DAVIDOFF STRATEGIC BRAND REVIEW

WITH A FOCUS ON THE PREMIUM SEGMENT GROWT H

Executive Summary
1 . Introductio n

II . Performance Overvie w Global Super Premium Segmen t

Global Premium Segment - Duty Free Market Regional Volume

Key Markets
Brand Health Indicators

Ill . Marketing Strategy New Brand Launch Launch Sequence

Hit and Run Case Analysi s IV. Marketing Mix Product Packaging Pricing Communication TMD, Sponsorship & Direct Mailin g

V. SWOT Analysi s VI . Scenarios & Strategic Implications for BAT VII . Conclusion s Appendix 1 . Key Marketing Communications II . Key Davidoff Variants

Contact: Rebecca Won g BAT Brand Performance Manager (EXT.1208)

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Executive Sumniair y
I Since 1994, REEMTSMA has continued to increase ATL spend at over 10% p .a . on Davidoff which has grown volume at 29% p .a . Davidoff's global sales of 8 bn sticks in 1998 represented 0 .15% of the international cigarette market and 34% share in the global super premium segment . Davidoff has established a unique selling proposition with a combination of luxury length, bevelled edge boxes and charcoal filter in japan . Davidoff was the first brand to launch bevelled edge boxes worldwide . I Key markets are currently Taiwan, China, Germany and Russia . We anticipate that the emerging markets will be Netherlands, Japan and Poland . In the last five years, Taiwan has demonstrated impressive growth rate of 35%, with sales increasing from 1 bn sticks in 1994 to 3 .3 bn sticks in 1998 . Germany has grown 35% whilst Netherlands and Russia grew at 40% and 135% respectively .

Strategically positioned in the super premium segment, Davidoff has maintained its pricing for all variants at over 10% above Marlboro . Positioning Magnum as the Image Leading Variant for new market entry, Davidoff has created its "above all else" super premium image . It provides a destination brand for uptrading from Davidoff Classic and Marlboro variants . I In the dark market environment Davidoff has invested in TMDs, Direct Mailing and BTL . Successful Davidoff TMDs such as Cool Water and Goodlife fragrances as well as Davidoff Coffee were developed to create alibi advertising opportunities for the brand . These have made ATL market communication possible even in dark markets such as Germany and Taiwan . The development of a showcase feeder brand - ZINO Davidoff, has indicated the brand's intent to attract ASU30 smokers . Rather than riding on existing brand imagery Zino imagery and packaging appear more ASU 30 oriented . In light of the rapid growth in the Global Super Premium Segment, it is anticipated that Davidoff's growth by year 2002 is likely to be focused on Europe and Asia . Davidoff will be a major competitor for SE555 International and Dunhill International in the future . It is crucial to understand its strategic direction in terms of brand portfolio, market entry strategy and communication platform exploitations in order to implement successful pre-emptive moves with BAT brands.

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I.

Intro tinctiO n

THE DAVIDOFF PORTRAIT CAMPAIG N

In light of the growth of Davidoff in the global premium segment over recent 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 has established a unique brand positioning world-wide . It is a cigar heritage brand priced in the super premium segment . With extensive exploitations of different marketing communication platforms, it depicts a brand world of sophistication, exclusiveness and luxurious . The claim of the brand is to offer connoisseurs supreme pleasure . Davidoff is a global rival to SE555 International and Dunhill International in the super premium segment . This brand may be a threat to SE555's positioning in Asia and Dunhill's in Europe . Its target market and consumer segments appear similar to SE555's and Dunhill's propositions .

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II . PERFORMANCE OVERVIE W

I GLOBAL SUPER PREMIUM SEGMENT I GLOBAL PREMIUM SEGMEN T - DUTY FREE MARKET I REGIONAL VOLUM E I KEY MARKET S I BRAND HEALTH INDICATOR S

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11 . GLOBAL SUPER PREMIUM SEGMEN T

GLOBAL SUPER PREMIUM SEGMENT BY BRAND 1994-9 8

94

95

96

97

98

- 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 in this segment between 1994 to 1998 . SE555 International grew from 1% share of segment in 1994 to 9% in 1998 at 3 bn sticks .

STRATEGIC IMPLICATIONS FOR REEMTSM A

REEMTSMA is likely to further exploit growth in the super premium segment by engineering new brand entries or introducing brand extensions in other super premium markets, e .g . Japan .

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II . GLOBAL SUPER PREMIUM SEGMEN T

DAVIDOFF PERFORMANCE INDICATORS 1994-9 8
-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

CAGR
29%

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

KEY FINDING S
I Since the mid 90s, Reemtsma has increased total spend on Davidoff in markets worldwide . Its ATL spend has increased at over 10% per annum, whilst the volume growth rate was 29% CAGR in the last five year period .
In 1998, Davidoff's share of REEMTSMA's total International Brand sales increased to 21 % . It is ranked second in REEMTSMA's brand portfolio after West . Unit sales of Davidoff decreased by 5 .6% in 1998 to 8 bn sticks despite volume growth in most regions . This reduction in volume was a result of the economic downturn in Russia . Sales in Russia was down by 80% in 1998 .

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

SUPER PREMIUM SEGMENT - SHARE BY BRAND 1994-98

MORE DUNHILL INT'L 555INT'L ROTHMANS 1NTL DAVIDOFF
Source : MR& I

94 33% 9% 1% 2% 9%

95 31% 9% 2% 2% 16%

96 30% 7% 4% 3% 20%

97 24% 9% 7% 3% 25%

98 23% 8%

9%
2% 24%

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II . GLOBAL PREMIUM SEGMENT DUTY FRE E

GLOBAL DUTY FREE MARKET 1994 -98 SHARE 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 Dunhill Int'l, 555 Int'l and Cartier. I In 1998, the primary source of Davidoff's Duty Free business was Europe, followed by Asia Pacific and Japan .

STRATEGY IMPLICATION FOR REEMTSM A

With 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 as Taiwan .

REGIONAL DUTY FREE MARKETS 1998 SHARE OF MAJOR PREMIUM BRAND S

Dunhill Intl

Davidoff Classic

Cartier

SE Intl

IF oArnesca DF oAsla Pacific OF O America Pacific DF Latin Arnerica D F

Source : MR&I

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11 . REGIONAL VOLUM E
DAVIDOFF VOLUME BY REGION 1992 - 9 8
100%

80 %

60 %

0%

20%

1992 1993 1994 1995 1996 1997 199 6 I AMESCA UASN PACFCaAM61cA PACFC/EUROP E

Source: MR& I

KEY FINDING S
I With the presence of Taiwan, Asia Pacific accounts for 78% of Davidoff`s total volume . The region has established a growth rate of 38% for Davidoff since 1992 . I The emerging region is Europe, driven by growth in Russia at over 100% 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 . I Rebound strategy for Russia Invest in Russia to regain brand volume when it re-emerges from the economic crisis .

DAVIDOFF VOLUME BY REGION 1992 - 9 8

SUMMARY AMESCA ASIA PACIFIC AMERICA PACIFIC EUROPE
TOTAL

1992 02 903 2 276

1,180

1993 18 1,624 1 298

1,941

1994 14 2,575 1 327

2,917

1995 13 4,650 12 803

5,477

1996 55 5,842 19 1,716

7,632

1997 97 5,833 30 2,602

8,562

1998 184 6,279 15 1,603

8,081

CAO R

60 % 38% 45 % 34%

Source : MR&I (Units in mn sticks)

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11 . KEY MARKETS ANALYSI S

VOLUME OF TOP FIVE DAVIDOFF MARKETS 1992 - 9 8

sticks (mn)
TAIWAN

1992
898 154 0

1993
1,105 161 490

1994
1,690 185 840

1995
3,178 247 1,435

1996
4,409 300 1,090

1997
4,698 442 700

1998
5,011 707 670

CAGR
33 % 29 %
6%

GERMANY CHINA I APN HONG KONG RUSSIA

TOP 5 MARKETS OF TOTAL Source: MR& I

5 0
90.0

4 0
910.0

5 10
94%

12 300
94!0

321 1,114
95%

397 1,823
94%

523 358
90 %

253%
145%

KEY FINDINGS
I 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 .1 market for Davidoff accounting for 62% of total global volume in 1998 . In the course of six years, Davidoff has emerged from a 0 .9 bn sticks brand to a 5 bn sticks brand . Rapid growth In Russia Russia has been the fastest growing market world-wide since 1995 . However, since the Russian economic crisis 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 in 1998. Volume in Hong Kong grew by 30% Volume in Hong Kong has increased by 30% between 97 and 98 as a result of Davidoff's in market Testimonial campaign launch and increased marketing expenditure .

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il . KEY MARKETS ANALYSI S

DAVIDOFF INTERNATIONAL SHARE OF GLOBAL MARKETS 199 8

Market share

1998
r _.

~' .. uEa"ON
-~ . ~ -

PACNE

K`oNC

.,,1.

CK~CE

NrTH RA N

1AFAN

Arai

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

KEY FINDINGS - 1998 Market Share vs Growth Rate

I Growing markets The fastest growing countries between 1994 and 1998 were Russia, China, Netherlands, Poland, Japan, Germany and Greece . Taiwan, the growing market Taiwan is the largest volume contributor, selling over 5 bn sticks in 1998, Davidoff has grown at 35% CAGR with market share increased from 2 .3% in 1994 to 7 .4% in 1998 .

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11 . KEY MARKETS ANALYSI S

DAVIDOFF INTERNATIONAL SHARE OF GLOBAL MARKETS 200 2

Market share

30 %

20 %

10%

o% L
-15%

#o%

60% "IT';
5 -year CAGR (1998 - 2002) >90%

All now markets In 1996 are projected at 30% CAG R

LOOKING TO THE YEAR 200 2

I 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 market share in Germany, which provides the brand and company with heritage associations . Belgium and Greece are likely to be the secondary markets for expansion in the European markets .

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11 . BRAND HEALTH INDICATOR S

BRAND HEALTH INDICATORS - DAVIDOFF VS MARLBOR O

SOM
TAIWAN 8%

DAVIDOF F SHARE OF LIGHTS 4%

0.7%

SOM
2%

MARLBORO SHARE OF LIGHTS

2%

GERMANY

0 .5%

CHINA HONG KONG RUSSIA

0 .0% 0 .2% 0 .2%

3% 18%

1%

34% 0% 59% 4%

48% 13% 61 % 29%

DAVIDOFF TAIWAN GERMANY CHINA RUSSIA

GENDER RATIO OF TOTAL SMOKERS MALE : FEMALE

GENDER RATIO O F DAVIDOFF SMOKERS MALE : FEMALE

SHARE OF ASU 30 29% 43% 0% 60%

DOMINANT AGE GROU P 30 - 44 ASU 30 ASU 30 ASU 30

100 : 0 50 : 49
95 : 5

73 : 27
019NDER RATIO O F TOTAL SMOKERS MALE : FEMALE

100 : 0 66 : 34 100 : 0 40 : 60
GENDER RATIO OF MARLBORO SMOKERS MALE : FEMALE

MARLBORO TAIWAN GERMANY

CHINA

SHARE OF ASU 30
52%

DOMINANT AGE GROUP ASU 3 0 ASU3 0

30 .44

100 : 0 5049 95 : 5 73 : 27

100 : 0 54 :46 95 : 5 56 : 44

41%
49% 54%

RUSSIA
SOURCE: GCS 1997 - 99

ASU 30

KEY FINDING S
I Davidoff, though not positioned as a lights brand, has achieved relatively higher lights share vs market share in all markets except Taiwan .

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

I Main switching in and switching out are both to and from Marlboro FF and Marlboro Lights .

STRATEGY IMPLICATIONS FOR REEMTSM A

I Target ASU30 In Japan Target to increase share of ASU 30 in Taiwa n to match the profile of Marlboro smokers in preparation fo r uptrading . Target female segment in Russia Davidoff should ride on its competitive advantage in Russia and focus on growth in the female segment.

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III . MARKETING STRATEG Y

I NEW BRAND LAUNCH I LAUNCH SEQUENC E HIT AND RUN ANALYSI S

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III . MARKETING STRATEGY - NEW BRAND LAUNC H

NEW BRAND LAUNCHES 199 8
REGION AMESCA AMESCA AMESCA AMESCA ASIA PACIFIC TERRITORY DUBAI ABU DHABI OMAN BAHRAIN CHINA dom 1998 (O00 11,93 2 7,93 0 1 .908 1,142 44,104

EUROPE

BULGARIA SLOVENIA LATVIA ESTONIA MACEDONIA CANARY IS U .K .

31,000 14,20 9 11,20 0 5 .800 5,34 9 4 .61 0 1,900

EUROPE
EUROPE FUR )PP
EIJR')PE

EUROPE EUROPE

Source : MR& I

KEY FINDING S
I 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 the second 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 strategy employed by Davidoff to obtain sales quota from the CNTC .

STRATEGY IMPLICATION FOR BA T

I 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 to expand in the CIS markets in Europe . BAT should consider seeding these markets with a super premium variant and secure a first mover advantage ahead of REEMTSMA .

After Taiwan, China is the key priority for REEMTSMA in the Asia region . It is anticipated that further investment will be placed in the Chinese market to secure the super premium price positioning of the brand as the market is going dark . BAT should consider investing in a super premium variant to pre-empt further investment by REEMTSMA .

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III . MARKETING STRATEGY - LAUNCH SEQUENC E

LAUNCH SEQUENCE
MILD F&L F&L MAGNUM MIL D

LTS SLI M LTS MENTHOL SUPREME SUPREME LIGHTS LIGHT S

ULTRA LTS KING CLASSIC MAGNU M FIRST SECON D THIRD FOURT H

Source : MR6zI

KEY FINDIN G
I 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 below Davidoff MAGNUM .

The third wave of brand launch often includes LIGHTS SLIM and / or CLASSIC 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 MENTHOL have also been launched in this wave .

STRATEGY IMPLICATIONS FOR REEMTSM A

Continue to position Davidoff MAGNUM as the premium price destination brand and utilise this feeder strategy for future new market entries .

STRATEGY IMPLICATIONS FOR BA T

Consider positioning a super premium price destination brand to promote a line extension feeder strategy . This might be particularly useful for dark market entries to the super premium and premium segments .

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III . MARKETING STRATEGY - HIT AND RUN CASE S

DAVIDOFF VARIANTS DELISTED BY MARKE T

COUNTRY Y RS VARIAN T

CANARY IS .
LUXEMBERG GREECE
Source: MR& I

86-93
88-95 86-94

KIN G
KIN G MAGNU M

KEY FINDINGS
There were not many markets where Davidoff was launched and withdrawn . The only three cases in the last 20 years were Davidoff KING in Canary Island and Luxembourg and MAGNUM in Greece .
This does not indicate a history of Hit and Run practice for the brand .

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IV . MARKETING MI X

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

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IV . MARKETING MIX -

PRODUCT

DAVIDOFF VARIANT BY TAR AND NI C

MG
DAVIDOFF DAVIDOFF CLASSIC DAVIDOFF CLASSIC SLIM DAVIDOFF F & L DAVIDOFF LIGHTS DAVIDOFF LIGHTS SLIM DAVIDOFF MAGNUM DAVIDOFF MAGNUM MILD DAVIDOFF MILD DAVIDOFF SUPREME DAVIDOFF ULTRA LIGHTS Source: MR&I TA R NI C

12-15 12-14 10 - 1 2 7 6-9 6- 8 12-15 8 7-1 2 12 1-3

0 .9-1 .2 0 .8-1 . 2 0 .8 0 .6 0.5 - 0. 8 0 .6 0.8-1 .2 07 0 .6 0 .9 0 .1-0 . 6

KEY FINDING S
I The Davidoff Classic and Magnum are both full flavour variants at 1215 mg tar level .
I 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 in Abu Dhabi, Bahrain, Dubai, Japan, Kuwait, Oman, Qatar and Saudi Arabia .

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

STRATEGY IMPLICATIONS FOR REEMTSM A

Launch low tar variants to exploit growth in the ultra lights segment . A SUMMARY OF ALL PRODUCT BY TAR LEVELS
Product ,ittributcs - Tar Level s

Source : MRSH

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IV . MARKETING MIX - PRODUC T

PRODUCT LENGTH OF DAVIDOFF VARIANTS
LENGTH mm % PROMINENT MARKET
93% 6% 1%

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

Source: MR&I

Asia Europe Austri a

KEY FINDINGS
I 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 . I Mostly consumed in Europe, 6% of the Davidoff variants are of King size 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 A

REEMTSMA is likely to standardise the product length of all Classic and Lights variants . Small scale product launches are anticipated in markets such as Austria, France, Greece, Italy, Netherlands, UK, Lebanon, Slovenia and Macedonia . Taiwan is likely to continue to be the testing ground for future new variants . AVAILABILITY OF CHARCOAL FILTER BY COUNTR Y
CLASSIC JAPAN HONG KONG GERMANY TAIWAN TURKEY CENTRAL ASIA
ource :

LIGHTS Y N N N N N

MAGNUM N N N N N N

ULTRA LIGHT Y N N N N N

Y N N N N N

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IV . MARKETING MIX - VARIANT S

VOLUME DISTRIBUTION BY VARIAN T

9000 8000 7000
2

6000 5000 400 0 -

J 0

3000 2000 100 0

0 1988 1989 19)0 1991 1992 1999 199 0

I MING SIZE p CLASSIC p CLASSIC SLIM K FOL K LTS SLIM 0 NAG I MAG MILD

1995

1996 1997 199 8

6 TS M LTS MT M I U/LTS

K MI L D C SUPREME

Source : MR& 1

KEY FINDING S
I Found in 28 markets, the most popular variant is Classic ; followed by Lights in 27 markets and Magnum in 23 markets . The main driver of volume growth in the 1990s was Davidoff Classic .

Davidoff King has been diminishing in total house share since early 1990s.

STRATEGY IMPLICATION FOR REEMTSM A

Increase 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 : .

.IAD,UMA -

117-1

'LDSSIU 9iiM -

K1 & 31 ze

0 5 10 Source: MR&I

15 20 25

N. of :0 35 markets

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IV . MARKETING MIX - PRICIN G

MARLBORO PRICE INDEX BY COUNTRY 199 8

TAIWA N DAVIDOFF MAGNUM DAVIDOFF CLASSIC DAVIDOFF LIGHTS 555 INT'L DUNHILL INT'L 140 136 126 112 107 CHIN A 133 NA NA 133 131 HONG KON G 179 NA 104 156 125 RUSSIA 150 11 4 NA NA NA

Source : MR& I

KEY FINDING S
I 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 . I The pricing of Davidoff Magnum is superior to both 555 International and Dunhill International in all Davidoff key markets in 1999 .

STRATEGY IMPLICATION FOR REEMTSM A

Maintain price positioning at super premium to project an image leading variant .

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IV . MARKETING MIX - COMMUNICATIO N

GLOBAL ATL SPEN D

KEY FINDING S
I 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 absolute terms but the increment of West has outweighed Davidoff in terms of portfolio weighting .

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IV . MARKETING MIX - COMMUNICATIO N

DAVIDOFF ATL SPEND BY MEDIA TYPE COUNTRY COMPARISO N

NEWSPAPER MAGAZINE 1V OLIDOO R

Source MR& I

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

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

4. TV

(3% )

STRATEGY IMPLICATION FOR REEMTSM A

If the launch of Davidoff Coffee in Taiwan is successful, a similar TMD strategy can be rolled out to other Dark markets such as China, Netherlands and the Ukraine to gain ATL exposure .

STRATEGY IMPLICATION FOR BA T

If the launch of Davidoff TMD is successful in Asia Pacific, it will raise Davidoff's share of voice significantly in these markets . Arguably BAT should speed up its development of TMDs for the super premium brands such as 5E555 and Dunhill Internationals .

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IV . MARKETING MIX - COMMUNICATIO N

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 some variation on "Heritage" and "The Connoisseur Experience", with an emphasis on philosophical and premium quality aspiration cues . Davidoff projects sophisticated, successful and prestigious imagery . The communication fits well with Davidoff's pricing and upscale image .

Brand Offer: The claim of the brand is offer connoisseurs supreme pleasure .
The Davidoff Brand Wheel was developed by BATES to represent the brand essence, personality, values, benefit and attributes .

DAVIDOFF BRAND WHEE L

Cosmopolitan, Smooth American Taste, 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, Urban e Man of the world, Mature, Charismatic, Informed, Accomplished, Experience d

Marketing Information

Demonstration of connoisseurship and celebrated success in life.

Source : BATES London (1999)

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IV . MARKETING MIX - COMMUNICATIO N

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 tobacco advertising restrictions in dark market environments .

TMD - Coffe e
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- Genter Hertz .

DAVIDOFF COFFE E

CAKE.

11NF. ?I Lit'Jt:SS

4"W--'--- -MEOW

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IV . MARKETING MIX - COMMUNICATIO N

TMD - Fragrance
Copy: "Dedicated to Passion "
The Davidoff Cool Water fragrance for man and woman were distributed globally to provide brand name support through alibi advertising . 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/female faces . All imageries are outdoor with sea/water, sky (refreshing colour cues) . All ads include the Davidoff signature which demonstrates the branding .

DAVIDOFF COLOGNE FOR MA N

DAVIDOFF PERFUME FOR WOMAN

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IV . MARKETING MIX - COMMUNICATIO N

TM D - Fragrance
Copy: "The new fragrance for men " The Davidoff Goodlife cologne for man was another fragrance launched in 1999 to provide brand name support through alibi advertising . The assumed target consumers are similar to those of Cool Water with lesser 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 . All ads include the Davidoff signature with the brand name Goodlife.

DAVIDOFF GOODLIFE FRAGRANC E

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IV . MARKETING MIX - COMMUNICATIO N

DIRECT MAILIN G

II. DAVIDOFF CONNECTIO N A direct marketing scheme named Davidoff Connection was established in Hong Kong in 1998 . Once becoming a member of the Davidoff Connection scheme, members can enjoy discount opportunities with golf resorts, classical concerts, Davidoff merchandising as well as the purchase of cigarettes with gifts . A new brand identifier for the dark market is developed - "D" .
Objective : Effective reach of targeted consumers, database building exercise reinforcement of exclusivity & prestige, stimulation of purchase & trial .

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

DARK MARKET IDENTIFIE R

Please refer to Appendix for more information on market communication .

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SWOT ANALYSI S

After two rounds of strategic information review sessions with members of the IBG and global research team, a SWOT analysis was conducted to assess the strategic positioning of the brand Davidoff .

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SWOT ANALYSIS - FROM DAVIDOFF'S PERSPECTIV E

STRENGTHS f Focused super premium price strategy across countries gives Davidof
a high net contribution . Magnum, the leading image variant at above super premium price positioning, has been the new market entry variant in most of Davidoff's new launches . I Strong cigar heritage, luxury length, premium quality product and bevelled edge packaging denote premium and unique values to create a 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 . I Established dark market identifier - "D" .

WEAKNESSE S
Volume dependent on two countries - Taiwan, Germany . Low level of combined volume . Unfocused variant and line extensions . I The expansion of WEST has reduced available resources on Davidoff.

OPPORTUNIES I 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 compete reduces. Constraint by financial resources for market expansion .

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SCENARIOS AND STRATEGIC IMPLICATION S

After two rounds of strategic information review sessions with members of the 1BG and global research team, two potential future scenarios projected over the next 10 years were developed . The purpose of these competitive scenarios is to stimulate thoughts and contribute to our current strategies in the super premium segment .

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SCENARIOS AND STRATEGIC IMPLICATIONS : 2000 TO 201 0

SCENARIO

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

GO MAINSTREA M

GROW MAINSTREAM MARKE T

IN PREMIUM / HIGH PRICE SEGMEN T

BRAND STRATEGY

2) INVEST IN A FEEDER BRAND - ZINO

3) DEVELOP TMD - CIGAR BARS ,

CLOTHING LINE, MIX YOUR OW N TOBACCO SHOPS .

CHANNEL STRATEGY

DAVIDOFF CIGAR OUTLETS,

CONENIENCE STORE ,

REDEFINE EXPORT STRATEGY

1) EXTEND TO OTHER LUXURY GOODS

EXPOR T

MARKET

GROWTH MARKETS
2) GROWTH MARKETS CHINA, JAPAN, RUSSIA,NETHERLANDS,POLAND, GREECE

CONSOLIDATE ON HIG H

CONTRIBUTION MAREKT S, E . G . GERMAN Y

1) FOCUS ON ASU 3 0

TAR(,E1 CONSUMER

2) TARGET FEMALE WITH LIGHTS St MENTHOL VARIANTS

ASU 3 0

CORPORATE STRATEGY

1) REEMTSMA INCREASE SUPPORT EXPENDITURE FOR DAVIDOFF

1) DAVIDOFF WITHDRAWS LICENS E FROM REEMTSM A 2) REEMTSMA CUT SUPPORT EXPENDITURE TO INVEST IN WES T 3) ITI ACQUIRES REEMTSM A 1) GLOBAL DECLINE IN SUPER PREMIU M SEGMENT DUE TO WORLD ECONOMI C DECLIN E

EXTERNAL ENVIRONMENT

CONTINOUSLY RISING SUPER PREMIUM SEGMENT

2) TAIWAN SUFFERS ECONOMI C DOWNTUR N

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SCENARIOS AND STRATEGIC IMPLICATIONS : 2000 TO 201 0

CONCLUSIONS
I Defend Future growth markets The future growth markets of Davidoff are likely to be Taiwan and China in the Asia Pacific Region and Germany, Netherlands and Russia in the European region .

Investigate the price repositioning of SE555 International and Dunhill 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 super premium brands' pricing at parity or above Davidoff Magnum to project a super premium image .

Explore new channels for distribution for the Super Premium Brand Davidoff will continue to exploit established cigar outlets for both product display and distribution . This facilitates the perception of a super premium image .

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

Defend the premium/ high price segment brands Global economic decline would lead to downtrading from Davidoff and Marlboro worldwide . It is necessary to defend BAT variants at premium / high price segments should Davidoff pursue direct investment 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 premium segment . BAT need to seed and grow the super premium market in Asia to anticipate Davidoff's expansion .

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APPENDIX

KEY MARKET COMMUNICATION S

This section was part of a Communication Review conducted in conjunction 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 appeals to the following consumer segments in the various regions :

ASI A

The assumed smokers are status and prestige orientated who demonstrate their sophistication and success through their choice of cigarettes . They are status and prestige-orientated, achievementorientated, materialistic, extrovert and business-minded . On one hand successful and upwardly mobile individuals, on the other hand people who want to give that impression . They are successful, or pretend to be, and demonstrate this through their choice of brand . Everything European is considered especially valuable and desirable .

EUROP E The assumed smokers are ambitious consumers who want to demonstrate success and "savoir-vivre" in their respective social circles by using status-orientated products with a degree of subtlety . They are likely to be status-orientated and love prestige products so underlining their 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 who demonstrate personal success through their choice of cigarette . They are prestige-orientated, success minded, extroverted, materialistic, efficient (smart) in business . Upwardly mobile, having quickly adapted to the western economic system . They have high to average income and lead extrovert, selfconfident lives .

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APPENDIX : MARKETING COMMUNICATIO N

NEW CAMPAGNE COPY IN 1998/ 9 The main campaign copy "the more you know" was introduced in 1998 worldwide . This new branding devise was a prominent cigarette placement in all the headlines . This thematic campaign displays a close up of male faces (25+) sometimes at a smoking moment . It features an open pack with the cigarette shown with variations . The mainstream variant is always the pack 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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APPENDIX : MARKETING COMMUNICATIO N

PRINT & DUTY FRE E

Objective To support/bust sales, ties in with premium quality & international image in global duty free channel, positions it as most exclusive & prestigious tobacco brand . Print Ads with thematic advertising to support and build brand image are placed in all In-flight and Duty Free shopping guides through out the year .

Eastern Duty Free Shopping Guide '98 HONG 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 the Davidoff Connection group, which provides discounts for Davidoff Connection smokers . The objective is to increase relevance and appeal of the brand amongst the target group . The brand world depicts high living and yuppie style afterwork leisure moments .

"The Modern Way to Enjoy Life "

SMOKING g :U0,1S YOUIRSEI .F -1NI OTH1.RS

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

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APPENDIX : MARKETING COMMUNICATIO N

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 cigarette variants . They are located across the world in Asia, Europe, Duty Free and America .

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

DAVIDOFF BRANDED SHOP S

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APPENDIX : MARKETING COMMUNICATIO N

NEW BRAND LAUNCH : ZIN O In Germany, a Davidoff line extension (sun cured tobacco, 0 .9mg of nicotine) named Zino Davidoff was launched in October `9 8

Proposition : "For people where sense and pride belong to the daily business . 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 to middle class and well educated . Their aim is to succeed in life and enjoy its pleasures . These smokers have assumed sophisticated taste and aspire to luxury goods and leisur e

ZINO ADVERTISING IN GERMANY 199 8

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APPENDIX : MARKETING COMMUNICATIO N

SUMMARY ON MARKETING COMMUNICATIO N

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

Its promotional strategy is focused at target consumers, whilst the premiums and give-aways are of premium quality . Sponsorship activities aimed to reinforce brand's premium positioning via high quality music, fashion and sports events .

The successful use of TMD in dark market environment to support brand positioning with Davidoff coffee and Cool Water fragrance has enabled brand communication despite the advertising restrictions imposed by key markets such as Germany and Taiwan .

The launch of "feeder brand", Davidoff Zino, was launched on the back of 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 sophisticated and 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 brands despite the different target consumers .

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APPENDIX 1 1

KEY DAVIDOFF VARIANTS

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