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Philip Morris hits Japan's streets to sell old smokers new devices

Tokyo

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 salesforce 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 its next-generation iQos smoking device to an older generation - Japan's largest demographic that is more price sensitive and less responsive to social media.

The change in tactics is the latest twist in the battle to find new customers for the high-tech products. There is a lot riding on the category as tobacco companies become increasingly vulnerable to falling smoking rates and tighter regulations around the world.

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Seeking new revenue streams, Philip Morris and rivals Japan Tobacco Inc and British American Tobacco (BAT) are investing billions of dollars into heated products, while Imperial Brands plc announced that it is jumping into the segment.

Imperial, the maker of Winston cigarettes, on Tuesday unveiled its Pulze product to try to catch up with its bigger rivals, predicting that such smoking alternatives may add as much as £1.5 billion (S$2.7 billion) in revenue in 2020.

Philip Morris has said that it aims to eventually stop selling traditional cigarettes altogether as it shifts to devices that heat tobacco without burning.

BAT this week 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 is 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 US 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 could not 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 per cent of the company's sales team in Japan is now geared towards 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 marketing strategy is working, Mr Kato said in an interview in Tokyo. He declined to provide specific data, saying that there may be a Japan market update in the company's upcoming quarterly earnings.

"We needed messaging that will work for the elderly, and meeting them and explaining the product has been most effective," Mr Kato added. "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 neighbourhood festivals or outside convenience shops, and are told to look for and target existing smokers in the upper age brackets, according to Mr Kato. BLOOMBERG