The Big Picture Partners 180 Underdown Rd.

Ann Arbor, MI 49105

ZIMA SIMULATION CASE STUDY ZIMA: A REFRESHING GOOD IDEA OR "ZOME" KIND OF FAILURE? After months of hard work, Laura Sankey, product manager of Coors' Zima malt beverage line, was just a week away from the launch of a new series of advertisements for Zima. The new advertisements would be targeted at beer drinkers and would conclude with a tagline of Clearly Refreshing. In all of the ads, the protagonist is about to ask for beer but at the last moment opts instead for a Zima, with refreshing results. For the first time in its history, Zima would clearly position itself as an alternative to beer. Laura was confident enough to stake her reputation on the success of the Clearly Refreshing strategy, yet privately she wondered whether there might be other possible approaches she should have considered and which if any of these might be better.

Coors Brewing Company Coors Brewing Company's origins date back to 1874 when Adolph Coors decided upon Golden, Colorado as the location for his brewery. The quality and taste of Coors resulted in significant regional success from the beginning, but as recently as 1972, its distribution area remained geographically isolated to an 11state area. A methodical geographic expansion began, and bolstered by the massively successful 1978 launch of Coors Light the goal of reaching all 50 states was met in 1991. Coors then acquired substantial international brewing/distribution facilities and launched dozens of new product lines. ZIMA A clear, carbonated, malt-based beverage called Zima (Zima is the Russian word for winter) was launched in 1992 and was Coors' only non-beer product. The launch campaign, and subsequent advertising that followed, was all completely outside the Coors umbrella; none of the ads mentioned that Zima was a Coors product, or tried to leverage the Coors brand name and reputation in any way. In 1997 the price of 1 bottle of Zima was $1.49.

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The Big Picture Partners 180 Underdown Rd. Ann Arbor, MI 49105

ZIMA SIMULATION CASE STUDY Although Zima was successful at first, demand dried up quickly, and the product did not live up to Coors management's short-term expectations. As a result, production was scaled back and Coors shifted its focus from the specialty markets to its flagship brands, Original Coors and Coors Light. The Beer Industry The United States beer industry is an extremely competitive market that was described as having two basic elements. First, a few national level players offering mass produced product made up the majority of the beer market. Anheuser-Busch, Inc. remained the undisputed leader within the industry with a staggering 47.4% of overall market share. Miller Brewing was the distant second largest brewing company with 22.0%, followed by Coors with 10.6% Second, a so-called "premium market" made up of imported beer and regional players offering micro brews amounted to a much smaller but not insignificant proportion of sales. Segment prices and market shares are provided in the simulation. Alcohol in the US Data from Mediamark Research Inc., the Census Bureau, and American Demographics provide estimates for the number of people who drink national beer brands, premium beer brands, and wine as well as average purchases per year. This data is provided in the simulation. For reporting purposes, a unit of beer is equivalent to a 12-ounce servings, while a unit of wine is equivalent to a 5-ounce serving. A separate study revealed that 94% of beer drinkers drink national beer brands, while just 6% drink import and micro brew beers that make up the premium beer category. Most beer is sold in single serving (12 oz.) cans and bottles or in cups and glasses as it is served in bars and restaurants. National brands are widely distributed and people often find the same national brands available at grocery stores, convenience stores, bars, and restaurants. Premium brands are less consistently distributed, with some available in only in a few locations in very limited areas and others having wide distribution similar to the national brands. Consumption patterns differ, with National beer drinkers on average consuming two servings to every one consumed by those who drink Premium beer. However National beer tends to be relatively less expensive than Premium beer. Wine is typically sold in 750 ml. bottles that provide roughly five servings of five ounces each, although bars and restaurants offer it by the glass. Wine tends to have more limited distribution compared to beer. While a few brands are available at convenience stores and supermarkets, most wine is sold though retailers who specialize in knowledge of wine. There are also far more brands of wine available, which tends to mean that a person's preferred brand may not be

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The Big Picture Partners 180 Underdown Rd. Ann Arbor, MI 49105

ZIMA SIMULATION CASE STUDY found at all outlets. Prices for wine vary greatly, but the average retail price of a five ounce serving of wine is $2.90. Zima's Debut One of the challenges that Coors management faced when launching the Zima product line was how to market such a different type of beverage. The exact classification of what beverage category Zima competed in generated extensive debate amongst many managers, with Coors eventually settling on the description of an "innovative malt-based above premium beverage". In an attempt to feed off of the uniqueness of the product, Coors first positioned the product as a hip, trendy drink that catered to the younger drinking crowd's motivation to be different. The advertising campaign hit with full force nationwide in 1994 behind the slogan "Zomething Different". The brand's campaign featured an offbeat character who substituted the letter "z" for "s," saying, for example, "Zomething different". Subsequent ads worked toward a slightly older audience showing a working woman, for example, drinking a Zima and deciding to fly off on a vacation instead of taking a business trip. Coors predicted that Zima would immediately win over a small but significant percentage of consumers. While initially sales were quite brisk, exceeding expectations, soon the growth leveled off and then declined over the course of the year 1994. Despite not having grand success, Zima currently maintained a loyal customer base and accounted for .63% of the volume sold in the overall beer industry. In the years following its launch, Zima tried a number of tactics to improve sales including a web campaign about a Generation-X net surfer that was intended to appeal to the core Zima drinking groups of college students and young women; an alternative-rock campaign called "Think Mud" that was aimed primarily at young men; product line extensions including a high alcohol version targeted at men and later fruit flavored versions targeted at women; and a number of attempts at repositioning Zima to focus on its value as a mixer for other drinks, or as a "few degrees cooler" than other drinks. The marketplace had seen a large insurgence of a variety of new beverages over the last several years targeted at being the next trendy alternative to beer. With Zima already four years old, and CBC not wanting to go head-to-head with other products for the hip new feel market, Coors' Zima team decided to reposition the product as a more refreshing beverage than beer. The campaign was purposely timed to be released in mid-spring 1998, with the advertisement centering on a theme of Zima being the premier adult beverage to enjoy in the heat of the summer.
Big Picture Marketing Simulation Case Study Page 3 ZIMA

The Big Picture Partners 180 Underdown Rd. Ann Arbor, MI 49105

ZIMA SIMULATION CASE STUDY A study by an independent research firm provided some insight into consumer perceptions of Zima and other drinks. National brand beer drinkers were said to be quite loyal to their current brand of beer. Many National beer drinkers indicated that they drank their current beer because it was part of their routine but also because they felt the beer represented an important part of getting together with friends after a long day at work or on the weekends. They tended to choose a beer from a set of brands they usually drank, making specific brand decisions based on what was available and relative price. Premium beer drinkers described the special flavor of the beer as important to them and they said they felt the difference in price was worth it compared to the National brands. But while they decidedly disliked the National brands, Premium drinkers were less loyal overall, more frequently switching between premium brands. Premium drinkers were less aware of Zima, but after trying it, 3.5 % said they would buy it if the price were the same as what they were currently paying. Many wine drinkers said they see beer and wine as suiting different needs for different occasions. Many said they disliked beer and preferred sharing a bottle of wine with others and experiencing the interesting flavors together. Some wine drinkers were offended at the thought of drinking Zima, while others liked the fruit flavor and the convenience of the bottle. After trying Zima, 2.00% of wine drinkers said they would buy it if it were the same price as they are currently paying for a serving of wine. The Competitors: Premium Beer The so - called premium segment is made up of foreign and regional players offering imported beers and micro brews. This segment amounts to a small percentage of sales, with just 3% of the total units sold in the social lubrication market. Consumption patterns in the beer industry vary, and on average, premium beer consumers drink less beer than domestic beer consumers. It is well known that premium beer commands a higher price than domestic beer. Also, customers in this segment are generally more adventurous and willing to try new and unique alcoholic drinks. National Beer The United States domestic beer industry is extremely competitive with a few national players offering mass produced product making up the majority of the beer market. Anheuser-Busch is the undisputed industry leader with a staggering 42.4% of the overall unit share. Miller Brewing is a distant second with 20.0% of the units sold, followed by Coors with 10.6%.

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ZIMA

The Big Picture Partners 180 Underdown Rd. Ann Arbor, MI 49105

ZIMA SIMULATION CASE STUDY Wine Wine is typically sold in 750 ml. bottles that provide roughly five servings of five ounces each, although bars and restaurants offer it by the glass. Wine tends to have more limited distribution compared to beer. While a few brands are available at convenience stores and supermarkets, most wine is sold through retailers who specialize in knowledge of wine. There are also far more brands of wine available, which tends to mean that a persons preferred brand may not be found at all outlets. Prices for wine vary greatly, but the average retail price of a five ounce serving of wine is $2.90. Case Study Variables Market research has shown that the variables that customers in the social lubrication (alcoholic beverages) category use to decide amongst beverage alternatives roughly fit those presented immediately below. The simulated case study presents importance and perception ratings as they are ranked by customers, from 1 to 10 where 1 is the worst rating and 10 is the best rating. Price: The relative perceived price differential amongst competitors on a scale from 1 to 10, where 10 is the cheapest and 1 is the most expensive with 5 meaning it is priced like the competition. Social Lubrication: This perceived relative "social lubrication" benefits of a particular beverage brand, with 1 being the lowest score, and 10 being the highest score Availability: The perceived relative availability of a beverage brand, with 1 meaning customers perceive it to be very rare or available and 10 meaning customers think it is the readily available in the marketplace Sophistication: This is the relative sophistication associated with a particular beverage, where 1 means it is the least sophisticated and 10 means it is the most sophisticated in the market Refreshing: This variable measures the extent to which the product is considered refreshing to drink. 10 means the product is considered extremely refreshing, 1 not at all

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The Big Picture Partners 180 Underdown Rd. Ann Arbor, MI 49105

ZIMA SIMULATION CASE STUDY refreshing.

Investments: Laura will execute her strategy by making investments; the investments, in turn, should affect customers importance and perception ratings of the market variables. Customer importance and perception ratings equate to their valuation of each of the brands, and the relative value of each of the brands is what determines customers brand choice, and their willingness to purchase more or less at a specific price. In addition to the Clearly Refreshing campaign, Laura had developed a series of investments that can be activated instead of or in addition to the Clearly Refreshing Campaign. Below, please find descriptions for the investments available in the Zima simulation. Price: You can choose to change prices, the current price for Zima is $1.49 Clearly Refreshing Campaign: This investment will encourage a percentage of consumers who drink their current brand seeking "refreshment" to switch brands. Subjects in blind taste tests reported Zima to have a more refreshing taste
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The Big Picture Partners 180 Underdown Rd. Ann Arbor, MI 49105

ZIMA SIMULATION CASE STUDY relative to other alcoholic beverages. Zima's ad budget in any given year has ranged between $100 mln and $300 mln The W Campaign: Your Madison Ad Agency has designed a clever campaign to reposition Zima as the drink of choice for sophisticated customers. The money you put against this campaign will be used to give away Zimas and Zima-based cocktails in the bars of W hotels across the country. This campaign would be funded out of Zima's ad budget, which in the past has ranged between $100 and $300 mln. Zima Channel Investments: Convenience Stores: You have been presented with an offer to distribute Zima through the well-known 7/24 chain of stores. This channel would make Zima available at over a million outlets throughout the country: 7/24's tagline is "Around your corner". 7/24 will charge 2% commission off the sale price to distribute through them. The money you invest in this channel will be used to promote Zima at 7/24 stores. Remember that channel investments are cumulative, unlike advertising spend. The recommended cumulative investment amount for this initiative is $150 mln. Nicer Gourmet: You have been presented with an offer to distribute Zima through the exclusive "Nicer Gourmet" chain of stores. This channel is not nearly as ubiquitous as 7/24. Nicer Gourmet sells high-end foods, organic produce, and premium beverages. They cater to a highly sophisticated professional clientele. Nicer Gourmet will charge 4% commission on the sale price of Zima. The money you invest in this channel will be used to promote Zima at Nicer Gourmet stores. Remember that channel investments are cumulative, unlike advertising spend. The recommended cumulative investment amount for this initiative is $150 million. The Future As the miles of highway rolled into her rear-view mirror, Laura Sankey contemplated the future for Zima. Would her new advertising campaign revive the product, and return sales to the level of its early 1994 successes? Or would Zima fail to successfully reposition itself, and need to be discontinued or, even worse, re-launched yet again? Specifically she wondered whether she was targeting the right people with the right message, or whether she should consider changing her strategy, and possibly even her advertising campaign. But how could she sort through these myriad and complex issues in order to arrive at the best decision?

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The Big Picture Partners 180 Underdown Rd. Ann Arbor, MI 49105

ZIMA SIMULATION CASE STUDY Simulation Instructions 1. The object of this simulation is to achieve your stated business objective without mortgaging the future of the company (e.g., eliminating all investment in the final period, etc.) 2. Read the background information provided in the simulation text about Zima, Coors, and the "social lubrication" beverage category. 3. Review the numerical and market information provided in the simulation by going through the market, variable, and competitor screens of the simulation. 4. Determine your approach to the case and strategy prior to beginning the simulation. 5. The first year has already been completed. Go through the remaining four decision rounds reviewing the outcomes of each round and updating your strategy accordingly. 6. Please take a strategic approach to the sim and don't try to "game" it. 7. You will be making investment decisions in each round. You may not invest more that $300 million per decision round. Also, you can choose to leave prices unchanged or to increase, or lower prices.

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