|Last updated: September 2017
Suggested citation: Bayly, M, Scollo, M. 10.9 Brand portfolio strategies in the Australia market. In Scollo, MM and Winstanley, MH [editors]. Tobacco in Australia: Facts and issues. Melbourne: Cancer Council Victoria; 2016. Available from http://www.tobaccoinaustralia.org.au/chapter-10-tobacco-industry/10-9-brand-portfolio-strategies-in-the-australia-market-
In a series of studies examining the factory-made cigarette product portfolios of major cigarette companies in Australia, Greenland1-3 has described how tobacco companies rely on the use of variant names with colour associations, value-based market segments, and well-established brand names to continue to market their products in Australia’s increasingly ‘dark’ (i.e., highly restricted) tobacco market. Variants are descriptors that “distinguish the particular tobacco products sold under each brand”,1 (p.e65) for example, Blue, Gold, Red, or Rich, Smooth, Menthol. Brand extensions (or sub-brands) are different types of products sold under a main brand, for example, Peter Jackson Hybrid (menthol capsules) is a brand extension of Peter Jackson. Each sub-brand may also have several variants. The brand family, in this instance, is Peter Jackson—the major brand name under which all sub-brands and variants, in their various pack sizes, are sold. A stock-keeping unit refers to each single product presentation, that is, the unique brand (or sub-brand), variant, and pack size combination.
Greenland’s first study1 examined the cigarette brand and variant portfolios of the three major tobacco companies operating in Australia immediately before the implementation of plain packaging. This study identified that, on average, each brand family supported an average of 6 variants (Greenland included sub-brands as variants in this study). This ranged from several brands only sold in one variety to up to 13 variants and sub-brands for the brand family Peter Jackson. The 12 leading brands supported a higher number of variants, 10 on average. Use of colours in variant names was high, with only three of the top 12 brands not using colour names. More than half of all variant names of the top 12 brands included specific colours (either just the colour or a colour-descriptor combination, such as Smooth Blue), and a further 8% used descriptors that had colour connotations, such as Night, Clear, Frost. Menthol accounted for approximately 10% of variants among the top 12 brands. Variants (and sub-brand) names that were not colour-related tended to evoke connotations of quality, sophistication, modernity or advanced technology, size, and flavour.
In addition to the extensive range of variants available within cigarette brand families in the Australian factory-made cigarette market, Greenland1 also examined the range of pack sizes on offer, including multi-buys and cartons. An average of 3.6 stock-keeping units per variant were identified (i.e. 3.6 pack sizes per brand-variant combination), with up to eight for the value brand Holiday, Horizon and Pall Mall. Greenland noted that larger pack of 40s and 50s were not usually offered in mainstream and premium brands, instead twin packs of 2x20s or 2x25s were more common.
Greenland2 then examined the major three tobacco companies’ brand portfolios over time, from 2006 to 2015. Over this period, a slight decline in the total number of brands was noted, while the overall number of variants per brand was relatively stable. However, this apparent stability in overall numbers concealed a period of substantial change in brand portfolios, particularly in the years immediately following plain packaging introduction. The variant ranges among the 12 leading brands expanded and the variant names of many products were modified, primarily to include colour descriptors (see Section 10.8.9.3 for a more detailed description).
In a third study examining the cigarette portfolio of British American Tobacco Australia from 2012 to 2014, Greenland and colleagues3 observed that prices were highly dispersed within BATA’s own cigarette range. Four distinct price segments within BATA’s extensive products, from premium to ‘ultra-low’. The recommended retail price of the cheapest (small) product (Just Smokes 22s at $0.72 per stick) was 69% of the cost of the most expensive product per stick (Dunhill 20s at $1.05 per stick). It was further noted that premium brands tended to be offered in only one or two pack sizes (usually 20s and 25s), while budget brands were offered in many more sizes, from 20s up to 50s. Within each brand, price per stick incrementally decreased as pack size increased. Similarly, twin pack offers were cheaper per stick relative to the cost of two single packs. Greenland et al.3 concluded that highly differentiated product portfolios and price options are offered within BATA’s product range, even post plain-packaging. Product differentiation, they argued, is a key strategy in effective tobacco marketing:
“Extensive tobacco product portfolios are differentiated to create maximum appeal for the numerous market segments, which vary according to factors such as demographics, lifestyles, aspirations and smoking habits.”
Greenland et al., 20163 p327
The Australian cigarette market is highly segmented. Each of the major tobacco companies operating in Australia offer a variety of brand families. These brand families are most readily differentiated into price-based market segments, typically referred to in Australia as value (low cost), mainstream (mid-priced), and premium (most expensive),4 with a newer very cheap ‘super-value’ (or ‘ultra-low’) segment that emerged in the years following a very large tax increase (April 2010) and prior to the implementation of plain packaging.3,5 Most companies also offer multiple brands within each market segment, and even sub-brands within each brand. Each brand or sub-brand may be tailored to appeal to different consumer groups in terms of demographic characteristics, geographic locations, and consumer motivations or values.1 Further, variants within brands can be used to target particular consumers,2,3 including different flavour or sensory quality preferences, or those looking for particular brand attributes. As described in Chapter 10, Section 10.8.4.1, many Australian cigarette brands now offer menthol capsule sub-brands. These cigarettes contain a capsule of menthol flavouring in the filter than can be burst by the smoker to release a menthol flavour. These menthol capsule products were initially offered among premium brands, but have since been introduced more widely as a premium feature on budget brands.6
Greenland describes the extensive product portfolios offered within major cigarette brand families as an example of umbrella branding, or family branding.1 Umbrella branding is where existing well-established brand families incorporate a wide range of product offerings, such as sub-brands, variants, and pack sizes.2 Umbrella branding is not unique to tobacco; however, it is a strategy that is particularly suited to the highly regulated tobacco market in Australia, where few opportunities for marketing of new products are available. Greenland outlines several advantages to umbrella branding:1,2
Umbrella branding is most commonly seen in the Australian market when new sub-brands (also called brand extensions) are introduced under an existing brand family. This was demonstrated in 2007 with the launch of the new Winfield Charcoal Filter range, introduced into the product portfolio of the leading Australian brand, Winfield. Retail trade advertisements at that time noted the new range was “backed by Australia’s No. 1 brand”.7
It has been rare for entirely new brands to be introduced to the Australian market since the mid-2000s. In 2012, shortly before implementation of plain packaging, BATA introduced Just Smokes, a super-value brand. However, this was discontinued by 2016. More commonly, the major tobacco companies have introduced brands popular in other countries (e.g. Philip Morris’ Bond Street), or revitalised and expanded brands already available in Australia (e.g. Imperial Tobacco’s JPS—see Chapter 10, Section 10.8.9.2). In 2014, BATA relaunched the previously premium, low-market share brand Rothmans as a super-value brand, lowering the recommended retail price by around $10 for a pack of 25s.8 Where previously available in only one stock-keeping unit (King Size Filter 25s), by 2016 the ‘new’ Rothmans was also offered in five variants (Blue, Gold, Red ,Silver, and Menthol), packs of 20s, 30s and 40s, and a Superkings brand extensions.9
In concert with umbrella branding, tobacco companies also engaged in rationalisation of product offerings in the lead-up to plain packaging implementation. This included removal of some pack sizes and/or variants within particular brands, and the discontinuation of some low market share brands.10 For example, Imperial Tobacco circulated an information sheet to retailers in early 2012. This included the instruction “if consumers ask for a recommendation on a suitable replacement for these products, please refer to the following list for products that will most closely meet their needs”, followed by details of the individual stock-keeping units being discontinued and their recommended replacements, such as Davidoff Classic or Davidoff Gold instead of Davidoff Rich Blue, or Escort 20s or 35s instead of 25s, or Horizon Blue 50 gram or 30 gram instead of Stockman’s Blue 50 gram.
Several brands were discontinued altogether. Prior to the discontinuation of the value brand Brandon, Imperial Tobacco began including messages to smokers on the front of Brandon packs, noting a suitable replacement product within the IT brand portfolio—see Figure 10.9.1. British American Tobacco Australia also rationalised many of its product offerings prior to and in the years following plain packaging implementation. This included discontinuing the failed super-value brand Just Smokes and dramatically shrinking the range of Pall Mall and Holiday products available.8
Imperial Tobacco’s Brandon packs featuring message to consumers about the upcoming product changes, Australia 2012.
Source: Quit Victoria pack collection
Like the factory-made cigarette market, there has been much activity in the Australian roll-your-own (RYO) market, mostly occurring in the years immediately prior to plain packaging implementation, and continuing in the years since. Unlike factory-made cigarettes, where the total number of brands offered has remained relatively stable while more sub-brands and variants have been introduced within existing brand families, many new brands have entered the RYO market since approximately 2010. Table 10.9.1 summarises the products listed in the February/March editions of The Australian Retail Tobacconist in each year since 2001, including the total number of RYO brands, brand and variant combinations, and stock-keeping units (i.e. brand-variant-size combinations) among all manufacturers, including smaller importers.
Table 10.9.1 shows that until 2009, the majority of RYO pouches were available in 30 grams or 50 grams, with a small number available in 25 grams and 40 grams. Over this time, the total number of brands and stock-keeping units increased steadily, from 46 to 71. From 2010 onwards, the total number of brands and products continued to increase, so that there were more than twice as many RYO brands, brand-variant combinations, and stock-keeping units in 2016 as there were in 2001. In particular, the number of small pouch sizes on offer increased, with many more 25 gram and 40 gram pouches available, and the introduction of 20 gram pouches, in 2016. The popularity of 50 gram pouches also declined in later years from a peak of 50 in 2010 to 30 in 2016. This resulted in a reduction in the average weight per RYO pouch offering from an average of 43 grams in 2001 to 2009, steadily declining to 35 grams in 2016.
Two brands offered 20 gram pouches (each in three variants) in 2016: Rothmans and Winfield. These were priced at only a few dollars more than an equivalent pack of 20 factory-made cigarettes from the same brand, but yielding many more cigarettes per pouch. For example, a RYO smoker using 0.7 grams of tobacco per cigarette would make approximately 28 cigarettes per 20 gram pouch; economical smokers using 0.5 grams per cigarette would yield 40 cigarettes per pouch.
Total number of RYO products available on Australian market from 2001 to 2106, as listed in The Australian Retail Tobacconist, February/March editions
Source: Australian Retail Tobacconist, February/March editions
* Stock-keeping unit: each available brand-variant-pouch size combination
^ Calculated by dividing the combined weight of each available stock-keeping unit by the total number of stock-keeping units
10.9.5.2 Factory-made cigarette brands in RYO tobacco
The RYO tobacco market in Australia has traditionally been dominated by several unique brands that only sold RYO tobacco, such as Drum, Champion, and Port Royal. In 2001, only three brands that also sold factory-made cigarettes had RYO tobacco products on the market. Examining The Australian Retail Tobacconist’s RYO product listings over time shows the number of ‘traditional’ RYO brands has remained unchanged at 12 in 2001 to 2016 (with some minor fluctuations over time). However, a large number of factory-made cigarette brands have entered the RYO market, increasing from three brands in 2001 to six in 2009, to 13 in 2016. Three factory-made brands have entered the RYO market since plain packaging was introduced, and many of these new entrants are positioned within the value or super-value segments of the factory-made cigarette market. This is another illustration of umbrella marketing, where tobacco companies have capitalised on the already established strong factory-made cigarette brand identities when launching these new—predominantly cheap—RYO products.
1. Greenland SJ. Cigarette brand variant portfolio strategy and the use of colour in a darkening market. Tobacco Control, 2015; 24:e65-e71. Available from: http://tobaccocontrol.bmj.com/content/24/e1/e65
3. Greenland S, Johnson L, and Seifi S. Tobacco manufacturer brand strategy following plain packaging in Australia: implications for social responsibility and policy. Social Responsibility Journal, 2016; 12(2):321-34. Available from: http://www.emeraldinsight.com/doi/abs/10.1108/SRJ-09-2015-0127
4. Carter SM. The Australian cigarette brand as product, person, and symbol. Tobacco Control, 2003; 12 Suppl 3:iii79-86. Available from: http://tobaccocontrol.bmj.com/content/12/suppl_3/iii79.full.pdf
6. Rossel S. Fit to burst. 2017. Last update: Viewed Available from: http://www.tobaccoreporter.com/2017/01/fit-to-burst/.
10. Scollo M, Occleston J, Bayly M, Lindorff K, and Wakefield M. Tobacco product developments coinciding with the implementation of plain packaging in Australia. Tobacco Control, 2015; 24(e1):e116-22. Available from: http://tobaccocontrol.bmj.com/content/early/2014/04/30/tobaccocontrol-2013-051509.short