cigarette

Brand Loyalty of Cigarette Smokers: A study

Submitted by

SUSIL KUMAR SAHU

(77/2000)

In partial fulfillment for the requirement of the two year Full Time Post Graduate Programme in Management, 2000- 2002

LAL BAHADUR SHASTRI INSTITUTE OF MANAGEMENT, SHASTRI SADAN SECTOR –III,

R.K. PURAM , NEW DELHI -22

CERTIFICATE

The Project Study entitled “Brand Loyalty Of Cigarette Smokers – A Study”

submitted by Susil Kumar Sahu in partial fulfilment for the requirement of the two year

Full Time Post Graduate Programme in Management, 2000- 2002 is a piece of original

work carried out by him under my guidance and supervision. The work has not been

submitted elsewhere for award of any Degree ‘or’ Diploma.

Susil kumar Sahu (Prof.) P. K. BansalRoll No:77/2000 Lal Bahadur Shastri Institute Of Management, New Delhi

Lal Bhadur Shastri Institute of Management, New Delhi1

ACKNOWLEDGEMENT

The work is not a solo endeavor but rather the amalgamative consequence of

contributions from various people and sources. Therefore it would be discourteous to

present it without acknowledging their valuable guidance.

It is indeed a great privilege to express my deep regards, profound gratitude

and sincere thanks to my revered guides Prof. P. K. Bansal, for bestowing his noble

guidance, invaluable advice and continuous inspiration through out the course of work.

Last but not the least, I express my sincere thanks to all the respondents of New

Delhi who provided me sincere support and feedback to carry out the project with their

cooperation

Susil Kumar Sahu


EXECUTIVE SUMMARY

In ancient times, tobacco was used as currency. Smoking, sniffing etc. are some of the ways of using tobacco. Cigarette is the most sophisticated way of using tobacco.

Joint family system is no more in our society. Now it’s time of nuclear family. Generation X believes in handsome earning and to spend it for him. He likes to be fashionable and stylish. Today the search for style has taken over from the desire to be fashionable. The ultimate effect of fashion is to make everyone alike, having style means accepting the broad flow of fashion but making it individual to oneself.

The man of 21st century earns huge amount; the basic necessities of life can be satisfied with a few thousands of rupees. So he is left with remaining huge amount. So now what to do with this amount? Therefore he indulges himself in drinking, smoking, gambling etc. some do smoking just for killing the time, while some do it to relieve themselves from tension. Smoking has to do with showing off too and sometimes it gives boost to their self-esteem.

Topic of research: brand loyalty of cigarette smokers: A study.

Sample design: Descriptive design

Type of sampling: Random sampling

Data collection method: Questionnaire method

Sample size: 114 interviewed and 100 accepted

Analysis techniques used:

1. Chi-square test

2. Graphical method

3. Mean, Median

4. Cross-tabulation

5. Z-test


Result of analysis:

1.Taste is more important for the entire age group and income group. Youngsters and low-income group people are more price conscious than other age group and income group people.

2. A cigarette smoker will not sift from one brand to another on finding the advertisement of the new brand attractive.

3. Brand loyalty is affected by change in price.

4. Brand loyalty is affected by change in income.

5. Brand loyalty is not affected by scheme of free gift introduced by the other brand.

6. There is no significant difference in brand loyalty between regular and occasional smokers.

7. Youngsters are more influenced by the advertisement than other age group smokers.

Recommendations:

1. Availability of the favorite brand is most important for the brand loyal cigarette

smokers. Because of non-availability, they may try another brand. So physical distribution and delivery on time at various outlets are very important.

2. Company should not increase the price of cigarette more than 20% because after that the brand loyalty decreases at faster rate.

3. Company should not introduce free gift scheme to attract the cigarette smokers.


TABLE OF CONTENTS

Chapter no. Title Page No

CertificateAcknowledgementExecutive summary

Chapter 1 Introduction1.1 Why is the problem considered worth investigation?1.2 Loyalty - attitude, behavior, and good science:1.3 My thoughts1.4 Brand equity & brand loyalty measurement and

management1.5 Loyalty: how secure is the brand's customer base?

1.6 Putting it all together: the master brand equity index1.7 Who is loyal customer?1.8 Effect of brand-stretching1.9 Loyalty in the market placeChapter2 Worlds tobacco industry2.1 Industry profile

2.2 The tobacco industry and youth smoking2.3 Change is possible2.4 Conclusion2.5 Big tobacco's global expansion

2.6 Top marketers in selected countries2.7 Big tobacco's global reachChapter3 International experience

3.1 European union directive

3.2 USA : freedom of choice3.3 China: the last frontier3.4 Malaysia: brand stretched3.5 France: the brand modelChapter4 National experience4.1 Tobacco ads have impact... on women4.2 Top 7 techniques to build brand loyalty4.3 Dark side of tobacco consumptionChapter5 Objectives5.1 Main objectives


5.2 Supplementary objectivesChapter6 HypothesisChapter7 Research design7.1 Type of research7.2 Source of data7.3 Data collection method7.4 Sample size

7.5 Sampling

Chapter8 Research analysis 8.1 Sample design8.2 Formulation of hypothesis8.3 Who is brand loyal?8.4 Calculation of correlation8.5 Calculation of chi-square 8.6 Who is brand loyal with respect to change in price?

8.7 Income elasticity 8.8 Income-wise brand loyal8.9 Brand loyalty among the regular and occasional smokers8.10 Preference towards attributes8.11 Advertisement8.12 Effect of reference group on brand selection Chapter9 Findings 9.1 Average expenditure on cigarette by the students9.2 Market share of various brands9. 3 Price of new brand and reaction of cigarette smokers9.4 Buying and consumption pattern of regular smokers

among various age groups 9.5 Effect of non availability of favorite brand on brand

loyalty9.6 Result of the hypothesisChapter10 ConclusionChapter11 Limitation

AnnexureBibliography & references


LIST OF TABLES

Table No. Title Page No

1 Age-wise and income wise sample design

2 Table showing brand loyalty among various age groups3 No. Of respondents passing in three criteria4 Calculation of correlation5 Calculation of chi-square 6 Table showing no. Of brand loyal at various price change7 Who is brand loyal with respect to change in price?8 Income elasticity 9 Age wise brand loyal10 Income-wise brand loyal11 Brand loyalty among the regular and occasional smokers12 Preference towards attributes13 Table showing age wise preference towards attributes14 Income-wise preference towards attributes 15 Reason for starting smoking16 Effect of reference group on brand selection 17 Awareness of advertisement of other brands18 Influencing factor in advertisement19 Reaction towards advertisement20 Average expenditure on cigarette by the students21 Market share of various brands22 Price of new brand and reaction of cigarette smokers23 Consumption pattern: less than 10 cigarettes per day24 Consumption pattern: 10 and more cigarettes per day

25 Effect of non availability of favorite brand on brand loyalty


Chapter 1 INTRODUCTION

Marketing is very innovative field. Here nothing can be assumed. Whatever innovative idea we generate, we have to test them and they must be supported by proved results. For this, marketing research is very important. Consumer behaviour is one such aspect that is very difficult to measure by guesswork. Anything you say about it, it must be based on reliable research. We are going to analyze the brand loyalty of cigarette smokers. We have explained the rationale below.

1.1 WHY IS THE PROBLEM CONSIDERED WORTH INVESTIGATION?

It is said that though the cigarette smokers are not loyal to their health, they are very loyal to the brand of cigarette, which they smoke.

One cannot make such assumptions without any strong basis. To justify brand loyalty among cigarette smokers, we have undertaken a small survey. The survey also throws light on the reference groups, which influence them in making decision regarding the purchase of cigarette and reasons for smoking. To facilitate our purpose, we have formed a questionnaire and got it filled by 114 respondents.

HOW PEOPLE DEFINED “CUSTOMER LOYALTY”

"Loyalty is a dual edged sword, an opportunity for those that consistently deliver on their promises; high risk, for those who don't."

(Martin Hoffmitz, Executive Vice President)

"A customer can hardly be loyal to a particular company. A customer is loyal to people that represent this company. Loyalty is aimed at people and not things."

(Ivan Lefebvre, Account Executive)

"A customer who continues to buy because he is locked into a contract, but is so unhappy that the probability of renewing the contract is zero, is not a loyal customer; he or she is a trapped customer."

(Brian S. Lunde, Sr. Director)

"A loyal customer can be completed dissatisfied and a satisfied customer disloyal. Loyalty on its own is not a great predictor of customer behaviour - it only measures current behaviour and cannot predict customer retention or attraction in the future."

(Shaun Dix, Senior Research Executive)

"Loyalty is developed in the absence of something better."(Justin Lees, Commercial Controller)


"Folks in our business are always trying to measure things (loyalty) -- to make them more real. But I also think folks in our business are afraid to tell their client that the baby is ugly. Sometimes we need to look at the negative side of emotions to get positive results."

(Elizabeth M. Tucker, Ph.D., Senior Consultant)

"Every company has at least an implicit legal contract with every customer. However, the contract that matters most in nurturing customer loyalty is the psychological contract. Customers are less forgiving when the psychological contract is broken than if you slip a bit on the legal contract."

(David B. Wolfe, Developmental Relationship Marketer)

1.2 Loyalty - Attitude, Behavior, and Good Science:

William Neal, respected authority on marketing research says categorically, "Loyalty is a behavior." He says, "If I purchase in a product category 10 times in one year, and I purchase the same brand all 10 times, I am 100% loyal. If I purchase the brand only five out of 10 times, I am 50% loyal." Neal also says it is "ridiculous" to attempt to measure loyalty with three questions - overall satisfaction, recommend intent, and repurchase intent. These three questions, says Neal, will likely correlate at least .80. Measuring intent to recommend and intent to continue in addition to measuring overall satisfaction is tantamount to "measuring the same thing two more times," according to Neal. Naturally these statements cry for rebuttal by Burke, Inc. because Burke uses exactly those three questions in their approach to loyalty research. D. Randall Brandt, a respected authority himself, states, "we take a position that is strongly opposed to the one offered by Mr. Neal." Unlike Neal's behavior-only view, Brandt states his firm's position - loyalty is "reflected by a combination of attitudes and behaviors." Brandt goes on to defend the three specific items by noting that while correlated, the measures are not redundant. Scoring highly on one does not necessarily mean scoring highly on all. But, says Brandt, scoring highly on all is an indication of being a "secure customer." Brandt says the three items can serve as leading indicators of a variety of actual behaviors surrounding loyalty (e.g., repeat purchase, customer retention) once an association has been established empirically. So we have competing opinions about the nature of loyalty. We also have competing opinions about appropriateness (or lack thereof) of measurement with the three items: satisfaction, recommend and continue. I'm compelled to chime in with a third perspective on some of the points raised by Neal and Brandt. I suggest that (a) previous literature in our field, (b) specification of causal relationships, and (c) scientific principles related to measurement and modeling, can help to shed some light on the debate.

Loyalty as Behavior Only, or Attitude and Behavior?

First, let's consider the nature of loyalty. Is it attitudinal and behavioral as described by Brandt, or is it behavioral only as argued by Neal? As Brandt has pointed out, the attitude and behavior perspective seems to have prevailed in the literature as early as the 1970s. Indeed in 1969, George S. Day, a pillar in our field, argued that loyalty involved both attitude and behavior. Other early theorists also promoted this view (e.g., Richard Lutz and Paul Winn). The classic text is probably Jacoby & Chestnut (1978)


"Brand Loyalty: Measurement and Management" published by Wiley. In fact that was an exhaustive review of existing literature on the topic of brand loyalty, including Jacoby's own work in the early seventies. Based on that, a well reasoned conceptual definition of loyalty was put forth that included both attitudinal and behavioral components. It is my opinion that we should not leave behind this rich research tradition and literature. All that work has a natural carry over from the brand context to the customer context. In fact, recent publications have drawn from this attitude-behavior heritage to continue present day theoretical discussions of loyalty (e.g., Dick & Basu 1994; Oliver 1999). So, in light of past literature and along with Brandt, I respectfully disagree with Neal's position that loyalty is only about behavior. I add a problematic scenario to the ones pointed out by Brandt to reveal another potential weak spot in the behavior only view. If a buyer has a cognitive rule "buy the lowest priced brand," and brand B is always lowest, the person looks like a loyal customer over time behaviorally. Until brand A enters the market at a lower price. Then the customer switches to show repeat purchase of A, until market prices change again. To which are they truly loyal - the brands or the decision rule? Repeat purchase behavior does not equal true loyalty. Satisfaction, Recommend, and Continue - Correlation and Specification I agree with Brandt that multiple attitudinal and behavioral elements can be used to measure loyalty. However, I respectfully disagree with him about the three particular items used in the Burke index - overall satisfaction, recommend intent, and repurchase intent. I side with Neal who asserts "Those questions do not measure loyalty." So, what do they measure and why are they correlated? On those subjects, I disagree with both Neal and Brandt. Neal suggests all three may measure satisfaction. Pointing to their intercorrelation, he says they "usually are measuring the same thing - satisfaction with the product or service." This implies a reflective measurement model shown in Figure 1 where all three items "reflect" (arrows pointing outward) a single underlying latent construct: customer satisfaction.

Reflective Model Implied by "All Measure Same Thing"

Brandt, while also acknowledging the correlation among the three items, argues that all three work together to capture loyalty. Through application of an algorithm, he says Burke uses the pattern on the three items to constitute a degree of loyalty - or in their terminology, a level of customer "security." This view implies a formative measurement model as shown in Figure 2 where all three items work to "form" an index (arrows point inward) capturing an underlying latent construct: customer security/loyalty. Formative Model Implied by "Pattern of Three Ratings" So two specific views have been proposed about what the three items measure, and why they are intercorrelated.

Brandt notes that just because the measures correlate does not mean they are redundant: "measures may be correlated for a variety of reasons." And Neal says, "For most people, if they are satisfied with a brand...then they also are highly likely to say they would recommend that brand to others and that they would likely repurchase...." In fact, Neal's statement perfectly frames my opinion about the three items. Satisfaction, recommendation intent and repurchase intent do not measure any


single conceptually clean unidimensional construct. They measure three different constructs and are correlated because of an underlying structure of causal relationships. Good Science Can Help Debates About Measurement and Modeling

How do we bring clarity to this debate? I believe we do so through standard, established scientific procedures, as continually applied. There needs to be a reasoned conceptual definition of each distinct construct under scrutiny, valid and reliable measures of those constructs, appropriately specified structural/causal models showing theoretically how the constructs are related, followed by empirical testing of those hypothesized model structures. In the case of loyalty, drawing from the literature, a reasoned conceptual definition of loyalty should include both attitudinal and behavioral components. In research using survey methodologies, intent to repurchase can tap the behavioral component of loyalty. As a behavioral intention, this is distinct from pure attitude and has been argued in attitudinal theories to be a precursor of subsequent behavior. That is not to preclude use of truly behavioral measures however. Actual repeat purchase behavior certainly can be used to capture the behavioral component of loyalty. Next we need a clear conceptual definition for attitudinal loyalty. Again the literature offers a number of directions here. For example, one might use something like psychological attachment to the brand/product/service. After using theory and past research to define attitudinal loyalty, it must be operationalized with appropriate measures. Empirical data on these measures need to demonstrate certain characteristics (internal consistency reliability, convergent and discriminant validity, etc.). Can intent to recommend and satisfaction together somehow capture this attitudinal part of loyalty? My opinion is that they cannot. Intent to recommend is a behavioral intention, not a measure of attitudinal loyalty. Like repurchase intent, it is a causal outcome of favorable attitudes, not a direct measure of them (i.e., I am satisfied therefore I recommend). What about satisfaction - can it tap attitudinal loyalty? Again, I don't think so. Rather than being a measure of attitudinal loyalty, it is a causal antecedent to attitudinal loyalty (i.e., I am satisfied therefore I am predisposed to be loyal). In fact, there needs to be explicit recognition that satisfaction is not a direct indicator of attitudinal loyalty. We know some satisfied customers defect. As Neal pointed out, "just because I am highly satisfied with a brand's performance doesn't mean I will necessarily repurchase." Satisfaction may contribute to loyalty, but it is not equivalent to loyalty. Then, having considered valid conceptual definitions and measures of the attitudinal and behavioral components of loyalty, an appropriate method must be used to combine these into a single construct measurement. Depending upon a chosen theoretical position on how the two components work together, a reflective latent variable, a formative latent variable, or some other means or statistical combination can be used. Bottom line: we need conceptually and empirically valid measurement, and combination, of the attitudinal and behavioral components of loyalty. After that, we can use accepted scientific practices to specify and test things that result from loyalty (e.g., recommendation), and things that contribute to it (e.g., satisfaction, value). This is a classic scientific sequence - attention to valid and reliable construct measurement, then specification and testing of causal antecedents and consequences of that construct.


1.3 MY THOUGHTS

Neal and Brandt have raised important issues about the conceptualization and measurement of customer loyalty. Their opposing views about the nature of loyalty and the appropriateness of the three-item approach spark useful debate on a topic of considerable theoretical and applied interest in our time. I have presented an alternative view that I believe avoids some potential points of critique in their positions while leveraging and unifying the strongest points of the two perspectives. In conclusion then, let's not miss the rich history from which general consensus emerged about conceptualizing loyalty. It involves attitudinal and behavioral components. Then, let's apply the best scientific practices in our field to operationalize and test appropriate definitions with measures and models that withstand rigorous conceptual and empirical investigation. Maybe then we can land on something about which we all can agree.

1.4 BRAND EQUITY & BRAND LOYALTY MEASUREMENT AND MANAGEMENT

Companies work hard building the strength of their brands - it is critical to the ongoing brand management process to have meaningful and actionable data-driven measures of these efforts.

Building a brand, cultivating its strengths, pruning its weaknesses, and making it more valuable to its owners is the bottom line job of marketing. Everything marketing does should ultimately work in concert to make a firm's brands more valuable. There are many different tactics and strategies that go into strengthening a brand name: advertising, promotions, public relations, and research and development, to name a few. While companies use these and many other methods to strengthen their brands' positions in increasingly competitive markets, how can they measure the return on this work? More precisely, how can a company determine the worth of one, or any its brands?

Putting the brand to a true test, the company can better judge how much that brand is worth and how much opportunity for improvement might exist.

Why Measure Brand Equity?

Measuring brand equity allows a company to establish a baseline and track changes in its brand equity over time. If a company consistently works to improve the strength of its brands, it must trace progress, or risk "flying blind." Changes in a quantitative measurement of brand equity can show the company the effects of its work, and greatly aid in setting marketing and management priorities in the next business planning cycle.

Once a brand equity measurement system is established, a company can better understand and therefore determine if equity in a given brand can be leveraged or transferred to an entirely new product or service category. Thus, a firm can increase the return from the investment in building a particular brand over time by extending that brand's equity into new categories.


A company may want to measure its brand equity to aid in assigning a monetary value to a brand. Wall Street measures the strength of a brand by looking primarily at current and historical financial measures, with minimal use of information directly from the "voice of the marketplace" (i.e., current and prospective customers). While historical financial performance is important in understanding brand strength, it does not tell the whole story, especially in terms of what the future might hold for the brand. This potential deficiency derives from the choices made in defining brand equity.

Defining Brand Equity

Brand equity can be defined in many different ways. Burke has developed a simple, yet powerful, definition of brand equity. For a brand to be strong it must accomplish two things over time: retain current customers and attract new ones. To the extent a brand does these things well, it grows stronger versus competition, and delivers more profits to its owners.

Breaking down the definition of "brand equity" into its two components, we can more easily determine a reliable way to measure brand equity, and to track changes in brand equity over time. The components of brand equity, retention and attraction of customers, stem from people's experiences with and perceptions of a brand.

The ability to retain customers is largely experiential. High equity brands exhibit stronger levels of customer satisfaction and loyalty. History has shown that consumers will continue to buy a brand that offers them "their money's worth."

The ability to attract new customers is largely perceptual. Because customers do not have actual brand experience, they must go by what they hear, see and believe about a brand. The two primary ways the market receives this information is through messages controlled by marketing, such as advertising and PR efforts, as well as uncontrolled messages such as press stories and "word of mouth."

The Burke Approach To Tracking Brand Equity

Burke has created a brand equity index comprised of three components, best described as a molecule. In the brand equity "molecule," three smaller components - like atoms - are so tightly interrelated that they form the larger substance. In this case, the three "atoms" interacting with and affecting each other are customer loyalty, image and value.


The brand equity molecule is the overarching device of retaining and attracting customers. Image and value perceptions pull in new customers while loyalty and value retain current customers.

Each component of brand equity represents an index in its own right. In order to build the overall measure of brand equity, we need specific measures in each of the three critical areas of loyalty, image and value. Let's take a look at each of these.

1.5 LOYALTY: HOW SECURE IS THE BRAND'S CUSTOMER BASE?

As an outgrowth of our work in customer satisfaction and retention research and consulting, Burke has developed a measure of customer loyalty called the Secure Customer Index® (SCI®). The SCI is composed of three measures: customer satisfaction, customer commitment and customer advocacy, and has been used in over 900 research studies dealing with customer satisfaction.

To be declared "secure," a customer must be very satisfied, definitely would recommend the brand to others and definitely plan to repurchase. The Loyalty Index within the greater brand equity framework is the percentage of current customers who are "secure", as defined by the SCI.

Image: What Does The Brand Mean To People?

Burke typically conducts an in-depth analysis of a brand at the beginning of the measurement process to determine the perceptual "essence" of the brand, that is, what the brand means to current and potential buyers.

The measurements of image consist of both general "corporate" elements and specific "performance" elements. For instance, in measuring the image of a gasoline brand, we might ask current and potential customers to answer such questions as: Is the company environmentally conscious? Can I trust the company? Is the company dedicated to producing high quality products? We also ask more specific product performance questions, such as: Does the brand provide superior performance in your car? Do they have friendly service? Can I easily pay at the pump?

Ultimately, we want to see which image items provide the most leverage versus a critical market measure, such as market share. Often, we can determine if an image item is a


"core" equity item - an item on which the brand cannot afford marketplace disappointment. In these cases, the downside risk is greater than the upside opportunity of a given image improvement strategy. On the other hand, some attributes display a pattern in which the upside outweighs the downside risk. These attributes feature a good investment opportunity for brand image improvement.

The final part of the image analysis phase is to create an overall cumulative "image" index for the brand.

Value: Are People Willing To Pay More For The Brand?

The final component of the brand equity index is the creation of a value index. Quantifying the value component can be approached in various ways depending on the nature of the data collection task, the project budget and what makes best sense for the product and category at hand. Often, the best way to attack value perception is with a simple brand/price trade-off task. Other times, value is best measured with direct questioning, such as "value for the money" type rating questions.

For example, one method of measuring value is the brand/price trade-off method, in essence, a simple conjoint task. This is accomplished by setting up choice situations for respondents where, at the first level of choices, all prices are equal across brand names. The only basis for choosing among brands is the psychological association one has with a given brand name. We expect the customer's first choice to be his/her favorite brand. But as the price increases in relation to other brands, we witness how much a customer is willing to pay. That is, we can quantify how "immune" a brand might or might not be to increases in price. This allows us to scale their loyalty for the brand in the context of a reasonable range of prices and create an overall value index.

1.6 PUTTING IT ALL TOGETHER: THE MASTER BRAND EQUITY INDEX

In the end, the overall Brand Equity Index is a combination of the indices on the core elements of Loyalty, Image, and Value, with a "perfect" score being 300. Of course, no brand will ever achieve 300, but this provides us with a common yardstick to compare a client's brand to competition, or to compare relative brand strength across product or service categories. Typical brand equity index numbers observed so far are in the 80 - 150 range.

With the index, we can pinpoint more easily what needs to be done to improve brand equity and move toward the elusive 300. The three components of the brand equity index allow us to decompose changes in the score to understand fluctuations in brand equity. Working backward, we can show that brand equity increased because of an improvement in one of the components. By looking at the sub-indices, we can track which areas are increasing or decreasing over time and thus what strategies worked and where opportunities lie for future improvements and greater payback.


The Burke Approach To Extending Brand Equity

Before you can successfully extend current equity, you must understand what images, attitudes, and associations are generated by the core brand to be extended.

When the elements that drive the core brand's equity are understood, then evaluations can be made as to what degree potential brand extensions have a perceptual fit with the core brand. We begin to understand how best to leverage those elements into a new category. And we begin to understand the risks (if any) to the core brand, and how to minimize them.

The Burke approach to Brand Equity Extension for any brand involves the following:

Define and measure current "brand equity" for the core brand of Gaucho's Salsa.

Determine what images, attitudes, and associations are most critical to driving current brand equity.

Determine the degree to which Gaucho's current equity is transferable to other potential categories.

Identify and sort the strong from the weak extension possibilities, in terms of overall business potential.

Ultimately, an "equity transference and business potential" map would be created to show which concepts are most likely to carry the core brand name well, and the overall sales potential for each:

Additionally, the Burke analysis will show the path to maximizing consumer acceptance of the Gaucho's brand in new product categories, by showing which brand attributes must be improved, maintained, or protected against competitive moves.


Brands in today's intense global economy are strategic assets and a key source of competitive advantage. A brand's equity, that which adds or detracts from the power of the brand, must be managed and leveraged to produce strong long-term performance and lasting revenue growth. Strong brand-building and measurement skills are crucial to achieving these critical objectives in today's fiercely competitive global economy.

SRBI is a leader in designing and conducting brand equity research. SRBI has put its considerable brand equity research experience and capabilities to work for many domestic and global brands in media, financial services, consumer goods, telecommunications, and transportation services. This includes research to support new branding initiatives and the repositioning and revitalization of established brands.

SRBI's brand research experience and capabilities are presented within our Brand Equity Evaluation and Measurement Program which addresses such critical brand research issues as:

Attitudes toward and perceptions of the brand

Brand acceptance and affinity

Brand awareness, attitude and usage tracking

Brand equity measurement and evaluation

Line extension evaluation

Market feasibility

Market structure and segmentation

Positioning

Name testing and selection


USP development and testing

SRBI provides brand research programs that incorporate all of these issues, as well as programs that include only one or several of the above issues. SRBI's brand research is customized to your specific needs and is designed to provide meaningful solutions, not just numbers. The SRBI Brand Equity Evaluation and Measurement Program is a progressive 5-step process which provides market and customer data and evaluation on which to base brand strategies and tactics.

A key component of the Brand Equity Measurement and Development Program is The Brand Equity Power Index , a single measure of brand power using survey data and external market data as variable inputs. Inputs to this model can be adjusted, modified, and manipulated through gaming to determine the effects of the variable inputs on brand equity power.


1.7 WHO IS LOYAL CUSTOMER?

It is defined earlier that a loyal customer as one who purchased regularly, showed interest in a cross-section of products and services, and recommended the company to others. Today, that definition must be expanded to reflect the changes in both customer behavior and supporting technologies. Research suggests that customers who engage with a firm through multiple channels exhibit deeper loyalty than single channel customers. This assumes the customer receives the same consistent service from the vendor whether he walks into the store, logs onto the Web site, or calls the service center. Today's customers expect to hop from channel to channel and they expect good service to follow.

Today, call center representatives are increasingly the new "frontline" for more and more companies. Converged call centers (phone, fax, email, Web) are on the rise. Gartner Group estimates that 70% of North America's call centers will migrate to multi-channel contact centers by 2005. And customers are changing their "flight patterns" to move right with them.

Forrester Research predicts that by next year customer e-mail will grow from 9.8% to 17.3% while Web contacts with customers will double from 8.1% to 17.1%. Call center representatives have the potential to be the "loyalty warriors" of the future. To be effective, they need to be as equipped to write a well-written email reply and navigate the company Web site as they are in being helpful and friendly on a phone call. Two converging events since the mid-1990s have made for a buyer that is significantly more demanding than half a decade ago -- widespread use of the Internet coupled with knowledge management breakthroughs have created a new breed of "loyal" customer. Yet, most companies have not kept pace with this new empowered customer and the customer experience has suffered. The result: Customers feel under-whelmed, over-promised, under-delivered, and "unloyal-like."

What will define a loyal customer five years from now is still unfolding. However, companies that recognize that the face of the customer is changing will be better positioned to respond well through various channels –- today and tomorrow. 'Brand-stretching'

Brand-stretching, that is, the use of tobacco brand names on non-tobacco merchandise or services, has been used by the tobacco industry for many years as a means of promoting cigarettes when faced with a ban on direct tobacco advertising. The examples which follow show the extent to which the tobacco industry will go in order to circumvent restrictions on tobacco promotion. This has serious implications for European nations as governments draft their domestic legislation to conform with the EU Directive on tobacco advertising.


Rationale

Brand-stretching has nothing to do with the diversification of the tobacco industry. Most of the multi-national tobacco companies already have separate divisions dealing with non-tobacco products. For example, Philip Morris owns General Foods which includes many well-known brands such as Maxwell House, Kraft, etc. The objective of tobacco brand-stretching was made quite clear in a 1979 document from BAT:

Opportunities should be explored by all companies [ie in the BAT group] to find non-tobacco products and other services which can be used to communicate the brand or house name, together with their essential visual identifiers.... The principle is to ensure that tobacco lines can be effectively publicised when all direct lines of communication are denied 1.

A similar strategy was set out by RJ Reynolds, manufacturers of Camel cigarettes, in a document which sought ways to circumvent the French law which bans both direct and indirect advertising. The document, attributed to Worldwide Brands, another Reynolds subsidiary, recommended a "creative approach to legal matters" to achieve "a balance between legal risks and desired benefits". The document recommended using cigarette brand names for "lifestyle" products such as clothing, shoes, and watches. Most revealingly, the document stated that expenditure for such promotions would increase through legal and financial channels that must be "hermetically separated from the tobacco company" 2.

Types of brand-stretching

One of the earliest examples of brand-stretching or indirect advertising was in Norway where, following a ban on tobacco advertising in 1975, advertisements for Camel boots started to appear in magazines and newspapers. The ads were identical to those that had previously advertised Camel cigarettes. The Government acted quickly and deemed the ads to be a breach of the law. They were subsequently only permitted once the characteristic lettering of the word "Camel" and the Camel trademark were dropped.

In October 1997, ASH complained to the Advertising Standards Authority about a similar campaign in the British press. The ad, for Camel boots, featured the distinctive logo and lettering of Camel cigarettes and portrayed the characteristic rugged, outdoor imagery associated with the brand. ASH argued that the advertisement was promoting cigarettes as well as boots but that it was essentially a promotion for the Camel brand which is a cigarette brand. ASH believes that the advertisement should, therefore, be subject to the same controls as tobacco advertising. Under the terms of the Cigarette Code, which defines restrictions on style and content of cigarette ads, the advertisement for Camel boots would be prohibited. However, the ASA ruled that because the ad for Camel boots contained no references to cigarettes in a way that promoted smoking, it did not breach the advertising codes.


Other early examples of brand-stretching occurred in Belgium and France following tobacco advertising restrictions. Until 1982, indirect advertising did not exist in Belgium but, following the regulation of tobacco advertising, advertisements for Marlboro lighters and matches started to appear. A judge ruled the campaign illegal and said that it was clear that the intention was to promote cigarettes. People are not stupid. They immediately identify the tobacco brand promoted through lighters or matches. A similar initiative can be seen with the recent promotion for Rizla cigarette papers. Imperial Tobacco acquired the company in January 1997 and has spent considerable sums promoting the brand. Activities include the Rizla Rolling Road-Show, which tours UK music festivals, and the sponsorship of night clubs. For such a low value product, the scale of promotion is immense. Rizla has even launched its own website on the Internet with the clear intention of targeting a youth audience.

Another well-known brand which has benefited from indirect advertising is the world's leading cigarette brand, Marlboro. The Marlboro Classics range of clothing is designed to reflect the "Wild West" imagery associated with the Marlboro brand. It was initially a loss leader for Philip Morris, the manufacturer of Marlboro, but is now the second-largest mail order brand in the USA and there are 1,000+ Marlboro Classics stores throughout Europe and Asia.

Cigarette brand names have also been associated with holidays, shops, cafes, music, and even public service messages in countries as diverse as France, India, Malaysia, Thailand, Ukraine and the USA.

Who controls brand-stretching?

In order to side-step laws governing tobacco advertising, the tobacco industry has attempted to dissociate itself from indirect advertising by the establishment of quasi-independent companies which have sole responsibility for promoting non-tobacco products using cigarette brand names. An example is that of Worldwide Brands Inc, set up by RJR Nabisco Holdings, which owns the Camel trademark outside the tobacco sector. The company claims to have no direct legal or financial relationship with any RJ Reynolds tobacco operation. According to WBI, the company's business is "brand diversification" and has been marketing fashion accessories using the Camel brand name for 20 years.


1.8 EFFECT OF BRAND-STRETCHING

The tobacco companies argue that products and services bearing tobacco brand names should not be subject to any tobacco control legislation because they are not selling cigarettes but other services. However, the examples from Malaysia and France show clearly that the prime motive behind the use of tobacco brand diversification is the continued promotion of the product for which the brand name became recognised, ie cigarettes.

Tobacco promotional merchandise has become widespread in the USA and is very popular with children. Money spent by the tobacco industry on promotional merchandise increased from 7.7% of its advertising budget in 1990 to 25.8% in 1994. Recent research has shown that schoolchildren who wear clothing emblazoned with cigarette names are four times more likely to smoke than other children. Researchers found that 32 per cent of the children surveyed owned promotional merchandise such as T-shirts and baseball caps.

The impact of Marlboro brand-stretching was demonstrated clearly in a survey of cinema goers in Norway where limited indirect advertising is permitted. The poll revealed that 50 per cent of visitors thought that they had seen an advertisement for cigarettes after the screening of an ad for Marlboro clothing.

Future developments

A recent development from brand-stretching is "image-stretching". Not content with using brand names and logos, the tobacco companies are now actively promoting the imagery associated with particular brands. Thus, in Malaysia, BAT has been enticing people to participate in its Benson & Hedges "Golden Dreams" programme, a TV programme about the aspirations of selected individuals. In Thailand, a new canned coffee beverage called M Coffee is adorned with the cowboy imagery associated with Marlboro. 15 In Europe, cigarette companies have been building brand recognition by the use of colour. Thus, Silk Cut has become synonymous with purple, Benson & Hedges with gold, and so on. The tobacco companies have also begun to publish life-style magazines to encourage brand loyalty. One of the first to use this format was Rothmans with its Rendevous with Raffles magazine. Its circulation now stands at around 100,000.

To date, tobacco advertising on electronic media has been fairly limited. This reflects a voluntary agreement by the tobacco companies in the UK not to advertise until the law has been clarified. However, websites promoting tobacco already exist. For example, the West brand in Germany has its own site and an indirect promotion for Lucky Strike has been created through a website called Circuit Breaker based in California. Other forms of electronic media are also being exploited by the tobacco industry. Benson & Hedges, which recently sponsored Hogzone, a British night club tour, used interactive kiosks alongside lightshows and promotional gifts to attract young customers. A spokeswoman for Benson & Hedges' sales promotion agency, Ignis, commented there:


"It was a new presentation of the Benson & Hedges brand... The electronic medium is very important in appealing to a youth audience. In the absence of a web site, the kiosks are a way tobacco companies can use new media and reach that youth audience. They can also do it in a fairly elliptical way, rather than forcing it down people's throats."

Lighting up

People who have never smoked have no plans to start lighting up, but those who have picked up the habit show no signs of quitting.

Findings from a survey show that regular smokers are highly loyal to their favorite brands, with 86 percent claiming they would never consider buying another brand on a regular basis. The survey of 1,000 males and females, aged 15 to 64, was conducted late last year by market research firm Asia Market Intelligence.

Results show that printed warnings on the dangers of smoking may be sinking in--only 29 percent of the entire sample surveyed light up regularly.

Forty-seven percent of male respondents smoke, making them the best customers of the tobacco industry, in contrast to the 13 percent of women who puff away out of habit.

One out of every four smokers is aged 15 to 24, making the Filipino youth another prime target as the worldwide tobacco industry seeks to refresh its dwindling customer base. However, it’s the 25 to 39 age bracket that has the most number of smokers, with the number tapering off as they move into the 40 to 59 age range and health issues become a more prominent concern.

Majority of the smokers surveyed claim they smoke less than five sticks a day. Pack-a-day die-hards are quite rare and more likely to be older, 60- to 64-years-old and male. Thirty-four percent of smokers said they buy their cigarettes daily, with 94 percent buying them on their own.

When asked to specify the brand they smoked most often, both Philip Morris brands came out best. "Compared to other Asian markets, the Philippines differs in that imported brand names dominate domestic ones," observes Kurt Thompson, director of Asia Market Intelligence in Manila. "Brand loyalty is also unusually strong unlike other markets where brand promiscuity is endemic."

About 38 percent, the highest percentage amongst smokers surveyed, claim they have been smoking their regular brand 10 years or more. It also appears that once loyalty is instilled during the crucial 25- to 39-year-old stage, it’s difficult convincing them to switch.


Forty-one percent from this age bracket, which has the most number of smokers, say they have been smoking their regular brand for at least a decade. Only 14 percent of all smoking respondents said they would consider changing to a different main regular brand in the future.

Despite their overwhelming loyalty, on occasional 41 percent still smoke brands other than their regular brand--possibly when their regular cigarettes are unavailable. Winston King Size leads the list of alternatives at 16 percent, followed by Winston again--no variety specified--at 15 percent. The ubiquitous Marlboro Filters King Size rank third at 14 percent.

A window of opportunity exists though, for these alternative brands should they seek to increase market share. Forty-two percent of respondents say that roughly three quarters of all cigarettes they smoke are their regular brand. In comparison, only 37 percent claim that all the cigarettes they smoke never vary from the regular brand to which they are accustomed.

Heightening awareness of cigarette brands is a gargantuan challenge as restrictions on advertising, sponsorship and all kinds of above- or below-the-line activities for the tobacco industry continue to grow. Somehow cigarette manufacturers manage--when asked to mention cigarette brands, roughly three out of 10 smokers said Marlboro, while 21 percent mentioned Philip Morris. Hope King Size and Winston were next at 10 percent and 9 percent, respectively.

Marlboro also appears to be the most familiar "starter" cigarette for the youth at 45 percent. This figure falls to 33 percent amongst 25- to 39-year-olds who apparently start experimenting with other brands and varieties as smoking settles into a habit.

Of this age group, 23 percent mentioned Philip Morris, 18 percent specified Marlboro Filters King Size and 11 percent said Winston as other brands they know.

When asked to mention other brands they were familiar with, 45 percent of the smoking respondents came up with Philip Morris, followed by Winston King Size at 38 percent and Marlboro Filters King Size at 36 percent.

With the recent political upheaval, people have been much more cautious in expenditure especially when major investments are concerned. Considering the relative cost of cigarettes, their ready availability and the ingrained loyalty to specific brands, Filipino smokers will continue their patronage of favorite cigarette brands--politics or no politics.


1.9 LOYALTY IN THE MARKET PLACE Whether husbands are loyal to their wives or not, whether employees remain loyal to their employers or not, marketers are realising the need to have a large number of loyal customers. The purpose of any organisation does not end with just getting the customers. Retaining them in their fold is an equally important task. No successful company is satisfied if a customer buys the product of the Company just once or twice.He/She must be made to buy the same brand again, and again. This is should be the core strategy for many of the fast moving consumer goods. Often consumers may not be aware of even the total set of brands available in the market of the product category under consideration. Again, they do not consider for choice all the brands they are aware of. They have an evoked set or a consideration set of brands within which they normally switch from one to another. Consider the case of toilet soaps. There are any number of toilet soaps available in the market. But consumers usually choose from their evoked set only. Suppose, the evoked set of brands for toilet- soaps for a consumer consists of Hamam, Rexona and Lux, she will buy only from these three brands. At the same time, she may buy one particular brand more often than other brands in the evoked set, which is a different issue to be taken up later. The composition of the evoked set might change from time to time depending on the advertising pressure brought on the consumers by different companies. Hence it is important for the marketer to know the composition of the evoked set of consumers he is trying to satisfy and then try and get their brands into the evoked set of customers.


We shall develop the concept of brand loyalty using our understanding of evoked sets. Suppose the brands in the evoked set of a consumer are A, B, C, D and E. Out of the last 10 purchases made in that product category let us say brand C was bought 7 times, brand A,B, and D were bought once each. Then he is said to be 70 per cent loyal to brand C. On the other hand if all the ten purchases were that of brand C then the customer is said to be totally loyal to brand C. This kind of data about customers has a lot of implications to the marketer. Customers can be divided into four groups according to their loyalty status. HARD-CORE LOYALS: Consumers who buy one brand all the time. Thus a buying pattern of C, C, C, C, C, represents a consumer with undivided loyalty to brand C.

SOFT -CORE LOYALS: Consumers who are loyal to two or three brands. The buying pattern C, C, A, A, C, A, represents a consumer with a divided loyalty between C and A. SHIFTING LOYALS: Consumers who shift from favouring one brand to another. The buying pattern, C, C, C, B, B, B, would suggest a consumer who is shifting brand loyalty from C to B.

SWITCHERS: Consumers who show no loyalty to any brand. The buying pattern A, C, E, B, D, C, would suggest a non-loyal consumer who is either deal prone (buys the brand which gives discount or gift) or variety prone (wants something different).


Chapter2 WORLDS TOBACCO INDUSTRY

2.1 INDUSTRY PROFILEPHILIP MORRIS, BAT & RJ REYNOLDS LOOK OVERSEAS

The Big 3 global tobacco players bear substantial responsibility for rising smoking rates and projected future increases. "With growers and manufacturers being threatened by stiff U.S. regulations on tobacco, it is logical to expect them to strengthen their overseas markets. And they will," says Diana Temple of Salomon Brothers Inc.

1. Former Vice-President Dan Quayle summed up the industry view in 1990 when he remarked to a group in North Carolina, "Tobacco exports should be expanded aggressively, because Americans are smoking less."

1 For two decades, the tobacco companies have invested heavily in overseas advertising. They have acquired newly privatized cigarette companies, set up joint ventures and built distribution and sales networks. As a result, Philip Morris, RJ Reynolds and BAT have registered double-digit growth in international cigarette sales in recent years. Philip Morris and RJ Reynolds now sell more cigarettes abroad than they do in the United States.

2 In 1997, Philip Morris made more profit selling cigarettes abroad than in the United States, and analysts expect in the next 10 years that RJ Reynolds and Brown & Williamson (BAT's U.S. subsidiary) will do the same.

3 Between 1986 and 1996, U.S. cigarette exports grew by 260 percent and now account for nearly 30 percent of all domestic cigarette production, with 40 percent of these exports now destined for Asia.

4 "Most of their capital expenditure and infrastructure is in place and the profit comes from growing [international] volumes," says Salomon Smith Barney analyst Martin Feldman, who expects the companies' international tobacco profits to rise by around 20 percent over the next few years.

5 An increasing proportion of these companies' overseas sales are being manufactured abroad, rather than being exported from the United States. U.S. cigarette exports fell 11 percent in 1997, "due to greater offshore production by U.S. manufacturers," says the U.S. Department of Agriculture (USDA).

6 In 1996 the big three U.S. cigarette companies shipped 244 billion U.S. made cigarettes to foreign countries. This amount was less than half of what Philip Morris alone sold abroad that year,

7 while in 1997 only 18 percent of the cigarettes RJ Reynolds sold overseas were made in the United States.


8 "U.S. companies are likely to look harder at their operations abroad and produce fewer cigarettes here," says Peter Burr, an agricultural economist at USDA who specializes in tobacco.

9 A number of factors have driven this overseas expansion, including:

the opening up of formerly closed economies in Eastern Europe, the former Soviet Union and China;

pressure on governments by the international financial institutions to privatize state-owned industries and relax laws restricting foreign investment;

the attempt by developing countries to attract foreign investment through the provision of tax incentives and the lifting of import duties; * cheaper labor and transport costs;

the threat of further regulation in the multinational's home countries and the attempt by these companies to shield an increasing proportion of their assets from lawsuits in developed countries; and

the desire to locate cigarette manufacturing plants closer to sources of tobacco leaf, an increasing proportion of which is being purchased overseas (see "Encouraging Foreign Tobacco Production").

The Big 3's increasing reliance on overseas production has transformed the tobacco industry around the globe. In country after country, they have purchased previously state-owned factories, set up joint ventures with existing state enterprises and built new factories. Currently, Philip Morris, RJ Reynolds and BAT each own or lease plants in at least 50 different countries spanning all corners of the globe.11 The following is a summary of their overseas operations:

Philip Morris

Philip Morris is the world's largest multinational cigarette company. It controls around 16 percent of the global cigarette market and hawks the world's most popular brand, Marlboro, which accounts for 8.4 percent of global consumption.12 The company has subsidiaries, affiliates and licensing agreements in 54 countries around the world,13 and has at least a 15 percent market share in over 40 countries. Philip Morris' international tobacco unit is the company's fastest growing in terms of profit and sales. Since 1990, the company's cigarette sales have risen by only 4.7 percent in the United States, but 80 percent overseas,14 while profits from international sales have risen by 71 percent since 1993.15 In 1997, the company sold 235 billion cigarettes in the United States for a profit of $3.3 billion, while selling over 711 billion cigarettes abroad for a profit of $4.6 billion, marking the first time that the company's international sales made more profit than domestic ones.16 By the year 2000, predicts CEO Geoffrey Bible, the company will be selling a trillion cigarettes worldwide.17 "They've got a good buffer. No matter how badly things go in the United States, international sales will carry them along," says Allan Kaplan, a tobacco analyst at Merrill Lynch & Co.18


In 1996, Philip Morris bought a controlling interest in the Polish government's largest cigarette factory for $372 million.19 A year later, the company paid $400 million to take a controlling interest in Mexico's second largest cigarette maker, Cigatam (see Mexico case study). The acquisition strengthens the company's already formidable presence in Mexico (Marlboros currently have 30 percent market share)20 which it had gained through a previous license agreement with Cigatam to produce, market and distribute its Marlboro, Merit, Parliament, and Virginia Slims brands. The acquisition will also help the company's efforts to produce low-cost cigarettes for export to North America and Asia -- Cigatam has over the past few years been exploring strategies to increase its presence in overseas markets, especially in China.21 In December 1997, Philip Morris announced that it would build a cigarette plant near Bucharest, Romania, to begin production of its Marlboro, L&M and Bond Street cigarettes.22 As Chairman Bible puts it, "We are still in the foothills when it comes to exploring the full opportunities of many of our new markets."23

BRITISH AMERICAN TOBACCO (BAT)

Brown & Williamson's parent company, British American Tobacco (BAT), is the world's second largest multinational cigarette company. With subsidiaries in 65 countries, 24 BAT controls around 15 percent of the global cigarette market.25 The company and its subsidiaries and affiliates manufacture more than half their cigarettes in Asia, Australia and Latin America. In 1997, the company's international tobacco operations made a profit of $2 billion on sales of $23.7 billion.26 In 1996, the company underwent a reorganization in which British American Tobacco Company, British-American Tobacco Germany, Souza Cruz (Brazil) and Brown & Williamson all merged to become a single entity -- British American Tobacco (Holdings) Ltd. The purpose of the merger was to improve the company's marketing efforts, "especially exports and the development of international brands."27 All of the company's operations are run out of the company's United Kingdom office, except for those of Japan, Mexico, South Korea and the United States, which are handled at Brown & Williamson's Kentucky headquarters. In the course of the merger, BAT also established the Consumer and Regulatory Affairs Office to "counter the anti-smoking lobby and vigorously advocate the company's views around the world."28

BAT, which has long been the most international in outlook of all the tobacco multinationals, is also intensifying its strategy of acquiring and building production capacity around the world. In 1996, BAT spent $25 million to upgrade its "Liberation Factory" in Cambodia in order to boost production for both the domestic and export markets.29 In January 1998, BAT purchased a controlling interest in Tekel, the Turkish state cigarette monopoly. The purchase gives the company a quarter of the world's ninth largest cigarette market -- Turks consume nearly 100 billion cigarettes a year. BAT will invest $145.6 million in return for a 52 percent share of Tekel, which will eventually have the capacity to produce 25 billion cigarettes a year. BAT also acquired a 49-year exclusive license to sell Tekel's popular Samsun and Yeni Harman cigarette brands.30


In 1997, BAT purchased Cigarrera La Moderna (CLM), Mexico's biggest cigarette maker, for $1.7 billion (see Mexico case study). This was one of the largest foreign investments ever made in Mexico31 and BAT's most expensive purchase ever.32 CLM produces both Mexican cigarettes and international brands -- sold under licensing agreements with BAT competitors -- such as Camel, Winston, Dunhill and Salem.33 "This acquisition offers us the rare opportunity to buy a sizeable and very profitable player in a growth market," says Martin Broughton, chair of BAT.34 The purchase will consolidate the company's dominance of the Latin American market, where it currently holds a 60 percent share (almost double that of Philip Morris) and significantly increase its ability to boost exports to the United States and Asia. BAT also sees "considerable opportunities" to export tobacco leaf from Mexico, "particularly because the country is outside the U.S. import quota," says a Reuters report.35

RJ Reynolds

RJ Reynolds, the world's third largest multinational cigarette company, has recently fallen further behind Philip Morris and BAT. Saddled with a huge debt load (the result of a failed takeover bid in the late 1980's made famous in the book Barbarians at the Gate), RJR saw its international tobacco profits decline 5 percent in 1997 to $759 million on sales of $3.57 billion. This drop, however, masked a 43 percent increase in sales in Central Europe and a 13 percent increase in the Baltic Republics and Commonwealth of Independent States.36 The company's recent troubles have sparked speculation among Wall Street analysts that the company may enter into an international alliance with BAT that would involve a merger of the two companies' international tobacco divisions.37

Although smaller than its two rivals, RJ Reynolds is still a huge multinational company, with subsidiaries, affiliates and licensing agreements in 57 countries.38 The company, which controls around 4 percent of the global cigarette market, has seen a 75 percent increase in its international sales since 1990, reaching $3.4 billion in 1997.39 International sales now account for 41 percent of RJR's total tobacco sales.40

In 1995, RJ Reynolds significantly boosted its overseas operations, adding facilities in Finland, Vietnam, Poland and Tanzania, where it paid $55 million for a controlling share of the Tanzanian Cigarette Company. The purchase was the largest single foreign investment in Tanzania since the country achieved independence in 1961.41 RJ Reynolds has ambitious plans to rehabilitate the formerly state-owned company's Dar Es Salaam plant, which will soon produce 4 billion cigarettes annually, making it one of the biggest plants in Africa. The company hopes to use its new base in Tanzania to challenge BAT's virtual monopoly in the East and Southern African region.42 In November 1997, RJ Reynolds opened a new $9 million plant in Tunisia to manufacture Winstons and Monte Carlos for Tunisia's voracious smokers -- 62 percent of Tunisian men and 8 percent of women smoke. "Tunisia ranks sixth in the cigarette market in Africa," says Reynolds Executive Vice President Klaus Langner. "This new alliance will allow Reynolds to be the leader of foreign tobacco firms in Tunisia, and to reinforce its position in North Africa," he says.43 The company is also a huge player in Turkey, where its factories account for half of the country's cigarette exports


2.2 THE TOBACCO INDUSTRY AND YOUTH SMOKING

One of the important aspects of Bill S-20 is that it puts the tobacco industry’s publicly stated position on youth smoking to the test. As you all know, the industry has consistently claimed that it is opposed to underage smoking, that it does not market its products to children, that smoking is an “adult choice” and that tobacco companies will co-operate with anyone who wishes to make tobacco products less accessible to minors. For people who work in public health, these claims ring hollow: we have seen too many advertising campaigns that appear to target children and too many industry marketing documents discussing the perceptions of teenagers.Rather than concentrate on these specific examples, I would like to concentrate on the big picture: the structural reasons why tobacco companies are driven to focus their marketing energies on young people.

The Economics of Youth Smoking

Less than one-third of smokers (31%) start after age 18.

Only 5% of smokers start after age 24.— “Younger Adult Smokers: Strategies and Opportunities,”

Tobacco addiction has been described as a pediatric disease, because an

increasing percentage of smokers (roughly 80% in Canada in 1994) take their first cigarette before the age of 18. Moreover, as the U.S. Surgeon General noted in a 1994 report on youth smoking, “People who begin to smoke at an early age are more likely to develop severe levels of nicotine addiction than those who start at a later age.” As Health Canada noted in a study released in January of this year, 35% of Canadian smokers aged 15 to 17 report having smoked their first cigarette by the age of 12.

What is more, brand loyalty develops early in a young person’s smoking career, so that even marketing efforts that actually are designed to promote brand-switching are inevitably likely to be skewed towards young people. As RJR put it in the early 1980s, “Even if a brand falls from grace among younger adult smokers, the increasing consumption rate of the aging franchise can carry the brand’s performance for years, thus extending its life cycle.”

Please note that RJR, like tobacco companies around the world, regularly uses the euphemism “younger adult smoker” to refer to underage smokers.

Now, before anybody suggests that the economics of youth smoking are somehow different in Canada than in the United States, let me just provide a few examples from Canada.


A 1982 document obtained by the B.C. government from British-American Tobacco files in Guildford, England, discusses Canadian market trends in detail. The document notes the wide discrepancy between the number of smokers who intend to quit in the near future (about 40%) and the low percentage who actually succeed (1.8% in 1981). This overview also includes the following passage about starters:

Our information on starting is limited since we do not conduct research with people under the age of 15. However, all of our data and especially starting rates among people over the age of 15 suggest that starting is up since the ’76 launch of “lights.”

Incidentally, even in 1976, it was illegal to sell cigarettes to 15-year-olds in Canada.

In 1985, an Imperial Tobacco document described a “Problem” faced by the

Canadian tobacco industry (see Appendix A):Profit growth has camouflaged the reality that Canadian cigarette smokers are increasingly less enchanted with being smokers… Despite short-term upturns (eg. via “lights”), fewer and fewer Canadians will smoke in the future… Although we have historically done things which had an influence on the size of the total industry, these efforts have not been co-ordinated, planned and fully integrated into our “normal” activities… Something’s got to change.

There are only two significant ways to influence the overall size of the tobacco industry. One is to convince worried smokers not to quit, for example by offering them ‘health reassurance’ cigarettes such as so-called ‘light’ cigarettes as the ‘next best thing to quitting.’ The second approach is to step up efforts to recruit new smokers, who will overwhelmingly be underage. The record indicates that Canadian companies have tried both.Imperial Tobacco has been far more successful than its competitors at attracting new smokers, as Imasco Chairman Purdy Crawford reported proudly to his colleagues from BAT companies in other countries in October 1988:

I.T.L. [Imperial Tobacco Limited] has always focused its efforts on new smokers believing that early perceptions tend to stay with them throughout their lives. I.T.L. clearly dominates the young adult market today and stands to prosper as these smokers age and as it maintains its highly favorable youthful preference.1[8]

Indeed, Imperial’s share of the Canadian cigarette market has gone from slightly over one-third in the mid-1970s to around 70% at present.Finally, let me quote from a particularly telling document dated August 1991, a “Switching Analysis” by Imperial Tobacco’s Market Analysis Group. Two things jump out from this document. As you will probably hear again in a few minutes, tobacco companies have consistently maintained that their marketing efforts are directed only towards encouraging adult smokers to switch brands. So how does Imperial Tobacco define “switchers” for its internal “Switching Analysis”?

1


When we talk about a switcher we are talking about someone who has been smoking his usual brand for less than 12 months. The definition includes starters (did not smoke before) and smokers that had no regular or particular previous brand.

In other words, by a linguistic sleight of hand, Imperial Tobacco re-defined underage starter smokers as brand “switchers.”Later in the same document, the author explains why young people are so important to Imperial Tobacco’s marketing department:

Trends show us that switching decreases with age. In 1990 the annual switching rate among smokers aged under 25 is double the switching rate of total smokers (20% versus 10%) and more than three times the switching rate of smokers aged 35 and over (6%)… Young smokers experiment with different brands when they start smoking and after age 25 they settle for a particular brand… Therefore, if our trademarks are relevant to smokers under 25, they will choose our trademarks/brands and remain with them well past the age of 25.

Even if tobacco companies actually attempted to target their marketing efforts exclusively at 18- to 25-year-olds who already smoke, it is hard to see how this could be done without making cigarettes more attractive to underage non-smokers or experimental smokers. Moreover, the financial incentive to recruit underage smokers more effectively than the competition is overwhelming.

Marketing to Youth

Given the strong economic incentive for tobacco companies to recruit underage smokers, what evidence is there that Canadian tobacco companies have actually gone out and done so? The courts examined this issue in some detail in the early 1990s, when the tobacco industry challenged the federal Tobacco Products Control Act. I would just like to quote a brief passage from the Supreme Court of Canada decision in 1995 that overturned large parts of that legislation:

Perhaps the most compelling evidence concerning the connection between advertising and consumption can be found in the internal marketing documents prepared by the tobacco manufacturers themselves. Although the appellants steadfastly argue that their marketing efforts are directed solely at maintaining and expanding brand loyalty among adult smokers, these documents show otherwise.

One of the notorious examples was Project Plus/Minus, conducted by Kwechansky Marketing Research Inc. in 1982 on behalf of Imperial Tobacco. This study examined in great detail why children experiment with cigarettes, how they begin to smoke, and how they become addicted. A few quotes from the study highlights to give you a flavour of the detailed work involved:


Serious smoking mainly starts in the 14-18 age group. It is entirely social in nature, and is heavily dependent on actual or perceived peer group pressure and the desire to conform…

Starters no longer disbelieve the dangers of smoking, but they almost

universally assume these risks will not apply to themselves because they will not become addicted…

Once addiction does take place, it becomes necessary for the smoker to make peace with the accepted hazards. This is done by a wide range of rationalizations…

The desire to quit seems to come earlier than before, even prior to the

end of high school… However, the desire to quit, and actually carrying it out, are two quite different things, as the would-be quitter soon learns…

Apart from the Player’s, Export and du Maurier parent brands and first-

echelon extensions, there was very little regard for other brands. The likes of Matinée, Rothmans and Peter Jackson were without any positives among young smokers. Belvedere and Craven were better, but not by much.

In short, in 1982, Imperial Tobacco’s marketing consultants were explaining in detail how young people get taken in by the glamour of cigarettes — a process that was seen as very positive indeed for the company. “The single most popular brand, and the one that seems to have become the customary badge among young males in particular, but among females very commonly too, was Player’s Light. That this brand went from introduction to this incredibly lofty posture in so relatively few years is truly a marketing success story.

Imperial Tobacco was not a passive participant in the glamorization of Player’s

Light among young people. From the taste and the nicotine delivery to the package imagery and the image positioning through advertising, the brand was made to systematically appeal to young people, in particular young males. The emphasis was on autonomy, on outdoor activities of interest to this age group, such as skiing and kayaking:

The activity shown [in advertisements] should be one which is practiced by young people 16 to 20 years old or one that these people can reasonably aspire to in the near future.

Now, possibly tobacco company witnesses will tell this committee that their

industry shouldn’t be judged today on the marketing strategies they employed 20 years ago. The problem is, these marketing strategies still seem to be in effect today. The first example I would like to point out is Imperial Tobacco’s “Go Your Own Way” (« Un monde à ta mesure ») campaign for Player’s cigarettes. This campaign is underway as we speak; theoretically, it is a sponsorship ad about car racing, but cars are nowhere in evidence. What is in evidence are all the usual elements of Player’s marketing: autonomy, outdoor activities, youthful models.


Industry-Sponsored Youth Access Programmes There is one last point I would like to touch on. In Canada, as in other countries,

the tobacco industry sponsors so-called “youth access programmes,” in which retailers are reminded not to sell tobacco products to minors. The most recent incarnation of this approach is the Canadian Tobacco Manfuacturers’ Council’s “Operation ID” programme.

Given the powerful economic incentives that tobacco companies have to recruit underage smokers, the existence of these programmes may seem surprising. Some people have taken these initiatives as proof that the tobacco industry really is interested in effective action to prevent young people from getting addicted to their products.But when you are dealing with the tobacco industry, things are not always as they appear. In the United States, the Tobacco Institute — which was the equivalent of the CTMC until the courts forced it to disband recently — set up a programme similar to “Operation ID,” which it called “It’s the Law.” Here is how the Institute described the purpose of its youth programme (which also included booklets for parents and other material) in a 1991 internal document.

The youth program and its individual parts support The Institute’s objective of discouraging unfair and counterproductive federal, state and local restrictions on cigarette advertising, by:

providing on-going and persuasive evidence that the industry is

actively discouraging youth smoking and independent verification that the industry’s efforts are valid.

Reinforcing the belief that peer pressure – not advertising – is the cause of youth smoking.

Seizing the political center and forcing the anti-smokers to an extreme (as happened when the antis attacked the industry at the time of the launch.)

In other words, the purpose of the Tobacco Institute’s youth programme was not

to deal effectively with youth smoking, but rather to forestall effective government regulation. The same approach has been used in many other countries. In 1995, Philip Morris Senior Vice President Steve Parrish explained to his company’s board of directors how the tactic had been used in Poland and Russia.

These industry-sponsored campaigns are fairly consistent around the world in some important respects:

1. They focus on legal restrictions on underage smoking, emphasizing that smoking is an ‘adult’ choice. Unfortunately, teenagers rarely feel like waiting before engaging in ‘adult’ behaviour, especially if that behaviour is presented as being attractive and glamorous.


2. They rarely, if ever, provide meaningful information about the disastrous health effects of smoking or the dangers of becoming addicted.

3. They never point out the tobacco industry’s role in encouraging youth smoking.

This is not to say that governments should refrain from efforts to limit the sales

of tobacco products to minors. Enforcement programmes make sense, as long as they are part of a comprehensive plan that includes serious efforts to reduce youth demand for tobacco products and inform the public as a whole — smokers and non-smokers, youth and adult — about the magnitude of the health risk from tobacco, about the addictive nature of cigarettes and about the track record of deception of the tobacco industry. Attempting to deal with youth smoking solely through PR initiatives like Operation ID is like relying solely on the arrest of small-time drug pushers to curb the cocaine trade.

2.3 CHANGE IS POSSIBLE

Though I am not impressed by Operation ID, there is one important step governments could take to ensure real change in tobacco company behaviour towards kids. The government should establish a system of penalties to ensure that tobacco companies lose money every time a young person becomes addicted to cigarettes.

This would be similar to the so-called ‘look-back’ provisions that were included in the McCain Bill in the United States and various other proposed legislation in 1997 and 1998. The penalties should be large enough to actually constitute an effective deterrent. Companies could be fined the equivalent of three times the profits they would be expected to make from a new underage smoker during that smoker’s lifetime, for example.

Under this system, tobacco companies would have a vested interest in preventing youth smoking. Indeed, individual tobacco companies would have an interest in denouncing competitors who were engaged in marketing to kids. Very rapidly, I think you would see the tobacco industry re-adjusting its promotional strategies and its products to make them unattractive to youth.


2.4 CONCLUSION

The marketing of tobacco products to young people is not a freak occurrence, caused by the presence of a few bad apples among tobacco industry marketing executives. The recruitment of underage smokers is, in fact, crucial to tobacco companies’ long-term profitability. Sales to minors represent a relatively small portion of the industry’s profits in any given year. However, most of the industry’s long-term profits will come from customers who were recruited before reaching adulthood. Industry statements about appropriate strategies to combat youth smoking have to be seen in the context of this business reality. I urge this committee to be creative in looking at ways to curb the tobacco epidemic.

2.5 BIG TOBACCO'S GLOBAL EXPANSIONU.S. tobacco companies have a long history of deceit, deception and duplicity in their relentless pursuit of profit. These companies have hooked generations of American smokers using the tools of manipulative advertising, disinformation campaigns refuting the health consequences of smoking, and political lobbying. In the process, they have grown into enormous multinational conglomerates. In recent years, as smoking has declined in the United States, they have begun to look elsewhere for growth.

Drawing on their experiences in the United States, these companies are having great success abroad. The United States is now home to two of the world's three largest multinational cigarette companies and is the world's largest exporter of cigarettes.

1 Overseas, these companies use advertising and marketing techniques that have long been banned or restricted in the United States. They also apply political and economic pressure to circumvent other countries' public health laws, often under the guise of "free trade." And, in countries where market access is difficult due to government regulations, the multinational tobacco companies are allegedly complicit in cigarette smuggling in an attempt to gain market share. While cigarette sales fell by 4.5 percent in North America between 1990 and 1995, they increased by 5.6 percent in Eastern Europe and 8 percent in the Asia-Pacific region.

2 By the turn of the century, per capita consumption in developing countries will be greater than that of developed countries, says the World Health Organization (WHO).

3 "There is no time to lose," says Barbara Zolty of the WHO. "Multinational [cigarette companies] are flooding [developing countries] with ads that say smoking is exciting, glamorous and Western. The situation is only going to get worse as more women and children start smoking."

4 If current trends continue, the United States' success in reducing domestic tobacco use will be more than offset by the overseas activities of the tobacco companies, with dire global public health consequences. Since U.S. tobacco companies are not bound by any borders in their insatiable drive for new customers, the United States must think globally and act locally in its efforts to control these companies if it hopes to stem the tide of death and disability in the rest of the world.


2.6 TOP MARKETERS IN SELECTED COUNTRIES

Country Company Rank Ad Spending **

Hong Kong Philip Morris 9 $12.9 Million

Indonesia Philip Morris 10 $6.3 Million

Malaysia Rothmans 1 $36.2 Million

Malaysia BAT 2 $19.7 Million

Malaysia RJR 4 $9.5 Million

Pakistan BAT 2 $1.6 Million

Philippines Fortune Tobacco

(RJR Licensee)

8 $17.9 Million

Bulgaria Philip Morris 3 $1.2 Million

Bulgaria Rothmans 5 $1 Million

Bulgaria BAT 7 $941,000

Czech Republic Philip Morris 9 $3.3 Million

Romania Philip Morris 4 $2.1 Million

Romania RJR 9 $1.2 Million

Slovak Republic Philip Morris 3 $1.8 Million

Mexico Cigarrera La Moderna (BAT Subsidary

8 $29.9 Million

Bahrain Philip Morris 4 $310,000

Kuwait Philip Morris 1 $4 Million

Kuwait Rothmans 6 $1.2 Million

Lebanon BAT 3 $4.5 Million

Lebanon Philip Morris 10 $2.3 Million

Oman Philip Morris 6 $513,000

Qatar Philip Morris 3 $417,000

Saudi Arabia Philip Morris 3 $3.5 Million

UAE Philip Morris 4 $1.7 Million

** Spending amounts are for 1996 for Asian, European and Latin American countries, and for 1995 for Middle Eastern Countries.

Sources: Advertising Age; 10 November, 1997 and 11 November, 1996.


2.7 BIG TOBACCO'S GLOBAL REACH

XXX Denotes a Subsidiary or Factory

XX Denotes a Licensing Agreement

State RJ Reynolds Philip Morris BAT

Andora XX XX

Angola XXX

Argentina XX XXX XXX

Aruba XX

Australia XX XXX XXX

Austria XX XX

Azerbaijan XXX

Bangladesh XXX

Barbados XXX

Belgium XXX XXX XXX

Bolivia XX

Brazil XX XXX XXX

Bulgaria XXX

Cambodia XXX

Cameroon XXX

Canada XXX XXX XXX

Canary Islands XXX

Chile XXX

China XXX XXX

Congo XXX

Costa Rica XXX XXX

Croatia XXX

Curacao XX

Cyprus XXX XXX

Czech Republic XXX XXX XXX

Denmark XXX

Dominican Republic XX XXX

Ecuador XXX

Egypt XX XX

El Salvador XXX

Fiji XX XXX


Finland XXX XX XXX

France XXX XXX XXX

Germany XXX XXX XXX

Ghana XXX

Greece XXX XX

Guatemala XXX XXX

Guinea XX

Guyana XXX

Honduras XXX

Hong Kong XXX XXX XXX

Hungary XXX XXX XXX

India XXX XXX

Indonesia XX XX XXX

Italy XXX XX

Ivory Coast XX

Japan XXX XX

Jordan XX

Kazakhstan XXX XXX

Kenya XXX

Lithuania XXX

Macedonia XXX

Malawi XXX

Malaysia XXX XXX XXX

Malta XX XXX

Mauritius XXX

Mexico XX XXX

Netherlands XXX XXX XXX

New Zealand XX XXX

Nicaragua XXX

Nigeria XXX

Pakistan XXX XXX

Panama XXX XXX

Papua New Guinea XXX

Peru XX

Philippines XX XX

Poland XXX XXX XXX

Portugal XXX XXX

Puerto Rico XXX


Romania XXX XXX

Russia XXX XXX XXX

Senegal XX

Sierra Lone XXX

Singapore XXX XXX

Slovakia XXX XXX

Slovenia XXX

Solomon Islands XXX

South Africa XXX XX XXX

South Korea XXX XXX

Spain XXX XX XXX

Sri Lanka XXX

Surinam XXX

Sweden XXX

Switzerland XXX XXX XXX

Taiwan XXX

Tanzania XXX

Thailand XXX XXX

Trinidad XXX

Tunisia XXX

Turkey XXX XXX

Uganda XXX

Ukraine XXX XXX XXX

U.K. XXX XXX XXX

United States XXX XXX XXX

Uruguay XXX

Uzbekistan XXX

Venezuela XXX

Vietnam XXX XXX XXX

Yugoslavia XX

Zimbabwe XXX

Sources: Tobacco Reporter, June 1998, "International Cigarette Manufacturers," Philip Morris 10k-405; RJ Reynolds 10k-405; Who Owns Whom: North America, (New York: Dun & Bradstreet Ltd., 1997)


Top Marketers in Selected Countries

Country Company Rank Ad Spending **

Hong Kong Philip Morris 9 $12.9 Million

Indonesia Philip Morris 10 $6.3 Million

Malaysia Rothmans 1 $36.2 Million

Malaysia BAT 2 $19.7 Million

Malaysia RJR 4 $9.5 Million

Pakistan BAT 2 $1.6 Million

Philippines Fortune Tobacco

(RJR Licensee)

8 $17.9 Million

Bulgaria Philip Morris 3 $1.2 Million

Bulgaria Rothmans 5 $1 Million

Bulgaria BAT 7 $941,000

Czech Republic Philip Morris 9 $3.3 Million

Romania Philip Morris 4 $2.1 Million

Romania RJR 9 $1.2 Million

Slovak Republic Philip Morris 3 $1.8 Million

Mexico Cigarrera La Moderna (BAT Subsidary

8 $29.9 Million

Bahrain Philip Morris 4 $310,000

Kuwait Philip Morris 1 $4 Million

Kuwait Rothmans 6 $1.2 Million

Lebanon BAT 3 $4.5 Million

Lebanon Philip Morris 10 $2.3 Million

Oman Philip Morris 6 $513,000

Qatar Philip Morris 3 $417,000

Saudi Arabia Philip Morris 3 $3.5 Million

UAE Philip Morris 4 $1.7 Million

** Spending amounts are for 1996 for Asian, European and Latin American countries, and for 1995 for Middle Eastern Countries.

Sources: Advertising Age; 10 November, 1997 and 11 November, 1996


Chapter3 INTERNATIONAL EXPERIENCE

3.1 EUROPEAN UNION DIRECTIVE

Under the current draft of the EU Directive on tobacco advertising, many of the examples of indirect advertising cited above should be prohibited. The Directive covers:

"any form of commercial communication with the aim, or direct or indirect effect, of promoting a tobacco product, including advertising which, while not specifically mentioning the tobacco product, tries to circumvent any advertising ban by using brand names, trademarks, emblems or other distinctive features of tobacco products."

However, the Directive does permit brand-stretching provided that the appearance is clearly distinct from that of any tobacco product. Article 3.2 of the Directive states:

Paragraph 1 [banning all forms of tobacco advertising] shall not prevent the Member States from allowing a brand name already used in good faith both for tobacco products and for other goods or services traded or offered by a given undertaking or by different undertakings prior to to be used for the advertising of those goods or services.

However, this brand name may not be used except in a manner clearly distinct from that used for the tobacco product, without any further distinguishing mark already used for a tobacco product.

The future of brand-stretching therefore rests on the definition of "clearly distinct". Given the inadequacy of the UK voluntary agreement to control tobacco advertising as demonstrated with the example of the Camel boots ad, cited above, this wording is inadequate as it still allows the brand name to be used. However, under Article 5, the Directive allows individual member states to go further than the minimum requirements currently set out in the draft text. Article 5 states:

This Directive shall not preclude Member States from laying down, in accordance with the treaty, such stricter requirements concerning the advertising or sponsorship of tobacco products as they deem necessary to guarantee the health protection of individuals.

The Government should therefore be urged to adopt stronger measures in order to prevent the exploitation of potential loopholes in the Directive by the tobacco industry.The tobacco industry needs to recruit new smokers every year to replace those who die from tobacco-related diseases. The industry's very survival depends on new teenage customers. Few people start smoking as adults. Thus, children are the industry's most significant target. The tobacco industry's own documents (see box) demonstrate this proposition. It is therefore little wonder that tobacco companies spend billions of dollars in their efforts to entice children into smoking.


In 1984, a tobacco company market researcher wrote in a previously secret internal report:"Younger adult smokers have been the critical factor in the growth and decline of every major brand and company over the last 50 years. They will continue to be just as important to brands/companies in the future for two simple reasons: The renewal of the market stems almost entirely from 18-year-old smokers. No more than 5 percent of smokers start after age 24. [And] the brand loyalty of 18-year-old smokers far outweighs any tendency to switch with age... Brands/companies which fail to attract their fair share of younger adult smokers face an uphill battle. They must achieve net switching gains every year to merely hold share... Younger adult smokers are the only source of replacement smokers... If younger adults turn away from smoking, the industry must decline, just as a population which does not give birth will eventually dwindle."

Young Adult Smokers: Strategies and Opportunites, R.J. Reynolds Tobacco Company, 29 February 1984.Children around the world are surrounded by advertisements portraying tobacco use as fun, sophisticated, modern and Western. In many countries, cigarette advertisements dominate the radio stations most popular with teenagers. Tobacco advertising exploits the vulnerabilities of youth by offering tobacco as the means to a positive self-image and as the key to acceptance by their peers. Advertising also sends the message that smoking is an "adult" behaviour, and offers cigarettes as a badge of independence and maturity.

Tobacco advertising conveys the message that smoking is the key to social success and upward mobility, a powerful draw for young people. This is despite the fact that in many developed countries, smoking rates are significantly higher among the poor and less educated. Some tobacco companies have used cartoon images in their advertising, with very successful results. The "Joe Camel" campaign catapulted Joe's brand of cigarettes from one smoked by less than 1% of U. S. smokers under age 18 to a one-third share of the youth market within three years. That same cartoon camel was found to have a high level of recognition among three-year-olds, who were as familiar with him as with

3.2 USA : FREEDOM OF CHOICE

In the United States, the tobacco industry began aggressively targeting women, with the introduction of a "women's cigarette" in 1968. Within six years, the number of teenaged girls smoking had more than doubled. The same patterns are being repeated in a host of other countries. Tobacco companies say that tobacco advertising is only used to promote brand switching among smokers. However, studies suggest that the more cigarette companies advertise, the more people, especially young people start or continue to smoke. Studies show that adolescents smoke the most heavily advertised brand, in a proportion far greater than among adults. Cigarette advertising also reinforces environmental stimuli to smoke.

Tobacco advertising and promotion aims at expanding the market for their products, specifically through the targeting of those populations among which there is greatest potential for growth, including youth.


Cigarette advertisements undermine and deflect smokers' concerns about safety, and serve to reassure smokers or potential smokers that cigarettes are not harmful. Many people do not take the risks of smoking seriously partly because advertising portrays smoking as innocent and benign.

Tobacco companies claim that they should have the freedom to advertise their products.

However, most smokers begin smoking when they are too young to understand the risks, and by the time they are old enough to make an informed choice, their addiction undermines their freedom of choice. When unfair and untruthful commercial speech is not restricted, other important freedoms are placed in jeopardy, including children's freedom from deception, misrepresentation, and psychological manipulation by advertising.

Product placement is another means of increasing the social acceptability of smoking. Tobacco companies pay large sums of money to film companies so that their cigarettes will be used in feature films. For example, a prominent American actor was paid US $ 500,000 to ensure the placement of one company's cigarettes in his films. Product placement payment can also influence script writing decisions. Lois Lane in Superman movies was a smoker, but the comic book Lois Lane never smoked!

Sponsorship

As more countries around the world move to ban tobacco advertising, tobacco companies are quick to divert their attention to the sponsoring of sports and cultural events. This gives them an ideal opportunity to reach large audiences of young people. In addition to cleverly circumventing tobacco advertising bans, companies attempt to use these events to improve their image.

In many developing countries, rock concerts, with their enormous following of young fans, have been a magnet for tobacco industry sponsorship. In countries where cigarette advertising is banned or restricted, sponsoring live or televised concerts enables the companies to get around local regulations. In Taiwan, one multinational tobacco company sponsored a concert with a popular teen idol in which the only accepted admission "ticket" was five empty packets of the company's cigarettes.

Through the promotion of sports events, tobacco companies gain widespread exposure for their brands and are able to link tobacco with health and athletic prowess. Young people seeing cigarette logos linked with health, excitement, speed and triumph are likely to lose sight of the reality of death, disease and addiction. A 1994 advertisment by Formula One race promotors directed to the tobacco industry claimed that the "...Formula One car is the most powerful advertising space in the world."


Free Cigarette Giveaways

With an addictive product, it doesn't take much to hook a new customer. For the tobacco companies, the expense of giving away free samples is overshadowed by the potential for long-term gains, especially from new young customers. Although some countries have already banned free cigarette samples, this practice still continues in many countries. At rock concerts and discos around the world, attractive young women hand out popular brands of international cigarettes. In some cases, those who accept a lit cigarette on the spot are rewarded with a free gift. A multitude of other examples where young people have been targeted for free cigarette samples have been reported around the world, particularly in less developed countries.

When children become walking cigarette advertisements: Cigarette-Branded Merchandise. Another popular means of keeping cigarette brands in the public eye and circumventing restrictions on advertising using cigarette logos on other products such as caps and T-shirts. Many of these products are popular with children around the world, and they soon become walking cigarette advertisements. Counteradvertising can be a useful addition to a tobacco control campaign.

In countries around the world, young people are exposed to highly effective tobacco advertising on a daily basis. Tobacco companies spend billions of dollars each year to promote tobacco products, an amount which dwarfs the resources available to most tobacco control programmes. Thus, one important requirement for an effective prevention programme is to seriously limit the ability of the tobacco industry to hook a new generation of smokers through advertising.

At the same time, a number of countries have produced anti-tobacco advertisements for distribution via mass media. Many of these ads are targeted at young people, with the aim of de-glamorizing tobacco. There are often possibilities for free distribution of these ads in the form of public service announcements. However, they are only useful if they are seen, and not broadcast only during times when most viewers are asleep. In some situations, carefully selected paid counter-advertising campaigns may be worth the cost. In the USA, Doctors Ought to Care (DOC) pioneered the concept of using paid counteradvertising to ridicule brand name tobacco advertising and promotion.

Health interests can never hope to match the spending by tobacco interests on paid media advertising, and probably should not try. However, paid media advertising, when used with precision, can be an effective tool in a comprehensive effort to discourage tobacco consumption. One way of funding this would be to use a portion of increased cigarette taxes for this purpose. Examples of this strategy may be seen in several states in the USA as well as in other countries, such as Australia, France, and New Zealand


3.3 CHINA: THE LAST FRONTIER

For the cigarette companies, the Chinese market represents the proverbial mother lode, a potential savior from declining sales at home. One out of every three cigarettes smoked in the world today is smoked in China. One third of all Chinese adults (67 percent of men and 4 percent of women), or close to 350 million people, already smoke an estimated 1.7 trillion cigarettes per year.

1 As one multinational cigarette company executive puts it, "Thinking about Chinese smoking statistics is like trying to think about the limits of space."

2 The human toll in China from smoking is staggering. Lung cancer and other smoking-related diseases are the most common causes of death in China, accounting for some 700,000 fatalities per year, which is projected to rise to 3 million by the year 2025.

3 A recent study of middle-aged men in Shanghai showed that 21 percent of deaths were attributed to cigarette smoking.

4 Another study in the Journal of the American Medical Association stated that smoking-related illnesses could eventually kill 150 million current smokers in China.

5 Since smoking rates among women and youth are comparatively low, they are sure to be a target of the foreign tobacco companies. As tobacco control expert Judith Mackay notes, "the greatest single opportunity for prevention of non-communicable diseases in the world would be to prevent a rise in smoking among girls and women in China."

6 China's huge market has made it the prime target of the multinational tobacco companies. Historically, China's cigarette market has been highly protected, with foreign multinationals barred from operating in the country. Over the past 15 years, however, as China's economy has begun to open up, the tobacco sector has been transformed. Hungry for technology, marketing strategies and capital, the state-owned China National Tobacco Corporation (CNTC) has begun to form joint ventures and other unprecedented partnerships with foreign tobacco companies. Having signed these agreements, "CNTC is eventually doomed to go the way of all the Eastern European and South American monopolies, taken over by the transnationals," says Mackay.

7 Although CNTC's primary concern is making money for the state, it used to be known for its willingness to acknowledge the dangers of smoking, and CNTC officials met often with health workers to discuss anti-smoking education programs. That all began to change in 1988, health workers say, when it signed its first joint venture with RJ Reynolds.

8 Philip Morris recently entered into a number of joint ventures with CNTC to grow tobacco as part of an agreement to produce and sell Marlboro cigarettes in both domestic and foreign markets.

9 RJ Reynolds has built a cigarette factory as part of a joint venture with CNTC to produce 2.5 billion Camels, Winstons and Golden Bridges (a local brand) annually.


10 British American Tobacco is involved in a project to increase leaf production with seeds that the company has developed in other countries. Other foreign companies have been involved in a number of initiatives, ranging from the introduction of new tobacco seeds, to the importation of high speed cigarette making equipment, to the construction of tobacco processing factories. Smuggling is also helping foreign cigarette manufacturers enter the Chinese market (see "Smuggling: Developing Brand Loyalty" above). Many observers believe that the multinational companies are involved in smuggling as a way for them to develop brand loyalty prior to the full opening of the Chinese market. Smuggling also encourages more people, especially young people, to smoke, since smuggled cigarettes are cheaper, often selling at one third the cost of legal cigarettes. China accounts for about 37 percent of the world's tobacco leaf production and generates about 31 percent of the world's cigarettes.

11 Although Chinese tobacco exports currently represent only about 6 percent of the world total, analysts say the country is rapidly emerging as a major exporter. In 1997, tobacco exports reached 76,000 tons, valued at a record $480 million.

12 With increasing exports to the mainland, meanwhile, Hong Kong has become the region's largest exporter of cigarettes.Smoking in most public areas in China is restricted, including in schools, theaters, department stores, museums and stadiums, and on public transportation and all domestic flights. Unfortunately, the ban is often ignored. The fine for smoking in public places is just 10 yuan (about $1), or less than the cost of a pack of imported cigarettes.

13 The week prior to the 10th World Conference on Tobacco or Health in Beijing in August 1997, a group of 138 ministerial-level officials signed a highly publicized pledge not to smoke in public places and promised to persuade their aides and children to quit. This was considered an important accomplishment, since many leaders have reached a ripe old age and continue to smoke, sending a false message that smoking is not necessarily bad for your health. China has passed laws banning tobacco ads on television, radio, and in the print media, and requiring that all tobacco advertisements include the warning: "Smoking is hazardous to your health." Cigarette advertisements are forbidden from encouraging youth smoking and health warnings must cover a minimum of 10 percent of the advertisement's space.

14 By 1997, 300 cities, including Beijing, had become "Tobacco Advertisement-Free Cities." According to a Ministry of Public Health spokesman, "Our aim is drive out tobacco advertising from our cities one by one, until all the advertising is eradicated from China." In legislation adopted in the early 1990s, Hong Kong banned tobacco ads on TV and radio and in cinemas. In 1999, the ban will be extended to print media and billboard advertising. These actions notwithstanding, cigarette makers have little trouble skirting the ad restrictions. Historically, CNTC has done very little advertising. Yet with the growing presence of multinational tobacco companies, cigarette advertising has increased dramatically (see "Advertising Ill-Health" above). By simply leaving the word "cigarette" out of their ads, foreign companies have circumvented China's advertising laws, leading to a slew of billboards promoting the pleasures of the "Marlboro World" and similar sentiments.


15 Philip Morris (which is the biggest single source of advertising revenue in China16), RJ Reynolds and BAT have also spent millions of dollars in recent years on other forms of advertising, including promotional giveaways, and sponsorship of music and sports events. Cash-strapped soccer, basketball, or tennis associations will take the money where they can get it, and the foreign tobacco companies have plenty to give. Such sponsorship of sporting events is of great concern to tobacco control activists, since it is so widespread and makes the link between cigarettes and healthy activities. The tobacco industry accounts for approximately 10 percent of all government tax revenues, representing the largest single industrial tax source.

17 Even so, cigarettes continue to be relatively cheap in China. Legally imported foreign cigarettes cost a little over $1 per pack, and many local brands are significantly cheaper. A 1993 study showed that an additional penny tax on each pack of cigarettes sold would generate about $964 million in revenues, or the equivalent of the government's annual health budget.

18 Tobacco control activists are pushing for higher taxes in order to discourage smokers. Unfortunately, proposals to raise the cigarette tax by half a cent have been defeated in the national parliament on at least two occasions.

19 As is often the case, the government is torn between the desire to conserve its biggest single source of tax revenue and an obligation to protect the population's health. Studies have shown, however, that in the long term it is in the country's health and economic interest to control tobacco use, since the revenues raised from the tobacco industry do not cover the economic and health related costs of smoking. The WHO estimates, for example, that in 1993 China gained $4.9 billion in cigarette taxes, but lost $7.8 billion in productivity and additional healthcare costs.

20 On a household level, the economic costs of cigarette smoking are equally astounding. A study of smoking habits in the Minhang District in 1993 showed that smokers spent an average of 60 percent of their personal income and 17 percent of household income on cigarettes.

21 A study of peasants outside Shanghai found that the average farmer spent more on tobacco and rice wine than on grain, pork and fruit.

22 There is still a great need in China for public education regarding the risks of smoking. Recent studies have found that few people know that smoking can cause lung cancer. One study showed that 35 percent of school students actually thought that smoking was good for your health.

23 It doesn't help that role models continue to smoke in public. For example, about 55 percent of male medical workers continue to smoke.

24 Nowhere are the stakes for tobacco control efforts higher. As Mackay notes, "If multinational tobacco companies could capture the China market, it wouldn't make a difference if every American stopped smoking tomorrow."


3.4 MALAYSIA: BRAND STRETCHED

Over the past decade, the Malaysian government has implemented a number of tobacco control measures including raising taxes, banning smoking in most public places, and setting maximum limits for tar and nicotine in cigarettes. The Control of Tobacco Products Regulations 1993 also prohibited all direct advertising. However, indirect advertising is still allowed.

The tobacco industry quickly exploited the indirect advertising loophole and Malaysia has now become a showcase of tobacco brand-stretching. Research in 1996 revealed that four of the top ten advertisers in Malaysia had a cigarette brand in their names: Peter Stuyvesant Travel, Benson & Hedges Bistro, Dunhill Accessories and Salem Cool Planet. BAT, which owns the licence for Benson & Hedges cigarettes outside the UK, was one of the first to test the indirect advertising route. Faced with a declining market share, the company opened the Benson & Hedges Bistro in Kuala Lumpur and advertised the cafe on television. Two years later, sales of Benson & Hedges cigarettes had stabilised and the Benson & Hedges Bistro was one of the most frequently recalled TV commercials. BAT is now developing a range of coffee products also carrying the B&H logo, which may be extended to other countries. The official BAT policy is that the gold-coloured coffee-house and coffee brands are entirely separate from the company's tobacco operations. However, the shop's manager sees the situation differently:

"Of course this is all about keeping the Benson & Hedges brand name to the front. We advertise the Benson & Hedges Bistro on television and in the newspapers. The idea is to be smoker-friendly. Smokers associate a coffee with a cigarette. They are both drugs of a type." 11

The net effect of indirect advertising has been to undermine the law and other tobacco control measures to the extent that the number of smokers in Malaysia is increasing by around 3% per year. The Government has now recognised the problem and the Health Minister has said that the country must "work toward banning indirect advertisements of tobacco products".

3.5 FRANCE: THE BRAND MODEL

Under the 1991 loi Evin all tobacco advertising, both direct and indirect, was banned with effect from January 1993. The law bans the marketing of brand name derivatives, except those produced before 1990 by companies without legal or financial links with tobacco manufacturers. In 1995, the French national tobacco control organisation, CNCT, sued Europromotion, a company which advertised Peter Stuyvesant Travel, modelled on the cigarette brand logo. CNCT was able to show that the travel agency was linked to the tobacco brand of the same name and successfully argued that the advertising campaign was a "blatant case of indirect advertising for tobacco". Despite this and other prosecutions, the tobacco companies have persisted in trying to advertise their products in France through indirect advertising.12


Chapter4 NATIONAL EXPERIENCE

A company can learn a great deal by analysing loyalty in its market. It should study the characteristics of the hard- core loyals if any. This would pin-point the target market. By studying its soft-core loyals, the company can pin-point which brands are most competitive. By looking at customers who are shifting away from its brand, the company can learn about its marketing weaknesses. The reason why people are witching brands so often may be studied. This may give ideas for new product development. For example. Vazir Sultan Tobacco (VST) company made a thorough study of the smoking population of the country in the year 1979 and identified a segment of the market consisting of modern, educated youth who were not happy with the brands of cigarettes existing then. This was the middle-priced filter cigarette group, where various brands (Wills, Four Square, Regent etc.) were trying a Catch all Strategy'. Normally smokers are loyal to one brand of cigarette like Charminar, Wills Filter, or Scissors. But this group was not loyal to one specific brand. VST also found out through further investigation that the segment cherished youthfulness and liberation. VST responded to this opportunity by introducing Charms cigarette in a denim pack which symbolised youthfulness and liberation. The spirit of freedom was emphasised in their advertise-ments. Charms created history in cigarette marketing in India by becoming extremely popular in a short duration. Let us see another example from international arena. Coca- Cola Company, in order to respond to the Pepsi challenge, wanted to catch the youth by introducing a new coke in place of their traditional coke. The new coke was rated better in taste compared to Pepsi Cola in blind tests with the labels tapped. But the new Cola, when introduced into the market, was not accepted by the consumers for the simple reason that the loyal customers of the old coke would not touch anything other than the former Coke from the Coca-Cola Company. On popular demand they had to bring back the old Cola into the market besides the new coke. A similar thing happened to Cinthol in India. When the New Cinthol was introduced, the loyal users of the soap wanted the Old Cinthol back. Godrej responded positively by declaring through media that the consumers could choose either old or the new Cinthol and made both of them available in retain outlets. In the tooth-paste market, a number of companies tried to challenge the uncrowned monarch Colgate'. But, for many people, tooth-paste means only Colgate. Though Promise and Close-up have had some success in the tooth-paste market, Colgate continues to control a very large share of the market because of the brand loyalty it has created among consumers. In the case of baby-care items, mothers have undivided loyalty to Johnson & Johnson products. That is why, even heavy-weights like Ponds or Wipro could not get a foothold in the baby-care market. Only an understanding of the loyalty status of different segments of the consumers would help the company develop better marketing strategies. The measurement of brand loyalty is not very difficult. The following questions are indicative of the type of questions asked in a survey research to measure brand loyalty.


What is the brand of ____________ (PRODUCT) you are using currently? How long have you been using this brand? What was the brand you were using earlier? Could you please tell the reasons why you switched over to the current brand?

Answers to the above questions can throw light on a number of issues like loyalty

status of consumers, switching pattern of consumers from one brand to another and also the reasons for switching. If a number of people are switching away the brand being studied, one could find out the dominant reasons for the change and take corrective actions. A survey of this type, done at least once a year, would reveal a number of things that could be extremely useful to the marketing executives. Furthermore companies use panel data, such as the data collected by Indian Market Research Bureau (IMRB) from its Household Purchase Panel which monitors the purchase behaviour of 10,000 housewives across six metros in India. ITC has set up through IMRB, a smokers panel to understand loyalty status of smokers. MODE, another marketing research firm, maintains a rural household panel. Attempting to formulate marketing strategies for a firm by merely looking at the sales figure will not help a great deal. It might even be misleading because the growth in sales might have come about due to overall market growth or on account of non-availability of a competing brand during the period under consideration. In many companies, marketing strategy formulation exercise simply means meddling with figures such as market share, demand forecast, advertising and promotion expenditure etc. Some other companies go a little further to understand the competitors' strengths, weaknesses and their major strategies. Very few companies, spend their time and energy to understand the consumer and the way the consumer decides on a specific brand, which can help the planners develop better marketing strategies. This could be the dividing line between successful companies and the also-rans.

4.1 TOBACCO ADS HAVE IMPACT... ON WOMEN

"Women believe that cigarette advertising does not affect them. Instead, they think that cigarette companies spend so much money on advertising because it affects others," said Mary Hrywna, project coordinator for the Division of Cancer Prevention and Control at Georgetown University Medical Center. She presented her study of 168 students at a women's college in New Jersey (conducted while she was at Rutgers University) at the 125th annual meeting of the American Public Health Association held in Indianapolis last November. Her study found that women are affected by tobacco advertising. Women in the study completed a self-administered questionnaire querying their opinions on magazine exposure, body image concerns, cigarette advertising, and smoking norms and risks. Twenty-six percent of the women were current smokers, 34 percent were nonsmokers who had tried smoking, and 40 percent were nonsmokers who never tried smoking. Most of the smokers first smoked when they were 15 years old and started smoking regularly at age 17. The majority of the women were white (59.8 percent) with the second largest group being Asian Americans (15.9 percent).


Respondents agreed that the purpose of cigarette advertising was to:

create brand loyalty (85.7 percent), make you switch from one brand to another (76.8), make you smoke more (70.8), make you start smoking (63.1), make you renew the habit (47.7), and prevent you from quitting the habit (45.8).When asked what brand they had seen the most in advertisements, 53 percent said Marlboro, 26.2 percent said Camel, 8.8 said Virginia Slims, 7.5 said Newport, and 4.5 percent said "other." Sixty-five percent of the current smokers said they smoked Marlboro, 15 percent said Newport was their brand of choice, 15 percent were not brand loyal, and 5 percent smoked other brands. Many of the women recognized that each brand has its own image. And the popularity of Marlboro-a brand targeted to men-was attributed to the idea that "it's not cool to be a girl anymore."

"What I found more interesting about the results from the focus group was how easily they described and related to the image they saw in brand advertising, along with the finding from the questionnaire that they indeed smoke the most advertised brand, Marlboro," said Ms. Hrywna. "These students place very little confidence in the ability of advertisers to alter their behavior, yet they can describe the image associated with the most popular brands and they smoke them!"

During focus groups both smokers and nonsmokers said that cigarette advertising does not accurately reflect real smokers and that smoking is an unattractive behavior. Smokers had no problem admitting in the focus group that they were addicted to the tobacco. But in their responses to the questionnaire, smokers revealed that although they believe that smoking is an unattractive behavior, they continue to smoke because of social aspects, the "buzz" they got, enjoyment, and to help alleviate stress in their lives.

It is observed that image oriented brand advertising is appealing to female smokers, and to some degree, is successful. Young women smoke the most advertised brands and believe that the purpose of advertising is to encourage brand loyaltyTobacco Wars in IndiaCigarette-maker Godfrey Phillips India Ltd (GPI) is planning to launch new brands in the premium kingsize segment. The company plans to invest 25 per cent of its net profits into new brand launches in the next two years. In the regular segments, the company is planning brand extensions. On Friday, the company launched Four Square Gold in the 74 mm mini kings category, in the city. The avowed intention is to take on Wills from the Indian Tobacco Company (ITC) stable which is the only player in this segment. In Mumbai, Wills sales are around 50 to 52 million sticks and nationwide its sales are in the region of 100 to 130 million. Further it is predicted that in the next 12 months GPI has planned a target sales figure of around 10 to 15 per cent of Wills' sales adding that in the next four months they would be spending Rs 3.5 crore in promoting the brand. The new product, which was two years in the making, has an extra long filter of 15 mm and is available at Rs 17.50 for a pack of ten. Last year GPI launched its


largely rural brand, Red & White in Mumbai, in an attempt to go in for a brand positioning change.

In Mumbai, Goldflake from ITC holds the lion's share of the market selling 60 million sticks. Four Square special comes second with 55 million sticks and Wills is third. Incidentally, the company is planning to discontinue the use of film stars and other cult personalities for promoting R&W with a view to discourage minors from smoking, he said adding that it would replace it with an advertisement campaign targeted at adults. This is part of an overall strategy being pursued by the company in its commitment to social responsibilities. GPI has three major cigarette brands - Four Square, R&W and Cavender-which brings in 90 per cent of the revenues of the company. Phillips Morris of the UK, makers of Marlboro cigarettes, holds a stake of 36 per cent in GPI, the Delhi-based KK Modi group has a stake of 33 per cent, while the remaining is with financial institutions and the public. Four Square Gold starts mega mini war WAR clouds are gathering over the mini king cigarette segment now that Godfrey Phillips India (GPI) has launched its Four Square Gold in Mumbai across 27,000 retail outlets. GPI's debut in long filter (74mm) will take on ITC--which puffs on 70 per cent of the total market--and its mini king brand Wills Navy Cut. Priced at Rs 17.50 for a pack of 10, its trade margins too are on par with Wills. The brand's edge is that it offers the ``Quality of Gold Flake at the price of Wills. Its filter length is longer than Wills and its blend offers a smooth smoke--which is the way the world is going anyway, marketing, GPI predicts. He sees the brand notching 13-15 million sticks per month for Mumbai alone. An all-India launch will take place in phased manner. In 1987, Four Square Kings was on par with Wills. Then the excise structure changed and Wills cut its price and changed into mini king. This placed the GPI brand in direct conflict with goliath Gold Flake. It concerted guerilla marketing tactics from the house of ITC since their Mumbai launch on December 1. An example: the brand's point of purchase material is being brought down in persuasive manner across retail outlets, he says. It's no secret that POPs are the main brand recall aids with smokers, who tend to buy cigarettes even two to three times a day. Well, ITC seems to have its guard up this time. While Four Square Gold has laser perforations, Gold Flake Lights was launched a short while ago and vaunts its `laser perforations'. And in October, Wills launched a 20s pack--usually 20s are seen as enhancers of brand aura; in mid-November it came out with a 1,2,3--consumer loyalty programme. Counters from GPI would hardly be feasible given ITC's huge muscle and brand arsenal, says Mr Barooah. Says an ITC spokesperson: `Ìt's premature to say if Four Square Gold is a threat. Anyway we are aggressively running the Wills 1,2,3 offer (and POPs) across the country--not just Mumbai.'' While Four Square King and Four Square Special are smoked by the 40-year-plus, Gold aims for the upwardly mobile 25-35-year old. Hong Kong-based design consultants, Tony McKnew and Nachtigali, have created an ivory white pack with the traditional squares in gold underlaid by gold pinstripes which make the pack look slimmer. Instead of the usual patriarch advertising of òne ad for parent brand', the new ad commercial from Ogilvy & Mather is brand-specific. It invites consumers to Èxplore the refreshing new taste of Four Square Gold.' Frames pan across sea, sky, dolphins. It's shot on the Bahamas


waters by renowned photographer Stephen Frink, the same chap who's done documentaries on nature, marine life and yes, the Titanic for channels like Discovery. The storyline unravels a young Indian director who leads an international film crew for an adventurous and challenging shoot on water. Why water? It cues into smoothness, freshness and possibilities for adventure and unlimited action. All these fit with Four Square's core brand values of daring dynamism with a spirit of outdoor adventure. Brand loyalty influences on consumer behavior.The new millennium is not just a new beginning; it is a continuation of trends in human behavior that have been following cyclical patterns throughout our country's history. Just because we have entered a new era does not mean we have to start from scratch when it comes to interpreting why certain consumers are loyal to certain brands, and what type of factors influence these allegiances.

Customer May Be Owed Unclaimed Money

Brand Loyalty is the consumer's conscious or unconscious decision, expressed through intention or behavior, to repurchase a brand continually. It occurs because the consumer perceives that the brand offers the right product features, image, or level of quality at the right price. Consumer behavior is habitual because habits are safe and familiar. In order to create brand loyalty, advertisers must break consumer habits, help them acquire new habits, and reinforce those habits by reminding consumers of the value of their purchase and encourage them to continue purchasing those products in the future.

The image surrounding a company's brand is the principal source of its competitive advantage and is therefore a valuable strategic asset. Unfortunately, many companies are not adept at disseminating a strong, clear message that not only distinguishes their brand from the competitors', but distinguishes it in a memorable and positive manner. The challenge for all brands is to avoid the pitfalls of portraying a muddled or negative image, and instead, create a broad brand vision or identity that recognizes a brand as something greater than a set of attributes that can be imitated or surpassed. In fact, a company should view its brand to be not just a product or service, but as an overall brand image that defines a company’s philosophies. A brand needs more than identity; it needs a personality. Just like a person without attention-grabbing characteristics, a brand with no personality can easily be passed right over. A strong symbol or company logo can also help to generate brand loyalty by making it quickly identifiable.

From the design of a new product to the extension of a mature brand, effective marketing strategies depend on a thorough understanding of the motivation, learning, memory, and decision processes that influence what consumers buy Theories of consumer behavior have been repeatedly linked to managerial decisions involving development and launching of new products, segmentation, timing of market entry, and brand management. Subsequently, the issue of brand loyalty has been examined at great length. Branding is by far one of the most important factors influencing an item's success or failure in the marketplace, and can have a dramatic impact on how the "company behind the brand" is perceived by the buying public. In other words, the brand is not just a


representation of a company's product; it is a symbol of the company itself, and that is where the core of brand loyalty lies.

4. 2 TOP 7 TECHNIQUES TO BUILD BRAND LOYALTY

1. Make sure your product or service ALWAYS GIVES more than the customer expected. 2. Quality: It's hard to build long term brand loyalty, when your short term quality is below par. 3. Blatantly increase your ad frequency, of any ad that has been tested to be successful, until you've reached the point of no more increased return, and then ease off 25%. 4. Remember that brand loyalty, can be ways that you're able to tap into the daily/weekly/monthly habits of your customers behavior. How can you make your product or service part of your customers routine? 5. Make your customer a MEMBER. Give them the feeling of true ownership in your product or service, by making them proud to own it. 6. ANSWER your phone under 3 rings, and with a smile. Remember that your telephone etiquette is part of your brand. 7. Educate your employees and/or contractors to the importance of how they are also the brand, and what that means and how they can impact customer opinion so easily.

4.3 DARK SIDE OF TOBACCO CONSUMPTIONThe number of people worldwide who die each year from tobacco-related disease will rise from the current 3.5 million to 10 million by the year 2025. A majority of these deaths will occur in the Third World and Eastern Europe. Given current trends, more than 100 million people will die from tobacco-related illness over the next 30 years, exceeding the toll from AIDS, tuberculosis, automobile accidents, maternal mortality, homicide and suicide combined.

The United States is home to two of the world's three largest multinational cigarette companies, and is the world's largest exporter of cigarettes. In recent years, Philip Morris, RJ Reynolds and British American Tobacco (BAT) have registered double-digit growth in international cigarette sales, with Philip Morris and RJ Reynolds now selling more cigarettes abroad than they do in the United States.

Philip Morris already makes more profit selling cigarettes abroad than in the United States, and RJ Reynolds and Brown & Williamson (BAT's U.S. subsidiary) will soon do the same. More and more of these cigarettes are being manufactured overseas, the result of two decades of heavy spending on advertising, buying newly privatized cigarette companies, setting up joint ventures and building distribution and sales networks. In 1997, for example, only 18 percent of the cigarettes RJ Reynolds sold overseas were made in the United States.

A number of factors have driven this overseas expansion, including: the opening up of formerly socialist economies; cheaper labor and transport costs; the attempt by these


companies to shield an increasing proportion of their assets from lawsuits in developed countries; and the desire to locate cigarette manufacturing plants closer to sources of tobacco leaf, an increasing proportion of which is being purchased overseas.

This overseas expansion has transformed the tobacco industry around the globe. Currently, Philip Morris, RJ Reynolds and BAT each own or lease plants in at least 50 different countries spanning all corners of the globe.

Wherever U.S. cigarettes go, smoking rates rise. Smoking rates in Japan, South Korea, Thailand and Taiwan rose 10 percent higher than they would have following the massive inflow of American cigarettes after the U.S. Trade Representative forced these countries to open their markets to U.S. tobacco exports.

Multinational cigarette companies are among the world's largest advertisers. As more and more countries adopt restrictions on direct cigarette advertising, these companies have devised new and creative ways to skirt these bans. By sponsoring sporting events and teams, rock concerts and discos, these companies get exposure without violating bans against direct advertisement. The companies also put their logos on clothing lines, racing boats, backpacks, coffee and even travel agencies. They also distribute free samples and promotional items on college campuses, shopping malls and other places where young people gather.

The cigarette companies spend millions of dollars on lobbying activities to avoid incurring the legal, political, regulatory and cultural problems they face in the United States. Using their significant economic and political clout they influence legislation, fight advertising restrictions, try to downplay the health effects of smoking and corrupt the political process.

Historically, the cigarette companies have been able to rely on the full support of the U.S. government to help them sell cigarettes around the world. This support reached its apex in the 1980s when the U.S. Trade Representative, working hand-in-glove with the tobacco companies, used the threat of sanctions to pry open key markets in Japan, South Korea, Taiwan and Thailand. Although the U.S. Congress has taken some steps to end these abuses, the cigarette companies are finding new ways to pry open foreign markets, again under the guise of "free-trade." They have sought to condition China's entry into the World Trade Organization on the opening up of its cigarette market, and are lobbying for passage of the Multilateral Agreement on Investments which would give them expanded powers to challenge countries' tobacco control measures.

Each year about a third of all cigarettes entering into international commerce are illegally smuggled, escaping taxes and import restrictions. There is widespread belief among analysts, and some substantial evidence from court cases in Canada and Hong Kong, that the tobacco companies facilitate and benefit from this smuggling. Smuggling encourages people to smoke, especially youth, by making cheap cigarettes available and helps to develop brand loyalty among customers in countries where trade barriers will soon be lifted.


During the recent U.S. Congressional debate on tobacco legislation, the cigarette companies often invoked the plight of the American tobacco farmer to argue against increased taxes and other tobacco control measures. However these companies have been using use more and more foreign-grown tobacco in both their U.S. and foreign factories. Most of what they purchase overseas comes from three large U.S.-based corporations that dominate the global trade in tobacco leaf -- Universal Corporation, Dimon Incorporated and Standard Commercial Corporation -- which have begun to play a major role in financing overseas tobacco production.


Chapter5 OBJECTIVES

5.1 MAIN OBJECTIVES (1) To study the changes in the brand loyalty in response to change in price and also to find out price elasticity.

Cigarette is one of the products where Government is neither interested in increasing the domestic consumption nor interested in curbing consumption. In order to generate more revenue, Government increases the excise duty on cigarettes on every year, which in turn brings about the increase in price of cigarettes.

The basic assumption that Government follows behind following a policy of steep and continuous increase in excise duty on cigarettes is that the demand for cigarette is price inelastic. However, whether cigarette in India is price elastic or not is an empirical question, which should be addressed scientifically.

In order to gain some insight into the problem, some firsthand research was needed and that is why the first stone to build the presented research was laid here. Nationwide research on this topic could yield some interesting facts and finding but due to the paucity of time and labor involved therein, we limited our scope to Ahmedabad city only.

1.One more thing that goes along with the change in price is brand loyalty. Many a times change in price comes out to be swift in brand loyalty. So the objective was to measure change in brand loyalty too.

2. To study the change in brand loyalty in response to change in income.

Income, which depicts affordability of a consumer, is the crucial factor in determining buying behaviour. Change in income changes the buying behaviour of a consumer and so do the brand loyalty. Hence our objective was to study this change.

3. To study the effect of freebies scheme on brand loyalty.

4. To study the aggregate effect of all the factors discussed above on brand loyalty.

5. To study the importance that cigarette smokers attach to various attributes (price, taste, filter etc.) while buying.

6. To study the effectiveness of a good advertisement of a new brand in terms of its ability to attract consumers loyal to other brands.

5.2 SUPPLEMENTARY OBJECTIVES1. To study the effect of non-availability of favorite brand on the brand loyalty of smokers.

2. To study the impacts of new brand (price of which may be less than, equal to or more than the price of their favorite brand) on the brand loyalty of smokers.

3. To study the reasons for starting smoking.

4. To know the role of reference groups in selection of brand of a cigarette.


Chapter6 HYPOTHESIS

(1) There is no significant relationship between brand loyalty and age group.

SUB HYPOTHESIS:

(A) Brand loyalty is not affected by change in price.

(B) There is no significant difference in brand loyalty among the various income groups due to change in price( price increases by 25%).

(C) Brand loyalty is not affected by change in income.

(D) Brand loyalty is not affected by scheme of free gift introduced by other brand.

(E) There is no significant difference in brand loyalty between regular smokers and occasional smokers.

(2) People give more importance to taste as compared to other attributes.

(3) Does the good advertisement of the new brand help in switching the brand loyalty.


Chapter7 RESEARCH DESIGN

7.1 TYPE OF RESEARCH:

Descriptive method has been used in this research for the collection of data. As the research is related to the study of consumer behavior, which can more effectively be studied through direct questions, experimental research will not be much effective. Also, considering the time constraint, descriptive research is the most suitable design for this research.

7.2 SOURCE OF DATA:

To overcome the limitations of incompatibility, obsolescence, and bias, i went for the primary data. Considering the time and geographic constraints, I found sampling method of data collection suitable for the project.

7.3 DATA COLLECTION METHOD:

Data has been collected through questionnaire method. The questionnaire was designed in such a way to cover as many aspects of consumer behaviour as possible.

7.4 SAMPLE SIZE:

Total 115 persons were contacted and interviewed. Out of these, 15 questionnaires were rejected due to incompleteness, conflicting answers etc. Therefore, the final sample size was of 100.

7.5 SAMPLING:

Here I have studied the consumer behavior of the people of New Delhi. Within the city I have collected samples from different areas. This is to reduce the biasness, which may come through difference in the level of income, attitude, lifestyle etc. of the people in different areas.


Chapter8 RESEARCH ANALYSIS & DISCUSSIONBefore starting the actual research, I prepared a questionnaire for pilot study. I interviewed a random sample of 15 respondents. Through the pilot study, I came to know which questions were wrongly worded, which were ambiguous, which needed to be added or to be subtracted etc. On the basis of feedback of this study, I modified the questionnaire. The modified questionnaire was then submitted to our project guide, Prof. P.K.Bansal for his suggestions. After giving a due consideration to Prof. P.K.Bansal’s suggestions, I prepared the final questionnaire in accordance with the objective of the research. The final questionnaire was used in the research after getting Prof. Bansal’s approval.

I selected different areas of the city to do study so that the place bias could be reduced to the best possible extent. I contacted respondents personally and got the information as per the questionnaire. Sometimes it happened that people told lie, when asked about their regular brand, total expenditure on cigarettes, etc. So I have discarded their questionnaires. To reduce the magnitude of this problem, I selected respondents whom we saw smoking at the shop so that the brand name, expenditure etc. can be verified. Many of my questions were designed to cross check the answers of the respondents. I tried to make the questionnaire as comprehensive as possible to cover various aspects related to our research. I have used Constant Sum Method in one of the questions.

The questionnaires were handed over only to those respondents who showed desire to fill up them on themselves, whereas in most cases I have filled up the questionnaires as per their answers. So that they might not feel boredom or confusion in filling up the questionnaires.

8.1 SAMPLE DESIGN

AGE-WISE AND INCOMEWISE SAMPLE DESIGN

INCOME GROUP

AGE GROUP

(In RS.) 12-17 18-24 25-40 41-50 >51 TOTAL

<=3000 1 3 3 2 1 10

3001-6000 3 4 7 3 3 20

6001-12000 2 10 8 7 1 28

12001-16000 1 9 6 2 2 20

>16000 2 7 5 6 2 22

TOTAL 9 33 29 20 9 100

[TABLE 1]


The graph 1 below shows that maximum number of respondents were in the age group of 18-24 and the least number of respondents were in 12-17 and 51 and above age group.

The graph 2 shows that maximum number of respondents were in 6001 –12000 income group while the minimum number of respondents were in the income group below 3000.

[GRAPH 1]

[GRAPH 2]

From all the above graphs, we can notice that out of 100 respondents, the maximum number of smokers were in the age group of 18-24 years who were students and graduates.


8.2 FORMULATION OF HYPOTHESIS

HYPOTHESIS 1

STEP 1:

H0: There is no significant relationship between the brand loyalty and age group.

H1: There is a significant relationship between the brand loyalty and age group.

Table showing brand loyalty among various age groups

AGE/STATUS 12 - 17 18 – 24 25 - 40 41 - 50 51AND ABOVE

TOTAL

NO. % NO. % NO. % NO. % NO. % NO. %

BRAND LOYAL 4 44.44 20 60.61 23 79.31 16 80.00 7 77.78 70 70.00

NOT BRAND LOYAL

5 55.56 13 39.39 6 20.69 4 20.00 2 22.22 30 30.00

TOTAL 9 33 29 20 9 100

[TABLE 2]

8.3 WHO IS BRAND LOYAL?

According to our definition, brand loyalty is determined by following criteria:

1. At the various level of price rise (from 15% to 25%), cigarette smokers should either opt for smoking less quantity of the same brand or there should not be any change in the current buying pattern, but he must not go for another brand.

2. Similarly, at the various level of increase in income, they should either opt for smoking more quantity of the same brand or there should be no change in the current buying pattern, but he must not go for the other brand .

3. He should not switch over to other brand, if other brand introduces the scheme of free lighter (worth Rs.25) in return for ten empty packets of its brand.

The cigarette smokers who will pass all the above three criteria will be considered as a brand loyal.

Inter-relationship Among The Three Criteria Of Brand Loyalty:-In testing the hypothesis of brand loyalty among the various age groups, we have taken the three criteria. There should be some relationship among these criterion, otherwise overall picture will not be analytical in the nature. For this purpose, we have tested the relationship between the brand loyalty and change in price (here maximum change is 25%), brand loyalty and change in income (here maximum change is 30%), brand loyalty and effect of free gift scheme introduced by other company.

NO. OF RESPONDENTS PASSING IN THREE CRITERIA


AGE GROUP

NO. OF BRAND LOYAL

25% INCREASE IN PRICE (X)

30% INCREASE IN INCOME (Y)

FREE GIFT (Z)

12-17 4 7 8

18-24 24 24 29

25-40 26 25 28

41-50 16 20 20

50+ 7 9 8

TOTAL 77 85 93

[TABLE 3]

[GRAPH 3]


8.4 CALCULATION OF CORRELATION

X Y Z (X-X) (X-X)^2 (Y-Y) (Y-Y)^2 (Z-Z) (Z-Z)^2 (X-X)(Y-Y) (Y-Y)(Z-Z) (X-X)(Z-Z)

4 7 8 -11.4 129.96 -10 100 -10.6 112.36 114 106 120.84

24 24 29 8.6 73.96 7 49 10.4 108.16 60.2 72.8 89.44

26 25 28 10.6 112.36 8 64 9.4 88.36 84.8 75.2 99.64

16 20 20 0.6 0.36 3 9 1.4 1.96 1.8 4.2 0.84

7 9 8 -8.4 70.56 -8 64 -10.6 112.36 67.2 84.8 89.04

77 85 93 387.2 286 423.2 328 343 399.8

[TABLE 4]

r( x.y ) = [ å(X-X)(Y-Y)/[ å(X-X)^2 å(Y-Y)^2]^1/2]

r( y.z) = [ å(Y-Y)(Z-Z)/[ å(Y-Y)^2 å(Z-Z)^2]^1/2]

r( x.z) = [ å(X-X)(Z-Z)/[ å(X-X)^2 å(Z-Z)^2]^1/2]

Therefore.

r xy = 328/(387.2 * 286)^1/2

= 0.986

r yz = 343/(286 * 423.2)1/2

=0.986

r xz = 399.8/(382.2 * 423.2)^1/2

= 0.988

There is a positive relationship among all the three criteria. It is of utmost importance because if any one is negative then effect of positive relation can be nullified by the effect of negative relation and overall picture cannot throw light on the effect of individual criteria on the brand loyalty. As all are very near to 1. it suggests that the trend between the various criteria is almost perfectly positive linear relationship.

As there is a positive interrelationship between all the three criteria. we can go ahead by taking their individual effect on the brand loyalty.

STEP 2:


8.5 CALCULATION OF CHI-SQUARE

OBSERVED EXPECTED (O-E)^2/E

FREQUENCY FREQUENCY

O E

4 6.3 0.8397

20 23.1 0.416

23 20.3 0.3591

16 14 0.2857

7 12 6.3 9 1

5 2.7

13 9.9 0.9707

6 8.7 0.8379

4 6 6 8.7 0.8379

2 2.7

C = 5.547

[TABLE 5]

STEP 3:

Level of significance a = 5%

STEP 4:

Degree of freedom = (r-1)(c-1)-2

= (2-1)(5-1)-2 = 4-2 = 2

At a = 5%. and degree of freedom = 2

Ctab = 5.991


STEP 5:

Here C cal < Ctab

So our hypothesis is accepted. So there is no significant relationship between the age group and brand loyalty.

But if we analyse the data from the table. we can notice that number of brand loyal increases when we move from age group 12-17 to 18-24 years. Similar is the case when we move from age group 18-24 to 25-40 years. Thereafter. brand loyalty stabilises at around 80%. By which. we can conclude that there is no direct relationship between brand loyalty and age group. But upto age group 25-40 yrs. it increases from 45% to 80% and thereafter stabilises for other groups.

SUB-HYPOTHESIS

[A]

Step 1:

H0: Brand loyalty is not affected by change in price.

H1: Brand loyalty is affected by change in price.

TABLE SHOWING NO. OF BRAND LOYAL AT VARIOUS PRICE CHANGE

STATUS/CHANGE IN PRICE 15% 20% 25% TOTAL

BRAND LOYAL 92 87 77 256

NOT BRAND LOYAL 8 13 23 44

TOTAL 100 100 100 300

[TABLE 6]


8.6 WHO IS BRAND LOYAL WITH RESPECT TO CHANGE IN PRICE?

Here change in income of cigarette smokers and schemes of free gift from other brands are ignored. Here the emphasis is to know the effect of only change in price on the brand loyalty. With respect to increase in price. person going for two options (less quantity of the same brand or no change in the current buying pattern) will be considered brand loyal.

STEP 2:

CALCULATION OF CHI-SQUARE

OBSERVED FREQUENCY(O)

EXPECTEDFREQUENCY (E)

(O-E)^2

(O-E)^2/E

92 85.33 44.49 0.521388

8 14.67 44.49 3.03272

87 85.33 2.79 0.032697

13 14.67 2.79 0.190184

77 85.33 69.39 0.813196

23 14.67 69.39 4.730061

300 300 233.34 9.320245

[TABLE 7]

Here C cal >C tab

So our hypothesis is rejected. So brand loyalty is effected by change in price.


8.7 INCOME ELASTICITY

I have calculated income elasticity for the respondents who opted for smoking more quantity of the same brand if their income increases. And the result is as follows:

INCOME ELASTICITY

INCOME INCREASES BY

10% 20% 30%

AVG. INCREASE IN

QTY. OF SAME BRAND

18.18% 30.50% 40.55%

INCOME ELASTICITY 1.82 1.525 1.35

[TABLE 8]

The above data shows that as income rises from one level to other. average consumption of the same brand increases. but at the decreasing rate (for e.g. 30.5 – 18.18 > 40.55 –30.5) and because of that income elasticity is decreasing.

SUB HYPOTHESIS:

[ D]

Step 1:

H0: Brand loyalty is not affected by scheme of free gift introduced by other brand.

H1: Brand loyalty is affected by scheme of free gift introduced by other brand.

AGE WISE BRAND LOYAL

STATUS AGE GROUP

12-17 18-24 25-40 41-50 51&ABOVE TOTAL

BRAND LOYAL 8 29 28 20 8 93

NOT BRAND LOYAL

1 4 1 0 1 7

9 33 29 20 9 100

[TABLE 9]

8.8 INCOME-WISE BRAND LOYAL


STATUS INCOME GROUP

<=3000 3001-6000

6001-12000

12001-16000 >16000 TOTAL

BRAND LOYAL 9 19 27 19 19 93

NOT BRAND LOYAL

1 1 1 1 3 7

TOTAL 10 20 28 20 22 100

[TABLE 10]

Who Is Brand Loyal With Respect To Free Gift Scheme Of Other Brand?

Here. respondents who opted for no change in the current buying pattern will be considered as the brand loyal. There is no need to test the above hypothesis by taking help of chi-square. From the table itself. we can directly conclude that scheme is ineffective for switching the brand loyalty of cigarette smokers irrespective of their age group and income group.

SUB HYPOTHESIS:

[E]

STEP 1:

H0: There is no significant difference in brand loyalty between regular smokers and occasional smokers. ( p1 = p2 )

H1: There is significant difference in brand loyalty between regular smokers and occasional smokers. ( p1 > p2 )

p1=proportion of brand loyal among regular smokers=0.72

p2=proportion of brand loyal among occasional smokers=0.61


8.9 BRAND LOYALTY AMONG THE REGULAR AND OCASSIONAL SMOKERS

STATUS/PATTERN SMOKERS

REGULAR OCASSIONAL TOTAL

NO. % NO. % NO. %

BRAND LOYAL 59 71.95 11 61.11 70 70.00

NOT BRAND LOYAL

23 28.05 7 38.89 30 30.00

TOTAL 82 100.00 18 100.00 100 100.00

[TABLE 11]

Here. a person is said to be brand loyal if he passes all the three criterion defined earlier i.e. :

1. change in price

2. change in income

3. gift scheme introduced by other brand of cigarette

STEP 2:

p1=0.72 p2=0.61 Z cal = (p1 - p2) / (P^ Q^(1/n1 + 1/n2))1/2 = 0.924

n1=82 n2=18 P^ = ( n1*p1 + n2*p2 ) / ( n1 + n2 ) = 0.70

Q^ = 1 - P^ = 1 – 0.70 = 0.30

STEP 3:

Level of significance =5%

STEP 4:

Z tab at right tailed test = 1.645

As H1 is p1 > p2 . it is right tailed test.


STEP 5:

As Z cal < Z tab . H0 is accepted.

If we notice the data of table. we can directly conclude that both category of smokers are brand loyal. but the percentage of regular smoker is higher than the occasional smokers. Brand loyalty ratio among two categories of smokers is 72% and 61% respectively. It means that occasional smokers can also be brand loyal.

HYPOTHESIS 2

STEP 1:

H0: people give more importance to taste as compared to other attributes

H1: people do not give more importance to taste as compared to other attributes

8.10 PREFERENCE TOWARDS ATTRIBUTES

ATTRIBUTES POINTS

PRICE 1930

TASTE 4983

FILTER 1339

TOBACCO 893

ADVERTISEMENT 266

OTHERS 589

TOTAL 10000

OTHERS: (AROMA. FRAGRANCE. COLOUR. PACKAGING) [TABLE 12]


The above chart shows that the most important factor in buying the cigarette is taste and its weightage is around 50% and price is secondary factor which has got around 20% weightage. Thus. we can conclude that taste is more important than price and all the other attributes.

ANALYSIS OF PREFERENCE TOWARDS ATTRIBUTES

TABLE SHOWING AGEWISE PREFERENCE TOWARDS ATTRIBUTES

ATTRIBUTES AGE GROUP

12 - 17

18 - 24 25 - 40 41 – 50 51 & ABOVE TOTAL

NO. % NO. % NO. % NO. % NO. % NO. %

PRICE 245 27.22 720 21.82 500 17.24 295 14.75 170 18.89 1930 19.3

TASTE 405 45.00 1528 46.30 1535 52.93 945 47.25 570 63.33 4983 49.8

FILTER 45 5.00 234 7.09 445 15.34 530 26.5 85 9.44 1339 13.4

TOBACCO 40 4.44 353 10.70 275 9.48 170 8.5 55 6.11 893 8.93

ADVERTISEMENT 95 10.56 111 3.36 30 1.03 25 1.25 5 0.56 266 2.66

OTHERS 70 7.78 354 10.73 115 3.97 35 1.75 15 1.67 589 5.89

900 3300 2900 2000 900 10000 [TABLE 13]


From the above graph. we can conclude that taste is the most important attribute for the consumers of all age groups. For 51 and above age group. taste has got the highest weightage (around 63%).

Price has emerged as second important attribute for all the age groups except for 41-50. Age group 12-17 is more price conscious than any other age group. It can also be noticed that weightage of price decreases as we move from age group 12-17 to age group 41-50 and thereafter it increases slightly. This indicate that price becomes somewhat important for 51 and above age group people.

The advertisement has little impact on the respondents of all age group.

For the age group 41-50. filter emerged as second important attribute.

INCOME-WISE PREFERENCE TOWARDS ATTRIBUTES

ATTRIBUTES INCOME GROUP

<=3000 3001-6000 6001-12000 12001-16000

>16000 TOTAL

NO. % NO. % NO. % NO. % NO. % NO. %

PRICE 460 46 425 21.25 585 20.89 195 9.75 265 12.05 1930 19.3

TASTE 455 45.5 990 49.5 1310 46.79 1163 58.2 1065 48.41 4983 49.83

FILTER 50 5 237 11.85 350 12.50 345 17.3 357 16.23 1339 13.39

TOBACCO 35 3.5 194 9.7 310 11.07 103 5.15 251 11.41 893 8.93

ADVERTISEMENT 0 0 68 3.4 87 3.11 30 1.5 81 3.68 266 2.66

OTHERS 0 0 86 4.3 158 5.64 164 8.2 181 8.23 589 5.89

1000 2000 2800 2000 2200 10000

[TABLE 14]

This table explains that for the respondents whose income is below 3000. price and taste are almost equally important. They are more price conscious compared to other income groups people. Importance of price in buying behaviour decreases as income increases up to Rs.16000 and thereafter it remains almost same. This indicates the inverse relationship between the importance of price and income group.


8.11 ADVERTISEMENT

HYPOTHESIS

[3 ]

STEP 1:

H0: The good advertisement of the new brand helps in switching the brand loyalty.

H1: The good advertisement of the new brand does not help in switching the brand loyalty.

Main reason behind starting smoking

In question number 21 of the questionnaire; we asked the respondent. what did

make you start smoking? The result was as follows:

REASON FOR STARTING SMOKING

REASONS NO. OF RESPONDENTS

FRIEND CIRCLE 45

TO SHOW OFF 9

OUT OF CURIOSITY

12

RELIEF OF TENSION

13

ADVERTISEMENT 8

TIME PASS 13

TOTAL 100

[TABLE 15]

From the above table. we can conclude that friend circle is the main reason behind starting smoking. Advertisement has very little impact on the person to start smoking. so advertisement is not the boost factor at the initial stage.


8.12 EFFECT OF REFERENCE GROUP ON BRAND SELECTION

In Q.22. we asked the respondents from where did they come to know about the brand. which they smoke regularly. The result was as follows:

INFLUENCERS NO. OF RESPONDENTS

FRIENDS 65

ADVERTISEMENT 21

SHOP OWNER 14

TOTAL 100

[TABLE 16]

The above table shows that around 65% of respondents came to know their regular brand from their friends. Only 21% of the respondents have selected the brand after looking its advertisements. In short. reference group (friends and shop owners) has strong effect on the selection of the brand.

In Q.23. we have asked the respondents whether they are aware of the advertisements of the other brands. The result was as follows:

AWARENESS OF ADVERTISEMENT OF OTHER BRANDS

AWARE NO. OF RESPONDENTS

YES 78

NO 22

TOTAL 100

[TABLE 17]

Here. the respondents were shown cuttings of some popular advertisements and were asked whether they have shown them earlier. Around 78% respondents answered positively. This means that they are aware of the advertisements of other brands but still prefer their regular brand. This shows that they have knowledge about various brands but their buying decision is not affected by the advertisement of other brands. The main reason behind showing the cutting of advertisements and packets of various brands. was to help them to recollect whether they have seen it before. Our questionnaire was somewhat lengthy. so the idea of showing advertisement was succeeded in capturing the attention of the respondents.


While showing the various advertisements. we have asked the respondents. what does influence them in the advertisement? The result was as follows:

INFLUENCING FACTOR IN ADVERTISEMENT

PARTICULARS NO. OF RESPONDENTS

MODEL(S) 21

FEATURES 12

CONTENT 18

OVERALL

PRESENTATION 30

NO INFLUENCE 19

100

[TABLE 18]

Most of the respondents influenced by the overall presentation of the advertisements. Youngsters are mainly influenced by the model(s) or punchline (logo) of the brand. Mainly. the respondents who opted for logo or punchline tried to match their personality with the model or slogan (like “Made for each other” or “Discover a passion”). So it is a psychological effect of advertisement on the respondents.


In Q.25. our main aim was to find out whether the good advertisement of the new brand help in switching the brand loyalty. We asked the question that if respondents would come across to the advertisement of the new brand. which satisfy their choice about what influence them most in the advertisement. what would be their reaction? The result was as follows:

REACTION TOWARDS ADVERTISEMENT

REACTIONS NO. OF RESPONDENTS

TRY IT 21

ASK/INQUIRE FOR IT

12

IGNORE IT 67

TOTAL 100

[TABLE 19]

About 67% of the respondents replied that even though it may have all the factors which they wanted in the advertisement. they will not switch to the new brand only for the reason that its advertisement is good.

From the above analysis. we can conclude that our hypothesis is rejected and good advertisement of the new brand does not significantly attract the cigarette smokers to switch their brand.


Chapter9 FINDINGS

9.1 AVERAGE EXPENDITURE ON CIGARETTE BY THE STUDE NTS

(% OF THEIR DISPOSABLE INCOME)

CLASS MID FREQUENCY

(% SPENDING VALUE

ON CIGARETTE)

xi fi Fixi c.f

0-10 5 4 20 4

10-20 15 5 75 9

20-30 25 7 175 16

30-40 35 5 175 21

40-50 45 4 180 25

50-60 55 3 165 28

60-70 65 2 130 30

30 920

[TABLE 20]

Disposable income = pocket money + part time/full time job earning

Mean X = fixi / fi = 920/30 = 30.67%

Median = M = n/2th item

=30/2th = 15th

M = L + [(n/2 – cf)/f * w]

Where L=20. n=30. cf=9. f=7. w=10

M = 28.57%

Thus average spending on cigarette by students (who smoke cigarettes regularly) are around 30%. Total number of students was 40 out of 100 respondents. Out of 40 students. 30 students were regular smokers and the remaining were occasional smokers. Average spending on cigarettes by the occasional student smokers was below 10% of their disposable income.


9.2 MARKET SHARE OF VARIOUS BRANDS

MOST PREFERRED BRAND

BRAND NO. OF RESPONDENTS

WILLS 37

CLASSIC 20

GOLD FLAKE

21

FOUR SQUARE

8

BRISTOL 9

OTHERS 5

100

[TABLE 21]

In our research. the Wills brand emerged as the most popular brand of cigarette which accounts for around 37% and Wills classic and Gold Flake were running neck to neck at 20%. Other brands of cigarettes include 555. Marlboro. Rothmans. etc.

9.3PRICE OF NEW BRAND AND REACTION OF CIGARETTE SMOKERS

REACTION PRICE OF NEW BRAND AS COMPARED TO REGULAR BRAND

LESS EQUAL MORE

TRY IT 34 23 15

ASK AND INQUIRE FOR IT

9 8 7

IGNORE IT 57 69 78

TOTAL 100 100 100

[TABLE 22]


The above table shows that if the price of new brand is less than the regular brand of smokers. then 34% of smokers will try for the new brand. If it is equal. then 23% smokers will try it. It means that price is important for about 34% of respondents. while around 60% to 70% respondents ignored the new brand irrespective of their price. For the Cigarette Company. They are strong brand loyal. But others either try the new brand or inquire for it. If price is more. the number of smokers who opt for trying the new brand are less than if the price is equal to their brand.

So far as the new company is concerned. the company should keep low price of the cigarette as compared to their competitors so that brand loyal people at least try for new brand. If desired taste be provided simultaneously. then it may be possible to make them switching to the new brand.

On the detailed study of this table. I also found that mainly youngsters (age group of 12-17 and 18-24) and low income group people (upto Rs.6000) will opt for trying the new brand if its price is less as compared to their regular brand. On the other hand. people with high-income group (particularly above Rs.16000) have shown their readiness to try the new brand even if its price is more than their regular brand. Youngsters also show their readiness out of curiosity and to know its taste. provided its price is not too high as compared to the regular brand.

From the analysis, it can be concluded that youngsters are mainly brand switchers because they are at the initial stage of smoking and they are not habituated to a particular brand. Their tendency is to taste various brands and choose their favorite brand as the one, which is not too costly and at the same time provides other attributes which are required for a good brand of cigarette. This age group is more price conscious as compared to age group of 25-40 yrs because youngsters (upto the age of 24yrs) have limited pocket money or less earning.

9.4 BUYING AND CONSUMPTION PATTERN OF REGULAR SMOKERS AMONG VARIOUS AGE GROUPS

CONSUMPTION PATTERN: LESS THAN 10 CIGARETTES PER DAY

BUYING PATTERN

AGE GROUP

12 - 17 18 - 24 25 - 40 41 – 50 51 & ABOVE

TOTAL

NO. % NO. % NO. % NO. % NO. % NO. %

ONE OR TWO PIECES

5 100.00 13 81.25 11 78.57 9 69.23 3 60.00 41 77.36

WHOLE PACK 0 0.00 1 6.25 3 21.43 4 30.77 2 40.00 10 18.87

OTHERS 0 0.00 2 12.50 0 0.00 0 0.00 0 0.00 2 3.77

TOTAL 5 16 14 13 5 53

[TABLE 23]


The above table gives information about the regular smokers who smoke less than 10 cigarettes a day. As we move from age group of 12-17 to 51 and above. smokers prefer to buy cigarettes in a pack instead of buying individual pieces. Youngsters who fall in the age group of 12-17 and 18-24 prefer to buy individual pieces. even though they have to pay higher price only because they cannot take it home.

CONSUMPTION PATTERN: 10 AND MORE CIGARETTES PER DAY

BUYING PATTERN

AGE GROUP

12 - 17 18 - 24 25 - 40 41 - 50 51 & ABOVE

TOTAL

NO. % NO. % NO. % NO. % NO. % NO. %

ONE OR TWO PIECES

1 100.00 6 66.67 4 44.44 2 33.33 1 25.00 14 48.28

WHOLE PACK 0 0.00 3 33.33 4 44.44 4 66.67 3 75.00 14 48.28

OTHERS 0 0.00 0 0.00 1 11.11 0 0.00 0 0.00 1 3.45

TOTAL 1 9 9 6 4 29

[TABLE 24]

The second table gives information about the smokers who smoke 10 or more cigarettes a day. Usually cigarette smokers. who smoke more than 10 cigarettes a day. buy in a pack. As we move from age group of 12-17yrs to 51 and above. the ratio of cigarette smokers buying cigarettes in a pack increases. The interesting point is that this ratio is higher as compared to the ratio of cigarette smokers who smoke less than 10 cigarettes a day.

9.5 EFFECT OF NON AVAILABILITY OF FAVORITE BRAND ON BRAND LOYALTY

OPTIONS AGE GROUP

12-17 18-24 25-40 41-50 51+ TOTAL

NO. % NO. % NO. % NO. % NO. %

A 3 33.33 12 36.36 10 34.48 10 50 6 66.67 41

B 0 0.00 3 9.09 2 6.90 1 5 0 0.00 6

C 1 11.11 4 12.12 9 31.03 3 15 2 22.22 19

D 5 55.56 14 42.42 8 27.59 6 30 1 11.11 34

9 33 29 20 9 100 A=GO TO ANOTHER SHOP AND BUY SAME BRAND B=SMOKE BIDI C=POSTPONE BUYING D=BUY ANOTHER BRAND OF CIGARETTE

[TABLE 25]


From the above table. We can analyze that as the age group increases. respondents to their sample size increases for option A. Similarly. it is a decreasing trend for option D. As we move from age group 12-17 yrs to 51 yrs and above. % number of respondents opting for option A increases. Reverse is the situation for option D. This shows that non-availability of a favorite brand has much effect on the youngster to switch their brand. Overall picture shows that around 34% of respondents go for another brand of cigarette. means switching their brand. There are also respondents who either smoke bidi or postpone buying at that time because they do not want to switch the brand.

The overall picture can be represented by graph as shown below:

Availability of favorite brand is most important for the smoker. If it is not available then around 34% will go to another brand and around 25% who are brand loyal but may be dissatisfied with the non-availability of their favorite brand. Only 41% respondents are strong brand loyal with respect to availability of cigarette at a shop.

9.6 RESULT OF THE HYPOTHESIS

1. Brand loyalty has no direct relationship with the age group.

Number of brand loyal rises with the increase in the age group. Brand loyalty is low in age group 12-17 because they are new smokers. so they tend to taste various brands keeping price in mind. While in age group 18-24. it is high as compared to 12-17 age group. because they are habituated to a particular brand to some extent. For the same reason. number of brand loyal increases in age group 25-40. Thereafter it stabilises for the next two age groups.

2.People give more importance to taste as compared to other attributes.

We wanted to know the most preferred attribute in a cigarette for the smokers. We used CONSTANT SUM METHOD to get the answer. We found out that for all the income groups as well as age groups taste is the most important attribute. Price is emerged as the second important factor. Students and people whose income is below 3000 Rs. Are more price conscious than other age groups and income groups. Packaging has no impact on smokers.

3.The advertisement of new brand does not help in switching the brand loyalty.

Attractive advertisement of the new brand does not influence cigarette smokers to switch their brand. Eventhough the most attractive model(s) or overall good presentation of advertisement is provided by new brand. they will stick to the regular brand. So it fails to attract the significant smokers of other brand.


Chapter10 CONCLUSION Advertisement does not have much impact on the non-smoker to start smoking.

Friend circle is the main reason behind starting the smoking.

Reference group (friends and shop owners) has strong effect on the selection of particular brand.

A cigarette smoker will not shift from one brand to another on finding the advertisement of the other brand more attractive.

Availability of favorite brand is of utmost importance for a cigarette smoker. If it is not available. then around 34% of the respondent will switch to other brand and 19% will postpone their buying or may be dissatisfied with the company. So the delivery of the cigarettes on time to various outlets (shops) is very important.


Chapter11 LIMITATION

“ No study is fully complete in itself “ – said the elders. Even then. not taking

opportunistic shelter in this proverbial saying. I am fully aware of the many lacunas in

this piece of survey presented in the foregoing pages.

The sample size should have been much larger in each category of persons

sampled.

Some more intriguing questions must have been addressed to the individuals.

The sample space includes Delhi only. If it could haave taken worldwide it would

have given the true reflection of the loyalty factors in the world.

Had these three deficiencies been not there. the outcome of this survey should have

been more interesting and fruitful than what it is in the present form. The master

factor for these three deficiencies was paucity of time.As this is only a pilot survey of

small sample size. The same can be expanded to a more efficient and highly useful

study. As the ‘proof of the pudding is in eating’. I sincerely hope and wish that this

pudding will prove tasteful and informative to the readers.


BIBLIOGRAPHY & REFERENCES

Bibliography

1. Cooper, R. G., Winning at New Products, 1997, Perseus Press.

2. Arnold, D, The Handbook of Brand Management, 1997, Addison-Wesley Publishing.

3. Engel, F James and Blackwell, Roger (1993), Consumer Behavior, 7th edition, Prentice Hall International.

4. Ott, R, Creating Demand, 7th edition, Irwin/McGraw-Hill Publishing.

5. Loudon, David L and Bitta, Albert J Della (1993), Consumer Behavior: Concepts and Application, 4th edition, Mc Graw Hill book Co. Ltd

6. Anasael, Henry (2001), Consumer Behavior and Marketing Action, 6th edition, Thomas Asia Pvt. Ltd.

7. Schiffman, G Leon and Kanuk, Leslie Lazar (2000), Consumer Behavior, 7th edition, Prentice Hall International.

8. Hiebing,R.G.&I.S.W.Cooper, The Successful Marketing Plan,1997 ,McGraw-Hill Publishing.

9. Cespedes,F.V. Concurrent Marketing, Harvard Business School Press


http://www.info-now.com/smn/scripts/click.asp?rqpg=http://www.amazon.com/exec/obidos/ISBN=0875844448/salesmarketingneA/





References

1. "Future communication restrictions in advertising" BAT. 1979.

2. Dorozynski. A. British Medical Journal. 1996: 312: 599

3. "Communication from the Advertising Standards Authority. 20/2/98

4. Cook. N. Rizla papers brand manager. cited in: Tobacco marketing's last gasp? Revolution Feb. 1998

5. Direct marketing - Marlboro. Marketing 4 Sept. 19976. Harbottle. F. Letter in Marketing. 15 January 19987. Nuki. P. Tobacco firms brew up coffee to beat ad ban. Sunday Times 18 January

19988. Peter Stuyvesant push fuels ire of French group. Wall Street Journal. 9 April

1997.9. Bonn. D. Tobacco promotion bans will work. The Lancet p1831. 20-27

December 1997 10. Norway puffs away on unadvertised tobacco. Wall Street Journal (Europe) 10/6/9711. Whitaker. S. quoted in: Tobacco marketing's last gasp? Revolution. Feb. 1998

websites

http://www.rizla.co.uk/ (Rizla cigarette papers) http://www.circuitbreak.com/ (Lucky Strike) www.clark.net/pub/k2/cameltrophy (Camel Trophy Adventure) http://www.west.de/ (Sports in association with West) www.asiaconnect.com.my/bates/retail/ (B&H Bistro in Malaysia) www.tobacco.org/Resources/tobsites.html (General site listing tobacco sponsorships)


QUESTIONNAIRE

1. Name :

2. Age Group :

a) 12-17 years d) 41-50 years

b) 18-24 years e) 51 and above

c) 25-40 years

3. Educational Qualification :

a) Illiterate d) Graduate

b) Up to 12th standard e) Post graduate

c) Under graduate

4. Occupation :

a) Businessman c) Professional

b) Serviceman d) Student

e) others (specify)

If answer is ‘student’ . what is your source of income ?

Amt. in Rs.

a) Pocket-money __________

b) Part/Full time job __________

c) Both a) and b) __________

5. Income group [ If respondent is dependent. then income of his family will be considered.] :

a) 3000 & Below d) 12001-16000

b) 3001-6000 e) 16001 and above

c) 6001-12000

6. How often do you smoke ?

a) Regularly (Daily) b) Occasionally


7. How many cigarettes on an average do you smoke ?

Per day Per week Per month

Regularly

Occasionally XXX

8. If answer to Question No. 6 is occasionally. do you smoke the same brand every time ?

Yes No

9. Which single brand of cigarette do you smoke regularly? __________________________________________

10. Since how long have you been smoking?(Mention Regular Brand) _________Years ____________________________________

11. Which brand of the cigarettes have you tried so far ?

a) Wills Natural Light l) Four Square Special Fiter

b) Wills Classic m) Four Square King

c) Wills Classic Mild n) Gold Flake

d) Wills Classic Menthol o) Benson & Hedges

e) Wills Filter Tripped p)555

f) Bristol q) Rothmans

g) Cavanders r) India King

h) Marcopolo Prince Filter s) Gudang Garam

i) Holly Wood t) Assos

j) President u) GLOBE

k) London Filter v) Sunlight

12. What factors do you consider important in buying any brand of cigarette. Please give points to attributes out of total 100 points.

Attributes Price Taste Filter

Packaging

Advertisement


Points

Attributes Aroma Fragrance Color Tobacco Total

Points 100 (one hundred)

13. How much do you buy at a time ?

a) One or two pieces b) Whole pack C) Others

14. What price do you pay for buying (individual piece/pack )of

( Mention Regular Brand = MRB ) ?

Rs.__________________

15. If the price of _________ (MRB) is increased by following percentages. with the price of

other brands remaining the same. what would be your reaction ?

Increase in price by

No. Reaction 15% 20% 25%

1. Start smoking less Qty. of same brand.

(to what extent specify in %)

2. Shift to other brand

3. No change in buying pattern

16. How much do you spend on cigarettes monthly ? Rs__________________

17. If your income increases by following percentages. what would be your reaction ?

Increase in income by

No. Reaction 10% 20% 30%

1. Start smoking more Qty. of same brand.

(specify in %)

2. Shift to some high value brand

3. No change in buying pattern


18. If you find a new brand at a shop what will you do ?

If the price of new brand is

No. Reaction Equal to MRB More than MRB Less than MRB

1. Try it

2. Ask and inquire for it

3. Ignore it

19. If you don’t find the _______(MRB) at a particular Shop. what would you do ?

a) Go to another shop and buy same brand c) Postpone buying at that time

b) Smoke bidi d) Buy another brand of cigarette

20. If the brand other than ____________(MRB) introduces the scheme of free lighter

(worth Rs.25) in return of 10 empty packets of that brand. what will be your reaction ?

a) Shift to that brand b) No change in current buying pattern

ADVERTISEMENT

21. What did you make start smoking ?

a) Friend circle d) Relieve of tension

b) To show off (for status) e) Advertisement

c) Out of curiosity f) Time pass

22. How did you come to know about _________________________________(MRB) ?

Through.

a) Friends b) Advertisement c) Shop owner

23. Are you aware of the advertisements of brands other than ___________(MRB)? (Various Advertisements from magazine will be shown)

Yes No

24. What influences you in the advertisement?

a) Models c) Content like punch line. Logo etc.

b) Features of the product d) Overall presentation of Advertisement


e) No influence

25. If you come across an advertisement of new brand which has you choice in Que. 24. would you

a) Try it b) Ask/inquire for it c) Ignore it


cigarette

Documents

lowincome group people

entire age group

project study

course of work

new delhi acknowledgement

respondents of new delhi

time of nuclear family

sample design