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How Marlboro Friday Changed the World

By Morgan Housel – Updated Apr 5, 2017 at 10:19PM

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To defeat generic competition, clever companies discovered a new approach.

Talk about a rough start to the weekend.

On April 2, 1993, cigarette behemoth Philip Morris, now a unit of Altria (NYSE: MO), made a stunning announcement. As a result of increasing competition from bargain-brand cigarettes, Phillip Morris would need to cut prices by 20%.

It was an absolutely frightening revelation. Since 1954, the Marlboro Man had been strategically advertised to consumers; he was considered the iconic symbol of American marketing. If his name-brand allure was faltering, many market pundits felt that other high-end companies could no longer justify premium prices, and would soon be dominated by whomever could crank out product at the cheapest price.

Leggo my logo
Investors didn't take it lightly. Philip Morris stock tanked 26% that day, along with smaller reactionary declines from Coca-Cola (NYSE: KO), Procter & Gamble (NYSE: PG), Disney (NYSE: DIS), and nearly every other company that relied heavily on advertising their products. Brands, many thought, were dead; Marlboro Friday, as the day became known, marked the birth of a new consumer, one motivated only by price. Or did it?

Fast-forward 15 years, and thank goodness, very little of the "death to brands" mantra has held true. Today's market leaders are dominated by name-brand products, as companies from Starbucks (Nasdaq: SBUX) to Nike (NYSE: NKE) to Apple (Nasdaq: AAPL) achieve huge success on the basis of their names. They've edged out cheaper, no-name products at every turn -- but how?

Consumers were indeed scaling back on name-brand products in the early '90s, shifting purchases toward the generic brands peddled by big-box discounters. A brutal recession had made consumers ever more price-conscious -- but that hardly consigned big-name brands to their graves.

If anything, Marlboro Friday marked the beginning of a shift from advertising toward branding. Companies that took Marlboro Friday too literally, opting for price cuts over marketing projects, fell into the trap of believing they sold nothing more than a commodity product. But a much wiser group realized that the brand itself was actually a huge part of what they were selling in the first place.

This group of companies realized that they no longer simply slap their logos on billboards and call it a day (as rival cigarette firms had, when fencing in the Marlboro Man). That was mere advertising. Successful branding meant that companies had to integrate their products into consumers' lives -- the brand needed to be an experience, a lifestyle, rather than just the face of a product. In a sense, the products themselves were the tools used to create and sell the brand, not the other way around.

More than a fancy cup of Joe
Take Starbucks, for example. Whether or not its coffee is actually better than its rivals' brews, the experience you get from Starbucks is priceless. The coffee is arguably there to justify taking part in the entire Starbucks experience -- an affluent, sophisticated, cultured lifestyle that has very little to do with actual cups of java. By building Starbucks' brand, the company has been able to achieve unrivaled success in an otherwise commoditized industry.

Apple is very similar, associating its logo and products with simplicity, modernism, and individualism. This silent benefit has surely attributed to Apple's runaway success. More importantly, it flies in the face of prevailing Marlboro Friday thought -- that consumers would be attracted to products based on price alone.

In today's globalized economy, the lessons learned from Marlboro Friday, and the ensuing shift in advertising behavior, are as important as ever. Some of the world's most prosperous companies have proved that what you sell is less important than how you sell it. As geographic borders become increasingly irrelevant in defining markets, and competition rises, there's little room for companies that fail to make a name for themselves.

Remember, Fools, that successful companies going forward will define themselves around a reputation -- not just a product.

For related Foolishness:

Starbucks and Disney are Stock Advisor recommendations. Coke is an Inside Value pick. Try any of our newsletters free for 30 days.

Fool contributor Morgan Housel owns shares in Altria, but holds no financial position in any of the other companies mentioned in this article. He appreciates your questions, comments, and complaints. The Fool's disclosure policy has made quite a name for itself over the years.

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Stocks Mentioned

Altria Group Stock Quote
Altria Group
$42.90 (0.94%) $0.40
Walt Disney Stock Quote
Walt Disney
$100.80 (-0.63%) $0.64
Starbucks Stock Quote
$90.12 (1.82%) $1.61
Apple Stock Quote
$146.40 (0.20%) $0.30
Coca-Cola Stock Quote
$56.24 (-0.95%) $0.54
Procter & Gamble Stock Quote
Procter & Gamble
$129.20 (-0.69%) $0.90
Nike Stock Quote
$91.10 (2.77%) $2.46

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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