1. Product Service System (PSS):
Heineken Case Study
Ivan Odreman (Student ID: 77160608)
Leeds Business and Law School, Leeds Beckett University
Leeds, 21-12-15

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Table of content
Abstract……………………………………………………………………………………….3
Introduction…………………………………………………………………………………..5
PSS Product-Service System……………………………………………………..5
The background of Heineken………………………………………………………8
The business and the industry…………………………………………………9
The PSS model: product-oriented and create value approach………………………..10
The six pillars of the sustainability………………………………………………………..11
Heineken’s suppliers’ code………………………………………………………………..13
Building relationship…………………………………………………………………………14
PSS: Measure the performance…………………………………………………………...15
Recommendations…………………………………………………………………………..19
Reference……………………………………………………………………………………..21

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Abstract
The aim of this paper was to examine and describe the Product-Service System (PSS)
business model in Heineken Company. The literature review about the PSS allowed to
determined the archetypal business model identifying Heineken’s as a product- oriented
and creating value. The PSS often embraces sustainability in order to have a lower
environmental impact and have initiatives of responsibility operations, increasing the
efficiency of the company as a whole. Having a long-term approach, Heineken’s
sustainability program “Brewing a Better World” has been increasing integrated
sustainability into the company’s strategy defined as the engaged with the development
of the its stakeholders: suppliers, employees, communities, clients, consumers and
investors.
The sustainability has been oriented in water, CO2 emissions and electricity; sustainable
sources, responsible consumption, communities and health & safety and could be
reduced in two big areas: the external sustainability and the internal innovation. The first
consists in create a sustainable supply chain. The company has been investing to build a
sustainable supply chain creating value to its suppliers, especially in the emerging
economies. In the brewer industry the agricultural raw materials are the basis of the
business. To create value to its suppliers the case of the African countries represented
one of the most important Heineken’s challenges. The African suppliers until the
beginning of the 90’s (and still on) were smallholders’ farmers. To have a local suppliers
sustainable network the company had to invest in infrastructure, equipment and new
seed varieties. The study case analysis allows highlighting the importance to transform
the entire supply chain in a sustainable chain, with sustainable sources.
Referring internal innovation the paper describes its efforts to reduce the use of
resources in the beer brewing process: water, CO2 emissions and electricity. The
Heineken's improvement program stared into 2003, according with the Total Productive
Maintenance Program (TPM) with the proposed to improve of the efficiency imply use
less resources to reach the desired results. Having Netherlands as a model, Heineken
received in 2009 the Japanese accreditation from the Institute of Plant Maintenance for
its TPM. Focusing in the Africans countries, the indicators reflect a continuous
improvement and efficiency in the resources utilization.

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In these times population is increasing significantly, the commodities and the access to
the basic services as water and food are limited and in consequence, the sustainably is
an imperative to the companies, a “trending topic” as a part of the corporate social
responsibility and marketing. The Heineken’s department marketing has been focused in
the responsible consumption as a pillar of its sustainability program. Nevertheless, the
efforts to build a sustainable supply chain have been silenced as a part of the “do and
not say” culture, and these efforts are not visible to the public. A set of marketing
recommendations has been proposed in order to integrate the marketing in the efforts to
have a sustainable product. The potential to creating value in the future is based on the
Heineken’s sustainability practices e.g. communicate the efforts to encourage the local
producers building a trust and truly relationships over the time could have a high
advertising impact. Heineken, the third big giant of the beer industry has the opportunity
to continue its leadership as a premium beer oriented to aspiration target.

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Introduction
PSS Product-Service System
In last decades a new global business environment has been emerging as a challenge to
the organizations in order to survive and being competitive. Improvements to increase
efficiency, effectiveness and innovation have been the most important areas for research
and organizational practices. Technology has played an essential role on this matter,
enabling companies to take advantage of the opportunities to growth. The set of
strategies and tactics implemented by a company to operate and create value has been
defined as a business model. One of the new business models with a revolutionary
perspective is the Product Service- System (PSS) and consists in an integrated
approach about products and services, having at the same time at the top of the agenda
the sustainability, ethics and social responsibility.
Tucker (2004) defines the PSS business model as “consisting of tangible products and
intangible services designed and combined so that they jointly are capable of fulfilling
specific customer needs” (p. 246). The core of the model consists in adding value to be
more competitive and achieve the differentiation to gain visibility in saturated markets.
The concept of PSS business model fulfils several meanings highlighting the
servitization, the service - dominant logic, functional sales and product bundling. Meier
et al (2010) the PSS in an industrial perspective “is characterized by the integrated and
mutually determined planning, development, provision and use of product and service
shares” (p. 608). In order to the implementation of the PSS model, the literature review
reflects a set of strategies and tactical practices that make the difference between
successful and unsuccessful companies.
In order to explain the PSS as a new business model is necessary to define what is a
business model and its intrinsic dimensions. According with Reim, Parida and Örtqvist’s
(2014) literature review about the business model concept, in a systematic documentary
analysis that included more than 500 articles, these factors are common in the definitions
analysed: the operations orientation and the approaches to the adding value. The
operation’s company, in terms of the PSS model, could be product-oriented, use-
oriented or results- services- oriented, emphasizing respectively the activities of selling,
utility and services offered. The approaches to adding values include creation, delivery
and capturing value. As Casprini (2015) refers, the business model literature

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emphasized the adding value in terms of capture, competition and value for
shareholders. Actually, the focus is oriented to the value creation, cooperation and value
for stakeholders. Therefore, the values of creation, delivery and capture can be observed
in different manner depending of each business model categories (Tan, McAloone and
Gall, 2007).
In fact, a business model is conceptualized as the way a company create, delivery and
captures value (Elbers, 2010). These company’s activities drives the design of its
architecture to value creation, implying the development of roles and responsibilities,
knowledge and competencies of the network relationships and its stakeholders network.
Nevertheless, others authors prefer emphasized the operations orientation, e.g. the use
of the customer as a determinant to define the market or the customer- supplier relation-
collaboration to defined the company’s approach. Reim et al. (2014) have made a
comparison between the business model categories and the terms of value creation,
delivery and capturing.
The product- oriented approach consists in offering useful services to the product. The
provider, as Tucker (2004) remarks is not only a seller (...) “also offers services that are
needed during the use phase of the product” (p. 428). Examples of the services are the
contracts or financial support to acquire the product as well as offers advice and
consultancy to achieve a more efficient use of the product. As we can see on table 1,
when a company is product- oriented and has a value creation approach, the liability for
services agreements becomes part of supplier's responsibility; when the company with
this approach emphasizes the value delivery, the provider sells and services the product
sale; while in a value capturing approach, the customer pays for the product and for the
services.

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Table 1. Comparison of business model categories in terms of value creation, value
delivery and value capturing
Source: Reim et al. (2014)
In the use-oriented perspective, the usability is the core of the operations of the
company. The provider has ownership of the product and “often is responsible for
maintenance, repair and control” (Tucker, 2004, p. 249). There are different forms for this
approach according with the categories of adding value. In the value creation the
provider is responsible for the usability of the product or service, while in the value
delivery the provider guarantees the usability of the product along with service.
The result and services orientation implies a third party as an outsourcing to perform a
part of activities of the company. The provider is responsible for delivering results in the
value creation case and the provider actually delivers result in the delivery value case. In
the value capturing customers payments are based on outcome units. As a synthesis of
the PSS model concept review, the figure 1 shows the several combinations of the
company’s operations orientation and the value perspective:
Figure 1. Product Service System
Source: Hesselbach and Herrmann (2011)

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The background of Heineken
Beer is the alcoholic beverage most ancient in the world. In a global scale the beer
consumption is growing constantly motivated by the consumers who are in the search of
better consumption experience (The Economist, 2015). Heineken is the third biggest
brewer in the world, an international company based in Amsterdam, Netherlands. The
Economist (2015) it defines as a Beer Giant, together with AB Inbev (Belgian / Brazilian)
and SABMiller (Britain). With almost 200 million hectolitres sold worldwide in 2014,
Heineken has over 81.000 employees; a presence in 178 countries and its operations
are in 70 countries. Its portfolio the 6 principals international brands are (Heineken, Sol,
Desperados, Amstel, Strongbow and Affligem), and the rest are regional brands and
local brands.
Table 2. Heineken’s profile
Source: Reinhardt, Alvarez, Junker and Beyersdorfer (2015)
It all began 150 years ago when the entrepreneur Gerard Adriaan Heineken, a 22 year
old man, in 1864 bought a small brewery with an accurate vision “to brew the best beer
of his time and to let the world know”. The family was focused on the business growth
having as a fundamental pillar the quality and innovation (Reinhardt, Alvarez, Junker and
Beyersdorfer, 2015). The acquisition of other breweries in Netherlands and overseas
started very fast, cooperating with other industry players. In the beginning of the XX
century Heineken started to work in the African market expanding its activities to Egypt,
NIgeria, Algeria and other countries in this continent. The operations in the Asian market
started in 1932 when Heineken started brewing in Malaysia and then in India. The first

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country of the Latin American market was Mexico and the first countries conquered in
Europe were the Czech Republic and Austria.
The business and the industry
Heineken structure consists in a firm infrastructure, formed by Heineken Holding N.V and
managed by the Heineken Group with a board of directors. The Executive Board
manages Heineken N.V. The company’s activities are in 5 continents: West Europe,
Central & East Europe, Africa & Middle East, The Americas and Asia Pacific. The
primary activitie of the company involves inbound logistics, operations and outbound
logistics. The marketing, sales and support activities (HHRR Management and
technology development) are fundamental areas of the value chain of the company too.
Is important to note that the services in the brewer industry are limited because the
process ends with the consumption. The company has made efforts to knows the
consumers opinions and satisfaction, inviting to be in contact with the organization and
the Heineken Experience, making a consumers’ survey constantly to have feedback of
the product. On the management field, the ownership structure of the company consists
in the majority control by the Heineken Holding N.V., the legal unit that have been had
the leadership of the Heineken family since 1952, supervising the Heineken
management. According with Heineken documents (2010) around 33% shares of the
company went public and the Latin-American beverage company FEMSA acquired 15%,
as we can see in the figure 2:

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Figure 2. Heineken nowadays ownership Structure
Source: Company documents. Heineken (2010).
Five directors, four of them Dutch and one Mexican, form the board of the Directors of
Holding N.V. Having the innovation as focus, the goal of the company is to doubling its
2010 innovation rate of 3% of sales to 6% by 2020, with the sustainability as a principal
component of its strategy (Reinhardt et al., 2015).
The PSS model: product-oriented and create value approach
According with the PSS model, Heineken has a product-oriented approach with
emphasis in value creation. Heineken in an industry level, has been integrated the
product- services categories, focusing on to take advantage of the opportunities to
business innovation and sustainability improvement. The product- service integration -
the supply chain- has been targeted for cost reduction program. Starting with the raw
materials (grains and hopes), consumables (non-returnable packing and goods for
resale) and services (inventory movements, transport expenses, energy and water repair
and maintenance).
These items are the input necessary to manufacture its product and the cost reduction
program has been consist, from 2006 to reduce the time-cost of products stored in
warehouses strategically to minimize shipping costs to stores. To reduce the raw materials
cost and produce a high quality beer in a sustainable way, the value creation process

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has been consists in the efforts to create value for its suppliers and the entire value chain
through sustainability. The supply chain implies a complex network of suppliers,
customers and clients in order to satisfy a production that arose as a total volume 195
million hectolitre in 2013. In importance order, there is Western Europe with 42.2 mhl,
Central & East Europe (48 mhl), Africa & Middle East (27.4 mhl), The Americas (54.9
mhl) and Asia Pacific (22.7 mhl).
The six pillars of the sustainability
In Heineken two big areas have oriented the sustainability: the external sustainability and
the internal innovation. The first consists in create a sustainable supply chain in the long
term and corresponds with the study object of this working paper. In the Heineken
program’s “Brewing a Better World” the company summaries its 2015 goals, 2020
targets and achievements by 2013 (Reinhardt et al., 2015). In this program the company
is sustained by six pillars of the sustainability, there are: “energy/CO2,” “water,”
“sustainable sourcing,” and “responsible consumption.” In the course of 2014 two new
pillars had been added “community/Inclusive growth” and “health & safety”. As its shows
in the follow table 2, the goal for 2015 in the water focus area consists in the reduction of
specific water consumption in the breweries to 3.9 hl/hl. The company would like to
implement a Source Water Protection Plan for 100% of production units in water-scarce
and distressed areas. For 2013, in fact, the water consumption has been decreased in
the breweries to 4.1 hl/hl. Respect the CO2 emissions, the reduction in production by
the 27% arose a reduction of 26% compared with 2008.

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Table 3. HEINEKEN “Brewing a Better World”
Source: Adapted from: Reinhardt, Alvarez, Junker and Beyersdorfer (2015)
The sourcing focus area is extremely important matter for the business sustainability in
the long term. As Reinhardt et al., (2015) refer “as global demand for agricultural
products continued to rise with the growth of the world population, brewers needed to
make sure their supply was secure, especially when using grains that could also be used
as food” (p. 5). In consequence Heineken “saw responsible agriculture and sustainable

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sourcing as the keys to increase productivity in a sustainable way while at the same time
contributing to poverty reduction and food security” (Reinhardt et al., 2015, p. 5). To lead
the company and guide it into a direction congruent with the sustainability, there are so
many efforts across the years to buy source materials in a sustainable way, having the
local agricultures as a partner. Nevertheless, until the 90’s around the 80% to 90% of the
raw material were acquire by the global procurement department of the company to
larger global suppliers, including intermediaries and cooperatives.
Heineken’s suppliers’ code
To satisfy productivity standards established by the company and its markets, Heineken
invested in several actions to encourage its suppliers to adopt sustainable practices,
including the creation of the Heineken’s supplier code, to standardizing the right
practices and values adopted throughout its supply chain. In the following figure, its
represents the principal initiatives of the organization:
Chart 1. Heineken’s suppliers code timeline
Source: Reinhardt et al., (2015)
The suppliers code have consisted, as the PSS contract tactic establishes, to build
contractual relationships with stakeholders, in this case, the suppliers, defining the set of
responsibilities and practices expected in raw materials matter. As Reim et al (2015)
refers between a PSS provider and its customer the contract is “designed to address all
aspects related to providing the service and to state the rights and liabilities of involved
parties clearly” (p. 61). In 2013 circa 50 contracts were cancelled because they do not
achieve the standards requirements.

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Building relationships with suppliers to have sustainable sources in Africa
One of the significant growth areas is represented by Africa & Middle East, and at the
same time corresponds with the more complicated continent to find sourcing of raw
materials. In this context, the company have established the aims to have sustainable
sourcing of raw materials for 2015 in this region: 20% barley, 40% hops, 60% apples for
cider. Specifically, the company expects to arise the 50% of all agricultural raw materials
used in Africa by local sourcing. In Africa and middle East continent (including Nigeria,
Egypt, Rwanda, Democratic Republic of Congo, South Africa, Ethiopia and Burundi
countries) the Heineken’s product orientation and creating value implies the engagement
of the company to create a sustainable supply chain, process that has been involved the
commitment to support local projects, investments on infrastructure, agriculture
equipments and seeds, as we can see in detail on the following paragraphs. The timeline
related with those events, from 1900 to nowadays is as following in the next chart:
Chart 2. Heineken’s initiatives in africans countries
Source: Reinhardt, Alvarez, Junker and Beyersdorfer (2015)
The Heineken’s efforts to invest in the supply chain creation and its optimization
represent a fundamental pillar for the product orientation approach in the PSS business
model. The tactics to convert the supply chain in a sustainable chain, with the As Reim et

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al. (2015) refers the PSS “represents a potential path toward sustainable resource use”
(p. 61). The company has been made radical transformations at the value chain to add
value on its suppliers, their communities and the environment, as we can see in the table
3:
Table 4. Local sourcing: Creating Value
Source: Reinhardt, Alvarez, Junker and Beyersdorfer (2015)
The most important effort of the company has been to invest in the building of trust
relationship with the producers, theirs families and communities. This challenge involves
dealing with the governments and their unstable legislations in agriculture matter,
establishing public-private partnerships between developing countries and emerging
economies.
PSS: Measure the performance
In the produce- oriented perspective, having the PSS as a framework, the performance
has to be measure in concretes terms to being possible compared the results
achievement and its improvements. The Lean philosophy is a system to maximize
customer value, to create it with scarce resources while minimizing waste (Holbeche,
2015). To produce only the necessary goods or quantities required by the product
demand, the organization should use a low capacity maintaining low inventory (Slack,
Chambers and Johnston, 2004). The lean philosophy is oriented by the continuous
improvement “a systematic effort to seek out and apply new ways of doing work i.e.
actively and repeatedly making process improvements” (Anand et al., 2009, p. 444). The
improvement process requires organisational learning to make changes in the operations
and routines.

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Heineken has a performance indicators according with this philosophy. The Heineken's
improvement program stared into 2003 as the Total Productive Maintenance Program in
Netherlands factory, driving by the principles of the continuous improvement using fewer
resources to reach the desired results (van Ede, 2010). In the brewery industry extract
loss is understood in terms of raw materials / beer. Heineken has been decreased its
extract loss across the efficiency of the production lines, reducing the energy
consumption as electricity and water. According with Schwaiger et al. (1965) this
indicator implies “the determination of yield and control of extract losses or true losses
throughout the whole brewing process” (p. 61).
Heineken has reduced water consumption and CO2 emissions, as a part of the
sustainability program. The goal for 2015 has consisted in the reduction of water
consumption in the breweries to 3.9 hl/hl and source water protection plan for 100% of
production units in water-scarce and distressed areas. For 2020 the company has the
aim to reduction of water consumption in breweries by 27% to 3.7 hl/hl significant water
compensation/ balancing by the productions units in water scarce and distressed areas.
In 2013 Heineken has achieved the water consumption decreased to 4.1 hl/hl (without
newly acquired sited efficiency would have been 4.0 hl/hl). Then (43%) of the production
units have drafted a source water protection plan (Reinhardt et al., 2015).
Respect the CO2 emissions, the goals to 2015 consists in reduce of it in production by
27%, of company fridges by 42% and of distribution by 10% in Europe and the Americas.
For 2020 the company has a goal the reduction of CO2 emission in production by 40%,
by 50% (fridges) and by 20% (distribution) in Europe & Americas by 20%. In 2013 CO2
emissions reduced from 8.4 kg CO2 eq/hl in 2012 to 7.7 kg CO2 eq/hl, representing a
reduction of 26% compared with 2008 (without newly acquired sites reduction would
have been 7.3 CO2 eq/hl / 30%). According with Reinhardt et al. (2015) the 99% of the
116.000 fridges that HEINEKEN purchased in 2013 were ‘green’. The average reduction
of CO2 emissions has improved from 38% to 40% in 2013, compared with the baseline
year 2010. Out of 23 operations in scope, 21 operations have now validated results.
Fourteen performed better compared with the plan for 2013.
In Nigeria in 2012 there was 8 Heineken’s brewery locations: Kakuri, Kudenda, Kukenda
Brewery and malting plant, Ama Brewery, Aba Brewery, Aba malting plant, Lagos
Brewery, Ota Brewery, Obadan Brewery and Onitsha Brewery. The brewery’s technical
capacity is 15 mhl and the 2 malting plants corresponds with 37 MT (Heineken N.V.,

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2012). The methodology Total Product Management has been applied and its structure
consists in achievement operational excellence: losses reduction / eradication,
operational efficiency increased overall performance indicator (OPI), quality
improvement, safety, health & environment, asset care and organisational culture
change - team work. To improve the productivity Heineken has been investment on the
employee's training in the technical learning center. The indicators have had the
following results:
Figure 3. Heineken's Performance Indicator: Extract loss, Water Consumption and Electricity
Consumption in Nigeria
Source: Heineken N.V. (2012)
These reductions contribute to the performance improvements in terms of cost
reductions: lower energy consumed, lower wastage and more efficiency. The productivity
in Nigeria in the same time periods has been growing:

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Figure 4. Heineken’s productivity and Overall performance indicator (OPI) in Nigeria
Source: Heineken N.V. (2012)
The Overall Performance indicator shows the significant differences between 2010 and
2011 improving the performance across the time. Comparing the performance with the
rest of Heineken's plants, the Nigerian performance achieved requires standards.
Figura 5. Breweries Capacity
Source: Heineken N.V. (2012)
According with these results and the Heineken’s program sustainability analysis, the
PSS an industrial level has been integrated on the company’s supply chain, creating
value to the suppliers as well as improving the productivity. Nevertheless, is important to

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consider that the sources are not completely sustainable. In fact, this is an objective to
be reach on 2020 while the “in the current “mass balance” sourcing, conventionally and
sustainably produced raw materials got mixed when they entered the supply chain,
allowing only for estimations of which quantities of sustainably produced material ended
up in a specific product” (p. 2).
Recommendations: Heineken’s Marketing Strategy as a Product-Oriented and
value creation Business Model
Having these facts as a reference, at level of the product- oriented and value creation
PSS business model, the recommendations to improve the performance and the quality
of the products in the long term is to complete the replacement of the conventional
sources for sustainable sources to have all the raw materials manufactured in a non
conventional way and then be able to produce a 100% sustainable beer. Is important to
remark that the company is near to achieve the 2020 aims in the short term, because the
water and CO2 reductions have been doing better than expected.
At the moment, the Heineken’s marketing does not communicate the efforts of the
company to build a sustainable supply chain, especially in the African countries. Once
the supply chain have been 100% sustainable and only when this becomes a fact, will be
the right moment to start a marketing plan and communication campaign about Heineken
as a worldwide sustainable beer leader, being the first in the industry to achieve
sustainability of the entire supply chain in the industry.
The Heineken’s marketing strategy is a global campaign that has been oriented to young
audience. In the “Open your world” Campaign making by the Wieden + Kennedy
agency, Heineken recognizes the legend in all of its drinkers: inspirational people who
knows to navigate the world, confident in itself, open minded and resourceful. The
Heineken’s heroes want to grow personally and professionally. As the beer is for
everyone, as Heineken is for special people fact highlighted on the communicational
message. As premium beer and is identified with a premium product (Wieden + Kennedy
Agency, 2011). In the Heineken’s marketing strategy there are rules on responsible
commercial communication. The constructions of strengthen brands has been consist in
“developing original, effective and inspiring commercial communication, while also
ensuring that Heineken sets the highest standards for ethical behaviour and corporate

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responsibility” (Heineken, 2008, p. 4). The brand has been investing in responsible
drinking, the use of alcohol by minors under the legal purchasing age, drink-drive issues
and associations with sports, health and social success, sponsoring the Champions
leagues. As we can see, the responsible consumption is a part of the sustainability
program.
In the beer industry the sustainability and society are relevant categories in advertising
and communications: redirecting the interest of the “business organizations from profit to
sustainability” (Ahiawor, 2014, p. 1). As Advisum Group (2014) remarks “economic and
environmental sustainability are becoming a consumption driver” (p. 12). According with
these perspectives, Stella Artois UK commercial “Buy a Lady a Drink” reflects an effort to
communicate that women spends significant time to collect water around the world,
specially in the poor countries with water-stressed areas. The camping invite to get 1
limited edition chalice and Stella Artois will donate for each chalice in the U.K 4.5 pounds
up 5000 chalices, representing five years of clean water to one person.
MillerCoors has been launch sustainability report on YouTube explaining about its
responsibility, having similarly to Heineken the camping of responsible consumption by
the “alcohol responsibility program” and other program to give economic support to
students in the United States. Also MillerCoors explain about creating value by its
sustainable sources, water and CO2 reductions. With the recent AB Inbev (Belgian /
Brazilian) and SABMiller (Britain) merger, the brewing industry has been turned more
competitive and Heineken has to cope this pressure
At this point Heineken has to reflect its sustainability efforts in its marketing strategy to
increase its positive reputation, incorporating the initiatives of been sustainable
company, beginning with the suppliers to the final consumers. The Heineken's
participation with the Africans communities to build trusted relationships across the time
protecting the natural environment and the socio-economic conditions of local
communities could have an high impact in a communication campaign, increasing the
credibility of the company.

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