Wholesalers Sue Phillip Morris Over Marketing Plan

08 July 2003

America’s cigarette wholesalers are fuming over Wholesale Leaders 2003 – a new marketing programme launched by Philip Morris. Under this innocuous banner, the tobacco manufacturer plans to sell product to middlemen at differing prices – dependent on the dollar proportion of PM brands to each wholesaler’s total sales.

“It is a pay-for-performance programme,” loftily declared the cigarette colossus. “It aligns the resources in our promotional programme with those [wholesalers] that are doing best in terms of meeting Philip Morris share goals.”

“Price discrimination and attempts to monopolise,” retort the middlemen, sixteen of whom aim to stub-out PM’s attempted discrimination with a lawsuit filed recently in a Tennessee federal court.

The new programme, launched June 30, is part of an attempt by PM to combat the rise and rise of ‘deep discount’ cigarettes which have swiftly grabbed over ten percent of the US market.

The discounted brands are marketed mainly by small manufacturers that were not involved in the penal payouts imposed on PM and other tobacco majors as part of the 1998 legal settlement with a number of US states.

But according to one of the plaintiffs’ attorneys, the programme imposes extreme competitive disadvantage on distributors that sell a higher proportion of discount brands and a lower proportion of Philip Morris products.

This, avers the attorney, is in violation of federal antitrust laws. “We want an injunction that would prevent [PM] from either implementing or maintaining a discriminatory programme, and then we are seeking damages as a result of the programme.”

On Thursday, a Tennessee judge denied a motion by Philip Morris to move the case to a New York court. But the corporate leviathan was undeterred: “We plan to vigorously defend the case and ultimately … believe that the programme will be found to be completely lawful,” it declared.

The initial hearing is expected later this month.

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