Marlboro Friday

     In the early nineties, premium brands were under attack. Household names like Maxwell House, Kraft, and Kool Aid were steadily losing market share to their discount and private label counterparts. Most notably among the victims was Philip Morris’ tobacco giant Marlboro. In an eighteen month span from 1991 to 1993, Marlboro’s market share dropped nearly four percent. It seemed that Marlboro couldn’t compete, so CEO Michael Miles had to take action. On April 2, 1993, Miles made an announcement that would, unfortunately, become part of Harvard Business case study lore. On this fateful Friday, Miles announced that Marlboro would cut their prices a record 20%. The revenue cuts would be offset by a combination of layoffs and SG&A reductions, but company executives still predicted the decrease in pretax profits would be about 40% or $2 billion. The only silver lining is that Miles stated that full efforts would be committed to advertising in order to regain the market share.

The iconic 'Marlboro Man' (source: http://www.tvacres.com/)



                What happened the Monday following the announcement on Wall Street would be unprecedented. First, shares of Philip Morris USA fell 26% followed by significant drops in Marlboro’s competitors. Investor panic that premium brands could not sustain their pricing spread across the consumer products industry as shares of companies like Coca-Cola, Hershey, and even Heinz also fell. All told, on that Monday the Dow fell 68 ½ points. The carnage was widespread. Although there were probably other factors, all fingers seemed to point to Miles announcement as the catalyst for the market decline on a day that would come to be known as ‘Marlboro Friday’.

                Experts at the time thought that this signaled the death of the power of the brand and the birth of the value-minded consumer. Miles would eventually resign as the CEO of Phillip Morris, but his recovery plan would come to pass. In a little more than a year Marlboro would not only recover, but surpass its market share prior to the announcement and its share price would do the same.

                In nearly a decade following ‘Marlboro Friday’ marketers, academics, scholars, and investors have debated what the major take away should be from this incident. While a price war seemed necessary at the time and the desired outcome eventually presented itself, some see it as an act of desperation. In what later became known a ‘Tide Thursday’, Proctor & Gamble remained committed to its brands but not announcing any price decreases in the shadow of declining market share. In fact, P&G actually increased the price on some of its brands. While the value-minded consumer still has influence, the brand is still king of the mountain.

References:

Davidson, D. Kirk, Selling Sin: The Marketing of Socially Unacceptable Products, (Greenwood Publishing: Westport, CT) 1996, 20-21.

Edwards, Jim “Will P&Gs “Tide Thursday” Be The Same As “Marlboro Friday”? CBS Moneywatch May 25, 2009 (accessed February 5, 2012) http://www.cbsnews.com/8301-505123_162-42741647/will-p038gs-tide-thursday-be-the-same-as-pms-marlboro-friday/

Janofsky, Michael, “Tobacco’s Role in Phillip Morris’ Plan” The New York Times November 25, 1993 (accessed February 5, 2012) http://www.nytimes.com/1993/11/25/business/tobacco-s-role-in-philip-morris-plan.html?scp=3&sq=Marlboro%20Friday&st=cse

“Marlboro Friday” Wikipedia (accessed February 5, 2012) http://en.wikipedia.org/wiki/Marlboro_Friday