Philip Morris plans $350M in price promos

By Published on .

Most Popular
Philip Morris USA has not run a single magazine ad for Marlboro this year. But while relinquishing the only mass-media venue available for its biggest brand, the tobacco leader continues to aggressively promote brands at retail via discounts and other offers. It plans to invest $350 million in the second half of this year on price promotions for premium brands including Marlboro, and continues programs and events that facilitate customers' interaction and reward their loyalty.

Price promotions remain the biggest marketing tactic for major cigarette companies trying to compete against deep-discount smoke makers.

"Magazines are somewhat of an effective venue for them to advertise, but some of the more effective advertising or promotions are at point-of-sale," said Bonnie Herzog, a tobacco analyst at Salomon Smith Barney.

Brand-building programs and events, however, remain constant. This month Philip Morris launched a "Boot Up" sweepstakes giving smokers who buy a two-pack of Marlboro a CD-ROM containing clip art to design their own cowboy boots. In January, 250 winners will receive a custom-made pair of boots. "It's a way to build equity in the brand, and generate news and excitement," said Billy Abshaw, manager of media programs at Philip Morris.

In addition, Philip Morris is giving smokers more ways to cash in their Marlboro Miles-a nine-year-old program in which consumers redeem "currency" included in each pack for goods from the yearly "Marlboro Cowboy Chronicles" catalog. Since 1998, Philip Morris has held live auctions in bars, enabling consumers to bid on items such as CD players and tents using their miles. It broadened the event in May by adding a "trading post"-a store within bars where smokers can purchase items with miles. That program goes national this fall.

Sweepstakes specialist D.L. Blair, Blair, Neb., and Garden City, N.Y., a unit of Interpublic Group of Cos.' DraftWorldwide, handles Boot Up. Marlboro's Live Auction and Trading Post program was created in-house, and BCom3 Group's Leo Burnett USA, Chicago, handles creative duties for the direct-mail invitations and ads in local newspapers promoting the event in those markets.

"You take the point-of-sale advertising and find a way to roll that into an event where you get visibility for the brand," said Mr. Abshaw, "while also connecting with smokers and rewarding them for being loyal."

Spending more money on price promotions and events instead of advertising "gives us the opportunity to focus our efforts and identify with the people who want us to communicate with them," and avoids spending money or time marketing to nonsmokers, he added.


"They may think that other types of promotions are more effective [than magazine ads] but ... they have to use all the avenues available," said Rob Campagnino, a tobacco analyst at Prudential Securities. "Magazine advertising is effective in influencing consumer choice, but [Philip Morris'] decision to forgo that, at least in the near term, is more a statement about politics," since electing not to advertise a brand that is popular with young-adult smokers could be a positive public-relations move, he said.

Mr. Abshaw would not say whether Philip Morris would resume print advertising for Marlboro, characterizing the absence of ads as "a business decision."

But the store, not magazines, is the place to move the market, according to Ms. Herzog. "If they did no more magazine advertising, I wouldn't expect to see consumption affected at all." Marlboro's shipment share fell in the second quarter, primarily due to retailers loading up on inventory in the first quarter before an April price hike. The brand's market share, based on shipment volume, was 36% in the second quarter, down from 39% in the same period last year, according to company and industry reports compiled by Prudential Securities.

Mr. Campagnino, however, said Philip Morris' mailer two weeks ago that included $36 worth of Marlboro coupons in each piece will drive volume since it presents a significant value for consumers.

Philip Morris' rivals also heavily promote at retail via discounts and in the marketplace using non-traditional means. Brown & Williamson Tobacco Corp. is introducing interactive vending machines in bars in Cleveland and Los Angeles, through which virtual salespeople tell customers about special promotions. The machine recognizes repeat customers after they swipe their credit card and driver's license. "If you try to purchase a competitive product, it will make you an offer for one of our comparable brands," said a B&W spokesman. "We believe there's an opportunity to grow the business through vending machines," which account for 1% of cigarette sales, down from 5% a decade ago.

But Mr. Campagnino thinks vending will remain a small segment and that potential Federal Drug Administration regulation of tobacco could require all cigarette sales to be person-to-person. "Absent a robust brand platform, [No. 3 B&W] is forced to be an aggressive niche player," he said. "That's the way they have to compete."

In this article: