The tobacco industri had been notorious for defending its position aggressively and being confrontational.

For example, the professor in Georgia whose study found that Joe Camel was almost as recognizable as Disney characters, thereby calling into question the tobacco industris claims thattheir ads were not targeting children, bacame a target himself. The industri pressured the school administration to fire him. The only protection he really had was tenure. This saved his job. Philip Morris had been the most aggressive player in attacking critics. In 1994, it sued the city of San Francisco, trying to overturn one of the nations toughest anti smoking ordinances. The ordinance had banned smoking in offices and would shortly also ban it in restaurants. Philip Morris sought the court declarate the ordinance invalid and unenforceable. Geoffrey Bible, chairman of Philip Morris, declared an all-out war on tobaccos enemies, with legal attacks and newspaper ads. We are not going to be anybodys punching bag. He said. When you are right and you fight, you win. Bible had spent his carrer pushing Philip Morris arround the world, and he practiced what he preached: smoking cigarettes and attacking all criticts. Those struggling to preserve tho tobacco industry and its efforts to avoid regulation were by no means limited to cigarette producers. Tobacco was so ingrained in many sectors of our economy that many would suffer were it curbed. For example, local distributors, truckers, people who own and/or replenish vending machines. Those involved with billboard ads for cigarettes, and the hundreds of thousands of vendors who saw cigarette sales as a major part of their total business, not to mention those tobacco growers in the southern states who could not countenance switching their crops to lower-yielding alternatives. Against the arguments that alternative employment would replace cigarette dependence, many looked back over decades of such dependence and cringed at the thought of losing it. Result Hopes that campaigns against smoking were becoming more effective were dispelled by a study published in the november 1998 Journal Of The American Medical Association. The research, carried out at 116 four-year colleges, found 28 percent of college students smoking in 1997. Up from 23 percent in 1994. The report concluded that this is a cause for national concern.

In 1998, Philip Morriss share of the U.S. cigarette market passed 50 percent for the first time ever. In addition to its aggressive use of the Marlboro Man on billboards and magazine ads, it had a sales-incentive program called Rtail Masters that rewarded retailers with payouts based on sales and display of Philip Morris cigarettes. This program was particularly effective with the rapidly expanding cigarette outlet stores, numbering some 5.800 by 1998, that sold nothing but cigarettes at 10 to 15 percent less than convenience stores because of generous manufacturer rebates and display fees. Other tobacco firms also had incentive programs but they were outmuscled by Pholop Morris. Overseas, Philip Morris captured nearly a quarter of the cigarette market in Turkey. It did this by enlisting help of influiential people and lobbying heavily to eliminate the governments control of tobacco prices and distribution. Its prime bargaining chip was the promise that it would invest millions of dollars in the country. True to its word, Philip Morris opened a factory there in 1993, and expanded it into a $230 million facility. Now it could engineer cigarettes to appeal to Turkish tastes but with a stronger kick than local brands. Its salesman, dressed as cowboys, spread accross the country to 130.000 stores with a lavish instore promotional and incentive plan. Of course, it advertised the Marlboro Man heavily, with cowboys scenes and panoramic vistas. In late 1996, pressured by antitobacco groups, Turkey Parliament passed one of the strictest cigarette advertising bans in the world. Philip Morris got arround this by omitting the world Marlboro in its ads and display, but leaving the easily identifiable red chevron. The company also shrewdly noted that the ban did not cover all nontobacco products and event,and so its Marlboro jeans and other parahernalia became best sellers and potent promoters of the brand. Tobacco companies found a new target market for future smokers in women in developing countries. To woo these potential users, they sponsored sporting and entertainment events geared to female audiences; they offered cigarettes with free crystal, designer scarves, and silk camisoles; they sent sample cigarettes as congratulation, calendars were even distributed featuring the Virgin Mary and other women saints praying over cigarette packs. THE TOBACCO DEAL In spring 1997, new developments portended monumental changes for the tobacco industry in The United States. In late March, the solidarity of the industry was shaken as Ligget Group settled a lawsuit with twenty-two states, and in the process, finally admitted

that smoking was addictive and caused cancer. Further information from Ligget showed that children were targeted for tobacco sales. In April 1997, Philip Morris and RJR Nabisco began talks with attorneys general for twenty-five states suing to recover billions of dollars in public healthcare costs for sick smokers. The industry sought protection from all current and future litigation and was willing to contribute an amazing $300 billion over a twenty-five-year period to a settlement fund as well as making certain other concessions. When Congress took up ratifying the agreement in early 1998, it raised the price to $516 billion and cigarette makers were denied the legal immunity they sought in return. Not surprisingly, the industry did not accept this. In November 1998, a milder deal was negotiateed, amounting to $206 billion spread over twenty-five years. Undoubtedly tobaccos position was bolstered by a major victory that Retnolds scored in a Florida state court on May 5, 1997, where a jury found that the firm was not responsibile for the death of a three-pack-a-day smoker who died of lung cancer at age forty-nine. The trial had been closely watched as a bellwether for future litigation against the industry. Forty-six states accepted the new deal. Four other states had already settled their individual suits for atotal of $40 billion. The deal seemingly put an end to antismoking groups hopes for a broader agreement that would combat teenage smoking and bring the industry under federal regulation. THE BATTLE CONTINUED As of August 1999, despite a stack of lawsuits and other actions filed against it, Philip Morris was still a very profitable company, bullying its competitors and outselling its nearest one, RJR, two to one. Despite a 70-cents-a-pack price hike to pay off fourty-six states and their lawyers, demand was almost as big as ever. Not even a partial injunction granted in a lawsuit filed against Philip Morris by its competitors, alleging antitrust violations in its Retail masters sales-insentive program, could phase Philip Morris. It convidently planned to appcal the injunction. Meantime, with tens of millions of smokers on its computers, its relationship marketing programs were geared to keeping these dedicated smokers in the Philip Morris camp. The situation was not as good for U.S. tobacco companies in international markets as the millennium neared. Not even in asia, home half of the billon smokers in the world, was

the situation encouraging. In China, for example, the state-owned China national Tobacco Corp, had a virtual monopoly with a 200 percent import duty on cigarettes to go along with major distribution restrictions. Elsewhere in Asia, import duties and restaints brought slumping market shares to foreign firms, with their tobacco products not only hard to find and difficult to advertise and promote, but priced out of reach of most consumers. For Philip Morris, international tobacco sales were expected to decline 4 percent in 1999. In the United States, suddenly the industry found that the legal battle was not over. On September 22, 1999, the Justice Department reopened the battle by filing a massive lawsuit claiming that forty-five years of industry deception about the dangers of cigarettes had contributed to the federal governments spending more than $20 billion a year to treat ill smokers. On Oktober 13, 1999, Philip Morris announced that it would spend about $100 million a year; or about 5 percent of its total ad budget, on a new TV campaign aimed at presenting a friendlier public face. Antitobacco promptly criticized this as as attemt to win court cases and stave off political change. ON THE ROPES Louis Camilleri, forty-eight, took over as CEO from Geoffrey Bible in April 2002. He was a chain smoker, just like predecessor (one wonders if being a chain smoker was one of the criteria for height executive positions). Things looked rosy now after the multibilliondollar November 1998 settlement with states attorneys general. Profit was growing and the threat of lawsuits had diminished. With Philip Morriss acquisition of Kraft Foods, it was decided to rename the company Altria group, and play down the tobacco role. By 2003, the situation had worsened for Philip Morris and for the other major players in the industry. Indicative of the hostile climate, now Camilleri could no longer even light up in his office because of a new ban on workplace smoking enacted by New York City, such bans seemed to be sweeping the country. Profit was being savaged due to a price war with upstart makers of deep-discount cigarettes. They had rushed into the market with names like Bronco, Ranger, Rave, and Hi-Val, as Philip Morris and its kind had kept raising prices to pay for the tobacco settlements and still make good profits to pay good dividends, while states were also raising excise taxes on cigarettes. By the end of 2002, the cut-rate smokes a\had already captured 10 percent of the market, versus 3 percent in 1998, and were growing fast.

On top of all this, an Illinois court had just awarded $10.1 billion in a class-action suit against Philip Morris. Despite the 1998 settlement, the risks of litigation were far from over. In an attempt to get the court to reconsider the immense award, Camilleri threatened to take the company into bankruptcy, which would stop its continuing payments to the states under 1998 settelement. Faced with these real and potential threats, Philip Morris decided on a massive strategy switch, one undreamed of over before. It would try to make friends with the FDA in an effort to get the tobacco industry under government regulation. In doing so, this would make an alliance of longstanding bitter enemies, and bring together tobacco executives and anti-smoking-advocates, northeastern and tobacco-statelegistators, farmers, and urban liberals Philip Morris had always been in the vanguard opposed to government restrictions on the tobacco industry, for example, on cigarette advertising. But after the sweeping 1998 settlement of state lawsuits, it found that theserestrictions resulted in protecting Marlboros already well-established market share. FDA regulation would force the upstart firms to adhere to new standars for product manufacturing, thereby reducing their price advantage. The FDA could create new marketing rules, such as better disclosure of harmful ingredients, and even require nicotine levels to be reduced. Furthermore, government regulation ought to improve the image problems of the industry. As the end of 2003, this marriage with the FDA was no done deal. But Philip Morrison had just about won over its tobacco farmers whose support was crucial in influencing their legislators. It seemed that Philip Morriss self interest had become melded with that of the FDA. What a wonder ! In October 2003, RJR and British American Tobacco (BAT), the second-and-thirdlargest tobacco companies in the united States, agreed to merge into a new company to be called Beynolds American. It would have a 32 percent share of the market compared to Philip Morriss 49.6 percent. The deal was felt necessary to counter the increasingly perilous environment of multibillion-dollar lawsuits and competition from cheaper brands of cigarettes.