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Philip Morris Cutting Prices To Defend Marlboro Against Discounters

April 2, 1993

NEW YORK (AP) _ Philip Morris USA, the biggest U.S. cigarette maker, said today it was undertaking a major shift in its business strategy to compete more effectively with increasingly popular discount cigarettes.

The plans include a massive promotion to reduce what smokers pay for Marlboros, the world’s best-selling cigarette brand.

It also planned to beef up other promotional activities behind Marlboro, which alone accounts for 22 percent of the U.S. domestic cigarette market but costs about $1 a pack more than some discount brands.

Philip Morris said it would hold the line on prices to retailers for its premium brands and expand the distribution of its own discount brands.

The moves will come at considerable cost, however. Philip Morris said operating earnings from its U.S. tobacco business will fall as much as 40 percent this year as a result of the new strategy.

The announcement sent the stock of its parent, Philip Morris Cos. Inc., down sharply. In early trading on the New York Stock Exchange, Philip Morris dropped $13.25 to $50.87 1/2 a share.

″These actions reflect Philip Morris’s commitment to use its full array of marketing and financial resources to further strengthen the consumer appeal of Marlboro,″ said William I. Campbell, president and chief executive of Philip Morris USA.

″It would be irresponsible to our shareholders not to defend Marlboro, the world’s most valuable trademark,″ he said.

Discount brands which are sold for an average of about $1.20 a pack currently account for about 36 percent of sales volume in the $45 billion domestic cigarette market.

Their popularity has accelerated in the past 18 months as the weak economy has driven smokers to buy less expensive brands.

Nonetheless, Philip Morris has resisted price discounting to boost current profits from its higher-priced brands that include Benson & Hedges, Virginia Slims and Merit in addition to Marlboro.

Under the new strategy, Campbell said the objective will be to increase the company’s market share and improve profitability over the longer run.

As part of the plan announced today, Philip Morris said it would give retailers in selected markets over the next few weeks financial incentives to reduce the average price of Marlboro to a level that gets consumers to choose Marlboro over discount brands. The program will last indefinitely.

It also plans to expand its Marlboro Adventure Team promotion in which smokers can trade coupons from Marlboro packs for lighers, clothes and other merchandise.

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