C 0 N F I D 8 N T I A
TRADEPARX DIVERSIFICATION
INTRODUCTION
over the course of every brand's life, trademark
equity is built
through the activities of the brand owner. This
equity consists of
consumer goodwill towards the product's quality
and reputation, as
well as consumer awareness of the trademark
resulting from the
marketing investment of the owner. This trademark
equity is an
intangible, but nonetheless real and valuable
asset.
In a global environment of ever increasing
restriction in the
availability of traditional advertising media,
parallel
communications devices such as sponsorships and
trademark
diversification now represent the only major
alternatives for tobacco
marketers in a growing list of markets. Where
traditional
advertising media are available, their use should
be maximized.
However, in markets where these media are no
longer available or are
threatened in the foreseeable future, parallel
communications should
be seriously considered as part of a brand's
marketing mix.
Sponsorships have a parallel communications role
and can often add
vitality to the consumer's perception of a brand.
But, however well
targeted, Sponsorships as a rule cannot adequately
communicate a
brand's creative positioning. It is possible for
properly selected
and managed Trademark Diversifications to
accomplish this objective.
Each potential T.M.D. being considered should be
measured against
this brand creative communications objective,
first and foremost.
Additionally, each TMD selected should meet the
following criteria:
1. Provide Advertisina onvortunities which are
naturally present and of significant magnitude
in the TMD business category.
2. I-ace ComDatibilitv with core brand creative.
3. )~oqical Products which are a natural extension
of brand values.
4. T-scral Fe:sibilitv to be defensible; able to
survive utside scrutiny and challenge.
5. THD products/services should be in
Frac-ented Markets with no dominant
operator.
6. Ideally, the products/services should provide
Rich Marains; and,
7. Low Finarcial Risk, with manageable start-up
costs.
BATCO document for Province of BritiSh Columbia 26
October 1999


Over the past several years, tobacco TMD has
experienced explosive
growth. Nearly 100 different tobacco TMD programs
are now in
existence across scares of markets.
Conservatively, these programs
now account for over $100 million in annual spend
by the industry.
By not considering TMD as part of the marketing
mix, we must
determine whether we may be putting our brands at
a competitive
disadvantage now and in the future. Exhibit A
provides a rough
estimate of industry TMD advertising spend.
SITUATION ANALYSIS
COMPRTITM ENVIRONMENT
A worldwide survey of BWI Regions and BAT
Operating Companies was
recently conducted in an effort to develop a
comprehensive summary of
competitive TMD activities. Responses were
received from 28 markets,
of which 25 reported current competitive TMD
activities. By far, the
most active are U.S.I.B. competitors: Marlboro and
Camel.
MART-BORO
Marlboro is currently being supported by five
major TKD's as
follows:
Marlboro classics - Men's Western design clothing
Marlboro Leisure Wear - Men's casual clothing and
accessories
Marlboro Sports Shoes - Men's athletic shoes
Marlboro Adventure Store - Direct mail retailing
of
Western style gadgets and
accessories.
Marlboro Adventure/Country Travel - Tours of the
Western U.S.
CAME
There are currently seven major operational Camel
TMD's as
follows:
Camel Boots - Men's shoes and boots
Camel Collection Men's outdoor casual wear
Camel Fragrance Men's cologne and toiletries
Camel Trophy - Off-road rally related holidays
Camel Trophy Watches - Men's wristwatches
Camel Trophy/Adventure Store - Direct mail
retailing
of men's accessories
Camel Adventure - Unique, exotic holiday travel
operation
0 \
BATCo document for Province of British Columbia 26
October 1999


OTHRR INTERNATIONAT. BRANDS
over 30 other TMD's involving both international
and local
brands were reported in our survey with a
concentration in
clothing and travel.
DIVERSIPM INTrRHATIONAT. PRODUCTS
Brown & Williamson's TMD subsidiary, Diversified
International
Products, Inc. (D.I.P.), began actively pursuing
trademark
diversification of strategic brands in the BWI
portfolio in late
1988. Since that time, five international TMD's
have been developed.
There are now 15 separate D.I.P. trademark
diversification business
operations in a total of 11 markets around the
world. Following is a
brief summary of each of these TM01s.
1. Fr-NT Leisure wolidavs
KENT Leisure Holidays is a holiday travel business
offering
upscale package tours to resort destinations,
featuring
activities consistent with KENT's core brand
values. The
business is managed by a U.K.-based travel
specialist company,
KENT Leisure Holidays, Ltd., who has been granted
a license by
D.I.P. to use the KENT name in the travel category
in return for
a royalty on sales.
KENT Leisure Holidays is now operational in 7
markets, having
been launched in Hong Kong in June of 1989 and
followed by
Colombia in August. In 1990, it was expanded to
Israel,
Thailand and Korea. During the First Quarter of
1991, KENT
Leisure Holidays was introduced in Japan and
Paraguay.
This TMD is supported in market, with a full range
of film and
print advertising materials available from D.I.P.
All
advertising and collateral materials are
compatible with KENT's
creative positioning, featuring 4-color
photography of social
situations in resort settings and utilizing ample
blue and white
color cues.
KENT Leisure Holidays is offered to the consumer
by local
general sales agents in each market who are
supplied with
centrally developed sales brochures.
It is believed that KENT Leisure Holidays is an
effective brand
communications vehicle. This hypothesis will be
tested through
qualitative consumer research in June.
Additionally,
alternative TMD programs for KENT (product
spinoffs from KLH)
are being evaluated to improve the profit
potential of the
program.
BATCo document for Province of British Columbia 26
October 1999


2. I-NT ChaMVi0Z5hiD Cla5giCS
The major communications objective of KENT
Championship classics
is to create a connection in the consumer's mind
between KENT
and world famous sporting events, with the brand
benefiting from
this positive association.
This TMD is an extension of KENT Leisure Holidays
and is also
operated by D.I.P.Is U.K.-based licensee.
Developed under the
working title "KENT Grand Slam", KENT Championship
classics is a
world class event-based holiday operation. it is
currently
being pilot tested in Japan, with the following
event packages
available:
U.S. Open Golf Championships
Wimbledon Tennis Championships
British open Golf Championships
Most packages are built around a 4-day event core
with each
booking custom tailored to suit the needs of the
individual
tourist. General sales agents have the ability to
add shopping,
sight-seeing, additional golf/tennis play and
other activities
as desired.
KENT Championship Classics are sold to the
consumer via the KENT
Leisure Holidays general sales agent network,
using centrally
prepared selling brochures. The program is being
supported in
market with 4-color magazine and specialist press
advertising.
3. LUCKY STRI)m oven Road Tours
LUCKY STRIKE Open Road is a specialist travel
operation offering
group motorcycle tours of North America, Europe
and Australia.
This business is a joint venture between D.I.P.
and Edelweiss
Bike Travel (E.B.T.), a major motorcycle
specialist tour
operator based in Mieming, Austria. D.I.P.
provides advertising
and collateral materials support in return for a
commission on
sales from E.B.T. Like KVrr Leisure Holidays, a
general sales
agent is appointed by the tour operator in each
market and is
responsible for handling local bookings.
LUCKY STRIKE Open Road is now operational in 6
markets. The
program was launched in Spain in June of 1989 and
followed by
1990 introductions in Holland, Belgium, Greece,
Switzerland and
Israel. LUCKY STRIKE Open Road was launched in
Japan in January
of this year. A full range of film and print
advertising
materials, as well as 4-color selling brochures
are available
centrally from D.I.P. All advertising features the
Southwest
U.S. tours which are available, and is very
evocative of LUCKY
STRIKE's core brand creative. Year-to-date the
program has met
with a high degree of success having sold 67% of
targeted tours.
Fur-ther analysis of the program will include
qualitative
consumer research which will be conducted in June
and September
to determine the effectiveness of LUCKY STRIKE
open Road as a
brand communications vehicle.
BATCo document for Province of BritiSh Columbia 26
October 1999


4. LUCKY STRIKE Clothes
This is D. I. P. Is newest TMD. Developed under
the working title
"LUCKY STRIKE American Originals", the concept
involves
production and marketing of a range of young
men's, classic
American design fashions. The range includes
jeans, casual wear
and accessories.
D.I.P. has licensed the LUCKY STRIKE trademark to
L.S. Quality
Garments, 2.V., a subsidiary of the Dutch clothing
manufacturer
Geka. In return, D.I.P. will receive a royalty on
sales. A
pilot test of this TMD concept is planned for Fall
1991 in
Benelux. First retail deliveries scheduled for
August 1991.
All trade and sales activities are the
responsibility of the
licensee. D.I.P., with the cooperation of local
operating
Companies, will provide consumer advertising
support.
LUCKY STRIKE clothes will be supported in pilot
with 4-color
magazine advertising shot done in a Southwest U.S.
setting. The
advertising is intended to communicate the young
male, American
attributes of freedom and independence associated
with the LUCKY
STRIKE brand. The advertising concept being
developed was
validated by Qualitative consumer research carried
cut earlier
this year in Belgium and Holland.
If successful, the concept may also be implemented
in other
(ncn-European) markets with local sub-licensees.
5. BARCLAY DIFPCT
This TMD features an upscale mail-order shopping
service
offering high-tech and design-led products for the
ho=e, office
and car. BARCLAY Direct is a co-operative business
venture
between D.I.P. and N.S.P., one of the U.K.'s
largest direct
=arketing retailers.
BARCLAY Direct was initially pilot tested in
Benelux during the
Fourth Quarter of 1990. The results of this test
market were
very encouraging from a business standpoint, with
a turnover of
US$140,000 during the three month period. Results
of
Qualitative consumer research conducted in Belgium
and Holland
was also encouraging. This research indicates a
good fit in
terms of consumer perceptions of BARCLAY Direct
and the core
brand values of BARCLAY.
A second phase of the pilot test is currently
underway in
Benelux, with a new catalog which began being
distributed in
mid-May. In both the initial pilot and the current
extension,
BARCLAY Direct is supported by 4-color consumer
magazine
advertising, including direct response ads and
direct mail
packages containing the catalog and a customer
letter.
(-I
(ZI
BATCo document for Province of BritiSh Columbia 26
October 1999


5. BARCTAY DIRECT (Cont'd)
The advertising creative developed for catalog and
print media
use was based on communicating the BARCLAY brand
values of
power, sophistication, innovation and intriguing
male/female
interaction. A new pool of BARCLAY Direct print
visuals has
been produced for the extended pilot.
If success continues in the Spring 1991 pilot
test, BARCLAY
Direct may be expanded nationally in the Benelux
countries. It
will also be possible to extend the concept into
additional
European test markets, when and where appropriate.
MARKETING SPEND
As previously mentioned, during 1990, total
industry TMD spend is
conservatively estimated at $100+ million.
In addition to the measured media expenditure,
there are significant
Brand Owner costs related to program development,
management,
advertising production, agency/consulting fees and
centrally produced
materials required to operate TMD's. For example,
during 1990
D.I.P.'s central operating costs were
approximately $3 million
1991's central TMD costs will be similar.
COMMUNICATIONS VATZE
It must be recognized that at best, TMD
communications are more
diffuse and less effective than traditional
cigarette brand
advertising. Consumer recognition of the trademark
and the degree of
variance from core brand creative in TMD
advertising in large part
determines this loss of effectiveness.
Consequently, it is D.I.P.'s
policy to develop TMD branding and advertising
that is unique to each
TMD operation, but as close as possible to that of
the core brand,
while trying to minimize potential public
relations backlash and
provocation of regulators and local authorities.
This approach
requires a degree of flexibility depending on
local market
sensitivities. This is best accomplished by making
available a pool
of advertising subjects for each TMD that ranges
from executions
which are very directly identifiable with the core
brand advertising
to others that are more subtle and creatively
distanced. This
creative approach is also used by key competitors
as evidenced by the
range of Marlboro and Camel TMD ads contained in
Appendices C and E.
However, all TMD advertising should result in a
clear consumer
association of the TMD with the core brand.
D.I.P. has developed a Qualitative consumer
research methodology and
plans to evaluate the advertising effectiveness of
each of its VM's.
To date, LUCKY STRIKE Clothes and BARCLAY Direct
advertising research
has been completed. In both cases, consumers
clearly associated the
TMO ads with the cigarette brands. Additionally,
the user imagery
communicated by the TMD ads was very consonant
with the attributes of
the core brands.
CD
CD
BATCo document for Province of British Columbia 26
October 1999


COMMUNICATIONS VAT.UZ (Cont,d)
Communications research reports will be available
on the remaining
three TMD's by the end of 3rd Quarter 1991.
A further measure of TMD advertising effectiveness
can be gained by
monitoring in-market brand awareness. Perhaps an
ideal test case is
Hong Kong, where electronic broadcast of cigarette
advertising was
banned as of December 1990. Beginning in November
of 1990 and
continuing to this date, KENT brand TV advertising
has been replaceo
by KENT Leisure Holidays commercials. Initial
tests of unaided
awareness are encouraging.
Tyn VI2'RILITY
Tobacco trademark diversification is coming under
increased scrutiny
throughout the world. In markets such as France
and Singapore, it is
expressly prohibited. However, even in these
markets, there are
exceptions which are allowed, including the
"grandfathering" of
existing TMD's at the time of passage of
legislative prohibition. In
most markets to date, TMD's have gone
unchallenged. And in a few
cases, such as CAMEL Boots in Sweden, they have
withstood legal
challenge and been allowed to continue.
To improve chances of being able to successfully
defend TMD's, the
operations must be structured in a legitimate
commercial fashion.
Direct involvement of local Operating Companies
and Region Offices
should be minimized or avoided if possible.
Business profitability will increasingly become a
requirement in many
markets for TMD's to survive. without significant
investment by the
parent tobacco companies, most TMD's are destined
to fail against
this requirement. on a fully loaded basis (i.e. -
revenues
sufficient to offset all media and central
operating costs), very few
TMD's will survive. This is the case with all
heavily advertised,
low margin TMD's such as most travel operations.
Due to the higher margins available to D.I.P. from
such TMD
operations as LUCKY STRIKE Open Road, LUCKY STRIKE
Clothes and
BARCLAY Direct there is some possibility, albeit
limited and
optimistic, that profitability may be attainable
over the medium to
long-term. Realistically, if a TMD can generate
enough revenue to
cover its own central operating costs, without
advertising, it would
be considered a major success. Multiple TMD
programs in a single
market can provide advertising synergies that
enhance profitability.
BATCo document for Province of BritiSh Columbia 26
October 1999


CONCLUSIONS G RPCOMKPNDATIONS
Due to the ever deteriorating legislative
environment for traditicnal
tocacco brand advertising, TMD must at least be
viewed as a viable
shcrt-term communications vehicle. The list of
markets where TMD is
one of the few brand communications devices
available is certain to
grc,d. If properly selected and structured, there
exist possibilities
that some TMD's could become profitable in their
own right, if
advertising support is kept from becoming
excessive.
Cur=ently and in the near term, TMD represents the
only major viable
brand creative communications vehicle available in
some markets. In
other markets, TMD may allow brand access to
otherwise prohibited
advertising media. These opportunities should be
prudently exploited
while they remain available.
In light of the current and anticipated growth of
competitive TMD
activity, it may be essential to pursue TMD to
avoid being put at a
co=etitive disadvantage.
A ';ortfolio" approach to TMD development should
be seriously
ccrLsidered to help spread media weight. New TMD's
should be pursued
wit-'i a critical eye towards profit potential.
5/--4/91
/hr-litrmk
C--
(JI
BATCo document for Province of British Columbia 26
October 1999