The tobacco industry is rapidly waking up to the fact that the ban on tobacco advertising has stubbed out the prospects of new brand launches.
Gallaher has just withdrawn its Mayfair brand of rolling tobacco after less than a year (MW last week). It is no coincidence that March 18 marks the first anniversary of the tobacco ad ban: industry pundits say that the brand failed because consumers simply did not know it was there.
Meanwhile, rival British American Tobacco (BAT) has been rocked by the failure of its 555 cigarette brand, which now boasts less than ten per cent distribution in the UK, according to industry sources, despite a £15m launch before the ban in 2002 (MW February 12).
BAT’s hope of creating a brand big enough to replace the loss of UK distribution rights for Philip Morris’s Marlboro to Imperial Tobacco in 2001 seems optimistic in hindsight. Whereas Philip Morris had spent decades creating loyalty to Marlboro, BAT had just one year in which to establish strong brand recognition for 555.
The tobacco industry’s troubles have left food marketers terrified at the thought of an imposed advertising ban, on the back of current concerns about obesity and health. The sector relies heavily on new products to keep consumers – particularly children – excited and interested.
The World Health Organization is now considering a resolution treating obesity as a disease and culture secretary Tessa Jowell admitted last week that an advertising ban could be introduced as a final resort.
But Imperial Tobacco marketing manager Pete Manzi says that UK tobacco consumption has not been dented by advertising legislation and that any ban on food advertising would be unlikely to dissuade children from eating junk food.
AC Nielsen figures suggest that UK cigarette consumption has remained relatively static since the ban, dropping by 1.3 per cent to 53.7 billion in 2003, while the value of the market increased to £11.3bn from £11.1bn. The increase in value is due to the extra tobacco duty imposed in successive Budgets.
Tobacco Manufacturers’ Association chief executive Tim Lord says the impact of the ad ban has been to make the industry anti-competitive by impeding choice, as consumers are given less information on alternative brands. He adds: “Advertising encouraged people to switch brands, which is now less likely to happen. An ad ban favours strong brands and penalises the weak, including new brands.”
Given the obstacles to entry, says Nick Mustoe, chief executive of Imperial Tobacco roster agency Mustoes, the tobacco market is effectively dead for new brand launches. “It is just about impossible to launch a brand in the dark, ad-free market. The market basically froze at the start of the ban. Relative share positions have stayed more or less the same and new entrants have been blocked.”
Terry Rogers, marketing manager for other tobacco products and papers at Imperial Tobacco, points to the failure of Mayfair as an example of this factor. He says: “How was Gallaher to tell people that Mayfair was now available as a rolling tobacco? The packs looked like cigarette packs and had a cigarette brand name, so no wonder people thought there were merely extra Mayfair cigarettes on display.”
But at least Mayfair had the advantage of being able to tap into established brand values. Welsh tobacconist AE Lloyd is the only company to launch an entirely new brand since the ad ban started. Chief executive Peter Lloyd says it was a “nightmare” trying to launch the Shag cigarette brand last year, with the main hurdle being getting listed in retailers, never mind attracting new smokers.
He says: “Retailers need to see money behind a product before they take it on, and there is nowhere to spend the money in marketing now.”
Lloyd says his company is relying on the creation of a “cult” brand in the 18- to 28-year-old market, with word of mouth the best hope for success. “Word of mouth may not be a pure marketing tactic but it is our only option. It is a much longer slog, of course, than instant success from a huge marketing campaign.”
He points out that the major tobacco companies have a considerable advantage in being able to demand the prime spots on newsagents’ shelves and are given considerable point-of-purchase (PoP) space to support brands.
Manzi admits that PoP is still “a powerful medium” and says: “Our last stronghold is the shelf. You can still get plenty of exposure, as there are a lot of shops that sell tobacco.”
But PoP advertising is likely to be severely curtailed under proposed legislation. The Department of Health has recommended that total PoP communication, including prices and branding, be restricted to the size of an A5 sheet per shelf unit. The proposals are up for consultation following objections from the tobacco industry, but it is unlikely the final legislation will make many concessions.
The tightening of PoP restrictions will not mean an end to marketing, says one ad executive close to BAT, but it will force companies to be cleverer. Manzi says that marketing spend is unlikely to fall dramatically but will be focused on areas such as packaging and in-store furniture. He also says new products are likely to be launched under existing brand names, to take advantage of their values and image.
One senior tobacco executive points to Gallaher’s B&H Silver brand extension, which launched shortly before the ad ban. The brand now accounts for 0.9 per cent of the market, according to AC Nielsen. He says the product works because consumers can clearly see it is a cheaper version of an existing brand, without the need for overt marketing.
B&H Silver reflects a wider move towards a value-led market, with price one of the few factors through which companies can differentiate products. The slide towards cheaper brands – already evident in the growth of brands such as Mayfair and Richmond – will be hastened by the fact that premium brand identities are likely to fade without marketing support.
Tobacco companies admit they spend almost as much time on marketing now as they did before the ban, although big-budget ad campaigns have made way for subtle techniques such as pack design, shelf positions and inserts. And there are signs of more creative approaches.
One recent initiative by Gallaher targeted British holidaymakers in Spain with newspaper advertising (MW July 24, 2003). Meanwhile, Philip Morris recently launched an insert campaign that was slammed by anti-smoking watchdogs as a PR exercise (MW October 2, 2003).
Tobacco companies are not ready to give up jockeying for market share and sales by a long shot, and will continue to devote their energies to devising more inventive ways of reaching the customer.