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Philip Morris

Decent Essays

1. How would you describe Marlboro 's competitive position in early 1993?

Marlboro, the leading cigarette brand for Philip Morris, was the dominant player in the premium priced market. While RJR was the second largest player in the market, RJR’s cigarette brands were fragmented. At the end of 1992, Marlboro had 24.4% unit market share, while each of the RJR brand cigarettes had less than 7% market share. Philip Morris, at 53% operating contribution margin, was significantly more profitable than RJR, at 34% operating contribution margin.

Marlboro was essentially backed by the biggest, most profitable player – Philip Morris. Philip Morris was also the consistent market share leader, at least since 1988, over RJR and other much smaller …show more content…

RJR

Phillp Morris was also presumably worried about the aggressive price cuts and promotions by RJR to increase its market share.

Goals of Philip Morris Strategy

Philip Morris needed a aggressive competitive response to tacklethe threats of: declining market share, increasing share of discount brands, regulation, and RJR’s promotions and price cuts. They decided to aggressively attack the existing discount brands and make the Philip Morris brand significantly more price competitive.

Philip Morris effectively cut price by 20%, creating 2 tiers of cigarette pricing (from 3 tiers before). Their premium products were now significantly more competitive, compared with the discount brands due to their reduced price and existing strong brand image. Philip Morris were betting that a large portion of consumers would compare their premium product as price competitive with the discount brands, and would chose Marlboro due to its superior brand image and comparable prices. They essentially wanted to win the pricing game and lead with their brand. Surprisingly, they slightly increased the price of their discount brand by a mere 6 cents. This was probably to restrict the range in which the pricing war could be played by other players.

Industry Outlook for Philip Morris

Surely with the consumer behavior shift and the increasingly hostile regulatory climate described above, Philip Morris views the industry margins becoming thinner and realizes

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