Philip Morris International prepares for a smoke-free

future
Geoffrey Precourt
Source: Event Reports, Festival of Media LATAM, October 2018
Downloaded from WARC

Philip Morris International is shifting away from cigarettes, its traditional business driver, and towards
smoke-free products that offer a healthier alternative to existing smokers.

Smoke-free products do not remove all the health concerns around cigarettes, but greatly reduce
smoke consumption.
IQOS, which heats tobacco rather than burning it, points towards the company’s smoke-free
future.
Alongside a major shift in its product focus, the company has pursued a significant internal
transformation.

Is Philip Morris turning its back on the Marlboro Man?

“We are building our future on smoke-free products,” insists Gabriela Wurcel, Philip Morris International (PMI)
Global Services Inc.’s vp/corporate affairs for Latin America and Canada.

“Even though they are not harmless, they are a much better choice than continued smoking.”

Gabriela Wurcel, vp/corporate affairs for Latin America and Canada, Philip Morris International

In fact, the cowboy advertising icon already is riding off into the sunset in 43 different markets around the world.
“We have decided to take this bold step and to change a very successful business model for another one that is
based on new products that we literally just invented ourselves,” said Wurcel.

The focus of PMI’s smokeless makeover is the IQOS – an offering that heats tobacco rather than burning it, as
traditional cigarettes do. And, though the product has yet to be approved by the US Food and Drug
Administration (FDA), its global appeal has been grounded in an unexpected brand purpose.

“It’s our goal to replace cigarettes with the smoke-free products we’re developing and selling,” introductory copy
on the IQOS website reads. “These products are designed to create a flavorful nicotine-containing vapor,
without burning and smoke.

“Our most advanced smoke-free product, IQOS, uses sophisticated electronics to heat tobacco in order to
release flavors and nicotine ... IQOS heats the tobacco just enough to release a flavorful nicotine-containing
tobacco vapor but without burning the tobacco.
“Because the tobacco is heated and not burned, the levels of harmful chemicals are significantly reduced
compared to cigarette smoke.

“What is there? A nicotine-containing vapor, not smoke, that makes IQOS a smoke-free product that is appealing
to smokers.”

Wurcel emphasized, “We have this commitment to achieve a smoke-free future … It is the right thing to do for
the smokers, their families and friends, and for those of us who don’t smoke but really care about those do.

“It’s also the right thing to do for our company, for our shareholders, and also for our beliefs, because we feel we
are for the first time doing something meaningful.

“This all means that we want to stop selling cigarettes as soon as possible,” she continued. “Coming from us,
that may sound crazy, but it’s actually not: We want to end cigarette consumption as soon as possible because it
is the right thing to do ... We all know that cigarette smoking is bad for health.”

In 2008, PMI and Philip Morris USA both were spun off of Altria Group Inc. which, in turn, had been created in
2003 as a renamed version of Philip Morris Cos., one of the world’s largest manufacturers and marketers of
tobacco, cigarettes, and related products.

PMI introduced IQOS was introduced in Japan is early 2016. And, in the third quarter, of 2018, IQOS grabbed
15.5% of the entire Japanese tobacco market – an 11.9% increase over the same period the year before.
Globally, PMI carefully has directed its appeal to current cigarette smokers – not non-smokers – as a heathier
way to manage an unhealthy habit. “It’s our goal to replace cigarettes with the smoke-free products we’re
developing and selling,” the official PMI notice reads.

“These products are designed to create a flavorful nicotine-containing vapor, without burning and smoke.”

The emphasis clearly is on “replace,” as Wurcel told the Miami Beach FOMLA gathering, “We care about the
people who actually smoke, and these people deserve better choices.

“We do pay a lot of attention to our marketing practices,” she continued. “When you go to an IQOS store, the
first thing they ask is, ‘Are you smoker?’ If you say, ‘No,’ we won’t even give you the product information.” The
same is true for under-age consumers.

“We also conduct pre-market and post-market studies to see how appealing these products are for minors or for
nonsmokers – and the results are very encouraging: There is little appealing to nonsmokers or minors.”

Despite its best efforts and evidence, PMI has had some difficulty in persuading some government agencies that
IQOS is intended to provide an alternative to the current smoker and not intended to appeal to younger
audiences who may be trying out tobacco for the first time.

In June, the UK’s Department of Health formally ordered Phillip Morris to remove posters touring “healthier”
tobacco products. PMI countered, insisting it was trying to help smokers by offering alternatives to cigarettes.

In the US, where IQOS has yet to be marketed, the FDA has called youth vaping an “epidemic” and has said it
will pull such brands as Juul, Vuse, MarkTen XL, Blu and Logic off the market if they can’t demonstrate that they
are taking deliberate action to keep their products away from children and teens.

In a number of Latin America countries, Wurcel added, a “dangerous double standard means that you can
smoke cigarettes, but you cannot access smoke-free products. That’s problematic for us.”

But PMI insists, according to its LatAm/Canada vp/corporate affairs, that the market-by-market regulatory
problems will not deter the enterprise from “taking this bold step: To change from one very successful business
model to another.”
That long-term alignment from cigarettes to smoke-free products also has driven a makeover inside Philip
Morris. According to Wurcel, “For the past two or three years, we have been undergoing an amazing internal
transformation. We are learning from the startups. We are not this huge multinational company anymore.”

As evidence, she cited a PMI venture fund that works with new enterprises that are not related to tobacco.
“They have one thing in common: They use technology to make a better world. So, from waste management to
food, we work with these companies not just by giving them money but working as business partners to ensure
their business is a success.”

The PMI confidence in IQOS is underwritten by what Wurcel identified as “many years of research with top
scientists from around the world” and a $4.1 billion R&D investment.

The Philip Morris research accelerated in 2008, Wurcel related, when 400 scientists, engineers, and technicians
“from all over the world” sought to discover a product that would heat, not burn, tobacco.

“When you burn something,” she said, “it creates smoke. And smoke has harmful and toxic components that are
linked to the smoking-related diseases.”

The visible presence of formal research is critical, she explained, “because there’s a lack of trust” in the tobacco
industry ... Whatever we say is always questioned in advance. The only thing we can do is to say, ‘Don’t trust
us. Trust science.’

“That’s why we make everything absolutely transparent. We put it out there for scrutiny. The public-health
communities realize, ‘These guys may have done bad things in the [past], but now they do have a solution to
complement the existing policy.’”

The IQOS that resulted from that global undertaking “still produced nicotine, an addictive component that comes
naturally in tobacco,” Wurcel allowed, “so it’s not for minors. It’s also not for people with some health problems.
But it does eliminate the main source of smoking related diseases: the smoke.

“After a lot of trial and error,” she continued, “we’ve managed to put products that are better in the market
products.

“I say ‘better’,” she advised the FOMLA audience. “I don’t say ‘good’ because they are not harmless. We don’t
want to mislead anybody: The best thing for everybody is not to smoke or to quit – not to use nicotine or
tobacco. But the people who actually do smoke deserve better choices.”

The IQOS product remains under development as consumers have continued to provide insight into its use. “We
need to relate to consumers that way. We need to explain IQOS to them. The old model of just putting the
product in a kiosk and waiting for people to come and buy [a new brand] is over.

“We have people who actually accompany smokers in their journeys.”

Smokeless devices, she admitted, are “not as intuitive as smoking a cigarette, so they require a different
relationship with the consumer ... But it’s working: In most countries, we’re seeing that people who try and test
[smokeless products] for a week never go back to cigarettes. We have a 70% to 90% conversion rate.”

The on-going global test-and-learn program continues, as two new versions of the original model rolled out (the
updated charging case now opens on the side instead of on top) in October.

More to the point, PMI reported that smokeless devices accounted for $823 million (11%) of the enterprise’s
third-quarter $7.5 billion total revenue.

And, even though simple subtraction demonstrates that traditional cigarettes account for the other $6.7 billion,
Wurcel told the marketers at the FOMLA gathering, “We are quitting cigarettes as soon as possible because
cigarettes remain the most harmful way of consuming tobacco.”

And there is some evidence that the purposeful PMI product realignment is gaining strength. “From Moscow to
Milan to Tokyo, and from Bogota to Guatemala to Santo Domingo, six million people already have quit smoking
and switched to our smoke-free products. Every day, 10,000 people day quit smoking and move to smoke-free
products.”

For PMI, she added, “Hopefully this is just the beginning. What we want is to get the 180 million people who
currently smoke our cigarettes to either quit or move to less harmful alternatives.”

And even if the Marlboro man is a marketing immortal, Philip Morris’ on-going IQOS rollout “is a story of how
innovation, technology and science can actually change the world.”

About the author

Geoffrey Precourt
US Editor, WARC
geoffrey.precourt@warc.com

Geoffrey Precourt is WARC's US editor. He reports from key events across North America.

Prior to joining WARC in July 2008, Geoffrey held senior editorial roles at titles including Strategy + Business,
Point, Smart Business and Fortune, and edited the book CMO Thought Leaders.

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