Case Study: Making 4th Tier Cigarettes Work For You
Introduction:
As the tobacco market becomes increasingly competitive, retailers are looking for ways to maximize profits while meeting the demands of price-conscious consumers. Fourth tier cigarettes—low-cost, non-premium brands—present a unique opportunity for retailers to capture value-conscious smokers while maintaining healthy margins. This case study explains how a convenience store successfully integrated fourth tier cigarettes into its product lineup, overcame challenges, and leveraged strategic merchandising and sales.
Challenge:
Steve Barbour, owner of Cigarettes 4 Less, opened his first cigarette outlet in Kansas City in the summer of 1992. At the time, cigarette prices were escalating, and the public’s perception of stores carrying tobacco products began to become more ‘taboo.’ He found this presented a unique opportunity in his market as he believed large chains would ultimately stop selling cigarettes altogether due to the continued price increases and scarcity of the product.
To get his tobacco business started, Steve carried two tiers of cigarettes – premium and value (now what some consider ‘mid-tier’). Very quickly, he noticed that when the price of a premium brand would go up, even just a few cents, value brands were catching, and a majority of his customers were trading down. By the late nineties, Steve watched the market as premium brand’s prices were going up and the value brands were following them. This posed a critical challenge to Steve’s tobacco business – how would he continue to cater to cash-strapped buyers with continued price increases? He knew there was another level that could be targeted, which was the price level the value brands used to be.
Solution:
Despite the hesitation of nearby retailers to bring in a new lower tier of cigarettes, deep discount, fearing lower sales, Steve had a solid understanding of his market. He knew he needed another pricing level that customers could choose if the value brands got too expensive. To ensure a successful rollout, Steve brought in Cheyenne’s discount brands, Cheyenne & Decade Cigarettes to develop a strategic merchandising and marketing plan. Key initiatives included:
1. Data-Drive Product Placement
Steve worked with his Cheyenne rep to gain more insights on fourth-tier brands in similar markets, which helped him stock the right mix of SKUs. Gathering data on his market allowed him to tailor his offerings to meet consumers’ specific needs.
2. Prime Placement & Visibility
Steve positioned his fourth tier brands in a prime location in the store to encourage adult consumer trial while keeping pricier cigarettes in stock. A selling factor to Steve of Cheyenne’s deep discount products was its great-looking packaging, something he knew would help communicate value and quality. Even if items are budget-friendly, they can be well-designed.
3. Clear Pricing & Promotions
Steve worked with Cheyenne to highlight his store with bold signage to help communicate the price and affordability of his 4th tier products. By using bright signage and clear price points, he effectively communicates the benefits of these products to adult customers. Additionally, setting up promotional offers allows adult shoppers to explore value options.
Results:
Within a year, Steve saw impressive gains in his tobacco category:
1. Repeat Purchases & Loyalty
Price-sensitive shoppers returned regularly, boosting store traffic and customer retention. Cigarettes 4 Less was so successful, and demand was so high that Steve opened two more locations within 6 miles of one another and has since continued to expand his stores across state lines into Missouri.
2. Improved Margins
Despite lower price points, 4th-tier cigarettes delivered strong profit margins, thanks to Cheyenne’s supplier pricing and volume sales.
3. Improved Customer Retention
As Steve promoted 4th tier products in-store, he consciously fostered a culture of customer feedback. Providing comprehensive knowledge of the Cheyenne & Decade brands allowed him to establish trust within his adult customer base. This technique brought him a 90% adult consumer retention rate.
Conclusion:
Steve Barbour has some simple words of advice for c-store operators who may be on the fence about offering 4th-tier products. “I would tell anyone who is starting a business or has been in the business a while that offering deep-discount products is not an option. Operators have to offer more price options that are good quality. This trend is getting more obvious as the industry moves forward because large companies increasingly have more expenses, translating to multiple price hikes a year.”
While fourth tier products may seem challenging to integrate into a retail environment, with the right strategies in place, they can drive significant value for your store. By understanding your market, optimizing product presentation, employing effective pricing strategies, educating adult customers, and utilizing analytics, you can create a strong presence for these items. Additionally, fostering customer feedback and engagement will build loyalty and enhance your store’s reputation as a reliable source of affordable yet quality products, ultimately contributing to sustainable business growth in a competitive landscape.
