Discount Cigarettes Were Introduced To The Market

Major Facts/ Major Problems
• Discount cigarettes were introduced to the market in 1981
• RJR Nabisco (Philip Morris biggest competitor) entered the generics market
• The generics sell for $1.00 less than the branded cigarettes due to the fact that the manufacturer does not give the retailer advertising support and use cheaper tobacco
• The generics bypass traditional cigarette distributors, being sold through large retailers
• Philip Morris enter the generics late as a defense mechanism and controls a much smaller portion of the discount segment
• RJR recently cut the price of its leading discount brand, Monark, due to strong competition from smaller competitors
• The generic’s market share has risen to 30% in 1992
• Marlboro’s market share

• Philip Morris understand their targeted market well enough to know that a price decrease will not affect quantity in a significant way
Disadvantage B
• Philip Morris could be forgoing potential new customers or customers that are price sensitive
• If Philip Morris does not discount Marlboro’s they may lose market share and not be able to regain that share of the market
• Philip Morris must be prepared to spend heavily on advertising and promotions, including a rewards program for loyal customers
• The cigarette market is very competitive and there are too many suitable alternatives, therefore higher prices will cause customers to seek suitable alternatives
• Advertising and promotions costs are sunk costs and if the heavy advertising and promotions method does not work Philip Morris will spend double the money instituting a new pricing scheme
Choice and

The pricing and promotions strategy should reflect the value of their products vs. the competitors, figure out what the market will actually pay for the products, aid the brand, help them attain their market share aspirations and maximize the revenues. Before Philip Morris institute their pricing and promotions strategy they should outline their positioning, generate their brand strategy and classify their distribution channels. This will confirm that their pricing echoes their value and their brand. Since the cigarette industry is very competitive, demand is elastic, and regulatory laws can dictate price, Philip Morris must compete on price using continuous promotions and innovation to generate long-term revenues and gain market penetration and market share. This continuous pricing and promotions strategy will directly compete with the generics market without Philip Morris having to create a new product line for generics. Also, this will increase sales and market penetration. This strategy will ensure that Philip Morris is keeping a steady pricing format and not increasing or decreasing the price of Marlboro too often. As I mentioned, pricing and promotions should be long-term and can consist of a variety of methods such as, buy one get one free, coupons for a specific amount off, larger quantities (like 6 more cigarettes