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Tobacco in the 21st Century

We look at how strategy is developing in the tobacco industry

12Sep

Two teenagers walk up to a shop counter and hand their change to the shop assistant. They’re both a little short of cash and can’t afford their packets of cigarettes. In line with the question; ‘What are cigarettes costing you?’ the shop assistant precedes to take a pair of pliers and rips out both of their teeth. As shocking as this seems, campaigns such as this have become part and parcel of anti-smoking initiatives that run regularly throughout Europe and The U.S.

On the face of it adverts such as these pose a considerable threat to companies such as British American Tobacco. However, despite their hard-hitting nature, more than 3,200 people under the age of 18 smoke their first cigarette each day, an incredible statistic considering the wealth of information damning cigarette use as a ticket to premature death. The problem is that many of the world’s new smokers are from undeveloped nations where consumers are less exposed to shock media, anti-smoking information and advertising.

In many countries cigarette use has been on a process of marginalisation, once considered a norm, it is now deemed a vice for those who continue to indulge. For major tobacco companies like British American Tobacco this has led to a need for diversified strategies that go far and beyond the traditional cigarette. This process has been in full-flight mode since 2005 with BAT’s covet to be the leader in the non-tobacco nicotine space.

At the Chief Strategy Officer summit in London, Michael Barnett, Head of Planning at BAT, gave us a glimpse into the strategic world of tobacco. The industry seems to be in a state of transition at the moment, with conflicting objectives divided between the lines of being as profitable as possible whilst also attempting to become a healthier industry, that offers smokers a way out of nicotine addiction.

When reciting the battle quote of “No battle plan survives contact with the enemy”, Michael Barnett, alludes to the fact that within the context of the tobacco industry, EU regulators represent the enemy – making a connection with their unwillingness to overturn ‘snus’ regulations that confine its sale to Sweden. ‘Snus’ was one of BAT’s first endeavours into non-tobacco nicotine products as it is considered a healthier alternative to cigarettes, with far lower rates of Lung Cancer. Despite this, EU regulators were unwilling to give BAT the nod to sell the products across the whole of Europe. Michael states “all our plans to roll out ‘snus’ across the EU just fell away”, showing just how much BAT are at the peril of law –makers.

Another strategic dilemma faced by BAT was that it wasn’t in the best interest of all parties to develop certain product lines. Their Marketing Director was at first very sceptical towards these alternative paths, primarily due to the guaranteed, short-term success that the sale of traditional cigarettes gives. This meant that when e-cigarettes became mainstream, they were further behind from where they should have been. Michael States; ‘had we redone it we would have been further ahead than where we are now’ – a shining example of how the sceptical nature of one individual can hinder the development of an entire product division.

It was also not in the interest of EU regulators to bring yet another tobacco product to the mass-European market. It may well be healthier than smoking, but there are many things that are illegal in the EU that are healthier than smoking. For the regulators there was little unequivocal evidence that showed the ‘snus’ would have been used as a substitute for cigarettes – instead, the regulator’s may well have felt that ‘snus’ would have been used on top of traditional cigarettes, perhaps in the work place or on public transport where consumption can be fairly inconspicuous, making it a considerable risk for their efficacy as a organisation.

Michael was keen to accentuate that BAT’s adoption of new products was never the result of planned meetings where things were discussed in a structured manner. Their evolution developed organically, and was based on the notion that BAT’s people knew about the industry and were more than capable of good decision-making. This was best shown in 2011 where BAT expressed their desire to lead the non-tobacco space and have higher share of non-tobacco products than normal cigarettes. Michael says; ‘This wasn’t based on evidence, just a gut feeling when led us to believe that we should be doing more in this emerging space’. BAT want to be market leaders in this area, and feel that they warrant this distinction.

Described as a ‘Kodak moment’ for the Tobacco industry by Michael, the realisation that e-cigarettes are here to stay offers up real opportunities for strategic growth. The e-cigarette is not without its critics, but it has been welcomed by would be quitters who have failed with other products such as patches. Traditional cigarettes are also unlikely to be off our supermarket shelves in the near future, despite the magnitude of legislation preventing tobacco companies from selling their products like more traditional industries.

This means that a number of divisions will have to co-exist within Tobacco companies, some tobacco based, some non-tobacco based. This strategy is easier said than done, with Michael reciting an occasion when a project manager caused friction in the company. He says’ ‘It didn’t help that at the time the guy who was heading up the alternative product division was going round and saying to other teams that your product is messed up’. BAT need to be one slick machine, not a number of cogs working in a disharmonious fashion. If this unity occurs, they should be able to maximise their operations so that they all run profitably.

Smoking is not going away – young people take up the habit everyday and even more people try and fail to give up. This is good news for tobacco companies, but at the same time it gives industry leaders like BAT a real chance to rise above the rest and invest heavily in alternative products that cause less harm to the consumer. This is even more urgent for those who are living in less developed nations where legislation and anti-smoking information is less widespread. BAT’s desire to be help their consumers give up was accentuated in 2010 when they teamed up with Nicoventures’ to bring these new alternative products to the market. From a strategic perspective Michael and his team at BAT are confident that their organic approach to strategy development is the right way forward for their company and will bear considerable fruits going forward, for both them and smokers looking to give up.

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