Also seeing billions go up in smoke was, as The Wall Street Journal put it, a Who's Who of famous brands: Campbell Soup, Procter & Gamble, Colgate-Palmolive, Hershey and Heinz. Even Coca-Cola swallowed dust as "stock investors," the Journal reported, "envisioned the end of the road for . . . once unshakable purchaser loyalty." The stampede pummeled agency stocks as well, sparing (or perhaps saving for a bad run this week) equally ad-dependent media stocks.
Before the stampede continues, however, let's stop and consider the enormity of Miles' strategic boner. Not only did PM's first non-tobacco chairman confirm the clear and present danger of no-brand cigarettes (despite their being manufactured, to the very last butt, by brand-cigarette purveyors), he also let out the industry's dirty little secret. Cigarette smokers are price sensitive.
That the product was supposed to have been price inelastic was merely a smokescreen, it now seems, to keep a lid on excise taxes. (Aside to Hillary: That means you can tax the "habit" to a fare-thee-well. Those consumers who can't afford to pay up will trade down or, better yet, pull out. No less an authority than PM itself has just admitted as much.) As one veteran observer put it, "Miles betrayed the industry to its very enemies in Congress."
In that regard, PM's action is without parallel. Sure, Coca-Cola stole mystery from its secret "7X" formula when it tried to dump it for the taste of new Coke in the mid-80s. And make no mistake: 7Up put its entire industry at risk a decade ago when, through its "never had it, never will" campaign, the brand tried to scare consumers about the caffeine and sodium in other soft drinks. But those efforts can be justified in that, regardless of how ill-conceived, they at least delivered something new--a new taste in one instance, a new consciousness in the other.
The case of Malboro is, by comparison, a bankruptcy of imagination. PM seems to be admitting that its idea of brand management is limited to administering 15% price hikes year after year. Never mind such brand-reinforcing obligations as improving the product, understanding the limits of consumer finances or even refreshing the brand's image. "What's the difference between 1985 Marlboros and 1993 Marlboros?" asks Mark Stevens, a Charlotte, NC-based consultant in retail brands. "Today's Marlboros cost twice as much."
What PM is acknowledging is a consumer revolt over Marlboro's price vs. performance equation. The price has finally crossed a line that consumers won't follow without getting commensurate increases in at least one performance variable. Granted, there are extenuating circumstances. PaineWebber analyst Alan Gottesman notes that, by succumbing to a broadcast ban in 1971, "the Big Butt Boys," as he calls them, surrendered their most expedient means of building "awareness" of product improvements. Thus, perhaps, their "why bother?" indifference.
That hardly suggests, however, that other consumer categories are as ripe for revolt. PM's beer division, through Miller Lite and now Genuine Draft, continues to innovate itself out of private-label reach. And even the cola giants, having crushed their industry's innovators, aren't averse to using their premium margins to drum up new interest, whether it be through new images or new products. As for any swift-moving category like sneakers, forget it. "No discerning consumer will settle for last year's leading brand," says consultant Stevens, "much less some store-designed knockoff."
All of which means there's still plenty of hope for brands true to their charter: to focus on consumer needs rather than manufacturer convenience. It should even be easy for brands to prevail, in most categories, considering that the attention of the typical retailer has to span hundreds of items. "The only time private labels make inroads," Stevens explains, "is when categories become so stationary, so inert, they might as well be fire hydrants."
That's how Marlboro established its fate, only to exacerbate it by passing on the sort of price hikes an obedient dog would find hard to take. Can it really be that big of a surprise, then, that the dog finally responded to the fire hydrant instead of heeding yet another Pavlovian price call?
Copyright Adweek L.P. (1993)