Reynolds American Incorporated PESTLE Analysis - Case Study Example

Heading: Case study Your name: Course name: Professors’ name: Date External environmental analysis using appropriate frameworks, PESTEL PESTLE analysis is chosen for external environment analysis because of the various reasons, Political The US political environment is calm; the environment is thus favorable for business. On the contrary, the political environment has been in the forefront in curtailing the advertisement of tobacco and its related products to the public. The political environment and other stakeholders have pushed through legislations and acts banning advertisement of tobacco products in the public media over the past 6 decades. It is through their relentless efforts that the US has witnessed a great reduction in tobacco abuse over the past 6 decades from 51% in 1965 to 23 % in 2008. The change in the recent years has remained the same despite government new measures and hence forcing the stakeholders in the industry to innovate new nicotine products that have less harmful products. Economic Economic factors are evidently some of the greatest influences of any industry because it determines the purchasing power of the citizens. When there is an economic downtime, the purchasing power of individuals also decline greatly and hence affecting all sectors of the economy. In the case of RAI, the recession of 2008 and 2009 did not have a significant impact on the sales volume as it affected other companies in the sector such as Philip Moris USA and Lorillard Tobacco Company. RAI gained 1.6 million in terms of sales during the 2009 and 2010. Considering that the US has the greatest Gross Domestic Product (GDP) and consequently Purchasing Power Parity (PPP) the tobacco industry still remain lucrative. The financial muscle of RAI is important because it enables it to conduct research and development of new products. Social The tobacco industry has undoubtedly felt the greatest societal pressure because of the harmful effects of tobacco and related products consumption. Based on statistics, there has been a decline in the number of tobacco and cigarette usage since 1965, in 1965 tobacco consumption was about 51.9 % in male persons above the age of 18 and 33.9 % in female users of the same age. This has significantly declined by almost 25% as the recent statistics in 2008 shows 23.1% in male persons above the age of 18 and 18.3 % in female of similar age. With the consideration that about 443, 000 people in the US die from health complications arising from cigarette smoking or secondary exposure. Stakeholders in the health sector and scientist have been adamant with their stand against tobacco smoking as they clearly state that tobacco usage kills its users. Statistics coupled with criticism have painted a negative image to the tobacco industry. The CEO of RAI Daniel Delen has been forced to constantly asses’ market conditions and successfully management organization devoted to selling products created from tobacco. The government and other stakeholders have been on the forefront in warning the public about the dangers of smoking tobacco. This has escalated the already dented image of the industry a factor that has led to the significant reduction of tobacco usage since 1965, the government banning of public advertisement and through radio and TV channels have further diminished the 1960 prestigious perception of smoking cigarette. In fact, the government banned the use of cartoon in marketing cigarettes as it attracted underage children to smoking. More so, cigarette companies are always required by law to clearly label that cigarette smoking is harmful to the health of its users. Generally, there is a decline in the perception of smoking as a prestigious involvement, a series of warnings have created a negative image of cigarette smoking in the US. In fact, tobacco users are sidelined in the social setting of the modern day. This is because of the negative impression that has been created over the year. RAI is doing counter measures in order to ensure that it remains relevant both in the short term and in the long term. This is evident by its commitment to the research and development of new products with less harmful burning of nicotine (Whipple & Justice et al 2012).. Technology Technological advances in all sectors of the economy is always a great game changer, the rate of technology adaptation varies with companies, some companies adapt technologies faster than others, while some are more keen on the technology to be adapted. In the tobacco industry, things are not any different; companies adapt technologies because of the important role that it plays in every section of the production process. In fact, research and development have been greatly used to improve the quality of products in the tobacco industry; reducing burning of tobacco, the greatest cause of illnesses related to tobacco smoking has been on the rise in most of the tobacco companies including RAI. New technological advances for nicotine delivery have been on the rise because of the harmful effects of tobacco use in the industry. Products such as nicotine patches and chewing gums have been used for the past decade as an alternative to tobacco burning. More so, prescription medications haven been created in the recent years and the advent of electronic cigarette or rather e-cigarette has ultimately provided smokers with experiences which is similar to smoking cigarette without the harmful effects of burning tobacco. In fact, new sticks, orbs, strips packed with nicotine are hitting the marketplace; as a result, all these products have significantly reduced the market share of tobacco companies as smokers work hard in order to conform societal expectations, money saving both in buying tobacco products and medications as a result of tobacco related illnesses. In essence, RAI has been on the forefront in fostering these smokeless products in the industry and hence the reason for its increase in sales over the 2009-2010 financial period and its improvement in terms of sustainability in this competitive industry (Whipple & Justice et al 2012). Legal In the legal sector, the tobacco industry is evidently one of the most affected by government and other legal restrictions over the past 6 decades. In 1965, the Federal Cigarette Labeling and Advertisement Act which mandates manufacturers to place doctor’s warning that Cigarette smoking is harmful to users health on every packet. Advertisement of Cigarette was also banned from radio and TV in 1971, this essentially left cigarette manufactures with limited advertising options such as bill-boards and print advertising. The federal government also banned smoking in public places including in airplanes. The clean Indoor Air Act was passed in 1985 and it essentially prohibited smoking in government facilities, including office buildings and museums. The Master Settlement Act of 1998 has continued with general public warning about the dangers of tobacco consumption. In fact this act focused on the perception that tobacco companies were targeting young children because of their cartoons in the advertisement of tobacco products. Other acts that have limited the advertisement of tobacco includes the FDA Trafficking Act of 2009, the prevent All Cigarette Trafficking Act of 2010 and recently, the Smoking Prevention and Tobacco Control Act that was effected on June 2010. These restrictions have seriously handicapped the tobacco industry from employing their resources on sells and promotion of their products and hence the reduction of tobacco usage. These legal restrictions have impacted negatively on tobacco companies and RAI is not an exception. Environmental The current environment is not favorable for tobacco products but rather products with less tobacco burn and hence the current innovation in the market for nicotine products with no tobacco burning such as electronic cigarette or rather e-cigarette. The business environment in the tobacco industry has been challenging and will continue to be challenging as government create new restrictions of tobacco products as a result of their harmful results. The market is also growing with competition increasing and hence significantly reducing the market shares of less competitive companies. For RAI competitors Lorillard Tobacco Company and Philip Moris USA, innovation is critical in their market and they have explored other areas in order to increase their coverage. Comprehensive, structured and systematic internal environmental analysis Reynolds American Incorporated operates in the tobacco and cigarette industry in the United States, RAI is the second largest tobacco company in the US and it is growing despite the mounting pressure from competitors and the ever growing government and societal pressures. RAI has immensely concentrated on the smokeless tobacco market by investing $71 million in research and development in order to ensure that it achieves this objective. RAI considers itself as the leading provider of high quality products and also leads in innovation in the tobacco industry. The company is essentially divided into three core business units namely: R.J. Reynolds Tobacco Company (RJR), American Snuff Company and Santa Fe Natural Tobacco. RJR is the leading in terms of revenue as it generates about 85 % of the RAI cumulative sales while American Snuff is the second with about 10 % of the firm’s cumulative revenues. The other 5% is the All Other Business Accounts; Santa Fe Natural Tobacco is under this category because of its significantly small contribution to the business (Whipple & Justice et al 2012). With the enactment of the Master Settlement Act of 1998, this altered the way in which tobacco companies operate as restrictions were placed in the way they advertised and marketed their products. This act primarily focused on the perception that tobacco providers targeted small children in their marketing strategies. As a result, the highlights of the act banned use of cartoons in tobacco advertisement and restricted brand-name sponsorship for events with high youth attendance as well as elimination of outdoor advertising. In response to this act, as a tobacco company RAI opted for other channels including direct marketing mails, newspapers, magazines and other available avenues not restricted by the federal government. Intense competition within the industry also led to increased spending in marketing with a total of $12.4 billion being spent in advertisement. In order to maintain its market share amidst growing competition RAI has focused on younger user in their marketing strategy. The concept behind targeting younger users to the leading business units is because of their sustainability. Research reveals that people who start smoking while they are still young tend to keep smoking while people who start smoking at a older age, 21 years are more likely to stop smoking due to external pressures such as restrictions of smoking places, societal pressures and the fear of smoke related illnesses. RAI hence target younger people using its new strategy of strengthening its brand image, building its brand awareness and loyalty in order to ensure competitiveness of its leading brands RJR and American Snuffs brands. RAI has effectively employed strong marketing strategies in order to ensure strong brand image, awareness and loyalty. RAI divides its products under three different operational groups. Its products mainly fall under premium and price-value product lines when it comes to the target clientele. RAI uses the terms growth, support, and non-support brands for its promotional strategies. Growth brands include Grizzly, Pall Mall cigarettes and Kodiak moist snuff as well as flagship brand, Camel. The major aim of these brands is the long-term market share and increase in products. RAI is committed to the growth of its second leading business unit American Snuff as evident by the fact that its major brands, Kodiak and Grizzly are seen as growth brands (Whipple & Justice et al 2012). RAI’s smoke free products such as Camel Snus are seen as long term market share growth. Support brands are managed for long term sustainability; these brands include Kool, Winston, Salem, Capri and Doral. They receive little promotional and advertisement support. In essence, these products form a solid platform for sustainable growth and profits for RAI. Non-support brands are all other brands under the RAI umbrella. The main aim of these bands is the short term profitability which is essentially used in advertising and promotional strategies of growth products. Financially the company is performing well, it reported net sales of $8.6 million, and this was a 1.6 % increase from the $8.4 million in 2009. This is was an improvement given that other competitors in the company experienced a reduction in sales as a result of the economic downtime. The leadership of RAI is stable; the key executive officers include Daniel M Delem and Thomas R Adams. Delen became president and the CEO of RAI on March 1, 2011. The RAI’s board of directors is made up of 12 members, each serves under a three year term divided into classes, I, II and III. More so, board members include a mix of insider and outside directors that are important in fostering sound understanding of the industry. In essence, the core internal environment of RAI is sound and a reason why the performance of the company has been on the rise over the past years. Product differentiation, segmentation and differentiation have worked effectively. The groupings of products have also ensured that the company considers both its short term and long term strategies are successful. The major weakness of the company is its lack of external market entry; this has been done mainly by its competitors such as Lorillard Tobacco. The management needs to integrate foreign market venture into its long-term strategies, this is important both in increasing the company’s profit and long term sustainability considering that its competitors have already ventured into foreign markets(Whipple & Justice et al 2012). A systematic stakeholder analysis and their expectations in claims in the organization The major stakeholders of RAI are the investors in the company, the investors need the assurance that their return on investment is assured. This is because of the volatile nature of the tobacco industry. The tobacco industry has been declining for the past six decades and the investors in the field are pessimistic about the progress in the field considering the ups and downs in the industry since the start of the government intervention in the industry. The stakeholders in the industry demand a clear picture about the progress in the industry a factor that has also been effected in RAI. RAI financial statement indicates a financial growth in the past few years. In fact the company boasts of increase in sales in the recession period of 2009, this is a major boost to investors in the sector because other companies in the business experienced a serious downtime that claimed their sales as well as their profits over that particular period. The stakeholders of the company are even further encouraged by the fact that the company has invested in a wide range of products, both short term and long term investments. RAI has categorized is brand into three in order to ensure that its short term targets matures as it works towards ascertaining the sustainability of its long term products. RAI has a sound and attractive base in the tobacco industry. It is one of the pioneers of the smokeless cigarettes industry which aims at reducing the effects of burning tobacco, one of the main causes of cancer related illnesses among others. With the advent of e-cigarette and other innovations in the industry, the stakeholders, the investors in the industry are now more optimistic on the performance in the industry more than ever. The industry growth can only be sustained by effective marketing and departure from the less famous tobacco burning (Whipple & Justice et al 2012). Any aspects of the case study which raise issues of ethics and social responsibility In the tobacco industry, there are many issues that raise the concerns on ethics as well as social responsibility on the part of the partite involved in the sector. Firstly, is the question of whether it is ethically right or wrong to advertise a product that has negative impact on the human health. The other concern ethically is the question of advertising to young people about cigarette and tobacco intake considering that these individuals are not mature enough to make sound decision. The ethical dilemma in this case is based on the fact most companies in the tobacco industry target younger people because of the perception that these people will be sustainable in the long run. Young people tend to be more resilient in leaving tobacco than older counterparts, advertisement of these products target younger generation for sustainability and hence the moral and ethical concern of tobacco companies (Whipple & Justice et al 2012). Social responsibility encompasses reaction towards the everyday climate of the public. Considering the general harmful effects of cigarettes, it is difficult to establish whether the tobacco industry is indeed concerned about the effects it has on the public. Tobacco consumption leads to more than 400, 000 deaths in the US, this is a notable figure and hence a negative perception on the tobacco industry. The tobacco industry has reacted by producing less harmful product with an aim of re-inventing its dented image. References Whipple, C & Justice, J et al. 2012, Reynolds American Incorporated. A case study. Read More