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Dr. Patrick Moreton from the Washington-Fudan EMBA program explains how Chivas Regal captured the Chinese market
PM: Do you drink scotch?
(class erupts in laughter)
RZ: Yes.
With that one question, Dr. Moreton broke the ice faster than any guest speaker we’ve had prior. That said, I’m not sure if I should be proud or offended at my classmates reaction to me being the recipient of that question…
PM: How much is this bottle of Chivas Regal worth to you?
RZ: Right now, with an afternoon’s worth of classes to go? Not a whole lot!
In trying to illustrate the perception of the Chivas Regal brand in the U.S., Dr. Moreton couldn’t have picked a better person in the class than me. While I’m not a single-malt purist, other than running through the ‘colors’ of Johnny Walker I’ve never really spent that many glasses exploring the world of blended scotch whiskeys. Nor do I know anyone (as far as I know, at least) that prefers Chivas as their drink of choice.
According to Wikipedia, Chivas Regal was the drink of Frank Sinatra and the rest of the Rat Pack; however, to this 30-something American male, that association doesn’t mean a whole lot. More broadly, Chivas Regal isn’t spoken about in the U.S. in the same circles as single-malts like Macallan or The Glenlivet, or even Johnny Walker Black Label in the blended scotch whiskey segment. And yet, in China, Chivas Regal is second only to Remy Martin cognac in the premium spirits segment. How can this be?
The answer lies in localization. Dr. Moreton outlined how Pernod Ricard focused their marketing strategy by understanding and adapting to the Chinese culture, rather than trying to force Western scotch culture on China. Noticing that Chinese consumers were drinking Chivas mixed with chilled Green Tea and simple syrup, Pernod could’ve tried to hold educational scotch tastings to introduce the “proper” way (i.e., the Western way) to drink their spirit. Rather, the company understood a more powerful underlying trend in China: the power of brand in signaling wealth and status.
The reason that Chivas-and-Green-Tea is such a popular drink has less to do with the taste of the concoction, but rather the status that ordering and displaying a bottle of Chivas Regal on your table conveys upon your party. Chinese consumers, having more of a taste for the traditional baiju liquor than Scotch, were mixing Chivas with green tea and simple syrup to dilute the scotch to something more palatable to the Chinese tongue. What’s important is not necessarily the taste, or quality of the product, but that others see you drinking Chivas Regal.
While scotch purists might shudder at diluting scotch with a flavored mixer, Pernod Ricard was put to a choice: embrace that Chivas Regal is being drank (albeit, unconventionally) in China, or not move any cases of scotch in the Chinese market. With an exponentially growing middle class in China, Pernod Ricard made the obvious choice and went with selling a lot of scotch. As a distillation business, who’s to say what the ‘proper’ way is to drink scotch, as long as people are drinking it! It’d be a Pyrrhic victory to enforce some sort of ‘proper’ way to enjoy the drink and have an entire market of consumers disagree with you…
After walking through this example of a Western company adapting in order to enter the Chinese market, the talk then moved on to the leadership challenges in China. The shortage of experienced management in China is one of the biggest issues facing the country with respect to maintaining double-digit growth rates. Listening to our Chinese classmates discuss the local work culture, this lack of experienced leaders is as much of an issue of opportunity as it is one of overall culture. Workers in China are not supposed to publicly disagree with the boss, and career paths are often defined by what the boss is working on and even where the boss chooses to work in the future. Being used to the Western way of being as ambitious as you want to be and making a career, I couldn’t imagine how my life would’ve progressed up to this point if my career was defined as a function of someone else! That’s not to say that others haven’t helped me greatly along the way, but I wouldn’t solely attribute my success to their successes.
Overall, this speech by Dr. Moreton was a fantastic discussion of the strategic issues surrounding a company entering into a foreign market, China or otherwise. It’s clear that it’s not enough to port strategies that work in the home market and expect them to work in another market. Without understanding the underlying consumer tastes and preferences of the entry market, general demographic differences between markets, and even the differences of how business is transacted, a company cannot expect to be successful.
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