Discounting the Marlboro Man

1. Major Facts/Major Problems

- Phillip Morris announced that it planned to cut retail price of Marlboro cigarettes by 40 cent per pack.

- The average retail price per pack is $2.20

- Phillip Morris is the largest tobacco company and Marlboro is by far the largest selling brand in America.

- Liggett introduced generic cigarettes

- The discount stores sold up to $1.00 per pack less then branded cigarettes.

- Phillip Morris entered the discount and house brand business mainly as a defense

- Morris remained the largest tobacco company and it controlled a much smaller portion of the discount segment.

- Their main rival RJR, controls the largest share of this growing market segment.

- They conducted a four week market test in Portland, in which a 40% price cut resulted in market share increase of 3%.

2. Possible Solutions: Marlboro needed to increase market share and grow long term profitability in a sensitive market share environment.

Solution A: Proceed with various cutting measures.

Solution B: Introduce an increased expenditure on advertising.

3. Possible Solutions:

Advantage A: By discounting roughly40cents between the price of Marlboro and discount cigarettes, Philip Morris was able to get back his market share of loyal customers. With the proper price correction with respect to brand value, it will help Marlboro to regain its market share increase it and cement the loyalty of the customers. The difference between Premium brand and discount brand of 80 cents to$1 at that time was thought to be the reason that their balanced sales increased at the cost of Marlboros market share, which was dropped to 26% and was projected that it could decline further to 22% if no action was taken

Disadvantage A: Generic companies and new private label and store brand cigarettes increased their quality and were receiving more attention from customers and retailers. One disadvantage is that by discounting Marlboro too much, you could change the image of its...