RICHMOND, Va. -- The Marlboro Leadership Price (MLP) option, available to higher-tier Philip Morris USA retailers, has caused a stir among tobacco retailers--with many unhappy about the price ceilings it sets.(Click here for previous CSP Daily News coverage.)
Greg [image-nocss] Mathe, spokesperson for Altria Group Inc., and Miguel Martin, senior vice president and general manager of Altria Sales & Distribution, took some time out to discuss the controversial contract option with CSP Daily News companion newsletter Tobacco E-News.
Why did PM USA start this program?
MIGUEL MARTIN (MM): Considering the current economic environment, we are aware that adult smokers are changing why they choose a store to purchase cigarettes. And most adult smokers have stated that the lowest price on cigarettes was the most important factor in choosing a store.
And on behalf of Philip Morris USA, we're constantly looking at how we can effectively provide value for adult smokers, based on market conditions. We have a variety of ways to provide values to adult smokers: off-invoice allowances, special price promotions, product promotions, etc.
This change in one form of promotional support is optional for retailers that partner with us at at our highest levels of our trade programs, and is really meant to help them meet adult smoker's expectations and help keep Marlboro competitive in the marketplace.
What happens if retailers don't choose to participate in the option?
MM: That's up to them. If they don't choose it, they don't have the opportunity to earn the incremental promotional funds that come in as a result of that choice, but there's no ramifications to their merchandising payments, to their fixture availability or to other promotional allowances that we provide. It's really a separate choice or component of the promotional part of the program.
What are the incentives to participate?
GREG MATHE (GM): Since the program doesn't go into effect until April, we are reluctant to share that information, since it is between us and the retailer[s]. I think it's important to know that having premium brands be competitive in their stores brings about other purchases--the market-basket effect. We know that premium shoppers are more likely to spend more money in a convenience store. So having the competitive Marlboro price helps the retailer in a variety of ways--not just with the cigarette category.
We've heard many retailers equate the option to "price fixing," how would you respond to that?
MM: My response is that this is an option for a promotional allowances, and they have the choice to participate or not participate. And for those retailers that the participation aligns with their business model, then there are incremental promotional funds available.
If they choose not to participate, then they elect not to get the promotional allowance. I don't want to debate the definition of the terminology of "price fixing." There are two points I would make. First is it is one component of our promotional funding, which I think is really a critical piece of it. And the second point is it is an election. Retailers who choose to participate in the MLP option are free to establish a price below the suggested MLP price.
One retailer said MLP in his state equated to an 11.3% margin, is that correct?
MM: The MLP is determined on a variety of factors, including state excise taxes, state minimum price laws and regulations. There are a variety of things that go into that calculation, and I think it's unfair for me to speculate what the actual impact to the variety of retailers in which we service.
Retailers have said the pricing places Marlboro in line with third- and fourth-tier brands.
MM: What I'd tell you is we don't comment on competitive brands or competitive activities. Our stated objective of this program is pretty straightforward: To reward retailers who offer a competitive Marlboro single-pack price to adult smokers.
Are there other questions you're hearing from retailers?
MM: We have a lot of dialogue, and continue to have a lot of dialogue and conversations with our retailers. As with any change to our promotional allowances, I know there are questions, and we're going to do anything in our power to make sure that they have every avenue to have conversations with us. We sent out two hard-copy communications to the trade to make sure they understand the details of this change. And we are also visiting retailers personally--both in our day-to-day coverage, as well as in supplemental coverage--to talk to them about their options.
What percentage of retailers are being offered this program?
MM: The majority of our volume participate at the current contract levels of three, four and five [the levels that can elect to participate].
The other point I think is important is that retailers can come onto this program on a monthly basis whenever they choose, so it's not a one-time entry or a one-time out.
The second thing is for those retailers that operate multiple stores, they can elect this option on a store by store basis, this not an all or nothing type of program.
Have you been hearing positive feedback?
MM: As with all programs, you hear a variety of opinions, we're going to continue to monitor not only the performance of the program, but the feedback from our trade partners, which is most people, given we call on 240,000 stores a month.
What is the length of the program?
MM: It starts in April for a six-month duration. If you look back at the previous program, for those retailers that choose this option, it's an increase in their promotional support, really intended to lower Marlboro's price at retail and provide some additional benefits to retailers. That would include things like increase in foot traffic and customer loyalty to their stores.
What happens after October?
MM: We'll see. We don't announce past that point, and so I think that's to be determined.
GM: Just like all of our promotional resources that we put in the marketplace--off-invoice allowances, product promotions, couponing support, special-price promotions--that is always subject to change, and we don't really tell anybody what's going to happen or speculate what's going to happen.
And those resources are never guaranteed in the marketplace. We really see the marketplace dynamics, and whether or not the manufacturer putting these resources into the marketplace will help.
Click here for details on Tobacco E-News.
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