Business Analysis of British American Tobacco - Case Study Example

Business Analysis of British American Tobacco "When people pick up smoking, British American Tobacco (BAT) picks up steam" Introduction British American Tobacco (now on be referred to as BAT in this assignment) is the most globalization brand in the world. The brand has millions of diverse customers across the globe, with access to over 180 markets globally, and makes the best quality tobacco products. The brand commits its customers to always be indulged in principles of corporate social responsibility, a practice kept running through out the group. (About BAT) Competitive Position Following are the facts about the current position of BAT in the global market. Average Annual Sales 855 billion cigarettes Known brands Pall Mall, Dunhill, Lucky Strike, and Kent Other Products Loose tobacco and regional cigarette brands Fiscal Year Jan-Dec The Global Tobacco Structure With the exception of the Chinese state tobacco monopoly, UK holds the 3 of the top 5 tobacco companies within its boundaries. Philip Morris leads the market with 18% share, BAT follows with 11%, while Imperial Tobacco and Gallaher hold fourth and fifth position in the global tobacco pie. The missing third spot belongs to Japan Tobacco. Cigarette and Tobacco Pie Share in UK Market share In UK, the cigarette and tobacco market is predominantly captivated by Gallaher and Imperial Tobacco; the two firms enjoy an 80% hold in the market. BAT has its manufacturing facilities in UK but exports most of its production. (Action on Smoking and Health Fact sheet No.18) Rank Brand Name % share of UK cigarette market Manufacturer 1 Lambert & Butler KS 13.5 Imperial Tobacco 2 Benson & Hedges Gold 7.3 Gallaher 3 Mayfair King Size 7.1 Gallaher 4 Richmond Superkings 6.6 Imperial Tobacco 5 Richmond King Size 4.9 Imperial Tobacco 6 Marlboro Gold King Size 4.4 Philip Morris 7 Regal KS 3.5 Imperial Tobacco 8 Royals King Size Red 3.4 British American Tobacco 9 Superkings 3.3 Imperial Tobacco 10 Silk Cut Purple 3.2 Gallaher Top 10 UK cigarette brands: 2004 Recent Developments at BAT Recently, BAT has strengthened its position in the Tobacco world market with different moves. As per the most recent developments, to expand their reach farther, BAT is in process of acquiring small firms internationally so as to have extended access to the markets, and to have stronger position at the same. The group is also quite close to the completion of purchasing House of Prince (HoP). As per the Citigroup officials, the huge network of supply chain that BAT carries with itself can assist in exceeding HoP's last years 30 billion cigarettes sales figure throughout Europe. This would have a net impact on BAT's sales rather than increasing the existing lines sales. At the same time, in the start of March 2007, BAT declared its results for the ended fiscal year showing an increase in operational profits of 7-8% with Middle East, Latin America, Africa, and Asia-Pacific are the major contributors to this increment. Apart from this, another major cause has been an increment in the sales volumes of subsidiaries that rose by 2%. It is noticeable that the net tobacco products sales was drove by the 4 major players of the market, giving it a volume increase of 17%. Internal & External Analysis Two of the most effective tools used widely for internal and external analysis of an organization are PEST and SWOT. PEST is the simple analyses of the external environment of an organization, while SWOT matches the internal and external factors to identify critical points for concentration. Following are the same conducted for BAT: SWOT SW presents the internal scenario of the organization, matched against the existing or anticipated external OT provides a plan for the future course of action. Following is a pictorial representation of the same: Strength Independence from single importer-monopoly Brand loyalty and associated good will Tremendous market segmentation Weaknesses Lack of regional market knowledge Unpredictability of Importers Very less presence in the local market Lack of internal process integration Opportunities Expanding local market pie share Cushion in loyalty development of importers Threats Global instability of the duty regulations Smuggling, particularly in Asian markets PEST Analysis PEST analyses are the external analyses of an organization's environment, which are out of the influence of the organization on the whole. Following is a pictorial representation of the same: Following is the PEST analyses conducted for BAT: Political UK is comparatively stable when it comes to politics However, the global politics is not the same as the local one, rather absolute differential, therefore, extra care needs to be taken since BAT mainly exports to some 180+ countries Social Society has generally never viewed smoking as a good habit, and therefore, many movements have been created all over the world against smoking, yet all in vain. Economic With huge scale exports, economy is strengthened by the organization, and also needs support from the same to keep the wheel moving. Technology Technological advancements need to be adopted by the organization, particularly the integration part. BAT currently has many systems deployed but working independently. Technological advancements have led to integrated and dependent systems to make lesser duplications possible, and provide more efficiency. Gaining a Competitive Advantage with IT Solution Generally, none of the competitive advantages are sustainable over longer periods of time. With the drastic growth and expansion at BAT over the years, the prime focus of the organization has rather shifted towards delivering the shareholders their worth, since it is a publicly owned organization. The focus has also been to reach production process transparency on the whole. There are two fold gains of this; firstly, the upcoming regulatory requirements would be met and alongside the share holder confidence would also rise pertaining to the same context. Often the initiatives taken by BAT for assurance of traceability ad tracking (of the production) give three distinct advantages bundled together: a) Compliance b) Increased operational efficiency c) Increased competency Compliance with the regulations is a far more accepted idea among consumer products makers; this is portrayed in the fact that around 35% of the manufacturing concerns is in the process of transition to have their focal point on the traceability and compliance as a source of their competitive edge, not a mandatory cost consumer anymore. A report mentioning Compliance and Traceability Benchmark has illustrated 3 main areas in which an organization would differentiate itself with respect to the deployment of technology solutions: 1) The extent of integration that technology provides with other application 2) The extent of process transparency and self-traceability that technology provides 3) The extent of manual procedure elimination Enterprise Resource Planning (ERP) tools and Quality Management Statistics are the recommended ways for taking care of the traceability and compliance program. For the same, BAT plans to implement, and is currently in the phase of, the FlexiNet which can prove to be really fruitful for the organization with the following facilitations: End-to-End Materials Management Paperless Picking Increased Integrity Control Accountability and Product History About Apriso (Tobacco Reporter) Evaluation of Brand Portfolio There are numerous brands included in the product portfolio of BAT; these include Viceroy, Lucky Strike, Winfield, Peter Stuyvesant, Pall Mall, State Express 555, Dunhill, Kool (cigarette), John Player, Benson & Hedges, Rothmans, and Kent. Their local brands include Xon (Uzbekistan), Parisienne (Switzerland), Yava Gold (Russia), Boots (Mexico), Ardath (Indonesia), Stradbroke (Australia), Jockey Club (Argentina), du Maurier (Canada), North State (Finland), HB (Germany), Sopianae (Hungary), Wills (India), Carrolls (Ireland), Jan III Sobieski (Poland), , Courtleigh (South Africa), GPC (United States) and, as well as BAT snus. It can easily be comprehended from the above portfolio that there is a wide variety of brands that cater to different segments of the market. It is, therefore, one of the major strengths of the organization that it has got a superb market segmentation set up and a product to suit all categories. Meeting Consumer Demands The policy adapted at BAT is that adults are searched on a daily basis, to analyze and understand their requirements. This provides assistance in anticipating the demand, which in turn is used for capacity planning. At BAT, point of sales holds the value or is the chain through which the firm interacts with its consumers; this holds true in majority of the markets, and is also assistive in building the brand image. The best practices and knowledge adopted from across the globe to develop customized products that would suit to people existing in different regions, based on their lifestyles and values, which allows the organization to get a better know how of the smokers and their habits. Such applications lead to effective utilization of resources especially capital and betterment of brand image through continuous communication. Customers are segmented to match their values to the existing product profiles. This is done in conjunction with the retailers, and the partnership in turn leads to optimal effectiveness in the promotions, in turn providing incremental sales figures and gains of tobacco category, and improving the net performance of trade-partners. The aim of doing all this is to achieve expertise in the tobacco category so as to have a relative degree of control over the supply chain. Forward Strategy Proposal The rule of thumb, and optimality in terms of allocation of resources states that majority of the resources should be allocated to the most profitable products in the portfolio. There is another 80-20 rule in strategic decision making that 80%of the revenues come from 20% of the products and vice-versa. Alongside, it is also important to notice that the organization has very less share of the pie in the local tobacco market. Proposal Through any strategic thought of any organization, the main aim is to satisfy the customers' demand in as much of a better form as possible and making profits in doing so more than the competition. Such organizations are generally customer focused and customer-demand-driven. Therefore, investment has to be made in analyzing and knowing what the customer actually wants. Of course the person who decides on smoking, likewise smokers decide on the brand to choose. The proposed branding strategy is differentiable from competitors and strengthens product development. There should be continuous focus on designing segmentation and differential product portfolios, and associated to the same concept, the resource allocation should be applied to the most profitable ventures, as mentioned previously in the 80-20 rule. The most advantageous products have been identified as Pall Mall, Dunhill, Kent, and Lucky Strike. These have expanded in joint-figures by more than half since 1998-99. Other brands such as John Player Gold Leaf, State Express 555, Kool, Benson & Hedges, etc. constitute a major chunk in the international product portfolio. Justification BAT considers consumers to be the heart of the business. Therefore, catering to them holds similar importance to the importance of heart beats. It is certain that tobacco industry, since considered hazardous to health, require extreme marketing skills quite more than in any ordinary consumer product. Following are the key characteristics required by the marketer: Differentiated Promotional Schemes To attain and sustain profitable relationships/key-accounts Develop and integrate strategies Innovate and be responsible Putting all these sincerely require pure sense of customization i.e. producing what customers want. It is impossible to give every customer what they want. Therefore, it is better to have the first-end knowledge of the consumers to have a check on their lifestyles, values and other attributes, the groups with common characteristics can be compiled under a single market segment which would have generally the same sort of response towards a campaign. These is the technique for which BAT has got an excellent infrastructure, therefore, can be easily enhanced. Conclusion It is very important not only to have the knowledge of consumer demand, but also the buying behavior as it can lead to an approach that can twist brand loyalties. Some of such key activities that Market research application Applying the research outcomes Evaluating the efficacy of the application Effective marketing, and spying competitor data Training to develop interpretational skills among relevant staff The effectiveness of the management would solely depend on the efficacy with which the marketing mix and activities are applied; leaving along the ATL activities; particularly the R&D (or the department focused on product development) should be in continuous touch with the customers, the market, and the consumer behavior towards their offered product. Following strategies can be proposed for the same: Developing the organization wide brand strategy Managing the brand portfolio Leading the development processes Positioning the brand Innovation in targeting and communication Preparation of POS activities, strategies and promotional material Maintaining the gains of the brand Retail Media Management The main support for the marketing activities is the effectual organization of pertinent business channels. Therefore, channel development is an important strategic move, which would also take into account the communication with key accounts or consumers. It is also very important to maintain consumer categories and brand portfolio. Finally, it is important to maintain not just the willingness but the ability of the consumers as well to attain and sustain a high class market share. Therefore, distribution strategy and plans need to be effectively developed. Alongside, strategic and tactical plans need to be developed at the POS level and effective inventory management is also important. Lastly, it is most important to construct an effective organization that is highly sales oriented as this is all that the tobacco industry is about. (BAT Website) Bibliography About British American Technology, Retrieved March 22, 2007, from BAT Official web link, Website: http://www.bat.com/ Action on Smoking and Health, Fact sheet no.18, Retrieved March 22, 2007, from Action on Smoking and Health, Website: http://www.ash.org.uk/html/factsheets/html/fact18.html BAT Smokes its competition with FlexNet, Retrieved March 22, 2007, from APRISO.COM, Website: http://www.apriso.com/en-us/Redirect/success_story_BAT.htm. Recent News on BAT, Retrieved March 22, 2007, from Tobacco Reporter web link, Website: http://www.tobaccoreporter.com/news/LateBreak.asp Read More