Strategic_Marketing_Exemplar_from_previous_work_1[1]
Strategic_Marketing_Exemplar_from_previous_work_1[1]
STRATEGIC MARKETING
Table of Contents
Abbreviations 3
3.2 Positioning 10
4.1 Product 11
4.2 Pricing Strategy 12
References 17
Abbreviations
2
1 Introduction and Product Description
In the world today, the tobacco industry, in terms of cigarettes, is a declining industry (BAT,
2019; LaVito, 2019; WHO, 2019). This can be seen in context with the important role of CSR
in combination and coherence with global and national regulations, and possibly other
variables like health awareness. International tobacco companies have all started their
journey towards “transforming the industry” (BAT, 2019) or “delivering a smoke-free future”
(PMI, 2019). This journey includes high emphasis on research and development (BAT, 2019;
PMI, 2019). Several of the new, potentially reduced-risk products include a tobacco heating
system, where the tobacco is heated instead of smoked, which is the case with the
cigarettes. Another product that potentially causes reduced risk, and possibly little risk at all,
is the oral tobacco and nicotine products, some of them known as “snus” (Swedish Match,
2019; Foulds, Ramstrom, Burke and Fagerström, 2003).
There are currently oral tobacco and nicotine products available in the market, both with and
without contents of tobacco. For instance, modern white oral products are the newest
innovation from BAT. Philip Morris International is known to be the tobacco industry’s market
leader, but BAT is their number one competitor with a higher total revenue than PMI last year
(BAT, 2019; PMI, 2019).
Currently, Philip Morris International has got 6 of the 15 most popular tobacco brands in the
world, including the top brand Marlboro. However, in a changing environment, PMI needs a
portfolio that shows strength in other areas than around cigarette products. In addition, PMI’s
mission is to unsmoke the world and their job is to ‘replace cigarettes with less harmful
tobacco and nicotine products for the benefit of adults who would otherwise continue to
smoke’ (PMI, 2019: 6). Therefore, a marketing strategy for including a new, non-smoke
product to their portfolio will be outlined in this report.
There are currently around 350 million users of smokeless tobacco globally and oral tobacco
is one of the products that potentially causes less harm to consumers and the environment
(PMI, 2019; BAT, 2019; Peeters and Gilmore, 2013). The oral nicotine-containing products
are said to be at a low risk for consumers (see Figure 1.1). Throughout this report, a
3
marketing strategy for PMI launching their new, oral tobacco products - Marlboro OS and
Marlboro WHITE - is conducted. Marlboro OS is their answer to oral tobacco and means
“Marlboro Oral Snuff”. The Marlboro WHITE contains nicotine, but no tobacco. Both products
will be pouch products sold in boxes with small tobacco and/or nicotine sachets to be placed
under the lip, like the Nordic snus and nicotine products (Leon, Lugo, Boffetta, Gilmore,
Ross, Schüz, Vecchia and Gallus, 2016).
In the world today, the total scope of tobacco is approximately US$760 billion. Of the total
amount, cigarettes still account for around US$683, whilst smokeless tobacco accounts for
respectively US$12.5 billion (Passport (WARC), 2017). Due to greater insights and focus
around health awareness and the cessation battle led by NGOs like the WHO, the tobacco
industry is currently in a changing environment (WHO, 2019). Like mentioned in the
introduction, the major global companies are stating that they are supporting this change
4
through company reports and slogans like “delivering a smoke-free future” (PMI, 2019),
“transforming tobacco” (BAT, 2019) and “creating something better for the smokers of the
world” (Imperial Brands, 2019). Due to healthcare expenditures because of smoke-related
diseases, the economy could also benefit from a decrease in smokers. In 2012, it was
estimated that a total of US$422 billion was spent on diseases caused by smoking. When
every aspect related to smoking is taken into account, a possible economic save of US$
1436 billion is estimated (WHO, 2019).
The biggest key market trends within the tobacco industry can be seen in figure 2.2 which
shows the product lifecycle for cigarettes (smoked tobacco) and less-harm products. Whilst
tobacco companies’ main product – the cigarettes - are facing the decline period, the newer,
possibly less-harm products are in between the introduction and growth phase and sales and
consumption of these products are currently growing. Two possible issues regarding the new
products are how much better these products are for consumers and environment and also
the fact that most of the innovative products are much more expensive than cigarettes
(Mintel, 2019; Hollensen, 2017; WHO, 2019).
5
As shown in figure 2.3, CNTC has got the dominant market share. Still, the biggest
competitors in the market consist of PMI itself, BAT, Imperial Tobacco and Japan Tobacco
due to the fact that these are the global tobacco companies (PMI, 2019). Currently, CNTC
and Altria are considered regional companies and do not pose the same threat to PMI as the
other, international companies. To this equation of competition and key market trends within
the tobacco industry, it is important to add the WHO and governmental work towards tobacco
cessation and the globally increasing health awareness. In addition, it is estimated that illicit
tobacco trade accounts for around 10 % of tobacco consumption (PMI, 2019).
Currently, tobacco control measures are reaching approximately 65% of the world’s
population, which estimates for around 5 million people globally (WHO, 2019). It is
scientifically proven that tobacco smoke can cause disease, disability and death to both
direct users and second-hand users (WHO FCTC, 2005). To prevent this and to move
towards tobacco cessation, the FCTC imposes protection from exposure of tobacco smoke in
public areas, especially indoor areas and in public transport. Other areas of imposed and
suggested regulations and change are price and tax measures, labelling and marketing
6
restrictions, measures of contents of tobacco products, raising public awareness and
promoting tobacco cessation (WHO FCTC, 2005).
In Scandinavia, there was a significant change at the end of the twentieth century, where
people gradually started purchasing oral tobacco in addition to or instead of cigarettes. If we
have a closer look at the Scandinavian countries, where oral products are currently more
popular than cigarettes, there have been studies showing a significant connection between a
decrease in health caused diseases and the decrease in smoking and increase in the use of
oral products (BAT, 2019; Foulds et al, 2003). In an article by Peeters and Gilmore (2015) it is
argued that a switch from cigarettes to snus – which is the most harmful product of the oral
products (BAT, 2019) – would cause less harm on the world’s population. However, it is
emphasised that this harm reduction relies heavily on how the oral product is marketed, who
actually accepts it and whether it actually creates a switch and not just becomes an addition
to smoking (Peeters and Gilmore, 2015). In 2019, and for the first time, the FDA gave the
company Swedish Match allowance to advertise “snus” as less harmful than combustible
cigarettes (LaVito, 2019).
7
3 Segmentation, Targeting and Positioning
The main focus markets and already entered markets for PMIs RRPs are
Europe and Japan, which means that regulations have let PMI enter these
markets
with new, innovative products
markets for their new oral products too. Behavioural segmentation links to buyers’ attitudes,
knowledge and their responses to or use of a product. In this case, for PMI, the market could
be segmented in terms of ‘benefits sought’ and ‘loyalty status’.
When choosing which segments to target there are a lot of influential factors to consider; If
the competition within a certain segment is too high or if it is easy for new entrants to enter
the segment, then the segment could be less valuable to target. Three other factors worth
considering are whether there are possible substitutes to your product and how the
purchasing power of the buyers and suppliers are and are expected to be (Kotler et al, 2016).
Tobacco products create addiction and habits, which would mean that people who have been
smoking for years already have created their habits and those could possibly be hard to
8
change (Palazzo and Richter, 2005: 388). In addition, oral tobacco tends to be a trend
amongst the younger generations (Lundberg, Kvaavik and Tokle, 2019). If PMI target young
adults, like millennials and generation Z, their created habits could include oral tobacco
products instead of combustible cigarettes, and this would be healthier both for the
consumers and for the environment (BAT, 2019; PMI, 2019). This leads to the benefits
sought; No tobacco and nicotine product is considered healthy, but oral products are
considered less harmful than the traditional cigarettes (see figure 1.1), both for the tobacco
user and for second-hand consumers (Foulds et al, 2003).
PMI’s and the world’s top brand, Marlboro, is valued at US$33.6 Billion. In addition to being
the far most valuable brand, it had a value increase of 10% from 2018-2019 (Brand Finance,
2019; PMI, 2019). The brand that had the highest value increase in the same period was an
Altria Group owned brand named Copenhagen, which only include smokeless, oral tobacco
products (Brand Finance, 2019; Altria Group Inc., 2019). Relying on the Marlboro brand
popularity and loyalty, a Marlboro oral product can be offered to consumers in already
existing markets. Also relying on benefits sought as part of the marketing strategy would
allow the company to emphasise the less-harm side of oral products compared to
combustible cigarettes.
PMI vows to be sustainable, so while choosing the marketing strategy it is also important to
keep socially responsible target marketing in mind (PMI, 2019; Kotler et al, 2016). Issues in
regard of this usually occurs when especially vulnerable consumers are targeted with
potentially harmful products. One of the goals and regulation measures in WHO’s FCTC
(2005) is to make sure tobacco products are not sold by or to minors. This includes an
emphasis to the tobacco companies on not promoting and advertising tobacco to minors.
This is also expressed to be a goal for PMI (PMI, 2019). Therefore, the targeted segment of
generation Z must only account for the adults of this generation.
3.2 Positioning
One key element in successful marketing is for a company to be clear about its product
positioning in the market (Hollensen, 2017: 521-524). Several of PMI’s biggest competitors,
like British American Tobacco, Imperial Brands and Altria Group, have already diversified
their portfolio with oral products (Altria Group Inc, 2019; BAT, 2019; Imperial Brands, 2019).
PMI is currently present in more than 180 countries around the world and have entered 44 of
these countries with their newer, innovative products, the IQOS (PMI, 2019: 16). Therefore, it
is clear that PMI is a highly global company and they have suppliers, distributors and sales
all around the globe. This is also due to the fact that there are tobacco consumers all over
the world. Lately, there has been a slightly bigger decrease in smokers in high-income
countries compared to middle- and low-income countries (WHO, 2019). Two possible
reasons for this are a difference in awareness and national measurements (Palazzo and
9
Richter, 2005; WHO, 2019). In turn, regulations and measurements taken could mean that
some markets could be harder to enter than others. A decline in smokers could mean that
consumers quit tobacco or it could mean a change in tobacco use, from cigarettes to non-
smoke, less-harm products. PMI (2019) states that 6.6million of the 9.6million IQOS users,
quit smoking and changed to IQOS. With all this in mind, the shower approach – a
simultaneous market entry of entering several different markets at the same time – is chosen
(Hollensen, 2017). In addition, an undifferentiated marketing strategy is suggested (Kotler et
al, 2016: 204). Kotler et al (2016) states that the company’s positioning should be
summarised in a positioning statement. The suggested positioning statement for the new,
improved Marlboro products of PMI is as follows: ‘To smokers around the world who find
quitting smoking tough, Marlboro OS and Marlboro WHITE are tasty, new oral tobacco and
nicotine products, that causes less-harm to you and your surroundings, but is still in the same
price-range as cigarettes’.
10
something that you do not want the (From McCarthy,1960, cited in Rafiq, 2019) new product to
be associated with,
like a harmful or not healthy product (The Coca Cola Company, 2019; Kotler et al, 2017).
Then it could be smart to distance the healthier products from the main line. Despite this, the
product recommendation for PMI’s new products is to go for a brand extension, relying on the
brand value of Marlboro – the world’s number one tobacco brand. One of the reasons for
this, is to gain faster acceptance and an instant recognition of the new products (Kotler et al,
2017). PMI emphasises that targeted customers for their new, less-harm products are people
that already smoke, hence customers that currently are loyal to the Marlboro brand
especially. Cigarettes as well as smokeless tobacco and nicotine products are addictive
(BAT, 2019; PMI, 2019) and as customers are already loyal to Marlboro and probably having
a hard time quitting tobacco, a less-harm Marlboro product could be their solution. Focusing
on the brand value and marketing towards smokers and potentially other people triggered or
fascinated by tobacco products, Marlboro OS and Marlboro WHITE can have a large
customer base worldwide.
Marlboro cigarettes are leaning towards the premium price category (PMI, 2019). Still, relying
on the brand value and keeping a slightly higher price for the recognised cigarettes, cannot
11
just so be transferred into a new product line. Introducing new oral products to various
markets, a market penetration pricing could be an option. Market-penetration pricing means
setting a low price to quickly penetrate the market, getting a lot of customers initially (Kotler,
2016: 314-5). However, to be successful with this type of pricing strategy it is important that
the market is price sensitive (Kotler, 2016). The tobacco market may be price sensitive in
low-income countries, but since Europe and Japan are main focus markets for launching the
new products and the purchasing power in these types of developing or advanced countries,
these markets are likely not to be price sensitive, and taste and brand value may have more
impact than the price itself. Therefore, penetrating the market by choosing a similar price to
the products already on the market could be a wise strategy to follow, especially due to the
fact that other similar products are sold at equal prices in the market. This could relate to
customer-value based pricing (Kotler et al, 2019: 293).
2016).
12
PMI’s business would still be moving in a direction towards more emphasis on R&D,
manufacturing and strategic marketing and less on farming.
PMI sell their products through various retailers across the world and have therefore got a
B2B strategy (PMI, 2019; Kotler et al, 2016). The distribution recommendation for launching
the oral products is to follow the already established supply chain and distribution system of
the company; The oral products can be distributed and sold using the same system as for
and together with cigarettes and IQOS. The reason for choosing this is the simplicity about it
in addition to possible cost synergies, due to using the same distribution channel whilst still
having a possibility of increased sales.
Physical evidence can also be relevant in the case of launching tobacco and nicotine
products, not because it offers a service, but to emphasise the less-harm factor of the new,
improved products (Hollensen, 2017; Peeters and Gilmore, 2013). Only this year, the FDA
gave Swedish Match permission to market their oral products as less harmful than
combustible cigarettes (LaVito, 2019). However, strict regulations, entry barriers and possible
taxes are obstacles for launching tobacco and nicotine products (PMI, 2019: BAT, 2019;
WHO, 2019). Therefore, getting physical reports stating that these products can cause
reduced risk to both consumers and the environment could truly help the marketing
processes, entering new markets and gaining customer trust and purchases.
13
industry have been overwhelmingly negative (Chapman and Freeman, 2007). Although the
new and innovative products from legit and well-established tobacco companies are
potentially less-harm and not no-harm products, it is a better alternative than risking illicit
tobacco trade to happen. Therefore, opponent NGO’s to the tobacco industry, such as WHO,
is better off collaborating with these controllable companies rather than work against them. In
turn, global tobacco companies, like PMI, could possibly have the opportunity to search for,
develop and sell less-harm products without completely drowning in regulative legislation
(Palazzo and Richter, 2005; BAT, 2019; WHO, 2017). However, there are still laws and
regulations in several countries that make it harder to enter new markets with innovative
products (Peeters and Gilmore, 2013; WHO, 2019).
In addition to already being under pressure from governments and NGOs, the industry and
companies – PMI amongst them – have led years of distrust by the public. This is especially
due to their neglecting of the harm tobacco causes, but also due to not following up on
promised strategy and sustainability goals for the future (Palazzo and Richter, 2005;
Hickman, 2019). One of the possible trust and legitimacy issues regarding the marketing
strategy is that advertisement could easily reach minors, and one of PMI’s stated goals going
further is to make sure advertisement is directed to adults and also that products are only
sold to adults (PMI, 2019). It would be important to follow up on this, especially due to the
history of distrust. However, since their products are sold to their customers through
independent retailers, it is harder to make sure that sales to minors do not happen. This also
counts for digital marketing; It is hard to prevent advertisement from reaching minors.
PMI has currently got a huge emphasis on research and development (PMI, 2019).
Continuing to put a lot of resources into this area is important to be successful in the
proposed marketing strategy. Another step that can be followed eventually, is to acquire or
collaborate with a company with well-developed resources and capabilities within the field of
oral products. A suggestion would be Altria Group which currently has the highest value
increase brand, the oral product Copenhagen, and which has formerly collaborated with PMI
(Brand Finance, 2019; PMI, 2019). The other suggestion is Swedish Match, which has a
great market share in Scandinavia and have got years of building knowledge around “snus”
and consumer behaviour around oral products (Swedish Match, 2019; Peeters and Gilmore,
2013).
14
References
Altria Group Inc. (2019) Annual Report 2018. Richmond, VA: Altria Group Inc.
Brand Finance (2019) Tobacco 10 2019: The Annual Ranking of the Most Valuable and
Strongest Tobacco Brands. Available at
https://brandfinance.com/images/upload/tobacco_10.pdf (Accessed: 14 November 2019)
Chapman, S. and Freeman, B. (2007) Markers of the denormalisation of smoking and the
tobacco industry, Tobacco Control 2008, 17, pp. 25-31. doi: 10.1136/tc.2007.021386
Foulds, J., Ramstrom, L., Burke, M. and Fagerström, K. (2003) Effect of smokeless tobacco
(snus) on smoking and public health in Sweden, Tobacco Control, 2003(12), 349-359.
Hickman, A (2019) Cannes Slammed for Placing Philip Morris on ’Good Track’ while It Runs
Cigarette Campaigns in Indonesia. Available at:
https://www.prweek.com/article/1588397/cannes-slammed-placing-philip-morris-good-track-
runs-cigarette-campaigns-indonesia (Accessed: 24 October 2019)
Hollensen, S. (2017) Global Marketing. 7th edn. Harlow: Pearson Education Limited.
Imperial Brands (2019) Annual Report and Accounts 2018: Something Better. Bristol:
Imperial Brands PLC
Kotler, P., Armstrong, G., Harris, L., C. and Piercy, N. (2016) Principles of Marketing. 7th edn.
Harlow: Pearson Education Limited.
LaVito, A. (2019) FDA permits Swedish Match to Advertise Snus Smokeless Tobacco as
Less Harmful Than Cigarettes. Available at https://www.cnbc.com/2019/10/22/fda-
authorizes-swedish-match-to-advertise-snus-as-less-harmful-than-cigarettes.html (Accessed:
10 November 2019)
LaVito, A. (2019) Tobacco Stocks Tumble as Cigarette Sales Decline. Available at
https://www.cnbc.com/2019/05/28/altria-british-american-tobacco-stocks-slide-on-nielsen-
cigarette-data.html (Accessed: 13 November 2019)
Leon, M. E., Lugo, A, Boffetta, P., Gilmore, A., Ross, H., Schüz, J., Vecchia, C. L. and
Gallus, S. (2016) Smokeless Tobacco Use in Sweden and other 17 European Countries, The
European Journal of Public Health, 26(5), 817-821. Doi: 10.1093/eurpub/ckw032
15
Lundberg, C. S., Kvaavik, E. and Tokle, R. (2019) Nye bruksmønstre i et tobakksmarked i
endring – kombinert bruk av sigaretter, snus og e-sigaretter blant ungdom, Nordic Studies on
Alcohol and Drugs, 36(1), pp. 6-20. Doi: 10.1177/1455072518797823
Mintel Group Ltd. (2019) Smoking Cessation and E-Cigarettes: UK. Available at
www.reports.mintel.com (Accessed: 20 November 2019)
Palazzo, G. and Richter, U. (2005) CSR Business as Usual? The case of the Tobacco
Industry, Journal of Business Ethics, 61, pp. 387-401. doi: 10.1007/s10551-005-7444-3
Passport (WARC) (2017) Legal Cannabis and the Tobacco Industry: Seeing the Buds for the
Weeds. Available at www.warc.com (Accessed: 20 November 2019)
Passport (WARC) (2018) Philip Morris International Inc in Tobacco (World). Available at
www.warc.com (Accessed: 20 November 2019)
Peeters, S. and Gilmore, A.B. (2015) Understanding the emergence of the tobacco industry’s
use of the term tobacco harm reduction in order to inform public health policy, Tobacco
Control, 2015(24), pp. 182-189. Doi: 10.1136/tobaccocontrol.2013.051502
Philip Morris International (2019) 2018 Annual Report. New York: Philip Morris International
Inc.
Philip Morris International (2019) Sustainability Report 2018. Lausanne: Philip Morris
International Inc., Operations Center
16
https://www.swedishmatch.com/Our-company/markets/our-markets/ (Accessed: 14
November 2019)
The Coca Cola Company (2019) Official Webpage: Brands. Available at https://www.coca-
colacompany.com/brands (Accessed: 12 December 2019)
World Health Organization (2019) WHO Report on the Global Tobacco Epidemic, 2019: Offer
Help to Quit Tobacco Use. Available at
https://apps.who.int/iris/bitstream/handle/10665/326043/9789241516204-eng.pdf?ua=1
17