bat davidoff strategic brand review 1992-1998

DAVIDOFF STRATEGIC BRAND REVIEWWITH A FOCUS ON THE PREMIUM SEGMENT GROWTH

Executive Summary

1 . Introduction

II . Performance OverviewGlobal Super Premium Segmen tGlobal Premium Segment - Duty Free MarketRegional VolumeKey MarketsBrand Health Indicators

Ill . Marketing StrategyNew Brand LaunchLaunch SequenceHit and Run Case Analysi s

IV. Marketing MixProductPackagingPricingCommunicationTMD, Sponsorship & Direct Mailin g

V. SWOT Analysis

VI . Scenarios & Strategic Implications for BAT

VII . Conclusion s

Appendix1 . Key Marketing CommunicationsII . Key Davidoff Variants

Contact: Rebecca WongBAT Brand Performance Manager (EXT.1208)

ORACLEMARKETING INFORMATION

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Executive Sumniairy

■ Since 1994, REEMTSMA has continued to increase ATL spend at over10% p.a . on Davidoff which has grown volume at 29% p.a. Davidoff'sglobal sales of 8 bn sticks in 1998 represented 0 .15% of theinternational cigarette market and 34% share in the global superpremium segment .

Davidoff has established a unique selling proposition with acombination of luxury length, bevelled edge boxes and charcoal filterin japan . Davidoff was the first brand to launch bevelled edge boxesworldwide .

■ Key markets are currently Taiwan, China, Germany and Russia . Weanticipate that the emerging markets will be Netherlands, Japan andPoland . In the last five years, Taiwan has demonstrated impressivegrowth rate of 35%, with sales increasing from 1 bn sticks in 1994 to3 .3 bn sticks in 1998. Germany has grown 35% whilst Netherlandsand Russia grew at 40% and 135% respectively .

• Strategically positioned in the super premium segment, Davidoff hasmaintained its pricing for all variants at over 10% above Marlboro .Positioning Magnum as the Image Leading Variant for new marketentry, Davidoff has created its "above all else" super premium image .It provides a destination brand for uptrading from Davidoff Classicand Marlboro variants .

■ In the dark market environment Davidoff has invested in TMDs,Direct Mailing and BTL. Successful Davidoff TMDs such as CoolWater and Goodlife fragrances as well as Davidoff Coffee weredeveloped to create alibi advertising opportunities for the brand.These have made ATL market communication possible even in darkmarkets such as Germany and Taiwan .

■ The development of a showcase feeder brand - ZINO Davidoff, hasindicated the brand's intent to attract ASU30 smokers . Rather thanriding on existing brand imagery Zino imagery and packaging appearmore ASU 30 oriented .

■ In light of the rapid growth in the Global Super Premium Segment, itis anticipated that Davidoff's growth by year 2002 is likely to befocused on Europe and Asia . Davidoff will be a major competitor forSE555 International and Dunhill International in the future . It iscrucial to understand its strategic direction in terms of brandportfolio, market entry strategy and communication platformexploitations in order to implement successful pre-emptive moveswith BAT brands.

ORACLL MARKETING INFORMATION

325141217

I . IntrotinctiO n

THE DAVIDOFF PORTRAIT CAMPAIG N

In light of the growth of Davidoff in the global premium segment overrecent years, a strategic review of the brand's current performance,global positioning and possible future strategies was conducted .

Davidoff was first launched by Zino Davidoff in 1985 . The brand hasestablished a unique brand positioning world-wide . It is a cigar heritagebrand priced in the super premium segment . With extensiveexploitations of different marketing communication platforms, it depictsa brand world of sophistication, exclusiveness and luxurious . The claimof the brand is to offer connoisseurs supreme pleasure .

Davidoff is a global rival to SE555 International and Dunhill Internationalin the super premium segment . This brand may be a threat to SE555'spositioning in Asia and Dunhill's in Europe . Its target market andconsumer segments appear similar to SE555's and Dunhill's propositions .

ORACLE MARKETING INFORMATION

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II . PERFORMANCE OVERVIE W

OR,AClF

■ GLOBAL SUPER PREMIUM SEGMENT■ GLOBAL PREMIUM SEGMEN T

- DUTY FREE MARKET■ REGIONAL VOLUM E■ KEY MARKET S■ BRAND HEALTH INDICATOR S

MARKETING INFORMATION

325141219

11 . GLOBAL SUPER PREMIUM SEGMEN T

GLOBAL SUPER PREMIUM SEGMENT BY BRAND 1994-9 8

94 95 96 97 9 8

♦ - MORE - ~-- DUNHLL INTL --4.555 rL- -x- - ROTHMANS INTL - * -DAVIDOF F

Source : MR& I

KEY FINDING S` Since 1997, Davidoff has overtaken More to become the leading

brand in the global super premium segment . Davidoff grew from 9%share in 1994 to 24% in 1998 at 8 bn sticks .

' SE555 International is the only other growth-contributing variant inthis segment between 1994 to 1998 . SE555 International grew from1% share of segment in 1994 to 9% in 1998 at 3 bn sticks .

STRATEGIC IMPLICATIONS FOR REEMTSM AREEMTSMA is likely to further exploit growth in the super premiumsegment by engineering new brand entries or introducing brandextensions in other super premium markets, e .g. Japan .

ORA(_LE MARKETING INFORMATION

325141220

II . GLOBAL SUPER PREMIUM SEGMEN T

DAVIDOFF PERFORMANCE INDICATORS 1994-98

-DAVIDOFF

VOLUME (bn )

SHARE OF INT'L MARKE T

% OF TOTAL REEMTSMA INT'L BRANDS

% Growth

1994 1995 1996 1997 1998

3 5 8 9 8

0.05% 0.10% 0.14% 0.16% 0.15%

10% 16% 20% 21% 21%

87.8% 39.3% 12.2% -5.6%

Source : WORLD CIGARETTE MARKET FACTBOOK 1998, MR&I

CAGR

29%

KEY FINDING S■ Since the mid 90s, Reemtsma has increased total spend on Davidoff in

markets worldwide . Its ATL spend has increased at over 10% perannum, whilst the volume growth rate was 29% CAGR in the last fiveyear period .

■ In 1998, Davidoff's share of REEMTSMA's total International Brandsales increased to 21 %. It is ranked second in REEMTSMA's brandportfolio after West . Unit sales of Davidoff decreased by 5 .6% in 1998to 8 bn sticks despite volume growth in most regions . This reductionin volume was a result of the economic downturn in Russia . Sales inRussia was down by 80% in 1998.

■ Total Davidoff sales represented only 0 .15% of the internationalcigarette market but its share in the super premium segment hasincreased from 9% to 24% (15p .p.) between 1994 and 1998 .

SUPER PREMIUM SEGMENT - SHARE BY BRAND 1994-98

94 95 96 97 98MORE 33% 31% 30% 24% 23%DUNHILL INT'L 9% 9% 7% 9% 8%555INT'L 1% 2% 4% 7% 9%ROTHMANS 1NTL 2% 2% 3% 3% 2%DAVIDOFF 9% 16% 20% 25% 24%

Source : MR& I


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II . GLOBAL PREMIUM SEGMENT DUTY FREE

GLOBAL DUTY FREE MARKET 1994 -98SHARE BY BRAND IN THE PREMIUM SEGMEN T

Source : MR& I

KEY FINDINGS• In the Global Duty Free Market, Davidoff Classic is positioned fourth

in the premium segment with 11% share of segment after DunhillInt'l, 555 Int'l and Cartier.

■ In 1998, the primary source of Davidoff's Duty Free business wasEurope, followed by Asia Pacific and Japan .

STRATEGY IMPLICATION FOR REEMTSMAWith the abolition of European Duty Free in July 1999, this has resulted in

volume lost for Davidoff from this market. It is anticipated that

REEMTSMA is likely to shift focus to other Duty Free regions, e .g . Asia

Pacific, to support their growth in other duty paid markets such asTaiwan .

REGIONAL DUTY FREE MARKETS 1998SHARE OF MAJOR PREMIUM BRAND S

Dunhill Intl Davidoff Classic Cartier SE Intl

I®F oArnesca DF oAsla Pacific OF O America Pacific DF • Latin Arnerica D F

0RACLE

Source : MR&I


325141222

11 . REGIONAL VOLUM E

DAVIDOFF VOLUME BY REGION 1992 - 9 8

100%

80 %

60 %

40%

20%

1992 1993 1994 1995 1996 1997 1996

■ AMESCA UASN PACFCaAM61cA PACFC/EUROP E

Source: MR& I

KEY FINDING S■ With the presence of Taiwan, Asia Pacific accounts for 78% of

Davidoff`s total volume . The region has established a growth rate of38% for Davidoff since 1992.

■ The emerging region is Europe, driven by growth in Russia at over100% and Germany at 40% over the past five years .

STRATEGY IMPLICATIONS FOR REEMTSM A• Growth In APN Capitalise and further invest on the growth in

China, Taiwan and Japan .

■ Rebound strategy for Russia Invest in Russia to regain brandvolume when it re-emerges from the economic crisis .

DAVIDOFF VOLUME BY REGION 1992 - 9 8

SUMMARY 1992 1993 1994 1995 1996 1997 1998 CAO R

AMESCA 02 18 14 13 55 97 184 60%ASIA PACIFIC 903 1,624 2,575 4,650 5,842 5,833 6,279 38%AMERICA PACIFIC 2 1 1 12 19 30 15 45%EUROPE 276 298 327 803 1,716 2,602 1,603 34%TOTAL 1,180 1,941 2,917 5,477 7,632 8,562 8,081

Source : MR&I (Units in mn sticks)


325141223

11 . KEY MARKETS ANALYSI S

VOLUME OF TOP FIVE DAVIDOFF MARKETS 1992 - 98

sticks (mn) 1992 1993 1994 1995 1996 1997 1998 CAGR

TAIWAN 898 1,105 1,690 3,178 4,409 4,698 5,011 33%

GERMANY 154 161 185 247 300 442 707 29%

CHINA I APN 0 490 840 1,435 1,090 700 670 6%

HONG KONG 5 4 5 12 321 397 523 253%

RUSSIA 0 0 10 300 1,114 1,823 358 145%

TOP 5 MARKETS OF TOTAL 90°.0 910.0 94% 94°!0 95% 94% 90 %

Source: MR& I

KEY FINDINGS■ Key volume contributors Davidoff's top five markets represent 90%

of Davidoff's global volume in 1998 . The core markets are Taiwan,

Germany, China, Hong Kong and Russia .

■ Taiwan accounts for 62% of total volume Taiwan is the no .1market for Davidoff accounting for 62% of total global volume in1998. In the course of six years, Davidoff has emerged from a 0 .9 bnsticks brand to a 5 bn sticks brand .

■ Rapid growth In Russia Russia has been the fastest growingmarket world-wide since 1995 . However, since the Russian economiccrisis hit in 1998, its volume contribution has dropped by 80% .

■ Reinvesting in Germany Sales in Germany has grown by over 30%annually between 96 and 98 as a result of the Heritage Campaign,which was launched first in Germany prior to the global launch in1998.

■ Volume in Hong Kong grew by 30% Volume in Hong Kong hasincreased by 30% between 97 and 98 as a result of Davidoff's inmarket Testimonial campaign launch and increased marketingexpenditure .

ORAC LE MARKETING INFORMATION

325141224

il . KEY MARKETS ANALYSI S

DAVIDOFF INTERNATIONAL SHARE OF GLOBAL MARKETS 1998

Market share

1998r _.

-~ ..

PACNE

~' ...

~•• -

K`oNC.,,1.

CK~CE

_ _

uEa"ONNrTH RA N

1AFAN Arai

Source : MR& INote : The size of the bubble represents in market volume .

KEY FINDINGS - 1998 Market Share vs Growth Rate

■ Growing markets The fastest growing countries between 1994 and1998 were Russia, China, Netherlands, Poland, Japan, Germany andGreece .

■ Taiwan, the growing market Taiwan is the largest volumecontributor, selling over 5 bn sticks in 1998, Davidoff has grown at35% CAGR with market share increased from 2 .3% in 1994 to 7.4% in1998.


325141225

11 . KEY MARKETS ANALYSI S

DAVIDOFF INTERNATIONAL SHARE OF GLOBAL MARKETS 200 2

30 %

20 %

10%

Market share

o% L-15% 60% "IT';#o%

5 -year CAGR (1998 - 2002) >90%All now markets In 1996 are projected at 30% CAG R

LOOKING TO THE YEAR 2002

■ Core markets In the year 2002, the key markets will be Taiwan, China,Russia and Netherlands for volume growth .

• Secondary markets Davidoff is projected to maintain its marketshare in Germany, which provides the brand and company withheritage associations . Belgium and Greece are likely to be thesecondary markets for expansion in the European markets .

ORA(=LE MARKETING INFORMATION

325141226

11 . BRAND HEALTH INDICATOR S

BRAND HEALTH INDICATORS - DAVIDOFF VS MARLBOR O

SOM

DAVIDOF FSHARE OF LIGHTS SOM

MARLBOROSHARE OF LIGHTS

TAIWAN 8% 4% 2% 2 %

GERMANY 0 .5% 0.7% 34% 48%

CHINA 0 .0% 3% 0% 13%

HONG KONG 0.2% 18% 59% 61%

RUSSIA 0 .2% 1% 4% 29%

GENDER RATIO OF GENDER RATIO O F

DAVIDOFF TOTAL SMOKERSMALE : FEMALE

DAVIDOFF SMOKERSMALE : FEMALE

SHARE OF ASU 30 DOMINANT AGE GROU P

TAIWAN 100 : 0 100 : 0 29% 30 - 44

GERMANY 50 : 49 66 : 34 43% ASU 30

CHINA 95 : 5 100 : 0 0% ASU 30

RUSSIA 73 : 27 40 : 60 60% ASU 30

MARLBORO019NDER RATIO O FTOTAL SMOKERS

MALE : FEMALE

GENDER RATIO OFMARLBORO SMOKERS

MALE : FEMALE

SHARE OF ASU 30 DOMINANT AGE GROUP

TAIWAN 100 : 0 100 : 0 52% ASU 3 0

GERMANY 5049 54 :46 41% ASU3 0

CHINA 95 : 5 95 : 5 49% 30 .44

RUSSIA 73 : 27 56 : 44 54% ASU 30

SOURCE: GCS 1997 - 99

KEY FINDING S■ Davidoff, though not positioned as a lights brand, has achieved

relatively higher lights share vs market share in all markets exceptTaiwan .

■ Davidoff smokers are predominantly male skewed except in Russia,where 60% of the smokers are female . The dominant smokers' groupacross markets is ASU 30 except in Taiwan , where the dominantgroup is older (30-44) . Its ASU30 share is lower than that of Marlboroacross all key markets, except in Germany by 2 p .p.

■ Main switching in and switching out are both to and from MarlboroFF and Marlboro Lights .

STRATEGY IMPLICATIONS FOR REEMTSM A■ Target ASU30 In Japan Target to increase share of ASU 30 in Taiwa n

to match the profile of Marlboro smokers in preparation fo ruptrading .

• Target female segment in Russia Davidoff should ride on itscompetitive advantage in Russia and focus on growth in the femalesegment.

ORAL IFMARKETING INFORMATION

325141227

III . MARKETING STRATEG Y

ORACLE

■ NEW BRAND LAUNCH■ LAUNCH SEQUENC E• HIT AND RUN ANALYSI S


325141228

III. MARKETING STRATEGY - NEW BRAND LAUNC H

NEW BRAND LAUNCHES 199 8REGION TERRITORY 1998

(O00AMESCA DUBAI 11,93 2

AMESCA ABU DHABI 7,93 0AMESCA OMAN 1 .908

AMESCA BAHRAIN 1,142

ASIA PACIFIC CHINA dom 44,104

EUROPE BULGARIA 31,000

EUROPE SLOVENIA 14,20 9

EUROPE LATVIA 11,20 0

FUR )PP ESTONIA 5 .800EIJR')PE MACEDONIA 5,34 9EUROPE CANARY IS 4 .61 0EUROPE U .K . 1,900

Source : MR& I

KEY FINDING S■ In 1998, the focus of new brand launches was in Europe, where new

Davidoff variants were launched in seven countries .

■ With new brand launches in four countries, Middle East was thesecond most popular region for brand launch in 1998 .

■ In China, over seven variants were launched between 1997 and 1998 .These include Classic Slim, Mild, Lights Slim, Magnum Mild, F&L,Supreme and Lights Menthol . It seems that this was the strategyemployed by Davidoff to obtain sales quota from the CNTC .

STRATEGY IMPLICATION FOR BA T

■ REEMTSMA has always applied a seeding strategy entering new

markets with MAGNUM . Judging from the location of their new

brand launches of 1998 in the region, REEMTSMA is inclined toexpand in the CIS markets in Europe . BAT should consider seedingthese markets with a super premium variant and secure a first moveradvantage ahead of REEMTSMA .

■ After Taiwan, China is the key priority for REEMTSMA in the Asiaregion . It is anticipated that further investment will be placed in theChinese market to secure the super premium price positioning of thebrand as the market is going dark . BAT should consider investing in asuper premium variant to pre-empt further investment byREEMTSMA .


325141229

III . MARKETING STRATEGY - LAUNCH SEQUENC E

LAUNCH SEQUENCE

MILD

F&L F&LMAGNUM MIL D

LTS SLI MLTS MENTHOL

SUPREME SUPREME

LIGHTS LIGHT S

ULTRA LTS

KING

CLASSIC

MAGNU M

FIRST SECOND

Source : MR6zI

THIRD FOURTH

KEY FINDIN G■ MAGNUM is always the first variant launch in all key markets . At the

time of launch it is priced above the other Davidoff variants .

■ KING or LIGHT variants are used as second wave launch brands .

Priced at super premium segment above Marlboro variants and belowDavidoff MAGNUM .

■ The third wave of brand launch often includes LIGHTS SLIM and / orCLASSIC SLIM, which are launched as extensions to their parent

versions . In markets such as China, Greece, Germany and Italy,

variants such as MILD, ULTRA LIGHTS, F&L and LIGHTS MENTHOLhave also been launched in this wave .

STRATEGY IMPLICATIONS FOR REEMTSM AContinue to position Davidoff MAGNUM as the premium pricedestination brand and utilise this feeder strategy for future new marketentries .

STRATEGY IMPLICATIONS FOR BATConsider positioning a super premium price destination brand to

promote a line extension feeder strategy . This might be particularlyuseful for dark market entries to the super premium and premium

segments .


325141230

III . MARKETING STRATEGY - HIT AND RUN CASE S

DAVIDOFF VARIANTS DELISTED BY MARKE T

COUNTRY Y RS VARIANT

CANARY IS . 86-93 KING

LUXEMBERG 88-95 KIN G

GREECE 86-94 MAGNUM

Source: MR& I

KEY FINDINGSThere were not many markets where Davidoff was launched andwithdrawn. The only three cases in the last 20 years were Davidoff KINGin Canary Island and Luxembourg and MAGNUM in Greece .

This does not indicate a history of Hit and Run practice for the brand .


325141231

ORACLE

IV. MARKETING MI X

• PRODUCT• PRODUCTION• VARIANT MIX■ PRICIN G• COMMUNICATION■ TM D■ SPONSORSHIP■ DIRECT MAILIN G


325141232

IV . MARKETING MIX - PRODUCT

DAVIDOFF VARIANT BY TAR AND NI C

MG

DAVIDOFF

DAVIDOFF CLASSICDAVIDOFF CLASSIC SLIM

DAVIDOFF F & LDAVIDOFF LIGHTS

DAVIDOFF LIGHTS SLIM

DAVIDOFF MAGNUMDAVIDOFF MAGNUM MILD

DAVIDOFF MILD

DAVIDOFF SUPREMEDAVIDOFF ULTRA LIGHTS

Source: MR&I

TA R

12-15

12-1410 - 1 2

7

6-9

6- 8

12-158

7-1 2

12

1-3

NI C

0 .9-1 .20 .8-1 . 2

0 .8

0 .60.5 - 0. 8

0 .6

0.8-1 .207

0 .60 .9

0 .1-0 . 6

KEY FINDING S■ The Davidoff Classic and Magnum are both full flavour variants at 12-

15 mg tar level .

■ Lights, Mild and F&L are the medium tar variants similar to Marlboro

Lights in tar level .

• Ultra Lights was a new variant launched in 1998 at 1mg in Greece . In

other countries the variant is positioned at 3 mg and was launched inAbu Dhabi, Bahrain, Dubai, Japan, Kuwait, Oman, Qatar and SaudiArabia .

• In Japan, Davidoff is characterised by its white tipping and charcoalfilter, which is unique only to the Japanese market .

STRATEGY IMPLICATIONS FOR REEMTSM ALaunch low tar variants to exploit growth in the ultra lights segment .

A SUMMARY OF ALL PRODUCT BY TAR LEVELS

Product ,ittributcs - Tar Level s

0

Source : MRSH


325141233

IV . MARKETING MIX - PRODUCT

PRODUCT LENGTH OF DAVIDOFF VARIANTS

LENGTH

LUXURY 93-97KING 83 - 87LONG 78 - 82

mm % PROMINENT MARKET

AsiaEuropeAustria

Source: MR&I

93%

6%

1 %

KEY FINDINGS■ The top four variants of the super premium segment account for 85%

of all the luxury length cigarette volume .

• 93% of all Davidoff variants were in the luxury length category .These luxury length products are mainly for consumption in the Asia

market .

■ Mostly consumed in Europe, 6% of the Davidoff variants are of Kingsize length (83 - 87mm) . 3% of Davidoff Classic and 8% of Davidoff

Lights are of king size length . These two variants need to be

standardised in length to achieve global product alignment .

` Menthol variants are launched in only three countries - Hong Kong,Italy and Taiwan .

• Japan is the only market where Davidoff has a charcoal filter .

However, Magnum in Japan is still in a normal filter .

STRATEGY IMPLICATION FOR REEMTSM AREEMTSMA is likely to standardise the product length of all Classicand Lights variants . Small scale product launches are anticipated inmarkets such as Austria, France, Greece, Italy, Netherlands, UK,Lebanon, Slovenia and Macedonia .

■ Taiwan is likely to continue to be the testing ground for future newvariants .

AVAILABILITY OF CHARCOAL FILTER BY COUNTR Y

CLASSIC LIGHTS MAGNUM ULTRA LIGHT

JAPAN Y Y N Y

HONG KONG N N N N

GERMANY N N N N

TAIWAN N N N N

TURKEY N N N N

CENTRAL ASIA N N N Nource :


325141234

IV . MARKETING MIX - VARIANTS

VOLUME DISTRIBUTION BY VARIAN T

2

w

J

0

9000

8000

7000

6000

5000

-400 0

3000 -

2000

100 0

I 0

1988 1989 19)0 1991 1992 1999 1990

■ MING SIZE p CLASSIC p CLASSIC SLIM ❑ FOL

❑ LTS SLIM 0 NAG ■ MAG MILD ❑ MI L

Source : MR& 1

KEY FINDING S■ Found in 28 markets, the most popular variant is Classic; followed by

Lights in 27 markets and Magnum in 23 markets . The main driver ofvolume growth in the 1990s was Davidoff Classic .

■ Davidoff King has been diminishing in total house share since early1990s.

STRATEGY IMPLICATION FOR REEMTSM AIncrease focus on the Ultra Lights variant, position as an extension to the

Davidoff House after Classic and Lights .

VARIANT DISTRIBUTION BY MARKE T

ilia' A1F -

MIL L

MAiAIuMMIt : .

.IA•D,UMA -

117-1

B -

'LDSSIU 9iiM -

K1 & 31 ze

0 5 1 0

ORACLE

Source: MR&I

N. of15 20 25 :0 35 markets


1995 1996 1997 199 8

6 TS M LTS MT M

D C SUPREME ■ U/LTS

325141235

IV . MARKETING MIX - PRICIN G

MARLBORO PRICE INDEX BY COUNTRY 199 8

DAVIDOFF MAGNUM

TAIWA N

140

CHIN A

133

HONG KON G

179

RUSSIA

150

DAVIDOFF CLASSIC 136 NA NA 11 4

DAVIDOFF LIGHTS 126 NA 104 N A

555 INT'L 112 133 156 N ADUNHILL INT'L 107 131 125 N A

Source : MR& I

KEY FINDING S■ Davidoff Magnum has been positioned as the image leading variant

at super premium price positioning .

• All Davidoff variants are priced above Marlboro variants in Taiwan,China, Hong Kong and Russia .

■ The pricing of Davidoff Magnum is superior to both 555 Internationaland Dunhill International in all Davidoff key markets in 1999 .

STRATEGY IMPLICATION FOR REEMTSM AMaintain price positioning at super premium to project an image leading

variant .


325141236

IV . MARKETING MIX - COMMUNICATIO N

GLOBAL ATL SPEN D

KEY FINDING S■ In 1997, Davidoff spend accounted for 12% of REEMTSMA's total

advertising spend . Despite its increment in spend of 12% in absolute

terms (from 6mn in 1996 to 6.7mn in 1997) ; its share in REEMTSMA's

portfolio has remained stable .

■ REEMTSMA has increased brand support for Davidoff in absoluteterms but the increment of West has outweighed Davidoff in termsof portfolio weighting .


325141237


DAVIDOFF ATL SPEND BY MEDIA TYPECOUNTRY COMPARISO N

NEWSPAPER MAGAZINE 1V OLIDOO R

Source MR& I

KEY FINDING SDavidoff's current usage of media type is as follows :

1 . Outdoor (48% )2. Magazine (45%)3 . Newspaper (3%)

4. TV (3% )

STRATEGY IMPLICATION FOR REEMTSM AIf the launch of Davidoff Coffee in Taiwan is successful, a similar TMDstrategy can be rolled out to other Dark markets such as China,Netherlands and the Ukraine to gain ATL exposure .

STRATEGY IMPLICATION FOR BATIf the launch of Davidoff TMD is successful in Asia Pacific, it will raiseDavidoff's share of voice significantly in these markets . Arguably BATshould speed up its development of TMDs for the super premium brandssuch as 5E555 and Dunhill Internationals .


325141238


KEY FINDINGS ON MARKETING COMMUNICATIO N

Davidoff has been very clear and consistent in its communication of a

brand world within each of its markets . Its communication employs somevariation on "Heritage" and "The Connoisseur Experience", with an

emphasis on philosophical and premium quality aspiration cues .

Davidoff projects sophisticated, successful and prestigious imagery . Thecommunication fits well with Davidoff's pricing and upscale image .

Brand Offer: The claim of the brand is offer connoisseurs supremepleasure .

The Davidoff Brand Wheel was developed by BATES to represent thebrand essence, personality, values, benefit and attributes .

DAVIDOFF BRAND WHEE L

Marketing Information

Cosmopolitan, Smooth AmericanTaste, B tended Tobacco (Virginia,Burley, Turkish), Stylish pack,Established name (Signature),Exclusivity, Heritage of quality,Cigar heritage .

Prestige . Exclusivity,AcknovUedged, Confidenc e

Discerning, Smart Respectful,Knowledgeable, Urbane

Man of the world, Mature,Charismatic, Informed,Accomplished, Experienced

Demonstration ofconnoisseurship andcelebrated success in life.

Source: BATES London (1999)


325141239

IV . MARKETING MIX - COMMUNICATION

TM D

Davidoff has established a few TMDs globally . They include whiskey,

coffee and fragrance for men and women . The TMDs allowed Davidoff

to pursue brand communication in ATL channels despite the tobaccoadvertising restrictions in dark market environments .

TMD - Coffee

Davidoff cafe was first rolled out in Germany in 1998 and subsequently

Taiwan in 1999 . It is produced by a major German coffee company

named Tschibo, which is owned by the owner of REEMTSMA- GenterHertz .

DAVIDOFF COFFE E

CAKE.

11NF. ?I Lit'Jt:SS

4"W--'--- -MEOW


325141240


TMD - Fragrance

Copy: "Dedicated to Passion "

The Davidoff Cool Water fragrance for man and woman weredistributed globally to provide brand name support through alibiadvertising .

Launched in Germany in 1988 Cool Water was the pioneer of "Water"fragrances . The trademark was owned by Lancaster/Benckiser .

The assumed target consumers are male/female, 18+, upper to middle

class, mid-income. Educated, confidant, at the start of their career .

Aspired to trustworthy well-known brands .

The executions feature relaxed and passionate close-ups of male/femalefaces . All imageries are outdoor with sea/water, sky (refreshing colourcues) . All ads include the Davidoff signature which demonstrates thebranding .

DAVIDOFF COLOGNEFOR MAN

ORACLE

DAVIDOFF PERFUMEFOR WOMAN


325141241


TM D - Fragrance

Copy: "The new fragrance for men"

The Davidoff Goodlife cologne for man was another fragrance launchedin 1999 to provide brand name support through alibi advertising .

The assumed target consumers are similar to those of Cool Water withlesser of a fresh and outdoor image .

The executions feature relaxed, sophisticated & confident close-ups of

male/female faces . All imageries are black and white outdoor shots . Allads include the Davidoff signature with the brand name Goodlife.

DAVIDOFF GOODLIFE FRAGRANC E


325141242

IV . MARKETING MIX - COMMUNICATION

DIRECT MAILIN G

II . DAVIDOFF CONNECTION

A direct marketing scheme named Davidoff Connection was establishedin Hong Kong in 1998. Once becoming a member of the DavidoffConnection scheme, members can enjoy discount opportunities with golfresorts, classical concerts, Davidoff merchandising as well as the purchaseof cigarettes with gifts . A new brand identifier for the dark market isdeveloped - "D" .

Objective: Effective reach of targeted consumers, database buildingexercise reinforcement of exclusivity & prestige, stimulation of purchase

& trial .

Members of Davidoff Connection scheme provided access to selectedvenues -e .g . shops, restaurants, clubs .

DARK MARKET IDENTIFIE R

0

Please refer to Appendix for more information on marketcommunication.


325141243

SWOT ANALYSI S

ORACLE

After two rounds of strategicinformation review sessions withmembers of the IBG and globalresearch team, a SWOT analysis wasconducted to assess the strategicpositioning of the brand Davidoff .


325141244

SWOT ANALYSIS - FROM DAVIDOFF'S PERSPECTIV E

STRENGTHS• Focused super premium price strategy across countries gives Davidoff

a high net contribution . Magnum, the leading image variant at abovesuper premium price positioning, has been the new market entry

variant in most of Davidoff's new launches .

■ Strong cigar heritage, luxury length, premium quality product andbevelled edge packaging denote premium and unique values to createa perception of status, which is a relevant proposition for the Asian

market .

• International brand image and distribution . Consistent marketing

communication to project a Davidoff brand world through time .

• Consistent family packaging through the years .

• Established world-wide TMD Blue Water & Goodlife perfume,Davidoff coffee.

• Established sponsorship - music scholarship, classical concerts .■ Established dark market identifier - "D" .

WEAKNESSE S• Volume dependent on two countries - Taiwan, Germany.

• Low level of combined volume .

• Unfocused variant and line extensions .■ The expansion of WEST has reduced available resources on Davidoff.

OPPORTUNIES■ Invest in premium segment growth .• Focus on lifestyle psychographics instead of demographics .

• Exploit dark market strategy with established identifier .

• To establish tie with JTI for a foothold in Japanese market.

THREATS

• As the tobacco industry consolidates, REEMTSMA's power to competereduces.

• Constraint by financial resources for market expansion .


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SCENARIOSAND STRATEGIC IMPLICATION S

ORACLE

After two rounds of strategic information reviewsessions with members of the 1BG and globalresearch team, two potential future scenariosprojected over the next 10 years weredeveloped . The purpose of these competitivescenarios is to stimulate thoughts and contributeto our current strategies in the super premiumsegment .


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SCENARIOS AND STRATEGIC IMPLICATIONS : 2000 TO 201 0

SCENARIO SUPER DAVIDOFF GO MAINSTREA M

1) GROW SUPER PREMIUM SEGMEN T- ATTACK DUNHILL, 555 GROW MAINSTREAM MARKE T

BRAND STRATEGY2) INVEST IN A FEEDER BRAND - ZINO IN PREMIUM / HIGH PRICE SEGMEN T

3) DEVELOP TMD - CIGAR BARS ,CLOTHING LINE, MIX YOUR OW N

TOBACCO SHOPS .

CHANNEL STRATEGYDAVIDOFF CIGAR OUTLETS, CONENIENCE STORE ,

REDEFINE EXPORT STRATEGY EXPOR T

1) EXTEND TO OTHER LUXURY GOODSCONSOLIDATE ON HIG H

MARKETGROWTH MARKETS

CONTRIBUTION MAREKT S2) GROWTH MARKETS CHINA, JAPAN,

,

GERMAN YE GRUSSIA,NETHERLANDS,POLAND, GREECE

. .

1) FOCUS ON ASU 3 0TAR(,E1 CONSUMER 2) TARGET FEMALE WITH LIGHTS ASU 3 0

St MENTHOL VARIANTS

1) DAVIDOFF WITHDRAWS LICENS E

1) REEMTSMA INCREASE SUPPORT FROM REEMTSM A

CORPORATE STRATEGY EXPENDITURE FOR DAVIDOFF 2) REEMTSMA CUT SUPPORTEXPENDITURE TO INVEST IN WES T

3) ITI ACQUIRES REEMTSM A

1) GLOBAL DECLINE IN SUPER PREMIUM

CONTINOUSLY RISING SUPER PREMIUMSEGMENT DUE TO WORLD ECONOMI C

EXTERNAL ENVIRONMENT SEGMENTDECLIN E

2) TAIWAN SUFFERS ECONOMI CDOWNTUR N


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SCENARIOS AND STRATEGIC IMPLICATIONS : 2000 TO 201 0

CONCLUSIONS

■ Defend Future growth markets The future growth markets ofDavidoff are likely to be Taiwan and China in the Asia PacificRegion and Germany, Netherlands and Russia in the Europeanregion .

■ Investigate the price repositioning of SE555 International andDunhill International Both SE5S5 and Dunhill Internationals'pricing is sub optimal to Davidoff Magnum's in most markets .There is a need to investigate repositioning these superpremium brands' pricing at parity or above Davidoff Magnumto project a super premium image .

■ Explore new channels for distribution for the Super PremiumBrand Davidoff will continue to exploit established cigaroutlets for both product display and distribution . Thisfacilitates the perception of a super premium image .

■ Defend Asia It is crucial to defend Asia and not allow Davidoffto lead the Super Premium segment. Increased investmentstrategically in a super premium offer, such as Equinox .

• Defend the premium/ high price segment brands Globaleconomic decline would lead to downtrading from Davidoff andMarlboro worldwide . It is necessary to defend BAT variants atpremium / high price segments should Davidoff pursue directinvestment in a high price line extension.

• Seed super premium brands in Asia If JTI acquires REEMTSMA,it can assist in the growth of Davidoff in the super premiumsegment. BAT need to seed and grow the super premiummarket in Asia to anticipate Davidoff's expansion .


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APPENDIX I

KEY MARKET COMMUNICATION S

This section was part of a Communication Review conducted inconjunction with Bates London in 1998 .


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DAVIDOFF PORTRAIT CAMPAIGN 1998

Tag Line : the more you know

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DAVIDOFF CAMPAIGN IN GREECE 1998

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APPENDIX : MARKETING COMMUNICATIO N

Davidoff Assumed Smoker s

Based on their market communication, it appears that Davidoff appealsto the following consumer segments in the various regions :

ASIA

The assumed smokers are status and prestige orientated whodemonstrate their sophistication and success through their choice ofcigarettes. They are status and prestige-orientated, achievement-orientated, materialistic, extrovert and business-minded .

On one hand successful and upwardly mobile individuals, on the otherhand people who want to give that impression . They are successful, orpretend to be, and demonstrate this through their choice of brand .Everything European is considered especially valuable and desirable .

EUROPE

The assumed smokers are ambitious consumers who want todemonstrate success and "savoir-vivre" in their respective social circles byusing status-orientated products with a degree of subtlety . They are

likely to be status-orientated and love prestige products so underliningtheir cultural/social superiority . This group of smokers tend to be

conservative, extrovert, status affinity and materialistic .

EASTERN EUROP E

The assumed smokers are status and prestige orientated smokers whodemonstrate personal success through their choice of cigarette . They areprestige-orientated, success minded, extroverted, materialistic, efficient(smart) in business .Upwardly mobile, having quickly adapted to the western economicsystem . They have high to average income and lead extrovert, self-confident lives .


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NEW CAMPAGNE COPY IN 1998/ 9

The main campaign copy "the more you know" was introduced in 1998worldwide .

This new branding devise was a prominent cigarette placement in all theheadlines .

This thematic campaign displays a close up of male faces (25+)sometimes at a smoking moment . It features an open pack with thecigarette shown with variations . The mainstream variant is always thepack shown on display . The brand image projected is modern,individualistic feel, sophisticated and knowledgeable .

Proposition :"Those who know choose Davidoff, as it's the most exclusive cigarette" .

Campaign copy "the more you know"


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PRINT & DUTY FRE E

ObjectiveTo support/bust sales, ties in with premium quality & international imagein global duty free channel, positions it as most exclusive & prestigioustobacco brand .

Print Ads with thematic advertising to support and build brand image areplaced in all In-flight and Duty Free shopping guides through out theyear .

Eastern Duty Free Shopping Guide '98HONG KON G


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ADVERTORIAL ADVERTISING

In Hong Kong, advertorial advertising was used to create a liaison

between the brand world and its consumer lifestyle . Articles detailing

the typical lifestyle of a Davidoff smoker were printed in local magazines .

All of the restaurants and bars mentioned in the articles are part of theDavidoff Connection group, which provides discounts for Davidoff

Connection smokers .

The objective is to increase relevance and appeal of the brand amongstthe target group. The brand world depicts high living and yuppie styleafterwork leisure moments .

"The Modern Way to Enjoy Life "

SMOKING g:U0,1SYOUIRSEI .F -1NI OTH1.RS A

"The Choice for a Relaxing Weekend", HONG KON G


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BTL: DAVIDOFF CIGAR AND MERCHANDISE SHOP S

Davidoff shops are the specialist shops that sell cigars and cigarettes .They provide premium pricing opportunity for the Davidoff cigarettevariants . They are located across the world in Asia, Europe, Duty Freeand America .

These shops facilitate opportunities for building the relevant brand worldand reinforce brand heritage . An image of stature, prestige andexclusivity is communicated to consumers . By selling cigarettes in thecigar shops, it also creates an opportunity for alibi advertising .

DAVIDOFF BRANDED SHOP S


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NEW BRAND LAUNCH: ZINO

In Germany, a Davidoff line extension (sun cured tobacco, 0.9mg ofnicotine) named Zino Davidoff was launched in October `98

Proposition : "For people where sense and pride belong to the dailybusiness. For people who dream of this world and attracted by it . "

The pack features bold Zino branding with traditional Davidoff signature .The assumed target consumers are ASU30, male and female, upper tomiddle class and well educated . Their aim is to succeed in life and enjoyits pleasures . These smokers have assumed sophisticated taste and aspireto luxury goods and leisure

ZINO ADVERTISING IN GERMANY 199 8


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SUMMARY ON MARKETING COMMUNICATION

Davidoff's marketing communication has successfully portrayed thebrand's premium positioning . It is consistent and provides synergeticcommunication of brand imagery "through-the-line" .

Its promotional strategy is focused at target consumers, whilst thepremiums and give-aways are of premium quality .

Sponsorship activities aimed to reinforce brand's premium positioningvia high quality music, fashion and sports events .

The successful use of TMD in dark market environment to support brandpositioning with Davidoff coffee and Cool Water fragrance has enabledbrand communication despite the advertising restrictions imposed by keymarkets such as Germany and Taiwan .

The launch of "feeder brand", Davidoff Zino, was launched on the backof the "Cool Water" success targeting at younger consumers . It has

created a cross generation bridge for the brand . On the one hand, the

Davidoff parent's thematic portrays a Sean Connery style sophisticatedand knowledgeable image ; whilst the Zino thematic depicts a Joseph

Finnes' style, young and passionate. With both brands sharing the

common name of Davidoff, this creates a liaison for the two brandsdespite the different target consumers .


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ORACLE

APPENDIX 1 1

KEY DAVIDOFF VARIANTS


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bat davidoff strategic brand review 1992-1998

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