Not all is lost for brand owners operating in dark markets.
By Stefanie Rossel
In February, the Canadian Cancer Society released a report detailing the global progress on tobacco health warnings and plain packaging, which requires cigarette manufacturers to market their products in uniform, unattractively colored packs without brand imagery and print their brand names in generic fonts.
To date, 25 countries or territories have adopted standard packaging, the most recent ones being Myanmar, Oman and Georgia. A further 14 countries are preparing legislation, and three more have it “in practice,” meaning that they import cigarettes from a country with plain packaging requirements, as happens, for example, in Monaco, which buys its cigarettes from France. In addition, the report notes, the graphic health warnings mandated by some governments are so large that they resemble plain packaging. In nine countries, graphic health warnings account for at least 85 percent of the front and back side of the pack.
Recommended in the guidelines for implementation of Article 11of the World Health Organization Framework Convention on Tobacco Control (FCTC), standardized packaging is viewed by its supporters as an efficient means to reduce the appeal of tobacco products and increase the effectiveness of health warnings. By removing the visual cues that prompt existing users to purchase the product and by preventing new customers from developing brand loyalty, proponents argue, plain packaging ultimately leads to better public health.
Plain packaging is also a comparatively inexpensive intervention that can be implemented more easily than other FCTC measures, such as establishing a national tobacco cessation system. But despite abundant research since standardized packaging made its global debut in Australia in December 2012, there is still no reliable evidence that the measure achieves its objectives, as studies remain inconclusive or even contradictory. Opponents claim that the removal of branding has merely led to commoditization, causing well-established brands to lose market share to cheaper alternatives.
The Power of Word of Mouth
For tobacco companies, marketing products in such “dark” markets is a challenge, even more so because most of the countries that require plain packaging also ban tobacco advertising and product displays at the point of sale (POS).
A 2023 report by the U.S. Federal Trade Commission underlines the importance of the POS for the industry. In 2022, U.S. tobacco manufacturers spent more than $8.3 billion promoting cigarettes and smokeless tobacco at the POS, accounting for over 97 percent of their total marketing expenditure for those product categories.
Yet, despite the loss of conventional marketing instruments, dark markets are not lost for brand owners, according to Mathijs Aliet, founder of Square44, a brand design agency based in Bangkok. “Consumers decide if they want a product or not,” he says. “There are still needs that are fulfilled, and word of mouth is a big thing. Regulations will not stop people from talking to each other, comparing experiences and making recommendations.”
Consumers also play an essential role during the launch of new brands in dark markets, when there is zero association in the buyer’s mind. “In markets that are extremely dark, it’s often people watching people that triggers new trends,” Aliet explains. “People that meet friends that have a new product are seen as trendsetters—this is something that is hard to stop.”
Square44 operates in 20 different markets across Asia, the Middle East and North Africa and has worked for tobacco companies such as Philip Morris International, BAT and Japan Tobacco International. Due to the widespread restrictions on cigarette branding, however, tobacco jobs are “rare and few,” according to Aliet. In dark markets, Square44 has profound experience working for manufacturers of alcoholic beverages in Thailand, Myanmar, Nepal and Indonesia.
“Many markets have individual rules, and most face dark market challenges in various degrees,” says Aliet. “Brand support extends into different spaces—the smoke zones at airports, brand environment design, creating bespoke structural solutions or working on new product development concepts for test are areas where we support tobacco clients. Building connections to the trade or retail channels as well is an opportunity where still quite a bit of activity takes place, such as dealer events, partner get-togethers, etc. This is an example of spending the marketing budget in dark markets in the right way with entertaining, training and incentives to make them sell your brands.”
Generally, Aliet advises his clients to be proactive. Manufacturers who anticipate change can build a loyal following for their brands before any restrictions take effect.
Innovation Is Key
Another strategy to sustain brand awareness is developing surrogate brands in an unrelated, nonrestricted category, according to Square44. “Back in the days in Europe, the Camel brand invented outdoor clothing to keep their brand alive beyond cigarettes,” says Aliet. “This was at that point a clever way out. The brands that survive are the ones that pay extra attention to channels or touchpoints where they are still allowed to connect.”
Surrogate brands also help with events, according to Aliet. “You can get the brand out and organize something around a smoke-infused snack or beverage that happens to carry the same name,” he says. “B2B events are largely unregulated and an important influential factor for most manufacturers that play an important word-of-mouth role. Building solutions that drive value, solve problems or address needs there are will always result in success.”
Generally, brands that survive in dark markets establish their unique identifying brand assets and elements well, observes Aliet. “Use that across touchpoints in 2D graphics, even 3D environments. Colors, shapes—anything where we don’t show brand but queue recognition is what comes to mind.”
Social media can play a role too. “Depending on the location of platform, a manufacturer might not be able or allowed to localize messaging, but we see user-generated content pick up big time, especially on social selling channels,” says Aliet. “We’re luckily not that far yet that governments are telling platforms to ban images of consumers smoking or using product. Using influencers is getting heavily restricted market by market.”
Self-regulation and brand innovation are other vital, Aliet points out. “There’s no doubt that brands should pivot,” he says. “Governments are making legislation tougher, and certain categories will most likely not survive. We see this in the energy space as well, where fossil fuels are facing a lot of negative press. The smart companies pivot and innovate beyond category—cannabis, vaping, liquid drinks—as people are still looking to fulfill a need. Brands can reinvent themselves around needs with newer solutions that appeal to a clean, next-gen lifestyle. That’s what brands must do regardless—innovate around market movements and changes in consumer preference.”
A Different POS
Depending on the degree of restrictions, the point of sale may turn from a place of communication and product variety into a wasted space. In Australia, for example, customers who want to buy cigarettes must ask the store clerk. There are no signs directing smokers to the POS, according to Christoph Moser, managing director of POS Tuning, a German company that offers POS shelf and storage solutions to customers worldwide.
According to Moser, priorities are different at a dark market POS. “In classic dark markets, product availability is getting ever more important. Shelves are equipped with sliding doors or flaps, and the opening time is limited. There is a defined time slot during which presentation and removal of a pack takes place, which makes it more important that the merchandise can be seen immediately at the time of opening. Push-feed systems are therefore essential, as they facilitate access for the salesperson.”
His company offers mechanical as well as digital systems that allow customers to take stock immediately. “This works with an indicator for the inventory or with a digital push-feed system that records inventory levels in real time and signals when stocks are too low or if there is an out-of-shelf [situation],” he says.
In many dark markets, the placement of tobacco products has changed. Instead of being displayed on the back wall of the store, as is often the case in less restrictive markets, cigarettes are placed under the counter, where they are invisible to customers. “Sixty percent of sales at petrol stations are generated with tobacco products,” explains Moser. “If displaying the products is banned or restricted, it has consequences. POS Tuning has developed specific push-feed solutions to place the vast variety of tobacco products that are usually stored in the back wall in the limited space of a counter. These solutions allow for placement of several brands in one row behind one another, meaning the same amount of product can be placed on a significantly smaller surface.”
Moser observes that many retailers in countries changing to a dark market try to put off the transition as long as possible—and are thus insufficiently prepared. “Fast and efficient solutions are required that enable the covered presentation of goods in existing shelves. We offer various retrofit kits for this,” he says.
Just like the appearance of the POS, the attitude of consumers in dark markets has changed, notes Moser: “Customers get used to this kind of [product] presentation,” he says. “In most cases, it’s a planned purchase, which means customers prefer a certain brand, which they then buy, thereby accepting other pack sizes.”
