Success of Philip Morris Companys Strategies - Case Study Example

Name Instructor Course Date Philip Morris company Case Analysis Introduction Philip Morris is a British multinational company founded in London in London in 1847 (Fronk et al. 3). The company has since grown to become a global brand operating in different parts of the world. Although the company began dealing with tobacco, Philip Morris has since diversified its product portfolio by venturing in food and beer industries. Despite the company’s success in the last centuries, the company has been marred by controversy especially due to the health effects associated with tobacco. Its tobacco products have been linked to the development of various health conditions, such as cancer, birth defects and heart diseases among others (Fronk et al. 3). Therefore, to prevent people from developing these health problems, the government has created a number of rules and legislations that aims to discourage people from smoking that Philip Morris must comply with in its advertising and sale of tobacco. Violation of some of these laws has seen the company being sued on many occasions. Besides the legal and social issues associated with tobacco, Philip Morris also faces the threat of competition from other well-established brands. This report analyzes how Philip Morris has been successful in its strategy, and conduct SWOT analysis for the company. The report will also analyze the extent to which its competitor analysis was right, critic its strategy, leadership and organizational structure. The report concludes by projective future direction for the company. Analysis of the Success of PM’s Strategy The case indicates that Philip Morris has faced many challenges in the tobacco industry due to emergence of new laws that target to control tobacco industry because of the health problems associated with smoking (Fronk et al. 12). Despite the challenges, the case indicates that the company has been successful in its strategy. The success of any company in an industry depends on the strategy that the company adopts. In fact, companies compete in a market based on strategy. A strategy refers to the tactics that a company adopts to overcome challenges and attract companies to the brand. According to this case, it emerges that Philip Morris is the largest tobacco retailer by market share controlling more than 51% of the market share (Fronk et al. 5). All these have come about because of the success of its strategies. To win the market and gain a competitive edge over its rivals, Philip Morris adopted effective pricing strategy that involved charging low prices for its cigarettes at the time its competitor companies of the American Tobacco Trust were increasing their prices (Fronk et al. 3). In this respect, the company positioned itself in the market as the most affordable brand. This strategy has been a success considering that the majority of cigarette consumers are highly price conscious and prefer to buy cigarettes that are affordable instead of those that are expensive. Therefore, affordability of its products has made it gain a large market share compared to its competitors in the market. In fact, the case indicates that Philip Morris International controls about 15% of cigarette market share in at least 40 countries, which clearly demonstrate the success of its strategy (Fronk et al. 5). The strategy of the company also proved successful considering that Philip Morris adopted a promotional strategy that resonated well with its targeted audience. Promotion is regarded as a key marketing activity that any company that hopes to succeed in a competitive market must undertake. For instance, the company ran an advertising campaign that claimed that its English blends of cigarettes did not cause “cigarette hangover” something that was a concern for the smokers (Fronk et al. 3). This ad managed to draw many cigarette smokers to Philip Morris brand, thus resulting in growth of its market share. Later on, the company ran an effective advertising campaign dubbed the “Marlboro man’ which capitalized on the American cowboy image, which had a strong following. Additionally, Philip Morris strategy that involved diversification of product portfolio was also successful as it ensured that the company’s revenue not only come from tobacco sales, but also from food and beer. Diversification also proved beneficial to Philip Morris as it minimized the risks in the tobacco industry (Fronk et al. 7). Above all, the success of Philip Morris strategy can be seen through its financial performance that has been impressive despite the legal and health challenges, as well as competition it faces in the industry as shown it its annual reports. SWOT Analysis Strengths Strong brand image Strong network as brand is available in more than 200 countries Diversified products Good leadership and management team Strong financial success Effective sales & marketing management Weaknesses Too much litigation Low innovation Opportunities Growing number of smokers globally Expand into emerging markets Diversify products further Expand through M&A Threats High competition Legal suits Consumers becoming more health conscious Competitor Analysis Michael Porter in his Five Forces model argued that for a company to succeed in an industry, it must analyze and understand the competition landscape of the industry. Understanding the competition landscape helps a company understand the major competitors in an industry, their strategies and how to counter the competitors. However, competitive analysis is not just restricted to major competitors, but also to other forces, such as new entrants and substitutes that might be available in the industry. The competitor analysis in this case was effective to some extent. The analysis was effective in the sense that it did not just provide an overview of the major competitor in the market, but also went deep to highlight the different strategies that the major competitors adopt in the market. For instance, whereas Philip Morris has positioned itself in the market as an affordable brand, its competitor likes UST Inc adopts premium pricing strategy (Fronk et al. 4). Providing the strategies adopted by the major competitors enables Philip Morris understand the best strategies to adopt to counter those of its major rivals in the market. The major competitors of Philip Morris include Loews Corporation, Universal Corporation, RJR Nabisco Holding Corporation, UST Inc., Imasco Ltd, Kraft Foods, Gallaher Group plc and BAT Industries (Fronk et al. 3). However, the analysis failed to analyze other completion forces that might affect Philip Morris operations, key among them being the threat of new entrants and threat of substitution. Analysis of the threat of new entrants into the industry and the existence of substitute products would have helped understand the competitive landscape of the industry as whole, aspects that the competitor analysis fell short of providing. Strategy Analysis The strategy that Philip Morris adopted was evidently based on its competitor analysis. The management of Philip Morris knew that to succeed in the market, it needed to respond effectively to the industry factors by focusing on countering the competitor strategies. For instance, the case indicates that during the time American Tobacco Trust was increasing its prices, Philip Morris decide to counter this by lowering its to make them more affordable and to attract price conscious customers (Fronk et al. 6). Besides, Philip Morris decided to adopt low price strategy to counter the premium pricing strategy to counter premium pricing strategy adopted by UST. Accordingly, this is an indication that Philip Morris strategies were based on the competitor analysis above. Leadership Leadership has a direct impact on a company performance. Large bodies of literature cite that good leadership results in superior performance while bad leadership is a recipe for the failure of a company. Good leadership is the ability of a leader to exert positive influence on the followers to ensure the achievement of company goals and objectives. Looking at the good performance that Philip Morris has posted over the years, it can only be concluded that the company is headed by good leaders. For instance, the firm’s net earnings grew from US$ 1.8 billion in 1987 to US$6.3 billion in 1997 (Fronk et al. 7). The back-to-back good financial performance was made possible by good leadership that developed the right vision and goals for the company and rallied staff to ensure their achievement. Certainly, Philip Morris could not have achieved such good performance it had bad leaders. Besides, the firm has been rocked by health issues that have resulted in a number of ligations being filed against the company. However, as the case indicates, the leaders of the company, including the CEO and President Philip Morris, his Vice, Steve Parrish of corporate affairs has put in place a plan that aims to minimize the legal issues that the company faces to ensure compliance with the laws regulative tobacco industry so as to see the company become successful (Fronk et al. 12). The plans include banning outdoor advertising within 1000 feet of a school or playground and ensuring that cigarettes are not sold to children below 18 years of age. These measures put by Philip Morris leaders indicate that the company value lives and promotes ethical values, which are some of the ingredients of good leadership. Organizational Structure From the case study, it emerges that Philip Morris adopts a divisional organizational structure. Because Philip Morris is a large company with operations spread in different geographical areas, including the UK, the U.S. Australia and Brazil among other countries, the company has adopted divisional organizational structure to ensure ease of coordination of work in each region with each geographical area handling its specific needs (Fronk et al. 4). Additionally, because the firm deals with diverse products, including cigarettes, food and tobacco, divisional structure enables each division dealing with specific product to strategies effectively so as to win the market. Conclusion/Recommendations Philip Morris still commands a large market share in the tobacco industry. However, questions arise as to whether it would manage to maintain is financial success considering the litigations and new laws being proposed to minimize cigarette smoking. However, there are a number of things that the company needs to do going forwards to ensure that it maintains its financial success. These include ensuing full compliance with the laws to minimize litigations, consider improving its image through corporate social responsibility and diversify its products further to cushion it against the uncertainties it faces in the tobacco industry. Work Cited Fronk, Rhonda, Bill Pilgrim, Bill Prosser, Regan Urguhart and Monte Wilse. Philip Morris: Case 11 (n.d): 1-15. Print. Read More