Dynamic Marketing Communiqué

A New Year’s resolution unlike any other! How this company breaks free from its traditional business operations [Monday: Marketing Marvels]

March 29, 2021

We are all familiar with this line:

“Cigarette smoking is dangerous to your health.”

We see this reminder on TV and newspaper ads, online copies, and even on cigarette boxes themselves!

As many people are becoming more health-conscious nowadays, tobacco corporations are also leveling up their products to cater to consumers’ changing preferences and demands.

Curious about what these brands do to address such changes in the way they should market their products?

Check out this tobacco company’s interesting twist to reinvent its business image and offer less harmful alternatives to consumers!

Philip Morris International, Inc. is a Swiss-American multinational cigarette and tobacco manufacturing company headquartered in Switzerland.

As one of the companies comprising Big Tobacco, Philip Morris sells its products in over 180 countries, with Marlboro being the most recognized and best-selling brand.

[Big Tobacco: A name used to refer to the largest global tobacco companies in the world.]

Wondering about how Philip Morris markets its products?

By employing a set of standards that highlight the company’s responsibilities and values!

Here are some of Philip Morris’ marketing DOs and DON’Ts:

DOs:

  • Marketing and selling products to adult smokers (25 years old and above).
  • Warning consumers about the health effects of the tobacco products.
  • Making sure the company’s advertisements are “honest and accurate.”
  • Respecting the laws of the countries where tobacco products are distributed and sold.

DON’Ts:

  • Using cartoons, youth-oriented celebrities, or models who appear to be under the age of 25.
  • Advertising on the front or back cover of any print publications destined for general circulation.
  • Engaging in product placements in movies or TV shows.
  • Placing the names or logos of the company’s cigarette brands on any promotional items likely to be seen by minors.

Since marketing is “one of the defining strengths” of Philip Morris, it encourages all its marketers―wherever they are in the world―to uphold the practices listed above.

Here’s where the company’s image reinvention comes in…

In 2016, Philip Morris announced its commitment to a major business transformation―a move away from cigarettes and other combustible tobacco products and towards smoke-free alternatives.

One of the company’s goals?

To get at least 40 million of its adult customers to stop smoking and switch to less harmful alternatives by the year 2025!

According to Michael Voegele, Philip Morris’ Chief Technology Officer, the company is maximizing technology to deliver consumer-centric solutions that will accelerate the transformation to a smoke-free future.

He said:

“PMI today is a very different company [compared] to the one that’s probably top of mind when you think about the tobacco industry of the past. The PMI of today is squarely focused on replacing cigarettes as quickly as possible scientifically substantiated smoke-free products that are a much better alternative to cigarettes for the millions of adult smokers who would otherwise continue smoking.”

As of 2020, Philip Morris has invested over USD 6 billion in science, technology, and research to develop and commercialize alternative products for cigarettes.

So far, one smoke-free alternative created by the company is…

The IQOS Cigarette!

―an electronic device that heats tobacco instead of burning it. This technology allows smokers to “experience the real tobacco taste without the fire and ash.”

In 2018, Philip Morris released an ad in the UK that declared its New Year’s resolution to “give up cigarettes.”

This was done to raise awareness about the company’s firm commitment to contribute to a smoke-free future.

Here’s what the newspaper ad looked like:

In addition to that, Philip Morris also launched a “Smoke-Free Future” website and campaign to provide smokers with information on quitting and alternatives to cigarettes…

… and pledged to support local authority cessation services where smoking rates are highest.

Another strategy Philip Morris did to raise awareness about its campaign?

Reaching out to the Creative Community in Cannes Lions, a 5-day festival that gathers together those in the creative marketing industry, to open doors for collaboration opportunities!

The company believed that because the Cannes community is at the “forefront of any societal change,” it can drive a positive attitude towards a smoke-free future.

As part of the collaboration, Philip Morris set up a lounge at the Cannes event in France in June 2018 to talk to consumers about the company’s vision.

Because of the lounge’s strategic placement, it was always full of people who wanted to understand the transformation the company is going through!

As stated by Tommaso Di Giovanni, Philip Morris’ Director of Global Communications for Smoke-Free Products:

“To get into a smoke-free future, we need to change the way we think, and science and innovation are key. What will also be interesting is to see the pace of product development. Once you enter into innovation, it takes you into a completely different world than cigarettes and it’s a world that’s very intriguing for us.”

As of 2020, 5.6 million adult smokers have already switched to IQOS, which is now sold in 42 markets worldwide.

In the past five years, Philip Morris International, Inc. has recorded revenues of:

  • USD 26.7 billion in 2016
  • USD 28.7 billion in 2017
  • USD 29.6 billion in 2018
  • USD 29.8 billion in 2019
  • USD 28.7 billion in 2020

This shows how the company’s dedication to reinvent its image and deliver smoke-free alternatives are yielding positive results.

Philip Morris International, Inc.’s Earning Power: Valens Research vs. As-reported numbers

Philip Morris International, Inc. (PM:USA) makes for a great case study that we come back to regularly. One great reason?

The company has proven itself to be a better earning power generator than investors might think.

So, how well has PM been growing its business in the past years?

The research doesn’t lie—nor do the results. Earning power (the blue bars) continues to show results higher on average than what traditional databases show.

The blue bars in the chart above represent PM’s earning power (Uniform Return On Assets). PM has seen generally robust and stable profitability. Its Uniform ROA ranged from 37% to 62% in the past fourteen years, or an average of 50%. Uniform ROA is at 56% in 2019.

The global ROA is just 6%.

The orange bars are the company’s as-reported financial information. If you relied on these numbers, you will see a company with terribly understated profitability. As-reported ROA (return on assets, a measure of earning power) only ranged from 16% to 24% in the past fourteen years. Its ROA in 2019 was only at 16%, nearly four times lower than its Uniform ROA in 2019.

That’s what you’ll see in Yahoo Finance, Google Finance, and most other databases.

The company’s stock price also performed better than the rest of the stock market over the decade, which we can see in the blue line in the chart below. Its returns have been well above the market.

The numbers show that PM has been doing well and making a profit.

Philip Morris’ aim for a smoke-free future doesn’t just start and stop with an operating model.

First and foremost, the company analyzes how it can support adult smokers in their journey to switch to better alternatives.

From there, Philip Morris will utilize available resources and technologies to enable creativity and innovation to unlock opportunities for change.

As stated by Chief Technology Officer, Michael Voegele:

“We’re just at the start of our technology transformation journey. There’s still lots to do, but the ambition is there and we’re making tremendous progress towards our objective.”

While Philip Morris may still have a long journey ahead, with the right goals, planning, and execution, the company will be able to deliver “consumer-centric solutions” towards a smoke-free future.

About The Dynamic Marketing Communiqué’s
“Monday Marketing Marvels”

Too often, industry experts and the marketing press sing the praises of some company’s marketing strategy.

…Only for the audience to later find out that their product was a flop, or worse, that the company went bankrupt.

The true ROI in marketing can’t be separated from the business as a whole.

What good is a marketing case study if one can’t prove that the company’s efforts actually paid off?

At the end of the day, either the entire business is successful or it isn’t. And the role of marketing is always paramount to that success.

Every Monday, we publish a case study that highlights the world’s greatest marketing strategies.

However, the difference between our case studies and the numerous ones out there, is that we will always make certain that the firm really did generate and demonstrate earning power worthy of study in the first place (compliments of Valens Research’s finance group).

By looking at the true earnings of a company, we can now rely on those successful businesses to get tips and insights on what they did right.

We’ll also study the greatest marketing fails and analyze what they did wrong, or what they needed to improve on. We all make our mistakes, but better we learn from others’ mistakes—and earlier, rather than later.

Hope you found this week’s marketing marvel interesting and helpful.

Stay tuned for next week’s Monday Marketing Marvels!

Cheers,

Kyle Yu
Head of Marketing
Valens Dynamic Marketing Capabilities
Powered by Valens Research
www.valens-research.com