Anne Landman's Collection
Philip Morris Usa 900000 - 940000
Abstract
This confidential internal Philip Morris marketing plan gives an overview of PM's business objectives for 1990-1994. It makes several interesting points.
The plan reveals PM's conclusion that smoking bans tend to decrease smoking incidence (that is, decrease the number of people who start to smoke) but that they do not "significantly affect consumption" of cigarettes "partly due to anticipatory smoking.
As PM puts it in this report:
"Consumer research indicates that the increasing number of smoking restrictions on smokers has a negative impact on incidence, but does not significantly affect consumption partly due to anticipatory smoking."
PM's plan also states that "The greatest challenge to the tobacco industry is altering the public's inaccurate perceptions of both the dangers of environmental tobacco smoke and of tobacco's social costs."
The report also indicates PM's intention to "stop the trend of tax increasing ballot measures," and to "develop evidence to support industry positions on environmental tobacco smoke (ETS) and the social costs of smoking.
User-Contributed Notes
Fields
- Quotes
PM-USA's growth will occur in a declining industry...Industry shipments are forecasted to decline three percent per year during the plan period, as a result of the following:
--Reduced social acceptability of smoking. --Higher retail prices: Full margin and price/value retail prices are forecasted to increase 9.5 and 11.2 percent annually during the Plan due to state excise tax (increasing an average of 7.5 percent per year) and manufacturer price increases... --Unfavorable demongraphic trends: While the overall smoking age population is expected to increase, the number of young adult smokers will decline and the existing smoking age population will age into groups where incidence and consumption have historically declined.
Smoking incidence will be affected by these trends, while average per capits consumption will remain at approximately 26 cigarettes per day. Consumer research indicates that the increasing number of smoking restrictions on smokers has a negative impact on incidence, but does not significantly affect consumption partly due to anticipatory smoking...
...III SOCIOPOLITICAL STRATEGIES
PM USA will actively develop and present arguments to protect the rights of smokers and manufacturers. The greatest activity in the sociopolitical arena during the next five years will take place among legislatures in need of revenue, employers implementing a variety of smoking restrictions, and anti-smoking groups who are seekin to impose a smoke-free society on others. The greatest challenge to the tobacco industry is altering the public's inaccurate perceptions of both the dangers of environmental tobacco smoke and of tobacco's social costs. PM-USA will meet this challenge through a combination of direct lobbying, pulic relations/media activity and the cultivation of allies from within the business community.
...CORPORATE AFFAIRS
PM-USA's overall strategic objectives in the sociopolitical arena are to minimze government interference in our business and marketing strategies and to protect the rights of consumers to enjoy PM-USA products. Corporate Afairs will play a critical role during the plan period as the long-term viability of the domestic industry depends largely on altering the faulty perceptions concerning environmental tobacco smoke (ETS) and tobacco's alleged "social costs". Corporate AFfairs specific goals fall into three key areas:
Taxation - Minimize overall rate of excise taxes - Stop trend of tax increasing ballot measures - Propose alternate state revenue raising proposals
Product: - Preserve freedom to advertise/promote - Defuse product liabilitty claims - Prevent mandated product specifications
Consumers- Prohibit employee discrimination - Modify smoking restrictions - Promote accommodation in the private sector.
These goals will be accomplished through the implementation of two distinct strategies:
--Effective arguments and evidence will be developed to support industry positions on the issues. PM-USA's arguments will be pertinent, credible and publicized. ARguments will be tailored to appeal to specific audiences, place the issue within a wider context and demonstrate its impact. --These arguments will be effective communicated to the four groups whose decisions and actions ultimately determine the long-term viability of the cigarette industry - public and private sector decision makers, the media and smokers.
PM will work closely with the Tobacco Institute to develop and disseminate industry positions on taxation, ETS and government regulation. Lossying efforts of key political decision makers will also be coordinated with the industry trade association.
- Company
- Philip Morris Cos., Inc.
- Author
- Philip Morris Cos., Inc. (Corporate Author)
- Recipient
- N/A
Document Images
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PHILIP MORRIS USA
1990-1994
PLAN OVERVIEW
As the leading U.S. cigarette manufacturer, PM-USA plans to widen its
competitive advantage during the next five years. PM-USA is well
positioned to capitalize on many strengths to enjoy further growth:
Substantial company resources
Widely recognized trademarks
Strong brand images
Strong positions in key industry categories
High product quality
A young demographic profile
Business momentum and vitality
Energetic management commitment
Progressive research and development
State-of-the-art manufacturing equipment
These assets position PM-USA to attain the objectives of long-term
volume and share growth and increasing profitability and cash flow.
Major goals for the planning period are:
VOLUME GROWTH OF 14.7 BILLION UNITS TO 234.2 BILLION UNITS
AND A 9.0 SHARE POINT GAIN TO 50.9 PERCENT OF THE INDUSTRY.
SHARE GROWTH IN BOTH THE FULL MARGIN AND PRICE/VALUE
CATEGORIES OF 11.1 AND 17.0 SHARE POINTS OVER THE NEXT FIVE
YEARS, REACHING CATEGORY SHARES OF 56.3 AND 40.0 PERCENT,
RESPECTIVELY, IN 1994.
OPERATING INCOME GROWTH AVERAGING 14.1 PERCENT ANNUALLY,
WITH INCOME REACHING $7.0 BILLION IN 1994.
. CUMULATIVE AFTER-TAX CASH FLOW OF $15.9 BILLION.
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BUSINESS OBJECTIVES
PM-USA's objectives for the 1990-1994 period are in line with last
year's Plan.
1990-1994 INDUSTRY ASSUMPTIONS AND PM-USA OBJECTIVES
COMPARISON TO LAST YEAR'S PLAN
1989-1993
Five Year Plan 1990-1994
Five Year Plan
Industry
Annual Volume Decline
Total Volume Decline (Billions)
Volume in Last Year of Plan
Federal Excise Tax
Price/Value Share in 3.0%
78.3
479.5 (1993)
$8.00/M 3.0%
63.5
460.1 (1994)
$8.00/M
Last Year of Plan 17.2% (1993 ) 21.0% (1994)
PM-USA
Total Volume Growth (Billions) 15.9 14.7
Volume in Last Year of Plan (Billions) 237.6 (1993) 234.2 (1994)
Share of Category in
Last Year of Plan:
Total Industry
49.0% (1993
) 50.9% (1994)
Full Margin 51.4% 56.3%
Price/Value 37.4% 40.0%
Marlboro Share 29.0% 30.9%
Total Full Margin Price Increases $26.00/M $27.00/M
Total Capital Expenditures (Billions) $1.4 $1.8
Annual Operating Income Growth 14.8% 14.1%
Operating Income in Last Year of Plan $6.2 (1993) $7.0 (1994)
(Billions)
Total After-Tax Cash Flow (Billions)
$14.0
$15.9
PM-USA's growth will occur in a declining industry. While PM-USA is
projected to achieve volume growth of 14.7 billion units, the
Company's competitors will lose a total of 78.2 billion units over the
next five years.
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IhUUSTRY VOLtK TFEADS
1989-1994
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BILLIONS OF UNITS
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14.7
-63.5
TOTAL
INDUSTAY
PMt-USA
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OTHER
COhPETITORS
INDUSTRY OVERVIEW
Industry shipments are forecasted to decline three percent per year
during the plan period, as a result of the following:
Reduced social acceptability of smoking.
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Higher retail prices: Full margin and price/value retail
prices are forecasted to increase 9.5 and 11.2 percent
annually during the Plan due to state excise tax
(increasing an average of 7.5 percent per year) and
manufacturer price increases. Full margin retail pack
prices will be over $2.00 in 1992, reaching $2.50 in 1994.
Unfavorable demographic trends: While the overall smoking
age population is expected to increase, the number of young
adult smokers will decline and the existing smoking age
population will age into groups where incidence and
consumption have historically declined.
Smoking incidence will be affected by these trends, while average
per capita consumption will remain at approximately 26 cigarettes per
day. Consumer research indicates that the increasing number of
smoking restrictions on smokers has a negative impact on incidence,
it- 1-4 but does not significantly affect consumption partly due to
anticipatory smoking.
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PM 1068
corvFloErv'T1AL
SMOKING INCIDENCE AND AVERAGE DAILY CONSUMPTION TRENDS
Projected
1980 1984 1989 1994
Incidence ($) 34.5% 32.1% 28.6$(1) 24.8%
Average Daily
Consumption 29.9 27.0 26.2 25.5
(1) Based on September 1989 Roper Data
Source: Roper Reports and PM-USA Market Research
As industry volume declines, its composition is expected to change.
The price/value category (second and third price tiers) is forecasted
to increase nearly 19 billion units or 24 percent by the end of the
plan period versus 1989. In 1994, the category will reach at least 21
percent of total industry volume, up from 14.9 percent in 1989. The
category's growth will be fueled by existing brands and new brand
introductions. This forecast assumes that no full margin brands will
be repositioned into the price/value category.
PFOLECT® DUJ7AY Y0.1lE
TOTAL ftu. pAICE/
2wclSTAr /WAeIN VALLE
BILLIOtS OP IWTS
1984 i996 1988 i990 3992 i994
The low/ultra low tar category is also projected to increase due to an
aging population, perceived health issues and product proliferation in
this category.
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PM 1069
CONPIDENTIAL.
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SUMMARY OF KEY STRATEGIES
I. GAIN VOLUME AND MARKET SHARE
II. GROW INCOME AND CASH FLOW
III. PROTECT THE RIGHTS OF SMOKERS AND MANUFACTURERS
IV. OPERATE A LEANER, MORE PROACTIVE ORGANIZATION
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I. VOLUME STRATEGIES
Marlboro: PROTECT, INSULATE, GROW
Marlboro will improve upon its number one position in the U.S.
cigarette market throughout the plan period. Unit volume will grow
2.5 billion units from 1990 through 1994. The existing business will
be protected through strong image reinforcement and expanded value
added promotional activity. These promotional programs will serve to
stabilize Marlboro red packings in particular. Target marketing will
insulate the Marlboro franchise from price/value initiatives to retain
price sensitive Marlboro smokers. New Marlboro business will come
from Marlboro Lights growth, a possible ultra lights line extension
and regional marketing support for Marlboro Menthol. The entire
Marlboro brand family will receive substantial marketing support.
Other Full Margin: MINIMIZE DECLINE
The market share decline of other PM-USA full margin brands will be
minimized. The overall level of consumer promotion will be increased
for Merit, Benson & Hedges, and Virginia Slims to provide added value
for price sensitive smokers who are tempted by price/value
initiatives. Improved advertising support and targeted special events
will reinforce brand images and stabilize performance over the plan
period.
Price/Value: GROW
The price/value category is currently the fastest growing industry
segment. During the plan period, PM-USA's share of the category is
forecasted to grow from 23 to 40 percent. PM-USA's price/value growth
will come from aggressive promotional support for Cambridge and
Alpine, as well as new product offerings in different price tiers.
Branded price/value products will receive image support, competitive
pricing, and focused promotional initiatives. Merchandising programs
will be adjusted to consolidate retail space and accommodate multiple
tiers of price/value products.
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PM 1070
COfVF'IDENl"IAL
New Products: INNOVATE
New product development will be primarily based on technological
advancements as well as line extensions. The refinement of the
de-nicotine process, low-smoke technology, and no odor/pleasant
prototypes will be accomplished early in the plan period. Subsequent
new products will address other consumer preferences as well as
possible government mandates. A stable of new products will be
established to provide innovative, readily available propositions to
meet changing market demand.
Retail: AVAILABLE, VISIBLE
Marketing expenditures at retail will increase steadily to provide and
promote PM-USA packs and cartons at the point of purchase. During the
plan period, retail presence of inventory, merchandising, point of
sale and promotion will receive increased marketing support. National
programs will be supplemented by local efforts aimed geographically.
Trade class specific initiatives will be launched to maximize pack
opportunities in the growing convenience/gas trade class, as well as
in the traditional supermarket.
II. INCOME STRATEGIES
Price Increases: COST RECOVERY AND FLEXIBILITY
The Plan assumes that PM-USA and the industry will enjoy pricing
flexibility throughout the plan period. Annual pricing is projected
to increase by $5 per thousand cigarettes in 1990 through 1992,
climbing to $6 per thousand cigarettes for 1993 and 1994 for all price
tiers.
Cost Efficiencies: IMPLEMENT
PM-USA plans to implement efficiencies to realize lower cost
production during the next five years. Packaging material economies,
reduced conversion costs and investment in modernization will increase
production speed and reduce conversion costs. Other efficiencies will
be realized from improved production forecasting, leading to better
management of the production schedules and related efficiencies.
Throughout the plan period, synergies within Philip Morris Companies
Inc. will be aggressively sought to realize savings. Potential areas
are materials procurement, sales office space and merchandising
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Overhead: CONTROL ~
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During the plan period, overhead costs will be carefully controlled.
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Selective adjustments will be made to the workforce to suit changes in
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the way the business is managed. The modernization of manufacturing GJ
operations will require fewer production workers over the next five
years. The significant escalation of fringe benefit personnel costs,
including medical benefits, will be moderated due to changes in the
current programs.
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III. SOCIOPOLITICAL STRATEGIES
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PM-USA will actively develop and present arguments to protect the
rights of smokers and manufacturers. The greatest activity in the
sociopolitical arena during the next five years will take place among
legislatures in need of revenue, employers implementing a variety of
smoking restrictions, and anti-smoking groups who are seeking to
impose a smoke-free society on others. The greatest challenge to the
tobacco industry is altering the public's inaccurate perceptions of
both the dangers of environmental tobacco smoke and of tobacco's
social costs. PM-USA will meet this challenge through a combination
of direct lobbying, public relations/media activity, and the
cultivation of allies from within the business community.
IV. MANAGEMENT STRATEGIES
A major element in achieving the Company's five year profit objectives
is improved productivity and overhead control. To accomplish this,
PM-USA will operate a leaner, more proactive organization that
challenges and rewards employees for innovative thinking and
execution excellence. Major elements of this strategy are:
Develop departmental organizations that discourage
bureaucratic tendencies.
Offer greater responsibility at lower management levels.
Decentralize decision-making by holding managers
accountable for their areas of responsibility.
Reorient compensation to reward the successful, timely
execution of agreed upon strategies.
Adopt stricter standards for minimum performance levels.
MARKETING
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PM-USA's product portfolio in the 1990's will reflect the Company's
strong commitment to the base business - growing Marlboro, minimizing
the decline of other full margin brands and business building for
price/value - and support for new product initiatives. The Company
will attract and retain smokers by offering consumers a range of
PM-USA products which satisfy a growing variety of consumer
preferences.
PM-USA will promote all its brands with increased image advertising,
innovative, higher perceived value consumer offers, and unique
grassroots programs and promotional events that serve to place PM-USA
products into smokers hands. Distinctive advertising, contemporary
retail promotions and superior product quality will set PM-USA brands
apart from the proliferation of brands offered by the competition.
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PM 1072
CONFIDEN'FIAL
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i989 i990 1991 1992 1993
MARLBORO
In 1989, Marlboro's market share increased 1.5 share points to 26.4
percent of the industry, marking the 25th consecutive year of market
share growth. Over the plan period Marlboro will grow an additional
4.6 share points to represent an industry share of 30.9 percent by
1994.
Historically, Marlboro has retained traditional strength among adult
smokers under age 25 (58 percent) but equally important has been the
retention of these young adult smokers as they age. Marlboro is well
positioned in the 25-44 age segment with a 28 percent share of
smokers.
Insulating the Marlboro franchise and achieving continued growth in an
environment of industry decline and price pressure is a key issue
facing Marlboro over the plan period. The brand must continue to grow
share among all 25+ smoker segments. This will be accomplished
through a threefold strategy. First, Marlboro will continue to invest
heavily behind high impact media and in-store presence aimed at three
Marlboro positionings - the leading cigarette, the cigarette with
flavor, and the cigarette for males. All visible programs, both
offensive and defensive, will reflect three tonal elements: male,
contemporary, and leadership. Second, mainstream consumer tastes will
be satisfied with the current level of products and line extensions
which reinforce the brand's core flavor positioning. Third, in order
to protect against price promotions, Marlboro smokers will be provided
with added value rather than discounts to create a premium, never
discounted, position. Action plans that support this strategy include
the following:
Both the image and plan foundation remain with Marlboro Country
advertising. Auto racing copy and media delivered promotions
will be used to interrupt the base campaign and help keep the
Marlboro image fresh and contemporary.
Local marketing efforts will be used to raise smoker involvement,
market visibility and contemporary leadership impressions.
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PM 1073
CONFIDENTIAL
More innovative consumer promotions will be offered with higher
perceived value and added value to the franchise.
Pack availability and visibility at retail will be increased
through front-end package merchandising in supermarkets and
convenience/gas stores.
A national launch of Marlboro Ultra Lights is under
consideration.
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OTHER FULL MARGIN BRANDS
Benson & Hedges, Virginia Slims and Merit represented 26 percent of
PM-USA's volume in 1989. During the year, these brands experienced a
combined volume decline of 5.6 percent in an environment where total
industry full margin decline was 10.1 percent. The full margin
segment has declined as the price/value segment has grown in
popularity, highlighting the price sensitivity of many consumers,
particularly older smokers. This trend is projected to continue
during the plan period.
Over the last five years, PM-USA's full margin volume declined 10.1
billion units, compared to a 121.0 billion unit decline for the rest
of the industry. For the plan period, the industry's full margin
volume is forecasted to decline at an annual rate of 4.0 percent.
B&H, Virginia Slims and Merit's combined annual volume decline rate
will be minimized to 2.4 percent.
PM-USA's strategy during the plan period will be to slow the decline
in the full margin business by aggressively supporting these packings
with continued strong brand image advertising, promotion and direct
response marketing. Brand images will be updated and contemporized
through new packaging and, in some instances, new advertising (B&H).
Promoted volume for Virginia Slims and Benson & Hedges will be
increased from the historical level of 2-3 percent to 8-10 percent of
volume. Line extensions will be tested to hold current smokers and
offer competitive advantages to smokers of other brands. Development
and implementation of targeted marketing programs to build business in
key regional opportunity areas will also be undertaken for the three
brands.
PRICE ALUE
In 1989, PM-USA's price/value volume increased 38.5 percent to 18
billion units on the strength of Cambridge and Alpine. The Company's
price/value unit volume is projected to reach 38.6 billion units in
1994. ZND
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Since the emergence of the price/value category, Cambridge and other
low price brands differentiated themselves from full margin brands
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primarily on the basis of price. Recent consumer research, coupled ~
with the increasing use of image advertising to support low price
brands, indicates that price alone is no longer an adequate selling
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proposition for branded generics. This suggests the need for a ~
broader brand position. To achieve this, an image advertising C9
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PM 1074
CONFIDENTIAL
campaign for Cambridge will be developed and Alpine's image campaign
will be continued. In addition, PM-USA will continue to evolve value-
-added brand positioning and build a "big brand" presence for
Cambridge and Alpine through high profile retail promotions and other
targeted events. Introduction of new PM-USA price/value brands will
be considered.
Over the past year, competitors have accelerated couponing rates and
values on price/value brands to gain volume and preempt the
competition. In addition, increasing category profitability and a
narrowing of the percentage difference between generic and full margin
brands have resulted in the regional development of a sub-generic
price tier. The category development requires that PM-USA compete
among branded generics as well as sub-generics. Cambridge and Alpine
will be more aggressively couponed to offensively compete in the
generic category and to minimize the competitive impact of the
sub-generic category. Merchandising programs will be developed to
support our branded generics. In the sub-generic category, Bristol
has been launched in high share sub-generic markets. The brand will
be rolled out to other markets as category growth warrants.
SALES
A strong retail presence is key to attaining PM-USA share and volume
objectives for the plan period. Some of PM-USA's new innovative
merchandising programs aim to increase distribution, inventory and
visibility while decreasing out-of-stocks. Retail presence will be
enhanced through merchandising plans and programs which are designed
to meet the specific requirements of each trade class. The Field
Sales Force, with over 4,000 people, will implement promotional
programs to effect a total PM-USA look at retail. PM-USA will
effectively utilize merchandising and trade programs, to extend brand
messages, gain visibility and increased inventory, and to
differentiate the Company's products from the competition.
As prices on cigarettes have escalated, there has been a shift in the
cigarette sales mix toward packs, in both convenience stores and in
carton strongholds such as supermarkets. Penetration of package
merchandising plans is essential to increase our business. PM-USA
intends to be the biggest and best package merchandiser during the
plan period.
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PM 1075
C4NFIDENTIAL
