By M Suyanto
Philip Morris is one of the big, cigarette industries in the U.S., and Marlboro is one of Philip Morris’s trademarks which economically have involved a quarter of U.S. citizens. In 1989, Philip Morris dominated 43% of the U.S. market, so at least it could support the economy of Marlboro Country. However, such a domination ended when the other industries of unbranded cigarettes took over 40% of the U.S market, cutting the market of Marlboro in the U.S. at 30%; and as a result, making its stock collapsed. Michael Miles, Philip Morris’s CEO, tried to do his best to save Marlboro. The strategy Miles undertook was that he lowered prices dramatically; reduced prices on a large scale; and lowered the world’s leading-cigarette prices at 25% of the cost price just to boost the stock price by gambling with a very high risk. Some commentators, observers, and analysts were of the opinion that what Miles had done with his strategy was driven by panic rather than by long-term considerations.
Undertaking his strategy to boosting the stock price, Miles took the opposite view of the theory applied in the 1980s when selling well-known brands succeeded because of high prices. Miles knew that it was unusual and impossible for the company to keep on selling Marlboro cigarettes to its consumers at a premium. Miles might attempt to apply Campaq Company’s strategy, in which it sold its PCs at lower prices and used the power of big brands in order to control the stock market and to be able to compete with Dell Computer and IBM.
At first, the application of Miles’s strategy was not trusted by the market, so Philip Morris’s shares fell sharply at 23% in one day. However, gradually the stock price began to recover, and even grew rapidly. The Company’s total shares of the U.S., cigarette market increased from 42% to 46%. Marlboro shares grew from 22% to 27%. In July 1994, Philip Morris was able to gain profits at 17.6% after the tax payment, or totally 1.23 billion dollars. Even, the most surprising thing was that sales increased to almost 22% in the U.S., so the stock rose to 6.5%. In 2003, shares reached 38.5% of Marlboro cigarettes in the U.S.
Michael E. Porter called Miles’s strategy the total cost leadership strategy, which highlights lower prices than competitors do. This strategy is part of the clearest generic strategy among the other generic strategies. If a company can achieve and maintain a total cost advantage, it will be the company, the performance of which is above average in its industry if it can set the price equal or close to the average price in the industry. With a price that is equal to or slightly lower than competitors’ prices, the low cost position of the advantage of this cost will be realized in the form of higher profits. Miles first began to carry out this strategy on Friday. Michael Miles, who has created the strategy, calls it Marlboro Friday.