Abstract
In this 1986 Philip Morris (PM) marketing presentation about Saudi Arabia, the presenter describes methods PM uses to circumvent a total ban on cigarette advertising in Saudi Arabia.
The writer begins,
"Saudi Arabia provides a striking example of how it is possible to grow volume, market share and income in a market where advertising is completely banned...."
PM used "creative approaches" to get around the ad ban, including placing advertisements in "local journals from Pan Arab publications which find their way into Saudi Arabia." PM also "develop[ed] sponsorships in neighboring markets which provide good opportunities for promotion and publicity on TV."
PM teamed with car companies to sponsor motorsports in the Gulf, because "events such as these are widely televised...Saudi networks cover some directly while neighboring countries cover others." PM also sought to "profit from the Arab interest in motor sports by exhibiting a simulator of a Formula One Marlboro car at this year's motor show in Jeddah. This attracted large crowds."
The writer also says, "Since both Arabic, mainly Kuwaiti and English foreign language press do get into Saudi, we use these to promote Marlboro and other brands..." PM also says, "We've also been using cross-border television advertising in a joint program with Canon cameras. These carry shots of Marlboro Formula One cars intermingled with the main advertisement, Canon cameras."
PM also made an agreement with a private home video distribution company to promote Marlboro by putting commercials on video cassette movies for home rental "to advertise the distributors extensive library of 'Westerns'."
In the same presentation, PM describes its vigorous fight against the Gulf Council Health Ministry's attempts to require them to put bigger warning labels on cigarettes, as well as a proposal to restrict nicotine content of cigarettes.
The report also documents a huge increase in cigarette exports from the U.S. to Saudi Arabia by PM alone between 1975 and 1985. PM says that in 1975, the company exported 3/4 of a billion cigarettes to Saudi Arabia. By 1985 that number had jumped to fifteen billion "units" (cigarettes).
This document demonstrates why tobacco control agreements need to be coordinated internationally (and globally, through such vehicles such as the Framework Convention on Tobacco Control) to achieve effective progress against the tobacco industry worldwide.
Fields
- Quotes
Saudi Arabia provides a striking example of how it is possible to grow volume, market share and income in a market where advertising is completely banned... We export our products to Saudi from the USA...Ten years ago...the
cigarette industry was small. We exported three quarters of a billion units and our market share was about eighteen percent. The development in the Saudi economy caused by the oil boom helped the cigarette industry, which more than tripled to some fifteen billion units in 1985...
...Our progress has been achieved despite the complete
advertising ban I mentioned and which has existed since 1970. We've...had to be very creative in our marketing approaches and the advertising you are seeing comes
from local journals and from Pan Arab publications which find their way into Saudi...
Merchandising is one area where we've been able to achieve some branding at point of sale with shelving programs like this [Marlboro Lights clock]....Since both the Arabic, mainly Kuwaiti and English language foreign press do get into Saudi, we use these [means] to promote Marlboro and out other brands. We've also developed sponsorships in neighboring markets which provide good opportunities for promotion and publicity on TV. We support local Arab drivers with a Marlboro-Middle East rally championship team and jointly with Toyota we established a rallying team in the Gulf. Evens such as these are widely televised. Saudi networks cover some directly while neighborhing countries cover others.
We've found other ways to profit from the ARab interest in motor sports. We generaged added interest in the Marlboro name by exhibitng a simulator of a Formula One Marlboro car at this year's motor show in Jeddah. This attracted large crowds.
Since last year, we've also been using cross-border television advertising in a joint program with
Canon cameras. These carry shots of Marlboro Formula One cars intermingled with the main advertisement, Canon cameras.
Home videos are popular. We saw this as a new opportunity to promote Marlboro. We have an agreement with a private distribution company for video cassette rentals and are now developing commercials, incorporating Marlboro branding, to advertise the distributors' extensive library of "Westerns".
[From Page 7]:
Another potentially adverse issue is that of smoking and health. The Health Minister's Council of the GCC has become more aggressive in this area. New regulations have been adopted requiring health warning labels to appear on the front of cigarette packs, and the lowering of tar and nicotine levels to 12.0 and 0.8 respectively.
We're also lobbying against these requirements. To date, and
through a vigorous corporate affairs program, we have
succeeded in delaying the date of enforcement by six months to July 1, 1987, in Saudi Arabia.
In addition to protecting our business through aggressive lobbying, we're also working to increase volume and share by making our distributors more efficient...
We were a major participant in the growth of the industry. We
increased our volume by a factor of seven to 5.4 billion
units.
- Company
- Philip Morris (Altria Group)
- Author
- Corporate author, Philip Morris
- (Found in area of "Planning Ryebrook/Boardroom")
- Recipient
- Presumed corporate recipient, Philip Morris
- Region
- Saudi Arabia
- Named Organization
- BAT, British American Tobacco
- Canon (camera manufacturer)
- Council of the GCC
- GCC, Gulf Council Countries
- Gulf Health Ministers
- ICS
- Pan Arab
- PMI, Philip Morris International
- Saudi Customs Dept
- Saudi Recession News
- Toyota
- Toyota Rally Team
- I
- Litigation
- STMN/Produced
- Type
- SPCH, SPEECH, PRESENTATION
- Named Person
- Bush
Document Images
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1986 ICS PRESENTATION WILLIAMSBURG
S
SAUDI ARABIA
Saudi Arabia provides a striking example of how it is possible
to grow volume, market share and income in a market where
advertising is completely banned.
(WTSA - Boat) We export our products to Saudi from the USA.
Ten years ago, (WTSA - Ind. & PM Vol. 75-85 Area Graph) the
cigarette industry was small. We exported three quarters of
a
billion units and our market share was about eighteen percent.
The development in the Saudi economy caused by the oil boom
helped the cigarette industry, which more than tripled to some
fifteen billion units in 1985.
We were a major participant in the growth of the industry. We
increased our volume by a factor of seven to 5.4 billion
units. Our market share reached 35.7% at the end of last
year, and it.has further increased to 36.3% for the first
eight months of 1986. Our (WTSA: 75-85 Op Inc-Bars) operating
income in 1985 was $65 million.
Over the past 10 years, (WTSA - ML + Kent SOM 75-85 Graph) the
Marlboro family has gained nearly 20 market share points and N)
ut
at year end 1985, Marlboro had 32.3% of the market. This has
© increased to 33.4% on an August 1986 year-to-date basis. Kent ~=
was the big loser; its market share is down 17 points to just ~_
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October 22, 1986 RP2/001
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2
S
over 2% (T^'TSA - Competitor Shares 75-85 Graph) Rothmans has
.
lost its leadership position and PM now leads the market.
Although (WTSA MLF Mkt) nearly all the growth has come from
Marlboro Red, Marlboro Lights is also doing very well (WTSA
MLL Mkt). In the last five years Marlboro Lights has added
over 400 million units to Marlboro's volume and its August
1986 year-to-date market share of 5.2%, is up 1.2 share points
over 1985.
Our (WTSA Merit Mkt) third brand in Saudi is Merit. This was
growing strongly until 1984 (WTSA 81-85 Merit SOM - Graph)
when damaging rumors reversed the trend. However, I'm happy
to say that Merit is now showing signs of recovering following
the (WTSA Merit Ultra Packs) launch of Merit Ultra Lights
which took place in March this year. Merit Ultra Lights is
doing very well and exceeded a 1.0% share of market in July
1986.
Our progress has been achieved despite the complete
advertising ban I mentioned and which has existed since 1970.
We've (WTSA Merit Ultra Ad) had to be very creative in our
marketing approaches and the advertising you are seeing comes
from local journals and from Pan Arab publications which find
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their way into Saudi. ca
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3
(WTSA: PM brands Shelf facings) Merchandising is one area
where we've been able to achieve some branding at the point of
sale with shelving programs like this. (WTSA: ML Clock) We
also use this sort of unbranded promotional material in a
number of places.
Since (WTSA: Formula 1 Ad) both the Arabic, mainly Kuwaiti,
and English language foreign press do get into Saudi, we use
these to promote Marlboro and our other brands.
We've (WTSA:ML Rally Shot) also developed sponsorships in
neighboring markets which provide good opportunities for
promotion and publicity on TV. We support local Arab drivers
with a(WTSA: Saudi ML/Toyota Rally Team) Marlboro-Middle East
rally championship team and jointly with Toyota we established
a rallying team in the Gulf. Events such as these are widely
televised -- (WTSA: Rally) Saudi networks cover some directly
while neighboring.countries cover others.
We've found other ways to profit from the Arab interest in
motor sports. We (WTSA: Jeddah Fl Exhibit) generated added
interest in the Marlboro name by exhibiting a simulator of a
Formula One Marlboro car at this year's motor show in Jeddah. rta
cn
This attracted large crowds. ~
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4
.
Since last year, we've also been using (WTSA: Canon/MLF1 Ad)
cross-border television advertising in a joint program with
Canon cameras. These carry shots of Marlboro Formula One cars
intermingled with the main advertisement, Canon cameras.
Home videos 1 WTSA - Vi eo ~ oP are popular. We saw this as a
new opportunity to promote Marlboro. We have an agreement
with a private distribution company for (WTSA - Cassettes)
video cassette rentals and are now developing commercials,
incorporating Marlboro branding, to advertise the
distributors' extensive library of "Westerns".
--PAUSE--
Earlier, (WTSA - Industry Vol 80-85 Bars) i told you how we,
and the cigarette industry in general, had gained from the
boom in the Saudi economy. The fall in oil revenues has
reversed this. Cigarette industry volume is down due both to
declining disposable incomes and to immigrant workers leaving
the country. Our latest estimate of industry volume for the
full year 1986 projects a further decline.
In addition, (WTSA - Tax Structure Change '85 Table) the
government is now looking to cigarettes to help increase
revenues. It did this by increasing customs duties in June
last year, and simultaneously changing the systen from one
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5
which was mainly specific to one which is now principally ad
valorem.
Ad valorem tax systems are damaging to brands such as Marlboro
and Merit which sell in the premium category. The tax on
these brands increased from $3.73 to $8.43 per thousand in
1985. To protect our margins we had to increase our prices by
some 18%.
The (WTSA: Low Price Packs)tax increase on cheap brands, such
as these, was very much smaller. Further, the cheap brands
did not even pass on their small tax increase for eight
months. (WTSA - Price Segmentation 2Q 84 - 2Q 86 - Area
Graph) The price gap widened substantially and downtrading
accelerated. Cheap,brands rapidly reached more than 20% of
the market by year-end 1985. Pricing for the cheap brands
during 1986 has been in a state of constant change. A price
increase for the major cheap brands early this year was
followed quickly by discounts, and price reductions. Despite
this activity, our latest available data shows that the cheap
brands have lost share in 1986, declining to 20.5% in the
Second Quarter of 1986.
(jITSA - Industry Vol 2Q 84 - N
However, both downtrading and a Cn
a
2Q 86 Area Graph) sharp decline in industry volume continue to ~
10
represent serious downsides to our business. Industry volumE ~
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6
continues to fall. Marlboro, though, is doing quite well, a
point I'll return to later.
There's still a risk of renewed and possibly more intense
downtrading if Saudi accepts (WTSA - 50% Tax Impact Table) a
Gulf Health Ministers proposal to increase the ad valorem duty
on cigarettes from 30% to 50%. This would increase the total
tax on Marlboro by $4.92 a thousand versus only $2.78 for
cheap brands.
Since the country needs additional revenues, we view it as a
near certainty that customs duties will go up. We're mounting
a really (RWM - Bush Letters) major lobbying effort to make
any increase, and indeed all cigarette taxation, wholly
specific. This will favor our brands at the expense of the
cheap products. This is a very important issue for us since
there's at least $30 million in operating income at stake.
At this stage, we cannot predict the outcome of this very
intensive lobbying effort. However, we have learned through
various sources that GCC member states have expressed
reservations towards a 50% ad valorem tax rate.
We are also making progress in moving towards a cigarette duty N)
Cn
with a higher specific tax element. The Saudi Customs 0
co
Department is studying the need to increase the minimurr ~
~
~
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7
specific tax element currently at US$4.00/000 cigarettes.
Kuwait and Oman are also studying the merits of implementing a
minimum specific tax.
--PAUSE--
.
Another (WTSA - GCC Resolution #4) potentially adverse issue
is that of smoking and health. The Health Minister's Council
of the GCC has become more aggressive in this area. New
regulations have been adopted requiring health warning labels
to appear on the front of cigarette packs, and the lowering of
tar and nicotine levels to 12.0 and 0.8 respectively.
We're also lobbying against these requirements. To date, and
through a vigorous corporate affairs program, we have
succeeded in delaying the date of enforcement by six months to
July 1, 1987, in Saudi Arabia.
In addition (ML- Distributor) to protecting our business
through aggressive lobbying, we're also working to increase
volume and share by making our distributors more efficient.
To improve merchandising and point of sale material where we
can, we have placed (WTSA - 14L Salesman in Mkt. ) Philip Morris CA
Q =~
employees into the two regions in Saudi, the East and the '°0
~
-0
~
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a, _ -
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8
West. We'll also be spending more time on training salesmen
and on improving physical distribution generally.
Finally, (WTSA - Saudi Mkt) and most important of all, we're
redoubling our marketing efforts and we're going to compete in
the other segments which the oil crisis has opened up. This
way we'll rebuild our volume and our market share for when the
economy improves again.
o Specifically, (WTSA - PM New Brand Chart) we launched L&M
Regular this month. It's priced in the medium price
segment, and is positioned to capture Marlboro smokers in
the event of further downtrading.
o We intend to enter the very lowest price segment with two
new brands: Visa, an American blended product, and Marble
Arch, a Virginia product. Both are scheduled for launch
during the fourth quarter of this year.
o We'll further penetrate the Virginia segment with Bond
Street 20's in January 1987, priced competitively against
BAT's, Gold Leaf, in the medium price segment.
o Chesterfield will be launched in April 1987 to further N
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strengthen our position in the American blended segment, o
co
~
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9
and will be priced between Marlboro and L&M, at par with
0
Winston.
(WTSA - LTN Growth 81-85 -
intend to exploit
We Graph) the growth in the
at about a 30% per annum
We
approximately 1.4 billion units in 1985, and we
segment share of 65%, principally with Marlboro
Merit.
Lights
and is
launch
Box
launched Merit
low tar segment. This
rate for the last five
(WTSA - Merit UL
in March. It has got off to an
Area
has grown
years to
have a
Lights and
Pack) Ultra
excellent start
helping to revive the Merit brand. We intend to
(WTSA - PMSL Pack Shot) Philip Morris Super Lights
MLL
(TSA -
in the Spring of 1987. We'11 also be giving
Ad) additional marketing support to Marlboro Lights.
Overall, (WTSA - ML SOM 2Q 84 - 2Q 86 Graph) the Marlboro
brand family has shown remarkable resilience in the face of
the intensive downtrading that has been going on. Marlboro
Lights is growing (WTSA - MLL Vol. 81-85 - Area Graph) well,
ending 1985 at 614 million units. August 1986 year-to-date
volume of Marlboro Lights has increased 10 over prior year to
460 million units, and if the trend to lower numbers
continues, we expect this growth to accelerate.
We'll (WTSA - ML In Mkt Shot) be giving increased support to
_ Marlboro in the high price segment. In case our efforts tc
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maintain Marlboro's delivery levels prove unsuccessful, we've
already developed lower delivery products. We intend to
maintain Marlboro as the price leader but we'll attempt to
narrow the price gap between it and the cheaper brands. We'll
do this mainly through changes in the customs duties and we'll
be conservative in our pricing to avoid any widening of the
gap. Our policy will be to give preference to volume and
share gains (Saudi Recession News) during the recession. This
approach is yielding positive results, and I can report that
PM achieved a record market share of 42.1% in the month of
August 1986. This exceeds our previous record in May 1985
when PM held 41.4% just prior to the introduction of the 30%
ad valorem tax.
(Agenda - Germany)
I will now turn to the second market I want to talk about -
West Germany. This market has now regained the position it
once held as PMI's most profitable market.
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