marlboro value pricing
TRANSCRIPT
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Philip Morris & Marlboro
Philip Morris launched Marlboro as a filter cigarette brand for women
Publication of a study that linked smoking to lung cancerPhilip Morris repositioned Marlboro as a men’s cigarette
Launched ad campaigns with a lineup of manly figures. The Marlboro Man was born
1924
1950
1952
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Philip Morris & Marlboro
Philip Morris Overseas is established as an international division
Marlboro becomes the world’s #1 selling cigarette
Cigarette sales volume tops 400 billion units1991
1972
1955
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Marlboro’s Price Drop in 1993
Philip Morris USA announced a dramatic shift
in its corporate strategy
Concerned about prolonged economic
conditions and depressed consumer confidence
Focused towards building long term profitability given
the highly valuable and price sensitive market
Resorted to “value based pricing” and announced a
price cut of 40 cents a pack which was expected to
decrease earnings by 40%
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Rationale for Value based pricing
• Value based pricing is a pricing strategy in which prices are set according to the perceived value of the product to customers
• Marlboro realized that low priced discount brands and private labels were providing better value to consumers
Customers Value Cost Price Product
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1)Short term bloodbath• Share price dropped 23% in 1 day• $13 billion loss in shareholder equity
Share Price
• Stock price declines for all major consumer goods companies
• April 2 1993 was termed “Black Friday”
Ripple Effect
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Did Black Friday signal the death of premium
pricing & brands?
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No! It signaled the beginning of a
shift from advertising to branding
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2) Medium term turnaround
Market Share increased to 27% within 9 months
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Marlboro realized they could no longer just
emphasize the flavor of its cigarette
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The Marlboro Man stood for a cowboy lifestyle that
was not aspirational enough
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Decided to integrate their product into consumers’ lives
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Promised an experience, an aspirational lifestyle
rather than just the face of a product
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Developed a long standing relationship
with motorsport
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That went beyond the reach of the
law!
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3) Long term benefits• Currently owns 42% of the market, up
from 22% in 1993Market Share
• Currently priced at $5.7 a pack• Cheapest competitor brands are
priced at $4.21 (35% price premium)
Price Premium
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Today..
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SummaryExisting brands, if
managed properly can command loyalty, enjoy
price premiums & be extremely profitable
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DisclaimerThese slides have been created by Tanmay Sah, a final
year PGP student at IIM Lucknow during the course Brand Management taught by Professor Sameer
Mathur
Thank You!