Philip Morris

PROC 5830 Summer 2012

Discounting the Marlboro Man

1. Major Facts / Problems

A. Philip Morris The leading producer of cigarettes in the United States is losing market share of their premium brand cigarette Marlboro to the discount market cigarette.

B. The Cigarette markets fastest growing segment is the discount cigarette.

C. Philip Morris got into the discount market late and only in a defensive move.

D. Profit margins on premium brands are 10 times that of discount cigarettes.

2. Possible Solutions:

A. Philip Morris can lower their prices on their premium cigarettes in order to gain market share. Over a four-week period in one part of the country Philip Morris done this they lowered their price by 40 Cent it resulted in a 3 to 4 percent share increase.

B. Keep the price of their premium cigarettes the same and develop more and better house brands. In addition maybe lowering the price of the discount brands and taking away market share from the discounters.

3. Possible Solutions /Advantages and Disadvantages

A. Advantage: Philip Morris lowers the price of their premium cigarette to gain market share. An advantage of this is instant market share more sales more people are smoking Marlboro Cigarettes. Good thing Right?

AA Disadvantage: Philip Morris totally missed the boat on this one true they were losing market share to discount cigarettes but they enjoyed a premium profit margin. Even if they were down to 10% of the total sales they would still make as much as the other 90% of discounters. Philip Morris pricing strategy was very complicated and expensive to implement it required a whole new marketing and advertisement segment to be established. They were smart in the fact that they did not give up their pricing to the wholesalers if they would have given up their prices then in the current environment they may not have gotten it back.

B. Advantage: By keeping their premium cigarettes the...