[Intl-tobacco] Brand Stretching (fwd)

[Robert Weissman]

Financial Times - Tuesday, March 7, 2000

Brands set to light up tobacco company sales

Cigarette brands end up on the strangest things: there is Camel clothing,
Dunhill eau de toilette and a Benson & Hedges caf=E9. But would anyone want
to stay in a Marlboro hotel, even if it did offer non-smoking rooms?

Ever since the health risks of smoking became known and cigarette sales
started to slow, tobacco companies have had to face the inevitability of
long-term decline for their brands.

An early response was diversification into other business areas. In the
US, Philip Morris bought Miller Brewing in 1970, then added General Foods
in 1985 and Kraft in 1988. RJ Reynolds bought Nabisco Foods in 1984,
forming RJR Nabisco.

But would it make sense for tobacco companies to try another form of
diversification: prolonging the life of their brands by extending them
into other business areas, such as hotels, mobile telephones or
publishing?

Yesterday, Philip Morris said there was no substance to the suggestion it
was considering the possibility of extending its Marlboro brand to hotel
chains, mobile telephone companies or other enterprises.

The company said its only contact with the UK branding consultancy C Eye,
reported to have been discussing the idea with staff of Philip Morris's
European headquarters, had been limited to one presentation "relating to
the sale and distribution of our products".

In other sectors, however, brand stretching is quite the fashion as
companies turn from sweating their physical assets to sweating the value
locked up in the famous names they own.

Companies as diverse as Coca-Cola, Harley Davidson and Caterpillar have
gone into the clothing business; Richard Branson has stretched his Virgin
brand across an airline, a rail franchise, cosmetics, cinemas, financial
services and mobile telephones; and Walt Disney has spread from cartoon
films to publishing, theme parks, hotels and cruises.

But branding experts caution that there are dangers in stretching a brand
if it muddies the image of what the name stands for.

Mr Branson can extend his brand because Virgin stands for his renegade,
"we're-on-your-side" approach rather than a specific product or service.
And Disney's operations are united by the idea of family entertainment.

Clothing is a fairly common brand extension because it allows the
product's fans to wear the brand, in much the same way as people buy
souvenir T-shirts. So Philip Morris's Marlboro and RJR's Camel brands both
appear on clothing - although no longer in the US, where such merchandise
is banned.

Whether cigarette brands would stretch beyond clothing is less clear. As
Martin Feldman, an analyst at Salomon Smith Barney, points out, extending
cigarette brands to any products would be difficult in the current
regulatory environment. Nor are the precedents very inspiring. The Dunhill
brand was extended from luxury goods to cigarettes, not the other way
around. And the B&H Bistros in Malaysia were more a way of circumventing
an advertising ban than a genuine business enterprise.

Interbrand, the branding consultancy that last year valued the Marlboro
name at $21bn, said Marlboro stood for the frontier spirit of the American
west, and there would be dangers in extending the brand to anything
unrelated to the idea of adventure.

"The moment a brand starts confusing its audience with what it stands for,
people lose interest and move on to another brand," said John Grace,
executive director.

"In other words, if they used it to sell riding equipment, saddles and
lassoes, then fine. But if they used it to sell diapers, you'd say that
doesn't have anything to do with the Marlboro name."