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Philip Morris’s Ongoing Enhancement of Heritage Brands

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Sep. 10 2015, Updated 9:06 p.m. ET

Billion-dollar brands

Philip Morris International (PM), a US-based cigarette and tobacco company, caters to both local and international markets with its mid-market and premium brands, which include Marlboro, Merit, Parliament, and Virginia Slims. Generally recognized as the world’s best-selling international cigarette, Marlboro accounted for 33% of the company’s total shipment volume in 2014.

L&M and Chesterfield are Philip Morris’s leading mid-priced brands. Other international brands include Bond Street, Lark, Red & White, and Philip Morris. The company also owns a number of local cigarette brands, such as Canadian Classics and Number 7 in Canada, Morven Gold in Pakistan, f6 in Germany, and Diana in Italy. International brands contributed to ~72% of the company’s total shipments in 2014.

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Marlboro’s brand value

While the shipments of Marlboro, one of Philip Morris’s billion-dollar cigarette brands, decreased by 2.8% in 2014, Marlboro still represented 9.4% of the total international cigarette market in 2014, compared to 9.3% in 2013 (excluding China). According to a Millward Brown report, Marlboro is ranked among the top 10 brands in North America, with a brand value of $80.4 billion in 2015. By way of comparison, Apple (AAPL), Microsoft Corporation (MSFT), and The Coca-Cola Company (KO) have brand values of $247 billion, $116 billion, and $83.8 billion, respectively.

L&M and Chesterfield, both Philip Morris medium-priced brands, dropped in market share in Spain and Ukraine to competitors like British American Tobacco’s (BTI) Lucky Strike and Imperial Tobacco Group’s (ITYBY) Winston. These declines were due to higher pricing by Philip Morris, as well as to unfavorable product volumes and mixes.

Brand value strategies

Philip Morris aims to enhance brand behavior and culture through brand innovation and extension strategies. These initiatives should help tailor brands to meet consumer preferences, increasing sales through brand penetration.

Philip Morris and Coca-Cola have exposure in the Consumer Staples Select Sector SPDR ETF (XLP), with 6.9% and 8.4%, respectively, of the portfolio’s total weight.

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