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  1. 1. MarlboroFrom Mass Marketing to New AgePromotionsCase studyReference no 506-018-1This case was written by Bharathi S Gopal, under the direction of TR Venkatesh,ICFAI Business School, Bangalore. It is intended to be used as the basis for classdiscussion rather than to illustrate either effective or ineffective handling of amanagement situation. The case was compiled from published sources.© 2006, ICFAI Business School, Bangalore.No part of this publication may be copied, stored, transmitted, reproducedor distributed in any form or medium whatsoever without the permissionof the copyright owner. Distributed by ecch, UK and USA North America Rest of the world t +1 781 239 5884 t +44 (0)1234 750903 ecch the case for learning All rights reserved Printed in UK and USA f +1 781 239 5885 e f +44 (0)1234 751125 e
  2. 2. 506-018-1 Marlboro: From Mass Marketing to New Age PromotionsOn November 5th 2005, a select crowd of a few hundred people gathered in 49 cities in the U.S.for the 50th birthday bash of Marlboro, the cigarette market leader in the U.S. with more than40%1 market share. Despite advertising restrictions, agreed to by the cigarette marketers in 1998,Marlboro was ahead of its competitors with a market share of 40%. The brand had reached thetop with traditional mass marketing techniques, and continued to hold on to its position byadopting a mix of new age tactics like marketing at live events and bars, promoting Internet chat,sign-ups for promotional offers from customers, price promotions, and direct mail.On the contrary, supporters of the anti-smoking campaigns raised concerns that cigaretteadvertising was done in a camouflaged manner and required more vigilance and stringentrestrictions. Industry analysts were not sure whether Marlboro, with its new age advertisingmethods, would continue to dominate the market in the U.S. in the event of tougher restrictions inthe future.Tobacco IndustryThe tobacco industry comprised of companies that manufactured and marketed cigarettes, cigars,snuff, and chewing and pipe tobacco. The industry was dominated by large companies such asPhilip Morris USA and R.J. Reynolds Tobacco Company. In the mid 1990s, the tobacco industryin the U.S. was in a crisis after being sued by several States for understating the cancer-causingeffects of their products. This was followed by cash settlements, high tax on the profits of theindustry, smoking bans and advertising restrictions. Over the years, cigarette consumption haddecreased and it was even debated whether the industry would survive in the future (Annexure I).During the late 1990s, the demand for premium cigars fell drastically as the market was saturatedwith cheap cigars. Cigar manufacturers started to find new customers by adding exotic flavors.This was a threat to the cigarette manufacturers. Further, the competition was intensified by theentry of cigarillos2, which was perceived as better than the cigarettes, as it provided a longersmoke. Though the market was competitive, there was not much scope for product innovation. Inorder to differentiate their brands, manufacturers used flavors and unique packaging to add valueto their brands and developed premium brand extensions. These brand extensions helped tocapture the urban market. But at the same time, concerns were raised that the cigarettes withflavors attracted teenagers to smoking.In November 1998, the Master Settlement Agreement (MSA) between the Attorneys Generalfrom 46 States of the U.S. and the tobacco companies, aimed at reimbursing States for medicalexpenses related to the treatment of smoking-related illnesses. The reimbursement amounted to$206 billion over a period of 25 years. As a result of this, cigarette companies hiked the priceswhich, in turn, curtailed consumption (Annexure II). The downward sales-trend of cigarettescontinued in 2003. Consumers started to quit smoking because of health concerns, negativepublic attitude towards smoking besides high prices caused by the MSA. Further, marketers wereunable to attract new smokers because of advertising restrictions imposed by the MSA.The industry was invaded by a new breed of cigarette sellers who gave deep discounts bysupplying low-priced cigarettes. In a declining market where price was a major factor, these newsellers grabbed the market share. The increasing prices of cigarettes encouraged smokers topurchase low-priced cigarettes over the Internet. Online retailers gained a cost advantage by1 ‘Leader of the Packs’:, November 23, 2005.2 A cigarillo was a short, narrow cigar that resembled a cigarette. It was wrapped in whole leaf tobacco and contained less additives. Cigarillos were like cigars, where the smoke was not inhaled and hence safer than cigarettes 2
  3. 3. 506-018-1operating in tobacco-producing States with very low cigarette taxes or in areas with low/noexcise taxes. Some Internet retailers also sold counterfeit or smuggled cigarettes at low prices. In2003, the top players launched a counterattack by offering price cuts and increasing advertisingbudgets on their premium brands. This helped to regain the market for the premium and mid-priced brands. But the discounted brands of the online retailers still remained a threat for the lowpriced brands of these players.In 2004, Marlboro marketed by Philip Morris USA (PM) held a market share of about 40%,which was larger than the combined share of the next ten leading brands in the U.S.Philip Morris USAPhilip Morris, a London-based tobacconist was a pioneer in hand-rolled cigarettes in the 1860s.He sold them under the brand names, Oxford and Cambridge Blues. The company opened itsNew York office in 1902 and sold tobacco brands, Marlboro3, Ambridge and Derby. In 1924,Philip Morris introduced Marlboro as a woman’s cigarette and promoted the brand with theslogan, “Mild as May”. The brand started to lose its appeal in the market during World War II.After the war, three new competing brands, Camel4, Lucky Strike5 and Chesterfields6 emerged inthe market. This further weakened the market for Marlboro.In 1942, the July issue of Reader’s Digest7 published an article titled, “Cigarette Advertising:Fact and Fiction”. It was mentioned in the article that all cigarettes were the same and harmful.Further in 1957, Reader’s Digest published another article that linked smoking to lung cancer.Philip Morris identified the opportunity and repositioned Marlboro as a safer cigarette by addinga filter tip. Consumers, unable to quit smoking, moved from established brands to try out newbrands. But Marlboro was initially targeted at a female audience and the new filtered cigarettewas perceived as another product extension. So Philip Morris repositioned Marlboro byassociating the brand with the image of a cowboy, which later on became accepted as the symbolof American culture.In 1967, PM introduced Marlboro 100s, which was relatively a longer cigarette. In 1968, thecompany introduced Virginia Slims for women smokers. The brand image was created keepingthe modern woman in mind. In 1972, Marlboro Lights which contained low tar and nicotine waslaunched. This was followed by further extensions, Marlboro 25s in 1985, Marlboro Ultra Lightsin 1989 and a milder version of Marlboro, Marlboro Mediums. The company responded to thethreat of moderately priced cigarettes by introducing Bristol and Alpine in 1989 and Buck, thefollowing year.After the ban on cigarette advertising on television in 1971, the Marlboro campaign was featuredin magazines, billboards and point of purchase displays. The company responded to the changingcustomer preferences and introduced various line extensions. In the 1980s, the industry wasfacing a decline in the total consumption of cigarettes, but the market share for Marlboro steadilyincreased to about 11% by 1971, to over 20% by 19838.In 1985, the corporate framework of the group was restructured and Philip Morris CompaniesInc. became the parent company of Philip Morris Inc. The group acquired General Foods Corp.3 Marlboro was named after Marlborough, a street in London where the company’s factory was situated.4 Camel was launched in 1913 by R. J. Reynolds Tobacco Company. It was the first nationally marketed cigarette in the U.S.5 Lucky Strike was a non-support brand of R.J. Reynolds Tobacco Company. It was provided the distribution support only.6 Chesterfields was one of the top three brands in the U.S. and was marketed by Liggett & Myers.7 Reader’s Digest was first published in 1922. It was a monthly general interest family magazine. By 2004, the U.S. edition of the magazine reached 12.5 million prints.8 Andrew Hyland, Ray Goldstein, Anthony Brown, Richard O’Connor, K. Michael Cummings; “Happy Birthday Marlboro – the cigarette whose taste outlasts its customers”; 3
  4. 4. 506-018-1for $5.6 billion and its revenues increased by 50% to $25.4 billion in 1986. In 1988, the companyacquired Kraft for $13.6 billion. In 1990, Kraft Inc. and General Foods were combined to formKraft General Foods, which was the largest food company in the U.S. This was followed byfurther acquisitions of Jack’s Frozen Pizza in 1992, RJR Nabisco in 1993 and many others inEastern Europe, former Soviet Union, U.K. and Scandinavia.In 1998, the restrictions laid down by the MSA also affected PM. The company requested that asubstantial amount that each State received as a part of the $206 billion settlement amount, bededicated to Youth Smoking Prevention programs. In addition to this, PM spent $100 million onthe Youth Smoking Prevention program.During January 2003, Philip Morris Companies Inc. changed its name to Altria9 Group Inc. as thecompany wanted to shed its image as a tobacco company and reflect its wide portfolio. In 2004,PM’s total retail share was 49.8% out of which Marlboro had the largest share of 39.5%. Thecompany, headquartered at Richmond, Virginia, was the manufacturer of Marlboro, VirginiaSlims, Benson & Hedges, Parliament, Basic and other brands. Apart from manufacturing, PMalso marketed and sold cigarettes in the U.S. and exported tobacco products. PM was the largestcigarette company in the U.S. in 2005. It led the market10 with a retail share of 50.1% for thethird quarter in 2005 with Marlboro as the leading brand (Exhibit I). Exhibit I Retail Share of PM USA’s brands in second quarter of 2005 Source: Based on data from the IRI/Capstone Total Retail Panel; http://www.philipmorrisusa.comPromoting MarlboroFrom 1950s to 1980sDuring the early 1950s, there were six filter11 cigarettes in the American market. These brandstogether amounted to 10% of the total cigarette sales. The American men perceived that the filtertip cigarettes were feminine. Marlboro, the non-filter tipped cigarette was positioned as ‘Mild asMay’ for women since 1924. In 1936, the company extended the line by adding a red beauty tipto the cigarette and advertised with the slogan, ‘to match your lips and fingertips’. The brandfailed to attract the market and in 1954 sales were about 1%. Analysts felt that the brand’s futurewas dim.9 The New York based Altria Group, Inc. was one of the worlds largest food, beverage, and tobacco corporations and was a component of the Dow Jones Industrial Average.10 IRI/Capstone Total Retail Panel was developed to measure market share in retail stores selling cigarettes. It did not include sales from the Internet or direct mail.11 Six filter cigarettes: Winston, Kent, L&M, Viceroy, Tareyton and Parliament. 4
  5. 5. 506-018-1During May 1954, the company test marketed filter tipped Marlboro cigarettes in the State ofTexas. The cigarettes were in a new package of crush proof flip-top box. The company hiredChicago-based advertising agency, Leo Burnett (Burnett), which changed the red and whitestripes of the package to a solid red chevron12 (Annexure III). The agency was asked to identify amasculine image. In the brainstorming session that followed, the cowboy was chosen to representthe brand. The brand was advertised with the line, ‘Delivers the goods on flavor’. The firstadvertisement of the Marlboro Man was used in Dallas, Fort Worth in early January 1955. Withina span of eight months of Marlboro’s launch, the sales increased by 5000%13 and Marlborobecame the top selling filtered cigarette.Burnett further added more men, who looked tough but polished, in the Marlboro ad. A simplemilitary tattoo on the back of the Marlboro Man’s hand became a part of the campaign till it wasreplaced by the cowboy in ‘Marlboro Country’ in 1962. A Western landscape, a rugged cowboyand the color red became the essential elements of the Marlboro ad and with these elements in thead the brand was recognized even without the brand name, sales pitch or slogan (Annexure IV).In 1963, Philip Morris purchased the rights of the Academy Award nominated soundtrack of themovie, ‘The Magnificent Seven’. This was used as the background music for the Marlboro TVcommercials. This musical score became an integral part of the Marlboro campaign. In 1971,cigarette advertising was banned from television and radio. This led to tobacco companiesadvertising through the outdoor media. Over a period of time, the geometrical red and whitedesign of the packaging was used as point of purchase display on retail counters across the U.S.and other countries. The Marlboro ads also adorned the billboards on the highways in the U.S. ByDecember 1975, Marlboro was named14 as the ‘top selling brand in the United States and the all-time best-seller in the world’. By the late 1980s, the industry was shifting its resources away frombillboards. The colorful and panoramic Marlboro ads made inroads into magazines from Life toPlayboy. In 1989, Marlboro emerged as the best-seller15 with one fourth of the total cigarettesales in the U.S.From 1990s to 2005With advertising on radio and television being banned, the tobacco companies spent $300 millionon billboard advertising alone in 1996. Later on, in 1998, the MSA limited advertising and sportsevent sponsorships by the tobacco industry. The major players in the tobacco industry agreed toremove the billboard ads in stadiums, shopping places and arenas. The MSA also banned thedistribution and sale of merchandise (such as caps, T-shirts and backpacks) with brand names andlogos of the tobacco companies. The ban also extended to the use of cartoons in advertising andpackaging of tobacco products. With restrictions on tobacco advertising, the industry focused onmagazines and other media. In 1998, the advertising expenditure of the industry increased by25% to $375 million. The industry was experimenting with innovative methods such as retailstore displays, direct mail and hosting events to promote its brands. As an industry insidermentioned, ‘All that former advertising money has to go somewhere. The tobacco firms arelooking to create extensive “design languages” in bars and clubs and other venues through theuse of particular types of furniture or material which will make people think of their brands’16(Annexure V).12 An inverted V- shaped design.13 Katherine M.West: “The Marlboro Man: The Making of an American Image”; ibid15 Jamie Doward & Lea Teuscher; ‘Tobacco firms’ subtle tactics lure smokers to their brand’, The Observer, September 25, 2005;,6903,1577892,00.html 5
  6. 6. 506-018-1PM was one of the companies to initiate and adopt new methods to promote Marlboro (AnnexureVI). The company used live events and bars as a platform to host evenings and promotions, andencouraged sign-ups from customers for promotional offers. The company also launched awebsite, where smokers signed up to win discount offers, price promotions, customized mail andengaged in online chat. Marlboro built a database (by the company field sales representatives,through Internet sign-ups and calls to an 800 number17) of 26 million smokers who were sentbirthday coupons and invitations to attend special events like the November’s (2005) birthdayconcerts. The smokers in the Marlboro database also participated in a game, ‘Outwit The West’contest where the winning team (comprising of four members) won a prize money of $1 million.The only mass-market promotion was a cigarette packaging, featuring the special anniversarycover for a short period of two weeks and similar signs in stores.For the loyal customers of Marlboro, a special booklet was mailed. This booklet contained prizesfrom a Zippo18 lighter to a Quarter Horse19. Some of these prizes were redeemed with theMarlboro Miles earned on each cigarette pack purchased, while others were given away insweepstakes20. Marlboro arranged special trips to its ranch in Montana, where its customers werepampered with gifts, meals, drinks, and massages, and were involved in outdoor activities likesnowmobiling and horseback riding. The company believed that treating customers with suchextravagance built loyalty. As one customer mentioned, ‘I’d never smoke another brand ofcigarette.’21To add new customers, Marlboro enticed retailers with price cuts, in-store promotions and otherdeals. According to the Federal Trade Commission22, out of the $15 billion spent in 2003 ontobacco marketing, nearly 80% was spent on discounts and incentives to retailers. A retailer whoowned 22 Kent Kwik Convenience Stores in Midland, Texas, paid $5.50 less for a carton ofMarlboros as compared to a carton of Camels. In turn, the retailer gave 66% of his cigarette shelfspace to Marlboro. He mentioned that PM offered him a better deal than the other cigarettecompanies and went on to say that Marlboro was the dominant brand in his market.It was believed that the company was on a successful path with its marketing campaign whichwas not only followed by other marketers23 but also its competitors. Competitors of PM wereunhappy about the advertising restrictions and felt that they had no choice but to follow theleader, Marlboro. Tommy J. Payne, Executive Vice President of External Relations, R.J.Reynolds Tobacco Co. mentioned that his company used the same direct marketing tactics as PMand added,‘If you have 50% of the domestic market and the ability of your competition to react to that (islimited), you don’t have to have a Harvard MBA school degree to know who benefits. It’s thebigger brand.’2417 The 800 number was a toll free number in the U.S.18 Zippo Manufacturing Company, established in 1932, was the maker of the world-famous windproof lighter with the lifetime guarantee. The company’s diverse line included pocket knives, key holders, money clips, writing instruments and measuring tapes.19 The Quarter Horse, named for its extraordinary speed over a quarter of a mile, was Americas most popular and successful breed. In the fifty-seven years from the beginning of registration in 1940 nearly 3 million horses were registered and the breed was represented in over sixty countries around the world. Traditionally, the horse of the Western ranches and the short distance racetrack, the Quarter Horse competed for huge prizes on the racetrack and in many other events.20 A sweepstakes was a lottery in which the prize was financed through the tickets sold. In the U.S., it was associated with promotions where prizes were given away for free. They were called prize draws in the United Kingdom. The term ‘sweepstakes’ was derived from the Irish Sweepstakes which became popular from the 1930s to the 1980s.21 Michael Thomsen, a pack-a-day smoker from Wake Forest, N.C., was gifted a ranch trip on his birthday in 2004.22 The Federal Trade Commission was founded in 1914 to prevent unfair methods of competition in business in the U.S. The Congress, over the years, passed additional laws and gave more authority to police anticompetitive practices.23 Other companies to benefit from viral advertising were General Motors, Audi and Axe deodorant.24 ‘Leader of the Packs’:, November 23, 2005. 6
  7. 7. 506-018-1What Next?The MSA ended tobacco advertising in its traditional form. But it gave Marlboro an opportunityto understate its promotional campaign, be more aggressive in retail stores, and creative in itsmedia plan. Experts said such marketing was becoming popular. Gerard Hastings, Director,Institute for Social Marketing and Centre for Tobacco Control, Stirling University25 added, ‘Themore subtle the message, the more likely it is to be accepted. If you see something blatant, itforewarns you. But if it’s something subliminal it will go under the radar.’26At the same time, health experts were satisfied at the decreasing smoking levels in the U.S. Butthere was still criticism about Marlboro’s tactics. Apart from the legislation, PM had self-imposed tougher restrictions on ads and kept its ads out of magazines. But concerns were raisedabout Marlboro’s marketing plans. As Amanda Sandford, Research Director of the anti-smokinggroup ASH27, pointed out, ‘Cigarette advertising is going underground, it’s becoming morecovert. This just shows the need for greater vigilance’.28With stringent laws, the landscape of tobacco advertising in the U.S. had certainly changed and itwas felt that the legislations would continue to be tougher in the future. In an environment withincreasing restrictions on advertising would Marlboro continue to be the market leader?25 Stirling University was located at Scotland, U.K.26 Jamie Doward & Lea Teuscher; “Tobacco firms’ subtle tactics lure smokers to their brand”, The Observer, September 25, 2005;,6903,1577892,00.html27 Action on Smoking and Health (ASH) was a non-profit, tax-exempt, legal action and antismoking organization based in the United States. It was solely devoted to the problems of smoking. Its principal activity was to serve as the legal action arm of the nonsmoking community, bringing or joining in legal actions related to smoking, and insuring that the voice of the nonsmoker was heard. It also served as an advocate of the nonsmokers rights movement.28 Op cit Footnote 26: “Tobacco firms’ subtle tactics lure smokers to their brand”;,6903,1577892,00.html 7
  8. 8. 506-018-1 Annexure I Cigarette Consumption in the U.S. from 1991 to 2005Source: Thomas C. Capehart, Jr.‘Trends in the Cigarette Industry After the Master Settlement Agreement’; Annexure II Trends in Cigarette Prices from 1990 to 2001Source: Thomas C. Capehart, Jr.‘Trends in the Cigarette Industry After the Master Settlement Agreement’; 8
  9. 9. 506-018-1 Annexure III Marlboro Pack DesignSource: 9
  10. 10. 506-018-1 Annexure IV Advertising History of 10
  11. 11. 506-018-1 Annexure V Trends in Cigarette Marketing & PromotionSource: Annexure VI Marlboro’s Subliminal MessagesIn Britain’s up market bars and music events, Philip Morris attempted ‘experiential marketing’. Thefurniture and design were used to subtly convey the brand’s strengths. The company offered financialincentives to managers to fill their bars with furniture bearing the Marlboro logo and place brandedashtrays and vending machine in areas where smoking was allowed.PM also communicated through themed bar areas or installations which were put up at major socialevents without the brand name or the logo being featured. These installations were known asMarlboro Motels. They contained lounge areas with comfortable red sofas placed in front of videoscreens showing scenes from the Wild West. This reminded the message of the Marlboro country.PM also created ‘chill out’ smoking areas, which featured a sofa shaped like a bath tub. This gave animpression to the smokers that it was area where they could relax and subtly suggested that Marlborocould help them deal with stress.PM also trained its marketing teams with scripts to use while interacting with bar managers and eventpromoters. The script had statements like, ‘Our customers are your customers’, ‘Nearly 80 per cent ofMarlboro smokers are ABC1, aged 18 to 35’ and ‘Marlboro is arguably the world’s best known brandafter Coco-Cola’. This was a part of a comprehensive plan to target affluent smokers aged between 18and 35. PM also wanted to make its presence in high-profile music events where attractive female‘Marlboro models’ sold cigarettes.Source: Jamie Doward & Lea Teuscher; ‘Tobacco firms’ subtle tactics lure smokers to their brand’, TheObserver, September 25, 2005;,6903,1577892,00.html 11
  12. 12. 506-018-1 References1. ‘Leader of the Packs’; November 23, 2005; /05_44/b3957107 .htm; accessed on November 23, 2005.2. Andrew Hyland, Ray Goldstein, Anthony Brown, Richard O’Connor, K. Michael Cummings; Happy Birthday Marlboro – the cigarette whose taste outlasts its customers; 50%20years%20of%20marlboro%20compiled%2020051121.pdf3. ‘The Marlboro Man Meets the Surgeon General’; Thomas C. Capehart, Jr.‘Trends in the Cigarette Industry After the Master Settlement Agreement’; Jamie Doward & Lea Teuscher; ‘Tobacco firms’ subtle tactics lure smokers to their brand’, The Observer, September 25, 2005;,6903,1577892,00.html6. ‘Marlboro Man Hangs up Billboard Hat’; April 23, 1999; Usha Ramachandran, ICFAI Knowledge Centre; Case study on ‘From “Philip Morris” to “Altria”’8. Bruce Isaacson and Prof. Alvin Silk, Harvard Business School; Case study on ‘Philip Morris: Marlboro Friday (A)’9. ‘The Marlboro Man’;; accessed on December 6, 2005.10. Stacy Flaherty & Mimi Minnick, November 2000; ‘Marlboro Advertising Oral History And Documentation Project, ca. 1926-1986’;; accessed on December 6, 2005.11. ‘The Marlboro Man: 1954-1962’;, accessed on December 6, 2005.12. ‘History of Cigarette Advertising’; accessed on December 20, 2005,;13. ‘Industry Brief: Cigarettes’, August 28, 2003; ‘Tobacco Industry Marketing’, September 2005; accessed on November 24, 2005; http://www.philipmorrisusa.com16. www.altria.com17. www.tobacco.org18. www.who.int20. www.ftc.gov21. www.npr.org24. www.wikipedia.com25. www.answers.com27. 12