3 Pages Posted: 21 Oct 2008
This brief case is based on published material describing the resurgence of price competition in the U.S. cigarette market. The overall situation is reminiscent of the famous price war known as "Marlboro Friday." There are new competitors in a declining industry, and the new competitors may not be subject to the same rules. The case is intended to be used as follow-up to Marlboro Friday and the East Coast Oil case that describes the subsequent retailing promotions offered by Phillip Morris.
On November 12, 2002, Phillip Morris (PM) shares plunged nearly 14 percent after company officials lowered their earnings target for 2003. Competition from deep-discount brands had contributed to market share declines for PM's brands at levels not seen since just before “Marlboro Friday” in April 1993, when PM stunned the tobacco industry by slashing the average retail price of its flagship Marlboro brand from $ 2.20 to $ 1.80 per pack.
By the end of 1993, the actions of ‘Marlboro Friday' resulted in PM recapturing a retail market share of 27 percent for Marlboro, up from 22 percent that March. Profits, however, did not recover so quickly. In 1992, PM made $ 24.20 for every 1,000 cigarettes it sold in the United States. After Marlboro Friday, the company made just $ 14.42 per 1,000 cigarettes. (note that $ 1.80 in 1993 had the same buying power as $ 2.25 in 2002).2 Not until 1999 did Marlboro's profits per 1,000 cigarettes sold return to pre-Marlboro Friday levels.3
Table 1: Net Wholesale Prices
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Keywords: consumer marketing, pricing
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