Philip Morris International's Business Transformation: Building Credibility for Smoke-Free Tobacco

Philip Morris International (PMI), one of the world's leading tobacco companies, began introducing smoke-free products (SFPs) in 2016. With an ambitious goal to generate two-thirds of its net revenue from SFPs by 2030, PMI invested heavily in R&D, technology, talent, and acquisitions to build and scale its smoke-free portfolio. By 2024, SFPs contributed 38.7% of PMI's net revenues, and IQOS, its flagship smoke-free brand, had even surpassed its top cigarette brand, Marlboro, in net revenues. Yet PMI continued to grow cigarette revenues--albeit at a slower rate--which it used to fund the expansion of its smoke-free business. To wean its smoke-free model off the combustible business and make it sustainable, PMI required supportive, consistent government policies that regulated and taxed SFPs as less harmful than cigarettes. However, the regulatory landscape for SFPs was uncertain and complex, compounded by the challenge of assessing the scientific integrity of PMI's reduced-risk claims and by strong public mistrust of the tobacco industry. Could such barriers threaten PMI's transformation and hinder its efforts to improve its ESG ratings? Through this case, students will learn about the challenges involved in transforming a business with a controversial legacy, the impact that has on stakeholders, and what a company must do to transition credibly and sustainably.