Q. All Diageo brands are doing really well, taking market share from beer. You've got great brands—the No. 1 vodka, No. 1 tequila, No. 1 gin. I understand shipments of Smirnoff, for example, were up 21% in 2005. The challenge for you, then, is maintaining that positioning. How are you meeting that challenge?
A. We sit down at least once a quarter and review how we're performing on the critical growth drivers for each of our brands. An example would be, say, on Smirnoff, the advertising that talks about The New York Times taste test. In the case of Captain Morgan, it would be, for example, an on-premise-type of event featuring the Captain and how that would drive business. On Tanqueray, we came up with a whole new advertising campaign, and it's actually a through-the-line program featuring advertising, digital, PR, all behind [spokescharacter] Tony Sinclair, and it's really dramatically improved our business results on Tanqueray. Same thing with Baileys. We're experiencing what we hope is the start of a turnaround on our Baileys business. We have all-new advertising, a renewed focus on in-store sampling, a focus on new innovation.
Q. With so many brands under the Diageo umbrella, how have you managed to keep them all strong?
A. We spend the time as a management team on each of the brands and we have dedicated resources behind each brand. So we have vice presidents who cover our key categories. And I spend a lot of time with my marketing leadership team, and our vision is really to focus on developing people, building brands and getting results and that is the whole vision that we set out for ourselves, that's our charter.
Q. I understand that growth in the spirits market comes from getting consumers to "trade up" to higher-end brands. How do you work to have your existing customers move up to high-end spirit brands, the aspirational, highly upscale brands?
A. Premiumization is a big part of our strategy at Diageo. On Crown Royal, one of our most important brands, we're launching a new innovation called Crown Royal XR. It will retail for about roughly $150 a bottle. So that I think very crisply illustrates what we're talking about. It will be a limited edition product, so it's very rare and there will only be so many of them. Rarity is very important in our whiskey business, particularly in the upper end.
Q. How do you determine what categories are best suited to leveraging that "trade-up" phenomenon?
A. We work on our strategies to premiumize many of our categories. So, for example, in our rum category, we have one of the most successful rums on the market, which is Captain Morgan, but were also test-marketing a new rum called Oronoco. And we're test-marketing that in San Francisco. That's a premium rum (which costs $35 per bottle) vs. Captain Morgan, which is $15-$17. In the case of vodka, we're building our Smirnoff business. Smirnoff recently solidified its place as the No. 1 spirit in the world. At the same time, several years ago we launched a new product called Ciroc, a vodka made from grapes, and Ciroc is [experiencing double-digit growth]. So we have an overall portfolio strategy for Diageo, and then we have strategies for each of the categories to grow our brands and our premiumization, as well.
Q. Much of the advertising Diageo does for its brands includes on-premise, out of home, word-of-mouth, occasional product placement and just relying on cache/buzz. By what process do you determine the best marketing mix for your brands?
A. Really for us, it all starts with the training of our people though the Diageo way of brand-building. So across all of marketing, and really, across our whole company, we have a common language and a common platform and view around how to build brands. And we've put a lot of science behind the testing of our growth drivers and the testing of different aspects of the marketing mix so that we can understand what the benefit is for investing more in, say, advertising or on-premise or digital.
Q. What particular instances of innovation—be it in advertising, product development, positioning, customer relationships—are you especially proud of?
A. From a brand-building perspective, I would say we're very proud of the work done by Grey Advertising on Tanqueray—through Tony Sinclair. This has been a through-the-line program. It started with an advertising campaign. It also has a digital aspect to it. On premise, they came up with a program called T&T and we did the first-ever partnership with Sirius satellite radio at Christmastime and came out with our own music CD. The creativity of the agency and our brand group working together has lead to very strong business results for our brand.
Q. How do you balance innovation with tried-and-true marketing best practices that have worked over the course of many years for your brands?
A. There is learning every single day in terms of really taking the time to listen to consumers, even if we have a passion for something and then we learn that that idea—I mean, I remember recently I was shown some new advertising on one of our brands and I loved it, the head of global marketing loved it, the VPs loved it—and we missed it. It was a product targeted to men 21-25. We tried it, we were really passionate about the idea, so we actually—we didn't go to market with it, but because we were so passionate about it, we took it into groups to get consumer feedback and we took it in a couple of times and finally it was just like, you know what? It's just not working. We need to cut it off here and move on to something else. We thought it was going to be a big idea. We thought the humor really worked in it. We thought that the way that we were portraying a particular brand was going to really motivate consumers in a way that would step-change that brand's results. And we just missed it on the humor. And I think that's the importance of testing and listening to consumers.
Q. You've said that Diageo's CEO [Paul Walsh] has been very supportive of the initiatives you want to take. Can you give some examples?
A. We have very strong collaboration, really open lines of communication. He's passionate about building brands like I am, and he's been very supportive of a lot of the new initiatives that I've brought to the table, such as a real push on developing talent within our organization and a sharper focus on our multicultural consumer. And to the extent that he has a real appreciation for the challenges facing the CMO, I try to also, through our North American executives, really listen and understand the challenges he's facing regarding measurement, accountability and delivering results.