What Is Marlboro Friday?

Marlboro Friday refers to April 2, 1993, the day when Philip Morris announced a drastic cut in the price of Marlboro cigarettes to fight off the generic brands eating into its market share. The company's stock tanked 26%, wiping $10 billion off its market capitalization in just one day.

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Marlboro Friday

Understanding Marlboro Friday

The brutal recession of the early 1990s led consumers to become more price-conscious. Generic versions of goods offered by big-box discounters soared in popularity, while expensive big-name brands were shunned and began to lose momentum.

Key Takeaways

  • Marlboro Friday refers to April 2, 1993, the day when Philip Morris slashed the price of Marlboro cigarettes to compete with generic brands.
  • The announcement wiped $10 billion off Philip Morris' market cap as analysts called an end to the era where big-name brands can name their price.
  • Wall Street's lack of faith in iconic U.S. brands proved unfounded as Philip Morris' bold call to slash prices eventually helped it to price out competitors from the market.

Philip Morris, now a unit of Altria Group Inc., responded with a shocking announcement: It was to cut the price of a pack of Marlboro, the world's best-selling and most iconic cigarette brand, by nearly 20%. Panic soon set in. Analysts interpreted the move as a clear sign that household names could no longer get away with slapping premium prices on their products, describing Philip Morris' desperate attempt to win back market share as the beginning of the end for big-name brands.

Prior to the announcement, deep discount cigarettes cost half the price of Marlboro.

Investors quickly become nervous. Money managers suddenly began dumping holdings in branded consumer goods that rely heavily on advertising, preferring to increase their exposure to technology stocks and generic consumer goods producers instead. Philip Morris was not the only victim of this shift in sentiment—the share prices of other big-name brands, such as Coca-Cola Co., Walt Disney Co., Proctor & Gamble Co., and Tambrands, the former maker of Tampax tampons, also got caught in the crossfire.

In the end, Wall Street's lack of faith in iconic U.S. brands proved unfounded. Bucking expectations, Philip Morris' bold call to slash its prices turned out to be shrewd move. Two years after Marlboro Friday wiped $10 billion off its market value, the stock had fully recovered as rival tobacco companies steadily got priced out of the market. 

Special Considerations

Pundits credit Philip Morris' revival to the strength of its brands and customers' loyalty. On Marlboro Friday, Wall Street was convinced that the Marlboro man, one of the most iconic symbols of American marketing, fell off his horse. In the end, they appeared to underestimate the long-term power of advertising.

One marketing expert, Watts Wacker of Yankelovich Partners, told The New York Times that brands that can demonstrate value in terms of quality and price would grow in importance over time. "When the No. 1 brand realized its value proposition was out of sync," he said, it underlined "the difference between a pig and a hog." "You feed a pig; you slaughter a hog," he continued. "Brands can be piggy, but they can't be hogs."

Wacker added that consumers tend to have strong relationships with the products they buy, purchasing certain name brands without even thinking about it.

In 1992, Philip Morris was generating profit margins in excess of 40%, a huge premium to peers, suggesting that there was plenty of scope to slash prices while still remaining highly profitable.

Nowadays, tobacco companies can no longer advertise their products. Marlboro's macho cowboy, however, still appears to be entrenched in smokers' minds—to this day it is still the most popular cigarette brand in the U.S. and most of the world.