Government-driven Loyalty

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Oct 31, 2005
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By John Hennessy


When the government restricted Marlboro from using mass media, ad spending went down and profits went up. Marlboro now owns more than 40 percent of the market.


Marlboro replaced its spending on mass media with marketing to a database of 26 million smokers. Those on the list receive birthday coupons, the chance to attend events and special trips to a ranch it owns in Montana where vacationers are showered with gifts, meals and services – all on the company tab. Not only does this cost Marlboro a heck of a lot less than mass media advertising, it also builds a kind of loyalty that television, radio and print just can’t buy.


By forcing Marlboro to go viral, be aggressive in retail stores and be more creative in its media plan, anti-smoking advocates put the company on a successful path now being followed by every marketer from General Motors and Audi to AXE Deodorant. Except, Marlboro does it better.


According to Merrill Lynch analyst Christine Farkas, Marlboro’s operating profits will reach 28 percent next year from 26 percent in 2004. Net income will grow to an estimated $11.4 billion on $66.3 billion in sales.


Moderator’s Comment: Is the success Marlboro is having with personal versus mass marketing unique to cigarettes or can it work for other products and
services?


Setting aside the tobacco issue, there’s a lot of talk about personalized marketing but few companies are pushing the envelope as far as Marlboro. It’s
probably safe to say that, without its hand being forced, Marlboro too would neither have embraced personalized marketing as completely nor seen its business improve as much.


It’s just plain safer to keep spending on the mass marketing programs you have always executed.


Marlboro’s personalized marketing driven business success indicates that continuing to execute mass marketing at your current level is fine, until your
competitors start to execute loyalty building, personalized marketing programs. Then you have a really big problem.

John Hennessy – Moderator

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8 Comments on "Government-driven Loyalty"


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Mark Lilien
Guest
15 years 3 months ago

Viral marketing is working every day on myspace (30 million members), eBay, and Amazon. All 3 emphasize peer-to-peer networking by sharing information, and all 3 give great value.

Camille P. Schuster, PhD.
Guest
15 years 3 months ago

Marlboro is only one of the companies on the Global Top 10 list. The other products do not have restrictions placed on their advertising. Certainly, spending on direct promotion is less expensive, increasing the profitability of Marlboro. With the decreasing number of people watching prime time TV and the difficulty of reaching 18-35 year old males with traditional mass marketing, more companies are beginning to experiment with other ways of reaching consumers. Marlboro may have been forced to clear a new path. Other companies, with no such incentive, are experimenting in this area. Some companies are beginning to cut their traditional advertising budgets as they switch to new forms of communication. Maybe more companies will follow Marlboro’s path.

Ken Wyker
Guest
15 years 3 months ago

With the incredible margins and high sales per customer enjoyed by tobacco manufacturers, it’s no wonder they can provide trips to their own ranch for heavy users. But does that really mean much to the CPG manufacturer or retailer dealing with lower margins or lower product sales to each customer?

Loyalty marketing has tremendous potential for retailers and CPG manufacturers, but they can’t look to tobacco companies for clues about how to do it profitably. Success for them depends on creating a financial model that works within their own industry. Don’t even think about trips to a company-owned ranch…you’ll more likely be able to justify a discount for repeat purchases or reward for achieving a particular purchase level. Or even better, simply provide a service or non-financial reward to your top customers.

Successful loyalty programs achieve incremental sales (or preserve existing sales) at a manageable cost. Marlboro doesn’t have to worry much about the costs of their promotional efforts. Most other businesses do.

Jim Dickson
Guest
Jim Dickson
15 years 3 months ago

Part of the appeal of viral marketing is that it creates a community & sense of belonging. The individual is recognized and is thereby important, whether it be a birthday greeting or at the leading edge of a fad/trend. However, unless specified, it will not draw traffic to a specific retailer or dealership, but to the channel/venue instead.

Edward Herrera
Guest
Edward Herrera
15 years 3 months ago

The loyalty rate for smokers is the highest in the retail industry. Marlboro knows their target audience and what they need — heavy users to increase usage.

I think the word mass media is losing mass and focused media is gaining strength through information. Mass media is becoming fragmented and the retention in the consumers mind is shrinking.

By accident is always a good way to succeed.

Race Cowgill
Guest
Race Cowgill
15 years 3 months ago

Are these all there are to it? Or are these even accurate? It sounds like we’re saying that a high-impact loyalty program depends on:

– Higher margins (in order to be able to offer higher-value rewards).

– More differentiated products (as opposed to “commodity” products, even if the differentiation is only in consumers’ minds).

– High-value rewards (sense of community, free trips, etc.)

Can low-value rewards work too?

M. Jericho Banks PhD
Guest
M. Jericho Banks PhD
15 years 3 months ago

How many of Marlboro’s foreign inhalers get to visit the U.S. ranch? Marlboro sales worldwide – supported by ample advertising – add significantly to the overall profitability of the brand. To isolate this profitability to the effects of their admittedly clever domestic loyalty program is grossly misleading.

But to the issue at hand: My friend Ken Wyker speaks for me with his comments. He echoed my thoughts exactly.

Greg Coghill
Guest
Greg Coghill
15 years 3 months ago

I’m sure many media and advertising folks will argue with my statement, but loyalty to cigarette brands is much stronger than loyalty to, say, a soft drink and therefore, media usage has little effect in the short run. A very slight decrease in sales coupled with a dramatic decrease in media spending would not surprisingly increase overall profits. While I do feel that personalized marketing and viral marketing are often very successful tactics, I’m not sure if I agree that this example is a testament to their value.

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