Philip Morris International Inc. is taking a rather old-world approach to tackle slowing sales of its high-tech smoking devices in Japan: hitting the streets.
The tobacco company is shifting a large majority of its 1,000-employee sales force in Japan to target elderly smokers with direct appeals, discounts and money-back guarantees. The effort is an attempt by the Marlboro maker to sell to an older generation — Japan's largest demographic that's more price sensitive and less responsive to social media — its next-generation iQos smoking device.
The change in tactics is the latest twist in the battle to find new customers for the high-tech products. Tobacco companies are becoming increasingly vulnerable to falling smoking rates and tighter regulations around the world. Seeking new revenue streams, Imperial Brands said Wednesday it's jumping into the Japanese market with its first heated-tobacco product, while rivals Philip Morris, Japan Tobacco Inc. and British American Tobacco are investing billions of dollars in cigarette alternatives.
U.K.-based Imperial, trying to catch up with its bigger rivals, said it will debut its Pulze device in Japan as smokers there are already familiar with products that heat tobacco without burning, according to Chief Executive Alison Cooper. The company predicted that such smoking alternatives may add as much as 1.5 billion pounds ($2 billion) in revenue in 2020.
Philip Morris has said it aims to eventually stop selling traditional cigarettes altogether as it shifts to heat-not-burn devices. British American named a new chief executive to take over the company's transformation amid the industry's upheaval.
What happens in Japan is important because it's the most developed market for the heated devices and has become a test case for how the high-tech segment could expand across the globe. The category is different from the electronic-cigarette market, which is dominated in the U.S. by Juul Labs Inc.
The back-to-basics approach by Philip Morris is the next stage in the battle for customers in Japan after an initial surge in popularity for the products. Previously, supply couldn't keep up with demand. Tobacco shops kept waiting lists and limited purchases per customer. But in recent months, companies have been reporting a slowdown in growth, raising concerns among investors about the category's potential.
With the market of early adopters now saturated, Philip Morris needs to take to the field, raising awareness in rural areas and among the elderly. About 80 percent of the company's sales team in Japan is now geared toward direct customer interaction. Previously, the goal focused entirely on maintaining relationships with its sales network of small convenience and tobacco shops, said Haruki Kato, Japan sales director for the New York-based company.
The new strategy is working, Kato said in an interview in Tokyo. He declined to provide specific data, saying there may be a Japan market update in the company's upcoming quarterly earnings report.
"We needed messaging that will work for the elderly, and meeting them and explaining the product has been most effective," Kato said. "We think doing face-to-face can get the older smokers to buy the product."
The company's sales team is setting up tents at neighborhood festivals or outside convenience shops and are told to look for and target existing smokers in the upper age brackets, according to Kato. The pitch isn't the same that's used for younger consumers.
"The response to iQos' selling points of no smoke and potentially less risk doesn't resonate as much with older smokers," Kato said. Instead, the pitch emphasizes strategies that appeal to more conservative smokers reluctant to change.
One such message is telling smokers there are over 5 million people using the iQos device in Japan. "They're very sensitive to the fact that people around them are using it," he said. "They don't want to be the first, but they also don't want to be late if others are using it."
Philip Morris in June lowered the retail price of iQos by 3,000 yen ($27), after realizing that cost-conscious older consumers weren't going online to sign up for a similar-size discount. Other efforts include inserting ads into boxes of cigarettes and offering a 30-day money-back guarantee.
But some question the effectiveness of the marketing efforts.
"The adoption hurdle for people over 50 years old would be difficult," said JPMorgan Chase & Co. analyst Ritsuko Tsunoda. "It's the same old marketing effort to continuously communicate with the consumers, with the hope that one day they may change their mind."