Marlboro Value Pricing

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Transcript of Marlboro Value Pricing

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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!