Marlboro cigarette brand gained its market share in 1995 when Philip Morison launched filtered cigarette leading to an increase in market share by 5000 percent in the United States. There are different types of Marlboro cigarettes which include Marlboro Light, Marlboro Regular, Marlboro Menthol, Marlboro Ice, Marlboro Advance, and Marlboro black (Goodman 2016, p.274). The paper will investigate the price trend for the Marlboro brands in the recent years, its demand and supply determinants, and the nature of the Marlboro brand market structure using microeconomic theories for the market structure.
Price Trend for Marlboro Brands in Recent Years
Market and price trend for the Marlboro brands are generally determined by the availability of customers and cost of production. However, there are a number of factors that determines the supply and demand for the Marlboro brands in the market which ascertains the nature of market structure for the Marlboro brand (Blecher, Ross, " Leon 2013, p.6). Its strategy of targeting female smokers in UK was not viable leading the company to change its target market to female smokers in United States by 1920.
Marlboro has been built on a unique advertising slogan that emphasized on “Mild As May” to demonstrate its middle-like cigarette type that is friendly to women. The volume of Marlboro cigarette consumption declined in 2014 globally leading to a fall in its market price by 3.1 percent. Philip Morris still managed to secure its market status in key markets places for the Marlboro brand that includes German, France USA, Canada, Ireland, Denmark, Australia, Ukraine, Israel, UK, and New Zealand. The price trend for the Marlboro brand can be explained using the figure that includes the pricing for a 20 pack of Marlboro cigarette from selected top economies
Figure 1.0: Price Trend for the Marlboro brand
Source: He " Chaloupka, 2018
From the figure above, Marlboro brand is expensive globally in Australia at €16.71 which makes it the most expensive nation in terms of the price for the Marlboro brand. It is closely followed by New Zealand that with a pricing of €14.81 whereas Ukraine has the least price for the Marlboro brand at €0.91. Different in prices for the same brand depends on the availability of the good, consumer preferences, government policies, and cost of production. Australia government imposed tough rule for the Tobacco smokers where by the higher price was an initiative to discourage tobacco smoking given that a higher price of a commodity leads to a fall in its demand. By the end of 2018, Australia will be selling the Marlboro brand for a 20 pack at €17 showing an increase in price of the commodity.
The government of Australia policy to impose an increased price for the Marlboro brand of cigarette was to prevent people from being affected by cancer caused by smoke for tobacco. However, increase in price of the Marlboro brand cigarette globally has not discouraged Philip Morris International from making profit from its sales. This can be illustrated using the following table which compare the earnings received in between 2006 to 2018 for the sales of Marlboro brand cigarette;
Fig 2.0: Illustration of market trend for Marlboro brand cigarette globally in terms of sales and profit in between 2006-2018
Source: Scollo et al. 2018, p.582
Philip Morris International made higher sales that led to greater profit for the Marlboro brand cigarette globally during the year 2017 where it made $87.52billion in sales. Increase in sales show an increase in demand for the Marlboro brand cigarette globally. However, during late 2006 to early 2008 when there was financial crisis, Marlboro brand cigarette globally fluctuated to lower sales at $38.51billion, $39.17billion, and $37.32billion respectively. It is therefore economically right to argue that prices and sales of a product are generally affected by financial uncertainties which can either lead to an increase or a decrease in sales.
Determinants of Supply and Demand for Marlboro brand cigarette
Demand is the desire and willingness of a consumer to buy a specific product given a specified price for the same product. On the other hand, supply is the quantity of products and services that the supplier is able and willing to avail in the market with a given price tag (Farmer 2008, p.79). There are a number of factors that generally affects the demand and supply for Marlboro brand cigarette in the market depending on the market structure of the firm.
Determinants of Demand for Marlboro brand cigarette
Consumer Tastes and Preferences
Consumer tastes and preferences for grocery produces is where a consumer willingness to purchase a particular good has been affected by other factors other than prices. Consumers might decide to want more to less or less to more of Marlboro brand cigarette depending how the taste satisfies the wants of a consumer (de Hooge et al. 2017, p.87). By underlining three fundamental elements in a product i.e. who, where, and how a particular brand of a cigarette within Philip Morris International was produced, the customer is therefore able to determine the demand size of the products depending on the brand and packaging. Consumer’s taste and preferences are affected by the product’s nature of appealing and general taste in terms of consumption. This is described by the change in demand from D1 to D2 in the figure below.
Fig 1.0: Change in Demand for Marlboro brand cigarette due to Consumer Preference
From the figure above, assuming that the demand for the Marlboro brand cigarette was at equilibrium with price at D1, where Q1 traded off with P1, then the equilibrium point for the demand of the cigarette product with respect to price and demand shall have been attained. However, if an increase in the taste and preference for the Marlboro brand cigarette increased due to standardized packing and production that appeal to consumers, demand will shift to the left thus leading to an increase in quantity of Marlboro brand cigarette demanded by consumers in the market from D1 to D1 at equilibrium where price and quantity is at P3 and Q3. It also shows that a decrease in price for Marlboro brand cigarette will lead to an increase in quantity demanded in the market with respect to taste and preferences.
Number of Buyers in the Market
Increase in the number of consumers interested in buying a given brand of Marlboro cigarette will lead to an increase in the demand for the cigarette brand sold in the market. Law of demand states that an increase in the demand for a commodity increases, price for that commodity will also increase but holding other factors constant, and vise versa. Demand for Marlboro cigarette is generally influenced by factors such as technological advancement in the production such as the e-cigarette.
Consumer Income
National income growth is typically measured by the change in Gross Domestic product (GDP) which is the total valuation of all goods and services produced within a national territory. Consumer’s income depends on the status of a national earning thus when there is an increase in consumer’s income; more of Marlboro brand cigarette will be consumed. During 2007-2008 financial depression in US, many people had no purchasing power to buy goods and services thus led to downfall of the sales output and profit attained by the Philip Morris International (Lin "Treichel, 2012).
Price of Related Goods
Related goods can either be complementary or substitute goods. Substitute cigarette for Marlboro brand cigarette includes Davidoff, Dunhill, Parliament, Vogue, Sobranie, Treasurer, Karelia, and Kent. If Philip Morris International decides to increase the price of its commodities, the rival companies will have market advantage in terms of consumer shift from Marlboro brand cigarette to a more relative product. On the other hand, increase in the price of substitute products will lead to an increase in demand for the Marlboro brand cigarette in the market. Comparison of the prices for the Marlboro brand cigarette with substitute products is shown below.
Fig 3.0: Price comparisons for Marlboro brand cigarette with respect to other cigarette products.
From the figure above, Treasurer Cigarette is the most expensive product that goes at $67. Since customers are prone to price comparison, most people will not prefer to buy Treasurer Cigarette but opt for more relative cheap products. Marlboro brand cigarette goes at $11.39 for its most expensive brand which is Marlboro Red King Size.
Determinants of Supply
Resource or Input Costs
An increase in the cost of producing Marlboro brand cigarette leads to an increase in its prices. Therefore, when the price of Marlboro brand cigarette increases, the demand for the same product will decline leading to a fall in supply. An increase in input cost of production in a firm has negative effect on pricing since the firm will pass the same price burden to consumers.
Production Technology
Advanced technologies in the production is a major determinant in the supply of goods and services around the globe. Currently, most of the Tobacco produced companies including Philip Morris International have managed to advance the cigarette smoked through filtering the smoke to minimize cancer. Supply for the Marlboro brand cigarettes depends on its state i.e. a more preserved filtered Marlboro brand cigarette will induce consumers to demand more thus leading to an increase in supply for the same product.
Government Policies
Government policies such as tax holidays and subsidies on Marlboro brand cigarettes have significant effect on the supply side for the brands sold by Philip Morris International. In US, the cost of expensive pack of Marlboro brand cigarettes goes at $9.80 of which $7 is charged as excise duty and VAT. An increased tax minimizes supply for a product in the market thus leading to fall in output for the product.
Market Structure for Marlboro brand cigarettes
Market structure for Marlboro is oligopoly industry because the market is dominated by few large firms. Marlboro is closely correlating with the rival firms in a way that it has to study the business patterns of the rival firms that it competes with in the market (Ciliberto " Kuminoff, 2010). A change in price of the cigarette sold by Marlboro upwardly should be cautiously taken in to account since rival firms such as Dunhill might consider reducing the price to a very low point in order to attract the market and consumers. Conversely, the firm should study the possibility of its rival firms following the same pattern by increasing present to keep the market at same level or destabilize market through reduction in price.
Given an existence of rival closely related firms, a change in price or the output level for any firm will lead to a complete completion or collusion in the market thus leading to non interdependency of the market structure for Marlboro. It cannot therefore make market decisions independently since every decision to either increase production or price level must be in consideration to rival firms. Barriers to entry for other firms in the market are one fundamental issue for an oligopoly industry such as Marlboro. Given government policy that regulates smoking of cigarette, the restriction that the government will affect the output for the Marlboro produces (Goel " Nelson, 2008).
Myopic addiction theorists argued that even if prices for the cigarette increase due to increase in tax that the government impose to regulate the consumption, addicted consumers will still prefer to utilize a large portion of the product without feeling the burden of tax (Peretti-Watel " Constance 2009, p.613). Other factors such as cost of production, patent right and licensing costs, research and development for new when the government regulate the consumption and restrict advert for the products to be done social media only, the output benefit received will be viable to sustain the company in the market.
Conclusion
Marlboro cigarette brands has been regarded as the best selling brand worldwide due to its branding, packaging and customer friendly in terms of price and availability. The produced is packaged and filtered to minimize health hazards for consumers. However, market and price trend for the Marlboro cigarette brand has been unstable due to different governments’ policies pertaining to the consumption and effects of tobacco. To determine the sales stock trend and pricing, this paper has found that a number of factors have been vital in influencing the demand and supply for the Marlboro cigarette brands. Factors that influence demand supply were found to include consumer tastes and preferences, government policies, cost of production, prices of related products and consumer income. However, the paper analyzed the market structure for the Marlboro cigarette brands and found that it is oligopolistic in nature. To minimize the threat posed by close rival competitors including Dunhill, Marlboro should first assess the market trend in terms of pricing and cost of production before making economic decisions that can affect its operations
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