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TABLE OF CONTENT

INTRODUCTION

CHAPTER 1. PHILIP MORRIS BRAND

CHAPTER 2. PHILIP MORRIS IN ROMANIA

CHAPTER 3. PHILIP MORRIS STRATEGIES


3.1. Differentiation strategy
3.2.Product strategies applied by multinational companies on the tobacco
market from Romania
3.3. Philip Morris product and price strategy

CONCLUSINON
THE BRAND
Philip Morris International
(USA)

INTRODUCTION

Philip Morris faces, basically, with two problems: first, cigarettes are today a business
with no future. Many cigarette companies are seeking solutions to separate the image of
cigarette operations from the other operations carried out, because it considers that the tobacco
industry will decline on long term. Thus, Philip Morris brand change is a necessity.
Secondly, legislation increasingly restrictive with regard to the promotion of cigarettes
practiced at this moment on many national markets was another reason for which it had to be
built a new brand to replace the Philip Morris one, which is associated worldwide with the
Marlboro brand.
Philip Morris Romania is affiliated to Philip Morris International. For the first time,
Philip Morris was presented on Romanian market in 1993 through Philip Morris Service. In
1997, Philip Morris Inc. approves the project „Greenfield” from Romania. This project
involved the implementation of an investment of around 125 million USD, the constructed and
arranged surface being of 15,6 hectares.

CHAPTER 1. PHILIP MORRIS BRAND

Philip Morris International is part of the company group Altria. Altria Group joints
several companies:
 Kraft Foods North America;
 Kraft Foods International;
 Philip Morris USA;
 Philip Morris International
Altria brand was created in 2002 to replace the Philip Morris one, well known worldwide
for its Marlboro brand, which encompassed all the above mentioned companies.
Basically, the Philip Morris brand, after 2002, has not met all operations undertaken by
this group of companies, being used only for operations with cigarettes.
Why this important decision to change an extremely popular brand worldwide with
one that sounds rather with one of medicine producer?
Philip Morris has invested more in redefining the image, to become more than just a
manufacturer of cigarettes. In this regard, has acquired the company Nabisco and holds the food
giant Kraft and also the Miller beer company. However, the company generates revenues at a
rate of 61.2% from the cigarette operations.
One of the strategies of tobacco companies in the industry applied between the years
1970 - 1980 has been the diversification. Allan Brandt, a professor at Harvard University,
stated that at that time companies within tobacco industry have developed in many other
directions, bringing more products to different markets, but with the intention to protect tobacco
production. Currently, he states, the tobacco industry is in a period of reassessment. On what
place are positioned the tobacco products within groups of companies and how is achieved the
image of these kind of companies are extremely important elements of marketing strategy.
Tom Blachett, president of consultancy company Interbrand, which acts mainly in the
U.S.A. and Europe, stated the following concerning redefining the image of the giant PM:
"Philip Morris faces, basically, with two problems: first, cigarettes are today a business with no
future. Many cigarette companies are seeking solutions to separate the image of cigarette
operations from the other operations carried out, because it considers that the tobacco industry
will decline on long term. Thus, Philip Morris brand change is a necessity. Secondly,
legislation increasingly restrictive with regard to the promotion of cigarettes practiced at this
moment on many national markets was another reason for which it had to be built a new brand
to replace the Philip Morris one, which is associated worldwide with the Marlboro brand."
This change was highly commented at that time in the U.S.A. and beyond. It is
interesting to note that this redefinition of giant’s image of Philip Morris comes to support long-
term forecasts on the global tobacco industry, even if the top people from the management’s
company have linked this fact with different other considerations.
Philip Morris International:
 Producer of the most popular cigarette brands in the world;
 over 40.000 employees;
 63 production capacities;
 160 countries and territories;
 14,5% from the international cigarette market;
 A net income over 39,5 milliards USD in 2004.
Philip Morris International, occupying position 49 in World Top 100 made by
UNCTAD in 2001, action over 160 national markets, holds the highest international share
market of over 14% (approximate 18% in 2005), has 40.000 employees worldwide and operates
or has invested in over 60 factories outside SUA.
PMI nomenclature comprises the fallowing brands:
 Apollo Soyuz
 Bond Street
 Caro
 Chesterfield
 Diana
 F6
 Fajrant
 L&M
 Lark
 Longbeach
 Marlboro
 Merit
 Multifilter
 Muratti
 Optima
 Parliament
 Peter Jackson
 Petra
 Philip Morris
 Polyot
 Red&White
 SG
 Start
 Varta
 Virginia Slims

CHAPTER 2. PHILIP MORRIS IN ROMANIA

Philip Morris Romania is affiliated to Philip Morris International. For the first time,
Philip Morris was presented on Romanian market in 1993 through Philip Morris Service. In
1997, Philip Morris Inc. approves the project „Greenfield” from Romania. This project
involved the implementation of an investment of around 125 million USD, the constructed and
arranged surface being of 15,6 hectares. Main objectives of „Greenfield” project were:
- Tobacco processing;
- Production and packaging of cigarettes.
Nowadays, Philip Morris has 623 employees, 99% of them are Romanians.
The average age of company’s employees is of 31 years old, and in the managerial team
is working around 35% women.
On the Romanian market, the company Philip Morris is present with the fallowing
brands:
• Parliament – Super Lux;
• Marlboro – Lux;
• Virginia Slims – Lux;
• Next – Medium;
• Chesterfield – Medium;
• L&M – Medium;
• Bond Street – Popular prices;
• Red&White – Popular prices;
• Calatis – Economic (brand created for the Romanian market – local adaptation out from
the nomenclature in 2004);
• Assos – Popular prices;
• President – Economic;
• Zet – Economic.
Since 1998 until today, Philip Morris had, in general, an increasing trend concerning the
detained market share. In 1990 and 2000 held the fourth position with a market share of 13,2%
(1999) and 13,9% (2000). In 2001, Philip Morris goes on third position, going ahead of National
Society of Romanian Tobacco (Societatea Naţională Tutunul Românesc (SNTR)) with a market
share of 20,9%. In 2004, Philip Morris held several times the leading market position, the main
competitor who fought for this position being British American Tobacco. In 2008, Philip Morris
takes the second position, after BAT.
In the mission of Philip Morris International is stated the fallowing: "For us, business
success is defined by the WAY we achieve our goals." This company considers the following
in relation to the position they occupy on the Romanian market:
"To provide the best experience to adult smokers around the world, both today and
in the future." These fragments from the company's mission clearly show its position as a
leading organization that is acting responsibly. To be able to position itself on the Romanian
market in this way, Philip Morris Romania has the following corporate values:
• Urgency sense and reaction speed;
• Anticipation, power of decision and risk assumption;
• Passion to deal with most difficult tasks;
• Trust, modesty, integrity;
• Listening, learning, participation, teaching.

CHAPTER 3. PHILIP MORRIS STRATEGIES

3.1. Differentiation strategy


By differentiation, the company aims to make its offer different from competitive
offerings, so to attract more customers. Marketing success obtained through differentiation
requires special skills to those necessary to obtain supremacy on cost-based.
For example, the brand production image can provide differentiation also and in areas
where physical appearance of products is identical, namely through the packaging or
manufacturer’s label. Numerous experiments have shown that even the most loyal customers
were not able to indicate, in the blind tests, the preferred brand. Let us remember the experiment
conducted by Philip Morris and its outcome. Label and brand’s image are extremely important
factors for manufacturers of prestige and for designers. Brand’s name, which once was hidden
inside a coat, at the collar of a shirt or on a shoe’s sole, is now on displayed with ostentation.

Market share evolution for Philip Morris Company


In the period 2000 – 2008
Table 1
Market procents
COMPANY
Dec. 2000 Dec. 2005 Dec. 2007 Febr.2008
Philip Morris 13,9 21,9 28,1 29,4
Source: A. Pandelică Transnational Companies. Editura Economică, Bucureşti, 2009

In 2009, the difference between the first three companies was ver small.
British American Tobacco: 34,91%
Philip Morris Romania: 32,80%
Japan Tobacco International: 21,60%
In May, the differences between the first two companies were very small, the balance
slightly tilting in favor of British American Tobacco:
British American Tobacco: 34,26%
Philip Morris Romania: 34,10%
In these circumstances, we can identify only one competitive offensive behavior, even
aggressive, in the three multinational companies case which throws in the fight on the Romanian
market international brands as also competitive prices, in order to win the market leadership.
For example, Philip Morris, which approaches the differentiation strategy on the
Romanian market, has managed to implement based on the principle that the” added value and
competitive advantage can be built only through people":
Further, this company says that the goal can be achieved as follows:
• Living the company’s values in the everyday life, leading through personal example;
• Being open, honest and credible partners for our colleagues;
• Making everything that employee’s expectations coincide with the company ones;
• Increasing the individual performances through permanent development of our
employee’s competences;
• Straightening the organization based on a performance management, career planning and
leader abilities development;
• Encouraging risk taking and creativity as opportunities to learn and improve our activity.
This exact from the mission of Philip Morris shows how, by certain values, the company
wants to build an innovative and efficient team, gaining by this a competitive advantage with
which to impose on the market as a prestigious supplier with brands of value, capable to create
innovative products.
If we look at competition on market segments, the most contentious are and probably
will remain, at least in 2009/2008, medium segments and the popular prices that currently
focuses almost 60% of smokers. As a result of smoker’s concentration in these segments,
multinational companies have resorted to strategies for repositioning of some medium class
brands in popular brands class, strategies followed by new launches on the market. For example,
repositioning the brand L&M in 2002, which went from medium class to popular class prices,
was followed by Chesterfield mark launch on the medium segment, which was left uncovered.
L&M brand repositioning involved also a significant decline in its price; it is not surprising that
this brand is among the top 10 preferred brands on the Romanian market.
Analysis of competition on market segments highlights better the intensity and the
concrete way in which these companies are arguing the Romanian market for cigarettes.
Luxury segment is dominated by British American Tobacco with the Kent brand; the
second position is awarded by Philip Morris with Marlboro brand, the third position are Japan
Tobacco International with Camel brand, but which holds a small share in the segment
compared to other marks.
Average segment is dominated by the Pall Mall brand from British American Tobacco.
On the second position is the brand Winston of Japan Tobacco International Company, and the
third position is the Chesterfield brand from Philip Morris.
Popular price segment is dominated by L&M brand of Philip Morris, the second
position in brand preferences of smokers is held by Viceroy, and on the third position are the
two brands of Japan Tobacco International Company, Winchester and Monte Carlo.
Philip Morris holds supremacy over the largest market segment, but very tight followed
by British American Tobacco Company, which is leading the other two market segments. By the
dominance of the two market segments, British American Tobacco managed to hold the leading
market position until 2005.

3.2.Product strategies applied by multinational companies on the tobacco market from


Romania
Multinational companies operating in the tobacco industry combines standardization
with adaptation as strategic principles in relation to products that make up the portfolios with
which they are present on the Romanian market. Companies analyzed offers include both
prestige brands with which they won their first international market positions and brands
specially adapted for the Romanian market or adapted to its specific (low incomes).
Luxury Class contains prestige brands that are part of international strategic portfolio of the
three companies: Kent, Marlboro, Camel, Parliament, Dunhill (launched in 2005), and
Rothmans (launched in 2003).
This class had the following evolution, in terms of marks contained:

The evolution of Luxury class content in the period 2002 – 2009

Table. 2
Quality class Dec. 2002 Dec. 2003 Dec. 2007 Dec. 2009
Luxury Kent Kent Kent Kent
Marlboro Marlboro Marlboro Marlboro
Camel Camel Camel Camel
Parliament Parliament Parliament
Rothmans Rothmans Sobraine
Dunhill
Vogue
Virginia Slim
Source: A. Pandelică Transnational Companies. Editura Economică, Bucureşti, 2009.

Luxury brands have been extended by multinational companies on the Romanian


market, their associated communication supporting in general, certain adaptations. Messages
sent to Romanian smokers have been adapted for the Romanian market, but still keeping the
values of specific positioning for these brands at international level.
Average class contains exclusive brands that were extended on the Romanian market
from the international portfolios of these companies:

The evolution of Average class content in the period 2002 – 2009

Table. 3
Quality class Dec. 2002 Dec. 2003 Dec. 2007 Dec. 2009
Average Lucky Sticke Lucky Sticke Lucky Sticke Next
Papastratos Papastratos Chesterfield Chesterfield
Pall Mall Pall Mall Winston Lucky Sticke
Winston Winston Mephis Winston
Chesterfield Chesterfield Hollywood Hollywood
Assos Assos L&M
Hollywood Pall Mall
Viceroy
Source: A. Pandelică Transnational Companies. Editura Economică, Bucureşti, 2009

Also in the case of middle-class brands, messages transmitted to Romanian smokers have
suffered a series of changes, but still keeping the values of specific positioning used at
international level.
Popular price class is the only class that contains both brands that have been extended
on the Romanian market, and also brands made or tailored to specific market conditions in
Romania (low income level), for example: Callatis (PM), Derby (BAT), More (JTI).

The evolution of Popular class content in the period 2002 – 2009

Table. 4
Quality class Dec. 2002 Dec. 2003 Dec. 2007 Dec. 2009
Popular prices L&M L&M L&M Monte Carlo
Bond Street Bond Street Pall Mall Winchester
Red & White Red & White Bond Street Assos
Callatis Callatis Red & White More
Viceroy Viceroy Callatis Presindent
Derby Derby Viceroy Zet
Monte Carlo Monte Carlo Derby Memphis
Winchester Winchester Monte Carlo Red & White
More More Winchester Derby
Assos More

Source: A. Pandelică Transnational Companies. Editura Economică, Bucureşti, 2009

3.3. Philip Morris product and price strategy


In 2000, Philip Morris Romania decides to diversify its portfolio of products, attacking
the only market segment on which it was not present at the time - the Economical segment. The
decision to diversify the products, which involved penetration in the Economy segment, was
based on the above two aspects: focusing a large part of Romanian smokers toward this segment
and low competition. Diversification strategy followed by Philip Morris has meant developing a
new brand, especially for the Romanian market, Callatis brand, a brand with a quality / price
ratio corresponding to the desires and to the smoker’s income level from the category of
Economic brands. Year 2000 was the beginning of dethronement for SNTR from the leadership
position.
In 2004, as brand Callatis did not enjoyed the success expected by Philip Morris, this
brand having after one year from launch a market share of until 2%, it is introducing on the
market the second Economic brand - Red&White, brand representing regional adaptation
version of the company, being achieved for the markets of Eastern Europe.
Year 2002 can be considered the beginning of significant changes in the structure of
quality classes, the beginning of repositioning strategies intensive use. Without making
reference to all these changes, we will follow only the evolution of brands from Economic class.
In 2000, multinational companies adopt strategies to reposition Economic brands, making them
popular brands included in Popular price class. Meanwhile, Philip Morris decides to reposition
the brand L&M, which goes from Average to Popular price class. These repositioning caused
significant changes in the market segments structure.
Economic segment decrease significantly, most smokers of brands that respective class
migrate to Popular price segment. Intense competition goes from the economic segment to
Popular price segment. Following the repositioning in 2002, Philip Morris Company had in
Popular prices class four brands: L&M, Callatis, Red&White, Bond Street; British American
Tobacco, two brands: Derby and Viceroy, and Japan Tobacco, three brands: More, Monte
Carlo and Winchester .
The decision taken in 2004 by Philip Morris to give out the brand Callatis can be linked
to several reasons: modest market share of this brand; the cannibalization effect of the range due
to the fact that this company had four brands in the Popular Prices Class; the desire to support
L&M brand as an engine brand on this segment. All these may represent serious reasons for the
decision to abandon the mark. If we consider the modest market share of the brand, we can
appreciate Callatis brand in the category of market failures. This remains still a personal
assessment. Whatever the reasons for the decision to exclude the mark from the company's offer,
the fact is that in 2005 L&M brand has been leading the Popular price segment. Also, the
Assos brand, which enters in the nomenclature of Philip Morris as a result of the acquisition at
international level of the Greek company Papastratos, in early 2005, is being repositioned,
moving from the Average class to Popular price class.
Each quality class includes brands that have the same retail price (differences from one
brand to another are not significant) manufacturers of respective brand struggling to win those
smokers who have a very similar income level. Each quality class corresponds to a certain price
class. The prices charged by these companies on the Romanian market are established based on
the country cost. Option in the view of charging some standard prices is out of the question, if
we think that on the German market, for example, the price of a pack of cigarettes goes up to 5
euros.
Price classes in 2010
Table. 5
Quality class Brands Price Price class
Superlux Dunhill 11,9 11-11,9 lei
and Parliament 11,9
Luxury Marlboro 11
Altele 11
Average Next 10 9,7-10,3 lei
Chesterfield 9,7
L&M 10,3

Popular Prices Assos 9 9

Economic President 6,5 6,5-7


Zet 7

Source: Prices from the Romanian Market

CONCLUSINON

Philip Morris has invested more in redefining the image, to become more than just a
manufacturer of cigarettes. In the mission of Philip Morris International is stated the fallowing:
"For us, business success is defined by the WAY we achieve our goals." This company
considers the following in relation to the position they occupy on the Romanian market: "To
provide the best experience to adult smokers around the world, both today and in the future."
These fragments from the company's mission clearly show its position as a leading organization
that is acting responsibly.
By differentiation, the company aims to make its offer different from competitive
offerings, so to attract more customers. In 2000, Philip Morris Romania decides to diversify its
portfolio of products, attacking the only market segment on which it was not present at the time
- the Economical segment. Each quality class includes brands that have the same retail price
(differences from one brand to another are not significant) manufacturers of respective brand
struggling to win those smokers who have a very similar income level.

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