengthen our brands and our industry leadership. Thank you for your attention this morning. Now I ll turn the podium over to our Senior Vice President of Corporate Relations, Guy Smith.