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.