The Strategic Position of Heineken

The Strategic Position of Heineken

The first part of this discussion will identify the business model and the strategic position of the Heineken group.

Business model refers to the logic of the firm, the way it operates and how it creates value for its shareholders. Strategy refers to choice in business model through which the firm will complete in the market place. (Casadesus and Ricart,  2009 p. 2). Strategy making is a process interwoven with all it takes to manage an organization. Systems do not think and when they are used for more than facilitation of human thinking, they can prevent thinking (Mintzberg, 1994 p.109). Heineken is one of the world’s largest brewers of beer and is based in Amsterdam, the Netherlands. It has related party relationship with associates, joint ventures, Heineken Holding N.V and Heineken pension funds (Wiecek and Young, 2009 p. 257).The Heineken group is in the premium beer segment of the beer market worldwide. It has a strong brand standing in the world market and is virtually recognizable by most beer drinkers and potential product customers because of a myriad of product promotional exercises already undertaken by the company to propagate the product. The business model of the Heineken group is based on selling a premium beer to an already defined market. This model is supported by aggressive product promotions measures as well as anti-competition strategies with markets that they operate (Guan et al, 2012).

The strategic position of the Heineken group has been analysed using the SWOT model. Positioning is very important since it can be essential to customers’ perception and choice (Harrison-Walker, 2011, p. 135) and (Latifi et al,2012).  The SWOT model covers the strengths, Weaknesses, Opportunities and Threats covering the Heineken group.  It is a widely used strategic analysis tool. The foregoing paragraphs discuss the attributes of the Heineken group that are its strengths, Weaknesses, Opportunities and Threats in that order.

The beer manufacturer harnesses the use of technology in most of its processes, from pre-production all through to the sales. If a company can develop and apply technology to solve problems at one point in its history, no law of nature stipulates that it cannot do so again and again in the future (Meyer, 2007). Through the mass production of beer across many countries economies of scale are enjoyed in the process and synergies are developed from the alliances with other strategic partners across the globe (Gershon, 2003). Many large corporations depend on mergers and acquisitions for growth, and by executing it well they can significantly boost the values those deals create (Bhangat and Huyyet, 2013). However, Heineken has to grapple with weaknesses as well. Heineken over the years has been adopting a conservative business culture which is more of responsive than that of an aggressive and highly innovative one.

The company has growth opportunities in Asia, Russia and the Latin American countries where the population growth is spurring and more so a youthful population the ones whom the Heineken Brand is targeting. As economic growth in western countries show signs of fatigue companies are battling hard to discover how to generate and sustain corporate growth (Canals, 2000). It is also important to assess the various threats facing the company in the form of stiffer competition and aggressive competitive strategies from competitors. The threat of competition is made even more solid when competitors amalgamate to form larger groups.

The second part of this essay engages a number of models and theories in determining the way forward for the future o the Heineken brand and Group. The Ansoff product/ markets matrix has been used to provide a framework for the suggestion of measures to be undertaken to improve the strategic position and the business model of heineken. Further the effectiveness of the strategy measures outlined through the Ansoff’s matrix have been evaluated using Professor Richard Rummelt’s strategy evaluation criteria to test for their effectiveness.

Good strategic implementation generally starts with good strategic input. The soup is only as good as the ingredients, (Allio, 2005, p. 12-21).The main strategy of the Heineken brand is to grow and maintain a persistent presence of its beer Heineken as its main image product. To do this the company has looked for ways of growing this product in many markets and preventing its exit or demise from already established markets. The aim is to have a worldwide presence. A poor or vague strategy can limit implementation efforts dramatically (Li, Guohui and Eppler, 2008, p. 11).

The Ansoff product markets matrix is a good model developed for analysing the strategic position of a company and coming up with new strategies to improve the performance of a company’s products in a given market. The model is represented by four quadrants each representing a given product/market situation. The First quadrant represents a company dealing with existing products in an existing market. The second quadrant represents dealing with new products in an existing market. The third quadrant represents a company dealing with existing products in new markets and the fourth quadrant deals with new products in new markets.  The Heineken brand is an established brand and the company’s outlook seeks to increase the demand for this brand. The only feasible option is to develop new markets for the existing products. The Heineken brand can therefore be said to be in the third quadrant in the Ansoff’s matrix discussed above. Some of the feasible strategies employed under the quadrant 3 of the Ansoff matrix with regards to the development of the Heineken brand are discussed below.

The company should develop strategies to enter into new territories and increase its territorial boundaries. With the high level of investment required to establish a brewery, it is hard for a new entrant to feature in the premium beer market without substantial investment in the same and even so the brands are so many to the extent that it will require a lot of effort for a new brand image to be set up adequately. The company should increase its alliance with strategic partners in many countries, and then its presence will be more felt across the globe and at the same time elevating the barriers to entry in this market across the globe. The company should also engage in more mergers and acquisitions so as to enhance its competitive size and again create the necessary barriers to entry across many countries.

The company should come up with new uses for their production plants and systems by developing ‘fall back’ products. Organizations must be willing to innovate in ways that will undermine current success so that new innovations can emerge (Morgan 1998, p.252) that is why the company should take to diversify its products to include other brands which could be used as fall back brands in case the main brand is negatively affected in the market. The wine market is a growing market because of affluence and Heineken being a strong brand should concentrate in this market heavily so as to establish a recognizable presence and grow with the expansion of this market.

The company should go beyond expectations by coming up with bold measures that can improve its costs bottom line. To maintain a reasonable cost base and to also enhance profitability it is important for the group to keep these costs at bay through the judicious location of plants in favourable supplier areas. Technology should be employed to ensure that the energy supplied is sustainable and cheap so that the cost of this energy needs not be passed to consumers in future through price hikes. Secondly, the company should be directly involved in the process of raw material generation to ensure a standardized outcome. This is because Heineken is a premium beer and challenges of quality should not plague the company operations and behaviour or those of its strategic partners and strategic business units (SBUs) across the globe. The highest effectiveness for differentiation in Strategic Business Units (SBUs) occurs when behaviour control is used in combination with high resource sharing (Govidnarajan and Fisher 1990, p.279). Heineken should ensure that its commitment to standards and quality are shared with all its partners and subsidiaries. Shared understanding without commitment may result in counter effort and negatively affect performance (Wooldridge and Floyd, 1989 p. 231-241). Since the company is in a position to control the suppliers of raw materials namely the suppliers of barley, water, and yeast and hop it should then set standards in the production of these materials through innovations and encouraged research into the production of a standardized beer across the world. Heineken in all parts of the world should be identical in taste. Since the company has a poor bargaining power when it comes to packaging and in most regimes the packaging companies are few, the company should either look for a bargain from a global supplier of packaging material at a reasonable price or the company could begin in house packaging where subsidiaries could be formed and strategically located across the globe to produce the required packaging for Heineken products.

It is important that the Brand Heineken establishes some brand loyalty measures. This can best be done if the Heineken brand solidifies its position by entering into new market segments in an effort to protect the segments it currently hold For example, the development of substitute drinks sold at competitive prices which are seen as Heineken quality drinks should be seriously contemplated. In fact it would be encouraging to have other brands developed by Heineken consumed with Heineken premium beer and other Heineken products. In this way customers will develop a sense of complimentary attribute about the brands from Heineken. Heineken spirits for example can be sold with Heineken beer and even Heineken soft drinks and Heineken branded energy drinks. This way the customer would feel odd to buy other brands if they can purchase from the same brand at a reasonable cost. The other branded Heineken products would also attract existing Heineken product users and most probably deter the loss of customers to close substitutes. Through the sale of these generic and alternative products Heineken can grow along with the participants in the wine and spirits markets.

The company should look at its structure and consider re arranging itself so as to increase its capabilities and the capabilities of its products as well. Heineken primarily faces two types of competitor threats. The first threat comes from bigger brewers who are increasing their products and markets everyday in a big way and this deflates the growth campaigns of Heineken. These huge competitors enjoy better economies of scale and synergy hence can have improved profitability. However their activities in a large way are standardized. To face off this threat it is advised that Heineken seeks a bigger alliance partner so as to increase its group mass. With a huge mass they will at least be closer to their biggest rivals and then they will be in a position to control the markets in an oligopolistic fashion. The other kind of competition threat faced by Heineken is from small brewers who because of their size tend to be specialty brewers. These brewers grow and develop their own niche in the market. Whenever it has been established that the niche developed is sustainable Heineken should look to acquire a majority of these specialty brewers so as to curb competition when it is small.

According to professor Rummelt the evaluation of strategy should be able to answer questions as to what the business objectives are, if the plans are appropriate and if the results of the strategy implementation are in line with the strategy’s initial assumptions.  Rummelt (1980) proposes a four pronged criteria to evaluate whether a strategy will be successful or not from its onset. In these regard the measures outlined above will be prodded to check whether they indicate success as discussed by Rummelt. The main strategy of Heineken is to grow the business and the brand across the globe by enhancing expansion and protecting its main brand from adverse competition. Rummelt’s criteria stipulates that for a strategy to be successful it must be consistent with the existing goals and policies, it must be in consonance with the external environment, it must be feasible in terms of resources and it must be advantage creating and sustaining. This criterion of strategy evaluation is therefore helpful in identifying the success factor of a strategy and in the determination of the likelihood of a desirable strategic outcome. The strategic measures outlined will now be assessed based on the Rummelt’s strategy evaluation model in the foregoing paragraphs.

Forming strategic alliances within the defined legal procedure so us to increase the company’s territories and markets is consistent the company’s goal to grow and protect Heineken’s brand. It is also in line with the legal requirements of the relevant administration regimes. It is financially feasible because these alliances if well guided do not usually involve a lot of cost and it will create a protected market niche for Heineken.

The diversification of brands to facilitate protection of the main brand is consistent with the company’s goal of protecting the main brand. It is well allowed in the legal environment and it will be a welcomed move in the market which is usually eager for new products. It should be considered that Companies are coming to understand that it is often easier to change the portfolio to fit the parent organization than to change the parent organization to fit the business (Cojis et al ,1999, p. 234)

It feasible financially for Heineken to develop new brands since it already has two hundred brands and a rich history and database. This increases Heineken’s portfolio of products and hence also serves to protect the main product.

The standardization of raw materials and the introduction of a packaging unit within the company will enhance uniformity of the products and enhance brand loyalty. This in itself is an advantage. It is in line with the company’s growth and protectionism goals and it is in line with the environment in which the company seeks to invest in this new ways. A financial cost benefits analysis should however be conducted to determine the scope and profitability of this venture.

The development of innovative complimentary products to be sold with or to be used along with Heineken will also increase brand loyalty. It is in line with the company’s brand growth objective, it is feasible because the company already has a database and an experience. If the necessary procedures are followed such complimentary products will be in consonance with the environment.

The search for a bigger strategic partner to increase the organization mass of Heineken will enhance brand stability in a volatile market. Along with the acquisition of specialty brewers across the globe, the brand presence will be enhanced all over as an advantage. A financial feasibility should be conducted to determine the scope of this move.  It is however in consonance with the environmental natural essence of survival and it is in line with Heineken’s growth objectives. It is important to take cognizance of the new group structure.  Strategy executing task is the most complicated and time consuming part of strategic management. (Schaap,  2006, p. 13-37). Factors relating to the organization structure are the second most important implementation barrier. (Heide, Gronhaug and Johansen, 2002 p. 217-235).

In conclusion, the raft of measures proposed under the Ansoff’s matrix discussed above will result in a change in the strategic position of the Heineken brand to the extent that the measures affect the various facets of the model as earlier discussed. In terms of the business model, the measures highlighted will obviously affect the products dealt in as well as the group’s structure and this will affect the business’s bottom line and way of doing business. The extent to which the measures will be successful has been discussed using Professor Richards Rummelt’s strategy evaluation criteria.


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