Brand Management Project on Marlboro

Brand Management Project Report on Marlboro

By

SHAUNAK GOSWAMI

Enrollment No. 10BSPHH010718

TABLE OF CONTENTS

1. The origin and genesis of the Marlboro brand

2 Corporate ownership of the Marlboro brand and the operating style of the company

3. Global footprint of Philip Morris

4. Brand Portfolio of Philip Morris with detailed descriptions and product

features

5 Marketing environment of the world cigarette industry, major players and

their share in the market

6. Competitors of Marlboro 7 Strategic Pricing analysis for Marlboro 8 Understanding the Marlboro customer 9. Brand improvisations attempted by Marlboro, Brand Ambassadors

and its current brand equity

10 Future Branding strategy of Marlboro

11 References

Chapter 1The origin and genesis of the Marlboro Brand

History of the “Marlboro” brand of cigarettes

Marlboro is the largest selling brand of cigarettes in the world. It is made by Philip Morris USA (a branch of Altria) within the US, and by Philip Morris International outside the US. It is famous for the “Marlboro Man” of advertisements.

The brand is named after Great Marlborough Street, the location of its original London factory. Richmond, Virginia is now the location of the largest Marlboro cigarette manufacturing plant.

Philip Morris launched the Marlboro brand in 1924 as a woman’s cigarette, based on the slogan “Mild As May”. In the 1920s, advertising for the cigarette was primarily based around how lady like the cigarette was. To this end, the filter had a printed red band around it to hide lipstick stains, calling it “Beauty Tips to Keep the Paper from Your Lips”. It faced trouble in the 1930s and attempted to rejuvenate itself with a clever advertising gimmick, changing the ivory tip to red in order not to smear ladies' lipstick.

The brand was sold in this capacity until World War II when the brand faltered and was temporarily removed from the market. At the end of the war, three brands emerged that would establish a firm hold on the cigarette market: Camel, Lucy Strike, and Chesterfield. These brands were supplied to US soldiers during the war, creating an instant market upon their return.

After scientists published a major study linking smoking to lung cancer in the 1950s, Philip Morris repositioned Marlboro as a men’s cigarette in order to fit a market niche of men who were concerned about lung cancer, but not wanting to admit it. At the time, filtered cigarettes were considered safer than unfiltered cigarettes, but had been until that time only marketed to women. Men at the time indicated that while they would consider switching to a filtered cigarette, they were concerned about being seen smoking a cigarette marketed to women.

The repositioning of Marlboro as a men’s cigarette was handled by Chicago advertiser Leo Burnett. The proposed campaign was to present a lineup of manly figures: sea captains, weightlifters, war correspondents, construction workers, etc. The cowboy was to have been the first in this series. While Philip Morris was concerned about the campaign, they eventually greenlighted the campaign.

Within a year, Marlboro’s market share rose from less than one percent to the fourth best-selling brand. This convinced Philip Morris to drop the lineup of manly figures and stick with the cowboy imagery.

In mid-August of 2006, a federal district court ruled that the names 'Light', 'Ultralight', 'Natural', or 'Mild' could not be used. The judge said that these names were misleading to smokers in the sense that they conveyed some positive health effect. The ruling further stipulated that names changes must occur at the beginning of 2007.

Tentatively, Philip Morris has decided to use a color naming scheme for their products that previously used the banned words in the name of their product. Given that, they have decided that Marlboro Lights would be called Marlboro Golds and that Marlboro Ultralights would be named Marlboro Silvers.

Marlboro cigarettes packs

Timeline of Marlboro Ads

Marlboro “Mild as May” advertisement targeted at women smokers in the early 1920s

Repositioning of Marlboro as a Men’s cigarette in the 1950s

The New “Safer” filter cigarette (1968)

The Marlboro “Cowboy” Ad in the 1980s

Chapter 2Corporate ownership of the Marlboro Brand and

operating style of the company

Marlboro (Corporate Ownership)

Marlboro, the largest selling brand of cigarettes in the world. It is made by Philip Morris USA (a branch of Altria) within the US, and by Philip Morris International (now separate from Altria) outside the US.

Philip Morris USA (PM USA)- PM USA is an operating company of Altria Group, Inc., a Virginia corporation whose stock is traded on the New York Stock Exchange (MO).

PM USA is more than 160 years old and the history of company can be traced back to Philip Morris' 1847 opening of a single shop on London's Bond Street, selling tobacco and ready-made cigarettes. In 1902, Philip Morris & Co., Ltd. incorporated as a small tobacco company in New York City. In 1960, Philip Morris was the smallest among the six major tobacco companies in the United States but by 1983, PM USA had become the largest cigarette company in the country. Today, PM USA is a wholly-owned subsidiary of Altria. In the fall of 2003, Philip Morris USA moved its headquarters from New York City to Richmond, Virginia. Philip Morris USA split from Philip Morris International in 2004. This has caused a drop in the needed cigarette production due to no need for export product. Philip Morris shut down its Concord, North Carolina manufacturing facility in 2008 and moved all domestic production to Richmond.

William F. GiffordPresident and Chief Executive Officer

Craig G. SchwartzSenior Vice PresidentSmokeable Manufacturing

Cliff B. FleetVice President & General Manager, Marlboro

Philip Morris International (PMI) (NYSE: PM) is an international cigarette and tobacco company, with products sold in over 160 countries with 15.6% of the international cigarette market outside the United States. Because tobacco, the main constituent of cigarettes, is considered the single greatest cause of preventable death globally and is considered addictive, the company's operations (and its competitors) are highly controversial and are increasingly the subject of litigation and restrictive legislation from governments concerned about the health impacts of its products.

Until a spin-off in March 2008, Philip Morris International was an operating company of the Altria group. Altria explained the spin-off, arguing PMI would have more "freedom" outside the constraints of US corporate ownership in terms of potential litigation and legislative restrictions to "pursue sales growth in emerging markets. The shareholders in Altria at the time were given shares in PMI, which was listed on the London Stock Exchange and other markets.

The company is headquartered in New York City, but operates through its operational headquarters in Switzerland and does not operate in the United States, with Philip Morris brands there still owned by PMI's former owner Altria. PMI owns 7 of the top 15 tobacco brands in the world and has a mix of international and local products, which are produced in more than 50 factories around the world. PMI employs 75,600 people worldwide.

Its main brands are Marlboro, Longbeach, L&M, Philip Morris, Red & White, Bond Street, Chesterfield, Parliament, Lark, A-Mild, Morven Gold, Muratti, DJI Sam Soe, Rög, Multifilter and Virginia Slim

Philip Morris International

Type Public (NYSE: PM)S&P 500 Component

Industry TobaccoHeadquarters New York City, USA

Lausanne, SwitzerlandKey People Louis C. Camilleri, Chairman & CEOProducts CigarettesRevenue $27.208 billion USD (2010)Operating Income $11.200 billion USD (2010)Employees 78,300 (2010)Website www.pmi.com

Altria Group, Inc. (NYSE: MO) (previously named Philip Morris Companies Inc.) is based in Henrico County, Virginia, and is the parent company of Philip Morris USA, John Middleton, Inc., U.S. Smokeless Tobacco Company, Inc., Philip Morris Capital Corporation, and Chateau Ste. Michelle Wine Estates. It is one of the world's largest tobacco corporations. Philip Morris International was spun off in 2008. In addition, Altria Group, Inc. has a 28.7% economic and voting interest in one of the world's largest brewing companies, UK based SABMiller plc, where it has 3 seats on the 11-person board of directors. It is a component of the S&P 500 and was a component of the Dow Jones Industrial Average until February 19, 2008. The company has its headquarters in an unincorporated area within Henrico County, less than five miles west of the city limits of Richmond and less than ten miles from its downtown Richmond buildings.

On January 27, 2003, Philip Morris Companies Inc. changed its name to Altria Group, Inc. On March 30, 2007, a spin out of Kraft Foods subsidiary (publicly traded since 2001) was concluded through distribution of the remaining stake of shares (88.1%) to Altria shareholders. As a result, Altria no longer holds any interest in Kraft Foods. On March 28, 2008, a similar spin out of Philip Morris International was completed with 100% of shares being distributed to Altria shareholders.

On January 6, 2009, Altria Group, Inc. completed the acquisition of UST Inc. a moist smokeless tobacco manufacturer; UST owned Ste Michelle Wine Estates, a wine company. Altria Group,

Inc. owns 100 percent of Philip Morris USA, John Middleton, Inc. and Philip Morris Capital Corporation. It also owns 28.7% of SABMiller PLC

Activity Net revenuein 2006(millions USD)

Net revenuein 2006(%)

Operatingincomein 2006(millions USD)

Operatingincomein 2006(%)

USA tobacco 18,474 18.2% 4,812 26.5%International tobacco 48,260 47.6% 8,458 46.5%North American food 23,118 22.8% 3,753 20.7%International food 11,238 11.1% 964 5.3%Financial services 317 0.3% 176 1.0%Total 101,407 100% 18,163 100%

Brands

Tobacco

Philip Morris International brands:

Alpine Assos Basic Benson & Hedges (American Version) Best Bristol Bond Street Boston Bucks Cambridge Chesterfield Classic Collector's Choice Commander Diana Delicados English Ovals F6 Lark Long Beach L&M

Marlboro Merit Muratti Multifilter Morven Gold Next Optima Parliament Peter Jackson Philip Morris Players Petra Red & White Saratoga SG Sparta Start Sampoerna (a brand of Indonesian kreteks) Virginia Slims

Wine

Chateau Ste Michelle Columbia Crest Stag's Leap Wine Cellars Conn Creek Red Diamond Snoqualmie Spring Valley Villa Mt Eden Erath Col Solare Northstar Villa Antinori Tormaresca Tignanello Antica Napa Valley Solaia Santa Cristina Haras di Pirque La Bracessca Montenisa Hawk Crest Fourteen Hands

Altria Group, Inc.

Type PublicS&P 500 Component

Traded as NYSE: MOIndustry TobaccoFounded 1985Founders Philip Morris, Kraft Foods, Nabisco Holdings CorporationHeadquarters Henrico County, VA, USArea Served WorldwideKey People Michael E. Szymanczyk

(Chairman) & (CEO)Products Tobacco & WineRevenue US$23.6 Billion (FY 2009)

Operating Income

US$4.86 Billion (FY 2009)

Net Income US$3.21 Billion (FY 2009)

Total Assets US$36.7 Billion (FY 2009)

Total Equity US$4.07 Billion (FY 2009)

Employees 10,400 - March 2009

Website Altria.com

How Philip Morris operates

Philip Morris has two subsidiaries- Philip Morris USA and Philip Morris International. Philip Morris USA caters to the United States market whereas Philip Morris International caters to the overseas markets.

Being a global company with manufacturing and sales facilities throughout the world. 

Wherever we manufacture, it applies the same exacting standards to ensure the premium quality that smokers of its brands have come to expect.

The day to day operations at Philip Morris involve more than just making cigarettes; they are also about the way it does business and interacts with the world outside its offices, both locally and globally.

In every country where its cigarettes are sold, it is guided by the same basic principles.

One of its principal goals is to be a socially responsible company, at both a local and global level. Because of this, it is careful about its image in the society:

It communicates the serious health effects of smoking. Advocating for comprehensive tobacco regulation focused on harm reduction. Supporting the enactment and strict enforcement of laws that set a minimum age to

purchase tobacco products. Working closely with retailers and other partners to implement youth smoking

prevention programs. Working with regulators, law enforcement agencies, and retailers to combat the illicit

trade in counterfeit and contraband cigarettes. Adopting policies and implementing programs to consistently reduce its environmental

impact, using fewer natural resources, reducing greenhouse gas emissions, and producing less waste.

Working with growers and suppliers to promote sustainable tobacco farming.  Working with suppliers, interest groups, and governments to address the problems of

child labor and other abuses in labor markets related to its supply chain. Contributing to improving the local communities through charitable giving, volunteer

activities, and supporting of a wide network of non-profit organizations. 

Philip Morris believes that good corporate governance is a cornerstone of strong business performance. It strives to be transparent in its governance practices and policies and is responsive to its shareholders, while managing the Company for long-term success.

Chapter 3Global foot print of Philip Morris

Best global spread and biggest footprint

Philip Morris International (PMI) products are sold in approximately 180 countries. In 2010 it held an estimated 16.0 percent share of the international cigarette market outside of the U.S. and 42 % outside the United States.

Regional involvement :Asia Pacific, Middle East and Africa,Western Europe, Eastern Europe,Australasia, Latin America,Australasia

PMI has the best global positioning, with amarket volume share of over 30% in 36 markets, including the major markets of Germany, France, Turkey and Mexico.

The company has its largest regional share in Western Europe and Latin America. This is not ideal because Western Europe is in decline and BAT has a bigger share in Latin America.

PMI was the only one of the four international companies which recorded volume growth over 2009-2010.

Chapter 4Brand Portfolio of Marlboro with detailed descriptions

and Product features

Varieties of Marlboro Cigarettes:

Marlboro Reds (Full Flavor): Kings, 100s and 72 mm box Marlboro Medium: Kings and 100s Marlboro Lights: Kings, 100s, and 72 mm box Marlboro Ultra Lights: Kings and 100s Marlboro Menthol: Kings,100s, and 72 mm box Marlboro Menthol Lights: Kings and 100s Marlboro Menthol Ultra Lights: Kings and 100s Marlboro Menthol Milds: Kings,100s, and 72 mm box Marlboro Blend 29 Marlboro Wides Marlboro Filter Plus

Marlboro Reds

Marlboro Full Flavored cigarettes, or Marlboro Reds as they are commonly known because of the red crest on the white pack, are the original Marlboro cigarette and still the most recognizable. They are available in king size (the standard cigarette size) and in 100s (a slightly thinner, longer cigarette).

Marlboro Mediums

Marlboro Medium cigarettes were created to form a middle ground between Marlboro Reds and Marlboro Lights. They have the same signature Marlboro tobacco blend but with slightly less tar and nicotine than the Reds. They are marketed in a white pack with a smaller red Marlboro crest than Reds. They are available in king size and 100s.

Marlboro Lights

Marlboro Lights feature the same tobacco blend as Marlboro Reds but with less concentration of tar and nicotine. Marlboro Lights come in a white pack with a gold Marlboro crest. Lights are available in king size and 100s.

Marlboro Ultra Light

As a concession to rising health concerns, Marlboro developed an Ultra Light brand. Just like the Light cigarette, it features the same blend of tobacco as the Full Flavored Marlboros but with even less tar and nicotine. Ultra Lights come in a white pack with a silver Marlboro crest. Ultra Lights are available in king size and 100s.

Marlboro Menthol

Marlboro also markets cigarettes flavored with menthol. These are marketed in white packs with green detailing and are available in Full Flavored and Light variations.

Marlboro Smooth

Marlboro also markets a second brand of nicotine cigarette with a different flavor blend. They are marketed in a pack with a blue Marlboro crest. Full Flavor king size cigarettes are on the market.

Chapter 5Marketing environment of the world cigarette industry,

major players and their shares in the market

Market environment

The market environment is a marketing term and refers to factors and forces that affect a firm’s ability to build and maintain successful relationships with customers.Three levels of the environment are: Micro (internal) environment - forces within the company that affect its ability to serve its customers. Meso environment – the industry in which a company operates and the industry’s market(s). Macro (national) environment - larger societal forces that affect the microenvironment.

MICROENVIRONMENT of the Cigarette Industry

The microenvironment refers to the forces that are close to the company and affect its ability to serve its customers. It includes the company itself, its suppliers, marketing intermediaries, customer markets, competitors, and publics.

The company aspect of microenvironment refers to the internal environment of the company. This includes all departments, such as management, finance, research and development, purchasing, operations and accounting. Each of these departments has an impact on marketing decisions. For example, research and development have input as to the features a product can perform and accounting approves the financial side of marketing plans and budgets.

The suppliers of a company are also an important aspect of the microenvironment because even the slightest delay in receiving supplies can result in customer dissatisfaction. Marketing managers must watch supply availability and other trends dealing with suppliers to ensure that product will be delivered to customers in the time frame required in order to maintain a strong customer relationship.

Marketing intermediaries refers to resellers, physical distribution firms, marketing services agencies, and financial intermediaries. These are the people that help the company promote, sell, and distribute its products to final buyers. Resellers are those that hold and sell the company’s product. They match the distribution to the customers and include places such as Convinience stores, retail stores, and supermarkets. Physical distribution firms are places such as warehouses that store and transport the company’s product from its origin to its destination. Marketing services agencies are companies that offer services such as conducting marketing research, advertising, and consulting. Financial intermediaries are institutions such as banks, credit companies and insurance companies

Another aspect of microenvironment is the customers. There are different types of customer markets including consumer markets, business markets, government markets, international markets, and reseller markets. The consumer market is made up of individuals who buy goods and services for their own personal use or use in their household. Business markets include

those that buy goods and services for use in producing their own products to sell. This is different from the reseller market which includes businesses that purchase goods to resell as is for a profit. These are the same companies mentioned as market intermediaries. The government market consists of government agencies that buy goods to produce public services or transfer goods to others who need them. International markets include buyers in other countries and includes customers from the previous categories.

Competitors are also a factor in the microenvironment and include companies with similar offerings for goods and services. To remain competitive a company must consider who their biggest competitors are while considering its own size and position in the industry. The company should develop a strategic advantage over their competitors.

The final aspect of the microenvironment is publics, which is any group that has an interest in or impact on the organization’s ability to meet its goals. For example, financial publics can hinder a company’s ability to obtain funds affecting the level of credit a company has. Media publics include newspapers and magazines that can publish articles of interest regarding the company and editorials that may influence customers’ opinions. Government publics can affect the company by passing legislation and laws that put restrictions on the company’s actions. Citizen-action publics include environmental groups and minority groups and can question the actions of a company and put them in the public spotlight. Local publics are neighborhood and community organizations and will also question a company’s impact on the local area and the level of responsibility of their actions. The general public can greatly affect the company as any change in their attitude, whether positive or negative, can cause sales to go up or down because the general public is often the company’s customer base. And finallythose who are employed within the company and deal with the organization and construction of the company’s product.

MACROENVIRONMENT of the Cigarette Industry

The macroenvironment refers to all forces that are part of the larger society and affect the microenvironment. It includes concepts such as demography, economy, natural forces, technology, politics, and culture.

Demography refers to studying human populations in terms of size, density, location, age, gender, race, and occupation. This is a very important factor to study for marketers and helps to divide the population into market segments and target markets. An example of demography is classifying groups of people according to the year they were born. These classifications can be referred to as baby boomers, who are born between 1946 and 1964, generation X, who are born between 1965 and 1976, and generation Y, who are born between 1977 and 1994. Each classification has different characteristics and causes they find important. This can be beneficial to a marketer as they can decide who their product would benefit most and tailor their marketing plan to attract that segment. Demography covers many aspects that are important to marketers including family dynamics, geographic shifts, work force changes, and levels of diversity in any given area.

Another aspect of the macroenvironment is the economic environment. This refers to the purchasing power of potential customers and the ways in which people spend their money. Within this area are two different economies, subsistence and industrialized. Subsistence economies are based more in agriculture and consume their own industrial output. Industrial

economies have markets that are diverse and carry many different types of goods. Each is important to the marketer because each has a highly different spending pattern as well as different distribution of wealth.

The natural environment is another important factor of the macro environment. This includes the natural resources that a company uses as inputs and affects their marketing activities. The concern in this area is the increased pollution, shortages of raw materials and increased governmental intervention. As raw materials become increasingly scarcer, the ability to create a company’s product gets much harder. Also, pollution can go as far as negatively affecting a company’s reputation if they are known for damaging the environment. The last concern, government intervention can make it increasingly harder for a company to fulfill their goals as requirements get more stringent.

The technological environment is perhaps one of the fastest changing factors in the macro environment.. As technology develops it can create new markets and new uses for products. It also requires a company to stay ahead of others and update their own technology as it becomes outdated. They must stay informed of trends so they can be part of the next big thing, rather than becoming outdated and suffering the consequences financially.

The political environment includes all laws, government agencies, and groups that influence or limit cigarette advertisements, sales and distribution . It is important for marketers to be aware of these restrictions as they can be complex. Some products are regulated by both state and federal laws. There are even restrictions as to who the target market may be, for example, cigarettes should not be marketed to younger children. and. As laws and regulations change often, this is a very important aspect for a marketer to monitor.

The final aspect of the macro environment is the cultural environment, which consists of institutions and basic values and beliefs of a group of people. The values can also be further categorized into core beliefs, which passed on from generation to generation and very difficult to change, and secondary beliefs, which tend to be easier to influence. As a marketer, it is important to know the difference between the two and to focus your marketing campaign to reflect the values of a target audience

When dealing with the marketing environment it is important for a company to become proactive. By doing so, they can create the kind of environment that they will prosper in and can become more efficient by marketing in areas with the greatest customer potential. It is important to place equal emphasis on both the macro and microenvironment and to react accordingly to changes within them.

MESO-ENVIRONMENT Marketing intermediaries help to sell, promote, and distribute goods. Intermediaries take many forms. Resellers Physical distribution firms ,Marketing services agencies, Financial intermediaries.

Market Environment of a firm/Industry

Macro Environment Analysis

The Macro environment analysis of the cigarette industry shall be done using:

1) PESTEL Framework

2) PF5 Analysis

3) SWOT Analysis

PESTEL Framework for the cigarette industry

Political- Strict rules & regulations related to advertising, age etc

Economic- Cigarettes, Tobacco products can fair the Economic recession

Social- Acceptance in society decreasing, cognitive dissonance, negative association

Technological - Important to develop manufacturing facilities, product innovation etc.

Porter’s Five forces (PF5) analysis for Cigarette industry

Bargaining power of buyers –High ( Lot of competitors with similar options)

Bargaining power of suppliers – Low (Paper, Tobacco used for cigarette manufacturing are simple commodities

Threat From substitutes - High (Availability of substitutes like bidis, snus etc.)

Current category rivalry- Very High (Differentiation largely by branding, distribution)

Threat of New Entrants – Low to moderate (Maturing Market, distribution problem, punitive legislations etc.)

SWOT Analysis of Marlboro

Strengths

1 . Com pe t i t i on : M ar l bo r o i s a giant in the industry and has a favourable advantage vis a vis competitors.

2 . Su p p l i e r : Co mp any ( Ph i l i p Mo r r i s ) en joy s good relationship withsuppliers.

3 . Lab o r : Co mp any i s ma in t a in i n g harmonious relationship through collective bargaining and HR policies

4.Financially: Philip Morris is financially sound.

5 . P r o duc t i on :   A l l t h e sy s t ems v i z . operational, management, quality assurance are in place.

Weaknesses

1 ) Cus t o mer : T h e cus t ome rs hav e become savvy and they are obsessed to seek out value in their transaction

2 ) Or gan i za t i ona l : T he s t ra t eg i c direction of the company needs improvement

3) M a r k e t : M a r k e t i n g management needs significant improvement.

4 ) HRM: P h i l i p s Mo r r i s   nee ds improvement in HRM.

Oppurtunities

1) Emerging markets like India are a lucrative option

Threats

1) Political- Strict rules & regulations related

2) Innovative Products like low tar, nicotine and electronic cigarettes

to advertising, Target market etc

2) Social- Acceptance in society is decreasing, cognitive dissonance, negative association

Measuring the attractiveness of the Cigarette/Tobacco Industry

Category Size -Declining industry, Languishing Demand & Health concerns

Category Growth –Negative (Increasing consumer awareness about the ill effects of Tobacco)Death toll from tobacco estimated to reach 10M annually

Sales Cyclicity -Not directly impacted by GDP variations

 Seasonality -Weather Condition, Timing of quitting efforts (e.g. new year resolutions)

 Profit Levels -High Competition & Declining margins leading to lowering of profits

Distribution -Very critical, difficult to emulate, High Costs

Capital Requirements -High Distribution costs, Differentiation through branding, flavor &packaging

Factors Attractiveness

Category Size -

Category Growth -

Sales Cyclicity +

Seasonality +

Profit Level -

Threat of new entrants +

Distribution -

Capital Requirements -

Bargaining power of buyers -

Bargaining power of suppliers

-

Threat from substitutes -

Current category rivalry -

Technological +

Economic +

Political -

Social -

PLC of Marlboro

Marlboro is in the Maturity phase of the product life cycle and is considered a cash cow for Philip Morris

Points of differentiation and points of parity for Marlboro

Points of Differentiation:

 Brand Imagery and attitude - Rugged, Macho and Independent.

Packing and Logo - High in recall due to the red colour.

Distinctive Flavor - Nicotine levels are constant, Strong in taste and superior quality.

Points of Parity

Increasing Brand and Product innovation by rival firms

Reducing Brand appeal due to ban on cigarette advertising

Major players in the Cigarette/Tobacco industry

The major players in the cigarette/Tobacco industry are:

Philip Morris (Philip Morris USA and Philip Morris International) British American Tobacco (BAT) Japan Tobacco and Japan Tobacco International Imperial Tobacco Altria R.J. Reynolds

Philip Morris USA is the United States tobacco division of Altria Group, Inc. Philip Morris USA brands include Marlboro, Virginia Slims, Benson and Hedges, Merit Parliament, Alpine Basic Cambridge, Bucks Dave's, Chesterfield, Collector's Choice, Commander, English Ovals, Lark, L&M, Players and Saratoga. On January 27, 2003, Philip Morris Companies Inc. changed its name to Altria Group, Inc. Even under this new name, Altria continues to own 100% of Philip Morris USA (abbreviated PM USA). Some view this name change as an effort by Altria to deemphasize its historical association with tobacco products .Philip Morris USA Inc. home offices and facilities include headquarters, manufacturing, processing and support facilities in the Richmond, Virginia area; sales offices crisscrossing the U.S.; and an office in The Commonwealth of Puerto Rico. Philip Morris USA split from Philip Morris International in 2004.

Philip Morris International   ( PMI ) (NYSE: PM) is an international cigarette and tobacco company, with products sold in over 160 countries with 15.6% of the international cigarette market outside the United States. Because tobacco, the main constituent of cigarettes, is considered the single greatest cause of preventable death globally and is considered addictive, the company's operations (and its competitors) are highly controversial and are increasingly the subject of litigation and restrictive legislation from governments concerned about the health impacts of its products. Until a spin-off in March 2008, Philip Morris International was an operating company of Altria Group. Altria explained the spin-off, arguing PMI would have more "freedom" outside the constraints of US corporate ownership in terms of potential litigation and legislative restrictions to "pursue sales growth in emerging markets. The shareholders in Altria at the time were given shares in PMI, which was listed on the London Stock Exchange and other markets

.

The company is headquartered in New York City, but operates through its operational headquarters in Switzerland.. It owns 7 of the top 15 tobacco brands in the world and has a mix of international and local products, which are produced in more than 50 factories around the world. PMI employs 75,600 people worldwide.

Its main brands are Marlboro, Longbeach , L&M, Philip Morris, Red & White, Bond Street, Chesterfield, Parliament, Lark, A-Mild, Morven Gold, Muratti, DJI Sam Soe, Rög, Multifilter and Virginia Slims

. British American Tobacco p.l.c. (informally BAT) (LSE: BATS, AMEX: BTI, JSE: BTI) is a British multinational tobacco company headquartered in London, United Kingdom. It is the world’s second-largest quoted tobacco company by market share (after Philip Morris International), and has a leading position in over 50 countries and operations in more than 180 countries.[2][4] Its brands include Dunhill, Kent, Lucky Strike and Pall Mall.

Local brands owned by British American Tobacco include Benson & Hedges (Bangladesh) Belmont (Colombia, Chile and Venezuela), Jockey Club (Argentina), Stradbroke (Australia), Hollywood (Brazil), du Maurier (Canada), Prince (Denmark), North State (Finland), HB (Germany),Sopianae (Hungary), Wills (India), Ardath (Indonesia), Carrolls, Carrolls Kings, Grand Parade, Black Allen (Germany), Sweet Afton, Major (Ireland), Boots, Alas (Mexico), Gold Leaf (Bangladesh, Pakistan), Jan III Sobieski (Poland), Yava Gold (Russia),

Courtleigh (South Africa),Parisienne (Switzerland), Maltepe (Turkey) and Xon (Uzbekistan), Marlboro (Bangladesh) Craven A (Vietnam and Jamaica) as well as BAT snus, Holiday, Freedom and Park Drive (New Zealand) Royals (UK), Embassy (Kenya), Viceroy, Newport, Lucky Strike in Dominican Republic and Delta in El Salvador.

BAT has a primary listing on the London Stock Exchange and is a constituent of the FTSE 100 Index. As of 26 December 2011 it had a market capitalisation of £59.2 billion, the sixth-largest of any company listed on the London Stock Exchange. It has a secondary listing on the Johannesburg Stock Exchange.

Japan Tobacco Inc. (日本たばこ産業株式会社 Nihon Tabako Sangyō Kabushiki-gaisha), abbreviated JT, is a cigarette manufacturing company. It is part of the Nikkei 225 index. In 2009 the company was listed at number 312 on the Fortune 500 list. The company is headquartered in Toranomon, Minato, Tokyo The international headquarters are in Geneva, Switzerland. The company traces its origins to 1898. Incorporated in 1949 as the Japan Tobacco and Salt Public Corporation (日本専売公社 Nippon Senbai Kōsha), Japan Tobacco was a state monopoly until 1985, when it became a public company.

It was two-thirds owned by the Japanese Ministry of Finance until June 2004, and the Japanese government share is presently 50%. JT International (JTI), acquired in 1999 from R.J. Reynolds, is an operating division of Japan Tobacco Inc., handling the international production, marketing and sales of the group's cigarette brands. It sells Camel, Salem, and Winston brands outside the USA.

Japan Tobacco also operates in foods, pharmaceuticals, agribusiness, engineering, and real estate. Japan Tobacco completed the largest ever foreign takeover in Japanese history through acquisition of Gallaher Group plc in April 2007.

Japan Tobacco runs the Tobacco and Salt Museum in Tokyo.

JT flagship brands

Cabin (link to Japanese Wikipedia) Camel (outside the USA) Caster Hope Mild Seven Peace Pianissimo Peche Sakura Salem (outside the USA) Seven Stars Winston (outside the USA) Hamlet Benson & Hedges

Other brands

Amadis Amber Leaf Arsenal Aspen Belomorkanal Contessa Crescent & Star Death Doral

Imperial Tobacco   (officially Imperial Tobacco Group plc) (LSE: IMT) is a global tobacco company headquartered in Bristol, United Kingdom. It is the world’s fourth-largest cigarette company measured by market share (after Philip Morris International, British American Tobacco and Japan Tobacco), and the world's largest producer of cigars, fine-cut tobacco and tobacco papers. It produces over 320 billion cigarettes per year, has 51 factories worldwide and its products are sold in over 160 countries. Its brands include Davidoff, West,Gauloises Blondes, Montecristo, Drum (the world's second-largest-selling fine-cut tobacco) and Rizla (the world’s best-selling rolling paper).

Imperial Tobacco is listed on the London Stock Exchange and is a constituent of the FTSE 100 Index. It had a market capitalisation of approximately £24.3 billion as of 23 December 2011, making it the 19th-largest company on the London Stock Exchange.

Imperial Tobacco brands include:

Tobacco

All JTI products in Australia – Camel, More, Mild Seven, etc. Ducados Brandon's Crowns Davidoff Embassy Escort Excellence Fortuna Gauloises Gitanes Horizon John Player Special (JPS)

Lambert & Butler (the UK's best-selling cigarette brand) Mark Fernyhough cigarettes Moon Peter Jackson Peter Stuyvesant Prima R1 Regal Richmond Route 66 Royale Superkings West

Other products

Drum fine cut tobacco Van Nelle fine cut tobacco Golden Virginia fine cut tobacco RizLa+ rolling paper Skruf Snus

R. J. Reynolds Tobacco Company   ( RJR ), based in Winston-Salem, North Carolina and founded by R. J. Reynolds in 1875 is the second-largest tobacco company in the U.S. (behind Altria Group). RJR is an indirect wholly owned subsidiary of Reynolds American Inc. which in turn is 42% owned by British American Tobacco of the United Kingdom.

In 1999, R. J. Reynolds was spun out of RJR Nabisco. The same year, the company sold all its non-US operations to Japan Tobacco, which made those operations into its international arm, JT International. Consequently, any Camels, Winstons or Salems sold outside the US are now actually Japanese cigarettes. On July 30, 2004, R. J. Reynolds merged with the U.S. operations of British American Tobacco (operating under the name of Brown & Williamson). A new parent holding company, Reynolds American Inc., was established as part of the transaction.

BRANDS

R. J. Reynolds brands include Camel, Kool, Winston, Salem, Doral, Eclipse ,and Pall Mall. Brands still manufactured but no longer receiving significant marketing support include Barclay, Belair, Capri, Carlton, GPC, Lucky Strike, Misty, Monarch, More, Now, Tareyton, Vantage, and Viceroy. The company also manufactures certain private-label brands. Five of the company's brands are among the top ten best selling cigarette brands in the United States, and it is estimated that one in three cigarettes sold in the country were manufactured by R. J. Reynolds Tobacco Company. In 2010 R. J. Reynolds acquired the rights to the smokeless tobacco products Kodiak and Grizzly dip.

Global Market share of various Tobacco companies

Source: www.tobaccoatlas.org

Global market share of various companies excluding the Chinese Market

source: Credit Suisse

World’s top Cigarette brands

Source: blog.euromonitor.com

Company profitability and Market outlook

Source: tobaccoatlas.org

Source: euromonitor.com

Chapter 6Competitors of Marlboro

Competitors to MarlboroBrands like “Mild 7”, “Winston”, “Camel”, “LD” (Japan Tobacco) ; Kent, Pall Mall, Viceroy, Dunhill (British American Tobacco) are some of the competitors to Marlboro. Mild 7, Winston, Camel are some of the heaviest competitors to Marlboro.

Chapter 7Strategic pricing analysis for Marlboro

Key elements of pricing and costing for a brand

When considering how a price should be set, there is one fundamental question toaddress: What is the organization trying to achieve? In other words, what is theobjective of setting a price?

How we price a product is important because it will have a direct effect on thesuccess of our business. Though pricing strategy and computations can be complex,the basic rules of pricing are straightforward:

1. All prices must cover costs.

2. The best and most effective way of lowering your sales prices is to lower costs.

3. The prices must reflect the dynamics of cost, demand, changes in the market and response to your competition.

4. Prices must be established to assure sales. Don't price against a competitive operation alone. Rather, price to sell.

5. Product utility, longevity, maintenance and end use must be judged continually, and target prices adjusted accordingly.

6. Prices must be set to preserve order in the marketplace.

Pricing Strategies

Market Skimming – involves charging the highest possible price for a given product.Basically, the provider is making a judgment as to how much customer value isassociated with the product. While charging a price premium, it is important thatthe price is perceived as fair as opposed to exploitative. It is likely that the productwill be aimed only to a small section of the available market and will be perceived as“exclusive” in nature.

Market Penetration – this strategy means keeping prices relatively low in order togain market share. A penetration strategy is likely when one, or more, of thefollowing apply: No product differentiation possible – little to differentiate from competitors;buyers see no added value. Support other products/ services – prices are set low to support the sale ofother products. (e.g., supermarkets sell a few selective lines at cost to attractcustomers). Market presence – highly competitive prices tend to gain market share.Organizations looking to establish a presence in the market or a dominantposition may opt for this strategy.

Price Adaptation – given that segmentation is the basis of much marketingstrategy, it is reasonable to expect segmentation to strongly influence pricing. Pricesmay be adapted to meet the needs of various customer groups (e.g., studentdiscounts, off-peak travelers). However, one needs to be careful to be careful with this as those paying full price may perceive this negatively.

Price adaptation often extends into discount policy. The creative use of discountcan be a major marketing tool. Discounts can stimulate demand and be applieddirectly (e.g., a price reduction) or indirectly (e.g., interest free credit, extendedpayment terms).

Cost-plus Pricing - Used mainly by manufacturers, cost-plus pricing assures that allcosts, both fixed and variable, are covered and the desired profit percentage isattained. All the fixed and variable costs should be included while calculating this; the cost of labor and materials are obvious, but one may also needto include freight costs, administrative costs, and/or selling costs, for.

For example, our product costs $20 in raw materials and production costs, and atcurrent sales volume our fixed costs come to $30 per unit.Our total cost then is $50 per unit.

We decide that we want to operate at a 20% markup, so we add $10 (20% x $50)to the cost and come up with a price of $60 per unit. So long as we have your costscalculated correctly and have accurately predicted our sales volume, we will alwaysbe operating at a profit.

Target Return Pricing - Setting the price to obtain a target return-on-investment(ROI). For example, let us assume that we have $10,000 invested in the company. Ourexpected sales volume is 1,000 units in the first year. We want to recoup all yourinvestment in the first year, so we need to make $10,000 profit on 1,000 units, or$10 profit per unit.

Psychological Pricing - Ultimately, you must take into consideration theconsumer's perception of your price, figuring things like: Positioning - If you want to be the "low-cost leader", you must be pricedlower than your competition. If we want to signal high quality, our product should be priced higher than most of the competition. Popular price points - There are certain "price points" at which people becomemuch more willing to buy a certain type of product. Dropping the price to apopular price point might mean a lower margin, but more than enoughincrease in sales to offset it. A good way to figure this popular price points isto get pricing information from your competition or do a survey with some ofyour potential customers. Fair pricing - Sometimes it simply doesn't matter what the value of theproduct is, even if you don't have any direct competition. There is simply alimit to what consumers perceive as "fair". A little market testing will help youdetermine the maximum price consumers will perceive as fair.

Finally one must remember that the prices should never be lower than the costs orhigher than what most consumers consider "fair".

Doing a strategic pricing analysis for Marlboro

Based on the above mentioned elements of pricing, costing of a brand and various pricing strategies we would be taking three main scenarios/approaches to setting the price of Marlboro cigarettes.

Cost-based pricing: price is determined by adding a profit element on top of the cost of making the product.  Customer-based pricing: where prices are determined by what a firm believes customers will be prepared to payCompetitor-based pricing: where competitor prices are the main influence on the price set

Cost based pricing

When the customers are not too bothered what it costs to make the product – they are interested in what value the product provides them.   

This involves setting a price by adding a fixed amount or percentage to the cost of making or buying the product.  In some ways this is quite an old-fashioned and somewhat discredited pricing strategy, although it is still widely used. 

Cost-plus (or “mark-up”) pricing is widely used in retailing, where the retailer wants to know with some certainty what the gross profit margin of each sale will be. An advantage of this approach is that the business will know that its costs are being covered.  The main disadvantage is that cost-plus pricing may lead to products that are priced un-competitively.

Here is an example of cost-plus pricing, where a business wishes to ensure that it makes an additional $50 of profit on top of the unit cost of production.

Unit cost $100

Mark-up 50%

Selling price $150

How high should the mark-up percentage be? That largely depends on the normal competitive practice in a market and also whether the resulting price is acceptable to customers.

The main advantage of cost-based pricing is that selling prices are relatively easy to calculate.  If the mark-up percentage is applied consistently across product ranges, then the business can also predict more reliably what the overall profit margin will be.

Customer-based pricing

Penetration pricing

If we want to grab market share from the competitors and encourage brand switching behavior among smokers then Penetration pricing suits MarlboroPenetration pricing is the pricing technique of setting a relatively low initial entry price, usually lower than the intended established price, to attract new customers. The strategy aims to encourage customers to switch to the new product because of the lower price.

Penetration pricing is most commonly associated with a marketing objective of increasing market share or sales volume.  In the short term, penetration pricing is likely to result in lower profits than would be the case if price were set higher.  However, there are some significant benefits to long-term profitability of having a higher market share, so the pricing strategy can often be justified.

Penetration pricing is often used to support the launch of a new product, and works best when a product enters a market with relatively little product differentiation and where demand is price elastic – so a lower price than rival products is a competitive weapon.  

Price skimmingSkimming involves setting a high price before other competitors come into the market.  This is often used for the launch of a new product which faces little or no competition – usually due to some technological features.  Such products are often bought by “early adopters” who are prepared to pay a higher price to have the latest or best product in the market. 

Good examples of price skimming include innovative electronic products, such as the Apple iPad and Sony PlayStation 3. There are some other problems and challenges with this approach:

Price skimming as a strategy cannot last for long, as competitors soon launch rival products which put pressure on the price (e.g. the launch of rival products to the iPhone or iPod).

Distribution (place) can also be a challenge for an innovative new product. It may be necessary to give retailers higher margins to convince them to stock the product, reducing the improved margins that can be delivered by price skimming.A final problem is that by price skimming, a firm may slow down the volume growth of demand for the product.  This can give competitors more time to develop alternative products ready for the time when market demand (measured in volume) is strongest.

Loss leadersThe use of loss leaders is a method of sales promotion.  A loss leader is a product priced below cost-price in order to attract consumers into a shop or online store. The purpose of making a product a loss leader is to encourage customers to make further purchases of profitable goods while they are in the shop.  But does this strategy work?

Pricing is a key competitive weapon and a very flexible part of the marketing mix.

If a business undercuts its competitors on price, new customers may be attracted and existing customers may become more loyal. So, using a loss leader can help drive customer loyalty.

One risk of using a loss leader is that customers may take the opportunity to “bulk-buy”.  If the price discount is sufficiently deep, then it makes sense for customers to buy as much as they can (assuming the product is not perishable).

Using a loss leader is essentially a short-term pricing tactic for any one product.  Customers will soon get used to the tactic, so it makes sense to change the loss leader or its merchandising every so often.

Psychological pricingSometimes prices are set at what seem to be unusual price points.  For example, why are DVD’s priced at £12.99 or £14.99? The answer is the perceived price barriers that customers may have.  They will buy something for £9.99, but think that £10 is a little too much.  So a price that is one pence lower can make the difference between closing the sale, or not!

The aim of psychological pricing is to make the customer believe the product is cheaper than it really is.  Pricing in this way is intended to attract customers who are looking for “value”.

Competitor-based pricing

If there is strong competition in a market, customers are faced with a wide choice of who to buy from. They may buy from the cheapest provider or perhaps from the one which offers the best customer service.  But customers will certainly be mindful of what is a reasonable or normal price in the market. 

Most firms in a competitive market do not have sufficient power to be able to set prices above their competitors. They tend to use “going-rate” pricing – i.e. setting a price that is in line with the prices charged by direct competitors.  In effect such businesses are “price-takers” – they must accept the going market price as determined by the forces of demand and supply.

An advantage of using competitive pricing is that selling prices should be line with rivals, so price should not be a competitive disadvantage.

The main problem is that the business needs some other way to attract customers.  It has to use non-price methods to compete – e.g. providing distinct customer service or better availability.

It is difficult to say which component of pricing is more important than another The right product price is the price the consumer is willing to pay, while providing a profit to the firm and all other marketing intermediaries.

Chapter 8Understanding the Marlboro Customer

Origins of the first set of consumers to the current set of consumers

The amazing Marlboro cigarette brand began in England 1847 and was initially targeted at female smokers. Aiming at this market segment was not successful, so in the 1920's Marlboro was re-targeted to female smokers in the United States. In this campaign it was stressed that Marlboro was a 'mild' cigarette. These efforts continued into World War II when the brand was eventually taken off the market.

In the 1950's Marlboro was again introduced to the market, this time on the heels of a stories about the negative health aspects of smoking. At the time, the vast majority of cigarettes being sold were non-filtered. Marlboro was a filtered cigarette, so this clearly was an attempt to win over the health conscience crowd.

Later, during the 50's, the company decided to dump the targeting of women and began promoting Marlboro as a man's cigarette. The first icon of this new change in marketing was the 'Tatooed Man' depicted on this page. Various images of healthy looking, outdoor type began showing up in ads.

The images used in their ads evolved more and more into those depicting particularly macho types. In the beginning, images of naval officers and livestock ranchers made the advertising scene. In 1954, the now well known 'Marlboro Man' was introduced, and by 1963 was the sole representative of Marlboro ads.

Around 1972, Marlboro cigarettes became the most popular brand, and have remained so, for the most part since then.

Marlboro “Mild as May” advertisement targeted at women smokers in 1936

Repositioning of Marlboro as a Men’s cigarette in the 1960s

The Marlboro “Cowboy” Ad in the 1980s

The current status of Marlboro Customers

Geographic Region

Worldwide

Demographic Age- Young adult smoker,18+

Income- Upper middle class

Gender- Males (Primary Target) & Females (Secondary Target)

Occupation- Working professionals, employees, adult students, self employed

Psychographic Lifestyle- Adventurous, Freedom seeking, Non conformist, Independent spirit

Behavioural Benefits- Fun, thrill & Exhilaration

Brand Loyalty- High, Appeal to less price sensitive customers

Chapter 9Brand Improvisations attempted by Marlboro, Brand

Ambassadors and its current Brand Equity

Brand Improvisations attempted by Marlboro

In the 1900's Marlboro was marketed as a cigarette for the ladies. The cigarette brands that survived the end of World War II were the few that were distributed to the soldiers and Marlboro was not one of them. The brand was somewhat revived several years later still being marketed as a brand for the ladies. With the early 50's there began a suspicion that smoking cigarettes had something to do with lung cancer. Filters were generally decided to be the answer but Real Men, which was where the sales dollars were, didn't smoke a filter cigarette. The question then became how to make this cigarette appeal to men? The Leo Burnett advertising agency in Chicago was consulted and came up with campaigns that showed Real Men smoking Marlboro. First came the series with men with a tattoo on their smoking hand, tattoos were masculine then. Next came the long-running cowboy series, all in an attempt to convince the public that men could demand a filter too. The Marlboro Man became as famous as other Leo Burnett creations, the Pillsbury Dough Boy and the Jolly Green Giant. The repositioning of Marlboro as a men’s cigarette presented a lineup of manly figures: sea captains, weightlifters, war correspondents, construction workers, etc.

Brand Ambassadors of Marlboro and the rational in selecting them

“Mild as May” Lady ( To appeal to women smokers)

Real Men (a lineup of manly figures: sea captains, weightlifters, war correspondents, construction workers, etc) with a tattoo (considered masculine) on their smoking hand .

Perhaps the most iconic Brand Ambassador of Marlboro is the Marlboro Man- A rugged Cowboy in natural settings with only a cigarette ( To appeal to Macho Men; a part of repositioning strategy attempted by the Leo Burnett advertising agency).

The Marlboro Man

Harley Davidson Marlboro Man

Brand Equity of Marlboro

Chapter 10Future branding strategy of Marlboro

What should be the future branding strategy of Marlboro

The Present holds the key to the future. Whatever Brand elements (Name, logo, shapes, Graphics) a company chooses should help in sustaining and building equity. Since the current branding strategy is working quite well for Marlboro and has made Marlboro the best-selling brand of cigarettes in the world; a wise decision would be to continue with the existing branding strategy.

Where the Brand is Headed 5-10 years down the line

Source: euromonitor.com

With these Industry projections indicating robust category growth and given Marboro’s favourable brand equity; the Marlboro Brand must continue its market dominance for the next 5-10 years.

How Far Can The Marlboro Brand Stretch?

Given its strong image and personality (masculine, rugged individualism, independent spirit, etc.), the Marlboro brand is capable of being extended into a variety of new product categories. For instance Marlboro jeans and hats and belts could be successful. However, there are several things one needs to consider prior to Brand extension. First, performing typical brand extension research to understand how the brand’s associations are transferred to the new product categories and vice versa.

Second, understanding how current Marlboro consumers, the consumers of the intended new product categories and the general public feel about moving the Marlboro brand into those product categories. It would also be important to determine how extending the brand into new product categories would be perceived by the general public. Having said this, I think the Marlboro brand is quite strong and could be extended into a variety of product categories for which Marlboro’s distinct brand image and personality would seem to be a draw.

References

1) www.en.wikipedia.org

2) www.philipmorrisusa.com

3) www.pmi.com

4) blog.euromonitor.com

5) www.tobaccoatlas.org

6) http://tobaccocontrol.bmj.com