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PHILIP MORRIS Cigarette Marketing - A New Perspective November 1989 37 GOLDEN SQUARE LONDON W1R 4AH TELEPHONE 01-494 3525 FAX 01-734 5253 REGISTERED IN ENGLAND No 21?40312

- 2 - Who's directing the market? Key Issues Focus on the opportunities Consumer attitudes Product benefits Positioning Advertising Isolating the real potential Where next? N tJt 0 j O ~ 4 ~ ~ .!

3 Who's directing the market? Consumers in Europe (and probably throughout the World) are under increasing pressure to give up smoking. In behavioural terms this has translated into the growth of low tar sectors rather than a dramatic volume decline in the total market. On the surface this would seem to be an acceptable situation from the industry's point of view. However there are other implications that impact on the marketing of cigarettes - the market is now defined and structured by tar category low tar includes a large number of 'light' versions of parent brands brand images are more obscure - even in countries where advertising restrictions are less controlled than the UK, images are often not well defined. brand activity is becoming one dimensional - there are few revolutionary approaches!

4 The market structure is more a manufacturers response to the government/health lobbies rather than a reflection or development of consumer demand. If low tar brands are growing because of effective marketing, why are there no brands whose positioning reflects a positive consumer product benefit? Much of the advertising and promotional activity simply relies on pack colours and product descripters of 'mild' or 'light' to indicate the category. In many cases it is only the health warning that talks directly about the product to the consumer. We have to accept that social and health pressures will continue to direct smokers to low tar cigarettes, however there should be more confidence and re- assurance for the consumer than a health warning at the bottom of an advertisement. There are too many followers and not enough leaders in cigarettes. The approach in other markets is starting to change, there is an opportunity for a leader in cigarettes. ~_

- 5 - We believe that the industry has been channelled by outside pressures into one marketing approach for all brands. We equally believe that this provides an opportunity to stand back and review the market. An opportunity to take a new perspective .....

- 6 - Rey Issues The major issue for cigarette marketing is the often, one dimensional approach to advertising development. Research tends to focus on the consideration of advertising concept boards and to force reaction to the single image as presented. Advertising development is led by response to images that are largely directed by what other brands are doing rather than by addressing issues that are consumer orientated. There are a number of other key issues - they are neither definitive or mutually exclusive - however they all relate to the approach to the consumer. 1. If low tar is such a good idea and consumers respond to the message - why are we not focusing on the benefit? I 2. Should we be restricted by the artificial market structure? Is there a competitive opportunity? 3. Where are the lifestyle brands? 4. Where next after low tar?

7 5. In some areas the advertising 'rules are less restrictive (but likely to get tougher) - How do we give ourselves an edge for the future? 6. Advertising restrictions are increasingly more difficult - Does that mean that we really have to produce advertising that no one understands? 7. Can we exploit other consumer concerns in order to improve the image of cigarettes and smoking. 8. If we can't borrow positive images - can we create them? 9. Can we create a niche brand (that generates high volume)? 10. Consumer targeting - do we advertise at who we've got or who we want? 11. Can we learn from other markets? 12. Can we make the restrictions work in our favour? 13. Why do all cigarettes look the same? 14. Where do consumers get most of their positive images for cigarettes?

8 Focus on the opportunities Essentially, the key issues can be broken down into four discreet sectors, specific opportunities can however, appear in more than one category of influence/direction. Consumer Attitudes Product Benefits Issues 1, 3, 7, 10, 11 & 14 1, 4 & 13 Positioning Advertisina 2, 3, 5, 7, 9, 11 1, 2, 3, 6, 8, 9, 10, & 12 12 & 14 We have taken each sector and expanded the core thoughts and their implications for developing an alternative and more positive approach to cigarette marketing.

- 9 - Consumer Attitudes Lifestyle Although cigarettes are a'badge' product most of the brands, including the most successful ones, do not have strongly defined images. The probable exception is the masculine image of Marlboro. Where is the cigarette for the higher educated groups the affluent middle aged career women rising income groups the grey market. - In short, the articulate, aspirational and the adventurous within the broad cigarette market framework. Equally - where are the brands for the key groups within the mass market (C2D)? Advertising, particularly in the UK, has become irrelevant, abstract or stereotyped. It lacks total empathy with potential target groups. Consumer perceptions are based on pack designs, price points and usage patterns - not images created by the advertising. N ~ O ~ O ~ ~ 0

- 10 - Growing concerns Consumers are being increasingly aware and concerned on social and moral issues. In Germany and across Scandinavia the ecological movement is becoming a major force. Cigarette Companies continue to sponsor sporting events - why can't they get involved in 'green' issues - both promotionally and in a direct role. Will consumers feel less guilty about smoking cigarettes from a Green giant? Targeting Cigarette advertising is largely directed (both in research and executionally) at mass target groups - defined only by broad demographics and current brand behaviour. Why are we not being more selective in terms of who our message is directed at? We need to learn more about the attitudes and influences of - heavy users - vulnerable brands - new users - consumers who brand switch and ... when did we last target a campaign at recently lapsed users?

Current Images We believe that most of the strong, positive images for cigarettes and smoking are created and perpetuated by cinema and television. We have seen the 'hero' smoking in Wall Street, Crocodile Dundee and Roger Rabbit. Mickey Rourke, Mel Gibson and Goldie Hawn are forever seen, both on and off the screen, with a lighted cigarette. it is reasonable to assume that films and personalities have more influence on consumers than a static poster of the letters from a B & H pack hung on a washing line under a dark and stormy sky! If branded cigarette advertising is to take full advantage of these images then it has to do more than simply achieve pack recognition - it has to feed off and exploit the image source (without breaking the restrictions).

- 12 - Product Benefits Low Tar In most markets where consumers are consciously changing purchasing patterns, manufacturers underline, re-inforce and exaggerate the specific benefit(s) which sponsor that change - for example the development of low fat dairy spreads and low alcohol beers have been based on promoting their physical points of difference. The generic benefit of low tar has not been appropriated for a particular cigarette brand - it remains like the star rating for petrol. Consumers drift or leap into the sector because of external pressures - the brand which can interest the consumer in the inherent low tar benefit will be the one through which that consumer will enter the sector. Advertising only the brand is missing the opportunity to create and exploit the initial interest and therefore has to work harder to gain trial - it speaks only to a converted audience and with an equal voice because it competes directly with all other low tars. 0

What Next? The market will eventually become low tar. The speed with which this occurs will depend on several factors the health lobby momentum the speed of increase in advertising restrictions adverse publicity on smoking an increase in promotional activity on low tar (whether general or specific). The low tar market will itself begin to be segmented. Indeed, in Europe there are already Ultra and Superlight brand derivatives. It will be important to be sure that it is right to fragment this sector by narrow tar/nicotine levels. What do smokers understand from fractional pack indicators? Where's the benefit in a numbers game? What alternatives are there - in terms of taste claims, filters, new smoking materials, cosmetic product changes.

Segmenting a growth market is an important and potentially valuable opportunity - we should find, develop or create a credible (real, emotional or perceived) benefit and project it. In the short-term, the fact that the product may not deliver a readily acceptable taste (compared with the standard product) should not be an automatic deterrent - look at what's happened with skimmed milk and the Cambridge diet - both markets which have grown and flourished (despite poor product performance) on the strength of a well communicated product benefit. In the near future the taste issue will not be relevant. At some point the whole market will be low tar and all cigarettes will be similar. This means - there will be fewer brands we will need to add value to those brands which survive we must differentiate on the basis of strong and credible images

- 15 - Branding Cigarette branding is on the pack - the 'badge' which people display. Philip Morris successfully market 'designer' packs (Star) in Europe - why not brand the cigarette? Outside the pack cigarettes are virtually indistinguishable - the Marlboro image mixes with Silk Cut and Virginia Slims. Colours and designs could be carried through to the cigarette itself - a visible extension of the personality of the brand (and the user).

Positioning Being Competitive We live in a competitive world - everyday we are subjected to work, social and domestic pressures. We are also bombarded with hundreds of messages - better, stronger, faster, the only! Why, then, is most cigarette advertising passive? Brands compete in sectors defined only by price and/or tar level - they are rarely competitive within these strict groupings, much less across them. We should consider the opportunity - not just for direct aggressive positionings but for positionings that challenge the rules of a market structure that sees product differences only in terms of price and non-involving product definition. Pra-empting changes in the rules The restrictions on cigarette advertising vary across international borders. If a universal agreement were made tomorrow to ban all forms of advertising and promotion of cigarettes - which brands would retain their image and personality?

There is a strong argument that only Marlboro would have any residual consumer personality for any length of time. The Marlboro cowboy and then Marlboro Country has given the brand a single minded and firmly masculine image. This results not just from the tight positioning but also from the consistency of image. It is hard to imagine another brand which would achieve any clear or lasting imagery. Although B & H and Silk Cut have been single-minded and consistent for many years their creative direction has concentrated only on achieving pack and name awareness. There is no attempt to involve the consumer in a dialogue about the product - they only seek (and achieve) pack ubiquity. There is an opportunity to repeat the Marlboro lesson in countries where positive and overt images are still allowed. Creating a powerful and direct advertising execution to carve a strong and consistent image in the mind of the consumer. This image will not only be lasting but, like Marlboro, can be continued in some reminder form as advertising restrictions toughen. A new view of the restrictions The rules on cigarette advertising are a real marketing problem - they are designed to prevent the development of any creative work that encourages smoking.

For most advertisers the restrictions are an increasing problem that strangle any chance of positive advertising development. We believe that there is always an alternative view - and that there is an alternative approach. If they work against everyone else - How can we make the restrictions work for us? The answer is to take a lesson from history - just look what prohibition did for alcohol. The idea is to buck the trend - create a brand property that is all about rebellion - a brand that highlights and focuses on the restrictions, ridicules them and becomes known as being rebellious. As the restrictions become more intense - the toughening of the rules automatically promotes the image you've created. In theory, if the rules progressed until they didn't aii.low any advertising - the brand could still be communicated simply by printing huge health warnings.

Niche brands (that sell) Niche brands don't always happen by accident, there are ways of creating a cult brand that owes more to marketing than supposed discovery by the style leaders. In grocery marketing the best way to increase volume sales of a slow line is to indicate to the trade that it is in limited supply and you will soon have to restrict the stock they can purchase. We can do the same to create a niche brand - limit the distribution (by shop type - maybe just sell it at railway stations and airports). restrict regional availability - not a test market, but a real limit - tell the trade (and consumers) that its blended especially for smokers in a small area of Switzerland. Just like Coors beer in the States it will start to appear everywhere. Nothing sells a brand faster than putting it on allocation!

- 20 - Emotional benefit There is a psychology of smoking - beyond the physical pleasure and addiction of tobacco. Consumers find the act of smoking a tactile and emotional experience - they provide confidence something to do with your hands and physical displacement (body language). There is an opportunity to market a brand (with no nicotine and little flavour) to smokers who have given up but who miss the emotional benefits. hi

Advertising Copy We are losing the art of communicating with our consumers. We no longer sell. We assume that our audience can only take on single issue statements or will be involved with intriguing, interesting or surrealistic images. As poster images they may be effective, however there is considerable advertising support for cigarettes in magazines and the press. Why is there little or no copy - have we really nothing to say about our brands? Involvement Cigarette advertising is polarising - simple pack shot with innocuous copy or obscure and intriguing visual with nothing but a health warning. It is hard to believe that the target audience similarly divide into morons or mensa. We have to accept that advertising must sell - we should not be hesitant to produce creative work that provokes positive images and attitudes towards our brand. If the advertising isn't selling then it isn't working! N O i O t?t V V -L W

- 22 - Positive images Creating a campaign that sells and also conforms to the different levels of advertising restrictions is not easy. This is evidenced by the use of abstract and surreal images and the increasing basic concentration on pack and name recognition and little else. It might be possible, however, to create our own style - a style that becomes in vogue - predicting fashion changes in art and design and taking ownership or creating a style that becomes fashionable in its own right. Instead of borrowing positive images we create our own. It can be avant garde, it can be art, photography, design, painting - essentially it has to be different and new! It if works - you have created it - so how can you be stopped from using it? i

- 23 - isolating the real potential The key to how to proceed is in our investigation of the consumer. This has to be on a much broader scale than measuring the qualitative response of tight demographic groups to advertising executions. Current work on the advertising development in the fashion market and for beverages and soft drinks (across Europe) and for chilled produce (in the UK) highlights the opportunity to go one step beyond 'Lifestyle'. In order to explore the potential for a new approach it is essential to understand fully the attitudes and motives of the target groups. Qualitative research groups for cigarettes tend to concentrate on single issue directions and executions - they overtly question attitudes of and to smoking. The risk is that we miss some key issues which can be exploited for cigarettes, but which are not directly related (either in the consumer or researcher's mind). We have developed and proven a research technique that is designed to provide an in-depth study into consumer attitudes - not just on the market in question, but the overall influences on their lifestyle.

- 24 - It enables us to develop advertising that takes account of alll factors that affect behaviour. The objective is to get behind the consumer's thinking on a wide range of subjects clothes worn for different occasions, current trends drinks - when and where cigarettes - brands, attitudes and influences sources of information hierarchy of key influences 'self-images' 'brand images' image/awareness of brands (cigarettes, jeans, clothing) future trends on fashion, outlook, age groups - and effects on cigarette brands and smoking attitudes to a battery of new concepts.

- 25 - The intention is to isolate the specific influences and concerns of our key consumer groups identifying their priorities (for example other studies with young age groups have shown clear indicators on areas such as - education, goals, dependents, independence, job, happiness, material aspects) needs (e.g. - experiences, travel, appearance, peer relationships, independence, confidence, security, guidance, authorities) fears (e.g. failing to - succeed, be appreciated, fulfilled, and ruined plans, no esteem/recognition, loyalty, getting older, fat) desires/likes (e.g. fashion, going out, street-wise, night clubs, music, concerts, shopping, being first, standing out, being liked, being different) action seeking (e.g. company, sharing, needing people, showing off, being seen, not missing out)

- 26 - fashion (e.g. individual, influences, James Dean, old films, freedom, no fashion < - > designer). other areas covered include - sport, the future, brand names and finally attitudes to new concepts which are presented after key motivations and influences have been isolated.

- 27 - Where Next? We firmly believe that there is an opportunity to approach this market from a new direction. The Research is not an end in itself, it is designed to provide an in depth three dimensional view of the market in order to develop effective and consumer responsive advertising. We would like to present a research and development proposal that allows Philip Morris to give its brands a real edge in the various markets in which they compete.