EDABM Marketing Strategy Question 4 Cultural Factors affecting Bass Brewery’s Operations in the Czech Republic

Cultural Factors affecting Bass Brewery's Operations in the Czech Republic2 YearEvents 1918 End of the First World War 1919 – 1938 Interwar Period 1945 End of the Second World War 1946 – 1948 The “Iron Curtain” across Europe 1968 Soviet Invasion of Czechoslovakia 1989 Collapse of the Soviet Union 1993 Czech Republic and Slovakia formed under the peaceful “Velvet Revolution” 1999 Joined North Atlantic Treatment Organization (NATO) 2004 Joined the European Union Briefing History in Czech Republic

Cultural Factors affecting Bass Brewery's Operations in the Czech Republic3 Background of Bass in Czech 1994 First invested in the Czech Republic with 34% stake in Prague Breweries Bought the breweries where is located in the north of the country as 78% and 51% representatively Merged the three large local breweries (Staropramen, Branik and Mestan) in Prague and increased their shareholding to 51% before passed it to the Interbrew in Now After passed to the Interbrew (which have the No. 1 or No. 2 position in over 20 key markets; and 13% global market share), it help Bass to set up a stable and good image in Czech Republic.

Cultural Factors affecting Bass Brewery's Operations in the Czech Republic4 Cultural Factors Social Culture Nationalism Management & Marketing Strategy Ideology that creates and sustains a nation as a concept of a common identity for groups of humans.

Cultural Factors affecting Bass Brewery's Operations in the Czech Republic5 Social Cultural factors What do Czechs believe? "Beer makes beautiful bodies" "Beer makes beautiful bodies" "Drinking beer makes you live longer, because it reduces the aluminum in the body, saving it from the effects of aging and Alzheimer's disease “ "Drinking beer makes you live longer, because it reduces the aluminum in the body, saving it from the effects of aging and Alzheimer's disease “ “ Drink beer every day for healthy sex life ” Czech Doctor said. “ Drink beer every day for healthy sex life ” Czech Doctor said.

Cultural Factors affecting Bass Brewery's Operations in the Czech Republic6 Social Cultural factors (Cont) What are the habits of Czechs? Man, woman and child take beer everyday Man, woman and child take beer everyday Beer drinking was one of the few legal leisure-time activities Beer drinking was one of the few legal leisure-time activities Czechs prefer to do their beer-drinking in pubs rather than at home Czechs prefer to do their beer-drinking in pubs rather than at home Czech meal is often accompanied by beer Czech meal is often accompanied by beer Czech have a recipe for beer soup Czech have a recipe for beer soup

Cultural Factors affecting Bass Brewery's Operations in the Czech Republic7 Social Cultural factors (Cont) High consumption of beer… In 1995, 161 litres of beer is drunk per person. That was a bottle of beer for every man, woman, and child. Existence of STRONG MARKET and HIGH REVENUE of consumption for beer in Czech Republic poses an OPPORTUNITY for Bass investment. However, whether it is a REAL OPPORTUNITY? We shall look into a greater depth in LOYALTY TO LOCAL BRANDS OF BEER.

Cultural Factors affecting Bass Brewery's Operations in the Czech Republic8 Nationalism What are the national impacts to Czech? The Czech reputation as the thirstiest throats in the World attracted many foreign breweries after 1989 The Czech reputation as the thirstiest throats in the World attracted many foreign breweries after 1989 After the collapse of Soviet Union in 1989, the mentality of Czech Republic is changing from After the collapse of Soviet Union in 1989, the mentality of Czech Republic is changing from “ Communism ” to “ Capitalism ” “ Communism ” to “ Capitalism ”

Cultural Factors affecting Bass Brewery's Operations in the Czech Republic9 Comparison between the Under- and Post- Communism Beer Market in Czech Republic Under-Communism PeriodPost-Communism Period Provide very cheap beer with simply produced method (Quality is not guarantee)  Quantity-oriented Provide a good quality beer with the traditional and technological methods. Communists put no investment into the breweries industry Breweries were forced to privatize. Thus, they try to make for it to exports  Profit-oriented Brewing beers are legal and most popular hobby among Czech men  Little Competition Become a wider production, having both small local microbreweries and Mid-sized breweries.  Keen Competition Government tried to raises the price of beer but still fall within a year.  No Marketing Concept There had a price controls lifted in 1991, although there had a decrease in beer consumption but the price still not go down much.  Marketing Strategy

Cultural Factors affecting Bass Brewery's Operations in the Czech Republic10 Nationalism (Cont) LOYALTY TO LOCAL BRANDS OF BEER… RESISTANCE TO TRY foreign brands of beer or imported beer –combined with the economic factor of higher price of foreign branded or imported beer –existence of wide range of local beers available Foreign importers are left to scrap over less than 1 percent of the total national consumption. Foreign brewers have had more success entering the Czech market through the acquisition of Czech breweries. When British brewer Bass PLC bought a 1/3 share in Prague Breweries a few years ago, public hackles were raised and the newspapers cried corruption.

Cultural Factors affecting Bass Brewery's Operations in the Czech Republic11 Nationalism (Cont) IMPACT ON CONSUMER BEHAVIOUR… Consumers are get used to low priced products IMPACT ON EMPLOYEES AT WORK… Employees focused on production and products, customer focused is difficult concept to adopt Salaries are in similar range – no initiative to take more responsibility and to make decision People are in equal social status – why treating people with respect? Also difficult to be customer focused

Cultural Factors affecting Bass Brewery's Operations in the Czech Republic12 Management & Marketing Strategies No. of important considerations … In Management view: To work with local managers in Czech To work with local managers in Czech To spend more time to change the management and human ideology To spend more time to change the management and human ideology In Marketing view: To focus on a strategy of creating branded goods and premium brands To focus on a strategy of creating branded goods and premium brands To help them to accept new or foreign beer products To help them to accept new or foreign beer products

Cultural Factors affecting Bass Brewery's Operations in the Czech Republic13 Management & Marketing Strategies Frank Cook, marketing director for Bass in the Czech Republic, says: "When companies enter this market they think they can apply western values. In reality they have to throw away the rule book and go back to basics. You do things here that haven't been done in the UK for years. It needs real originality and lateral thinking." (Marketing. London: Sep12, pg. 30, 2 pgs)

Cultural Factors affecting Bass Brewery's Operations in the Czech Republic14 Management & Marketing Strategies (Cont) Bass Strategies adopted in Czech … In Management view: Enhance the understanding of Corporate ideology through comprehensive internal Communication Enhance the understanding of Corporate ideology through comprehensive internal Communication –Introduced a fast electronic news service (FENS). –to keep employees informed on a range of topics of value to them in their work and their careers - including company news, updates on business performance and plans, functional information, industry and competitor profiles, and job vacancies.

Cultural Factors affecting Bass Brewery's Operations in the Czech Republic15 Management & Marketing Strategies (Cont) Bass Strategies adopted in Czech … In Management view: Promote work more, gain more scheme Promote work more, gain more scheme –base salary, allocated according to market rate –annual divisional bonus for all staff depending on grade and profit performance –sales-staff incentives for teaching individual and team profit and volume targets –bonus payments for directors and managers, determined by performance against personal business objectives.

Cultural Factors affecting Bass Brewery's Operations in the Czech Republic16 Management & Marketing Strategies (Cont) Bass Strategies adopted in Czech … In Marketing view: Building Premium Brands Building Premium Brands –New Production Development – “ Velvet ” –Premium, innovative and democratic –Invest more on bottle labelling, promotion and sponsorship –Post-revolution/Youngster are more receptive to new ideas Target High Income Consumers Target High Income Consumers –To build Brand Personality

… Q & A Session

Cultural Factors affecting Bass Brewery's Operations in the Czech Republic18 Conclusion (1) Did Bass succeeded in Czech finally? Annual Performance of Prazske Pivovary in Czech 1996 (Kc 152m) => (USD 6.6m) 1997 (Kc 255m) => (USD 11.03m) 1998 (Kc 766m) => (USD 32.87m) 1999 ~(Kc 370m) => (USD 16.00m) (1USD =~ Kc on 1 Feb 2005) Miroslav Nosal, from Merrill Lynch in London, said "They have been there for four years, and they've kept on showing losses. Although they have kept their position on the market, their corporate governance and financial management has been terrible." (Prague Business Journal May 29, 2000)

Cultural Factors affecting Bass Brewery's Operations in the Czech Republic19 Conclusion (2) Bass PLC Divisional Results First Half 99/00 Operating Profit ( £ m) Bass Hotels & Resorts 146 Up 20.7% Bass Leisure Retail 173 Up 31.1% Bass Brewers 73 Up 2.8% Britvic Soft Drinks 9 Up 12.5% * 28 weeks ended 15 April 2000, (Sir Ian Prosser, Bass PLC Interim Results Presentation to Investors 2000) In 2000, Bass has agreed to sell its brewing operations to Interbrew of Belgium for £2.3bn, and the proceeds will be invested in its pubs, hotels and restaurants. Bass's chairman, Sir Ian Prosser, said "There is a high degree of sadness about this, but our responsibility has to be with shareholders." (