University Project
Global Marketing
April 2021
Exporting Isle of Harris Gin to China
Assignment Brief: Develop a global marketing plan for your brand and offer strategic and tactical suggestion of how to best enter this market.
I. Introduction
Spirits are a lucrative market, where tradition, provenance, marketing, and innovation make or break a company. Following a decade of exponential growth in the gin market, coined as a worldwide ‘ginaissance’ (Rowell, 2020), many entrepreneurs have entered the market in search for opportunity, and thus the Isle of Harris Distillery was founded. The release of the Isle of Harris Gin had many experts and gin lovers excited. With expert believing that the gin has all the potential to become the next Hendricks (Gin Foundry, 2017), and with the gin present in 15 international markets (Donald, 2019; Waterworth, 2021), there is a whole world left unexplored. This marketing plan will provide a rationale as to whether the distillery should enter the Chinese market, an ever-increasing industry full of opportunities and risks.
II. Internal Analysis
II.I Company Overview
Formally known as the Isle of Harris Distillers Ltd., but commonly known as the ‘Social Project’, the Ilse of Harris Distillery is a small to medium sized Scottish company, with 43 employees, that currently operates in the wine and spirits industry (Isle of Harris Distillers Ltd., 2021). The distillery was founded in 2015 by Anderson Bakewell to capture and share the “rare and elusive spirit” of the island in a bottle (Isle of Harris Distillery, 2015). Bakewell’s motivation to establish a legacy for the island arose from his affection for the isle, and present issues such as loss of culture and tradition due to the increasingly diminishing population (Ibid).
Although for now, it only sells gin, as the whiskey is maturing, the distillery is a “whisky distillery first and foremost. This is the lifeblood of the company” (McConnel, 2017). As such, part of the profit from the gin sales have partially funded the whiskey expedition and the rest came about initial rounds of funding in 2015, totalling £11 million (Suarez, 2018). The company is slowly but surely growing. 2019 saw a rise of the company’s net worth of 2.3% from 2018 (Isle of Harris Distiller Ltd., 2019), and Pomanda.com (2020) estimates a 41% Compounded Annual Growth Rate (CAGR) in the next 3 years, 3 times higher than the industry average.
II.II Domestic Target Consumers and Marketing Mix
Based on the Isle of Harris Instagram analytics, 55% of their followers are females whilst 45% are males (Starngage.com, 2021). Users that follow this page are interested in restaurants, food, and grocery’s (68%), arts and design (65%) and travel and tourism (53%) (Ibid). Furthermore, as per UK gin industry standards target customers pay £30-40 for bottles (Scottish Gin Society, 2020) and prefer to consume the classic London dry gin (Gin Foundry, 2019). As for whiskey, their future target customers will be those that seek a whiskey with a unique flavour profile and a whiskey they never tried before, as suggested by UK industry figures (Joyce, 2016). Hence, they will target people that are curious explorers, crave newness and value experiences (Distill Ventures, 2020).
III.II.I Products
Figure 1: Description Of The Products Sold By The Isle Of Harris Distillery. Pictures from Isle of Harris Distillery (2021)
II.II.II Prices and Distributions
Figure 2: Price and Distribution of the Distillery’s Products (Isle of Harris Distillery, 2021), pictures from Isle of Harris Distillery (2021)
II.II.III Promotions
The Isle of Harris Distillery participates in social media marketing, but mainly relies on word-of-mouth, and awards to promote the gin and the company. The initial ‘hype’ for the gin dates to 2016. In 2016 a shortage of glass bottles, known as the ‘The Great Harris Gin Drought of 2016’, caused by Brexit, added allure and hype to the gin (Gin foundry, 2017). This shortage quickened the word-of-mouth process where everyone wanted a taste of the gin (Hayes, 2016).
II.III Industry
IWSR (2019), predicts a strong growth in the UK’s gin industry due to the ‘premiumisation’ of gin. As a result, producers have innovated their products creating a niche market for aesthetic packaging and unique flavours (Burgess, 2020). Similarly, the whiskey market has seen a steady growth especially with millennials, as they seek sophisticated experiences (Punia, 2018). Consumers nowadays focus on the brand ethos, and environmental and social issues are becoming everyday considerations for the consumer (IWSR, 2021). Demand for single malt whiskey has risen, which now accounts for 19.2% of whiskey segmentation (Kotze, 2021), as a result of the media’s portrayal and rising level of disposable income (Mordor Intelligence, 2020). Further, spirits consumers are impulsive buyers and enjoy browsing in-store (Bruce, 2019). Figure 3 further demonstrates the age and gender of gin and whiskey consumers in the U.K. industry:
Figure 3: The UK Gin And Whiskey Industry Customer Segments
III.IV Internationalization
The distillery has a geocentric orientation and fully operates in the U.K. with a direct-to-consumer ordering system model (HIE, 2019). As the Managing Director, Erlanger, believes “exporting is about spreading the risk” (Ibid), and in fact the ‘risk’ is divided, as the gin is present in 15 international markets where the direct-to-consumer model is adapted to the corresponding country (HIE, 2019). In 2019 it aimed to enter the USA market by “building connections with new partners and creating a special 750ml bottle” (Donald, 2019), after 2 years, the company has entered the market (Waterworth, 2021). Due to Brexit the distillery decided to temporarily stop exporting the products, nonetheless they can still be found on third party vendors (see appendix 1). Having said this, China is an ever-growing market for spirits, presenting itself a great opportunity for the distillery.
IV. External Analysis
IV.I Macroenvironment
The People’s Republic of China resides in an area of 9.6 million Km2 (Columbia.edu, 2021). It’s estimated that it has a total population of 1,443,645,789 with a population density of 153 per Km2 (CIA, 2021). The population growth rate is 0.32% and the median age is 38.4 years (Ibid). Further, 60% of the population lives in an urban area (CIA, 2021). China’s climate varies during the winter and summer. Whereas the winters are temperate, the summers have more rainfalls, and hence the climate is humid and subtropical (Climate-data.org, 2021).
IV.I.II PES
Figure 4 shows China’s PES analysis. The PES analysis will allow to provide information on the market’s attractiveness and potential (Green and Keegan, 2020).
Figure 4: PES Analysis of China
The crippling relationship between the two countries could impose problems for the distillery. Nevertheless, numerous corporations work with both governments to “ensure a seamless import of Scotch Whiskey to China” (Stilinovisti, 2020). China’s market development represents “a classic Rostow model” (Xi 2021 p, 4) meaning that China is beginning to use innovation and it’s starting to move away from relying on imports. Furthermore, disposable income and consumption of alcohol per capita has been increasing in the last few years.
Graph 1 shows Hofstede’s 5 culture dimensions of China and UK. Hofstede himself emphasizes the collective nature of Chinese people with family and friends, but a zero-sum mentality applies to those outside their clan (Witt, 2012). The high power distance suggests that Chinese people respect their social hierarchy and do not tend to stray away from it (Techo, 2017). Further the masculinity level, like the UK level, implies that Chinese people are orientated and driven by success (Ibid). Similarly to the UK, the low uncertainty avoidance hints that truth may be relative as laws may be flexible (Gillespie et al., 2015). Lastly, the long-term orientation score suggests Chinese people are pragmatic (Ibid).
Graph 1: Hofstede’s 5 culture dimensions (Gillespie et al. 2015, p. 74)
IV.II Microenvironment
IV.II.I Industry Structure
The market value of the spirits industry in China is $294.1 billion and it will increase 23% by 2024 (MarketLine, 2020b). The industry is set to have a CAGR of 4%, (Statista, 2021), more specifically gin will see a 10% CAGR (IWSR, 2020) and whiskey a 4.5% CAGR (Stilnovisti, 2020) from 2021-2025. Nonetheless, the distillery might face problems when entering the Chinese market, for instance Baijiu’s 98% market share dominance (Wu and Wang, 2017). As such Porter Five Forces, demonstrated in Figure 5, provides an overview of problems the distillery might encounter:
Figure 5: Application of Porter Five Forces (1979) on the Chinese Spirits Market, graph is from MarketLine (2020b)
Competition is high and increasing thus factors such as price and branding are crucial (Chen, 2020). Hence, competitive advantage can be reached by applying new technologies and retaining skilled personnel (Ibid), two business practices the distillery is already applying. Having extensive distribution networks, adapting products to consumer preferences, branding and quality are all determinants of successful market growth (Chen, 2020). As such Chinese companies have moved towards higher price segments and there has been an increase of imported brands (MarketLine, 2020b). In fact, the UK is the second highest foreign supplier of spirits, and first for whiskey in China (Thériault, 2019). Further, as competition is high companies have increased their marketing expenditure to 7.5% of their revenue (Chen, 2020). Lastly, Chinese people prefer 500ml bottles, as such they are the most popular packaging formats. (Thériault, 2019).
IV.II.I Customer Segments
In terms of market similarities customer segmentation and target markets are quite similar. The distillery’s success in the UK can be partly attributed to millennials as they desire to taste new alcohol with unique flavors and new experiences. Similarly, spirits consumer in China are cultured and are interested in outdoor activities, bars and gastronomy (Zhang, 2021). Although the majority of Chinese consumers drink baijiu (Ibid), millennials are starting to steer away from Baijiu (Thériault, 2019). Demand for whiskey is strong in millennials that live in urbanized tier one cities and have a high disposable income of about £3,350 (Poon, 2020). In addition, “the drinking culture and its relationship with demonstrating social status in China make it an excellent market for luxury single malt editions” (Stilnovisit, 2020). Figure 6, show the customer segments of spirits consumers and their traits:
Figure 6: Chinese Customer Segments For The Spirits Industry, And Other Traits
V. Global Marketing Strategy
Although the company in the past has used a shower and diversification approach, the nature of the Chinese market suggests a waterfall and diversification approach should be chosen. Hence, new products will enter new markets sequentially (Hollensesn, 2016). The entry strategy follows both a pragmatic rule approach, as low-risk entry modes are assessed, but also a strategic rule approach, as all entry modes are evaluated (Ibid). Based on the internal and external analysis, the best entry modes for the Isle of Harris Distillers are indirect exporting and exporting through the internet (Gillespie et al., 2015). Indirect exporting refers to ‘partnering-up’ with a specialized importer that has the capabilities and the network system to expand the product. It is suggested by Nimbility (2020) and, Wu and Wang (2017) that choosing a local Chinese importer is more advantageous for small brands, as they can enter the desired target market. Optimally both exporting methods need to be implemented, as indirect exporting does not allow for total control of the product, as a result exporting through the internet allows the distillery to maintain its brand image and storytelling. Further Arnold (2000), suggest that a long-term partnership rather than short term, and the company’s complete dedication from money to ideas and managers, will grant the partnership success.
V.I Micro-segmentation
As suggested by Green and Keegan (2020) multisegmented targeting enables the company to reach wider set of the population and enhance the probability of success. As identified by Mersol-Berg and Zeng (2020) Spirits Lovers are the first desired segment. This segment will create initial hype for the company and products, however, as to create long term loyalty and the desired brand image in China, Conventional Aficionados will be the ‘reach’ target segment. Hence Figure 7 demonstrates the target segments:
Figure 7: Micro-segmentation of desired target market, information from Mersol-Berg and Zeng (2020); Poon (2020)
Similarly, to the company’s product purpose, to share the gin with friends, the target segment has not been divided by gender. Social gatherings are compromised by all genders; hence the products will be marketed towards all genders equally.
VI. Global Marketing Programme
As the company follows a geocentric approach, some aspects of the marketing mix will have to be adapted to suit China’s needs and culture (Green and Keegan, 2020). Hence a glocal approach will be implemented.
VI.I 4Ps
VI.I.I Products
The socio-cultural analysis suggests that products need to be adapted for the local market. Figure 8 explains the standard and the adapted products:
Figure 8: Standardized and Adopted Products. Pictures from Isle of Harris Distillery (2021)
VI.I.II Prices
As illustrated Chinese companies create competitive advantage through pricing strategies. Although both desired target markets pay premium prices for their sprits, the company will follow a polycentric approach of adapting the price to the country, but also value-based pricing and premium pricing (Green and Keegan, 2020). Hence the traditional gin bottle and the aromatic waters will be adapted according to the currency conversion. However, as the disposable income is high and demand for whiskey is high, a super-premium price could be suitable for the whiskey and the Chinese Cèilidh bottle.
VI.I.III Distributions
Although the most popular distribution centre to buy alcohol in china is supermarkets, following the consumption of sprits of the target segments, the products will still be distributed online, in premium spirits stores and in bars and restaurants. Entering the market with indirect exporting and ‘partnering-up’ with a local distributor allows for networks to be established and to reach the target markets.
VI.II.IV Promotions
As investigated in the external analysis, the target consumers get emotionally attached to the brand. Hence the promotions need to firstly acknowledge this fact by using a needs-based approach (Green and Keegan, 2020) and use storytelling to encapsulate the brand’s branding. In fact, country-of-origin contributes to the overall brand image and increases the equity of the company (Ibid). Traditional media such as newspaper articles and social media mainly WeChat will be used. Lastly, the awards won by the company need to be publicized, as Chinese people buy products that have won awards.
VI. II Dot-plot Table
Table 1: Adaptation of Hollensen (2001, p.329 ) Marketing Mix Standardization vs Adaptation
VII. Investment Recommendation
As suggested by Andersen (1993) greater market knowledge will bring about increased market commitment, in fact after considering all details in Table 2, a decision has been made.
Table 2: Invest or Not Invest
Based on the lack of financial resources and political instability, it is suggested not to enter China. Nevertheless, when the distillery’s financial resources and China-UK political ties improve, the distillery should invest in China.