Mark Ritson: Big Tobacco’s secret is killing off its smaller brands while keeping their customers

If you are considering slimming your brand portfolio, take a leaf from the big tobacco companies and don’t assume that brand killing means more profit from less sales.

Ritson award winner

Ok, you be the brand manager. Your customer base is in decline. Government tax increases have made your product five times more expensive than 30 years ago in real terms. Your marketing communications are limited because all forms of advertising and sponsorship have been ruled illegal. Many of your distributors are withdrawing your product from their stores. Best of all, next year your logo and all other identifying elements including colours and fonts will be removed from your packaging. Oh, and an alternative disruptive technology with a different delivery mechanism and lower health risks is rapidly eating into your market share. Now, go manage the brand.

This nightmare marketing scenario is the reality for big tobacco companies, which face an ever more restrictive economic and strategic environment to ply their trade. Whatever you think about the ethics of selling tobacco in the 21st century, no-one can deny the marketing prowess of these firms. Many of the key concepts of brand management – from fighter brands to brand tracking – can be traced back to the marketing departments of ‘Big Tobacco’. Despite apparently impossible trading conditions, the cigarette business is booming. Over the past five years, all the big firms have outperformed most other business sectors in terms of profit growth and share price performance.

One of the keys to success has been a clear strategic focus on brand reduction. As the number of smokers decline and the possibilities of brand building reduce, the branding imperative for all of the big tobacco firms is to put more emphasis on fewer brands. At British American Tobacco, for example, the company owns more than 200 distinct cigarette brands but focuses most of its marketing muscle on its five “global drive brands” – Pall Mall, Kent, Dunhill, Lucky Strike and Rothmans. It is a similar story at Japan Tobacco, the fourth biggest global player, where revenues from its eight global flagship brands such as Camel and Benson & Hedges account for two thirds of international sales. ­

The magic trick that all these firms have had to perform is to maintain market share while reducing brand portfolio or, as famed marketing professor Nirmalya Kumar put it in his seminal Harvard Business Review article, “kill a brand, but keep a customer”. That’s a tricky challenge with smokers who are, quite literally, addicted to a particular brand. Rather than abruptly kill that brand and risk losing the customer to a competitor the secret is to gradually merge non- core local brands with those within the focus portfolio.

It’s a classic branding strategy often called ‘phasing’ or ‘brand migration’ but rarely has it been attempted so frequently or with such aplomb as the current execution from Big Tobacco. For example, Imperial Tobacco’s CEO Alison Cooper regularly cites her company’s “brand migration strategy” as one of the central methods for enhancing Imperial’s corporate earnings. She’s on a mission to ensure her growth brands such as Davidoff and West account for a greater share of revenues. That means Imperial is merging smaller portfolio brands with big global brands inside its growth portfolio.

The process itself could be taken straight from the pages of a brand management textbook. Usually marketers use the brand relationship spectrum to classify a company’s brand architecture but in brand migration it is used as a phasing tool. A local portfolio brand such as Brooklyn starts out as a standalone brand within Imperial Tobacco’s house of brands portfolio. The brand is then moved down the spectrum one notch to an endorsed position in which Brooklyn is now supplemented with the label “by West”. Next, West and Brooklyn are flipped so that West is the product brand and Brooklyn is the endorser. Finally, after the requisite amount of time and usually with brand tracking and sales figures confirming the move is possible, the Brooklyn brand is permanently retired. Imperial has maintained the same customer base, while killing a brand, decreasing costs, improving focus and driving up profitability.

The lesson from the big tobacco firms should be clear. As you consider slimming your brand portfolio, don’t just assume that brand killing means more profit from less sales. With a proper migration strategy it may be possible to kill brands, keep sales and increase profits. The trick is working out which brands to focus on and then how to smoke the rest.

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  • Zbiggy 3 Sep 2015 at 11:37 am

    Mark, just to prove I’m not always contrary, excellent piece and couldn’t agree more. While people, understandably, may find the industry reprehensible from their own moral viewpoint, it does offer some exceptional case studies re business in general. Having spent all of my corporate career in big tobacco, working with or leading some of the major brands around the globe, the experience was invaluable, having now started my own business (nothing to do with tobacco by the way, just in case your wondering.)

    Aside from the point’s you make a few other things to add based on my Big Tobacco experiences.
    1) Real creativity normally happens when your forced to think different, due to necessity, law changes etc. The B&H and Silk Cut ads from the 70’s a clear case in point. Completely unrelated to tobacco but just to prove the point, the majority of incredible technological advances normally occur during wars.
    2) The importance of emotional benefits vs just functionality. Having run an iconic brand, namely Camel, I find it incredible the lack of interest re the marketing community in trying to understand iconic brands. Despite millions of books re marketing, only one, the last time I checked, re iconic brands. An emotional connection beyond reason is incredibly difficult to replicate and incredibly powerful, it was why people wrote books and painted pictures about Camel. Why Coke had such a reaction changing an “inferior blend” and why people queue up for hours re any Apple launch. Big tobacco out of any any industry has, in my humble opinion, the largest amount of truly iconic brands, go figure, people might just learn something!
    3) You will be next! Lot’s of learnings for all industries, both good and bad re a sustained desire by people to eradicate the industry. Soft drinks, sugar, fast food, alcohol etc. Welcome to a world where your competition is actually the least of your problems.
    4) Finally and based on the above point the lack of the marketing community to truly unite and ensure, whatever you views, re tobacco or any other questionable commodity, in the importance of knowledge, reason and wisdom in how it is controlled. While no doubt honourable in their desires, the measures being proposed re the anti-tobacco lobby are completely counter productive and unlikely to achieve their end “goals.” Put simply by banning something or just as bad turning it into a commodity won’t stop people smoking. If that was the case why do we continue to have such a problem with illicit drugs? Re tobacco the only way to reduce incidence is via education and price. Sadly the measures that have and will come into force (Display bans and plain packaging) will only make the product even more of a commodity. You don’t need a degree in economics to know that means it becomes purely a price thing. The result an influx of both cheap and illicit products that won’t reduce “real” incidence just drive it underground and encourage and reward the criminal community. My advice, overturn the display ban, stop the plain packaging and in return, get the UK tobacco companies to agree to reward their staff re bonuses linked to reducing smoking incidence figures. Poacher turned gamekeeper, mad yes, but as the brilliant ad once stated, it is only those crazy enough to try and change the world that actually do!

  • J.Stanham 6 Sep 2015 at 7:21 pm

    Really provocative article. I loved the way you framed the problem in the
    first paragraph. A perfect setting for an HBS marketing case. In general I agree (for CPGs), but I struggle with the specifics (tobacco). In general, very much like P&G or Unilever, going through a wave of brand consolidation is always mandatory at some point in life. Not all stuff sticks. The good thing is that if the brand is shrinking it is because the consumer migrated to another brand or stopped consuming the product (makes sense in the tobacco world but not in the world of deodorants…).

    But the argument falls short if you frame it with marketing and without considering the bigger strategy question.

    When it comes to the specifics I struggle with your framework and the inference from big tobacco to the world of consumer products. I would explore a two pronged approach:

    First, this is the one-in-a-life-time opportunity to go online and embrace e-commerce. CPG companies are the big losers in with the advent of e-commerce. Stores will not be in a position to complain if they are dumping your product. It is the dream scenario for a CPG company in the world of e-commerce: being able to finally build a commercial one-on-one relationship with its consumers without the high distribution costs.

    On the other side is the argument for profit pools. But why not ride the hypocrisy wave? It’s bad to smoke cigarettes, while marijuana is ok and is being made legal all over the place.

    Big tobacco companies know how to manufacture with better quality, distribute better and more efficiently than the pot shops popping up all over the place. For the government it is easier to control (and tax) big tobacco companies than sprawling pot shops. Why doesn’t big tobacco re-focus some of its brands to marijuana? This is a very large revenue and profit pool being ignored by big tobacco and could bring new life to fading brands.

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