Wholesalers Draw First Blood in Philip Morris Fight

08 August 2003

Sixteen cigarette wholesalers have won the opening battle in their fight to block a controversial marketing scheme from Philip Morris.

The distributors have secured a preliminary injunction from a Tennessee court that prevents the tobacco colossus implementing Wholesale Leaders 2003.

Under this scheme – branded a “pay-for-performance programme” by Philip Morris – middlemen will qualify for one of three different levels of discounts depending on what percentage of their sales revenues are generated by PM brands. The higher the percentage, the bigger the discount.

The plan – an attempt to combat the rapidly growing ‘deep discount’ cigarette market – was launched June 30. And was promptly followed by a lawsuit from sixteen disgruntled wholesalers who claimed the scheme violates competition laws [WAMN: 08-Jul-03].

Now a federal judge in Tennessee has ruled that the distributors have demonstrated a prima facie case that the marketing ploy breaches price discrimination rules, meaning the case will go to trial.

According to Kyle Keegan, one of the wholesalers’ attorneys, the injunction means Philip Morris must offer cigarettes to the plaintiffs at the most generous discount available under the price plan until the row is settled. “This is the best outcome we could have hoped for at this stage,” he beamed.

The injunction applies only to the sixteen wholesalers that filed the suit, but their success so far may convince other middlemen – and possibly ‘deep discount’ operators – to enter the fray.

Philip Morris plans to appeal the decision, claiming the wholesalers are just upset that their PM sales aren’t high enough to get the top discounts. The case could take a year to reach trial.

Data sourced from: Financial Times; additional content by WARC staff