Tobacco giant Philip Morris International describes itself as a disruptive insider challenging the status quo by cutting demand for cigarettes while simultaneously growing the market for smoke-free alternatives.
Over the past decade the company behind the world’s biggest cigarette brand Marlboro has invested $4.5bn in R&D as it refocuses on science and technology. The firm has also been busy filing patents, with more than 3,400 granted and in excess of 5,000 pending.
“We now have over 430 experts in technology, science, product development and that’s something that wasn’t there a few years ago. That talks about a company that is changing,” says Tommaso Di Giovanni, director of global communications for Philip Morris’s smoke-free products.
“To get into a smoke-free future we need to change the way we think, and science and innovation are key. What will also be interesting is to see the pace of product development. Once you enter into innovation it takes you into a completely different world than cigarettes and it’s a world that’s very intriguing for us.”
This new direction represents a “different ball game” for the business says Di Giovanni, who explains that moving into the tech sector means the company is hiring different profiles of people, including marketers who feel comfortable talking about technology.
Philip Morris’s ambition is for at least 30% of its customers who would otherwise continue smoking, the equivalent of 40 million people, to switch to its smoke-free products by 2025. The focus is on electronically heated products designed to warm up enough to release a vapour that contains nicotine without burning the tobacco.
To date 5.6 million smokers have switched to its Iqos brand of smoke-free heated tobacco, which since launching in Japan in 2014 has spread to 42 markets worldwide. Philip Morris breaks this down to 10,000 smokers a day switching to Iqos.
Di Giovanni describes it as a rare situation where a sector is being disrupted by a market leader whose ultimate ambition to is to exit the very category that made its name.
“Usually industries are disrupted from the outside or from small competitors inside the industry. In this case it’s a situation where the business leader decided to go for a dramatic change,” he states.
“It’s something that’s rare and unexpected, but we believe it’s the right thing to do. It comes with risks, we all know it, but we believe it’s the right direction to go.”
Many will struggle with the idea of a tobacco giant doing “the right thing”. Yet Di Giovanni counters that its move into the smoke-free market is about getting the industry as a whole to change, not just convincing consumers to quit.
“It’s much broader than consumers. It’s a commitment to change the way an industry acts, the way we act as a company. It’s a commitment to change the product, it’s a commitment to be transparent on science, it’s a commitment to dialogue with regulators to make sure that they understand,” Di Giovanni explains.
The smoke-free market
It is also a shrewd play for a growing market at a time when smoking is on the decline, at least in the UK.
According to the Office of National Statistics (ONS) 15.1% of people in the UK aged 18 years and above smoked cigarettes in 2017, equivalent to 7.4 million people. Smoking is most prevalent among those aged 25 to 34, at 19.7%.
The percentage of the UK population smoking cigarettes has been steadily falling since 2012, according to Euromonitor statistics. Whereas in 2012, 21.3% of men and 18% of women in Britain smoked cigarettes, by 2017 the numbers had fallen to 16.8% of men and 13% of women.
And the majority of those that do smoke want to quit, according to a survey by the ONS, with 60.8% of British smokers aged 16 and above saying they want to kick the habit.
Vaping, however, is on the rise. Euromonitor stats show that last year the number rose to 7.4% of men and 5.8% of women, compared to just 3.1% of men and 2.2% of women in 2012.
Mintel predicts the market for smoking cessation products will grow by 22% from an estimated £132m in 2016 to £162m by 2021.
When launching its smoke-free brand, Philip Morris had lengthy discussions about leveraging an established name like Marlboro, before deciding to create a completely new brand. Its smoke-free portfolio contains four products in various stages of development and commercialisation, all of which sit under the Iqos brand.
“If you really want to drive a change you need to also have a different name and that name we decided should embed that idea of technology, innovation, change – that is what Iqos stands for,” explains Di Giovanni.
“Ultimately our ambition is that all smokers who use cigarettes will switch regardless of age, sex or country of origin. We designed a name that we thought would appeal to all of them and of course we designed it to appeal to adults. We don’t want minors or non-smokers to find this appealing.”
Getting the message out there about the values of Iqos has, however, opened the company up to criticism. In July, the firm’s UK arm landed itself in hot water by offering smoke-free tobacco products to doctors and nurses to mark the 70th anniversary of the NHS.
In a letter to all NHS trusts and health secretary Matt Hancock, the company suggested they should work on a “collaborative campaign” in which the NHS would offer cessation advice for quitting nicotine completely, while Philip Morris would offer help to smokers who were not ready to quit to “switch to smoke-free alternatives.”
The move was criticised by Public Health minister Steve Brine, who described it as “totally inappropriate”, and the chief executive of Action on Smoking and Health, Deborah Arnott, who likened Philip Morris’s approach to a “disgraceful PR stunt”.
Di Giovanni defends the company’s actions, explaining that its intentions were misconstrued and that the UK team is working to clarify this.
“We believe it was a good initiative. We believe it was because we want to drive a change and first of all we need to talk to those who are experts in that field. But again, there was a request for a clarification. Unless things have changed the team in the UK hasn’t received an answer yet. Most likely it’s just a misunderstanding,” he states.
Philip Morris found itself on safer ground when it reached out to the creativity community during Cannes Lions in June in a bid to find opportunities for collaboration. The company believes that because the creative community is at the “forefront of any societal change” it can drive positive change towards a smoke-free future.
“We need people with ideas, we need people who can drive these changes in society and we believe people in the creative community can play a big role,” says Di Giovanni.
“We were surprised by the positive reaction. We had a lounge in Cannes to discuss our vision for a smoke-free future and it was almost always full of people who wanted to understand what we’re doing and understand the science.”
He argues that the restrictions on marketing tobacco products are outdated, having been drawn up 20 or 30 years ago when the technology developed for products like Iqos was not available. As a result, Di Giovanni sees a “clear gap” between the regulations and current innovation.
This opinion appears to be shared by the government’s Science and Technology Committee. Just last week (17 August), it called for rules to be relaxed around the use of e-cigarettes to help make them more widely used in society, arguing that vaping is less harmful than traditional cigarettes.
The report asked for greater freedom for the industry to advertise e-cigarettes, a relaxation of regulations and tax, and called for a debate on allowing vaping in public spaces such as on public transport.
The shifting tide of popular opinion towards relaxing the restrictions on products such as e-cigarettes can only help Philip Morris achieve its ambition to stop selling cigarettes completely in the not too distant future.
Di Giovanni does, however, recognise that this is a “big ambition” and one Philip Morris cannot achieve alone.
“We will need governments to encourage change, to encourage innovation and the adoption of [smoke-free] products versus cigarettes,” he states.
“We will need experts and consumers to understand the benefits and switch. But the ambition is there and we’re making tremendous progress towards that objective.”