KG Consultants
Philip Morris Case
Futurist Analysis
April 14, 2006
Glenn Kouri Katie Lehane Kate Saul Kim Truba Greg Williams
Futurist Team
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Table of Contents
History of Philip Morris………………………………………………………………..……….3
Competition…………………………………………………………………………………………4
Marketing Strategies........................................................................……...........4
Subsidiaries……………………………………………………………………………..…….…….6
Direction of Philip Morris……………………………………………………………............7
Recommendations…………………………………………………………………………….….9
Works Cited/ References……………………………………………………………………...11
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History
In 1847 Philip Morris, a fine cigar importer, opened his first tobacco shop
in London. He constructed his first cigarette in 1854. Over the next 50 years the
company experienced various ownership changes and an increase in expansion,
ultimately becoming Philip Morris & Co., Ltd. as a small tobacco company in New
York City. In 1960, Philip Morris remained last in the United States tobacco
market, but thanks to Joseph F. Cullman and the increased sales of the Marlboro
brand, Philip Morris was at very the top of their industry by the end of 1983. In
1970, Philip Morris added value to their company by purchasing Miller Brewing.
Over the next seven years Philip Morris brought the once seventh ranked U.S.
brewer to second place in the beer industry. Due to their outstanding amount of
earnings from tobacco, Philip Morris has been able to make numerous profitable
acquisitions to their company. Such additions include: Kraft General Foods, Kraft
International Foods, and General Foods International (with leading products
such as Jell-o, Kool-Aid, and Grape Nuts). Philip Morris has acquired these
companies with the intent to discontinue their huge dependence on tobacco for
revenue and income. Philip Morris added to their success through global
expansion by adding Philip Morris International and increasing their total
distribution channels. With unique and responsible marketing strategies, Philip
Morris has been consistently ranked as one of the top 100 best companies to
work for (Robbins).
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Competition
Philip Morris has experienced very little competition in the tobacco
industry. Over the years, Philip Morris’ Marlboro brand has dominated the
industry. Virginia Slims, Benson & Hedges, Merit, Parliament, Alpine, Basic,
Cambridge, Bristol, Bucks, Chesterfield, Collector's Choice, Commander, English
Ovals, Lark, L&M, Players and Saratoga are all brands owned by Philip Morris.
Reynolds, Brown & Williamson, and Lorillard have their own brands of cigarettes
(Camel, Winston, Salem, Doral, Newport and Kool), but their market share
percentage poses no threats to Philip Morris.
Marketing Strategies
In 1998, Philip Morris signed a tobacco settlement agreement, known as
the Master Settlement Agreement, along with the state attorney generals in 46
states, Florida, Minnesota, Mississippi, and District of Columbia and other major
tobacco supplying companies to limit the amount of advertising, marketing and
promotions of their products.
Under this agreement, the Master Settlement Agreement (MSA) forbids
“the participation of cigarette manufactures to directly and indirectly targeting
youth, restrictions on advertising, marketing and promoting programs and
activities, as well as restricting cartoons, advertising on transit vehicles.”
Outdoor advertising such as billboards along highways, signs in stadiums,
product placement in media and free product samples are also all either banned
or restricted when it comes to advertising the use of Philip Morris products.
Youth targeting is an area Philip Morris is passionate about, so the
younger generation is neither directly nor indirectly targeted. The agreement
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provides the state attorney generals with independent enforcement authority so
they can ensure cooperation with the agreement. Philip Morris believes they
have an important role in helping to prevent youth from smoking, and they
realize the responsibility they hold when promoting cigarettes, is to help prevent
kids from under aged smoking. The company has even gone as far as spending
$600 million on prevention of youth smoking and youth access prevention
initiatives.
Marketing in the media also has restrictions when it comes to advertising
and promoting the activities associated with cigarette manufactures in the
industry. Restrictions include banning the use of cartoons in advertising for
tobacco products, restricting most forms of advertising, such as billboards, signs
in arenas as well as malls, and also arcade games. Advertising on busses, taxis,
bus stands and taxi stations, as well as other public places is also banned. Placing
Philip Morris products in television shows, movies, games and other
performances, is prohibited according to the agreement. The selling of
merchandise, caps, shirts, bags, all bearing tobacco brand names and logos is not
allowed. Philip Morris is very passionate about sticking to the standards and
restrictions of the agreement; they often go above and beyond what is asked so
they are seen as a responsible marketer when it comes to tobacco products.
Neither can you give away free cigarettes or other samples in a public place
besides an “adult-only” area. Philip Morris is very passionate about verifying the
age of customers, they obtain a legible copy of a government-issued ID, which
shows the name, address, date of birth and signature of the smoker, before
considering who their “adult smokers” are. Even though the legal age to smoke is
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18 years, Philip Morris uses the age of 21 years for people to participate in their
brand programs.
In 2000, even though the agreement did not have any specific bans on
advertising in magazines, only the restriction of targeting youth, Philip Morris
went ahead and stopped advertising on the backs of magazine covers, and cut
there advertising spending by almost 100%. Another way Philip Morris reaches
their customers is through direct mail in which they communicate with adult
smokers who have signed up to receive this information, as well as confirmed
their over the age of 21, by providing proper identification. Generally customers
are asking for promotional event information, information about their products
or merchandise information.
Subsidiaries
Phillip Morris is well known as being one of the leading manufacturers of
cigarettes in the world, highest ranked in the United States. Phillip Morris owns
approximately 70 billion dollars of the cigarette industry. With the outstanding
number s and figures in the cigarette industry Phillip Morris decided to expand
their horizons into other leading industries such as the beer, food and financial
services. Following the success of the cigarette industry was the success of the
beer brewing company, ranking them second largest beer brewer in the United
States.
Phillip Morris has expanded with a total of four subsidiaries in Cigarettes,
Beer, Food and financial services. Cigarette companies under Phillip Morris
U.S.A and Phillip Morris International include; Marlboro brands, Virginia Slims,
Benson & Hedges, Merit and Parliament.
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Brands and companies under the Miller Brewing Company in the beer
industry include, Miller Lite, Miller High Life, Milwaukee’s Best, Lowenbrau, and
Sharp’s.
As for the food industry, Foods sold under Kraft’s General foods, Kraft
International, and General foods International are as follows; Kraft Cheeses,
Maxwell House Coffees, Louis Rich Turkey, Oscar Mayer Luncheon meats, hot
dogs, and bacon. Other brands include Louis Kemp Seafood products, post
cereal, jell-O brand Gelatin, Kool-Aid, Sealtest Dairy Products, Breyers Dairy
Products, and Light’n Lively Dairy Products.
Phillip Morris Capital Corporation also offers financial services for major
equipment leasing programs for customers and suppliers.
With that said, Phillip Morris must stay current with the trends and
expansion of themselves and their competitors. In order to remain successful the
CEO decided to set goals for new products such as meeting consumer trends,
expanding geographically, and manufacturing globally.
Direction of Philip Morris
Before getting into the direction of where Philip Morris USA has headed,
we must review how the company has developed strategically and financially.
Philip Morris USA marked its 100-year anniversary in 2002 and still stands by
there mission and goal “to be the most responsible, effective, and respected
developer, manufacturer and marketer of consumer products, especially products
intended for adults. Our core business is manufacturing and marketing the best
quality tobacco products to adults who use them” (“About Us”). There success as
stated will be achieved when they align with society, exceed consumer
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expectations and create long term value (“About Us”). On January 27, 2003
Altria group became the parent company of Kraft Foods, Philip Morris
International, Philip Morris USA and Philip Morris Capital Corporation (“About
Altria”).
Altria’s philosophy as a parent company is to oversee its companies to
enhance shareholder value by focusing on growth, people and a commitment to
responsibility. Both strategic mission statements and values seem to be working
effectively because Philip Morris is the leading cigarette manufacturer in the
domestic tobacco company industry. They are also up-to-date technologically,
with the launch of their website www.philipmorrisusa.com in 1999; they added
information from public health authorities on smoking, disease and addiction
(“About Altria”).
One problem that Philip Morris has faced is the legal and ethical issues of
promoting their cigarettes. In 2003, Philip Morris had a class action suit filed
against them known as the Price Case in Illinois. Plaintiffs alleged that Philip
Morris USA had defrauded “Light” smokers by suggesting them to Marlboro
Lights and Cambridge lights were less hazardous then their full- flavor brands
(“Price Case”). On March 21, 2003, Philip Morris was charged with damages
totaling $10.1 billion but Philip Morris appealed the judgment and in December
of 2005 the Illinois Supreme Court reversed their decision. The Court concluded
that the company was specifically authorized to use descriptors such as “light”
and “low tar” by the Federal Trade Commission (“Price Case”).
Financially, Philip Morris has remained stable and are still increasing
there profit revenues to this day. Philip Morris USA's market share for the fourth
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quarter of 2005 led the industry at 50.0%, according to data from the
IRI/Capstone Total Retail Panel (“About Us”). Altria’s stock price as of April; 10,
2006 was recorded as 70. 04 and had a 52 week high of 78.68 (“About Us”). In
February of 2006, Altria reported a regular quarterly dividend of $0.80 per
common share, and in their 2005 Annual report they declared earnings from
continuing operations up 15.0% to $2.3 billion (“Altria Group..”).
The direction of Philip Morris USA is still growing and remaining very
stable, even though they are manufacturing a product that is potentially lethal.
They have several positions that they stand for against cigarette smoking and
diseases in smokers. The Surgeon’s General Warning posted on every
advertisement and cigarette box they sell states that the products are harmful and
also state on their website ways to quit smoking to reduce health hazards. Philip
Morris is headed in a profitable and positive direction due to their public stances
and positioning on the products they sell and their excellent financial growth
since the parent company Altria overtook them.
Recommendations for Future
A few recommendations to follow up on Phillip Morris would be to stress
the importance of targeting their food market. There food market primarily
consists of fat-free products, beverages, and breakfast cereals. Although their
food division sales did not surpass their tobacco sales it has great potential for
future growth. Currently and in the past Phillip Morris has been concerned with
tobacco products and sales but there the tobacco industry has been declining due
to many health awareness issues of its consumers. Annually the cigarette industry
is declining between two to three percent in America. Tobacco sales have cost the
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company a great deal in the past with various liability issues primarily large
lawsuits being filed against the company. About fifty lawsuits are pending against
the company right now and several will require the company to pay millions of
dollars in damages so the company is obviously losing a lot of money that it could
be gaining in other markets. Tobacco products kill about 4 million people
annually worldwide and that figure may rise to some 10 million, according to the
World Health Organization. Philip Morris is the world's largest cigarette
manufacturer, with just about half of the U.S. market, and over 30% of the
market in at least 19 other countries. So Philip Morris products are responsible
for an astounding number of premature and preventable deaths for a single
corporation. With this in mind steering away from focusing their efforts on
tobacco it would definitely help clean up the image of the company.
Considering the negative aspects with the tobacco industry with the
lawsuits, liabilities, health awareness, and such an overall great cost to the
industry the market for smokers may soon be non existent so Phillip Morris must
focus on their secondary products they offer to ensure a prosperous future.
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Works Cited
"About us." Mission statement. Philip Morris USA. 12 Apr. 2006
<http://www.philipmorrisusa.com/en/about_us/mission_values.asp>.
"About us." Financial Information. Philip Morris. 12 Apr. 2006
<http://www.philipmorrisusa.com/en/about_us/financial_information.a
sp>.
“About Altria." Who we Are. 10 Apr. 2006
<http://www.altria.com/about_altria/1_2_whoweare.asp>.
"About Altria." The Philip Morris Story. Altria. 10 Apr. 2006
<http://www.altria.com/about_altria/1_2_5_4_philipmorrisusastory.asp
#1978>.
"Altria Group, Inc. Reports 2005 Fourth -Quarter and Full Year Results." News
Releases. Altria. 12 Apr. 2006
<http://www.altria.com/investors/02_00_NewsDetail.asp?reqid=810412
>.
Bruno, Kenny . "Philip Morris: Killing to Make a Difference." CorpWatch. 22
2001. 12 Apr. 2006
<http://www.corpwatch.org/print_article.php?id=217>.
"Price Case." Altria.com. 12 Apr. 2006
http://www.altria.com/media/03_06_04_12_01_PriceSummary.asp
Keith, Robbins. “Philip Morris Companies”. Reprint in Melvin R. Mattson,
Marketing Management Case Analysis by Teams. Boston; McGraw-Hill
Companies, 2005. pp-84- 97.
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