The country's No. 3 tobacco maker is ushering in sweeping changes in how it approaches marketing, from brand management to agency relationships to new-product development.
"The competitors we're up against -- Philip Morris, R.J. Reynolds Tobacco Co., Lorillard -- have more money and more infrastructure," said Robert Bexon, senior VP-marketing at the B.A.T Industries subsidiary, in a rare briefing. "We're in the ugly position of having to fight . . . with people like Philip Morris who have enough money to buy Spain."
At first glance, B&W's chances look bleak. Its entire cigarette portfolio has just under a 16% share of the U.S. market -- less than half that of PM's Marlboro alone.
The majority of its business is in low-margin, value-price cigarettes, and its portfolio is heavily weighted with old brand names, among them Pall Mall, Tareyton and Lucky Strike.
Until this month, the company hadn't introduced a new product in 12 years.
Mr. Bexon's solution: reallocate its $350 million consumer marketing budget against priority brands while attempting to reduce its reliance on price.
"The last big issue that needs to be solved is price," said Mr. Bexon. "The way we are discounting is killing us."
He noted that three years ago $1 billion was spent on price reduction in the cigarette market, excluding buy-one-get-one-free deals. Last year, that figure rose to $3 billion.
Price is a sensitive issue for B&W because more that half -- 8.8% of its total 15.9% market share -- is in discount brands, according to Davenport & Co. analyst Jack Maxwell.
One of B&W's responses to that is breaking the rules by actively advertising GPC, a generic with a 6% share, in an effort to raise the equity -- and price -- of the brand.
The company redesigned the pack, launched a print campaign themed "The best smoke of the day" and embarked on the brand's first sponsorship, a tour of singer George Strait.
GPC is one of two brands B&W decided to prioritize, operating under the theory that with smaller marketing coffers, it must pick its targets. That thinking influenced Mr. Bexon's decision to abolish brand management in favor of a portfolio approach.
Under the old organization, he said, the Tareyton brand manager might champion a new innovation, such as a "natural" line extension. But in the current system, the company can determine that the extension might be matched to a stronger, more suitable brand, such as Kool.
MORE USE OF DIRECT MAIL
Also realizing that only priority brands merited full-scale media programs, B&W heavied up its investment in direct mail, a more targeted and less costly medium, to support the smaller brands.
"We invested $160 million in direct mail," going from 8 million to 20 million-plus names" since 1994, Mr. Bexon said.
The beneficiaries of the expanded list are likely to be Tareyton and two women's brands, Capri and Misty. As niche brands, "we're hard-pressed to spend $100,000 per double-page spread," said Mr. Bexon.
The most visible change came in August when B&W changed agencies, dropping Euro RSCG Tatham, Chicago, and realigning brands between Bates Worldwide and Grey Advertising, both New York. The idea was to go from an "advertising agency to communications agency," said Mr. Bexon.
MORE OPTIONS THAN ADS
"Advertising isn't the only game in town, there are more compelling ways" to get out your brand message, he said. "The full spectrum isn't just pretty pictures [on a magazine page or outdoor board]."
B&W this month launched Kool Natural, its first product since Capri in 1986 (AA, Sept. 28).
Mr. Bexon said that will be "the first of many new-product introductions" to come.
Not among them, at least in the short term, is a low-smoke cigarette such as Philip Morris' high-tech Accord or RJR's Eclipse.
Although B&W is tinkering with two low-smoke projects in the research and development phase, most entries to date have been so high-tech that B&W would rather come up with one "that doesn't need an instruction manual," he said.
Higher on the priority list is a relaunch of Carlton, "sometime next year," said Mr. Bexon.
"We need to get packaging and advertising consonant with the positioning [of an ultra-low-tar brand]," he said.
And B&W may expand its test of advertising for Lucky Strike. Themed "An American original," ads are now appearing in print and outdoor in five major U.S. cities, including New York and Chicago.
Other than experimenting with some ads without people, B&W isn't planning major marketing changes despite the inevitability of government restrictions on cigarette advertising.
BAN `CHANGES' COMMUNICATION
"It's completely possible to have brand communications in a ban" situation, said Mr. Bexon, who joined B&W from Canada's Imperial Tobacco, where there is an advertising ban. "A ban doesn't inhibit that, it just changes it" to new communication venues.
Mr. Bexon's belief is that in that environment, it is packaging that will become the strongest communication device.
"We put an insert on the back of Pall Mall (in the U.S.) and got over 1 million calls from consumers," he said, adding that the calls are still coming in.