How brand equity metrics drive brand strategy
On Friday 2 April 1993, Philip Morris cut the price of Marlboro cigarettes by 20%, to compete with generic cigarette manufacturers selling budget and supermarket own-label brands at low prices. The marketing and financial media immediately ran hysterical headlines announcing the death of the Marlboro brand specifically, and premium branding generally.
Philip Morris' share price went into freefall, dropping by 26% in one day and cutting $10 billion off the Philip Morris market cap. Investment analysts slashed the share price of Coca-Cola, Tambrands and many other branded manufacturers.
But 'Marlboro Friday' was not the death of either the Marlboro brand or premium branding. Marlboro's action stopped a price war that had begun in the early 1990s recession, leading to significant US market share erosion for Marlboro. Marlboro brand managers had wrongly believed that the brand's absolute price was sacrosanct. As its competitors increasingly cut price Marlboro's relative price premium grew, putting the brand out of reach for many hard-pressed consumers. By cutting its price Marlboro restored the relative premium over generic brands.