Baileys in 2009

Case study Reference no 509-050-1

This case was written by Professor Frank Bradley, UCD Michael Smurfit Graduate Business School. It is intended to be used as the basis for class discussion rather than to illustrate either effective or ineffective handling of a management situation. The case was made possible by the co-operation of R & A Bailey and Company Ltd. 2009, F Bradley, UCD Michael Smurfit Graduate Business School. No part of this publication may be copied, stored, transmitted, reproduced or distributed in any form or medium whatsoever without the permission of the copyright owner.

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509-050-1

UCD Michael Smurfit Graduate School of Business

Frank Bradley 14 April 2009

BAILEYS in 2009
Worldwide sales of Baileys reached 7.6 million cases at the end of 2008. Since 1985 Baileys had been the world's top selling cream liqueur, and had become the seventh highest selling premium spirits brand in the world. In just over 30 years the R and A Bailey and Co. Ltd created, nurtured and developed Baileys to rank among the worlds top premium spirits brands including well known icons such as Smirnoff Vodka, Bacardi Rum, Johnnie Walker Scotch Whisky, Jack Daniels Tennessee Whiskey and Ballantines Scotch Whisky [Exhibit 1]. The Baileys management team believed that sales would reach 10 million cases by mid-2011. Where these sales would come from was a topic of discussion at management meetings in the company. Baileys had been extremely successful since its launch in 1974 but the marketing team acknowledged that there were issues of consumption frequency that needed to be addressed. Furthermore, a substantial proportion of Baileys sales occurred in December, with the Christmas week accounting for 27 percent of yearly sales volume. Consuming Baileys at Christmas and other holiday periods, family gatherings and special occasions was a common occurrence, as it was with many traditional liqueurs. While such sales were critical and had to be protected, senior Baileys managers believed there was room to extend out to the shoulders of these seasonal sales to enhance consumption at other times. Nevertheless, advertising and promotion activities were heavily concentrated in the period prior to Christmas. Maintaining well-stocked retail shelves during periods of high seasonal demand was an issue faced by most drinks manufacturers including Baileys. Inadequate logistical support associated with peaks in demand during the five weeks surrounding Christmas easily manifested itself in a loss of sales and a consequent drop in share prices for parent companies. A noticeable fall in Baileys sales due to empty retail shelves at any time would result in a fall in Diageos share price, Baileys ultimate parent since the merger in 1997 of Grand Met and Guinness.
_________________________________________________________________________ This case was written by Professor Frank bradley, UCD Michael Smurfit Graduate Business School, University College Dublin. It is intended to be used as the basis for class discussion rather than to illustrate either effective or ineffective handling of a management situation. The case was made possible by the co-operation of R. & A Bailey & Company Ltd. Frank Bradley, University College Dublin

509-050-1 Peter OConnor, Global PR Director at Baileys, believed that, besides ensuring a full distribution pipeline in existing markets and communicating the brand appropriately, significant additional sales could be achieved in the worlds largest market, the United States and in new emerging brown spirits markets in India, Japan and Latin America. Internal company discussions suggested that the next and most attractive source of growth seemed to be China, currently absorbing 150,000 cases of Baileys. China, traditionally, a white spirits market, held much potential according to OConnor who claimed that once this market opens it will take off like wildfire. The company was uncertain, however, how to develop the market in China. The company had already identified the 25-35 year-old female sector as the target market. Reaching potential customers in this sector effectively was likely to pose some difficulty. Other potential barriers also existed. Like many other markets, China was highly sensitive to food security issues. The assurance of protection provided by the country of origin of ingredients used in food and drinks exported to China was a major consideration. On the other hand, Baileys had been successfully established in western markets. The United States, Baileys largest market, absorbed over 1.5 million cases each year, followed by the UK with one million case sales. Sales in Spain were around 65,000 cases while in Ireland they were around 150,000 cases. The company believed that further penetration of these markets was possible, particularly if Diageos distribution power could be further exploited. The most important sales channel for Baileys was the off-trade and Duty Free, accounting for 75 percent of total sales.

The changing consumer

During the early years of the century, Baileys drinkers had become younger and more affluent, in the 21-35 age group with a 55-45 percent female-male divide. Volume consumption by core users was less than expected and relevance was thought to have become an issue. Moreover, senior managers in Baileys had a niggling feeling that an exclusive focus on Baileys as a cream liqueur1 was myopic. After all, the company had successfully created a new product category, cream liqueurs, and dominated it. Could belonging to two categories, spirits and indulgent dairy products, reflecting attributes of taste among consumers who were friendly, sociable and liked to indulge themselves, augur well for the expansion of Baileys sales and the possible introduction of new products that would eventually be world beaters? In particular, would it be possible, the Baileys management team wondered, to dominate the mainstream spirits market. Baileys had developed a very large international customer base, over 50 million consumers, many of whom were loyal users of the brand. According to the company the dominant product attributes which appealed to Baileys core users in all markets were Irish whiskey and cream, texture, complexity of flavour, delicious taste, the traditional bottle and presentation pack, natural ingredients, originality and the low level of alcohol in the drink. In the new century, qualitative research had indicated, however, that the brand was perceived as old-fashioned and safe, bordering on the
1

In the US and Canada liqueurs were known as cordials

509-050-1 boring, but nice. Many traditional attributes held greater appeal in earlier years but had begun to wane. The taste of the whiskey and cream and natural ingredients continued to be attractive, especially to younger people.

R. & A. Bailey & Company Ltd.

In early 1971 a committee of senior managers in Gilbeys of Ireland Ltd., a traditional importer of wines and producer of gin and the immediate parent company of R. & A. Bailey, was formed with the express objective of becoming a 'think tank' to identify new product opportunities; activities led by David Dand, CEO of Gilbeys from 1968 until his retirement in 1991. Eventually, Dand and his team came to realise that whiskey and cream together would form a unique product, an authentically Irish combination which would also be original while remaining within the scope of the company's range of experience. The immediate barriers to be overcome were possible difficulties in successfully mixing whiskey and cream and ensuring the commercial sustainability of the proposition. The possibility of a pleasant-tasting low alcohol, light liqueur product was appealing, especially to women, since, according to Dand, alcohol content was less significant in determining preference; consumers purchased liqueurs for their taste, not for their alcoholic content, he argued. It was also noted that most established liqueurs, for example, Benedictine, Drambuie, and Grand Marnier, had a low use-up' rate (the speed at which a beverage is consumed); were high proof, difficult to drink, and therefore had a low shelf-turnover rate. Gilbey's idea was to produce an instantly palatable liqueur based on natural ingredients that invited rapid consumption. The Baileys product was developed following three years of intensive research and development. Would the new product be accepted by the market? Dand thought so, claiming that it offers the consumer the potency and sophistication of a liqueur, while remaining a most moderate drink. In early 1974, with much anxiety, the decision was made to install a pilot plant in Dublin with a total annual capacity of 25,000 cases.

Launch of Baileys Original Irish Cream Liqueur

The brief for the development of the brand name for the new product, prepared by David Dand, was that: It should be Irish without being stagey, it should reflect contemporary Ireland and be easy to say in almost any language, be legally protectable, easy to identify and be differentiated. Numerous ideas were tried and finally 'Baileys Original Irish Cream Liqueur' was chosen. The challenge in selecting an appropriate name derived from the companys aspiration that potential consumers would nominate the Baileys brand when requesting it, not as frequently occurred in buying whiskey where people simply asked for an Irish or a Scotch. Initially, Baileys management attempted to ensure that the overall image of the brand reflected the friendly, outgoing nature of the Irish people, the pure, wholesome unspoilt, natural landscape and environment of Ireland, its historic and traditional heritage. These perceptions, according to Dand and his team had clear

509-050-1 implications for the new brand; they had to fit with the spirit of Baileys, its quality, its originality, uniqueness and the authentic spirit of Ireland reflected in the companys expertise in working with quality natural ingredients, whiskey and cream. Baileys Original Irish Cream Liqueur' was a premium priced, high quality, low alcohol (17o proof), Irish product aimed at international markets in developed and developing western type economies with substantial populations and stable political systems. The product was initially targeted at the female 25-45 year age group over a widening social scale consuming the product at home. On 26 November 1974 'Baileys Original Irish Cream Liqueur' was launched in Dublin having cost in the region of $40,000 to bring to production and $15,000 to launch. In 1974 the new product was test marketed in the Netherlands and in the United Kingdom and launched in the Netherlands. Indifferent test market results delayed entry into the United Kingdom. Successful entry into the Netherlands was soon followed by a sequence of market entries into Denmark and other Nordic countries, and Germany, Belgium, France, Italy, Spain before going to Australia and New Zealand and later to the United States.

Imitators crowd the market

Many cream liqueur imitators entered the market in the late 1970s, some of which, commentators thought, might be serious threats to Baileys. A number of competitors, including many Irish, were quick to respond to Baileys.success. In the United States, W. A. Taylor Company's 'Venetian Cream Liqueur' promoted its Italian roots and taste as 'Delizioso!', subsequently challenging Baileys directly with the slogan: The Irish are nice but ahh.... the Italians! Seagram's 'Myers Rum Cream' was an imitator using a different spirit base. Other Irish entries included Emmets and Carolans, promoted as the richest, freshest, creamiest, Irish taste in all the world. New value brands included Irish Distillers Waterford Cream, a brand within the Pernod Ricard Group, priced marginally lower than Baileys, and 'O'Darby's', an Irish cream liqueur, sold in a smaller bottle, aimed at the cocktail mixer segment. By the early 1980s Baileys executives believed that there was the threat of an over-crowded market, but the marketing and brand managers responsible for the competing brands, especially in the US, all claimed success. Emmets pursued a noimage, low-price strategy and sold for as much as $5 to $6 per bottle less than Baileys in the United States. The Emmets bottle appeared to be larger than Baileys 750 ml size. There was evidence from blind tastes in the early 1980s that Emmets had achieved taste parity with Baileys, leading Bernard Dubois, the US brand manager for Emmets at 21 Brands to claim that: Emmets has successfully delivered taste parity at a lower price. Baileys adopted a premium price policy in all markets including the US. Baileys at $17.80 in the US was priced at a premium to its major competitors, Kahlua ($14.23), Emmets ($11.45); Carolans ($11.23); and ODarby ($9.85). The overall market impact of these imitators subsequently made it difficult for Baileys to increase price but had the virtue of continuing to endorse Baileys as the original cream liqueur, the others imitators.

509-050-1 In the late 1980s and throughout the 1990s there was a pronounced trend away from on-trade, that is, in pubs and bars, towards off-license and supermarket sales. The price differences between branded whiskies and private label had grown in some cases to $7 - $9.50 a bottle in the UK. In the recessions of the late 1980s consumers began to question brand price-value, making these premiums very difficult to maintain. As a result, own label whiskey sales in the UK had grown to about 20 percent of off-trade sales. A similar pattern was evident in France for white rum and in Germany for gin. Ned Sullivan, the Marketing Director at the time, expressed the opinion that Baileys price-value was beginning to be questioned: the price-value relationship has got to be taken into account, whether you are selling a $16 brand or a $10 brand. Subsequently Emmets and ODarbys brands were acquired by Baileys in a distress sale. In 1992 Sullivan, CEO from 1991 to 1995, claimed that the acquisition of Emmets has been financially very good for us - strategically it got us into a segment of the market which we could not enter with Baileys. In the US, Baileys is $18 a bottle, Emmets is $12 a bottle while ODarbys is $8 a bottle. The issue of price-value again raised its head in 2008, the start of another recession. Many direct challenges to the Baileys brand appeared from time to time, some of which were perceived by the company as potential threats. The fate of Allied Domecqs Tia Lusso, a cream liqueur aimed at younger drinkers backed by a large advertising and marketing budget, illustrated the way Baileys management was prepared to deal with threats to its brand. Baileys dominance of the market, with ontrade distribution of 98 percent in the US and 93 percent in the UK2, allowed Baileys to price compete Tia Lusso out of the market through an aggressive discount strategy, in the off-trade especially. Baileys ability to aggressively discount was due to Diageos distribution muscle, according to Colm Foster of Baileys Global Supply Company. Another recent entry into the cream liqueur market was Amarula, one of the worlds fastest growing drinks sold primarily through supermarkets, especially Tesco, a UK supermarket chain. With a fruity caramel taste, Amarula, made from Africas exotic marula fruit emerged as the second largest seller in the global cream liqueurs market after Baileys. Because Baileys was not a capital intensive brand it generated high margins for its owners which they were prepared to use to protect and strengthen the brand as required, motives which drove Baileys to become an advertising intensive brand. It was rumoured that when Sullivan left Baileys to join the parent company, International Distillers and Vintners (IDV), in London, he continued to display considerable ingenuity in securing advertising investment ahead of volume growth, considered a major contributory factor in the continuing growth of the brand. Within IDV, the brand eventually became an easy target for cuts in advertising and marketing budgets, raising the prospect for Sullivan, the brand custodian, and his Baileys colleagues in Dublin, of the need to defend advertising as an investment which would create and maintain a long lasting bond between the brand and its customers.

A. C Nielsen, January 2008

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Communicating the brand

In the early years the company attempted to ensure that the taste message, discovered to be very powerful, was clearly emphasised in all communications. An advertising theme in the early years stressed the cream is real, the whiskey is real, only the taste is magic. The blend of whiskey and cream in the brand enabled the company to claim that the: heritage of Baileys derives naturally from the history and traditions of Ireland, long renowned as an agricultural country with some of the finest dairy products in Europe and a parallel tradition of whiskey.

The impossible cream provides a magical taste

Advertising, based on the 'Impossible Cream' concept raised a major question for the consumer, Impossible - to blend whiskey with cream? This advertising concept, which was developed primarily to support the launch of Baileys in the US market in October 1979, challenged the consumer to respond to a technological and market breakthrough. Taste became a key feature in Baileys advertising when the message in new advertising stressed, 'the cream is real, the whiskey is real, only the taste is magic'. As taste is difficult to describe in advertising copy, emphasis on the magic seemed important. At the time Robert Suhr, Marketing Vice-President at the Paddington Corporation, the US distributors of Baileys, claimed that, . of those consumers who taste Baileys, some 60 percent will buy a bottle - 20 times the ratio of other spirit products. During the early years, alluding to tradition, heritage and the country of origin seemed to be particularly useful in promoting the brand. Sales had reached 0.88 million cases by 1978 and jumped to 1.45 million the year after entering the United States. In 1991 sales had reached 2.5 million cases [Exhibit 2]. In these early years the advertising message reflected rewards for achievement; the taste is magic, as Irish as falling in love and purely personal pleasure. Scenes used in the advertising included at-ease occasions at dinner parties, black-tie events, other celebrations, generally. Baileys research in the US in the late 1980s, however, pointed to weak relevance among the increasing number of occasional and infrequent users. The company noted from tracking studies that there was a continuous but limited conversion of consumers to core status. Any expansion in the number of occasional and infrequent users would have been unwelcome as it would have restricted volume growth. The Baileys management team wondered if a broader advertising appeal could attract new users to the brand and convert existing occasional users to become loyal repeat customers.

A shift to a broader appeal

The objectives of the Cat and the Iceman advertising campaigns in the 1980s and early 1990s was to modify the traditional image of Baileys as a self-indulgent treat

509-050-1 at home. During the ten year period to 1999, Baileys sales increased from 2.30 million cases to 3.02 million cases [Exhibit 2]. Most of this growth could be accounted for by the entry into the US market in 1979. The time had come to promote the brand as a summer drink by increasing the consumption of Baileys on ice and thereby develop a true on-trade consumer franchise for the brand. Ice had always been a feature of Baileys drinking in the US. In the United Kingdom the situation was different. By 1981 Baileys sales there had reached 396,000 cases but by 1989 they had fallen to 390,000 cases. Sales in the United Kingdom were maintained at 390,000 cases and improvements in brand equity allowed the company to raise prices from the $9.50 sherry level pricing to mainstream spirits pricing of $16, over the following five year period. Price sensitivity in the UK and the inclination of consumers to position the brand as a light whiskey cream with a correspondingly low price were blamed for the flat sales. In the United Kingdom, consumers viewed Baileys as a traditional liqueur which restricted usage to special occasions. Many United Kingdom consumers continued to view Baileys as a late-night winter drink or a special occasion tipple or even a Christmas drink. Baileys management began to focus its attention on addressing this issue. Promoting Baileys on ice, the company believed, would switch consumers to a double measure of Baileys which could become the key to moving the brand more firmly into the mainstream drinks market. Potential consumers had been deterred from drinking Baileys, according to the company, because the measure used in pubs was much smaller than the quantities served of many alternative drinks which normally included ice. In the United Kingdom there was a negative consumer reaction to the small measure: I wouldnt drink Baileys in a pub because you only get a small measure and its so expensive (a woman, Chingford, UK) or Its not the sort of thing I would ask for in a pub. One sip and its gone and you would be waiting for everyone to finish their drinks (a couple, Sunbury, UK). Commenting on the double measure, especially when ice was added, one consumer noted that It makes Baileys a longer drink to savour. Baileys subsequently built a business case for the larger measure on the basis that it would be inappropriate to double prices. It was also necessary to demonstrate to pub owners that volume growth could mean potential extra profit. In 1994, the company signed a five year deal worth $8 million to sponsor the World and European figure ice-skating championships to accompany the Baileys on Ice campaign. In 1994, 270 million viewers around the world watched these championships. In the early 1990s, 42 percent of consumers were drinking Baileys on ice; by the end of the decade this had increased to 65 percent. Frank Fenn, Baileys CEO, 1998-2004, believed that the ice campaign had been successful. By early 1999, Baileys was the top selling liqueur in the UK, almost double the sales of Tia Maria. It was also the eighth largest spirits brand and the fastest growing of the top 20 spirits in the UK.

Baileys as sophisticated indulgence

By the early1990s the company shifted its advertising focus to Baileys core value taste, and something special, referred to later by OConnor as sophisticated

509-050-1 indulgence. Towards the end of the decade the marketing emphasis had shifted to changing consumer behaviour by communicating the brands emotional benefits based on a series of advertising campaigns that anticipated pleasurable experiences, all reflecting friends enjoying life [Exhibit 2]. In this new era Baileys management believed that they had to deliver the brand message in a way that would keep the brand from slipping back to intimate low energy occasions since it was the companys view that Baileys personality was playful, stylish and easygoing. According to company executives, Baileys was for shared moments among friends and partners, at ease with themselves and their friends, circumstances reflected in advertising that showed lots of energy in the club scene as a new drinking environment.

Product category fragmentation and consolidation

Looking for new sources of growth towards the end of the 1980s, Sullivan noted that there was an opportunity for a Baileys Light. ' Baileys Light' was launched in the North American market in 1989 to address diet concerns. What Baileys Light has done is appeal to a slightly different segment of the market - consumers of light products and occasional users, Sullivan claimed. A product formulation of Baileys the Original, based on 50 percent less fat and 33 percent fewer calories, argued Aldagh McDonogh, recently appointed Marketing Director, would not, however, reflect the growing consumer trend toward fat free food and drink. She was also aware that the extension had low brand awareness and research suggested that the packaging should be further differentiated from that used for Baileys. McDonogh believed, however, that it would be worth considering delivering on a 100 percent guilt free indulgence. Sullivan acknowledged the difficulties with a light version of the brand, we already have concerns among US consumers about the calorie content. I am not sure that we want to remind them of these concerns by launching a light version. By 1995 plans to expand distribution of Baileys Light beyond the North American and duty-free markets were abandoned (Advertising Age, 26 July 1994). Furthermore, consumer feedback in the US in late 1999 indicated that Baileys Light, at 50 percent fat free, was an irrelevant proposition for consumers. As a consequence, towards the end of the 1990s Baileys Light was removed from the US and duty free markets. Around the same time, ' Baileys Gold' was introduced, exclusively for the Japanese domestic and duty free markets. It featured the familiar brand flavours but incorporated a ten year old Irish whiskey adding an extra touch of mellowness for whiskey-conscious Japanese consumers presented in sophisticated packaging. Both products were subsequently withdrawn as they did not meet profit targets. In the early years of the new millennium, specialty spirits providers began to address the issue of how to satisfy consumers needs for long drinks in pub, besides relying on the addition of ice. This would be a shift from the traditional way of serving spirits straight, on the rocks. Consumers, especially younger drinkers, now expected a greater challenge than mix with cola. The introduction of Baileys Minis in 2002, provided consumers with a convenient long single-serve measure of Baileys

509-050-1 in a four unit pack that could be easily stored in a fridge. Baileys Minis became very popular especially at outdoor events and summer parties. The idea of coffee-creams began to appear in the US as far back as 1995 when the company noticed sales of coffee-cream liqueurs had reached 1.5 million cases, mostly Kahlua (71% market share), Arrow (11%), Kamora (6%) and Tia Maria (1%). Desk research showed that the new trend in coffee taste was spreading to other spirit categories, including vodka (Stoli Coffee); tequila (Patron XO Coffee); cream liqueurs (Kahlua Royale and Carolans Coffee); Amaretto (Caf di Amore); Sambuca (Obio Caffe). There were other important coffee trends. Consumers were increasingly seeking convenience, variety, health and safety in the foods and drinks consumed. An observer of the food industry in 2006 remarked to be sure, we consume more than coffee thanks to Starbucks, but only because we get it skinny, with a twist, to go, no foam. Under Frank Fenn, an alliance with Starbucks was investigated but, for a number of reasons, not pursued. OConnor, believed that coffee was within Baileys scope coffee occasions were important to Baileys ; drinking for enjoyment in a caf society, in places such as Caf en Seine in Dublin, open 20 hours a day. Baileys chocolate cups, launched in 2004, and made from Belgian chocolate filled with 35 ml. serving of Baileys was an attempt to address this trend. The company sought to address these issues by adding a range of new product items, Baileys Latte to add luxury to coffee, Blended Baileys with ice, and a series of recipes, Baileys Irish Martini, Bailieys the Original and Irish Whiskey, Baileys Crush, Baileys Coffee, and Baileys Chocolatini. The greatest expectations were reserved for Baileys Shaken with ice. Towards the end of 2008, shake Baileys was being strongly promoted in advertising campaigns. There was a concern about where these developments might take the brand. This concern was manifested as an on-going debate within the company about keeping Baileys out of the kitchen. For some managers that would run the risk of Baileys becoming an ingredient or a confection which would undermine the brands premium positioning. Others managers noted, however, that imposing restrictions on such innovations limited the growth of the brand.

Baileys swims in the mainstream

In the early years of the new century the Baileys marketing team, including Fenn and OConnor, became convinced that consumers began to see the brand as having a wider appeal that challenged the country-of-origin effect so long accepted as a fundamental aspect of the brand essence. Hence, in 2003 after much research and soul-searching the company changed the brand name from Baileys Original Irish Cream Liqueur to Baileys the Original . The pastoral scene, a recognition of consumer regard for heritage, a real brand from a real place, was removed from the label. Baileys management began to believe that consumers had begun to view Baileys as a brand arising from an idealised or stylised notion of Ireland, not Ireland, the actual place. Irishness, according to some executives, was no longer

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509-050-1 relevant and had ceased to be part Baileys brand essence, a reality reflected in contemporary and modern advertising from the late 1990s onwards. According to the company, the challenge was how to encourage existing consumers to drink more Baileys, more often, rather than to concentrate on recruiting more consumers. This view suggested to senior managers that users consumed Baileys also because it was desirable, rewarding, provided casual pleasure and was compatible with their lifestyles. Frank Fenn, wondered if advertising the brands emotional benefits could be made more effective by focusing on cream, whiskey, Ireland and taste. According to Fenn: many brands try to own emotional benefits but fail because they dont root them in product and brand truths. Baileys has an advantage in this area because it roots its emotional benefit of indulgent pleasure in a very strong brand truth - delicious taste Alcohol brands with which consumers felt a link tended to focus more on image building, personality and emotion, according to the Baileys management team. Liqueurs in general, they believed, were perceived to be functionally very different from each other compared to, for example, vodka brands. In particular, it was Peter OConnors view that the exceptional thing about Baileys was its organoleptic effect, the experience that stimulates the senses every time a consumer drinks Baileys. The organoleptic effect, according to OConnor, was a combination of physically pleasing sensory effects combined with a psychological stimulation unique to Baileys, based on taste, sensations and emotions. Taste was always a critical dimension of Baileys; the product literally melts at body temperature, which led the company to conclude that melting in the mouth made the product a palate friendly drink which created a bond with the consumer, part of the organoleptic effect. In 2006, to complement Baileys the Original, the company introduced three major brand extensions which became popular very quickly: Baileys Coffee, Baileys Mint Chocolate and Baileys Crme Caramel [Exhibit 3]. The new flavours have been a great success and have added volume of around 10 percent of sales without cannibalising Baileys the Original said OConnor in early 2009.

Baileys go where the spirit takes you!

A key issue for Baileys as the brand leader was how to consolidate the market behind the brand, to discover what might inspire consumers to form a continuing relationship with Baileys that was relevant. The calories associated with Baileys, once a consumer concern, now offered an opportunity to promote a sensuous indulgence appeal to the because youre worth it generation which could provide the basis of the desired continuing relationship with the brand. The television sponsorship by Baileys of Friends and Sex in the City, provided a link between a glass of Baileys and the weekly appointment with the target audiences favourite television programmes. For this group, calorie count was not relevant, Im good all week, but my glass of Baileys when Im watching Friends, is just for me. . OConnor and his colleagues believed that asking people to consume more of Baileys had created a dissonance with the brand essence of sensuous

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509-050-1 indulgence whereas consuming the brand more often, one glass as a weekly routine, for example, became the key to addressing the frequency issue. The buzz-word frequently uttered in the company at the time was chilling, a word that had crept into English and other languages to indicate moments of ease with oneself, relaxing and sharing experiences with close friends at play. Digestif drinking was traditional and continued as an important sector for Baileys but the emphasis was changing, to give the brand a more mainstream appeal said OConnor. Based on various studies carried out in the two year period ending in December 2008, the company was convinced that consumers worldwide consumed Baileys for its renowned smooth, creamy, rich, original taste which rewarded the senses as no other drink could. This conviction was borne out in statements summarised as: Baileys appeals to all the senses, especially taste, which creates its uniqueness, leaving consumers everywhere agreeing that nothing else tastes the same. Industry observers commented that Baileys began to defy category definitions and pushed the boundaries outwards. They argued that the brand had evolved from being a traditional formal, special liqueur occasions tipple into a contemporary, everyday, informal spirit occasions drink in which Baileys became an anytime, anywhere drink. Baileys became associated with any occasion in which consumers were enjoying themselves.

Baileys Overall Performance

After over three decades of rapid growth and expansion into more that 130 countries, 'Baileys Original Cream Liqueur', first launched in 1974, had become the worlds best selling cream brand by selling over seven million cases, the number four duty free seller, the worlds no 1 liqueur brand, the most successful spirit launched since 1974 and the No 7 premium spirit brand in the world. The power of the Baileys brand in 2008 was demonstrated by its ability to generate value for its owner on numerous dimensions [Exhibit 4]. Of the worlds Top 10 most powerful spirit and wine brands Baileys ranked fourth on market share, sixth on market scope, eight on price, eight on relevancy, ninth on awareness and tenth on brand perception [Exhibit 4]. The senior team at Baileys at the end of 2008 had aspirations of reaching 10 million case sales by 2011 and 14 million cases by 2015. In 2008 Baileys represented just over six percent of all Irish food and drink exports. Production of Baileys was based at two locations - one in Dublin in the Republic of Ireland and the other, opened in 2003, located outside Belfast in Northern Ireland. At the beginning of 2009 production capacity was 20 million cases using double shifts in both plants. There were approximately 300 people employed in Baileys at the end of 2008. Baileys impact on the Irish economy was significant. The brand accounted for five percent of milk output in Ireland in 2008. The company used the cream from 275 million litres of milk produced by 40,000 cows on 1,500 Irish registered farms. Quality and security in production have always been central in all activities in Baileys

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509-050-1 itself. Throughout the years Baileys has been responsible for raising farm production and dairy processing standards to world levels thereby indirectly allowing Irish farmers and other suppliers to compete on the world stage. Over 80 percent of Baileys ingredients and packaging were sourced in Ireland and over 50 percent of spirits exports passed through the company. On the marketing side, Baileys has demonstrated world class success in global brand building. Besides reaching the exclusive club of the worlds top 10 premium spirits and wine brands Baileys had joined Diageos premium brand portfolio [Exhibit 5]. This was the legacy of David Dand who orchestrated changes in the mind-sets of numerous people in myriad organisations so that his radical innovation would one day become such an important brand in the worlds mainstream spirits market. Dand was himself very prescient regarding the future trajectory of Baileys. In late 1981, Dand, then Chairman and Managing Director of Baileys, recalled that the original objective established for the brand was: to position the brand as an original high quality liqueur type of drink with a solid Irish heritage, having a much wider consumer franchise than any other liqueur, thus establishing an entirely new drink sector synonymous with, and epitomised by, Baileys.

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Exhibit 1 World Top Premium Spirits Brands, 2008

Rank 1 2 3 4 5 6 7 8 9 10 11 18 36 51 90 Brand Smirnoff Bacardi Johnnie Walker Absolut Jack Daniels Captain Morgan Baileys Jose Cuervo Ballantines Jgermeister J&B Hennessy Jameson Kahlua Amarula Sales* (2006) Vodka 22.6 Rum 20.0 Scotch Whisky 14.3 Vodka Tennessee Whiskey Rum Liqueur Tequila Scotch Whisky Bitter Scotch Whisky Cognac Irish Whiskey Liqueur Liqueur 9.9 8.9 7.3 7.1 6.6 5.6 5.9 5.9 4.3 2.2 2.2 0.9 Type Sales* (2007) 24.3 19.9 15.8 10.7 9.3 7.8 7.7 7.3 6.2 6.3 5.9 4.7 2.5 2.1 1.0 Sales* (2008) 25.7 19.6 16.3 10.7 9.5 8.3 7.6 7.2 6.5 6.4 5.9 4.5 2.7 2.0 1.1 Company Diageo Bacardi Diageo Pernod Ricard Brown Forman Diageo Diageo Grupo Tequila Cuervo Pernod Ricard Mast-Jgmeister Diageo Mot et Chandon Pernod Ricard Pernod Ricard Distell Group

* Millions of 9 litre cases Source: Impact Databank, 1 & 15 February 2009

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Exhibit 2 Sales of Baileys and Advertising Campaigns, 1974-2008

Cases (million 9 litres)
9 8 7 6 5 4 3 2 1 0
19 75 19 79 19 83 19 77 19 87 19 81 19 85 19 89 19 91 19 93 19 97 20 01 19 95 20 05 19 99 20 03 20 07

The taste is magic As Irish as falling in love

Kelly & Lewis (2005-08) Float (2004) Sniper (2001) Dance (2005)

Cat (1989) Charades (2000)

Thief (1999)

Iceman (1991) Purely personal pleasure

Source: Company records and www.Baileys.com

Exhibit 3 Baileys the Original gets company!

2009 A New ERA Full of Opportunity

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Exhibit 4 Worlds Top 10 Most Powerful Brands in Spirits & Wine

Price Positioning Dom Prignon Hennessy Makers Mark The Macallan Veuve Clicquot Grey Goose Chivas Regal Baileys Absolut Tanqueray Johnnie Walker Mot et Chandon Bacardi Jack Daniels Absolut Hennessy The Macallan Baileys Veuve Cliquot Makers Mark Bacardi Johnnie Walker Mot et Chandon Smirnoff Dom Prignon Jack Daniels Martini Hennessy Baileys Cuervo Brand Relevancy Brand Awareness Brand Perception Dom Prignon Johnnie Walker Hennessy Bacardi Jack Daniels Absolut Mot et Chandon The Macallan Chivas Regal Baileys

Rank

Market Share

Market Scope

1 2 3 4 5 6 7 8 9 10

Bacardi Johnnie Walker Martini Baileys Smirnoff Mot et Chandon Gallo Hennessy Jack Daniels Cuervo

Johnnie Walker Bacardi Jack Daniels Mot et Chandon Chivas Regal Baileys Absolut Hennessy Cuervo Smirnoff

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Source: The Power 100 The Worlds Most Powerful Spirits & Wine Brands, May 2008, www.intangiblebusiness.com

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Methodology: A panel of eight experts in the drinks industy independently ranked nearly 10,000 brands in the spirits and wine sectors to derive the Top 10 brands ranked on the criteria in the above table: 1) market share = volume based measure of market share; 2) market scope = the number of markets in which the brand had a significant presence; 3) price positioning = a measure of a brands ability to command a premium; 4) brand relevancy = the capacity to relate to the brand and a propensity to purchase; 5) brand awareness = a combination of prompted and spontaneous awareness; and 6) brand perception = loyalty and how close a strong brand image is to a desire for ownership.

Exhibit 5 Diageo priority brands

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