Ashes to Ashes (79 page)

All that was nuance so far as soaring Merit was concerned. By 1979, the brand was accounting for one of every five cigarettes sold by Philip Morris, moving well past Virginia Slims and Benson & Hedges, which had run into trouble translating its witty sell from electronic to print media.

IV

WHEN
Marlboro was on the verge of passing Winston as the best-selling U.S. cigarette toward the end of 1975, Philip Morris people made a pact among themselves, as national sales director Jack Gillis recalled: “There wouldn’t be any skyrockets or celebrations when it happened. The prevailing sense was ‘Let’s see how far we can ride this thing.’”

Even with the new national sales leader in its stable, Philip Morris had work to do. Reynolds still held one-third of the U.S. market, compared to PM’s quarter. By then, though, the New York organization had surpassed RJR in global cigarette sales, thanks to its far better performance overseas. International sales were accounting for one of every five dollars Philip Morris brought to the bottom line.

The company’s chief overseas go-getter, the fiercely independent and aggressive young Scotsman Ronnie Thomson, who commanded European operations from 1968 to 1976, combined manufacturing and marketing know-how, financial acumen, and lawyerly skills as a cool tactical negotiator and deal-maker. He tried to impress upon New York headquarters—and to an extent succeeded—that for all its national differences, Europe ought to be conceived of as one big market that could be penetrated by carefully orchestrated, centralized policies and planning, undertaken from the company’s European base in Lausanne. There, on the shore of Lake Geneva, Thomson put up a little gem of a modern office building and brought to it a cadre of superior talent, among them Swiss, German, Swedish, Australian, and Israeli nationals who would one day assume top jobs in the Philip Morris hierarchy, just as Joe Cullman had forecast in his welcoming remarks to the uneasy employees at FTR a decade earlier. In the view of Walter Thoma, one of the Swiss whom Thomson enlisted and who would in time inherit his post as head of European operations, the ruddy Scotsman was “a very bright, talented, analytical, and motivating executive.” But in a company that prided itself on a consensual system of
management more than a top-down, inspirational brand of leadership, Thomson was a fish out of water. He hated organizational folderol and hewing to the chain of command that served merely to slow the moves conceived by his lightning mind. “He was a young man who thought he knew everything,” Thoma added, “and that everyone else was an asshole.”

As Thomson watched the lineaments of the European Economic Community take shape, he pushed his company into buying up small cigarette manufacturers in the Benelux countries and setting up an efficient production center in Holland, turning out 2 million packs a week at first for the Belgian, Dutch, Italian, and French markets and giving Philip Morris a strong potential presence in the Common Market. Thomson simultaneously addressed the troubling situation in the German market, where the disastrous ten-year licensing agreement with Brinkmann was expiring not a moment too soon. While the German licensee had brought Marlboro to a 1 percent market share that netted Philip Morris $600,000 a year, the far lusher rewards of Western Europe’s largest single market eluded the company, and Reynolds was making headway there with Camel. The only solution, Thomson insisted, was for Philip Morris to establish its own operations in Germany, and after failing to strike a deal to take over Brinkmann or fashion a joint venture with Reemtsma, the top German tobacco manufacturer, he picked up the shell of an old printing plant in West Berlin and took full advantage of the generous write-offs allowed on equipment brought in to save the divided city’s economic life: Soon he set up a managerial team operating out of a suite of three rooms off a dentist’s office in Frankfurt, but both sites were quickly outgrown, and the German effort was centered in a former Reemtsma plant in Munich, where within a decade of its establishment, Philip Morris would be employing 1,500.

Manufacturing capability, with its enhanced profit potential, was one thing, but the key to overcoming European resistance to American blended brands in general and Marlboro in particular was an understanding that consumer preferences could not be brutally forced on the Continent. As Thomson recounted it, “Philip Morris management in New York was wise enough not to send over a bunch of Americans who couldn’t understand the markets and the cultures” and instead let European nationals do the job. In Europe, the Wild West imagery of “Marlboro Country” stood for America, political freedom, and social mobility—an attractive message, especially for younger smokers. But it was not an unalloyed message. For the French, Marlboro was an impingement on their culture and an affront to the nationalized product, Gauloises. “To toss a pack of them on the table was to declare, ‘I’m French,’” Thomson remarked, and the smoother, filtered Marlboro was by comparison a pallid smoke, and the dirty horses and cattle in “Marlboro Country” were less than totally picturesque to the fastidious natives of Germany and Switzerland.

The real breakthrough form of promotion that Thomson seized upon and
that was still more ardently embraced by his Swiss-Italian colleague at Philip Morris—the dashing Aleardo Buzzi—was to put the Marlboro brand into sports sponsorship, especially cross-country or “Formula 1” auto racing. Unblessed by the year-round, nationwide professional sports leagues on which Americans lavish so much time, money, and attention, Western Europeans would throng to auto races like those at the Nuremberg Ring in Germany, Monza in Italy, and LeMans in France. They drew especially well among young males, the prime smoking group from the industry’s point of view, and to reach them, Thomson poured Philip Morris money into Marlboro signage at stadiums and trackside displays as well as bannering the brand’s logotype and colors on the high-powered vehicles and their drivers’ racing jackets.

“To put our love into the sport,” as Buzzi said, a bigger commitment was soon made: safety equipment such as barriers at the track’s edge was contributed; ten-year contracts for signage were agreed to; and to help promote and market the sport big-time, Buzzi became personally involved with its promoters, including Italian carmaker extraordinaire, Enzo Ferrari—“a very tough customer,” as Buzzi recalled. So enmeshed did the Philip Morris executive become that he found himself called upon to arbitrate squabbles over the terms in contracts to televise the races. Even as they were building the linkage between the Marlboro name and the sport, Buzzi and Thomson were trying to convince their superiors in New York that the race-car driver was the modern-day equivalent of the cowboy and, like him, the courageous lone adventurer who risked danger with a superpowered machine instead of a great snorting stallion under him. The Marlboro ads in European media never showed racing scenes, but the prominence of the brand logo at the events and as picked up unavoidably by the TV camera was giving it an image that appealed increasingly to thrill-hungry young smokers.

By 1973, Philip Morris was sponsoring its own five-car racing team that flew the Marlboro colors before millions. Except for a fluke victory accomplished with the help of a rainstorm in Morocco, Buzzi recounted, “We lost every race but got great attention.” A reputation for losing, though, did not much advance the brand’s standing, and after a couple of years, the company bought up some top drivers and, with an outlay that now reached into the millions per year, made the Marlboro team European champions. Thomson and Buzzi would trail along each weekend to cheer on their entry and assure proper display of the brand’s name—the kind of obsessive involvement that would have quickly soured the company’s top management if the Marlboro sales numbers had not kept pace with the lavish promotional spending.

Thus, success bred tolerance for the company’s hotshot young European marketers, and Thomson was cut a great deal of slack, even to the once unthinkable point where he was able to buck the home-office directive to launch Marlboro 100s with the same gold roof on the package which appeared in the
U.S. version. Thomson and Buzzi argued vehemently that the brand’s red-roof look was just beginning to gain widespread recognition across Europe, and a gold variation would blur its image, not to mention its growing reputation through the auto-racing program as a ballsy smoke. By the mid-’seventies, Marlboro held one-fourth of the Italian cigarette market, had become the strongest foreign brand in Germany, and was even gaining acceptance from the French smoker.

Indeed, as the decade lengthened, Philip Morris brands were scoring big gains in sales and visibility around the world. A licensing deal was struck in partnership with the Spanish government. Accords were reached with the state tobacco monopolies throughout Eastern Europe, and sales were particularly good in Poland. The Marlboro name was dangling from lampposts all over Cairo, plastered across billboards, and painted, with the brand colors in the background, on innumerable kiosks, as Philip Morris launched a promotional war against Rothmans International for hegemony over the Egyptian market. In BAT-dominated Brazil the company opened a plant and launched Marlboro in the face of some derision toward the advertised Yankee cowboys who seemed like dudes compared to the rugged
vaqueros
of the Pampas. And in Hong Kong, the licensee was doing remarkably well as that oasis of capitalism became a center for Philip Morris export sales throughout the Orient, a considerable portion of the cigarettes smuggled onto teeming Asian streets in ways that the manufacturer chose to ignore.

Ronnie Thomson epitomized the high spirits and ceaseless energy of Philip Morris International (PMI). Thomson, in the view of John Murphy, second in charge of overseas operations, “might have become CEO of Philip Morris someday.” Murphy fondly recalled how Thomson “loved to fight upward,”
i.e.
, against those on top of him in the corporate hierarchy, starting with Murphy himself. But some at New York headquarters were less charmed by Thomson’s often abrasive manner and standing request to plow European profits back into the building up of his domain instead of repatriating them—which, after all, was the main reason the company had gone into business abroad. For his part, Thomson behaved as if there were only one man in the Philip Morris organization he had to please—the chairman—and toward the rest he did not hesitate to exhibit disdain when he thought them dense.

There was also the matter of how New York perceived the zest with which its young European executives played as well as worked—the fast sports cars they favored, the hot tub on the roof at their glittery headquarters with its superb view of Lake Geneva, the swashbuckling way they commanded the best table at the finest restaurants in Berlin or Munich. Flashiness was not encouraged by Philip Morris overlords, especially not by those in charge of its tobacco operations, Ross Millhiser and Clifford Goldsmith, who, as Thomson himself put it, “thought the PMI lifestyle was a bit too grand.” Thomson was
less deferential to his immediate superior, PMI’s president, Hugh Cullman, who in turn found his young hotshot “impatient, abrasive, and imperious—he drove me crazy. He’d do things without my clearance, and I’d hear about them after the fact. Some people in New York felt he was out of control.”

Thomson came to feel he had done what he could to build an organization, got bored, and began, as he himself put it, “to drop grenades” during the monthly meetings of the top company people in New York. This self-destructive conduct would not be tolerated indefinitely, and when Revlon beckoned him to run its European operation, Thomson accepted, to the relief of all. But it did not work; he remained no lover of organizations and protocol, and in time, while still a young man, Ronnie Thomson became a Swiss citizen, set up shop as a financial, marketing, and personnel consultant in Geneva, bought a villa overlooking the lake, and continued to drive snappy sports cars.

V

IF PHILIP MORRIS’S
overseas forays were reaping rewards by the early ’Seventies, the same could hardly be said for its non-tobacco ventures. Its early moves into packaging and adhesives manufacturing had been easy and sensible forms of vertical integration, but these industrial units gobbled up capital for returns at most one-third of what the core cigarette business earned, and they could not readily improve their margins without charging higher prices to their parent company, thus killing one of the chief benefits of their purchase. Far more sensible had been the plan to buy up makers of consumer products compatible with Philip Morris’s marketing know-how and distribution system—laggards that could be turned around with the wizardry the company was now bringing to its soaring cigarette business.

The theory was unassailable when applied to, for example, American Safety Razor (ASR), whose products, like cigarettes, were cheap, used daily, and forever in need of replacement. But in practice, to build a mass following for its brands against dominant rivals Gillette and Schick took cash that Philip Morris had not been willing to spend and a unique selling proposition that the ASR marketers were never able to formulate. By 1977, after seventeen years of struggle, Philip Morris sold off ASR to the subsidiary’s employees.

Clark chewing gum had been picked up for a few million in 1963 as an ideal vehicle for Philip Morris to enter the candy business, which used many of the same wholesalers who handled tobacco products. Again, though, Philip Morris was up against entrenched competitors: Wrigley had cornered the spearmint gum trade as Beech-Nut was preeminent with lovers of peppermint flavor and Dentyne had locked up the cinnamon crowd. To supplement its unexciting
Teaberry mainstay, Clark came up with sour lemon and spent heavily to promote it. The trouble was that the citric acid added to the gum for its souring effect underwent a chemical reaction with the sugar dusting within each tightly wrapped stick, causing a buildup of carbon dioxide that turned the packages sausage-shaped or even round. And when Clark assayed the candy business with a new chocolate-covered, fruit-centered bar using a freeze-dry process, the product held up well enough in air-conditioned supermarkets, but when test-marketed as well at neighborhood food shops during a hot St. Louis summer, the bars wilted on the shelves. After a decade and an estimated $20 million in losses, Philip Morris dumped Clark but managed to recoup much of its investment from the sale of trademarks and manufacturing equipment.