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.

Strategy

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

GDB strategy is working

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

Relationships with customers

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.

GDB performance

Dunhill
Dunhill provides us with a Premium/Super Premium brand to meet the needs of consumers at the top end of the tobacco market. In 2006, we extended Dunhill’s geographic reach, as well as the product segments in which Dunhill competes.

2006 saw the successful enhancement of the House of Dunhill via the rapid roll-out of Dunhill Fine Cut cigarettes, the relaunch of Top Leaf and the pilot launches of the Essence (superslims) and Senses (menthol) ranges. These initiatives succeeded in Dunhill’s core markets such as Australia, Malaysia, South Korea and Taiwan, where they supplemented existing Dunhill offers, while stretching the price mix to premium plus levels. These developments also helped in the promising launch and roll-out of Dunhill in new markets, particularly in Western Europe and the Middle East. Furthermore, a number of key product innovations that commanded premium plus price points were successfully launched. We believe that the equity of the brand, combined with tangible product benefits delivered by these innovations, provides consumers with what they want.

Manufacture of the Dunhill Signed Range cigars was moved to Nicaragua in 2006. This change will significantly reduce our supply chain complexity, allow us to continue to deliver a premium cigar and invest in the further growth of the range.

2007 sees the centenary of the Dunhill tobacco brand and several ambitious initiatives will roll-out worldwide in celebration.

Click here to view the performance data for Dunhill

Kent
Kent continues to play its key role in our portfolio as the free standing premium brand for consumers seeking a mild and smooth taste. Kent aims to be the leading brand for ASU30 smokers and perceived consistently as the brand that delivers ‘the modern way to smoke’.

Kent has continued to demonstrate the innovative nature of a brand designed for the 21st century through a number of linked initiatives. These include the introduction of a new global pack and the core charcoal range’s use of 3-Tek filter technology. A new communication campaign in Russia, Japan, Romania and Chile resulted in accelerated organic growth of the brand in these markets. In Switzerland and the Netherlands, British American Tobacco launched the brand via the migration of Barclay consumers to Kent. Initial results are promising, with exceptionally strong consumer response from both existing smokers and those switching from competitor brands.

The net result of these initiatives saw Kent become the number one brand in Romania, as well as achieving over a billion cigarettes a month in sales in Russia. Kent delivered the fastest rate of growth among our premium GDBs, with its fourth consecutive year of double digit growth. 

Click here to view the performance data for Kent

Lucky Strike
2006 was a milestone year for the Lucky Strike brand, as it managed to return to volume growth and achieved record market share in Germany, Spain, France, Indonesia, Argentina and Italy.

In 2006, Lucky Strike focused on establishing itself as the brand that provides ‘a rich tobacco experience’ through the launch of an innovative pipeline of product and packaging initiatives.

Lucky Strike’s new premium pack designs add quality, heritage and product expertise cues and further differentiate the Original Red from the Original Silver variant. The new ranges, with Madura, Fireleaf Silver and Mentha Piperita variants, deliver unique tobaccos to provide a choice of rich taste and uncompromised smoking pleasure.

Lucky Strike launched new Roll Your Own (RYO) products in an effort to capitalise on growth without diluting its premium image. In smokeless products, the market success of Lucky Strike snus in Sweden and the pilot learnings achieved in South Africa, are encouraging signs that the brand’s equity can be successfully stretched into other tobacco categories. 

Click here to view the performance data for Lucky Strike

Pall Mall
Pall Mall aims to redefine consumers’ experience at the Value-for-Money price point by delivering on its promise of ’imagination in tobacco’ with innovative product and brand attributes. Pall Mall achieved an outstanding performance in 2006, driven by good organic volume and share growth in its established markets such as Germany, Poland and Spain, as well as many successful launches in all regions.

Pall Mall’s success is driven by the strong and globally consistent brand mix, supported by a solid innovation pipeline, ensuring Pall Mall has a leadership position in responding to consumer needs in the Value-for-Money segment. The launch of House of Pall Mall in Switzerland included the introduction of four different tobacco products (small cigars, RYO, Superslims and Stix) along with a range of King Size cigarettes offering more choice. In Germany, Pall Mall successfully captured consumers moving from Stix to other tobacco products within the brand family and achieved its highest ever share of the German market by the year end, to become the second largest tobacco brand.

Click here to view the performance data for Pall Mall