We decided to transform the Business that has consistently generated income for us: Tommaso Di Giovanni

PMI's Vice President, Market Activation and Support discusses his company's transformation story and the role that technology and science can play in establishing a smoke-free future

Intro: PMI’s Vice President, Market Activation and Support discusses his company’s transformation story and the role that technology and science can play in establishing a smoke-free future

Philip Morris International (PMI) is on a quest to create a smoke-free future by developing alternatives to cigarettes that are less harmful. The organisation believes that innovative products based on scientific research can inspire smokers to switch to less harmful alternatives. Tommaso Di Giovanni, PMI’s Vice President, Market Activation and Support, recently spoke with ET Insights on the company’s transformation story, including its plans to increase its share of non-smoking alternatives to 50 percent by 2025 and other goals for the future.

Q) Let me begin by asking you, the PMI transformation story, it is simply a remarkable story. What is the thought process that has gone behind this thinking?

The first point is that one acknowledges that there is an issue with the product, in our case, it is cigarettes because they really cause diseases and are addictive. But cigarettes have always been the same product for 100–150 years, the product hasn’t changed. Unlike many industries, there hasn’t been any great innovation or product development to come up with better alternatives, and it was the same for us too. Until the early 2000s, science and technology weren’t there. Attempts were made, but they have largely failed. We decided to go all out around 2008, when we believed we had a product that would work and be appreciated by customers. The product was backed by scientific evidence demonstrating that it is a superior alternative to cigarettes. We chose to go all-in for several reasons: If you have a product that causes diseases, you should do better and give your customers better options; it is the right thing to do for both your business and the public health. It also makes business sense because you will be ahead of the competition because you will be entering the consumer side; hence, it was a win-win, and the truth is that by 2014 we did have the product in the market and we tested it in Milan, and from then things only got better. Today, 20 million smokers have switched, and history has proven that these products are better. There is an account to squeeze into your developed product, which is a moral alternative, but it is a much better alternative than many others we have seen in the world. It is safer, it is treated in a way that is much safer, and the rates of diseases are much better because people, instead of using cigarettes, have switched to using this. We see the same thing happening with the products that don’t burn. Because they don’t burn, they don’t generate the vast majority of harmful products that you see in other products.

Q) You just talked about going all out for this strategy, I am sure you faced many challenges while getting this out, how did it feel when you finally put it out in 2014?

The first challenge is to create a product that reduces risk while also being appealing to consumers, because otherwise, it will not be adopted. Even if you have a product with zero risks, if no one uses it, what problem have you solved? So, the first step was to get the right technology, the right science, to get the product, once you have it, you need to convince people to switch, and that’s when we faced issues. Convincing consumers who don’t understand that the vast majority of harmful compounds come from the burning or the way tobacco is treated, they don’t understand why these products are harmful, so you need to explain it to them. Second, the vast majority of laws were enacted to regulate cigarettes and other products; they were not intended to foster innovation and leverage advances; and they did not permit us to provide this information to consumers. Many times, the products were even banned, making it impossible to obtain them, leaving consumers with only one option: choose the harmful one. These were most likely the two most difficult challenges we faced. But again, as history has shown, things are changing very rapidly. In countries like Japan, 35% of the population has switched to heated tobacco products, eat tobacco, don’t burn it . Take, for example, the capital of Lithuania, where 45% of smokers have switched to this product, and now we see early epidemiology from Japan, Italy, and Korea that population health has improved; there is a clear correlation. So, things are moving in the right direction.

Q) Where do you see PMI in the next 5 years?

By 2025 we will be having half of our revenues coming from these products and not from cigarettes. We want our product to be sold in 100 markets

Q) If you could provide us with the percentage of demarcation, what is the current ratio of non-smoking products to smoking products based on revenue?

About 30% of our products are non-smoking alternatives. We aim to reach approximately 40% by next year. Our goal is to reach 50% by the year 2025. The year 2025 will signal a tipping point if we continue on this trajectory; by then, half (or more) of the population will be smoke-free, which is a significant transition that has never been seen before, because many companies have created their businesses under market pressure. In our case, we decided to transform the product that has consistently generated income for us. So, the initiative came from within; no corporation has, to my knowledge, disrupted themselves. I think it is the right thing to do and I am proud of it.

Q) When we talk about the product PMI is making , there is a sustainability aspect involved in it . How challenging is it to implement sustainability across organizations?

It is difficult. With us it starts with the core issue of the product. Addressing that is the best thing we can do in terms of sustainability. When you talk to people who have built products that cause diseases, they know and their aim is to replace the products with products that are less harmful than cigarettes, they focus on improving product health and everyone gets excited. All we have to do is set the ambition, objectives, and targets, and then make the organisation follow them. We also had to change the organisation, we needed new competencies, scientists, people who come from innovation, not typically those who belonged to the tobacco making industry. Today, more than 900 scientists, engineers, and other professionals are working to build innovative alternatives to cigarettes, and 99 percent of our restructuring development is dedicated on one product.

Since 2008, we have invested over $10 billion in these products, so the change is real. Today, we want to help a country like India, which is a traditional leader in innovation and will also embrace change; with over 100 million smokers and 100 million tobacco consumers, this country can make a huge difference, and this country knows how to do it.

Disclaimer: The views expressed in this article are those of the author and do not necessarily reflect the views of ET Edge Insights, its management, or its members

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