Our approach to marketing
We recognise that our marketing must be conducted responsibly, ensuring that we communicate our product and brand benefits to adult consumers. In 2001, we developed, along with two major international competitors, the International Marketing Standards (IMS). They set out detailed guidance on all aspects of tobacco marketing from print, billboards and electronic media to promotional events, packaging and sponsorship. In 2006, in accordance with the IMS, we ended our sponsorship of Formula 1 motor racing.
We want to keep our marketing activity responsive to a fast changing world. During 2007, we will therefore be revising our own set of Standards, to include newer media not captured in the original 2001 version (e.g. internet sales and text messaging), enhanced adult age verification procedures and tighter restrictions on promotion and sampling. These and other changes will help ‘raise the bar’ further in terms of addressing what is acceptable tobacco marketing worldwide.
Our marketing approach focuses on using insights into consumer lifestyles and values to develop relevant products. These insights drive the development of our product and communication campaigns, to differentiate our products from our competitors’ offerings in ways that resonate with adult consumers. This includes the work of our Trade Marketing & Distribution teams to place and promote the right brands in the right retail outlets for the right consumers.
Central to our marketing approach is the premise that one size does not fit all and we believe a key strength of British American Tobacco is our diversified Global Drive Brands (GDBs) portfolio. These brands deliver rational choices such as product, blend and price along with other perceived consumer benefits like strength and taste. Our growth strategy is built on the success of our four GDBs, Dunhill, Kent, Lucky Strike and Pall Mall. We focus our resources to develop these brands in the key International, Premium, Lights and Adult Smokers Under 30 (ASU30) marketing segments, where we expect both current and long term growth opportunities. We also continue to invest in our regional and local brands, especially where they play a strategic role in a particular market’s portfolio.
We also take opportunities to invest in brands that show specific promise, particularly in the growing segments, such as Vogue, our premium superslims offer, and Kool, our premium menthol offer. See chart
The following images represent graphical data. A link to this data in an accessible tabular format is provided at relevant points thoughout the page.
GDB strategy is working
Our strategy is working. In 2006, our Premium GDBs alone grew by 9 per cent. Each of our four GDBs grew in 2006, including Lucky Strike which returned to marginal volume growth and continued to improve its share in most of its core markets. We grew our GDBs in each of our operating regions, with double digit GDB increases in Asia-Pacific, Europe, Africa and Middle East and Latin America.
The 2 per cent overall volume growth is not concentrated in one country or region. We saw increases in all regions except for America-Pacific, where volume declines in Canada offset gains in Japan.
Our investment in consumer relevant innovation is delivering results in both volume and value terms. 2006 saw a number of highly successful product launches in which we offered consumers additional value at a higher price point. Dunhill Fine Cut cigarettes in numerous markets and Pall Mall superslims across key Eastern European markets, such as Russia, were just two specific product innovations that drove volume and higher net revenue from our GDBs portfolio. They are concrete examples of us meeting the preferences of consumers who, in turn, are choosing to trade up to products that deliver higher margins. Innovation is strengthening the foundations for our future growth. See chart
Other International Brands
While our investment and managerial focus remains firmly on our four GDBs, 2006 saw robust growth across our broader range of International Brands (IBs), with total International Brand growth at 11 per cent for the year. Vogue, our premium superslims offer, led the way with an impressive 32 per cent growth due to excellent results in South Korea, Russia, Italy, France and Ukraine. Kool grew by 16 per cent, as the menthol category continues to expand worldwide. In addition, we saw robust growth from Benson & Hedges, Rothmans and Craven ‘A’. Our efforts to appeal to consumers who are choosing to trade down in price but still want an international brand succeeded with Viceroy, which grew by 19 per cent in 2006. See chart
Relationships with customers
The increasingly restrictive environment in which we can communicate with consumers means that Trade Marketing & Distribution (TMD) is a key element of our marketing activity. We recognise the importance of the retail outlet. That is why we strive to achieve and maintain benchmark business partnerships with the retail trade in all the strategic channels where we do business.
To achieve benchmark status, we must operate consistently in the most effective and efficient manner to serve our trade customers, both independent outlets as well as our major account customers. We measure our performance in this area extensively and the most recent external and independent survey carried out in 2006 revealed that, in a majority of countries, retailers perceive British American Tobacco as having the best TMD organisation compared to other tobacco companies.
The foundation for this success is our ‘Win Win Win’ strategy. We recognise that in order for our strategy to succeed, it is imperative that there is a benefit for all three participants – our customers, ourselves and, above all, our consumers. All three must stand to win in some way. This approach resonates with our trade partners, as reflected in our global deal with Shell signed in 2006, the first of its kind within the FMCG sector. Our GDBs, plus two strategic brands in appropriate markets, now have guaranteed, prominent display space in 5,500 Shell convenience stores around the world.