Heineken is a Dutch family owned company brewer and distributer. Heineken is the 3rd world largest beer company. Recently they obtain several small breweries in Europe, Latin America and Africa. With 125 breweries in over 70 countries in the world, claiming more than 8 percent of the International market for beer. Through acquisitions, the firm earned a reputable position in the market. Acquiring brewers functioning in the different parts of the world assist the Dutch company to gain a superior position. Company flagship brand has been ranked second in a global survey reveals the strong position of its brand.
Heineken has been a family oriented business and recently, it has moved away from the family management, but the focus is to maintain the long standing family traditions for the company. Therefore, the company appointed non-family-members to run the business. There are certain changes brought in the board of the company and a relatively young board is created. The company board members are reduced to only two members. Heineken also created new management positions to manage the five different operating regions as well as nine different functional areas. The new positions created by the company are for the purpose of generating accountability for the performance. Heineken executive committee is also cut down to a size of 13 members from 36 members. The activities of the company are overseen by the supervisory board and individuals who are part of the board are recruited from the different countries having a wide range of expertise. These have done to manage risks well and promote accountability for the officers.
The company is able to manage its premium position in the market. The firm was a leading company supplying beer in the United States market. Recently the company has introduced a new form of light beer to allure the youth in United States. A new package for Heineken brand has also been introduced by the company. Heineken is able to push other brands in the market such as Amstel Light that has become a leading imported light beer in the USA. With specialty brands such as Moretti, and Irish Red, the company managed a small and loyal base of customers. To boost the sale in United States, Heineken focused towards Hispanics community that accounts for one quarter of the USA sales. For this purpose, the company got a license from the FEMSA Cervesa to sell the products. Heineken has experienced stiff competition in the world market and therefore, has decided to target many different markets around the world to consolidate its position. The resultant effect is company has been able to spread its business to far-flung areas such as Panama, Belarus, Kazakhstan, and Egypt. These acquisitions in different countries in the world assisted Heineken to strengthen its global structure.
As far as the family policies are concerned, the company CEO, Van Boxmeerasserts to bring in changes in the company’s culture but, only in the areas of decision making processes than to initiating a drastic change in the culture. He says family guidance has been the spirit and guidance to the company’s success and therefore, Heineken would prefer to work with the family controlled structure.
Recently Heineken spreads its business activities in almost all of the countries in the world and is known as the most valuable international premium brand in beer. Now the company produces 250 international, local and regional ciders and specialty beers consisting of many names such as Heinekan, Amstel, Ochota, Primus, Tecate, Zywice and others (Heineken group, 2018).
Heineken has been going through a difficult phase in its global expansion. Consolidation efforts by the big competitors such as Plc from South Africa acquiring US based Miller brewing, Coors an American company linking with Molson a Canadian company, cause issues for Heineken company and there are other examples too of consolidation. Many companieshave done well to expand their market without consolidation as well. These activities of competitors create enormous pressure over Heineken to maintain its market share. Due to competitive intensity, the company lost its leadership position in United States. Now, the company tries to regain its position in Hispanics community of USA with a partial success. Heineken brand is also considered as obsolete brand by many young drinkers and this has forced company to introduce a new light beer to youth segment. Another problem for company is to follow family control or dilute the family control and this has been seen in the acquisitions of the brewers companies as initially, Heineken was slow to go for acquisition but later, it made some major acquisitions. This also reflects that family control over the business and existing culture of the Heineken somehow serve as problematic factors for its global expansion though the company has introduced many new changes in management of the company’s processes.
Preliminary root causes
The root causes of the company challenges and issues are changing preferences and consumption patterns of the customers and legal barriers. A recent survey conducted by Heineken reveals consumers now require different timing and frequency to consume beers (Gwynn, 2017). They also have tastes preferences and therefore, Heineken Company needs to consider local preferences of customers in different markets. One such example is changing perceptions of young people of USA towards Heineken brand as they assume this brand is obsolete. Customers want to drink more beers while driving and this also causing a moral challenge for the Heineken Company to run a campaign to drivers particularly to not drink while driving.
A preference of customers towards wine is also a major root cause for decreased sale of beers. Many governments promote welfare campaign against liquor and alcohol products and this also sabotages business prospects of Heineken. There is an increasingly negative perceptions in society held towards alcohol beverage industry. Political criticism and media and social activities against alcohol industry directs the mindsets of customers against the alcohol company. Legislators implement restrictive measures such as negative advertising for alcohol industry, sponsorship of those events discouraging the use of alcohol products, limited distribution and points of sale permission and levying increased tax (Mugwe, 2012). This prevents Heineken Company to operate freely in a country and distribute its products widely. Another root cause for existing challenges is dependency over a single brand Heineken as it does not supply much revenue for the business expansion for the company. The company needs to improve the sale of other brands it carries. A root cause of poor performance in the world market can be the poor control implied by the family-owned business of Heineken (Woods, 2012). As the decisions are still taken by the Heineken family, this may hinder effective decision making on various fronts and therefore, the company has to find a way to balance the family control over the business that it has done earlier but not with much liberty to formulate decisions. Propose solutions to problem statement The solution to the problem statement starts with strategic theories to gain competitiveness. Porter generic theories provide good insights to form competitive strategies. He formulates three generic strategies that are as described. One is cost leadership that does not neglect service, quality and other areas but emphasizes to produce products at low cost relative to the competitors. Heineken has resources to produce products at low cost as the recent acquisition suggests. It is a prerequisite for cost leadership that committed workforce and low cost manufacturing ability of organization are available. Along with this, the organization should be able to discontinue those activities that do not offer cost advantage or outsource these activities to other companies. Since, Heineken has been in the business for a long time, it knows very well to cut those activities that are not cost effective; therefore, this strategy is relevant to practice.
The second strategy called differentiation requires adding new features in the products or service to create a value that cannot be copied by the customers. Therefore, a value chain network needs to be created for this purpose. Product differentiation can be applied to products or service line and tailors the products or services according to the customers’ needs. As the products or service provides unique features, customers’ loyalty is increased. This differentiation strategy is effective when the organization offers a superior value that cannot be copied by the other companies. As the Heineken has this ability to provide a differentiation value in its products, this strategy is considered. Heineken can be able to charge a premium price by adopting differentiation strategy due to enhanced perceived brand image. It is imperative for Heineken to consider geographical reach, product, marketing approach, and delivery system to create differentiation. Differentiation can be approached by changing the business models as well such as offering e-commerce facility to sale the products, changing the retail layout of the stores, training employees with in-depth knowledge of products making easy access to the products and services. Business model revamping provides a competitive edge to the companies and this is a latest phenomenon. Heineken can go for business model restructuring as well.
The third is the focus strategy where the company concentrates on a geographic market, customers, markets and product line segments. If the company considers overall low cost strategy, it needs to consider operating efficiency of the organization, competitive pricing, experienced employees, product quality control, procurement of raw materials, innovation in the processes of manufacturing, building reputation within the industry, and forecasting market growth. Along with this, customer service, offering broad range of products, serving specific geographic market, innovative marketing methods and techniques, advertisement, capability to produce specialty products, and products in the high priced market segments are important to practice overall low cost strategy. Heineken analysis reveals that there is overreliance on the brand Heineken and other brands are not as much prominent. It suggests that the innovations in processes to produce other products as well as offering broad range of products with great success are still not realized. These areas should be considered by the company. The company also does not produce products to high priced market segments nor does it produce innovative marketing techniques. It is also found that the company’s primary market is in the developed countries where the market is very stiff and therefore company does not earn good margins over regular products and due to that it should consider the overall low cost strategy by enhancing internal processes and procurement practices. The overall low cost strategy can be a good option for the company.
For differentiation, it is required to consider new product development, brand identification, innovative marketing techniques and methods, advertisement, better customers service, innovative channels of distribution, forecasting of market growth, procurement of the raw materials, and minimizing use of outside financing. It is found by the Heineken case analysis that the company has introduced new products in the market with significant success (Bhasin, 2018), but the case does not reveal that Heineken products carry sufficient differentiation as its non-alcoholic beers tastes bad as customers say. Therefore, it needs to improve its product features.
As the Heineken Company operates worldwide and there are different tastes required by the international customers, focus strategy can be a feasible strategy for the company. For the focus strategy, new product development is required as well as specialty to produce a specialty product. Those niche markets that are high in potential should be identified for this purpose. It can be a viable opportunity to the Heineken Company to target different segments by offering new products, enhancing operating efficiencies, serving special geographic markets, procuring raw materials, and bringing innovation in manufacturing processes.
Thus by analyzing the market position and company internal capabilities, it is identified that the company should focus cost focus and differentiation focus strategy.
Justify solutions to problem statement The suggestion offered to choose cost focus and differentiation focus strategy has certain supportive arguments. This strategy is already employed by Heineken Company as the company targets youth segment of USA to sell a new light beer to them that is quite successful. One another Niche marketing strategy employed by company is targeting Hispanics community to sell its product that is quite successful. Therefore, to promote brands of beers and ciders other than Heineken, the niche marketing strategy can be quite successful to the company.
The company can enhances its product range, or create new market segments or new geographical areas. It is also proposed that the company should choose a combination of generic strategy including low cost and differentiation with a focus strategy. Where the customers are price conscious, it can go for cost focus strategy and where the customers are affluent and willing to spend more for quality; it can introduce specialty products that it already is doing.
There are four tactical approaches that Heineken should consider such as offering outstanding customers service, improving the internal operational efficiencies by adopting technological up gradation, controlling products’ and services’ quality, and providing extensive training to the front-line employees (Allen, & Helms, 2006). These tactical approaches must be followed by Heineken.
Rationality to choose cost focus and differentiation focus strategies is based on certain benefits. As it is mentioned earlier that monetary benefits are gained by practicing a combination strategies, this rationality assists a company to choose cost focus and differentiation focus strategies.
Further, as Heineken functions in a global market, understanding local idiosyncrasy is as important because Heineken cannot assume that a standardized product such as Heineken brand can only cater the needs of business expansion and therefore, local preferences and custom-made products are required and this can be possible by adopting Niche marketing principles that the focus strategy considers. Niche marketing benefit such as creating a high barrier for entry of competitors due to having a specialized knowledge of marketplace and loyalty of customers is a big advantage for a company that adds competitive edge. Therefore, to address the global challenges such as differing tastes and preferences of customers due to different political, legal, social, cultural, and economic environmental impact, and to gain competitive advantages, consideration of niche marketing is beneficial for Heineken Company. Considering all these aspects, a combination of generic strategies is suggested for the Heineken Company to pursue. Define the leadership implications with your proposed solutions To implement the proposed changes, leadership must be free from family influence to introduce new products, build customer services, enhance employee’s skills, procure raw materials in cost effective way, and promote brands loyalty. Therefore, the recent changes in leadership and management structure must be continued and refined. The top leaders must show the traits of transformational and transactional leadership attributes. These two leadership theories are necessary for success of Heineken as these theories enable leadership to leverage resources, to enhance competencies of employees, to improve internal processes, to create charisma factor for followership, to promote ethical responsibility and ethical following that are crucial today for the global market.
It is essential to practice these leadership theories because transformational leadership promotes individualized consideration, and idealized attention. Transactional leadership manages the resources very well. These two leadership theories are essential for proposed solution implementation.
It is also imperative that ethical guidelines such as integrity, honesty, professionalism must be present in the leadership approach of Heineken Company. If these ethical attributes are present in the Heineken leadership approach, the proposed implementation will be successful.
Therefore, considering all the factors, it is suggested that with an ethical leadership and by practices of transformational and transactional leadership approaches, the proposed solution of implementing cost focus and cost leadership strategies can be quite effective to address present problems of Heineken Company.
Allen, R. S., & Helms, M. M. (2006). Linking strategic practices and organizational performance to Porter's generic strategies.Business Process Management Journal,12(4), 433-454.
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Woods David, (2014). Interview with Michael O’Hare, chief officer at Heineken. Retrieved from