Marketing Audit and Marketing Objectives of British American Tobacco Company - Assignment Example

Marketing Audit and Marketing Objectives of British American Tobacco Company (BAT) Executive summary The marketing audit will provide a systematic and detailed analysis of British American Tobacco (BTA) internal and external environment. BAT is a global tobacco-related products manufacture that operates in more than 200 countries across the world. The company is headquartered in Britain and has more than 50 factories that are spread in various international markets. BAT has various global and international brands that enjoy high customer loyalty. The company has excellent research and development capabilities. The company faces harsh criticism in the market and revenues from traditional brands have declined substantially due to high awareness on adverse impact of nicotine. The threats facing the company include the illicit and counterfeit trade, stringent regulations, high excise taxes and stiff competition. BAT can use its strengths to exploit opportunities in the e-cigarette customer segment, lucrative China market or make strategic acquisitions in emerging markets. Table of contents: page number: 1.0 Introduction………………………………………………………………………….... 4 2.0 Internal environment (Strengths and weaknesses) analysis…………………………....5 3.0 External environment (Opportunities and threats) analysis…………………………....8 4.0 Summary of results of S.W.O.T analysis.………………………………………….… 11 5.0 Marketing objectives…………………………………………………………………..13 6.0 Conclusion ………………………………………………………………………….…15 1.0 Introduction BAT is a leading global tobacco company that was founded in 1902. The company has operates in more than 200 countries and has attained success through acting responsibly in the controversial tobacco industry (Lussier 2008). BAT has a diverse product portfolio that includes more than 200 brands that are sold in more than 200 markets across the world. The market is estimated at one billion adult smokers and some of the global brands include Dunhill, Pall Mall, Rothmans, Benson & Hedges, and Lucky Strike. Yach and Bettcher (2000) outlines that BAT has a strong presence in all geographical markets such as Americas, Asia-Pacific Western Europe, Eastern Europe, Middle East and Africa and has established 45 cigarette factories in 41 countries across the world (p 210). The traditional BAT tobacco products include the cigarettes, cigars, pipe tobacco while the next-generation products that are more innovative include the electronic cigarettes and heat-not-burn devices (Hagele 2010). According to the 2013 financial results, BAT attained strong market and strong earnings growth despite unfavourable operating environment and currency movements in some parts of the world. The company increased its diluted earnings per share by 6 percent in 2013 and total dividends were increased by 6 percent. The company managed to sell 676 billion cigarettes in more than 200 market and recorded 15,260 million pounds in revenues. BAT adopted a new vision and new strategy in 2013 that reflects the needs of the consumers. BAT has implemented a sustainability approach to its supply chain that entails working with independent farmers worldwide in order to ensure quality raw materials (Williams 2012). The report will systematic audit of BAT and marketing objectives that should be implemented in order to attain the strategic goals. The report will identify the strengths, weaknesses, opportunities and threats facing the company and marketing strategies that should be implemented in order to attain a competitive edge in the market. 2.0 Internal environment/ (Strengths and weaknesses) analysis Strengths The strengths are the positive internal characteristics and competencies that enable an organisation to attain its strategic objectives (Gill 2010). One of the strengths of BAT is the brand portfolio diversity and global brands that have attained high customer loyalty. Global brands such as Pall Mall and Kent have enabled the company to attain significant global market growth and overcome market volatility associated with changing global economic situations such as the recent economic recession (Partridge 1999). BAT has a wide international market share and market presence that has enabled the company to mitigate risks associated with particular market segments such as England market. Newlands and Hooper (2009) outlines that the company operates in all major markets across Europe, Asia, Africa, United States and South America and thus high brand recognition will enable the company to easily penetrate in other national markets. The company has more than 200 international, regional and local brands that are designed to cater for various customer preferences across the globe and introduced the e-cigarette in emerging markets (Rarick 2004). BAT has managed to attain market leadership position in various regions due to its more than 50 factories that serve more than 180 countries across the world. The company controls 45 percent of global tobacco industry and currently controls 13 percent of Chinese market (Carter 2003 p 16). Another striking strength that enables BAT to exploit opportunities in the market is the research and development capabilities that enable BAT anticipate the customer needs and design products that cater for the changing customer needs (Carter 2003 p 18). The R & D capabilities have enabled BAT to use new packaging technologies, high quality tobacco and flavoured cigarettes that cater for the consumer tastes and preferences (Ferrell and Hartline2012). Furthermore, the public health staff and scientists are capable of responding to changing market regulations on tobacco harm reduction and facilitate the development of reduced-risk products for the consumers (Richter & Palazzo 2005 p 391). BAT has huge financial resources and liquidity that can allow the company to finance its marketing activities. In 2013, the revenues increased by 4 percent while the adjusted profits increased 7 percent from the previous year. The return on capital employed increased from 23 percent in 2009 to 31 percent in 2013 due to strong growth in the premium markets and high demand for the international brands. The financial resources have enabled BAT to invest in new manufacturing facilities, new technologies and new equipments that will ensure long-term development of the company and design of new products that meet the consumer needs (DuBrin 2012). BAT has developed cordial relationships with supply chain partners such as suppliers, distributors, farmers and retailers (Luthans and Doh 2012). BAT has entered in to partnerships with farmers to supply high quality tobacco and provides expert support to more than 100,000 contracted farmers in order to ensure high quality tobacco leaves are used in the manufacture of final products. The control of the leaf processing activities and agronomical support to farmers has ensured consistency in cigarette quality and business sustainability since more than two-thirds of the suppliers have long-term contracts with BAT (Daft 2010). The company uses direct distribution outlets, wholesalers and logistic providers that ensure products are offered to the customers in the most effective ways (Brassington & Pettitt 2006). BAT has a culturally diverse workforce that is critical in securing the leaf supply and distribution of the product to the market. The company employs more than 57,000 people that are committed to the company culture of innovation, personal fulfillment and ownership, and customer focus thus enabling the company to attain its strategic goals (Harrison 2013). Weaknesses Worthington & Britton (2006) outlines that weaknesses that may hinder the attainment of its mission, objectives and strategic goals in the market. BAT has been suffering from negative criticism on its operations. The WHO and other health agencies have pointed out that BAT products are leading cause of cancer and expenses incurred by governments providing health care to individuals suffering from health harm of BAT products outweigh the revenues collected by the government ((Lee, Gilmore & Collin, 2004, p 92). BAT operations and products are considered unethical and sinful in certain countries especially the Muslim dominated countries. One of the weaknesses of BAT is the low online market presence due to the measures that have been implemented to control tobacco access among teenagers and adhere with numerous regulations on advertising. BAT has not been able to implement effective marketing communication strategies that aim at informing, reminding and persuading customers to try the new products and relies on the traditional marketing channels such as wholesellers and retailers in informing the customers of the new products. In this case, the rate of new customer acquisition and retention has been low (Prasad 2010). BAT is experiencing a decline in sales volumes and revenues from the traditional cigars and cigarette brands due to increase in prices that has been occasioned by increase in excise and other related taxes (Richter & Palazzo 2005 p 396). The plain packaging requirements and ban on public place smoking has led to decline in the consumption per customer thus leading to decline in revenues (Palmer 2012). Another weakness facing the company is the high fixed costs that has made it impossible to exit operations in certain markets due to significant investments in plants and technology. Almost BAT has mass-production capabilities, the fixed costs per stick of cigarette is high due to significant investments in qualified personal, distribution channels and technology thus leading to low margins. The company has not been able to implement successful cost-cutting measures in order to improve the profit margins and reduce the consumer prices (Sanyal 2001). 3.0 External environment (Opportunities and threats) analysis Opportunities Dransfield (2001) asserts that opportunities are the characteristics or factors of the external environment that have the potential of enabling an organisation to attain its strategic goals. One of the main opportunities in the tobacco industry is the growth in popularity of e-cigarettes, light tobacco cigarettes and smokeless tobacco products due to the growing knowledge of the adverse health effects of tobacco smoking. BAT has the necessary R & D capabilities, financial resources and competent staff to tap the emerging customer segment that is interested in less nicotine and stylish tobacco products (Parboteeah and Cullen 2010). BAT should continue with its efforts of building next-generation product portfolio along with the traditional tobacco business in order to cater for the changing consumer preferences through electronic cigarettes, heat-not-burn devices and nicotine inhalation products that have low nicotine content (Dam and Marcus 2007). Another significant opportunity is the high market growth potential in Chin and emerging markets such as Australia, Europe and Africa. China accounts for almost 40 percent of global tobacco consumption and the market is ideal for BAT due to the growing consumer incomes of the Chinese population and shifts towards high premium cigarette brands. Although China has a state-owned tobacco manufacturing company (China National Tobacco), BAT launched its manufacturing operations in China in 2004 and the factory produces more than 100 billion cigarettes annually where a significant proportion of the production in consumed in Asian and Middle East countries (Tayeb 2002). BAT has the financial, technical and other capabilities to engage in strategic acquisition of competitors in the emerging markets. Strategic acquisitions will enable the company to expand easily to new markets, extend the brand portfolio in key markets, and ultimately overcome the stringent regulatory measures in those markets. BAT has been able to expand its global presence through acquiring competitors like Tekel of Turkey and Bemtoel of Indonesia that offered the company new opportunities of launching new brands in those markets. Threats BAT faces a high threat from counterfeiting and illicit tobacco trade that presents a high threat to the legitimate tobacco industry. Most of the counterfeit cigarettes are trade in the low priced markets and evade the prevailing regulatory environment thus threatening BAT’s revenues and corporate reputation in the market. The illicit trade accounts for about 12 percent of the global tobacco products consumption. Mead and Andrews (2009) outlines ome of the factors that contribute to this significant threat as the high excise tax differentials across markets, weaker border controls, regulatory changes such as plain packaging and high compliance costs. The potential impacts of this threat range from lower trade volumes, increased investments in marketing and negative brand value since the contrabands or counterfeited products are disguised as genuine BAT brands (Richter & Palazzo 2005 p 388). The company can mitigate the threat through formation of anti-illicit trade that will coordinate efforts in controlling the counterfeits and collaborate with border control and enforcement agencies in controlling the threat (Holt and Wigginton 2002). BAT faces stringent tobacco regulation due to increased health related concerns of tobacco consumption across the world (Lee, Gilmore & Collin, 2004 p 94). There is evidence that tobacco contributes to significant number of cancer related deaths annually and national regulatory authorities have implemented new measures to curb tobacco smoking in their territories. The increased regulations on the marketing mix activities such as product design, labeling, packaging and distribution will hinder the ability of BAT to enter new markets, launch new products or attain higher brand recognition (Freeman & Chapman, 2008, p 588). According to McFarlin and Sweeney (2014), some tobacco control regulations that pose significant threat include restrictions on smoking in public places such as workplaces, cities and outdoor areas, restrictions on tobacco advertisements and endorsements by celebrities, restrictions on branded packaging and restrictions on the publicity of tobacco related corporate responsibility initiative publications (Neuman, Bitton & Glantz 2002 p 1325). The company must comply with the new regulations in order to avoid costly legal proceedings (Ahlstrom and Bruton 2010). BAT is facing high competition from other global players such as Philip Morris and Japan Tobacco in the traditional tobacco products. Japan Tobacco International Winston brand is the second global largest brand by sales volumes while Imperial Tobacco’s Davidoff brand is widely distributed in all major markets. The three global tobacco giants have implemented measures of entering new markets and expanding their brand portfolio thus BAT will experience high competition in the future (Fine 2009). BAT is facing high excise and tax changes threat due to strict regulatory framework and government policies that aim at restricting underage access and reducing the level of tobacco smoking among the population through increasing the prices (Anderson 2007). Some countries such as Greece, Mexico, Russia and Brazil have made significant excise tax increases in order to collect moe government revenues and reduce the rate of smoking among their citizens. Article 6 of WHO Convention on Tobacco Control requires excise tax on tobacco to be up to 70 percent. Full implementation of the convention will definitely lead to reduced global tobacco consumption, increased consumer prices and increase in lowly-priced counterfeit cigarettes. BAT can use its strengths to confront the threat by engaging with excise and custom authorities on measures of reducing the taxes while investing in more tobacco prevention programmes among the youth (Peng 2011). BAT faces operations risk from the current geopolitical tensions that include instances of terrorism, international sanctions, organised crimes and social unrests that can disrupt the company operations in multiple markets (Anderson 2007). The potential impact of the threat includes loss of assets, deaths of personnel and increased costs in reorganising the supply chain operations. The threat has the potential of reducing the global trade volumes and profits thus BAT must use its strengths to implement global contingency plans, conduct regular external risk assessments and implement security controls (Neider and Schriesheim 2007). 4.0 Results of the analysis Strengths Weaknesses Opportunities Threats Global brands Negative criticisms on tobacco products and BAT operations E-cigarettes and next generation products growing popularity Counterfeits and illicit tobacco trade International market presence and strong market position Minimal online presence and promotion Lucrative Chinese market and other emerging markets Stringent tobacco regulations on use and promotions Research and development capabilities that foster innovation Declining revenues from traditional brands Strategic acquisitions due to huge financial resources High competition from other global players like Philip Morris Huge financial resource and control over leaf processing High fixed costs of operations Possible high excise and other tax changes 5.0 Marketing objectives Marketing involves effective identification, anticipating and satisfying the changing customer needs (Warner 2010). Effective marketing objectives must be specific, measurable, attainable, realistic and time-bound (SMART). The marketing objectives provide the targets of the marketing function and aim at attaining corporate objectives (Kew and Stredwick 2008). One of the corporate objectives of BAT should be to increase the corporate profitability by 10 percent in the next three years. The marketing department should ensure the attainment of the objective by increasing the market share of global and international brands by 10 percent in the next three years. BAT can increase the demand for the global and international brands through increased promotional activities and entry in to emerging markets such as South American countries where the income levels are high and number of smokers is likely to increase. The company should implement measures of controlling the counterfeits and illegal trade in order to enhance the market share of the international brands (Proctor 2014). The second marketing objective of BAT is to increase the product range through increasing the manufacturing capacity of the next-generation products such as e-cigarettes and tobacco inhalation devices by 20 percent. The high awareness of the adverse effects of tobacco-related products across the world and numerous special interest campaigns that aim at reducing tobacco smoking across the world will have adverse effects on demand for the traditional cigarettes (Bohm 2009). In this case, BAT should offer alternative products and brands that have low nicotine levels and that reflect the changing needs and preferences of the consumers. Accordingly, increased tobacco regulation and high taxes will reduce the demand for the traditional products and thus BAT should use its huge financial resources, R & D capabilities and human expertise to offer next-generation products (Orcullo 2008). The third marketing objective is to increase the market share in Chinese market from the current 13 percent to 40 percent in the next three years. The Chinese market offers great growth opportunities due to the high population, the good distribution infrastructure and availability of small tobacco companies that can collaborate with BAT in increasing the market presence (Koontz and Weihrich 2010). BAT should differentiate its brands in China in order to attain high customer loyalty and brand recognition in a market that is dominated by state-owned China National Tobacco (Nijssen and Frambach 2000). 7.0 Conclusion BAT is a leading global tobacco manufacturing company that has attained market leadership due to its global and international brands. The company has more than 200 brands that are sold in more than 200 countries across the world. The company has more than 50 factories that engage in leaf processing and has maintained its supplier relationships through partnering with more than100,000 farmers to supply high quality leaf. The company has huge financial, technological and research capabilities that can facilitate entry in to new markets and new product launches. Although BAT has international market presence across the globe, the company is facing numerous weaknesses and threats that may hinder the attainment of the corporate goals. The high awareness of adverse health effects of tobacco and negative criticism of BAT operations has led to decline in the demand of traditional products. Accordingly, illicit tobacco trade and cheap counterfeits, stringent regulatory environment and high competition from other multinationals present significant threats to the operations of the company. In this case, BAT marketing objectives must aim at increasing the corporate profitability by 10 percent in the next three years by increasing the market share of the global and international brands by 10 percent. The second objective is to increase the production and marketing of next-generation products by 20 percent in the next three years due to shifting consumer needs and preferences. The last marketing objective should be to enhance market share position in China from the current 13 percent to 40 percent in the next three years due to the high growth potential of China market. 8.0 References: Ahlstrom, D & Bruton, G.D. 2010. International management: strategy and culture in the emerging world. Mason, Ohio: South-western cengage learning. Anderson, B. 2007. Business process improvement toolbox. Mikwaukee: ASQ Quality Press. Bohm, A. 2009. The SWOT analysis. Muchen: GRIN Verlag. Brassington, F & Pettitt, S. 2006. Principles of marketing. London: Prentice Hall. 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