As Smoking Declines, Tobacco Makers Seek to Slim Down Brands

Consolidating brands—and holding on to customers in the process—is often a lengthy, elaborate exercise

LONDON—For years, Alvaro Privat was a loyal smoker of the brand Montana. But when Montana’s owner, British American Tobacco PLC, folded the cigarette brand into another, Pall Mall, he barely noticed.

“The color was the same, the taste was the same, the price was the same,” said Mr. Privat, an architect who lives in Lima, Peru.

For BAT and rival Imperial Tobacco Group PLC, hanging on to customers like Mr. Privat—even as the companies rid themselves of small, local or just underperforming brands—is often an elaborate marketing exercise that can take years to execute.

“Companies have realized that managing too many brands brings additional complexity and cost,” said Nirmalya Kumar, a visiting professor of marketing at London Business School who has consulted on brand management. Mr. Kumar said there is only a handful of ways that brands can position themselves, leading to overlap when a company has too many.

Merging brands, or “brand migration,” as it is often called in the consumer-goods industry, is the process of moving customers from one brand to another. The process isn’t new and happens across a variety of sectors. Unilever PLC at the start of the decade eliminated its laundry-detergent brand Radion, but folded Radion’s scent into bigger brand Surf to launch a variant called Surf Sunfresh. Mars Inc. in 1990 merged British chocolate brand Marathon with Snickers, with the packaging carrying both names for a short period, before Marathon was eliminated.

For tobacco companies, though, the process is becoming increasingly important as cigarette consumption declines. Global industry volumes dropped 3.5% in the first half of this year, according to BAT. Consolidating brands allows tobacco companies to innovate faster—since a single change can be rolled out across more markets—and can drive economies of scale in production, marketing and advertising.

“You reduce complexity and so productivity rises,” said Peter Corijn, Imperial’s group marketing director, in an interview. “One of the ways you can become more agile is by having a simplified business, a more focused business.”

Imperial has completed 10 migrations in the past 18 months and has a further 20 under way. The moves are part of the company’s strategy to dedicate resources to a select group of cigarette brands like Davidoff, Gauloises and Parker & Simpson and away from small, local brands like Brooklyn, which has just 2% of the market share in Spain and isn’t sold anywhere else, according to Imperial.

“Local brands are less attractive to the consumer than they were 20 years ago. I think it has to do with image,” Mr. Corijn said.

Over the next few years, the Bristol, England-based company is aiming to make 75% of its revenue from 21 priority brands, up from the 60% it gets currently.

Moving a consumer from one brand to another is particularly risky in tobacco because consumers can be highly attached to a particular brand and interact with it frequently.

“Let’s be clear: It’s not the brand we are migrating…it’s the consumer,” said Imperial Tobacco Chief Executive Alison Cooper on a conference call in November. “Brand migrations support our ongoing objective to enhance the quality of our earnings.”

The process begins with the cigarette maker picking two brands with similar prices and tobacco blends. For example, in Spain, Imperial is migrating its brand Brooklyn to West, a larger Imperial brand that is sold in more than 60 countries.

The company began by adding the words “by West” to the cigarette pack so it read “Brooklyn by West.” A few weeks later, the company made “West” larger and put a small “Brooklyn” below it, wrapping the pack in mostly clear cellophane imprinted with the Spanish for “Now Brooklyn is called West.” A coming version of the pack will be sold without the cellophane, and the final pack will simply say “West,” making no mention of Brooklyn.

“You never change the taste during the migration,” said Núria Vilarrasa Llorens, a Madrid-based brand manager for Imperial Tobacco who has worked on the Brooklyn-to-West migration. “You must change it before or after, but not when you change the packaging.”

Imperial also put leaflets in the pack and works with retailers to display point-of-sale material explaining the transition. The migrations are helping Imperial reach its target of hitting £300 million ($471 million) in annual cost savings by 2018.

Imperial’s migrations can take as little as a few weeks or run for several years, depending on how much is at stake. The company took nine weeks to move customers from F57 in Serbia to its P&S brand. By contrast, its continuing migration of Ducados—which has 10% of the cigarette market in Spain—into John Player Special started last summer and will continue well into next year.

Imperial’s brand migrations have largely been focused on Europe. In the U.S., tobacco companies can introduce new brands only with Food and Drug Administration approval. Imperial has added “by P&S” to its Montclair brand in the U.S. but wasn’t able to rename it just P&S.

London Business School’s Mr. Kumar said just one in eight attempts to consolidate two brands delivers the original market share of the two brands. Nonetheless, Mr. Corijn argues that migrations are worth the risk.

“Others are coming to market with innovations while that local brand is in the same old pack that granddad used to love,” he said. “There is a cost associated with doing nothing.”

Write to Saabira Chaudhuri.

Source: WSJ