BRANDING BRIEF 5-1 Marlboro’s Price

BRANDING BRIEF 5-1
Marlboro’s Price Drop
On April 2, 1993, or “Marlboro Friday,” Philip Morris dropped a bombshell in the form of a three-page announcement : “Philip Morris USA . . . announced a major shift in business strategy designed to increase market share and grow long term profitability in a highly price sensitive market environment.” Quoting to bacco unit president and CEO William I. Campbell, the statement continued, “We have determined that in the current market environment caused by prolonged economic softness and depressed consumer confidence, we should take those steps necessary to grow our market share rather than pursue rapid income growth rates that might erode our leading marketplace position.”
Philip Morris announced four major steps, the fourth of which caught the eye of marketers and Wall Street alike: a major promotional cut in the price of Marlboro (roughly 40 to 50 cents a pack), which was expected to decrease earnings in Philip Morris’s most profitable unit by 40 percent. The action was justified by the results of a month-long test in Portland, Oregon, the previous December in which a 40-cent decrease in pack price had increased market share by 4 points.
The stock market reaction to the announcement was swift. By day’s end, Philip Morris’s stock price had declined from $64.12 to $49.37, a 23 percent drop that represented a one day loss of $13 billion in shareholder equity! There was a ripple effect in the stock market, with significant stock price declines for other consumer goods companies with major brands like Sara Lee, Kellogg’s, General Mills, and Procter & Gamble. A company that took one of the biggest hits was Coca-Cola, whose shareholders lost $5 billion in paper earnings in the days following “Black Friday. A number of factors probably led Marlboro to cut prices so dramatically. The economy certainly was still sluggish, coming out of a recession. Private-label or store-brand cigarettes had been increasing in quality and were receiving more attention from customers and retailers. A prime consideration suggested by many was related to Philip Morris’s hefty price increases.
These had often occurred two to three times a year, so that the retail price of a pack of Marlboros more than tripled between 1980 and 1992. The 80 cents to $1 difference between premium brands and discount brands that prevailed at that time was thought to have resulted in steady sales increases for the discount brands at the expense of Marlboro’s market share, which had dropped to 22 percent and was projected to decline further to 18 percent if Philip Morris made no changes. Although much of the popular press attempted to exploit Marlboro’s actions to proclaim that “brands were dead,” nothing could have been further from the truth. In fact, a more accurate interpretation of the whole episode is that it showed that new brands were entering the scene, as evidenced by the ability of discount brands to create their own brand equity on the basis of strong consumer associations to “value.” At the same time, existing brands, if properly managed, can command loyalty, enjoy price premiums, and still be extremely profitable. By cutting the difference between discount cigarettes and Marlboro to roughly 40 cents, Philip Morris was able to woo back many customers. Within nine months after the price drop, its market share increased to almost 27 percent. Years later, Marlboro currently owns 42 percent of the market. Priced at $5.70 a pack, the brand commands a significant premium over the average $4.21 price for the cheapest brands on the market. Two important and enduring branding lessons emerged from the Marlboro episode. First, strong brands can command price premiums. Once Marlboro’s price entered a more acceptable range, consumers were willing to pay the still higher price, and sales of the brand started to increase. Second, strong brands cannot command an excessive price premium. The clear signal sent to marketers everywhere is that price hikes without corresponding investments in the value of the brand may increase the vulnerability of the brand to lower-priced competition. In these cases, consumers may be willing to “trade down” because they no longer can justify to themselves that the higher priced brand is worth it. Although the Marlboro price discounts led to short term profitability declines, they also led to regained market share that put the brand on a stronger footing over the longer haul.
In today’s challenging new climate, several firms have been successful by adopting a value pricing strategy. For example, Walmart’s slogan, “Save Money. Live Better,” describes the pricing strategy that has allowed it to become the world’s largest retailer. Southwest Airlines combined low fares with no-frills but friendly service to become a powerful force in the airline industry. The success of these and other firms has dramatized the potential benefits of implementing a value-pricing strategy.
As you might expect, there are a number of opinions regarding the keys for success in adopting a value based pricing approach. In general, however, an effective value-pricing strategy should strike the proper balance among three key components :
• Product design and delivery
• Product costs
• Product prices
In other words, as we’ve seen before, the right kind of product has to be made the right way and sold at the right price. We look at each of these three elements below. Meanwhile, a brand that has experienced much success in recent years balancing this formula is Hyundai.

HYUNDAI
Taking a page from the Samsung playbook, Korean upstart automaker Hyundai is trying to do to Toyota and Honda what Samsung successfully did to Sony provide an affordable alternative to a popular market leader. Like Samsung, Hyundai has adopted a well-executed value pricing strategy that combines advanced technology, reliable performance, and attractive design with lower prices. As the head of U.S. design noted in discussing the 2011 Sonata sedan and revamped Tucson crossover, “The basic idea is a car that looks like a premium car, but not at a premium price. We’re looking to pull people out of Camrys and Accords and give them something different.” Hyundai’s 10-year or 100,000 mile power train warranty programs and positive reviews from car analysts such as J. D. Power provided additional reassurance to potential buyers of the quality of the products and the company’s stability. To maintain momentum during the recession, Hyundai’s “Assurance” program, featuring a highly publicized Super
Bowl TV spot, allowed new buyers to return their Hyundai vehicles if they lost their job. All these efforts were met with greater customer acceptance: the number of potential U.S. buyers who say they would “definitely” consider a Hyundai tripled from 2000 to 2009. Hyundai’s current Assurance program is centered on a new Trade-in Value Guarantee that preserves the market value of a new Hyundai by guaranteeing to customers at the time of purchase exactly how much it would be worth, two, three, or four years from now.49

Hasil (Bahasa Indonesia) 1:

MEREK BRIEF 5-1 Marlboro di Harga DropPada 2 April 1993, atau "Jumat Marlboro," Philip Morris menjatuhkan bom dalam bentuk sebuah pengumuman tiga halaman: "Philip Morris Amerika... mengumumkan perubahan besar dalam strategi bisnis yang dirancang untuk meningkatkan pangsa pasar dan tumbuh profitabilitas jangka panjang dalam sangat harga pasar sensitif lingkungan." Mengutip bacco unit Presiden dan CEO William I. Campbell, pernyataan ini berlanjut, "Kami telah menetapkan bahwa dalam lingkungan pasar saat ini disebabkan oleh kelembutan ekonomi yang berkepanjangan dan kepercayaan konsumen tertekan, kita harus mengambil langkah-langkah perlu tumbuh market share kami daripada mengejar tingkat pertumbuhan pendapatan cepat mungkin mengikis posisi pasar terkemuka kami."Philip Morris mengumumkan empat langkah utama, keempat yang tertangkap mata dari pemasar dan Wall Street yang sama: promosi besar memotong harga Marlboro (kira-kira 40-50 sen per paket), yang diharapkan penurunan penghasilan di Philip Morris paling menguntungkan unit 40 persen. Tindakan dibenarkan oleh hasil tes sebulan di Portland, Oregon, Desember sebelumnya di mana 40-persen penurunan harga paket memiliki peningkatan pasar berbagi dengan 4 poin.Reaksi pasar saham pengumuman adalah cepat. Hari akhir, Philip Morris harga saham telah menurun dari $64.12 untuk $49.37, setetes 23 persen yang diwakili kehilangan satu hari dari $13 miliar pemegang saham ekuitas! Ada efek riak di pasar saham, dengan penurunan harga saham yang signifikan untuk perusahaan barang-barang konsumen lain dengan merek utama seperti Sara Lee, Kellogg's, General Mills, dan Procter & Gamble. Perusahaan yang mengambil salah satu hits terbesar adalah Coca-Cola, pemegang saham yang kehilangan $5 miliar dalam pendapatan kertas dalam hari-hari berikut "Black Friday. Sejumlah faktor ini mungkin menyebabkan Marlboro untuk memotong harga begitu dramatis. Ekonomi pasti adalah masih agak lamban, keluar dari resesi. Swasta-label atau toko-merek Rokok telah meningkat dalam kualitas dan menerima lebih banyak perhatian dari para pelanggan dan pengecer. Pertimbangan utama yang disarankan oleh banyak berkaitan dengan kenaikan harga lumayan Philip Morris. These had often occurred two to three times a year, so that the retail price of a pack of Marlboros more than tripled between 1980 and 1992. The 80 cents to $1 difference between premium brands and discount brands that prevailed at that time was thought to have resulted in steady sales increases for the discount brands at the expense of Marlboro’s market share, which had dropped to 22 percent and was projected to decline further to 18 percent if Philip Morris made no changes. Although much of the popular press attempted to exploit Marlboro’s actions to proclaim that “brands were dead,” nothing could have been further from the truth. In fact, a more accurate interpretation of the whole episode is that it showed that new brands were entering the scene, as evidenced by the ability of discount brands to create their own brand equity on the basis of strong consumer associations to “value.” At the same time, existing brands, if properly managed, can command loyalty, enjoy price premiums, and still be extremely profitable. By cutting the difference between discount cigarettes and Marlboro to roughly 40 cents, Philip Morris was able to woo back many customers. Within nine months after the price drop, its market share increased to almost 27 percent. Years later, Marlboro currently owns 42 percent of the market. Priced at $5.70 a pack, the brand commands a significant premium over the average $4.21 price for the cheapest brands on the market. Two important and enduring branding lessons emerged from the Marlboro episode. First, strong brands can command price premiums. Once Marlboro’s price entered a more acceptable range, consumers were willing to pay the still higher price, and sales of the brand started to increase. Second, strong brands cannot command an excessive price premium. The clear signal sent to marketers everywhere is that price hikes without corresponding investments in the value of the brand may increase the vulnerability of the brand to lower-priced competition. In these cases, consumers may be willing to “trade down” because they no longer can justify to themselves that the higher priced brand is worth it. Although the Marlboro price discounts led to short term profitability declines, they also led to regained market share that put the brand on a stronger footing over the longer haul.Iklim baru menantang hari ini, beberapa perusahaan telah berhasil dengan mengadopsi nilai harga strategi. Sebagai contoh, Walmart slogan, "Simpan uang. Hidup lebih baik,"menjelaskan strategi harga yang telah memungkinkan untuk menjadi pengecer terbesar di dunia. Southwest Airlines dikombinasikan maskapai bertarif rendah dengan layanan tanpa embel-embel namun bersahabat untuk menjadi kekuatan yang kuat di industri penerbangan. Keberhasilan ini dan perusahaan lain telah didramatisir potensi manfaat dari pelaksanaan strategi harga nilai.Seperti yang Anda duga, ada beberapa pendapat mengenai kunci untuk sukses dalam mengadopsi pendekatan harga berdasarkan nilai. Secara umum, namun, harga nilai strategi yang efektif harus menyerang keseimbangan yang tepat antara tiga komponen utama:• Desain produk dan pengiriman• Produk biaya• Harga produkDengan kata lain, seperti yang kita lihat sebelumnya, produk yang tepat harus dibuat dengan cara yang benar dan dijual pada harga yang tepat. Kita melihat pada masing-masing tiga elemen di bawah ini. Sementara itu, sebuah merek yang telah mengalami banyak keberhasilan dalam beberapa tahun terakhir menyeimbangkan formula ini adalah Hyundai.HYUNDAIMengambil sebuah halaman dari Samsung pedoman, mobil pemula Korea Hyundai sedang mencoba untuk melakukan untuk Toyota dan Honda apa Samsung berhasil melakukan ke Sony menyediakan alternatif terjangkau untuk pemimpin pasar populer. Seperti Samsung, Hyundai telah mengadopsi dijalankan dengan baik nilai harga strategi yang menggabungkan teknologi canggih, kinerja yang handal, dan desain menarik dengan harga yang lebih rendah. Sebagai Ketua US desain dicatat dalam membahas 2011 Sonata sedan dan dirubah crossover Tucson, "ide dasar adalah mobil yang tampak seperti mobil premium, tapi tidak pada harga premium. Kami mencari untuk menarik orang dari Camrys dan persetujuan dan memberi mereka sesuatu yang berbeda." Hyundai 10 tahun atau program Garansi 100.000 mil power train dan review positif dari para analis mobil seperti J. D. daya disediakan jaminan tambahan untuk pembeli dari kualitas produk dan stabilitas perusahaan. Untuk menjaga momentum selama resesi, Hyundai "Jaminan" program, yang menampilkan sangat dipublikasikan Super Mangkuk TV spot, diperbolehkan pembeli baru kembali kendaraan Hyundai mereka jika mereka kehilangan pekerjaan mereka. Semua upaya-upaya ini bertemu dengan penerimaan Pelanggan yang lebih besar: jumlah potensi pembeli AS yang mengatakan mereka "pasti" akan mempertimbangkan Hyundai tiga kali lipat dari tahun 2000-2009. Hyundai program jaminan saat ini berpusat pada nilai tukar tambah baru jaminan yang melindungi nilai pasar Hyundai baru menjamin kepada pelanggan pada saat pembelian persis berapa banyak itu akan bernilai, dua, tiga, atau empat tahun dari now.49