Diageo attributes its forecasted return to sales growth this year to a shift from loyalty building in its marketing to recruitment that is underpinned by less focus on single brand campaigns.
The chief executive of the world’s largest alcohol business Ivan Menzes claimed “stronger volume growth will deliver an improved top line performance” in the 12 months to June. Organic revenue was flat last year as demand for its luxury brands helped shore up slow growth. However, moves to bring its marketing and sales closer together are set to spread that uplift across its wider portfolio – or so it hopes.
“Traditionally, our marketing was focused on strengthening loyalty amongst our consumer base,” said Menzes. “But consumer habits have changed and consumers have more choice. Now we use great marketing to constantly recruit and then recruit them again.”
He went on to say how the content Diageo is creating now is “relevant to people and the occasions where consumers view it”. “It is not about doing ‘digital marketing’, it is about marketing effectively in a digital world,” he added.
The approach will likely inform the new global campaign for Johnnie Walker in September, which Menzes promise would “redefine scotch marketing”.
Diageo’s marketing shift has been most apparent to date in the way its marketers now plan campaigns. The onus is on being visible in all channels, all the time with less emphasis on a single big event campaign.
Despite the increase in brand activities, procurement activity meant total spend in 2014 was lower, consequently allowing the business to benefit from better margins. While there are obvious cost benefits of spreading the load across more channels, the company has said in the past it’s more concerned with models that foster marketing effectiveness.
Diageo spends over a £1.6bn a year on marketing and reinvested £30m of the £127m it made from restructuring savings back into the discipline in 2014. The company stripped out layers from the business last year, designed to deliver cost savings of £200m a year by 2017, while also accelerating the speed it gets its brands into outlets.
“Looking at marketing reinvestment levels over the last three years, we have held our marketing spend relatively stable, driving procurement savings to fund increased activity,” said Menzes. “In fiscal 15, through actions such as renegotiation of media contracts, savings on point of sale materials and rationalisation of the number of agencies that we use, we have generated procurement efficiencies of around £50 million.”
The changes underpin Diageo’s wider move away from prioritising value sales through premiumisation toward driving more volumes, with recent marketing tending to be far more reliant on distribution and how the brands are promoted to people on the ground.
Menzes predicts such changes will help spur “mid-single-digit” organic sales for Diageo in the following financial years and a one percentage improvement in its operating margin within three years.