|
|
Philip Morris USA and Other Tobacco Companies Should Not Lose Consumer Source from: Tobacco Reporter 11/07/2013  As I began to write this story, a kind soul brought to my attention a BBC news report suggesting that people who look older than their years tend to die at a younger age than those who look younger than their years, so I'm starting to wonder whether I have enough time left to finish this piece. I do hope so.
One of the things that makes staying alive worthwhile is the fact that the world keeps throwing up little surprises to which you can respond by taking evasive action, by meeting them head-on or by engaging with them discreetly. I tend to favor the last-mentioned tactic because while I want to engage with them, I often find that the surprises that come my way don't seem to surprise other people, so I have to assume that I am taking a jaundiced view of whatever it is that has surprised me: that it is, in fact, perfectly normal. Take the Barclay's Back-To-School Consumer Conference that was held in September in Boston, Massachusetts, USA. I have never seen any reports of peo-ple or organizations complaining that it is inappropriate to hold a conference with "back to school " in the title and to which are invited companies that sell, amongst other things, tobacco and alcohol. But, given the way things are, it seems that way to me. OK, "back to school" is possibly being used to position the conference on the calendar, but in that case why not use "fall" (autumn)? It might be being used to mean this is a learning experience, but in that case why not use "back to basics" or some such nonsense? If the conference had been held in some other part of the world, I would have been less surprised than I was, but the United States is a country with an organization called the Campaign for Tobacco-Free Kids (take note of the hyphen and how ultra careful those who set this organiza-tion up were to ensure there were no misunderstandings about its goal), where they use entrapment to seek out retailers selling tobacco to people too young to be allowed to buy such products, and where at least one jurisdiction is considering raising to 21 the age at which tobacco may be purchased. In the U.S., back-to-school consumers buy ruled pads, pencils and computers. I found something else about the conference surprising, too. In a pre-conference press note, Altria wrote: "During the presentation, Howard Willard, Altria's executive vice president and chief financial officer, will review how Altria's financial goals, business model and strategies have created significant shareholder value and position Altria to deliver strong returns in the future." Do you see what I'm Perhaps I'm nitpicking, but I cannot get out of my mind a passage in the book by professor Ha-Joon Chang, "Running companies in the interests of floating share-holders is not only inequitable but also inefficient, not just for the national economy but also for the company itself. As Jack Welch [the longtime chairman of General Electric] recently confessed, shareholder value is probably the 'dumbest idea in the world.'" Continued innovation This is not to suggest there is a direct comparison between GM and Altria. GM apparently lost sight of the fact that its primary purpose, and the basis from which everything else flowed, was to make cars that the public wanted to drive, but Altria and its cigarette division, PM USA, are innovative product-wise. As Willard told the consumer conference in September, PM USA "has been investing in Marlboro's architecture, which provides a broad platform to communicate with adult smokers, while staying true to the brand's essence." Marlboro has been and still is an amazingly strong and resilient brand that now is said to exist in four "families," three of which are familiar to most tobacco industry observ-ers: Marlboro Red, Marlboro Gold and Marlboro Green.But the bold, modern take on Marlboro is Marlboro Black, which comes with the intriguing strap line: "Navigate the Unknown. Where Bold Flavor Is." "Marlboro Black, the newest flavor family, is a good example of how the architecture is strengthening the brand," Willard told the conference. "In late 2011, PM USA intro-duced the Marlboro Black family with Marlboro Black Box and Marlboro Menthol Black Box. In September 2012, PM USA expanded distribution of Marlboro NXT to 27 states and then shipped the product nationwide in July 2013. Marlboro NXT contains capsule technology in the filter that allows adult smokers to switch from non-menthol to menthol taste. "The Marlboro Black family is growing share and build-ing a strong position, including with 21- to 29-year-old smokers. We're pleased with the results so far, and PM USA is working to maintain the momentum." PM USA has also invested in the new Marlboro.com website that is said to reinforce the architecture by effi-ciently building brand equity and executing promotions. Nevertheless, there is no doubt that it is tough selling cigarettes in the U.S. at the moment, as is demonstrated by a quick look at some recent figures. At 33,819 million, PM USA's domestic cigarette shipment volume during the three months to the end of June was down by 6.7 percent And PM USA did well, relatively speaking. Its share of the domestic retail cigarette market during the three months to the end of June, at 50.7 per-cent, was increased by 0.3 of a percent-age point on that of the three months to the end of June 2012. Marlboro's share, at 43.7 percent, was unchanged, while the share of the company's other premium brands was down by 0.2 of a percentage point to 3.1 percent, and the share of its discount brands was up by 0.5 of a percentage point to 3.9 percent. The picture wasn't greatly differ-ent looking at half-year figures. PM USA's cigarette shipment volume dur-ing the six months to the end of June, at 63.32 billion, was down by 6 percent on that of the six months to the end of June 2012. Marlboro shipments fell by 6.4 percent to 54,554 million, and shipments of other premium brands fell by 11.7 percent to 3,822 million, while shipments of discount brands increased by 4.8 percent to 4,944 million. But again, PM USA did relatively well. Its share of the domestic retail cigarette market during the six months to the end of June, at 50.6 percent, was increased by 0.4 of a percentage point on that of the six months to the end of June 2012. Marlboro's share, at 43.6 percent, was increased by 0.1 of a percentage point, and the share of its other premium brands was down by 0.2 of a percentage point to 3.1 percent, while the share of its discount brands was up by 0.5 of a percentage point to 3.9 percent. It has to be said, however, that, seen on their own, the volume figures above (I have ignored the much more upbeat domestic-market, smokeless products ship-ment volumes attributed partly to PM USA and to U.S. Smokeless Tobacco Company) don't look good, and even the share figures, with rises mainly showing up in respect of discount products, offer only minor comfort to a com-pany chasing profits. The end of elasticity So, as N.G. Chernyshevsky once asked, "What is to be done?" It might seem strange to bring up Chernyshevsky's name when looking at such matters. He was, after all, something of a hero of revolutionaries and nihilists. But this is somewhat misleading, I am led to believe, because he was, in fact, somebody who believed in socialism and progress. And it would seem that there is now a need to embrace both, or perhaps I should say there is a need for progress with social issues in the vanguard. And, hey ho, importantly, this is the way in which Altria has been going in offering oral products, through U.S. Smokeless Tobacco Company and PM USA, and recently adding to that offering e-cigarettes via Nu Mark. Important, it seems, for both consumers and share-holders. A recent article written by Antoine Gara and published in Forbes indicated that while U.S. cigarette manufacturers continued to assert that cigarette price elasticity has remained relatively stable over the past 20 years, Citigroup figures had shown that this elasticity had deterio-rated notably over the past decade. Cigarettes, Gara said, were known in economic circles as an inelastic product. Because they were highly addictive, their demand didn't vary with economic change, hence the big tobacco manufacturers had little incentive to alter their pricing. The dividend-paying industry—but, presum-ably, not consumers—benefited from a product with low price elasticity. Citigroup, Gara added, had cited rising promotions for cigarettes, smoking restrictions in the U.S. and new substitutes such as smokeless igarettes as reasons for the fundamental economic shift of the industry.So Altria seems to be moving in the right direction, and the only regret, perhaps, is that there is a sense—as there is with all of the major tobacco manufacturers, with the pos-sible exception of one—that Altria was late in getting into the electronic cigarette business. And one of the worst aspects of this late arrival, to my way of thinking, is the fact that these major tobacco companies will be seen not to have gotten into e-cigarettes when it started to become apparent that these products were almost certainly the best harm-reduction product on offer, but when it became apparent that too much of their tobacco cigarette business was being captured by these products. That is, this was not seen as a progressive social issue, but a business issue. In other words, the interests of the shareholders were given precedence over those of consumers. Of course, this view of these companies might be unfair. There could be any number of reasons why they were late getting into the e-cigarette market. In fact, they might not see things that way at all. They might believe that it took as long as it did because they wanted to get their products just right. And, certainly, in the case of Altria, it could rea-sonably say that it was working in other areas of potential harm reduction by offering oral tobacco products. Enditem Related Updates |
