The first shot was fired on 2 April, a date embedded in stock market history as 'Marlboro Friday', when the US price of a pack of Marlboro, the world's best-selling cigarette, was cut by 40 cents - nearly a fifth. This was a reaction to a boom in discount brands, which had increased their share of the market from 30 per cent to nearly 40 per cent in the first quarter of this year.
Philip Morris shares slumped after the price cut and the fall soon spread to other cigarette companies such as BAT - which lost 15 per cent of its value - and then to other companies that rely heavily on their brands.
The slump looked sensible in the light of the results released last week by a number of brand-name package goods manufacturers. Philip Morris saw its tobacco earnings over the last quarter cut in half. Kellogg's earnings fell 10 per cent. Procter & Gamble said it would make 12 per cent of its employees redundant, aiming to save dollars 500m a year by 1996; Heinz is to cut 8 per cent of its workforce by 1995.
The case for valuing brands highly has taken a further blow with the decision by Tomkins, the conglomerate that took over RHM last October, to write off the pounds 600m at which RHM had valued its brands. This was particularly significant because in the late 1980s RHM had been a pioneer in putting a balance sheet value on its brands, which included Hovis, Bisto and Mr Kipling cakes.
But the Philip Morris decision had less to do with brands than with retaliation from consumers tired of paying through the nose. Americans pay far less tax than European smokers: 50 cents on a pack of 'king size' cigarettes and 24 cents on smaller smokes, a maximum rate of 23 per cent compared with 76 per cent in Britain. But the manufacturers, not smokers, have benefited. They have long had higher margins in the US than in Europe.
By 1992, Philip Morris was enjoying margins of more than 40 per cent. Between 1985 and 1992, said Mark Duffy of SG Warburg, the prices of premium brands rose by an annual 8 per cent, while at the discount end of the market they went up by 12 to 16 per cent, albeit from a much lower - and in some cases barely profitable - base. Until 'Marlboro Friday' Philip Morris and other big cigarette manufacturers were treating their brands as cash cows.
Over the years the premium brands lost market share, but at only about 1 per cent a year. However, by late 1992 a pack of Marlboros cost smokers more than dollars 2, while deep discount cigarettes cost half the price. Consumers started flocking to the cheaper brands.
In an attempt to halt the mass defection, Philip Morris launched a short-term promotion. But, said Mr Duffy: 'It has actually been slightly misrepresented. What was described as a pro-active dollars 2bn campaign was simply a response to consumer dissatisfaction. It's just another way of saying that there will be dollars 2bn less in profits.'
The cigarette price war across the Atlantic will affect profits at BAT Industries, which produces interim results this Wednesday. Analysts predict that Brown & Williamson, its tobacco subsidiary, will see its US profits for the full year drop to pounds 275m, 40 per cent down on 1992. However, it should be spared the worst of the bloodshed, since two-thirds of its production is at the discount end of the market, where Philip Morris has raised prices by dollars 3 a thousand.
But despite the apparent slump in the added value provided by the possession of brand names, the consensus seems to be that the move by Philip Morris is a localised response to a localised problem and does not herald the demise of the premium brand. As Mr Duffy points out, the increase in 'private label' products in Europe, such as those with the highly respected St Michael tag, has not has not proved a serious threat to brands. 'Some 38 per cent of groceries and 12 per cent of tobacco are own-label in the UK. Take United Biscuits, which makes excellent branded and unbranded goods side by side,' he said. In the US, by contrast, unbranded foods have a bad reputation and unbranded cigarettes (as distinct from deep discount products) have only a fraction of the market.
Nevertheless, Mr Duffy is critical of the 'simplistic view that you give a company a big premium for its brands'.
John Murphy, of Interbrand, agreed: 'Brands are not a licence to print money. What's remarkable about the Philip Morris case is not that they were under attack but that they didn't lose market share sooner, given the enormous discrepancy in price. Own-label flourishes when brand owners overprice or when they don't innovate, but brands remain dominant in areas like cereals, soft drinks and instant coffee.'
Tony O'Reilly, chief executive of HJ Heinz, argued: 'A brand properly priced and promoted will be the dominant factor in the retail trade. It will provide the best value to the customer, it will generate the highest return to the retailer, and will generate adequate profit for the manufacturer.' Indeed, in some selected products, especially in overseas markets, there is still room for modest price increases, he said.
But, as Mr Murphy points put, there are many product areas where own-label brands are increasingly dominant, especially from retailers whose names are themselves brands, such as Marks & Spencer, Sainsbury and Safeway.
Not surprisingly, shares of most brand-rich companies are trading low. But some loyalists not only still believe in brands but indeed see their slump as an opportunity. One such is Fayez Sarofim, the Houston-based money manager whose funds are the largest single institutional investor in Philip Morris, P&G, Merck and Pepsico, and the number two shareholder in similarly beleaguered Heinz and Anheuser Busch, the world's largest brewer.
Since the beginning of the year, he has lost dollars 1.63bn on his investments in these six stocks - almost dollars 1bn in Philip Morris alone - yet he regards the onslaught of discount brands as a chance to buy more shares in brand name companies at discount prices.
Tony O'Reilly has spent dollars 2.5m to buy another 68,000 shares of the big foods company over the past month, bringing his personal stake - at current prices - to more than dollars 117m.