By the early 1930s, the U.S. market was dominated by the “Big Three” brands: Camel, Lucky Strike and Chesterfield. The “Turkish” brands Murad, Melachrino and Rameses were still “afloat”, but their days were numbered. However, since the mid-1920s, to be exact in 1926, the leaders of the “Big Three” finally caught up with the fourth fragment of the American Tobacco Company, the Lorillard Tobacco Company with their Old Gold cigarettes. As a result of a competent advertising campaign, Old Gold entered the 1930s with 7% of the national market. And since then, the “big three” have been called nothing short of “3+1.”)
By 1931 the lead was so comfortable that RJ Reynolds decided to raise the wholesale price of Camel from $6.40 per thousand cigarettes to $6.85. Lucky Strike, Chesterfield and Old Gold soon followed suit, and the retail price was raised from 10 cents to 15 per pack for the first time. Reynolds justified the price increase with high advertising costs, but in fact the total cost of producing and distributing cigarettes was reduced for all four companies. When the economic downturn began, wages and wholesale costs for sheet tobacco fell sharply, and profits reached record highs.
This probably came as a surprise to the corporate directors of Reynolds, American Tobacco, Liggett & Meyers, and Lorillard, and the price increases soon had a negative effect on their sales. In 1931, for the first time in more than a decade, total cigarette sales fell from 124 to 117 billion pieces. Camel sales fell 30 percent. Much of this was due to increased sales of weight-smoking tobacco. So a one-ounce pack of Bull Durham tobacco still cost 5 cents, and with a certain knack it was just enough for twenty cigarettes. In retrospect, it is clear that the executives of Reynolds and other large firms misjudged the market and the state of the economy as a whole, but this is somewhat understandable, given the command position they were in at the time.
In September 1931, a small Richmond company, Larus & Bros. brought its brand of White Rolls cigarettes to market. The cigarettes were of the same tobacco blend as Big Three cigarettes, but cost 10 cents a pack. Needless to say, even with very little money spent on promotion and advertising, White Rolls rose in sales very quickly.
Exactly one month later, Philip Morris brought its regional Paul Jones brand to the national market with an extensive advertising campaign. The company’s basic slogan was “America, here’s your cigarette, twenty for ten cents!” Sales immediately jumped to heights that Paul Jones had never reached in the regional market.
The effect of these new “dimes” began to be felt across the country, and in March 1932 Brown and Williamson lowered the price of their Wings brand to ten cents and promoted them very well. Meanwhile Liggett & Meyers joined the new sales tactics, taking the old Coupon brand and repackaging it into packs of twenty and bringing it to market with a price of ten cents.
In June 1932, the Axton Fisher Tobacco Company introduced to the national market a brand that had never sold well — Twenty Grand, with the price of course at 10 cents a pack. The success of the brand amazed even the owners! Within the next three months, Twenty Grand was selling 700,000 a day! The Axton Fisher plant in Louisville switched to 24-hour operations and still could not meet demand. The success of Twenty Grand, briefly overtaking Old Gold for fourth place, spawned a boom in new low-cost cigarette brands.
Philip Morris, through a subsidiary of Continental Tobacco, has brought new low-cost brands Black and White and Revelation to market. A small company from Detroit, Scotten-Dillon, became famous for inexpensive Ramrod cigarettes, while the previously almost unknown Rosedor Tobacco from New York repackaged the brand from the 20s with the new name Bright Star and the price of a dime. Christian Peper Tobacco Company of St. Louis, with its Golden Rule brand, also supported the “dime” cigarette parade. Brown and Williamson on Avalon cigarettes simply lowered the price and were very successful in sales. Liggett & Meyers in 1935 took the old Sunshine brand and repackaged it and brought it to market with a “new” price. And finally, in 1938, Lorillard entered the economy market with its Sensation cigarettes, but the competition in this segment was already quite high and sales did not particularly please the owners.
By January 1933, American Tobacco Company, noticing the booming market for inexpensive cigarettes, had reduced the wholesale price and returned to 10 cents per pack. Almost immediately, the owners of Lucky Strike, Chesterfield and Old Gold followed Reynolds’ lead. By the spring of that year, the leaders’ cigarette prices had stabilized, but the U.S. cigarette market had already changed and the full dominance of the Big Four was never again. Thus, once undervalued, the market led, on the one hand, to the destabilization of the giants and the explosive development of previously unknown companies.
Original Source: Medium