H&S - Business Plan for an Organic Cigarette Business - Assignment Example

H&S: Business Plan for an Organic Cigarette Business Executive Summary H&S, the proposed new entrant in the organic cigarettes industry, bids to capture a sizeable slice in the fast-growing market for healthy and organic cigarette brands in the United Kingdom in the next two years. As this business plan will provide, the proponents will show the project’s competitive strategies, marketing and plan of operations to establish H&S as a leading brand in its industry. With the persistent challenges, threats and competition that the new company would need to overcome, the proponents draw on these analyses to design a strategy in order to achieve its business targets in the next two years or by 2012. While it plans to capitalize on its strengths, particularly its unique brand as pioneer in this niche with support from government, the company is constantly reminded of the factors that may weigh down on its business targets, including the way its rival companies can invest highly on marketing and advertising. Coupled with the combination of its marketing plans and industry and market analyses, the company plans to initiate the winning strategies of customer intimacy, operational excellence and product leadership. In order to meet its business goals, H&S envisions through this business plan ways on how it will create a niche demand for its healthy cigarette products first from the United Kingdom then across the European Union member countries and Asia. Business Problem Can a new brand of organic cigarette that’s actually about smoking help smokers give up their smoking habits? Will people try a new brand from a new, small, and untested company and become drawn to the company as a loyal consumer? These are just few of the questions that the proponents seek to answer in this business plan. For new entrants like H&S, the challenge may seem daunting given its ambitions to carve a niche in the largely-cigarette smoking populations in the EU countries and in Asia. Although now the opportunity is open for small businesses, however, opening the business means accepting the fierce challenge of the aggressive marketing and advertising binges from large and well-established companies. However, with competition, it is the consumers who will benefits the most, and it is within H&S’s understanding that its product has an added value simply because it is organically produced, healthier and new in helping heavy smokers stop using cigarettes and tobaccos with proven negative health effects. Mission Statement H&S is established to provide an alternative means for its consumers to smoke and at the same time quit smoking without risking their and the society’s health. In other words, we are a company “established to care and help.” Business Description As opposed to commercial cigarettes, healthy, organic cigarettes contain organic tobacco and are government-approved. Our product passed all accreditation requirements by standardization organizations and met sound environmental practices. Several decades ago, particularly in the United States, the rise or more socially and environmentally-conscious smokers started noticing sparked an opportunity for entrepreneus to estalish an alternative cigarette brand to cater to this niche. H&S took notice and now plans to introduce its unique product being an innovator in this league of organic cigarette makers. As a niche brand, H&S will cater to these markets: the socially and environmentally-conscious smokers but wary of the destructive consequences of cigarette smoking. The product is also made for smokers who want to quit smoking but could not abruptly stop. As an alternative brand and a relatively new entrant in this industry, H&S could become a trusted company in its niche and benefit from its being a small, independent yet alternative enterprise. The company will capitalize on the perceived image of its being small and independent as somebody who can deliver the product without costing the lives of people (due to hard labor) and posing threat to the environment, and the consumers’ health. These factors make this business opposed to the predatory nature of bigger companies (PRwatch.org, 2009). H&S, which will become a better, if not the best, alternative for health-conscious smokers, hopes to increase the brand’s popularity and people’s awareness about the product. This business plan purposes to meet its goals to attract new sets of investors and in turn, allow the company to implement its competitive strategies. Aims and Objectives H&S has the following aims – To ensure return on capital of up to 30 percent through sales and income minus tax To build the brand as a leader in its niche and pioneer in this sector To capture 40 percent market share To raise to 60 percent the consumer awareness about the brand In order to achieve the following aims, the company had set-forth the following objectives – To achieve 20 percent market share by end 2010 To perfect its sales network during the same year To open branches in at least six or more cities in the United Kingdom Market/Industry Analyses As a global epidemic, smoking is considered by many countries as a major health dilemma and concern (Saeed, 1996). Many evidence of the unfavorable health effects that tobacco and cigarette use give are overwhelming. However, global effort to combat tobacco companies’ aggressive marketing practices that persuades people from adopting this unhealthy vice, continues to be a herculean challenge and a struggle for many countries. On the public relations review site, PRwatch.org, the site revealed that more than half of the United States’ population smoked in the 1950s. However the domestic cigarette market in recent years have shown a steady decline, thanks in part to the rise of advocacy groups that oppose the sector’s activity, coupled with smoking bans and a more informed populace about the hazards of smoking to one’s health (PRwatch.org, 2010). However, it is said such ‘health scares’ tend to generate new markets for brands that people think are safer. With these findings, companies are actually exploiting the ‘scares’ and start positioning their products in ways that will encourage people to buy the products that promise health benefits. Spurred by these events, tobacco leaf production in the United States appeared to have achieved another lease of life. From the dismal 2005 harvest, the production increased by 21 percent in 2006, all accounted for to the unprecedented demand for organic tobacco. Also, US tobacco farms that were producing tobacco dropped more than one million in 1974 to 297,000 in 2005 (Farrell, 2009). As a business opportunity, the Southeast Farm Press indicated that as the “biggest growth area in U.S. tobacco production”, organic tobacco is priced twice as much than conventional tobacco on the open market. By going organic, the publication declared argued such as the only way to make tobacco competitive once more. This is made possible due to the rising demand for more organic products like tobacco among environment-conscious smokers who are now more than willing to pay the premium price for what is perceived to be a superior brand. In this regard, the biggest advantage that the proposed business had is its being a pioneer or first in its category, which can spell a lot in its strategy to become the leader in this unique sector (Ries & Ries, 2006). On the consumer level, the barrage of advocacy against big tobacco companies and growing awareness of the public about the deceptive marketing schemes of these enterprises are making the people more suspicious and at the same time vigilant about truth in advertising and marketing. A. SWOT Analysis Strength - Unique product - NHS Support Weaknesses - Huge market advertisement cost - High research and development cost Opportunities - Market potential in EU and Developing countries - Online Threats - Competition - Government tax B. PESTLE Analysis Political Tax: Government tax for vice goods will continue to rise and increase. Advocacy groups will continue to bat that taxes for such goods must be increased to hurt the production and manufacturing of such products. Economic Customers: They lost confidence to their countries’ economies, and people preferred to keep their money to prepare them for the uncertain future. Socio-cultural People’s Perception of Smoking: People have the negative perception about smoking as detrimental not only to one’s health but for the society’s environment as well. These people’s perception can weigh on the image that the company intends to create. Technology Cost-effective technology: Production of the orgnanic cigarette will require cost-effective technologies and with the existing that we are using, we may be affected by bigger competitors who are already ahead of us in this endeavor. Legal Ban: In most developed states, most cigarette companies face legal challenge from advocacy groups to ordinary citizens who are more educated than their counterparts in less-developed nations. Environment Factories: There is a need to remove our factories located in the urban areas or cities. We will make sure to have the produce homegrown, by making them near our factories as well. Competitive Analysis Although the declines in the patronage of conventional tobacco products are remarkable over the last decade, these companies continue to pose threats in terms of competition to small or emerging enterprises like H&S. With the big companies’ arsenal of resources (e.g., capital, human resource, advertising budget, and technology, among others), though helping it in making its products known, it does offer some drawbacks too. Among them, the marketing of cigarettes are now perceived as too predatory and lacking of concern for the consumers, the environment and the society in general. But considering all the factors mentioned above, and since H&S is being proposed as an entirely new brand due to its unique product proposition, the proposed business can still take advantage of its being an innovator in this category under the organic cigarettes segment. Business Strategy As it is often defined, strategy is said to be the pattern or plan that integrates an organization’s major goals, policies, and action sequences into a cohesive whole (Robertson, 2003). In other words, a strategy can therefore act as the glue that binds all the factors and elements that will help the firm in developing and retaining its competitiveness according to leading marketing theorist Michael Porter (as cited by Ries & Ries, 2006). A. Competitive Strategy In this proposed business, the proponents believe that several factors are always present to slow down efforts being lined up to increase the awareness about the product, which is necessary to achieve the market share and sales targets. With a comprehensive competitive or business strategy for this project, the deterrents may be blocked or removed. With the combination of marketing savvy and strategic business planning, first or initial targets should be reachable. Among the strategies that this plan proposes include the following – Develop customer intimacy through customer empowerment via face-to-face transactions with specific solution-provider culture, and ability to custom-made products and services. Ensure product leadership through consistent and rapid product development, research and innovations. Products will be priced above the average prices of conventional cigarettes. The higher price gives the impression that since the product is organically-produced and packaged, there is the promise of premium quality. B. Marketing strategy As a new entrant in the organic cigarette industry, the primordial goal of brand building, increased sales and customer retention and loyalty are best met through aggressive and savvy marketing strategy. To do so, we will employ the use of both the traditional and non-traditional or new media, particularly the use of social media networks to increase awareness and interest among health-conscious smokers and consumers. Proposed Customers The general target market of the proposed business is focused on smokers (adult, teens) who prefer the organic product over the conventional cigarettes. As such, these markets have an increased level of awareness about the many negative things about the conventional product: health hazard, product of child labor abuses, not-ecofriendly, and many others. These people are either exposed in many fronts of the media that they are aware and well-informed about recent advocacies opposing the activities of conventional tobacco or cigarette factories. Marketing Plan The proposed brand will be launched as the first of its kind in the market, apart from the secondary goal of making the product achieve its leadership status. As a new product, it is inevitable that the company will compete with some of the top brands in this niche. To be in line with the branding proposition for this new, unique product, H&S will have a price higher than our competitors to impress upon our customers that more than anything else, organic is a high-end and premium product. This is a logic move since this business is not meant to be sold for any kinds of customers. Our customers will find the brand appealing because as often is the case, high price is equals to high quality value. The promotion of the product will be employed on a limited budget since most of the company’s capital goes to production, we propose to use all available means of communication in ways that the message will reach or intended market or audience in the most convenient and accessible means possible for audience of all ages like the internet (via Facebook, Twitter and MySpace), apart from radio, television, cable, and print. Distribution Strategy H&S organic cigarette will be made easily accessible in major cities in the United Kingdom. Specific locations where the product can be purchased include specialty health shops, sports clubs and specialty restaurants. The strategic location is necessary in order to achieve the prestige we are targeting to give the new product. On its first few months of operations, we will provide for a special sample booth so that people can immediately get a taste and buy at the same time of the product. There will be key partnerships and affiliations that will be initiated in our target locations, particularly function halls, restaurants and sports centers. If possible, we will have to come up with a promotional stand that should be designed reflecting the branding themes for the product. With help from its existing investors, supportive patrons and impressive growth of the market for health-conscious individuals, this business plan reflects H&S’s plans in showcasing the quality of its products and to allow consumers to experience the lifestyle being introduced by using organic cigarette, particularly for health-conscious people. The integration of its marketing effort in multiple platforms will help the company achieve positive results and the income projections it sets for itself to gain. The philosophy behind this business plan stems from a need to respond to the trend in healthy lifestyle market with a reminder that some business decisions may be counterproductive to its goals to be the market leader in this field. Thus, plans to embark on a strategic marketing effort will be looked at carefully and thoroughly to consider and identify the growth drivers that must be prioritized. This plan will end with its proposed operational plan. Plan of Operations A. Legal Factors. As with the experience of other conventional cigarette companies that produce line extensions with organic tobacco materials, there is always a legal challenge or legal ban waiting in the offing. As with other laws passed requiring cigarette and tobacco makers to show graphic images that depict the health hazards of smoking, there may also be advocacy groups who will scrutinize the business’ health hazards. Since H&S is a government-support brand, the company will capitalize on this achievement. It will also make sure it gets the nod of advocacy or activism magazines by also advertising on these print magazine, to impress that it is a non-threatening cigarette maker. B. Organizational Structure. As a small, independent firm, H&S will be registered as a limited partnership company with only less than ten shareholders comprising its management. As members of the board, the shareholders will be in charge with the strategic and operational direction of the proposed business. In this regard, some of the key groups in the company would consist of the following – 1. Marketing and Branding Team – They will be responsible in ensuring that the company’s brand is well-positioned to take advantage of the business opportunities available. The group will also be the voice or spokesperson for the company in the emergence of threats whether legal, crisis, and other scenarios that may affect customers’ perceived image of the company. 2. Research and Development – The company will be committed to consistent product innovation discovery and enhancements. With this group, with constant partnership with the branding and marketing team, the company will benefit from being the product leader in its niche. 3. Production Team – the production team will be responsible in the production and manufacture of the products that meet quality standards in as timely manner as possible. C. Financial Plan. As the company achieves its business goals and market share targets, the Board of Trustees wil allow new investors to buy shares from the company. With the brand which we expect to appeal to the upscale and high-end markets, particularly the entertainment circle, we will soon offer celebritis to share their trust with the company and to invest in the project. Their investments will be sparked because they will feel that this is a worthy cause and advocacy, to help make people stop or quit smoking. D. Key Equipment Needs. As the company bank roll its major investment in brand-building through intensified advertising and marketing programs, the proposed business will also simultaneously continue with its research and development endeavors. Since the business is an alternative and independent manufacturer, the company will have to initially use technologies available in the market that it can afford. More sophisticated, cost-effective technologies could not be purchased at this phase, so to pursue operations, it may purchase smaller machineries or rent until its capital are returned. E. Financial Independence. As a start-up and independent manufacturer of organic tobacco, the expectations are high and may also be the same as with other new entrants. On our part, the proponents wishes to operate and ensure that its independence, particularly in the aspect of its finances, is stand-alone. Although outside investors will be encouraged and welcomed by the proponents, the founders of the company will not be overriden by the shares held by the former. With this set-up, we are keen in making the company to initiate business without depending on financial houses or banks. F. Projected Balance Sheet for the Current Year Assets Current assets Cash $15,000 Accounts receivable 200,000 Notes receivable 50,000 Inventory 335,000 Total current assets 600,000 Fixed assets Land $40,000 Factory and improvements $200,000 Less: Accumulated depreciation -90,000 110,000 Equipment and vehicles 120,000 Less: Accumulated depreciation -80,000 40,000 Furniture and fixtures 26,000 Less: Accumulated depreciation -10,000 16,000 Total Fixed assets 206,000 Intangible assets Goodwill 20,000 Total intangible assets 20,000 __________________________ Total assets 826,000 Liabilities and Owners or Stockholders’ Equity Liabilities Current liabilities Accounts payable 40,000 Notes payable (due December 2010) 8,000 Accrued taxes 150,000 Accrued salaries 90,000 Total current liabilities 288,000 __________________________ Total liabilities 288,000 Stockholders’ equity Common stock (1,000,000 shares) 100,000 Retained earnings 113,000 Total stockholders’ equity 213,000 __________________________ Total liabilities and stockholders’ equity 826,000 G. Projected Income Statement for the Current Year Here is an estimated or projected income statement for the proposed business upon starting. Assets Revenues Cash $15,000 Gross sales 720,000 Less: Sales returns and allowances $12,000 Sales discounts 8,000 -20,000 Net sales $700,000 Cost of goods sold Beginning inventory, Jan. 1 $200,000 Merchandize purchases $400,000 Freight 40,000 Net purchases 440,000 Cost of goods available for sale 640,000 Less ending inventory, Dec. 31 -230,000 Cost of goods sold -410,000 ______________________ Gross profit 290,000 Operating expenses Selling expenses Salaries for salespeople 90,000 Advertising 18,000 Supplies 2,000 Total selling expenses 110,000 General expenses Office salaries 67,000 Depreciation 1,500 Insurance 1,500 Rent 28,000 Light, heat, and power 12,000 Miscellaneous 2,000 ________ 112,000 Total operating expenses 222,000 ______ Net income before taxes 68,000 Less: income tax expenses 19,000 _________ Net income after taxes 49,000 By projection, year by year, here is the projected income statement Year Gross Revenues Gross Expenses Gross Income 2010 700,000 222,000 478,000 2011 900,000 500,000 400,000 2012 1,200,000 700,000 500,000 H. Projected Cash Flow Statement for the Current Year Cash flows from operating activities Cash received from customers $150,000 Cash paid to suppliers and employees (90,000) Interest paid (5,000) Income tax paid (4,500) Interest and dividends received 1,500 ____________ Net cash provided by operating activities 52,000 Cash flows from investing activities Payments for purchase of equipment (10,000) ____________ Net cash provded by investing activities (10,000) Cash flows from financing activities Payment of long-term debt (7,000) ____________ Net cash inflow from financing activities (7,000) Net change in cash and equivalents $35,000 Cash balance, December 31 (2,000) _____________ Cash balance, December 31 $33,000 I. Break-Even Analysis Based on our projected income statement, the proposed business should earn at least $700,000 in net revenues, with operating expenses of only up to 300,000 or less, to register an after-tax net income of at leat $50,000. In two to three years time, it is assumed that the operating expenses will rise, particularly marketing and promotional expenses to solidify the status of the brand in the industry. As a result, while net revenues may increase annually (2011, with $900,000; 2010, with $1.2million), the net profit may decline as a result of the increases in marketing and research and development expenses (2011, with $500,000; 2010, $700,000). Bibliography Copley, P., 2004. Marketing Communications Management: Concepts and Theories, Cases and Practices. London: Butterworth-Heinemann Dibb, S., and Simkin, L., 2001. Marketing Briefs: A Revision and Study Guide. London: Butterworth-Heinemann Farrell, B., 2009. The “Green” Cigarette? Plenty magazine, March, 3 (12), pp. 23- 25. Jarallah, J.S., Al-Rubeaan, K.A., Al-Nuaim, A.R.A., Al-Ruhaily, A.A. and Kalantan, K.A., 1999. Prevalence and determinants of smoking in three regions of Saudi Arabia.Tobacco Control, 8, 53-56. Landman, A., 2010. Philip Morris Pushing Smoking Hard in Foreign Countries. Center for Media and Democracy. [Online] Available at PRWatch.org http://www.prwatch.org/node/8928 [Accessed 22 July 2010]. Ries, A. & Ries, L., 2006. The 22 Immutable Laws of Branding. London: Profile Business Press Robertson, J., 2003. Sending in the SWOT team. Management Today, June, 2(36), pp. 36. Saeed, A., Khoja, T.A. and Khan, S.B., 1996. Smoking Behavior and Attitudes Among Adult Saudi Nationals in Riyadh City, Saudi Arabia. Tobacco Control, 5, 215-219. Thompson, John L., 1997. Lead with Vision. Manage the Strategic Challenge. London: International Thompson Business Press Publishing Co. Appendices A. Comparative Analysis Product Advantages Disadvantages Marlboro Different tastes of cigarette The price is cheaper It is very dangerous to your health Sobranie It helps protect the lady smoker’s voice The price is too expensive H&S Organic, healthy alternative to help smokers quit smoking The price is twice the amount of conventional cigarettes or tobacco Read More