Marlboro Brand Brief

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Branding Brief - Marlboro’s Price Drop By, Musadhiq Yavar PGP31389

Transcript of Marlboro Brand Brief

Page 1: Marlboro Brand Brief

Branding Brief - Marlboro’s Price Drop

By,

Musadhiq Yavar

PGP31389

Page 2: Marlboro Brand Brief

Management Decision and Implications

Phillip Morris on April 2,1993 announced that it

was cutting the price of Marlboro Cigarettes by

20% (~40-50 cents a pack)

Phillip Morris stock price fell from $64.12 to $49.37

a 23% drop that represented a one day loss of ~$13

Billion dollars

Page 3: Marlboro Brand Brief

Why did the Stock Price Fall?

Investors interpreted the price slash as an admission

of defeat from the Marlboro brand, that Philip Morris

could no longer justify its higher price tag and now

had to compete with generic brands.

The share value of other branded consumer product

companies, including Coca-Cola and RJR Nabisco, fell as

well. The broad index fell 1.98% that day.

Page 4: Marlboro Brand Brief

Why did Phillip Morris Drop the Prices?

Economy was still Sluggish

Private labels had increased the quality and received

attention from customers and retailers

Hefty price increases in the recent times(~2-3 times a

year)

Stagnant growth with reducing market share in some

geographical areas

Page 5: Marlboro Brand Brief

Marlboro- Company History

Worlds best-selling cigarette brand.

Flagship Brand of Phillip Morris-World’s largest

manufacturer of cigarettes

Forbes 26th and CNN’s 7th most valuable brand in the

world

It is also the worlds most profitable non-durable

consumer good

Page 6: Marlboro Brand Brief

Marlboro Brand History – 1920’s-1954

Earlier positioned as a premium cigarette

The tip of the cigarette was colored pink to protect

women’s white teeth from yellowing

It was also positioned as a milder version of

cigarette that well dressed man smoked after dinner

Advertising slogan was “Mild as May”

Page 7: Marlboro Brand Brief

Marlboro Brand History – 1954-99

Philip Morris tried to change this image and target

more financially attractive group – young males.

Leo Burnett, an advertising agency was responsible for

repositioning, came out with the idea of presenting

Marlboro brand through archetypal masculine characters.

The cowboy character was the first in the lineup and

the only one was hugely successful

Page 8: Marlboro Brand Brief

Marlboro Man-Success Story

It transformed a feminine campaign, with the slogan

"Mild as May", into one that was masculine, in a

matter of months.

There were many Marlboro Men. The first models

were a Navy Lieutenant and Andy Armstrong.

Page 9: Marlboro Brand Brief

Marlboro Man-Success Story

Within just a year Marlboro from niche brand with 1%

market share went to top 4 position in the U.S. market

It was successful because of the

1.Use of archetypes

2.Visual semiotics

3.The Savanna Principle.

Page 10: Marlboro Brand Brief

Marlboro Country-Advertising Extension

In 1964, the company revived the cowboy but this time he

was in mythical Marlboro Country.

This vivid image paid off in 1971 when cigarette ads were

banned from TV.

The striking print shot of cowboys enjoying a smoke on

horseback continued to fuel sales growth. In 1972, Marlboro

became the No. 1 tobacco brand in the world.

Page 11: Marlboro Brand Brief

Marlboro Friday- Context

Phillip Morris had steadily increased the prices of

cigarettes(2-3 times a year)

Price of a pack of Marlboro’s more than tripled between

1980 and 1992.

There was a $.8-$1 difference between premium brands and

discount brands which increased sales of the discount brands

Marlboro’s Market share dropped to 22% and it would have

further dropped to 18% if Phillip Morris did not do anything.

Page 12: Marlboro Brand Brief

Marlboro Friday- Consequences

By cutting the price, Marlboro was able to narrow difference

to $.4

It was able to woo back customers who had switched to

other brands of cigarettes

Within 9 months, Marlboro’s market share increased to 27%

Years later, Marlboro currently holds 42% of the Market

share and commands a price of $5.70 compared to

competitors $4.20

Page 13: Marlboro Brand Brief

Concepts From Textbook- Price Bands

Consumers rank brands according to the price tiers in a

category

Within any price tier, there is a range of acceptable prices

called price bands.

In some cases consumers infer the quality of a product on

the basis of its price

They use the perceived quality and price to arrive at an

assessment of perceived value

Page 14: Marlboro Brand Brief

Concepts From Textbook Value-based pricing strategies

Perceived value is often a factor in purchase decisions

Thus marketers have adopted value-based pricing strategies-

attempting to sell the right product at the right price.

Hence price has multiple meanings and can play multiple

roles to consumers

Page 15: Marlboro Brand Brief

Understanding Consumer Price Perceptions

Only a few consumers can recall specific prices of products

accurately

When observing a price, consumers compare it with internal

frames of reference(prices they remember) and external frames

of reference(regular retail price)

Most research has found that unpleasant surprises(like stated

price higher than perceived value) have a high impact on

purchase likelihood.

Page 16: Marlboro Brand Brief

Lesson 1 from Marlboro Friday

Strong Brands can command a price premium

This price premium should be within the acceptable

range of the consumers

By cutting the price of the Cigarettes Marlboro

brought the price of the pack within the acceptable

range of the price band

Consequently sales of the brand started to increase

Page 17: Marlboro Brand Brief

Lesson 2 from Marlboro Friday

Price hikes without increase in the value can lead to

vulnerability

Evident from the fact that Marlboro faced competition

from lower priced private label cigarettes

In such cases the consumer is willing to trade down

as the brand does not justify the price it commands

Page 18: Marlboro Brand Brief

Keys for success for Value-based pricing strategy

For effective value-pricing strategy a balance must be

struck between

1.Product Design and Delivery

2.Product cost

3.Product Prices

Proper Design and delivery can enhance value.

Consumers are willing to pay premiums when they

perceive added value in products and service

Page 19: Marlboro Brand Brief

Keys for success for Value-based pricing strategy

The second key to success is to lower costs as much

as possible. Ask the question “Is the consumer willing

to pay for that?”

The final key is to understand how much value

consumers perceive in the brand and to what extent

are they willing to pay a premium over product costs

Page 20: Marlboro Brand Brief

Summary

Marlboro reduced the price of its cigarettes by 20% which

led to stock price falling by ~26%

People perceived it to be the death of brand. In reality

the move was very successful with the brand quickly

gaining market share

Brands must price their product in the consumers price

reference band

Value based pricing strategy should be adopted for

sustainable competitive advantage.

Page 21: Marlboro Brand Brief

DISCLAIMER

The current presentation is created as part of the individual

assignment in the Brand Management course under Prof.Sameer

Mathur in IIM Lucknow