The Process of Preparing the Marketing Plan at the Global Tobacco Industry - Assignment Example

? Marketing Plan The report is about formulating a marketing plan for Philip Morris, the tobacco giant of USA. In this context the report has undertaken various researches from the past literatures as well as some authentic academic resources. In the process of preparing the marketing plan the report has discussed about the global tobacco industry and has also emphasized on the US tobacco market. The report has also analyzed the external business environment of USA, which is a necessary task while developing a marketing plan. The report has also conducted SWOT analysis for identifying the strengths, weaknesses and also the external threats & opportunities. Furthermore the report has also presented the marketing strategy by which Philip Morris can grab the intended market segment. Finally the report has also highlighted some of the contingency plans as well as the budget for the coming three years. Table of Contents Tobacco Consumption 4 Philip Morris: A Brief Introduction 5 Situation Analysis 5 Industry Analysis 5 Market Characteristics 7 Consumer Analysis 8 Competitor Analysis 8 Product Offerings 9 SWOT Analysis 9 Market Research and Information 10 Marketing Strategy 11 Missions and Values 11 Marketing Objectives 11 Financial Objectives 11 Target Market Segment 12 Positioning 12 Broad Overall Strategy 12 Marketing Mix 13 Financials 14 Control Procedures 14 Contingency Plan 15 References 16 Appendices 18 Tobacco Consumption The tobacco industry consists of a number of corporations that manufactures and sells tobacco and its related product all over the world. However among the tobacco products cigarettes are the most popular. Studies reveal that there are billions of smokers around the world, although the figure dipped due government interventions. The interference of Governments of respective countries and banning of cigarettes in few places has hugely affected the sales of cigarettes. Also the health issues of cigarettes are impacting in the sales. Despite of the economic downturn and health issues the industry bears contradiction with elevated demands. In the context of the US market, the volume of the tobacco industry is simply huge however the industry has suffered greatly from the mid 1990s, when various states of the country had officially banned smoking of cigarettes. The states also highlighted that cigarettes causes cancer and all the companied indulged in this business knew the fact, but they intentionally understated their findings about the ill effects of it. This has led to the death and severe illness of a number of smokers around the world. Further the US government incorporated a number of policies and laws in order to prohibit the selling of products related to tobacco. Despite of such strong rules and policies from the US government the industry maintained its strong hold. There are large numbers of cigarette companies operation within the US market and hence the level of competition is intense. Some of the evident companies that operate in the markets of US include Philip Morris, British American Tobacco (BAT), Universal Corporation, Standard Commercial, DIMON, Reynolds American, Lorillard Tobacco Company, and Vector Group's Liggett unit (Yahoo Finance, n.d.). Most of the tobacco companies operating in the markets of US spend huge bucks for promoting their products (Centers for Disease Control and Prevention, 2012). In order to be more competitive the company needs to develop a sound marketing plan which will ensure higher visibility of their brand in the market place. Hence the marketing plan for Philip Morris is developed accordingly. Now to start off with the development of marketing plan a brief introduction of the company has been presented below. Philip Morris: A Brief Introduction Philip Morris is a US based firm specializes in the manufacturing and selling of tobacco products. It is the US division of Altria Group Inc. Among the product mix of the company, it gives special emphasis to its cigarette segment. The company is currently headquartered in Richmond, Virginia and is fully owned by the Altria group. In the year 2003 the company has changed its name from Philip Morris companies Inc., to Philip Morris USA. It is now abbreviated as PM USA. In spite of the changes in name Altria still possess 100 % ownership of Philip Morris. It is basically a leading international tobacco company and has its roots back to the year 1854, when the company first made its cigarettes. The company has employee strength of around 78,000 and operates in more than 180 countries of the world. The survey on cigarette industry in the 2011 revealed that Philip Morris owns 16 % market shares outside of the US (Philip Morris International, n.d.). Some of the important brands of the company include Marlboro, L & M, Bond Street, The Philip Morris brand, Chesterfield etc. Like any other cigarette company it also offers a warning about the ill effects of cigarettes, but the company highlights that it desperately tries for wide-ranging regulations in the tobacco products (Philip Morris International, n.d.). Situation Analysis Since the company chooses to cater to the US market, therefore it is necessary to get insights about the external business environment of US. Now in order perform these analyses a number of tools will be used for example PESTLE analysis, Porter’s 5 forces, and also SWOT analysis for the of identifying the internal environment and competitors of the company. Industry Analysis In order to perform the analysis of cigarette industry, Porter’s 5 forces will be used to analyze the different dimensions of the cigarette industry. The model portrayed by Michael E. Porter is mainly used for the purpose of analyzing the intensity of other factors associated with the industry (Hill & Jones, 2009, p.43). Figure 1 (Source: (Hill & Jones, 2009, p.43) 1. Threat of new Entrants New entrants are described as the companies that are presently not competing within the given industry but has the potential to compete in the industry if chooses to do so. In the US market new product differentiation is complex as there are cigarettes of various flavors, price points and quality. Also access to the distribution channel is tough as established players like Philip Morris and Chesterfield among others are present. Furthermore with strict government policies the threat of new entrants is low. 2. Threat of substitutes products Substitute products are characterized by the availability of same category products, which performs the same function as the existing product (DePamphilis, 2011, p.143). The substitute products of cigarettes are cigars, Tobacco gum, Snuff, Nicotine patch, smoking pipe (using tobacco) and Hookah. Also some herbal cigarettes are the substitutes. However any of the products did not find as much popularity as cigarette has got. However there are certain segments which prefer to consume the substitutes. Hence the threat of substitutes is also low. 3. Bargaining power of buyers The bargaining power of the buyer refers to the capability of consumers to bargain and lessen the price of the commodity or to increase the cost of the company by demanding more quality products and services (Hill & Jones, 2012, p.58). Bargaining power depends on how quickly the buyer identifies other sources. The US market has a number of tobacco companies which offers equal quality and price to the consumers. The switching cost is also low. Hence the bargaining power of the buyers is high. 4. Bargaining Power of Suppliers Suppliers are also other organizations which provide raw materials, service and sometimes even manpower to the host organization. The bargaining power refers to the capability of the suppliers to increase the price of the raw materials or to decrease the quality of goods and service with the supply of substandard quality materials for low price. In order to manufacture a cigarettes there are requirements of a number of inputs. It needs paper, filter, tobacco etc. There are large numbers of suppliers of such materials. Hence the bargaining power of suppliers is low. 5. Existing Rivalry This force reflects the competition within the industry. Rivalry among industry is about the intensity of competition among the organizations. With a large number of players in the industry the level of competition among the existing companies is high. Market Characteristics The US market for cigarettes is characterized by different segments of consumers. There are male smokers as well as female smokers. However the volume of sales has been reduced after the government interventions in generating awareness about the cigarettes. However the market still offers space for every existing players of the industry. In the year 2010 around 303 billion cigarettes were sold in the market of US and three companies hold the maximum market share (Centers of Disease Control and Prevention, n.d.). The market leader was still Philip Morris. Due to the presence of other players, the market is fully saturated. The demand of cigarette is still high especially the demands cigarettes among the adult males are high. Consumer Analysis Cigarettes are consumed by both males and females, although the ratio of cigarette consumption among the male population is extremely high. The consumers of the company have been also segmented on the basis of various demographical aspects. For example the company has products for the young males with medium income level as well as cigarettes like Marlboro for the higher income group of people. Also studies show that the consumers of US are also hugely brand loyal and thus prefer to stick with what he/she finds the initial taste. Competitor Analysis A large number of competitors are present in the tobacco industry of USA. Some of the evident players in this industry are British American Tobacco (BAT), Universal Corporation, Standard Commercial, DIMON, Reynolds American, Lorillard Tobacco Company, and Vector Group's Liggett unit. Hence with such large number of competitors the competition is intense. However Philip Morris is still the market leader. Figure 2 (Source: Team Charlie retailing, 2012) Product Offerings The company mainly offers cigarettes and smokeless tobacco products. In the cigarette section the company offers a wide range of variety in the form of flavor, taste, quality and price. Some of the eminent brands of the company in its cigarette segment are Marlboro, L & M, Bond Street, The Philip Morris brand, Chesterfield etc. While in its smokeless tobacco segments the products are also made with tobacco but it constitutes some additional ingredients, which makes it different from the actual cigarettes. Marlboro Snus is one such product that belongs to this category. The company also manufactures and sells alcoholic products in the market. Apart from the aforementioned products the company is also trying to manufacture a product that will be light in nature and will be flavored. It will be targeted to the women based on their demographic characteristics in the form of different age and income. SWOT Analysis SWOT analysis is carried out to assess the internal strengths, weaknesses and external opportunities and threats of a company (Williams, Champion & Hall, 2011, p.108). In the context of the report SWOT will be carried out for Philip Morris to identify the same. It plays an indispensible role towards the formulation of a strategy and offers insights about the internal resources and how those resources can be utilized in the external environment. The four dimensions of the SWOT analysis are presented below in the context of Philip Morris. Strengths The company has presence in 180 countries of the world. IT has a huge brand name and presence in the market for more than 100 years. It offers wide range of products from menthol light flavored cigarettes to strong flavors. Financial Leverages offers huge advantages to the company. Market leader in US and in some other parts of the world. Opportunities Emerging markets. Diversification into other businesses. Development of more filtered tobacco that has less health hazards. Weaknesses Legal Constraints. Product causes health hazards. Internal conflict between the brands of the company. The future of tobacco business is extremely uncertain. Threats Excessive tax needs to be paid to the government. Risks of Litigation Intense competition Market Research and Information With the rising number of smoking population around the world, the cigarette and tobacco business proves to be promising. The rate of cigarette smoking around the world has hugely increased during the mid half of the 20th century. In the beginning of the century per capita consumption of cigarettes was only 54, but during the 1960s it reached at a mammoth 4.259 cigarettes per capita. Nonetheless due to increased awareness about the harmful effects of cigarettes, the per capita consumption of cigarettes again fallen to 2092. Furthermore with the intervention of Government of respective countries and banning of cigarettes in few places of the world has caused the per capita consumption of cigarette to a lowest ever in last 50 years. It dipped to 1619 cigarettes per capita in the year 2006 (Centers for Disease Control and Prevention, 2010). Marketing Strategy Missions and Values The mission statement of the company highlights that the company strives to develop and own financially well-organized business. The company also endeavor to offer wine and tobacco consumers with high quality products. The mission of the company is also guided by 4 other aspects such as create substantial value for shareholders, satisfy adult consumers, invest in leadership, and align with society. The values of the company lies in its integrity, respect, and trust. The company in its value statement also highlights that it has the passion to succeed, and driving creativity (Philip Morris USA, n.d.). Marketing Objectives The marketing objectives of the company are as follows:- To develop a cigarette that suits the need of girls especially young and mid-aged. To make the product visible in the market place. To develop the new cigarette as a powerful brand in the market. To attain 20 % market share by the end of 2 years. Financial Objectives Financial objectives are the crucial factors towards the formulation of a marketing plan. Some of the key financial objectives are highlighted below:- To earn revenue of $ 100,000 by the end of 1st year. To reduce the cost of production by diminishing the overhead costs associated. The cost of material personal cost and shipping cost also needs to be controlled in order to make the product cost effective. To ensure annual rate of return is between 15% - 20%. Maintenance of a positive cash flow. To increase earnings per share (EPS) by 10 % annually. To attain a profit of $ 15, 000 by the end of year 1. To reach the break-even point by the end of 10th month. Target Market Segment Targeting and segmenting is a crucial factor towers the attainment of customer. A company always develops products keeping in mind about a set of customers and their requirements. There are hardly any products in the market that do not target any specific group of customer. In the context of the study the new cigarette will be mainly targeted to women of various ages. The segmentation will be mainly done on the basis of age and income levels of the women. Nevertheless among the target group it will be further segmented to two sub groups. The groups are divided into primary and secondary. So the target segments for the new products are as follows:- Primary Target: 75% Executive Women age 26 to 45 years old with high income Secondary Target: 25% Young Women age 20 to 25 years old with medium income Positioning Positioning can be referred to as a strategy by which an organization occupies a unique and desired position in the minds of the consumers (Kotler & Scheff, 1997, p.115). Companies mainly portray their positions through the use of advertisement campaigns. Since the proposed product of the company is for women of two segments, it needs to be positioned accordingly. A positioning statement can help to serve the purpose. Therefore the positioning statement can be – “Philip Morris for the passionate women”. Furthermore to reflect the position of the company more elaborately the company can use various types of promotions. Broad Overall Strategy Hence on the basis of findings and studying all the related factors the overall strategy of Philip Morris are to develop a cigarette that meets the need of young girls and mid aged girls. The primary intentions are to cater to the aforementioned segments for the purpose of earning more revenue and create a brand name for the product. Therefore in order to achieve it various strategies need to be used. Strategies related to positioning of the product, variants of products, promotional strategy, distribution strategy etc. have been developed. Also in the process few financial strategies regarding cash flow, break even and profit margins have also been developed. Marketing Mix The marketing mix for the new product i.e. female cigarettes of Philip Morris is presented below:- Product: The product will be mainly intended for the girls. Therefore to satisfy both the identified segments the products are as follows:- Product name Variants Target Women Cigarette Minted (Small) Regular (Small) Minted (Large) Regular (Large) 1. 75 % of high income executive women of 26-45 years. 2. 25 % young medium income women of 20-25 years. Price: The pricing needs to be done on the basis of cost of production. Hence a cost plus pricing method is the most suitable approach. However the company needs to be very much flexible in context with the pricing. During the launch of the product the company should follow a skimming strategy, as the company has high reputation and brand loyal customers. Furthermore the target group will also be able to afford the price. Place: The products can be distributed through the existing distributors of the company. Direct retailing can be also carried out as the product is for niche customer segment. The company can also target hotels and pubs where cigarettes are usually consumed by a large number of women. Promotion: Promotion for the product needs to done carefully. Since the product falls under the legal constraints television advertisements can be complex. Therefore it can be promoted by using sponsorship. Phillip Morris can initially tie up with some events such as daily soaps which are usually watched by women. The company can become the title sponsor of the event. Also if the quality is superior it can also get word of mouth promotions. Financials In this section a budget has been prepared for the company in order to meet the marketing objectives in a cost effective way. The budget has been presented in the Appendices section of the project. Control Procedures Controlling is a process by which a company monitors and controls its activities. In order to ensure the plan is moving according to the proposed path the company should take the following measures:- Sales analysis. Ratio analysis. Quality control of the product. Analysis of market share. Feedback from customers about the quality of the cigarettes. Quarterly review of the proposed marketing plan and the actual happenings. Based on that corrective actions need to be taken. Periodic monitoring by undertaking gap analysis, which will tell the present standings of the company. Contingency Plan Contingency planning is mainly undertaken for the purpose of preparing strategic actions that can be employed when the courses of action deviates from the proposed strategy. Therefore in this Philip Morris must consider developing a contingency plan. Hence the proposed contingency plans for the company are as follows:- If suddenly there is an official ban on cigarettes in USA the company should stop its production process immediately. If the sales figure drops, the company should take immediate actions in the form of extensive retailing. If the budget fails the company should arrange alternative sources of revenue generation such as credit from banks. References Centers for Disease Control and Prevention. (2010). Consumption Data. Retrieved from http://www.cdc.gov/tobacco/data_statistics/tables/economics/consumption/. Centers for Disease Control and Prevention. (2012). Economic Facts about U.S. Tobacco Production and Use. Retrieved from http://www.cdc.gov/tobacco/data_statistics/fact_sheets/economics/econ_facts/. DePamphilis, D. (2011). Mergers, Acquisitions, and Other Restructuring Activities: An Integrated Approach to Process, Tools, Cases, and Solutions (6th ed.). Massachusetts: Academic Press. Hill, C. W. L., & Jones, G. (2009). Strategic Management Theory: An Integrated Approach (9th ed.). Connecticut: Cengage Learning. Hill, C. W. L., & Jones, G. R. (2012). Strategic Management Theory: An Integrated Approach (10th ed.). Connecticut: Cengage Learning. Kotler, P., & Scheff, J. (1997). Standing Room Only: Strategies for Marketing the Performing Arts (7th ed.). Boston: Harvard Business Press. Philip Morris International. (No Date). Company Overview. Retrieved from http://www.pmi.com/eng/about_us/company_overview/pages/company_overview.aspx. Philip Morris International. (No Date). Our Brands. Retrieved from http://www.pmi.com/eng/about_us/company_overview/pages/our_brands.aspx. Philip Morris USA. (No Date). Mission & Values. Retrieved from http://www.philipmorrisusa.com/en/cms/Company/Mission_Values/default.aspx. Team Charlie retailing. (2012). Tobacco & $$$. Retrieved from http://cigarettewars.wordpress.com/. Williams, C., Champion, T., & Hall, I. (2011). MGMT. Connecticut: Cengage Learning. Yahoo Finance. (No Date). Tobacco Industry Profile. Retrieved from http://biz.yahoo.com/ic/profile/tobaco_1203.html. Appendices Appendix 1 – Budget Expenses Year 1 budget Year 2 budget Total Budget Advertisement $ 10, 000 $ 5, 000 $ 10, 000 Cost of new product development $ 20, 000 $ 25, 000 $ 40, 000 Distribution cost $ 2, 000 $ 2, 000 $ 5, 000 Total $ 32, 000 $ 32, 000 $ 55, 000 Income Year 1 budget Year 2 budget Total Budget Sales $ 25, 000 $ 35, 000 $ 45, 000 Income from Interest $ 2, 000 $ 2, 000 $ 2, 000 Non operating income $ 5, 000 $ 5, 000 $ 5, 000 Total $ 32, 000 $ 42, 000 $ 52, 000 Read More