Dynamic Marketing Communiqué

“For ADULTS ONLY.” – Find out how this company responsibly leads the transition to a non-combustible future! [Monday: Marketing Marvels]

July 19, 2021

The tobacco industry is seeing a shift in adult smokers’ preferences.

With these changes, cigarette companies are finding ways to appeal to their customers through innovative product offerings.

Some of these offerings?

Different types of cigarettes such as smokeless tobacco, e-cigarettes, cigars, etc.!

However…

It’s not enough that these corporations simply innovate and market their products to the public.

Since cigarettes are NOT for all customer segments, especially minors, businesses are expected to innovate and market these products RESPONSIBLY.

Let’s see how this company incorporates responsibility into its marketing strategies to limit its reach to an intended audience only.

Altria Group, Inc. is an American corporation known as one of the world’s largest producers and marketers of tobacco, cigarettes, and other related products.

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As the parent company of Philip Morris, John Middleton, Inc., US Smokeless Tobacco Company, Inc., and Chateau Ste. Michelle Wine Estates, Altria aspires to be a world leader in “authorized non-combustible, reduced-risk products.”

One of the ways the company works to achieve that goal?

Taking a portfolio approach in 2018 and focusing on the most promising platforms for adult tobacco consumers: Smokeless Tobacco, E-vapor, and Heated Tobacco!

These are the main product segments under Altria’s portfolio strategy:

  1. Cigarettes

    Altria markets its cigarette products through various digital tactics.

    For example:

    In 2018, the company launched a redesigned Marlboro.com website, which had updated digital tools and are more mobile-friendly.

    The website also contained a rewards program for Marlboro users. By scanning unique QR codes printed on cigarette packs, adult smokers aged 21 and above could earn points and get rewards from Altria and Philip Morris (the company that manufactures the Marlboro brand).

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    These rewards include different items like gears, coupons, and charitable donations!

  2. Cigars

    According to Altria’s former Chairman and CEO, Howard Willard, the company was pleased with the performance of John Middleton, Inc. in terms of manufacturing and marketing cigars.

    Why was that so?

    It’s because the subsidiary company’s dominant cigar brand, Black & Mild, grew in volume by nearly 11% in 2018!

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    Thanks to John Middleton’s broadened distribution and communications strategy through an expanded “Taste and Aroma” campaign, the company was able to raise consumers’ awareness about the brand!

  3. Smokeless Tobacco

    In this category, Altria’s subsidiary, the US Smokeless Tobacco Company (USSTC), took the lead.

    Since many adult smokers are increasingly shifting to “smokeless smoking,” USSTC positioned its smokeless tobacco brands as “moist and safe” to consume compared to other products.

    [Smokeless Tobacco: A tobacco that is consumed by chewing, sniffing, or placing the product between the gum and cheek or lip.]

    These brands include Copenhagen, Skoal, Red Seal, and Verve.

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    USSTC markets these products through its website, where consumers can also read about the company’s vision and mission, the ingredients used to make smokeless tobacco, and the benefits of consuming this type of product instead of the traditional cigarette.

  4. Electronic Vaping

    In 2018, Altria purchased a 35% share of the e-cigarette manufacturer JUUL Labs.

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    That time, Altria’s former CEO Willard said,

    “We are taking significant action to prepare for a future where adult smokers overwhelmingly choose non-combustible products over cigarettes by investing $12.8 billion in JUUL, a world leader in switching adult smokers.”

    Working with JUUL enabled Altria to manufacture its own electronic vaping cigarettes and grow its customer base as more adult smokers bought these products!

While it’s true that Altria’s subsidiaries make some of the most iconic tobacco products, the company assures that it incorporates responsibility in all its marketing strategies.

This was the main focus of the “Marketing Responsibly” strategy, which the company boosted in 2019―at a time when more innovative cigarette products were being sold in the market!

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The approach was guided by Altria’s vision to responsibly lead the transition of adult smokers to a “non-combustible future.”

For the company, “responsibly leading” in the tobacco industry meant limiting reach, access, and appeal to unintended audiences, especially youths and adults who don’t smoke.

How does Altria do that?

One way is by limiting the reach of its brands’ websites to communicate only with adult tobacco users.

To gain access to the brands’ websites, Altria requires online visitors to confirm that they are adults and that they meet the minimum age requirement.

In terms of media advertising, Altria only limits its ads to newspapers, magazines, and other publications that meet the criteria of an “adult publication” under the Food and Drug Administration’s (FDA) definition.

Under this definition, an adult publication is one:

  • Whose readers younger than 18 years old make up only 15% or less of the total readership as measured by competent and reliable surveys.
  • That is read by fewer than 2 million people younger than 18 years old as measured by competent and reliable surveys.

Let’s move to social media advertising.

Nowadays, this digital platform is a powerful marketing tool for companies to stay connected with their customers.

… but that’s not the case for Altria!

In fact, most of the company’s brands and subsidiaries do not use social media to market or display any tobacco products and other brand imagery to prevent reaching unintended audiences.

Altria’s marketing practices include:

  • Connecting with adult tobacco consumers through direct mail and websites.
  • Supporting product launches in “adult only” facilities.
  • Working with retailers to merchandise tobacco products responsibly.
  • Denying requests to use Altria brands in movies, video games, and other entertainment media.

According to Altria’s current CEO Billy Gifford, the company will continue to be guided by its responsible marketing practices even as they innovate products to meet adult customers’ changing demands and preferences.

In Gifford’s words,

“Despite new products and marketing plans, responsibility is always crucial.”

In the past five years, Altria Group, Inc. has recorded revenues of:

  • USD 19.3 billion in 2016
  • USD 19.5 billion in 2017
  • USD 19.6 billion in 2018
  • USD 19.8 billion in 2019
  • USD 20.8 billion in 2020

Based on these numbers, we can see that the company’s portfolio approach in 2018 and the emphasis on the “Marketing Responsibly” strategy in 2019 contributed to Altria’s higher revenues during those years.

Altria Group, Inc.’s Earning Power: Valens Research vs. As-reported numbers

Altria Group, Inc. (MO:USA) makes for a great case study that we come back to regularly. One great reason?

The company has proven itself to be a better earning power generator than investors might think.

So, how well has MO been growing its business in the past years?

The research doesn’t lie—nor do the results. Earning power (the blue bars) continues to show results higher on average than what traditional databases show.

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The blue bars in the chart above represent MO’s earning power (Uniform Return On Assets). MO has seen generally robust and improving profitability. From 2005 to 2012, Uniform ROA steadily rose from 31% to 121%, before declining to 92% in 2014 and subsequently expanding to a peak of 292% in 2020.

The global ROA is just 6%.

The orange bars are the company’s as-reported financial information. If you relied on these numbers, you will see a company with terribly understated profitability. As-reported ROA (return on assets, a measure of earning power) only ranged from 8% to 16% in the past sixteen years. Its as-reported ROA in 2020 was only at 15%, which is 19 times lower than its Uniform ROA in 2020.

That’s what you’ll see in Yahoo Finance, Google Finance, and most other databases.

The company’s stock price also performed better than the rest of the stock market over the decade, which we can see in the blue line in the chart below. Its returns have been well above the market.

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The numbers show that MO has been doing well and making a profit.

The tobacco industry, at least in Altria’s case, is changing… and for the better.

With responsible marketing strategies in place, the company is working towards a future that involves innovation, harm reduction, and informed consumer choice.

One of Altria’s goals?

Responsibly leading the way in transitioning adult smokers to potentially less harmful choices through 2030.

… and in doing that, growing the company’s customer base and increasing income streams for its iconic tobacco brands!

About The Dynamic Marketing Communiqué’s
“Monday Marketing Marvels”

Too often, industry experts and the marketing press sing the praises of some company’s marketing strategy.

…Only for the audience to later find out that their product was a flop, or worse, that the company went bankrupt.

The true ROI in marketing can’t be separated from the business as a whole.

What good is a marketing case study if one can’t prove that the company’s efforts actually paid off?

At the end of the day, either the entire business is successful or it isn’t. And the role of marketing is always paramount to that success.

Every Monday, we publish a case study that highlights the world’s greatest marketing strategies.

However, the difference between our case studies and the numerous ones out there, is that we will always make certain that the firm really did generate and demonstrate earning power worthy of study in the first place (compliments of Valens Research’s finance group).

By looking at the true earnings of a company, we can now rely on those successful businesses to get tips and insights on what they did right.

We’ll also study the greatest marketing fails and analyze what they did wrong, or what they needed to improve on. We all make our mistakes, but better we learn from others’ mistakes—and earlier, rather than later.

Hope you found this week’s marketing marvel interesting and helpful.

Stay tuned for next week’s Monday Marketing Marvels!

Cheers,

Kyle Yu
Head of Marketing
Valens Dynamic Marketing Capabilities
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