Friday, April 3, 2009

Remembering Marlboro Friday

Marlboro Friday refers to Friday, the 2nd of April 1993 when Philip Morriss and his executives met to decide how to revive the No. 1 cigarette manufacturer Marlboro from growing competition. And so, they slashed prices by 20%.
Now, economics simply says that when price falls, demand rises. There is an inverse relation between the two. But did demand fall? Don't know but their stock did fall by 26%, wiping $10 billion in a single day. It was the day the Marlboro Man fell.
But, the Marlboro brand was considered the iconic symbol of American marketing. Since 1954, the product had been advertised as a cigarette with a different kind of class. A higher price enabled it to live up to such a reputation, and any downward change in the price broke the sense of class around it.
And, the Marlboro Man finally did fall, but only just.
Which company has such a big war chest to finance a 20% price cut? Marlboro, you'd say and you would be correct in that, because this move signaled an end to the price war. Marlboro's competitors were soon wiped out in the market, and 2 years later, the stock had recovered to earlier values.

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