AGENDA: BAT’s quest for a winning strategy - BSkyB’s bid for Man United has focused attention on sport’s role as a marketing tool. Danny Rogers looks at the progress of another landmark deal - British American Tobacco’s mov

Next year will be a critical one for British American Tobacco.

Next year will be a critical one for British American Tobacco.

Last week the UK-based firm split from BAT industries’ financial

services arm in one of the UK’s most important demergers of recent


Just before the separation, chief executive Martin Broughton gave a

rousing speech in which he claimed BAT, now purely a cigarette marketer

once more, would focus on ’regaining the world leadership in


To achieve such pre-eminence BAT will have to overtake Philip Morris and

RJ Reynolds with their respective mega-brands Marlboro and Camel.

Although BAT has the world’s biggest portfolio of cigarette names -

around 250 - the brands themselves tend to be regional rather than


Its strongest contenders on the world stage are State Express 555, a

Virginia tobacco cigarette that is popular in Asia, and Lucky Strike, a

US blend which is big in Latin America, the US and parts of Europe.

Despite Broughton’s new-found marketing aggression, the means of

building these brands are decreasing.

At the end of last year the European Union finally committed itself to

banning all forms of tobacco promotion. The US promotional market is

similarly ’dark’ and other parts of the world are following suit.

Sports sponsorship, tobacco marketers’ natural home, remains their

greatest hope.

Last year BAT took a fundamental marketing decision. It began pulling

out of all of its various worldwide sponsorships - including 555’s

backing of world rallying and powerboats, and Lucky Strike’s support of

motorcycle racing - to throw its resources into the glamour of Formula


To some extent this was Hobson’s choice as Formula 1 is the only global

sport still open to tobacco sponsors, at least for the next eight


But what made the move so intriguing was that unlike its six competitors

in Formula 1 - from Philip Morris to Rothmans - BAT chose not to just

sponsor a top team but to set one up from scratch.

For an investment that could amount to pounds 300m over five years, the

firm dug into its pockets to: buy out the existing Tyrrell team; build a

new development complex under the direction of chassis expert Jacques

Reynard; and to hire top drivers, which so far includes the world

champion Jacques Villeneuve.

BAT has 50% equity in the new team British American Racing, which will

make its debut in the 1999 season.

Although the team will be run independently with racing experts Craig

Pollock (managing director), Reynard (technical director) and Rick Gorne

(commercial director) on the board, BAT will be represented by four of

its own members including marketing director Jimmi Rembiszewski.

As well as permanent equity in the team, BAT has an exclusive

five-season sponsorship contract.

The wisdom of the investment, however, should emerge sooner. By the end

of next year it will become clear whether this was the tobacco marketing

masterstroke of the decade or a white elephant.

Despite the media interest and the BAR principals talking up their

chances on the circuit, BAT itself has kept the marketing trump cards

close to its chest.

Brand strategy

David Bacon, newly appointed head of sponsorship communication, says:

’F1 is the best opportunity there is to build brand awareness and

goodwill. It’s nothing more complex than that.’

Bacon says his team is drawing up plans on how to exploit the F1 tie up

to the full, but still won’t say which cigarette brands will actually

appear on the cars.

It is likely to be one of the firm’s international ’drive’ brands -

Lucky Strike, State Express 555, Kent, John Player Gold Leaf or Kool -

but this will not be confirmed until January.

But Bacon says that BAT is not planning to build one single global

cigarette brand.

’When you’re up against a brand like Marlboro you can’t take it head on.

Our strategy is to aim for profitable growth without bashing our heads

against a wall,’ he says.

Jonathan Fell, tobacco analyst at Merrill Lynch, says: ’It doesn’t

actually matter whether the brands on the cars are global brands, just

that they are perceived to be so, and this will be the case if they are

linked to a global sport like Formula 1.’

BAT’s decision to take equity rather than traditional sponsorship took

on greater significance last week with the emergence of BSkyB and

Carlton Communications’ prospective investments in Manchester United and

Arsenal football clubs.

Tom Moser, BAT’s head of global sponsorship and a key instigator of BAR,

is quick to draw the parallel: ’It is part of the same trend. Those

involved in sport expect long-term commitment. It also ensures the

resources necessary to compete at a high level.’

Moser recognises that Formula 1, like football, is one of the world’s

biggest global sporting events and can only get bigger with the advent

of digital television.

In this environment, the sponsorship value of a successful BAR team

would rocket, with BAT firmly in control as well as taking a tasty share

of the profits from prize money and broadcasting revenues.

But BAT’s sports equity plans don’t stop there.

Moser confirms that BAT is also looking at taking equity in new grand

prix events. ’If the opportunity is correct we will look at facilitating

new races,’ he says.

Emerging markets

Formula 1 supremo Bernie Ecclestone is known to be keen to expand the

sport into new developing markets such as Malaysia, China and South


It is no coincidence that these are precisely those markets being

targeted by BAT and other cigarette companies.

Unlike Europe, the number of smokers there is increasing and promotional

restrictions are generally slacker.

Moser is circumspect about the marketing benefits of such an investment,

but they are likely to include advantages in negotiating track signage,

corporate hospitality, local PR and could even stretch to naming


Moser is keen to talk up the effect the BAR initiative will have on the

morale of the newly independent BAT: ’We intend that British American

Racing will make its stakeholders proud of the company. It’s a huge

investment in the corporate brand.’

Certainly if BAR finishes high up the championship next season and if

Jacques Villeneuve appears on the podium frequently, the selected brands

will flourish and BAT employee morale will be on a high.

It is not impossible that the proud red and white feathers of the Philip

Morris/ Ferrari partnership could be well and truly ruffled.

The flipside, of course, is that whereas Murdoch has shrewdly ensured

that BSkyB is likely to win whatever the outcome of events, this is

certainly not the case for BAT.

Racing uncertainty

There is no guarantee that new races will ever take place. F1 pit-side

rumours suggest that, of the planned new races, only Malaysia will

happen in the next couple of years.

More importantly, BAR is on a steep learning curve in an intensely

competitive sport. Recent start-ups, such as Stewart and Jordan, have

found podium places a rare commodity.

And if BAR doesn’t win the races, BAT’s newly vigilant shareholders are

likely to become increasingly uneasy.

One senior BAT shareholder says: ’On paper it is a brilliant strategy

but the big question is, even if BAR does perform well, how much does

each podium place actually cost? You’ve got to ask how expensive this

sponsorship is relative to other forms of promotion.’

’There’s always pressure to perform,’ admits Moser, ’and of course we

need to measure the value of the whole initiative by its effect on the

brands. I also recognise that the line between winning and losing in

this sport is very definite. But we hope to give our partners all our


’We qualify winners as always being in the game. Obviously if we were

absolute ’losers’ we would be very disappointed but our fear in that is


As the chequered flag comes down at the beginning of next season, the

pressure on those in the BAR pits, and those in the BAT marketing

department, will be equally intense.


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