Abstract
[Page --5033]
"If the domestic market is going to survive at all, it must attract new smokers...continued attention to their motivations is obviously very important..."
[Page --5042]
"...Smokers concerne about their own health--is a prob lem of a different order of magnitude. This is where the industry is most vulnerable and is making the least productive effort. For thirty years the industry has addressed this area by lowering tar. That is an approach which apparently no longer satisfied smokers and which certainly will never satisfy critics of smoking. The industry is vulnerable for two reasons. First, failure to solve the problem could lead to decreased sales...Second, because of the tobacco industry's commitment to tobacco, the solution may come from outside the industry. There are two possible approaches to the problem. The difficult approach, which is naturally favored by the industry, is to start with tobacco smoke as a given and try to modify it. An approach which is much easer, which is naturally abhorrent to the tobacco industry, and which would naturally be favored by outsiders, is to start with nothing and add to it until smokers are satisfied.
265000/5045 URL: http://www.pmdocs.com/getallimg.asp'DOCID=2001265000/5045
User-Contributed Notes
- Philip Morris 1984 market share and new smokers.
- Philip Morris 1984 market share.
Fields
- Quotes
(from page 3) 1. In 1954 industry sales were depressed because of adverse publicity about smoking resulting from The Report of the Royal College of Physicians and Surgeons. That irregularity, as we will see later, is far more interesting because of its effect on industry composition than because of its effect on industry sales. 2. In 1964 industry sales were again depressed because of adverse publicity resulting from the Surgeon General's report. The year before, 1963, had marked the highest level of per capita consumption. If per capita consumption in 1983 had been at the 1963 level, industry sales in 1983 would have been...145 billion units [cigarettes] higher... ...4. The decrease in sales in 1983 was due to the price increase resulting from the excise tax increase. It is interesting to note that the effect of that price increase on industry sales was greater than the effect of the 1954 and 1964 smoking and health publicity... ...6. ...the years from 1961 to 1976 were the years when large numbers of post-war babies reached smoking age. In spite of that, industry sales increases during that period were not unusually large. The effects of the Surgeon General's report and the anti-smoking advertising of the late 1960's may have been greater than we thought. (From Page 10) If the domestic cigarette market is to survive long-term, it must have a constant influx of new smokers.... C. Declining Mode A brand gains smokers two ways: new smokers begin by smoking the brand, and people who already smoke switch to the brand. A brand loses smokers three ways--smokers of the brand switch to another brand, quit smoking and die....Holding a constant share is a difficult task for most brands. To do so, the number of smokers switching to those brands must exceed the number switching away, quitting and dying. Unless a brand can constantly attract its share of beginning smokers, share decline is an inevitable and self-perpetuating situation... (Page 20)... Switching to filters was motivated primarily by smoking and health publicity...filters probably also had the advantage, especially among women, that they kept tobacco particles out of the mouth and helped to keep them out of the pocketbook... (from Page 21) 8. Menthol Trends ...Salem had a taste (menthol) whose primary appeal was to women, in a form (filtered) which was favored by women, when there were large numbers of new women smokers in the market, and when there was smoking and health motivation toward anything with positive health connotations. Menthol was cooler, less irritating, and medicinal. (From Page 26-28) V. New Smokers ...We need not try to understand why young people have a herd instinct. >From their choices of food, clothes, transportation, entertainment, heroes, friends, hangouts, etc. it is clear that they do. More important to us...us why they make certain choices instead of others. The cigarette market offers a few clues. Marlboro's growth and, presumably its position as the brand of choice among new smokers, coincided with the Marlboro Country campaign. That was certainly a remarkable campaign and one that probably did appeal to young people... (Page 31) ...If the domestic market is going to survive at all, it must attract new smokers. If new smokers choose brands as they have in the past, continued attention to their motivations is obviously very important.
- Company
- Philip Morris
Document Images
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4
If the report has served tts purpose and Is no
longer needed, please return It Immediately to
the Central File at the Research Center for
record keeping purposes and destruction.
Copy Number:
84-309
37
Issued To: oJ. I- nj.a/I
Accession Number:
.
PHILIP M U R R I S USA
RESEARCH CENTER
RICHMOND, VIRGINIA
i
CHARGE NO. & TITLE:
TYPE REPORT: 0 ANNUAL 0 SEMIANNUAL 0 COMPLETION ® SPECIAL
DATE: December 12, 1984 PERIOD COVERED:
REPORT TITLE:
CIGARETTE MARKET HISTORY AND INTERPRETATION
r
5
~ THIS REPORT IS CONFIDENTIAL TO THE BUSINESS OF THE
COMPANY: IT SHOULD BE CAREFULLY HANDLED, IS NGT
TRANSFERABLE TO ANOTHER INDIVIDUAL, AND IS NOT TO
BE PHOTOCOPIED.
BY
APPROVED BY
DISTRIBUTION:
KEYWORDS:
Mr.
Mr.
Dr. K.
R.
J. Burns
Carpenter
Charles Mr.
Mr.
Mr. R.
M.
R. Jenkins
Johnston
Jones Mr.
Mr.
Mr. L.
C.
F. Meyer
Rowe
Ryan
Mr. W. Claflin Mr. A... Kallianos Dr. E. Sanders
Mr.
Mr.
Dr.
Dr.
Mr.
Mr.
Dr. R.
F.
W.
D.
B.
P.
W. Cox
Daylor
Dunn
Ennis
Fischer
Gauvin
Geiszler Dr.
Mr.
Mr.
Mr.
Mr.
Dr.
Mr. A.
G.
D.
W.
B.
C.
A. Kassman
Keritsis
Knudson
Kuhn
LaRoy
Levy
Lilly Mr.
Ms.
Mr.
Mr.
Mr.
Mr.
Mr. F.
J.
H.
R.
J.
F.
M. Sherwood
Smith
Spielberg
Thomson
Tindall
Watsom N
Waugh 0
Mr. T. Goodale Dr. K. Maloney Ms . F. West ~
Dr.
Dr.
Ms.
Dr. M.
S.
R. Hausermann
Hempfling
Hutcheson
Ikeda Dr.
Mr. A.
P.
H. Manzelli
Martin
Merritt Dr. J.
Mr. J.
Central Whidby
Wickham N
File
G
~
0
Q
cigarette market, sales, shares, dynamics, switching,
length trends, delivery trends, menthol, new smokers,
brand extensions
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TABLE OF CONTENTS
I. ABSTRACT
INTRODUCTION
1
II. TOTAL MARKET SALES 3
III. TYPES OF SHARE TRENDS 6
A. Switching Mode 6
B. New Smoker/Trend Setter Mode 8
C. Declining Mode 10
IV. CIGARETTE DEVELOPMENTS' 13
A. Length Trends 13
B. Delivery Trends 17
C. Menthol Trends 21
V. NEW SMOKERS 26
A. Pall Mall, Marlboro, Kool, andlNewport 26
B. Marlboro Lights, Merit, Vantage, and Carlton 29
C. Other Brands 31
VI. EFFECTS OF BRAND EXTENSIONS AND INTRODUCTION TIMING 33
A. 85mm Nonfilter Segment 33
B. Filter Segment 34
C. Menthol Filter Segment 35
D. 100mm Segment 36
E. Low-Tar Segment 36
VII.
SUMMARY
39 Q
~
~
VIII.
RECOMMENDATIONS
40 N
~
A. Major Cigarette Developments
40 LA
O
B. Beginning Smokers 41 ~
C. Micro-Segmentation of the Market 41
D. Regional Markets 42
ACKNOWLEDGMENTS 43
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ABSTRACT
The history of the cigarette market from 1938 to 198'4 is reviewed with
respect to the major developments in segments and brands. Changes in
brand shares and the relative performances of brands are i'nterpreted in
terms of smoking and health influences, the demographics of the smoking
population, the turn-over in the smoking population, introduction timing,
and brand~extension strategies. Based on those interpretations, general
conclusions are drawn about the level of activity which can be expecte&
in the market, and recommendations are made about where we should
concentrate our cigarette development and marketing efforts.
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I. IiNTRQDUCT I0N
Philip Morris USA operates within a closed system of basically fixed
size--the domestic cigarette market. Increasing our sales in the
cigarette market has depended, and may continue to depend, on increasing
our market share. It is possible that we could continue our record of'
success without a thorough understanding of the dynamics of the market.
Presumably, however, the better we understand the cigarette market, the
greater will be our chance for continued success.
Knowing what has happened in the cigarette market in the past should be
helpful in understanding why things have happene&and what can be done to
influence the future of the market. With respect to historical market
data, we are ima strong position. From the Maxwell Report (the Woottem
Report up to 1962) and the Market Research~ MSA Cigarette Audit we have
detailed share data for virtually every version of every brand in the
market back to 1938: we have yearly share data from 1938 through~1971,
quarterly share data from~1972 through 1974, and monthly share data from
1975 to the present. Those share data are now in one computer file and,
later this year, a computer system being developed by Dick Jones will be
available which can be used interactively to obtain data and graphs of
the shares of any brand, segment, company, or combination of versions of
brands.
The purpose of this report is to discuss what has happened in the domestic
cigarette market in the last 46 years with regard to brand'.share changes,
to suggest interpretations of those changes, and to examine, based'on
those interpretations, possible implications about what might be expected
to happen~in the future.
That type of process has been carried~out since 1973 as part of the annual
five-year market share projections. That annual exercise will now be
discontinued. Instea&, we will be continually examining available share
data; testing hypotheses against switching data, demographic data, and
other types of information; interpreting market dynamics; reporting those
interpretations; and making recommendations. Myron Johnston has been
performing those functions with increasing intensity in the last few years.
Many of the ideas discussed in this report are a result of exposure to
Myron's work.
For me, the most valuable part of the share-projection process was the
examination and interpretation of market dynamics based on past share data.
When the computer system is ready, that examination and interpretation
process will be widely available. At this time, before that system is
available, I would like to summarize in this report what I think are some
salient points. In most cases the causes of brand share changes are
undoubtedly complex. While some of my interpretations are necessarily
simplistic, my purpose is not to provide complete explanations but to
suggest some causes and effects which may not have been considered before
or which may not have been given adequate attention. In particular, my
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impression of market dynamics from this work is that they are less
dependent on the sensory characteristics, graphics, promotion, and
imagery of brands and more dependent on the gross characteristics of
brands, introduction timing, and the demographics of the market than
seems to be the general feeling in the company. The emphasis of this
report will be in those areas.
The nature of domestic cigarette market data (few categories of brands
and few brand names) is such that the report contains many weakly
supported and/or unp.rovable hypotheses an&generalizations. I'm not
going to apologize for those. In fact, I will defend them on the
grounds that a hypothesis is at least a starting point and~weak
generalizations provide some guidance and unders.tanding while equally
unsupported and unprovable rationalizations and explanations of
individual cases provide none. Readers may not agree with all I say
and may, in fact, want to argue with or refute much of what I say.
Arguments are cordially invited because I think this is an important
area and one in which there have often been misunderstandings and
misinterpretations. The historical data, the computer system, and our
assistance will be available to anyone who wishes to use them. I would
ask only that the report be read with an open, if possibly bemused,
mind for the possibility that some potentially useful or interestingly
different views of the market might be obtained.
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II. TOTAL MARKET SALES
Although this report will concentrate on shares and share changes, the
dynamics of the market have not been independent of the size and growth
of the market. Figure 1 (following page) shows industry domestic sales
by year (1938-1983). There are some obvious irregularities which beg for
interpretations, but in many cases the interpretations are difficult
because of confounded influences.
For the purposes of this report, four features of Figure 1 are clearly
interpretable and important:
L. In 1954 industry sales were depressed because of adverse
publicity about smoking resulting from The Report of the Royal
College of Physicians and Surgeons. That irregularity, as we
will see later, is far more interesting because of its effect
on industry composition than because of its effect on industry
sales.
2. In 1964 industry sales were again depressed because of adverse
publicity resulting from the Surgeon General's report. The year
before, 1963, marked the highest level of per capita consumption.
If per capita consumption in 1983 had been at the 1963 level,
industry sales in 1983 would have been as indicated by the
circled dot--1!45 billion units higher.
3. From 1938 to 1963 industry.sales increased' by a factor of 3.2,
from 158.7 to 508.0 billion~units. During the same period the
U.S. population increased by a factor of only 1.5~. Obviously,
many former nonsmokers were beginning to smoke. Data:supplied
by Myron Johnston from a Public Health Service survey show that
many of those former nonsmokers were adult women. For smokers
who were 75 or older in 1980, 23% of the women and only 3% of
the men started smoking between 1938 and 1963 (at 33 years or
older). For smokers who were 65 to 74 in 1980, 30% of the women
and only 8% of the men started smoking between 1938 and 1963 (at
23 years or older). For smokers who were 55 to 64 in 1980, 73%
of the women and 54% of the men started smoking between 1938 and
1963.
4. The decrease in sales in 1983 was due to the price increase
resulting from the excise tax increase. It is interesting to
note that the effect of that price increase on industry sales
was greater than~the effect of the 1954and 1964 smoking and
health publicity.
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B
I
L
L
0
F
700
600
500
400
300
200
FIGURE 1: Industry Sales
4 wo59nooz 50
-T
60
i
1
70
i
1
80
YEAIt
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For completeness, several other features of Figure 1 are worthy of mention.
5. The low industry sales in 1944 and 1945 were due to the fact that
cigarettes shipped to military personnel were not counted' in the
industry total. From 1945 to 11946 Camel and Lucky Strike each had
sales increases of over 30 billion units. Apparently, and'according
to Maxwell, those brands were the ones shipped, even out of proportion
to their already large market shares. The difficulty of measuring the
effect of cigarettes shipped to military personnel during the Koream
and Vietnam wars is one of the factors which~makes interpretation of
Figure 1 difficult.
6. As will be discussed im more detail later, the years from 1961 to
1976 were the years whemlarge numbers of post-war babies reached
smoking age. In spite of that, industry sales increases during
that period were not unusually large. The effects of the Surgeon
General's report and the anti-smoking advertising of the late
1960's may have been greater than we thought.
7. In 1969 it looked as if the anti'-smoking,publicity was taking a toll,
which may have been true. Notice, however, that sales started to
recover in 1970--the year before the broadcast ban and the resulting
drop in anti-smoking publicity began.
In the remainder of the report we will concentrate on shares rather than
sales, but some of the points mentioned above are relevant to share changes
and' wi1L be referre&to again.
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III. TYPES OF' SHARE TRENDS
Before examining actual share trends, it will be helpful to discuss several
general forms of share changes--ways shares increase and decrease with
time. Three general forms are of interest:
1. Switching Mode--share increasing at a decreasing rate toward a market
share limit.
2. New Smoker/Trend Setters Mode--shares increasing at an increasing
rate.
3. Declining Mode--shares decreasing,at a decreasing rate.
Each of those share change modes is discussed imdetail in the following
subsections.
. Switching Mode
Generally, whem a new brand name or a new version of a brand is
introduced, its attractions (filter, low tar, greater length, menthol,
box, etc.) are immediately apparent to smokers who are aware of its
advertising message. In the initial time periods of its introduction,
many smokers are exposed to its advertising message and become aware
of the brand and its advantages, if any, for the first time. In
successive time periods there are fewer and fewer smokers who have
not been exposed to the brand~and its message. That is, as time
passes, the increase in the percentage of smokers being exposed to
the brand for the first time decreases. Imthe limit, everyone has
heard'of the brand or versiomand understands what it has to offer.
Figure 2 is an ideaLized representation of advertising exposure as a
function of time. In each time period 50% of the smoking population
not previously exposed to the brand is expose&.
Figure 2: IDEALI ZED ADVERT'ISING EXPOSURE
100
PERCENT OF 75
POPULATION
EXPOSED~ TO N'
~
~
MESSAGE 50
~
~
25
0 1 2 3 4 5
T IME
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The same kind' of diminishing-return function also applies for
switching to the brand. We can suppose that, for smokers who are
aware of the brand, it has appeal to some basically fixed percentage.
In any given time period'a certain percentage of those smokers who
have not previously switched, and to whom the brand~appeals, will
switch.
The combination of these two diminishing-return effects still leads
to a share growth curve in which the share increases at a:decreasing
rate. Figures 3 and 4 show intitial share growth of that form for
two brands--Salem and Salem Lights.
Figure 3: INITIAL SHARE GROWTH FOR SALEM
M
A 10
R
K 8
E
T 6
56
57
58
YEAR
59
60
61
62
Figure 4: INITIAL SHARE GROWTH FOR SALEM LIGHTS
M
A
R
3
K
E
T
2
~
~
S
~
H 1 I N
A ~
R LI
E 0 0
% 75 76 77 78 79 80 81 0
YEAR CD
