Modern tobacco marketing (BATB)

For us, modern tobacco brand marketing is driven by an excellent understanding of the consumer and by sticking to the marketing fundamentals that are appropriate to this challenging product category. We recognize that most forms of mass media promotion, TV and radio advertising and event sponsorship like Formula 1 now belong in the past. There has been much debate about whether mass media promotion of tobacco product brands can influence under age smoking. But we say the debate is over. There is discomfort that high profile promotion may splash over to the under age and we acknowledge that society is finding it less and less acceptable. With the launch of our International Marketing Standards in 2001, we decided it was time to move on. We have re-defined our marketing in ways that allow us to continue to satisfy consumer preferences, while responding to reasonable stakeholder expectations of how we should market tobacco. We see this as marketing for a new era, where product brand communication is primarily based on one-to-one permission marketing to adult smokers, in much more focused, narrower channels, with tight standards for age verification.
Starting with the consumer

Our approach starts with really understanding the different profiles of our consumers. We invest in gathering comprehensive insights into smokers preferences and buying behaviour, then invest in developments across the marketing mix that aim to be truly relevant to consumers tastes, attitudes, pockets and purchasing patterns. We aim to be spot-on with packaging, taste and product formats that consumers like, with quality that consumers are willing to pay more for and with availability of our brands in the places where our consumers want to buy.
The 5 Ps

All marketing is based on the fundamental 5 Ps: product, price, packaging, promotion and place. For us, promotion is now much more limited and very carefully controlled. But our strong brand growth in recent years indicates that a clear focus on appropriate marketing based on the other 4 Ps is a clear pathway to success.
Product

British American Tobaccos first chairman, Buck Duke, said two basics for success were devise a superior product and hire the best people to make it. We believe thats as true now as it was a century ago.

Today, we are delivering innovations and refinements to our products across leaf blends, finer cut tobacco, new filters, new formats such as slimmer products and improved tastes in segments such as menthol. Our ability to innovate while maintaining consistency and quality of leaf, components, materials and ingredients and also meeting regulatory compliance for our products - is backed by the product science skills of our Research & Development teams. In our leaf supply chain, our proactive approach to agronomy support for farmers gives us access to responsibly managed sources of quality leaf supply that is unrivalled in our industry. We also want to offer consumers a less harmful way to enjoy tobacco, and in several countries we are selling or test marketing smokeless Swedish-style snus, which is supported by several independent health experts as significantly less harmful than smoking cigarettes.
Price

Price competition in our business can be fierce. For example, the value for money segment of a market may grow as higher tobacco taxes make premium brands more expensive and some consumers look to trade down. We know that one brand doesnt fit all, and our diversified, segmented global portfolio enables us to offer quality brands at the super premium, premium, mid-price and value-for-money price points. We are keenly aware of pricing and ready to compete vigorously. But we know that consumers also have a strong interest in quality and every right to expect it. Our reputation for quality is a strong aspect of our competitive offer at every price point and we invest to maintain it.
Packaging

For many years, cigarette packs were hard or soft, but otherwise changed very little. In recent times, consumers have become increasingly interested in packaging improvements, and these can be a strong source of competitive advantage. We are meeting consumer interest with a stream of packaging innovations, such as compact packs, side-opening packs, packs that open like wallets, waterproof packs, re-sealable packs to keep the contents fresher and packs with rounded edges. Innovations vary across our brands, brand variants and markets and our approach enables our companies to adapt their offers flexibly to local preferences. Our guiding focus in innovations is on relevance to the consumer, speed to market and being continuously ready to improve.

Promotion

Laws governing tobacco brand advertising and our own restrictions on our companies product brand communications mean that promotion now has far less relevance than the other 4 Ps, and that mass media promotion is going or gone. Instead, we invest in one-to-one or permission marketing, where verified adult consumers have specifically requested or consented to brand information, such as through direct mailing or face to face in age-controlled venues. This puts tight boundaries around any unintended spill over to non smokers and the under-age. It is also a more intelligent form of precision marketing, enabling us to know better who our adult consumers are and what they prefer, so that any brand communication can be more focused and relevant.
Place

Last but certainly not least is where consumers buy their brands. We want our brands to be where consumers want to buy them, when they want them and never out-of-stock. We want them to be in the right types of outlets - for example, for our premium brands to be in up-market bars, restaurants and hotels. In the Fast Moving Consumer Goods sector, getting this right this takes investment in fast and efficient distribution, in order capture and fulfilment, and in excellent trade marketing teams who build and manage our relationships with retailers big and small from supermarket giants or convenience store chains to individual cocktail bars or neighbourhood corner shops. We aim to be a world class supplier to the trade and our trade customers tell us were on the right track. In our regular customer satisfaction surveys, our trade marketers are frequently ranked amongst the very best on professionalism and service.

Retailer relationships
Trade marketing is a large part of our activity - managing business-to-business relationships with the retailers from whom our consumers buy. We place as strong an emphasis on being a high quality supplier to the trade as we do on working to ensure high standards amongst our own suppliers. We aim to become the benchmark partner to the trade in the strategic channels where we do business. We work to operate in the most efficient and effective way so that retailers can offer the products our consumers want to buy, where they want them, when they want them, at the right quality, price and quantity. It is the nature of our industry that we do business with a substantial cross section of customers, ranging from the largest retail corporations to the small independent shop owner.

As well as many hundreds of regional and local customers, we have 9 key customers managed at a global level: 7-Eleven, BP, Carrefour, Chevron Texaco, Couchetard, Exxon Mobil, Shell, Tesco and Walmart. Their very large businesses are mainly in the grocery, convenience and petrol station convenience channels.
Our win win win approach

Our approach is based on building mutually beneficial relationships, characterised by integrity, with our trade partners globally, regionally and locally. Our aim is not just to focus on our own goals, but to engage with senior management of partner companies for a good mutual understanding of each others global strategies and to identify potential areas of alignment and cooperation. We also aim to offer our trade partners a comprehensive insight into consumer preferences and buying behaviour in the tobacco category, providing useful analysis of the category as a whole. We call this our win win win approach - recognising that for a successful relationship and mutual benefit, there has to be a win for the three key stakeholders: our consumers, our customers and our business.
Customer satisfaction research

For several years, our companies have commissioned an independent customer satisfaction survey among key distribution and retail partners, providing feedback on service quality and other aspects of our business relationship. In 2010, the survey was enhanced to include new methodologies, providing greater focus and allowing it to be coordinated globally by an independent research agency. The survey covers several of our largest markets. In each market, it benchmarks British American Tobacco against our major local tobacco competitor and the Fast Moving Consumer Goods (FMCG) supplier considered the best locally in serving the same retailers. Quality of our service is covered across key areas including:

Trade marketing support; Product distribution; Products; Overall quality; and Customer engagement.

The most recent results for 2010 rate British American Tobacco as the best company overall in 16 of 31 markets surveyed. We were also identified as the best overall company on trade marketing support in 17 of 31 markets surveyed.

Adding value to trade relationships

We also aim to offer wider benefits through our relationships with distributors and retailers. The illicit trade in tobacco products, estimated at some 300 billion cigarettes a year, harms the business of legitimate distributors and retailers. Our strong focus on tackling contraband and counterfeit aims to ensure that our business supports only the legitimate tobacco trade. Our companies must have effective know your customer controls and will cease to supply customers who are knowingly or recklessly involved in illicit trade activities. We help to identify illicit traders of our brands through intelligence gathering and investigation and have an authentication device on our products so that counterfeits can be identified for enforcement agencies to confiscate them. You can find out more in how we tackle illicit trade. Our companies work internationally with retailers in youth smoking prevention programs, to help retailers uphold the law and block under age access to tobacco products at the point of sale. Find out more in Working with retailers.

Adding value to the relationship

Sales and distribution

Where appropriate, we adopt Direct Store Sales (DSS) as our preferred sales and distribution model for end markets. To assist in this, we have developed an internal diagnostic tool called Distribution Excellence (DX) that enables markets to regularly assess the most appropriate sales and distribution model for their business. As a consequence of using DX, several of our most important markets have recently completely revised their local route to market and sales and distribution strategies. For example, both Canada and South Africa have recently moved from traditional wholesale business models to ones that have fully embedded the principal of DSS. We firmly believe that DSS brings us closer to our customers and enables us to more effectively deliver our marketing strategy. To help support markets as they undertake these substantial projects we have built the Direct Sales Institute (DSI), based in Budapest, Hungary. The DSI is staffed by an internal team of direct sales experts who offer expert and professional support to markets as they both develop and implement their plans for direct store sales.
Building partnerships

In 2006 British American Tobacco entered a 5-year global contract with Shell, as its preferred business partner in the tobacco sector across the 5,500 Shell convenience stores in 48 countries around the world. The relationship, a first within the tobacco industry, offers significant benefits to our business in growing our brands and will benefit Shell through the sharing of tobacco consumer insights. We were greatly encouraged that Shell said that in choosing a preferred

partner, it looked for a company that could add value, had integrity, had the energy and commitment to build the category and was willing to work for mutual benefit with a win win win approach.
Tackling illicit trade

British American Tobacco Nigeria runs several initiatives with wholesalers and retailers against illicit trade. It gave 300 wholesalers trade performance rewards based on demonstrating that they stock only genuine products. Another initiative for retailers rewards stocking genuine brands, backed by a zero tolerance approach to counterfeit implemented through sales reps. A Be Correct initiative for retailers and consumers aims to raise awareness about authentic products. It includes rewarding the trade for stocking genuine brands, promoting partnerships with trade partners who deal only in genuine stock and pack modifications to make fakes easier to spot. Our Nigerian company believes these activities have been very successful in driving a stronger perception that illicit product is harmful to the industry and Nigerias economy.