Complete Philip Morris Marketing Analysis Essay

This essay has a total of 14242 words and 59 pages.

Complete Philip Morris Marketing Analysis



Definition of Industry

Market Concept

The tobacco industry consists of many competitors trying to satisfy a specific customer
need. Companies such as Philip Morris, RJ Reynolds, Brown and Williamson, and Lorillard
hold almost the entire market share in the tobacco industry. While each company has
different advertising and marketing techniques, they all target the same customer group.

Tobacco companies try their best to generate interest in their particular brand or brands.
Companies market a number of attributes that usually include, but are not limited to:
taste, flavor, strength, size and image in order to distinguish themselves from
competitors (Business Week 179, November 29, 1999). However, all tobacco companies are
satisfying the same needs. Many long-time smokers are addicted to the nicotine in
cigarettes. They smoke because the nicotine is needed to help them feel normal (Focus
group). Many addicts go through withdraw without nicotine. All tobacco companies have
nicotine in their cigarettes, which fulfills the need of long-time smokers.

Other smokers depend on cigarettes in social settings. Many smoke to look sophisticated
and mature. Tobacco companies make many kinds of cigarettes that target different
groups. Social smokers may perceive certain brands as more sophisticated, and therefore
they shy away from other lesser-known brands. For example, a person who smoked generic
cigarettes at the bar may be perceived as uncultured. On the other hand, the smoker with
the Marlboro Lights may be more socially accepted because they have a brand name product
(Focus group). Many types of cigarettes cater to the many markets of smokers who want to
portray a certain image in social settings.

Tobacco companies do not create the need to smoke, but try to generate interest in their
particular brand (Hays, New York Times, November 24, 1999). Overall, the tobacco
companies satisfy consumer demand for the millions of adult Americans who choose to use
tobacco by providing differentiated products to different target markets of smokers.

Industry Concept
The tobacco industry has developed a rather large array of products. Companies such as
Philip Morris, Lorillard, RJ Reynolds, and Brown and Williamson, as well as the other
smaller competitors, all provide the same product- cigarettes.

The tobacco industry is filled with fierce competitors. But underneath the brand names
and images, the product is relatively the same. All tobacco companies produce an inhalant
that is made with tobacco, tar, and nicotine. These materials are rolled in a special
kind of slow-burning paper for longer smoking time. The cigarettes are approximately
three to four inches long and come in packs of twenty to twenty-five. With so many
similarities, one would think that the market would resemble that of a commodity.
However, through brand marketing and promotions, each cigarette is uniquely different in
the mind of the customer.

Boundaries
The tobacco industry can be broadly or narrowly defined. Many products use tobacco as the
main material. We chose to define the market by focusing on the tobacco and the way it is
smoked. Companies such as Philip Morris, Lorillard, RJ Reynolds, and Brown and Williamson
are the main competitors in the tobacco industry (Pollack, Advertising Age, August 30,
1999). They produce cigarettes, which are lit and the smoke is inhaled to the lungs.
Tobacco products such as cigars, snuff, and chew are considered close substitutes to
cigarettes. Cigar smoke is just taken into the mouth, but not inhaled like cigarettes.
Snuff and chew do not even contain smoke, but are put on the skin for nicotine absorption.
Companies such as Imperial Tobacco, which produce a wide array of chew and snuff
products, would be considered a company that provides substitutes to cigarettes. They
would not fall in the cigarette industry itself.


Situation Analysis
Industry Structural Analysis
Threat of Entry
The tobacco industry has a very low threat of entry. A few powerful firms, such as Philip
Morris, RJ Reynolds, Lorillard, and Brown and Williamson, control most of the industry
(Pollack, Advertising Age, August 30, 1999). Any new entrants would be sure to receive
heavy retaliation from the other companies fighting to keep their share of the lucrative
industry. For example, Philip Morris is by far the industry leader with estimated tobacco
sales of $46.7 billion is 1999 (Business Week 179, November 29, 1999). They have a huge
base of resources with which to attack other competitor entrants. They could easily start
promotions such as "buy one, get one free" or offer coupons at certain times during the
year to discourage entrants to the industry. Many small companies will not be able to
compete with the capital requirements in the tobacco industry.

The barriers to entering the tobacco industry are numerous. First, the high volume of
cigarette sales gives existing firms economies of scale, which would be a disadvantage for
newcomers to the market. The products currently on the market are differentiated somewhat
in their design, but mostly through the large advertising budgets that are used to promote
them. Tobacco companies now pour $4 billion a year into promotions and advertising- nine
times what they spent in 1971 (Elliot, New York Times, September 22, 1999). These firms
have finely tuned distribution channels, which include legions of sales representatives
that vie for shelf space. One of the biggest obstacles to a new entrant would be finding
a decent place of the shelf with such heavy-handed competition already occupying that
space. Store managers may be reticent to give away prime slots for fear of losing
discounts or other offers from major players.

Government policy is another possible deterrent to enter the market. Large settlements
against the tobacco companies have been the norm in the past several years. Although
gigantic companies like Philip Morris are able to handle the charges because of their
extensive monetary resources, it is difficult to imagine how a small startup company would
be able to burden the expense.

Switching costs are very high in the tobacco industry. Many smokers are still smoking the
same brand they first started smoking (Focus group). Even if the price of their brand is
raised, they would not consider switching to another brand (Focus group). Many companies
who would want to come into the industry would not easily take away market share, due to
high brand loyalty.

Competitive Rivalry
The tobacco industry is a very competitive market. As mentioned above, about four very
large corporations control the entire market. Philip Morris is the biggest company in the
industry, but others such as Lorillard and growing in brand name (Pollack, Advertising
Age, August 30, 1999). All companies battle for market share through heavy advertising
budgets and slotting deals. The cigarette market is well into the maturity stage of the
PLC, and some might even argue that given the recent anti-smoking campaigns and lawsuits
the industry is nearing the decline phase. However, sales show that decline has not yet
been reached. As mentioned before, Philip Morris has estimated tobacco sales of $46.7
billion (Business Week 179, November 29, 1999). Apparently, brand loyalty still exists.

Buyers
Retailers. The stores that sell tobacco products have a moderate influence on the market.
Retailers have some power over manufacturers who need prime slotting to ensure strong
sales. However, manufacturers have leveraged quite a bit of power by offering retailers
special incentives for giving their products good placement or for installing certain
numbers of brand advertisements around the store. To some stores, such as gas stations,
losing a major cigarette brand would mean large loss of revenues from customers who would
rather go to another gas station to locate their favorite brand.

Also, companies are trying to develop closer relationships with bars and coffeehouses.
Tobacco companies offer ashtrays, napkins, and matches, saving each buyer thousands of
dollars in supply costs (Heuslein, Forbes, January 11, 1999). Retailers now are marketing
the brand on coasters and napkins for the company.

Consumers. The end-users in the industry also have moderate power. Brand loyalty is very
high, and it has been shown that smokers generally chose a brand in their teen year and
continue to smoke that brand the rest of their lives (Focus group). However, in the face
of a dramatic price hike, consumers have been quick to notice that brands are
interchangeable and then go for the lowest price. But the dearth of substitutes for
tobacco products makes it difficult for the industry to lose customers all together.

Suppliers
The suppliers in the tobacco industry have a low level of influence, even though there is
no close substitutes that the industry can use in place of tobacco. Tobacco is purchased
from farmers, who essentially have to take the market-determined price for their crops.
Tobacco is a commodity, so it makes no difference from which supplier a firm buys its
materials. The large number of individual farms that supply the industry makes it almost
impossible for anyone to raise the price. There is not a threat of forward integration
from suppliers because they have none of the tools necessary to manufacture or market
tobacco products. The farmers have only the land and equipment necessary to grow the
leaf. If they were to try to produce cigarettes, they would probably not be able to
compete with the many large companies that have economies of scale (from Threat of Entry
section).

Substitutes
The affect of substitutes on profits is also low. Nicotine can be found in cigarettes, as
well as cigars, chew, and snuff. But most people will not switch over to chew and snuff
if the price of cigarettes rises. Chew and snuff do not substitute for the needs of a
cigarette. Cigarettes are smoked for the nicotine and for social acceptance. Chew and
snuff are not acceptable substitutes for most smokers; the nicotine is not inhaled but put
on the skin for absorption.

Profit Analysis
"Why are tobacco executives still smiling? Simple: They continue to rake in the huge
profits from the category despite a decade-long stagnation in dollar and unit sales
growth." (Arrizza, Discount Merchandiser, p 97) Indeed, the tobacco industry has faced
much opposition during recent years but still remains profitable. To be specific, there
are two main reasons that the industry has continued to be prosperous: addiction and
management practices. Government influence and lobbying have also played a smaller role.

First, the strong addiction of tobacco has allowed for a very loyal following in the
tobacco industry. In fact, most tobacco users are very brand-loyal and therefore less
price sensitive than most would think. Not only does this bring in revenue for the
companies themselves but for the wholesalers and retailers as well. "The average smoker
still smokes 1.2 packs per day, which means strong profits for the industry as a whole"
(Heuslin, Forbes, p 160). Buyer power is lower because the smokers depend on the
cigarettes to fulfill their addictions. On average, the industry's profit on cigarette
sales is about 23 cents a pack. When the average store sells around 25 packs per day, the
industry is bound to make substantial profits (Sullum, Reason, p 18). The loyalty of
customers in tobacco has allowed for a successful forecast of future profits in the
industry.

The management practices of the tobacco industry have also contributed to the industry's
success. For example, The "Retail Masters" program has allowed for strong profits.
"Retail Masters is a multi-level program of promoting brands in the retail environment.
This program has the potential to increase a store's cigarette sales by 11 percent"
(Arrizza, Discount Merchandiser, p 99). Simply by getting better displays and shelf
space, for instance, the tobacco industry could become more profitable. Buyer influence
increases because they have the power to delegate displays and shelf space. Overall, if
the industry were to constantly maintain better displays and shelf space, tobacco
companies as a whole would have a better chance of achieving greater profits.

Also, most tobacco companies are introducing new products in order to keep high profit
margins. RJ Reynolds, for example, is in the final phase of conducting market studies on
its latest product, Eclipse. The company claims the new product reduces second-hand smoke
by nearly 90 percent, ridding itself of ash and odors ( Arrizza, Discount Merchandiser, p
98). Tobacco companies are also trying to get a better public image by producing public
service announcements such as the "Be Smart, Don't Start" campaign. And although the
industry has been under close scrutiny as of late, their customers are impressed with the
message. Again, the marketing management practices behind the tobacco industry bring a
promise of strong future profits.

As already stated, the profits of the industry look to be good, but there are a lot of
changing conditions that might affect the future of the industry. For example, the new
product inventions mentioned above could either help or harm the industry depending on how
well they do. For example, the new Eclipse cigarette will more than likely be imitated by
other competitors, who will also have to invest a great deal of capital to get the product
on the market.

And finally, tobacco companies are having to pay more and more money for court
settlements. Profits can be decreased greatly if money the money is spent defending the
company.

The government is also a very limiting factor to tobacco. Just over the past decade, the
government has passed so many laws that it has forced the tobacco companies to double
their prices on cigarette packs. Although the customers still seem to be buying as they
have in the past, there is certainly a price ceiling that a customer will not be willing
to pay above. It is highly unlikely that the same customers who are currently paying less
than three dollars a pack, will pay ten dollars for a single pack of cigarettes. However,
if the government keeps increasing excise tax and still allots money to the prosecution
during tobacco lawsuits, the industry will be severely handicapped. Overall, as the
restrictions of the government increase and lawsuits are lost, the profits of the industry
are bound to decrease.

Industry Environment
The tobacco industry is an environment with many strong competitors that have many
opportunities in the market. There are also many threats, mostly imposed by the
government. The tobacco companies play off each other for market share and innovate
marketing strategies to fight back and keep the smoking demand.

The tobacco industry has limited media coverage due to government restrictions placed over
the past two decades. The tobacco companies have been prohibited from advertising on
television and radio, and even more recently from billboards and outdoor posters because
of the harmful side effects their products may cause. Since so many channels of marketing
are closed for the tobacco industry, magazines are the most common method of advertising
(Elliot, New York Times, September 22, 1999).

Even with magazines and other legal forms of advertising, tobacco makers are still running
into restrictions. In each magazine advertisement, a Surgeon General's warning is
required to appear with information about tobacco-related health risks that the product
may lead toward. Companies have also been required to create advertisements solely about
the harmful consequences of using tobacco products. These ads were a result of an
advertising war between the tobacco industry and anti-tobacco campaigns. The tobacco
companies were mocking the ads and celebrating those who continued to use tobacco. The
government intervened and required the "tobacco warning advertisements" for all tobacco
companies (Fairclough, Wall Street Journal, B12, 1999).

The government has also intervened with tobacco marketing by altering the slogans and
gimmicks the companies use. The government wants the companies to avoid targeting
vulnerable markets, such as young children and teenagers under the legal smoking age of 18
years.

Since government regulations have become such a threat to the tobacco industry, companies
are coming up with creative ways to advertise and appeal to consumers. Some companies are
developing "smoker's lifestyle magalogs", a combination of a magazine and catalog. The
issues come out monthly and contain articles about travel, cooking, and shopping. The
magalogs do not contain articles about smoking and do not have pictures of people smoking,
but they do advertise tobacco products and accessories. The idea of the magalogs is to
portray an image that a smoker's lifestyle is fun and exciting (Wyatt, New York Times,
C5, November, 24, 1999).

Tobacco companies are hoping these magalogs will persuade the existing smokers to purchase
more. In the past consumers have been proven to remain loyal to one company throughout
their lives, but as tobacco prices have steadily increased several times, more brand
switching from the premium brands to the lower priced one is occurring. The price
increases are decreasing the demand for tobacco products as well. Figures show the number
of smokers has decreased 10% in 1999 (Heuslein, Forbes, January 11, 1999).

One of the main reasons for the price increases in the tobacco industry is that companies
are trying to keep shareholders happy by paying them high dividends. Another reason is
that companies need to cover the higher costs that they have incurred from legal
settlements with state governments. The premium brand companies are also spending more
money on advertising as the prices increase to keep their customers from switching to the
lower-cost brands (Fairclough, Wall Street Journal, B12, 1999).

The tobacco industry has many strong competitors with varied portions of market share. As
of now, the price leader is Philip Morris. When they increase prices, other brands will
follow the lead to avoid price wars. Any attempt to take away market share from the
leader will result in more harm than good for the lower companies with less share. If a
price war were to be started, Philip Morris, with its extensive capital, could easily
outprice all other brands (Porter). The smaller tobacco companies could not compete and
would soon go out of business.

This type of competitive rivalry causes threats to all competitors. The companies with
less market share want to follow the trends to avoid losing share no matter how high costs
are, and they are trying to gain new consumers as well. The competitors have to watch the
price leader carefully to make a competitive strategy. The price leader controls the
industry and sets the "rules of the game".

But the opportunities of the leader and the other companies can be dampened by government
regulations. As more restrictions are being placed in the tobacco industry, all companies
will lose consumers if they do not find successful alternatives to marketing their
products. Once the tobacco gain market share, it is somewhat easy to keep it. The
addictive substances in tobacco products give the industry opportunities to keep consumers
brand loyal and trying their new products.

The environment of the tobacco industry is constantly changing with all of the threats and
opportunities. Tobacco makers rely on the key success factor of image in all that they
do. The new magalogs are another attempt to create a wanted tobacco user's lifestyle, and
they will continue to find alternatives around regulations to keep their image up as they
fight hard in the competitive environment.

Competitive Analysis
We have chosen Philip Morris and their brand of Marlboro. Philip Morris is the industry
leader and is able to heavily promote and advertise a new product. Marlboro is one of the
most well-known brands in the world. We could easily create a line extension and rely on
the brand name for customer loyalty.

The tobacco industry consists of many competitors striving to provide tobacco products
that satisfy the consumer's need to smoke. Companies such as Philip Morris, RJ Reynolds,
Brown and Williamson, and Lorillard are the top four competitors in the tobacco industry
that together hold almost all of the market share. While each company targets the same
customer group, they have different advertising and marketing techniques.

Philip Morris is by far the industry leader with tobacco sales of $46.7 billion (Business
Week, 179, November 29,1999). The industry giant is responsible for the development of
Marlboro, Virginia Slims, and Basic, three of the best-known brands on the market. Other
than producing tobacco products, the company has expanded and purchased Kraft Foods in
1988, the largest food company in the United States in (Business Week 186, November 29,
1999). Kraft's affiliation with Philip Morris has led to much scrutiny from anti-tobacco
users and a decrease in profits. Philip Morris has a strong advantage with the Marlboro
brand. Marlboro is one of the most well-known brands in the world. The brand loyalty to
Marlboro will help Philip Morris keep customers.

Lorillard is responsible for cigarette brand Newport, which is currently second behind
Marlboro (Pollack, Advertising Age, August 30, 1999). Lorillard is the fasted growing
brand in the cigarette category, but is still quite far behind Philip Morris (Pollack,
Advertisng Age, August 30, 1999). Currently, the company is trying to introduce a new
kind of cigarette that would directly compete with Marlboro. The new product would be a
non-menthol cigarette, which is a first in the industry because most companies usually
introduce menthol cigarettes. Lorillard’s strength is shown with its creativity. As long
as they try new products, they can gain some market share from Philip Morris. Also,
Lorillard is undertaking a series of print advertisements to expand on their commitment to
responsibility. They are trying to become a more responsible company in the eyes of the
public.

RJ Reynolds, currently third in the standing, has undergone some recent changes in their
corporation. In March of 1999, RJ Reynolds decided to sell its overseas cigarette unit to
Japan Tobacco Incorporated and concentrate on its United States business (Hwang A3, Wall
Street Journal, March 10, 1999). RJ Reynolds will use the money from the international
sale to pay off large debts and to repostion in the market. RJ Reynolds is responsible
for such brands as Monarch, Doral, and the ever-popular Camels.

The weaknesses of our competitors are the weaknesses of the market. The lawsuits and
government regulations have hindered many people from smoking. In the cigarette industry,
there is not much difference within the products. Therefore, cigarette companies must
market more heavily to increase brand awareness. Finally, the smaller companies must
always watch that they do not compete head on with Marlboro, for fear of retaliation from
Philip Morris.

Competitive Analysis (Part B)
As mentioned before, Philip Morris is the leader in the tobacco industry, with over twice
the market share of its closest competitor, RJ Reynolds. After whom several international
companies such as JTI, the Imperial Group and Brown and Williamson compete for the right
to own the third spot in the industry.

Much like Philip Morris, tobacco companies aim their sites through very general
segmentation strategies—men and women. Indeed, they too rely on a multi-segmented market
to bring in the majority of their sales revenue. Not only that, but tobacco companies use
several line extensions in order to gain market share in an attempt to overthrow the king
Philip Morris. Several recent trends in competitive products have shown just that.

For example, the scientific communities in both the United States and Europe have been
developing new nicotine delivery systems in an attempt to transform the cigarette industry
as we know it. Basically, the idea behind it all is to make a product with a controlled,
gradual reduction in nicotine delivery.

However, these new products are not quite that simple for companies to create. In fact,
only one domestic tobacco company has attempted to commercialize a new type of nicotine
delivery device. A few years ago, RJ Reynolds publicly announced a new type of cigarette
called Premier. It was offered in two test markets in Arizona and Missouri. The markets
did not do well and a little over one year later they closed. Premier was hard to light,
did not burn down the way people wanted them to, smelled and tasted bad. But it had a
number of key attributes: no ashes, very little second-hand smoke, and limited fire safety
problems. (Freedman, 85, 1995)

Maybe if those who had tried it had taken the time to acquire a taste for it, the product
would have established itself as a mainstream smoke. Instead, it eventually failed.
Since Premier’s introduction, RJ Reynolds has continued to work on the product to try to
improve the problems associated with it. This work, along with a large collection of
project ideas on the way, is a strong indication that RJ Reynolds is doing its best to
steal the number one position away from Philip Morris.(Freedman, 85, 1995)

Not only that, but RJ Reynolds is not alone in its pursuit of a better smoke. Other
activity has been noted form tobacco industry companies such as JTI, the Imperial Group,
Procordia A.B., and Brown and Williamson. This can be easily seen as a strong indicator
that several companies have extensive interest in the development of a superior nicotine
delivery device. Through all of this, the outsider can easily see that the competition of
Philip Morris is trying to gain market share in the tobacco industry and eventually
overthrow the strongest company in the industry, Philip Morris. (Freedman, 85, 1995)


Value Chain Analysis
Philip Morris creates value in a number of ways, from product design to getting the
product into the customer’s hand. Many parts of this value chain have been strategically
used to build a competitive advantage in the cigarette industry.

As discussed earlier, research and design are an important part of Philip Morris’
strategy. They are constantly trying to find ways to make their products better, safer,
or more convenient for the customer to use. A product like cigarettes may seem impossible
to improve on, but time and again they have made minor improvements that have added to
their differentiation in the market, such as the flip-top box and the soon-to-be-released
slow-burning paper, which should reduce cigarette related fires significantly. Even
though cigarettes cause cancer and a myriad of other fatal illnesses, Philip Morris wants
customers to know that they are looking out for their safety.

A discussion of Philips Morris’ value chain cannot ignore their operational advantages,
such as the economies of scale they have achieved by being the biggest supplier of tobacco
products in the market. They also have made a number of production oriented advancements
that have allowed them to produce high quality products at sufficiently low cost to buffer
profits.

The marketing aspects of the value chain are the points where Philip Morris has related
differentiated itself. Promotion, distribution, and overall marketing clout and prowess
have made brands such as Marlboro industry leaders and the envy of marketers everywhere.

Distribution is a function which Philip Morris has mastered. Anywhere that sells
cigarettes carries most of their brands, and always carries the top brands such as
Marlboro. Convenience stores, gas stations, discount stores, bars; the list goes on and
on. In distribution, Philip Morris is the industry leader, and the other firms watch and
learn.

Most of Philip Morris’ differentiation has been achieved through aggressive promotional
strategies. They spend a great deal of money and effort getting out the message about
their products in all (legal) media. The campaigns they use are seen as cutting-edge by
customers and the industry. A powerful, inescapable message that Philip Morris brands are
the best cigarettes on the market have been a key factor in the success of the company.

An important ingredient to their formula success has been a clever branding strategy that
seems to leave no segment without the perfect brand. With eighteen individual brands of
smokes, each smoker is almost certain to be able to find one the fits his or her
particular image or lifestyle. And although Philip Morris is a megabrand, it is not a
powerful one. The company name is stamped on all of its products and customers often know
which company produces their brand, but who can say what makes a cigarette a Philip
Morris? The individual brands have much more power than the megabrand, and they are what
have a vivid position in each consumer’s mind. Indeed, Philips Morris’ skillful branding
is a major competitive advantage for the company.

Philip Morris has built and deployed an effective sales force to build strong
relationships with cigarette retailers, and with great success. In any given store, one
is likely to notice Marlboro and the rest of the Philip Morris family in a prominent place
at eye level. The company has also developed a rewards program whereby retailers actually
get paid for giving them freedom in the store. Retailers get points for things like point
of purchase displays, in-store advertising and prime slotting, and of course for doing the
opposite with other companies’ products, and the retailers get money back or credit for
the points. This strategy has given Philip Morris a big advantage at the point of
purchase by making retailers happy.


Linkages
Through the variety of effective linkages Philips Morris has carefully constructed over
their years of deft marketing practices, they have built a competitive advantage that is
seemingly rock solid.

Philip Morris uses its large market share to help it leverage for shelf space. Although
the aggressive sales tactics described above are used to get total retailer cooperation,
they do not have to use such persuasive techniques to simply get good shelf space. No
cigarette seller would think of eliminating Marlboro from their shelves, for instance.
Due to the high demand for their products, buyer (retailer) power is limited. Not all
tobacco companies have this sort of power.

The strong promotional tactics that they employ give them much of the power that they have
over retailers. By giving their products such appeal and differentiation, customers will
not be satisfied without them. This strong demand forces the hands of retailers.

Strategy
At this point, it would be difficult to make very strong recommendations to Philip Morris
for strategic change. The strategy that they have formulated has worked extraordinarily
well for them. As the strong market leader, the most important thing for them at this
point is to not fall asleep at the wheel. They must stay one step ahead of competitors at
all times and resist complacency. A flexible strategy that stays in touch with changing
consumer wants and needs is paramount to remaining on top of the industry.

However, Philip Morris should be using a defensive strategy. From their market leader
position, they should focusing much of their attention on blocking the offensive moves of
competitors to ensure that market share is not eroded. At the same time, they should be
constantly finding ways to improve the current product line. Brands that are weak should
be repositioned or replaced with more appealing ones. Popular brands have to be monitored
to ensure that they remain vital and profitable.

Kotler would suggest building the total market, that is, creating a larger demand for
cigarettes overall. This is a sound strategy, but may be a difficult one for Philip
Morris to pursue, for social as well as legal reasons. Such efforts must be undertaken
with care so as not to offend or prompt litigation.

As long as Philip Morris is able to market their products carefully while avoiding
stagnation, they should enjoy market leadership for a long time to come.


Potential Segmentation Dimensions
There are hundreds of different kinds of cigarettes available in today’s market. It can
be hard to choose which cigarette to buy and pinpointing the differences between brands
can be even harder. Besides brand name recognition, tobacco companies look at
segmentation dimensions in order to clarify whom the cigarette is for and what features it
has to offer to smokers.

When the first studies that indicated lung cancer was directly related to smoking came
out, smokers began to look for substitutes that would provide a healthier alternative.
Philip Morris was the first company to take a step in the right direction by introducing
Marlboro. The filtered cigarettes were believed to be healthier and reduce the chance of
developing cancer. Since then, more companies have introduced their own version of a
healthier cigarette. Tobacco companies introduced such innovations as light and ultra
light cigarettes. Light cigarettes are made with less tar; ultra lights have almost no
tar in them. The concept of light cigarettes opens up the field of opportunity for
smokers. They can now be more health conscious when choosing a cigarette, but light
cigarettes can still cause cancer.

Cost is another concern when it comes to smokers. Research shows that most smokers are
brand loyal and do not pay attention to price, but there is a possibility that some do buy
the cheapest brand available. By offering a lower priced brand, tobacco companies can
help to gain market share and broaden their variety and assortment of products. Not all
current tobacco companies offer a low price cigarette; they tend to focus their strength
on their top brand.

Gender is segmented within the tobacco industry. Brands like Misty’s, Virginia Slims, and
Carlton are aimed at the female population. Men have the Marlboro Man; women have slimmer
and slender cigarettes. The tobacco industry has been trying to also segment ethnicity,
but has failed in the past. One example is the brand Uptown, distributed by RJ Reynolds,
which was aimed at African Americans. Many critics felt that the tobacco industry, as
well as RJR, were exploiting and encouraging minorities to smoke. Virginia Slims is
currently running ads that target many cultures by showing their brand as a cigarette to
be smoked by all women worldwide.

Flavored cigarettes are becoming an industry favorite. Menthol cigarettes used to be the
only choice available for a different taste. In today’s market, there are many
alternatives to menthol and regular cigarettes popping up around the industry. Camel is
currently marketing new citrus and vanilla flavored cigarettes. These cigarettes come in
regular, light, and ultra light varieties and offer a different perspective on smoking.
Camel also is offering different blends of cigarettes that are made with Turkish and
domestic tobaccos, all giving off a different taste.

Marlboro was the first brand to alter the appearance of the cigarette package by offering
a flip-top box. The idea caught on quickly and now most cigarette packages do have the
flip-top box. This little innovation made cigarettes less messy and easier to keep track
of. Today, there are still soft and hard packages being offered to the smoking community.
Each package comes wrapped in a cellophane seal to help protect the box, but can be
removed for immediate use. Cigarette box designs have not really changed much since the
1950s, but there is room for improvement.

Targeting Strategy
Philip Morris has adopted the strategy that they are committed to marketing their tobacco
products to adults who choose to smoke. So what is an adult? By company standards, an
adult is a person who is at least 21 years old.

Philip Morris markets to adults by using a multiple-segment targeting strategy. Product
specialization has worked well for the company over the last forty years. They have
developed a series of brands that are very popular and well known among the smoking
population. Philip Morris has also used market specialization to its advantage. The
Marlboro Man is an example of how market specialization has been a success with the
public.

Marketing Strategy
After a failed attempt to target women in the 1920s and 30s, Philip Morris pulled “Mild As
May” brand cigarettes off the market. At the time, the country was engulfed in WWII and
people were rationing cigarettes. When the war was over, cigarette consumption
skyrocketed, but new studies coupled cigarette smoking with lung cancer. Consumers were
outraged and felt betrayed by their brands. There had never been much shift in brand
preference before, even considering price and model differences. But consumers felt
mislead and dropped their allegiances with old brands.

Philip Morris saw this as an opportunity to reintroduce their “Mild As May” brand, but the
product had undergone a drastic makeover. Trying to attract old smokers who feared lung
cancer, Philip Morris introduced Marlboro brand to the public in 1955. Marlboro was a
filtered cigarette that would be safer for all consumers. There was only one problem;
filtered cigarettes were viewed as sissy and feminine. Philip Morris needed to assure
male smokers that Marlboro was the right cigarette for them.

Marlboro launched a new advertising campaign entitled the “Tattooed Man” campaign. The
“Tattooed Man” gave off the image of a new Marlboro smoker. Men were portrayed as lean,
rugged, merited respect, relaxed, and outdoors oriented. Naval officers, ranchers, and
airmen represented a “Tattooed Man,” all showing that filter cigarettes were not at all
sissy or feminine. The men’s hands were calloused and rough, depicting they were
hardworking and demonstrating that filtered cigarettes were not sissy.

Marlboro developed full-page black and white advertisements that featured information on
the filter and a new flip-top box. The campaign was a success and turned Marlboro into a
top selling filtered cigarette overnight. As the campaign continued, researchers used
different personalities to find the ideal Marlboro representative. The cowboy emerged as
the most popular character and has gone on to represent what a Marlboro cigarette is
today.

When the Marlboro Man was first introduced to the public, Philip Morris had to explain
him. Life ran an article on who and what the Marlboro Man was in January 1957, where each
frame pictured the cowboy talking about freedom, smoking, and ranching out West. The
article’s purpose was to draw in men and make them jealous of a lifestyle that they did
not possess. This introduction led to many more educational ads over the years, which in
turn has led to silent, beautiful image-filled ads featured in present day magazines.
Without words, the Marlboro Man takes you to a place that many consumers have come to know
very well: Marlboro Country.

Consumers have also become very familiar with the Marlboro flip-top box. The design is
very important to Marlboro smokers, as discovered by Forbes magazine in 1987. At that
time, Forbes polled smokers by giving them two different packages of Marlboro cigarettes.
One box was the standard red with black, bold lettering on it. The other box contained
unaltered Marlboro cigarettes dressed in a generic brown wrapping and at half price. Only
21% were interested in the generic brown box, which proves that consumers prefer the
bright red packaging (http://xroads.virginia.edu/CLASS/marlboro/mman3.html). The box
symbolizes membership into an elite club that recognizes the Marlboro Man as their
spokes-person.

Currently, tobacco industry advertising standards are very harsh. Banned from television
and any print media that is targeted at people under 21, Marlboro must make use of its
minimal space. Marlboro Man ads can still be seen in magazines like Time and Life, and
even on some billboards, but overall advertising has diminished. As stated earlier,
Marlboro ads no longer explain anything because consumers are well educated and understand
their meaning. Modern ads depict cattle running through a field, a mountain scene with
wranglers herding cattle, or just the stereotypical Marlboro Man quietly holding his
cigarette in his hand. Men understand the message and privately long to be a true
Marlboro Man, which is what Philip Morris and Marlboro have been working on for over forty
years.


Focus group

The focus group consisted of people with basically the same demographic information. Three
males and three females participated in the focus group, each around the age of 21. Every
person was from the Midwest, and many attended Truman State University. All the
participants in the focus group now smoke Camel Lights or Marlboro Lights.

Almost all the participants smoke the brand they had started with. Friends in high school
were a main factor in deciding which brand to smoke. One girl had even started smoking
the brand her mother used. Many started to smoke a particular brand, became accustomed to
the taste, and have never changed. Price is not even a consideration. Although Camel
Lights and Marlboro Lights have the highest prices compared to most brands of cigarettes,
the people in the group would not switch to another brand even if the price of the
competitor's brand was extremely low. Apparently, the switching costs are high in the
tobacco industry. Each group member feels a high emotional connection with their
particular brand, and would not consider switching brands.

The participants basically smoke because they believe they are addicted to the nicotine in
the cigarettes. Many feel that smoking is a relaxing activity. Some agreed that social
smoking was enjoyable. For example, Female 1 and Male 1 like to smoke while at the bar.
(Interview, p 3) The gas station was a popular place to buy cigarettes, mainly for
the convenience. Some group participants liked to stop at the gas station on their way to
work or school. One participant, Female 3, buys her cigarettes at the bar where she
works, which is convenient for her. Still others, like Female 1 and Male 1, buy their
cigarettes at Walmart because the price is cheaper. (Interview, p 3) Male 1 sometimes has
trouble getting his cigarettes from the gas station after the weekend because they are
usually sold out. Also, the participants prefered hard packs, but most would but a soft
pack if hard packs were sold out.

Overall, the participants were satisfied with the current product. Some participants were
annoyed with the amount of wrapping on the boxes, but others thought that the wrapping
protected the cigarettes better. (Interview p3) The price was considered to be high, but
everyone would pay to get their favorite brand. The participants were dissatisfied with
the soft packaging; the cigarettes were not well protected. Most group members did not
Continues for 30 more pages >>




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