Women's Collection from Marketing to Counter-Marketing
INDUSTRY SUMMARY
Abstract
Presents Philip Morris' summary report on the state of the tobacco industry as a whole and, in more detail, it's own cigarette brands. Provides a picture of the tobacco industry and Philip Morris in 1991 and its expectations and strategies for the next five years, using data from 1991 and projections for 1996. Discusses issues and strategies in reference to specific brands like Virginia Slims. Includes Virginia Slims brand share data for various female age groups, and a plan to increase uptake among young adult females.
Fields
- Type
- Report
- Chart/Graph/Table
- Company
- Philip Morris
- Gender
- Gender mentioned, differentiation possible
- Named Person
- Allen, Roland J.
- Anderson, David
- Buno, Tony
- Campbell, W.I.
- Dangoor, D.
- Dimarco, Robert
- Fitzmaurice, R.A.
- Ford, Yancy
- Gorden, R.
- Griscom, Thomas
- Gunzenhauser, G.R.
- Halset, W.G.
- Hendrix, Sam
- Higgens, H.E.
- Iauco, D.
- Isbister, D.
- Jarett, Joyce
- Johnson, C.
- Johnston, John W.
- Juchatz, Wayne
- Kauffeld, W Jr.
- Laux, F.
- Lebow, B.S.
- Mau, Tom
- Merlo, Ellen
- Moore, Bill
- Nelson, J.
- Newlin, L.
- Ockers, J.M.
- Oglesby, Michael
- Orlowsky, M.
- Ridgeway, Sara
- Robinson, Robert W.
- Schindler, A.J.
- Schroer, James
- Spears, A.W.
- Steele, H.
- Stewart, Mark
- Szymanczyk, M.
- Tedder, D.R.
- Tisch, Laurence
- Turner, J.C.
- Volk, Spencer J.
- Welsh, D.M.
- Wexler, L.
- Reid, Jerry
- Anderson, David
- Named Organization
- ABCO Markets
- ALZA
- AMCON Distribution
- American Tobacco
- American Cancer Society
- American Lung Association
- ASSIST
- Bakery Confectionery & Tobacco Workers
- British American Tobacco
- Big D Drug
- Brooke Group
- Brooke Partners
- Business Week
- Brown & Williamson
- Carolina Cigarette
- Chicago Tribune
- Church Dwight
- Ciba Geigy
- Circle K
- Citicorp Consumer Banking
- Clark Oil
- Coalition for Solid Waste Solutions
- Colonial Heights Packaging
- Conference of North East Governors
- Core Mark
- Cygnus
- Dmk Holding
- Dominicks Finer Foods
- Eagle Star
- Eby Brown
- Elan
- Eli Witt
- EMRO Marketing
- Environmental Protection Agency
- Executive Steering Comm
- Fareway Stores
- Fays Drugs
- Food and Drug Administration
- Fleming Companies
- Federal Trade Commission
- Gallaher
- General Foods
- Globe
- Grand Union
- Grocery Manufacturing
- Department of Health and Human Services
- House
- Impel Marketing
- Japan Tobacco
- Kmart
- Kohlberg Kravis
- Kroger
- Lederle
- Liggett Ducat
- Liggett & Myers
- Loews
- Lorillard
- Massachusetts Legislature
- Mai Basic Four
- Managed Care Networks
- Management Steering Comm
- Marion Merrill Dow
- Maverick Markets
- Mays Druag Stores
- McLane
- Medic Discount Drug Stores
- Mitsubishi
- Mobil
- Mobilizations
- Moody's
- MSA
- National Association of Manufacturing
- National Conference of State Legislatures
- National Consumer League
- National Waste Management Assn
- New Valley
- Nielsen
- Natlonal Institute for Occupational Safety & Health
- NY Times
- Old Dominion
- Occupational Safety & Health Administration
- Pace Membership Clubss
- Pharmarcia
- Piggly Wiggly
- Pillsbury
- PM Customer Advisory Council
- PM Magazine
- PM-EAC
- Price Chopper
- Public Interest Research Group
- Quaker Oats
- Quick Trip
- RH Macy
- Richmond Blue Cross Blue Shield
- RJR Nabisco
- R.J.Reynolds
- The Roper Organization
- Sam's
- Save Mart
- Scientific Advisory Board
- Sheetz
- Simon Schuster
- Smokers' Advocate
- Smokers' Caucus
- Solid Waste Task Force
- Southland
- Spectrum Stores
- Standard & Poors
- Tobacco Institute
- Time
- Trade Council
- Tripfoods
- Tropicana Products
- Technical Study Group
- US Census
- US Congress
- US Senate
- Volk Group
- Walmart Stores
- Warner Lambert
- Western Union
- Wetterau
- White House Competitiveness Council
- York Engineering
- ALZA
- Brand
- All American Value
- Alpine
- Basic
- Belair
- Benson & Hedges
- Benson & Hedges De-Nic
- Bristol
- Bucks
- Bull Durham
- Cambridge
- Camel
- Capri
- Carlton
- Century
- Chelsea
- Dakota
- Doral
- Eve
- Generic
- Heritage
- Horizon
- Kent
- Kool
- Lark
- Lucky Strike
- Magna
- Marlboro
- Merit
- Merit Ultima
- Misty
- Montclair
- More
- Newport
- Now
- Pall Mall
- Parliament
- Players
- Premier
- Pyramid
- Raleigh
- Salem
- Spring
- Sterling
- True
- Total Discount
- Total Premium
- Vantage
- Vantage Excel
- Viceroy
- Virginia Slims
- Winston
- Alpine
- Thesaurus Term
- Industry Strategies
- Tobacco Industry
- Business Activities
- Consumer Brands
- Marketing
- Tobacco Industry
Document Images
INDUSTRY SUMMARY
The tobacco industry is characterized as mature and declining, yet with high margins for a
low cost consumer product. During the plan period, the industry will be affected by changes
in volume, demographic, product category, trade channels, marketing mix, and pricing.
Industry Volume Trends
Volume trends will continue to be impacted by the health controversy, the declining social
acceptability of smoking, increased smoking restrictions, particularly in the workplace, rising
excise taxes and prices, and demographic changes.
Population Trends
By 1996, only 12% adults under the age of 25 and over two-thirds will be 35+, as compared
to 1986 which had 16% adults under the age of 25, and slightly over half the age of 35+.
This sociodemographic trend highlights the importance of PM-USA's ability to maintain its
histcric strength among entcring s.mcker.t, ;eiain srr:oicers as they age and gain share
among oiG'ar c~e rr::°`- ; ~~ : _st °d?e can °.i;¢inY!a !J 1rGrvsae our r; ar:{Gt share. ~itiler
socioderriographic trends that will impact PM-USA over the plan period are:
Changing racial/ethnic mix of the U.S. population.
Decline in smoking incidence in urban environments.
Decline in smoking among white collar workers.
Product Category Trends
The discount category will continue to be a dynamic segment in the tobacco industry,
supported by growing legitimacy, advertising support, brand/packing proliferation and/or
repositioning, and couponing. In addition, reduced tar cigarettes will continue to grow.
Product concepts and research that may lead to new products include: low tar/high flavor,
reduced nicotine, low smoke, sc:rrated smoke aroma, flavored cigarette and new devices.
Tr,qrfe- CharTneis
Competitive pressures, rising costs and thin profit margins will continue to affect wholesalers
resulting in consolidations, mergers and liquidations. In addition, retail environments will
continue to be affected by consumer's buying patterns which are in response to their
lifestyles and economic circumstances.
f>rlarketing Mix
Non-media expenditures for merchandising and couponing have steadily risen over the last
five years. During the plan period, this increase is expected to continue as competition
reinvests a substantial portion of price increase revenue into retail promotional programs to
stabilize premium brands and to gain share in the growing and intensely price competitive
discount category.
Retail Pricing
Over the plan period, premium retail prices (cartons) are forecasted to increase 9.1 %
annually. The average retail price of 85mm premium products (without coupons) is projected
to approach the $20.00 per carton mark in 1992-93 and the $3.00 per pack mark in 1995-
1996.
.
2
INDUSTRY VOLUME TRENDS
Industry volume of 509.2 billion in 1991 was down 12.6 billion versus 1990, continuing a
declining trend which began in 1982. Over the past five years, U.S. cigarette volume has
declined at a compounded annual rate of 2.6%. Factors which continue to negatively
influence volume Include the health controversy, the declining social acceptability of smoking,
Increased smoking restrictions, particularly in the work place, rising excise taxes and prices,
and the decline in the number of new people reaching smoking age.
During the upcoming five years, we anticipate cigarette volume to continue to decline based
on an additional excise tax increase in 1993 and the continued hostile smoking environment.
Sales of cigarettes in the U.S. are projected to decrease an average of 2.7% per year
between 1991 and 1996, reaching 443.5 billion in 1996. While premium brands will continue
to fuel the decline, decreasing an estimated 5.8% per year, discount brands will continue to
grow, albeit more slowly, presumably keeping some consumers in the marketplace.
INDUSTRY VOLUME TRENDS
Total m=~~~--=Prerniurn ~ ~ ~ `~ D;SCOL'nt
600
400,'
200-;
626.5
0
'81 '83 '86 '87 '89 '91 '93 '95 '96
~nce; PM-USA Marks'ing Research
.
COMPOUNDED ANNUAL VOLUME GROWTH
(9/0)
1986-1991 1991-1 ~ 1a
Total Industry (2.6) (2.7)
Premium Brands (6.3) (5.8)
Discount Brands 19.7 4.7
3
L
Notwithstanding the forecasted industry decline, PM-USA will continue to address the
challenge this forecast provides in order to lessen the effect on our volume and share.
Corporate Affairs will continue to provide information and support issues concerning social
and work place restrictions which have been placed on smokers. They will also continue to
lobby for minimal state and federal excise tax increases, so as to lessen retail price
increases. From a product development perspective, PM-USA will develop new products to
meet the continued demands of our changing market, e.g. more flavorful, ultra low tar
products. We will also continue to develop new and innovative products to address the
perceived health and social issues surrounding the cigarette industry. Finally, PM-USA will
continue to moderate price increases of our premium brands in order to make smoking less
cost prohibitive.
Assumptions
This industry forecast is based on the following assumptions:
During the plan period there will not be any major socio-political or technological upheaval
affecting the industry.
The federal excise tax will rise $2.00/M in January 1993 to $12.00/M per the budget
acc°'~rd r^?chcd in f.overnsJvr 1990. There are no further increases in fcueral yxcise taxes
expec;vd duririg siyp 1992-1996 eian penod.
~ Wtzte excise taxes will rise approximately 7-10% per year. The 1991 weighted average
state excise tax was 25.4 cents per pack, a 6.9% increase over 1990. Assuming a growth
rate of 10% per year, state excise taxes are forecasted to increase to approximately 40.9
cents per pack by the end of the plan period.
The industry continues to remain relatively price inelastic due partially to the availability of
lower priced alternatives, such as Bristol, which had an average retail carton price (85mm)
of $13.18 in 1991, compared to $17.48 for a premium brand. Elasticity is assumed to be
-.37. This means that for every 10% increase in price, industry volume will decline 3.7%.
4
POPULATION TRENDS
Age
An important trend continues to be the aging of the U.S. population. By 1996, only 12% of
adults will be under the age of 25 and over two-thirds will be 35+.
18-24
Source: U.S. Census Bureau
25-34
ADULT POPULATION AGE PROFILES
1981-1998
35-44
45-54
55+
Although there will be 6.3 million more smoking age adults in 1996 relative to 1991, the
gains will occur among adults in older (over 35) age groups.
ADULT POPULATION GROWTH BY AGE GROUP
1991-1996
of People
6.5
3.7
-4.4
25-? A
35-44
5
45-54
VVT
Incidence
Historically smoking incidence has been lower among the older age groups, and smoking
incidence overall is expected to continue declining due to health, social and price pressures.
As a result, there will be 47.2 million smokers in 1996 compared to 52.6 million in 1991.
I Smoking incidence By Age Group
Incidence %
1991 1 g9g Difference
Under 25 30.9 30.0 (0.9)
25-34 33.5 29.3 (4.2)
35-44 31.3 26.8 (4.5)
45-54 30.0 25.6 (4.4)
55-64 24.2 20.6 (3.6)
65+ 13.6 11.5 (2.1)
Source: Roper (1991 Incidence) and PM-USA Business Planning Estimates (1996)
A demographic model, built up with data from the U.S. Census, Roper and Consumer
Tracking sources, indicates industry losses due to sociodamocraphic effects such as aging
iquating. ;'very five jp:°:r v;~riod s;ncs 1981, the irdustry has ;ast over ':C0 bialion units
41 tZlei4 (e.g., 3,23.7 biiiiocl "t,:llits ii1 1981 519.0 bill'ion
units in 1986). Cigarette volume from new adults (18-22 years of age) entering the market
has not compensated for these losses, and the volume contribution from this group is
declining. In 1981, smokers in this age group contributed 73.6 billion units to the industry;
however, in 1996 this group of new smokers will only contribute 41.7 billion units.
SOCIO/DEMOGRAPHIC INFLUENCES ON INDUSTRY VOLUME
13 Existing Smoker Volume ® New Smoker Volume
1981
Existing Volume CAG%
Source: Business Planning Estimates
1986
(3.70)
1991
(4.61)
1996
(4.63)
The :;qe composition of inc'r,try vOitIrrle will by ?.fferted by these chairfgvs in the
po;^.°'°.`.ion
so that by 1996, 62.8% of volume will come from smokers over the age of 34 vs. 56.3% in
1986.
6
Industry Volume By Age Group
(%)
1 S91 j 99g Diff r~ence
Under 25 13.9 13.4 (0.5)
25-34 26.9 23.8 (3.1)
35-44 24.6 25.9 1.3
45-54 16.6 18.9 2.3
55-64 10.5 10.2 (0.3)
65+ 7.5 7.8 0.3
ISource: PM-USA Business Planning Demoqraphic Model (1996)
These sociodemographic trends highlight the importance to PM-USA of maintaining its
historic strength among entering smokers, retaining smokers as they age, and gaining share
among older age groups so that we can continue to increase our market share to reach
49.7% in 1996.
Race/Ethnicity
r~iother trend ~vh`rlh will Increase in importence over the plan period is the changing
mix r i-he U.S, population. By 19U'3, v;e estimate ahere will be 2 tni;iio;7
;.D ac Bia~,~, Asian or i ~is; ar ic.
The Asian Adult population will increase 48.~% compared to 1981; the number of Hispanics
will grow 34.4% and the number of Blacks will increase 22.5%.
ADULT POPULATION INCREASE
1981 vs 1996
White Black
Source: U.S. Census Bureau and PfN-USA Business Planning Estimates
Hispanic
Asian
While smoking incidence varies considerably among these groups (ranging from 16% among
A.3ia^s to 29.7% amorig Blacks), it is evident that they represent an important volume
uppcrtuntty. During the plan period PM-USA will hold its reLr 6G;o sihara of H,spanius, and
will increase its 19.3% share among Blacks primarily via the launch of B&H King Size. In
addition, we will build upon our 61.3% share among Asians through intensified marketing
programs.
7
I
I
I
I
I
I
I
I
I
I
I
I
I
I
SMOKING INCIDENCE BY RACEJETHNICITY
(1991)
White Black Hispanic
Source: Roper, Hispanic Tracking and PM-USA Business Planning Estimates
28.1%
29.7%
Asian
Nielsen County Type
Population density, characterized by Nielsen A,B, C and D counties, is a strong determinant
of industry performance. Industry volume has been declining in urban environments at a
rate several times that of non-urban counties.
INDUSTRY VOLUME DECLINES BY NIELSEN COUNTY SIZE
Source: SPACE: 3 Month Average
Nielsen A
Nielsen B
Nielsen CJD
This industry erosion in major metros is being driven by smoking incidence declines and
broader smoking restrictions, acting to, offset population shifts which have favored cities and
suburbs.
8
CHANGE IN SMOKING INCIDENCE BY NIELSEN COUNTY SIZE
1986 vs 1991
%Char aej
1.5
-6.0
Nielsen A
Source: Roper
I
I
I
I
-3.0
Nielsen B
Nielsen C
Nielsen D
During the plan period it is anticipated that the pressures and restrictions in urban areas will
continue to mount, potentially affecting PM-USA's business since 68% of our smokers reside
in Nielsen A & B counties.
Occupation
Since 1981, smoking prevalence has decreased among all occupations (white collar and
blue collar) for males. Among females, decreases were generally smaller, with the smallest
decline occurring among the blue collar workers.
SMOKING INCIDENCE BY OCCUPATION
(%)
Males Females
1>3$1 1m SiJ1S. 1$$1 1m t'i119i*
White Collar:
Professional, Top 29.3 21.6 (7.7) 28.1 21.8 (6.3)
Management
Small Business 40.6 29.9 (10.7) 38.6 28.0 (10.6)
Owners
Clerical and 35.0 28.5 (6.5) 33.9 23.7 (10.2)
Sales
Blue Collar:
Skiiied/Unskilled 44.6 37.7 (6.9) 37.1 34.8 (2.3)
Laborers
Service Workers 41.1 36.2 (4.9) 35.4 31.0 (4.4)
Source: Roper
I
I
I
I
I
I
i
I
I
I
I
I
9
I
Education
Smoking continues to be skewed more heavily toward the less educated. Approximately
38% of smokers (age 25-54) have attained some college education, whereas approximately
55% of non-smokers in that same age group have some college education. Similarly, 20.9%
of smokers (age 25-54) did not graduate from high school compared to 10.7% of non-
smokers.
Smokers
(25-54)
13.9%
24.5%
40.7%
Source: Roper
~ Non H.S. Grad
H.S. Grad
~ ~ Some Cc!lera
El College Grad
10.7%
in general, since 1981 Incidence has declined more among men than women:
Smoking among males has declined -at all education levels.
Among women who did not graduate from high school incidence has remained flat.
Among female college graduates smoking incidence has declined less than among men,
possibly due to a lower base incidence in 1981.
'OK:~a ATT,t;:N°rEnat'
W ~. - ... . . . . ~....-. ~
(%)
Males Females
1$81 j.i3$1 S'ch44 1i38j j.$$1 SrhQl.
Non-High School 42.3 37.4 (4.9) 32.0 32.6 +0.6
Gr.;duate
High School 40.1 33.1 (7.0) 33.9 28.0 (5.9)
Graduate
Some College 34.4 29.0 (5.4) 30.2 24.1 (6.1)
College Graduate 26.8 19.7 (7.1) 20.8 17.0 (3.8)
Source: Ro er
These changing profiles, coupled with an aging population, may have particular irnpact on
PM-USA, whoGe c°<<noqraphic riroi:le is skewed to younger, better educated and hi^:ier
income smokers.
10
EDUCATIONAL PROFILE
1991-
Non-Smokers
(25-54)
PRODUCT CATEGORY TRENDS
Discount Category
Demographics
The discount category will continue to be a dynamic segment in the tobacco industry,
supported by growing legitimacy, increased advertising support, brand/packing proliferation
and/or repositioning, and aggressive couponing. During the upcoming five years, discount
brands' share of the industry is expected to increase approximately 11.1 points over the plan
period, to 36.1% in 1996. During the past five years, the discount category has grown 16.1
share points to 25.0% in 1991. This market category has grown in every demographic
segment, even among groups that historically have been less price conscious, for example,
smokers under 35 and those living in Nielsen A counties.
Discount Penetration By Demographic Group
1986 vs. 1991
Men 3.8% 13.2%
Vlo m e n 4.6 16.5
' i r:"
Under 25 1.5 5.3
25-34 3.3 12.2
Over 35 U 1$-4
35-44 5.3 16.2
45-54 4.9 19.5
55+ 5.7 20.9
No College 4.7 16.9
Some College 3.9 13.0
Nielsen A 2.5 8.7
8 4.5 14.6
t~ 5.2 20.0
D 6.3 23.1
Source: PM-USA Consumer Tracking
Read: In 1986, 3.8% of all male smokers smoked a discount brand.
11
