Hopes to Upgrade 'Folksy' Tobacco Product

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CHICAGO (AdAge.com) -- Doral, the third-largest cigarette brand in the country, is taking its biggest step since 1984 when it leapt to the discount category from the premium: It's inching its way back.

Facing increasing price pressure from fourth-tier, deeply discounted cigarettes, R.J. Reynolds Tobacco Co. is upgrading its best-selling smoke -- long positioned as a folksy, down-home brand -- with a new blend, package and ad campaign to make it more contemporary and mainstream.

The strategy leaves Doral straddling the fence between high- and low-priced smokes.

"What's happened with the new price dynamics is that Doral has become a mid-priced brand," said Doug Shouse, RJR's vice president of marketing in charge of Doral.

Tobacco settlement
The dynamics changed as a result of the 1998 Master Settlement Agreement between the tobacco industry and states' attorney generals that widened the gap between big tobacco -- responsible for huge payments -- and smaller players exempt from the deal. That left tobacco companies paying into the agreement less equipped to slash prices, and brands once-deemed discount -- Doral, Philip Morris Cos.' Philip Morris USA's Basic and Brown & Williamson Tobacco Corp.'s GPC -- are now no longer the cheapest.

Low-price smokes took off as a product of the faltering economy in the '80s, when RJR recast its old Doral brand as an alternative to generic cigarettes. With bad economic times back, already-price-conscious smokers could be more concerned about saving every nickel. RJR is attempting to keep Doral customers from trading down further by pitching them on more value for their money. RJR is keeping Doral's average price around $24.26 for a carton vs. $18.65 for the cheapest smokes and $31.30 for RJR's Camel.

"Doral is about being the most premium brand in the value category, and now we're putting our money where our mouth is in a big way," Mr. Shouse said.

Dropping market share
That investment aims to stabilize the languishing brand and return it to a growth track by stealing share from other value brands like Basic, Mr. Shouse said. Doral's share of market slipped to 6.2% in 2000, from 6.4% in 1999 and 6.7% in 1998. This year, it was down further to 5.9% in the first quarter and 6% in the second quarter, according to tobacco industry publication The Maxwell Report.

The Doral marketing push, its first major effort since 2000, breaks in early 2002 through Coyne Beahm, Greensboro, N.C., and includes national print ads as well as in-store and direct marketing. Ads are headlined with "new splendidly blended" and use the tag "You gotta taste this."

The redesigned packs carry on the theme of blending, with a bold blue color bleeding into style-specific colors (red for full-flavor, gold for lights) and a big letter "D" in the background. The new smokes -- containing more premium, twice-blended tobacco -- will be available nationwide at retail in November and December.

Print ads set to run next year in magazines including Time Inc.'s People and Sports Illustrated featuring eye-fooling pictures such as a Dalmatian that gets into a bag of charcoal and a real parrot looking at a near-image of itself on a man's Hawaiian-style shirt to illustrate the kind of blending smokers will find in the new Doral.

"We're certainly not trying to make Doral cutting-edge and ultra hip, but we do believe we can make it more mainstream and a little bit more in step with the times," Mr. Shouse said.

Country music and barbeques
A shift too drastic could jeopardize RJR's hold on its loyal Doral franchise, to which it dedicates an extensive relationship marketing effort. The program includes a quarterly mini-magazine, Doral & Co. Across America, and an annual Doral Celebration, where Doral loyalists gather for a carnival-like event featuring heartland favorites like country music and barbecues.

Some industry experts question RJR's investment in Doral.

"You always walk a fine line in terms of how much you change or 'improve' a brand without alienating your loyal customer base," said Bonnie Herzog, an analyst at Credit Suisse First Boston.

Rob Campagnino, senior tobacco analyst at Prudential Securities, thinks the company should focus on premium-priced Camel to boost profits instead of a smoke that's not making money.

"For the foreseeable future, you need to be offering premium cigarettes in order to grow profits," he said. "I think maybe that money [spent on Doral] should be falling more to the bottom line rather than toward an unprofitable share."

Ms. Herzog, however, said, "I don't think [Doral] is a brand franchise they can ignore. ... Doral used to be the second-largest cigarette brand in the U.S. It's now the third, and it's still RJR's largest brand."

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