Tobacco Industry Analytic

The barricades to entry in the baccy industriousness be initi exclusivelyy paltry and it is easy for small local and regional companies to enter into the merchandise, yet the barriers to enter the commercialise issuely atomic number 18 very high school. The economies at scale in manufacturing, distribution appeal, and trade at the national take aim fix it very difficult for start-up companies to enter into the national market. There be important be in raising the capital mandatory to build manufacturing facilities that merchant ship mass- start baccy products at the national level. overly, the costs of forwarding goods some(prenominal)(prenominal)(prenominal) as cigargonttes, at a mass level puke take back high costs. Brand identicalness apprise overly countersink a barrier to entry for bran- naked entrants. Advertising restrictions oblige on electronic media by the U. S. establishment make it hard for any upstart entrant to advance defect cognisan ce and in like manner make it difficult for flowing top players in the market to amplify their reproach consciousness. While galore(postnominal) companies once relied on brand incentives in erect to increase customer loyalty, they agreed to no longer ingestion these incentives in the assure Settlement Agreement (MSA) in 1998.Also with many already established brands such(prenominal)(prenominal)(prenominal) as Altrias Marlboro Cig argonttes brand already puddle a huge plunk for in the market place. They fill generated a lot of brand loyalty and sense making it difficult for a impudently company to generate enough brand awareness to enter the market. Suppliers In the baccy effort farmers supply the baccy to dealers and manufacturers. some of the baccy farmers in the U. S. are find in the Southeastern states such as North Carolina, South Carolina, Georgia, and Florida. Farmers usually carry their baccy at overt auctions to the highest bidders.A federal program that started with the Agricultural accommodation Act of 1933 once protected baccy farmers prices. The baccy plant plant plant growers were guaranteed minimal prices in exchange for limiting their ware through allotments and quotas. U. S. grown baccy is loosely more(prenominal) expensive than non-U. S. grown baccy plant because of the U. S. establishments price-support system. Then in 2004 the presidency allowed for buyouts of the quotas, thence eliminating the price support system. However, in recent cleans many baccy farmers are protesting for the entire buyout of their quotas and equipment.They say that the U. S. tobacco suppuration perseverance is on the verge of disappearing and they deuced the high taxes on coffin nails and sporty tobacco imports. Thus illustrating that the farmers pay off forgetful bargaining ability due to the political relation interactiveness. Buyers Buyers in the tobacco persistence are with child(p)ly impact by the scrimpin g and the level of their disposable in begin. Whenever a purchasers disposable income pooh-poohs, they are more likely to purchase cheaper brands of tobacco, and if a buyers disposable income increases, then they are more likely to buy more expensive brands.Buyer power was dis vie in 1993 whenever Phillip Morris USA Inc. slashed their prices on star(p)(p) brands such as Marlboro by 20% to raise their plow apportion of the market, thus starring(p) many opposite leading companies to withal reduce the prices of their popular brands. After many companies lowered their prices, discount cigarette brands truism a drop in their office of the market. However, in 2003 bounty cigarette brands raised(a) prices, then allowing discount cigarette brands to gain more of a share in the market, but the discount brands share in the market has been declining ever since.Consumers in the unite orders are now increasely meet more concerned with healthfulness issues. Consumer health awaren ess has hurt the market for tobacco sellers and has in like manner led to the increase for disposal code. Many companies are now acquittance world-wide to focus on the change magnitude demand for tobacco products abroad. They are focussing on developing countries where the population is increasing much faster than in the coupled States and many of these countries stupefy less government activity dominion, which can portion out with advertising and prices.Countries that amaze less taxation on tobacco gross sales can lead to higher(prenominal) taxations and sales of tobacco products because the costs obscure are less. Industry Competitors/Intensity of arguing Within the tobacco industry in that location are three of import competitors that gibe 90% of the domestic market. These three main players are Altria mathematical group, Inc. (Domestically known as Phillip Morris USA) Reynolds American and Carolina Group. Phillip Morris USA, the joined States largest tobac co company since 1983, controlled 50. 3% of the market share in the year 2006.Phillip Morris USAs leading brand Marlboro had a 40. 5% share of the market in 2006 thus, displaying the vastness of brand identity in the tobacco industry. Phillip Morris USA in like manner offers contrary brands such as their support brands Virginia Slims and Parliament, plot of land overly targeting the discount market with its brand Basic. The linked States second largest tobacco company is Reynolds American, which offers premium brands such as Kool, Winston, Salem, and Camel and two different discount brands, Doral and Capri. Reynolds American controlled 29. % of the market in 2006 and is also the second largest moist smoke-free tobacco producer in the fall in States. The third largest company in the United State is Carolina Group with their premium menthol brand cigarette Newport that controlled 9. 7% of the market in 2006. For the cigarette industry unit volumes buzz off declined and the price of cigarettes has increased,thus creating higher net revenue for companies. Many companies are utilise cost efficient strategies and are merging to function gain profits in the industry. For example, R. J.Reynolds and browned & Williamson baccy merged and now have a higher share of the market. tobacco white plague declined a lot from 1994 to 2004 and the decline has started to slow down in the ult couple of years, the product rate is calm not what it once was. pic Figure 1 Market share holders in 2006 contest in the menthol sector of the tobacco industry has been a strong focus of the leading companies in recent years. Menthol cigarettes offer a chance for domestic growth opportunities and premium pricing in the tobacco industry.Carolina Group controls this sector with its leading brand Newport, while Reynolds American offers two brands, Kool and Salem, which have been in the market for a long time. With the dominance growth in the menthol sector, the leading tobacc o company Marlboro introduced their menthol brand with strong promotions to argue with already alive brands. Other possibleity areas of domestic growth in the tobacco industry include cigars, which are on the rise again and snuff-brown or smokeless, which is one the rise due to pot restrictions in public places.By using the Porters fivesome Forces model I was able to discuss the five basic competitive forces in spite of appearance the tobacco industry. The level of difficulty for wise entrants the miss of bargaining power of suppliers the bargaining power of buyers between different brands the high level of electromotive force substitutes and the competition rivalry, as well as domestic growth areas were all analyzed within the tobacco industry using the Porters Five Forces Framework. Dominant forces such as government regulation and health awareness bewitch change in the tobacco industry.The authorisationity impact that theses forces could play on the tobacco indust ry could be harsh if companies presumet ad scarce and change with them. Strengths Altria and R. J. Reynolds two display much strength within the tobacco industry. twain companies display high levels of brand identity and brand awareness with many different well-known brands. Altria has sovereign control of the market with their diversified Marlboro brands of cigarettes that prevail the market, contributing a 40. 5% share in the market. R. J. Reynolds also has many well-known diversified brands such as Kool, Winston, Salem, and Camel that divine service to control 29. 8% of the market. two(prenominal) companies can use their strong brand awareness to build customer value with existing and new products. Both companies are reorient with their mission statements to provide for their customers and maintain levels of debt instrument and integrity for their operations. Altria, for instance offers a great array of information concerning health issues, tobacco laws, cigarette in gredients, and youth green goddess barroom on their website. While R. J. Reynolds offers information to the public on legal and regulatory issues, maintaining responsible for(p) marketing, and also health issues related to their products that consumers can access on their website. Also, both(prenominal) companies produce mass amounts of tobacco products and in entrap to be the top two producers in the United State they must both have strong manufacturing infrastructures. Weaknesses some(prenominal) companies guinea pig up the failing of selling dangerous products to consumers. Tobacco products obviously involve a great deal of health risks and consumers have been do well aware of the risks gnarled in tobacco use.Both companies face indebtedness issues and judicial proceeding for the sale of such a dangerous product, which can cost the companies a lot of money. These companies must place a great deal of concentration on defending themselves in numerous lawsuits that come round frequently due to the health liability issues. Recent cases involving the light cigarettes have been brought against Altria, these cigarettes have lighter amounts of nicotine and tar but still can be just as harmful as repair cigarettes.Also a lot of blame for such high health care costs in the United States is situated on these companies as well. another(prenominal) weakness that Altria and R. J. Reynolds suffer from is their dependencies to rely solely on the sale of tobacco products in state for them to stick around such profitable companies in the market place. Sales from 2000 to 2005 declined at just about an average rate of 4% a year and a decline of about 1% in 2006. If sales stick to decline every year, this could lead to substantial effects on profits. With the cigarette consumption declining, companies such as Altria and R. J. Reynolds have began to have a bun in the oven towards international markets with growth opportunities. With so much concentration on to bacco sales both companies also have the weakness of being so heavily invested in the success of the tobacco industry. These companies could face a great deal of losses if the tobacco industry keeps declining. Opportunities Both Altria and R. J. Reynolds have the probability to expand their companies internationally to target new customers in areas that provide potential for growth in sales.With the help of countries with rising individual(prenominal) incomes, high per capita cigarette consumption, and less government regulation in immaterial countries Altria is victorious action to expand their horizons abroad. An article from paries Street Journal by genus Vanessa OConnell describes how Altria is using spin off, Phillip Morris global to focus on international markets such as Pakistan, where smoking consumption is up 42% since 2001 Ukraine, where smoking consumption is up 36% and Argentina, where smoking consumption is up 18%.She also explains how chinaware offers 50 million more tobacco buyers than in the United States, thus showing that China offers great potential market opportunities. R. J. Reynolds is also snap on the global market with creation of R. J. Reynolds Global Products. R. J. Reynolds is participating in joint ventures in European countries and Japan, collaborating with other companies to produce American-like brand cigarettes in foreign markets. They have also been establishing a business concern presence in Puerto Rico and the Caribbean and are supplying cigarettes to the U. S. military outlets and U. S. Duty bare sectors. R. J. Reynolds also manufactures cigarettes to be sold by other companies in foreign countries. Both companies are taking advantage of the potential growth in international markets. Another opportunity that both companies are direction on is the opportunities of marketing new tobacco products to consumers. With more consumers looking for alternatives to smoking Altria has been focusing on developing its smokeless tobacco product line. With snuff being providing potential growth in the market, Altria is exploring the moist snuff or chew market as well as a new product called Snus.Altria is currently test marketing its Marlboro Snus products and its Marlboro moist smokeless tobacco in certain areas of the United States. They are also using the strong brand identity of Marlboro to help their new products enter into the market. R. J. Reynolds is also developing new products that have potential market opportunities. Reynolds is developing new exotic brands of Camel cigarettes and also trying to capitalize on smokeless tobacco opportunities with their brand of Camel Snus. Both brands are using their already actual brand awareness to help romote new products in the market. Threats Companies in the tobacco industry such as Altria and R. J. Reynolds have a ostracise public cognition because of providing such dangerous products and must deal with this perception accordingly in order to remain in th e market. With the little terror of being seen so negatively in the public bosom companies must provide support in educating consumers about the dangerous health risks involved with smoking. Government regulation also poses a threat to both companies.In the 1998, the control Settlement Agreement between tobacco companies and the government came to an agreement that tobacco companies would have to pay $250 billion over a 25 year span to help reimburse healthcare systems for to higher costs due to many patients with tobacco use related illnesses. The threat of government regulation poses high cost threats dealing with litigation and taxes. Both companies have been affected by the high taxes placed on the sale of tobacco products, thus causing them to have to raise prices, which could have a negative effect on sales.Also the threat of changes in the legal atmosphere pose a problem on companies. As new laws are adopted both companies must adapt to stay profitable, such as the new pub lic smoking laws that threatens both these companies that rely on cigarette sales. The threat of Altrias and R. J. Reynolds consumer base maturation old and dying off from tobacco related illness and Americas new focus on florid living styles display how these companies are affected by the benefits of substitutes for smoking and quitting smoking.There has also been a huge decline in the number of smokers in the United State over the past 40 years, which has complete the consumer base in half. With the number of smokers in the domestic market declining both companies also face the threat of marketing restrictions in the United States. Tobacco products cannot easily be marketed to consumer in the United States, which threatens the growth of tobacco products. Both Altria and R. J. Reynolds are aware of the threats that they face and that can explain why they are developing new products and moving towards international markets.The SWOT Analysis displayed how strengths such as brand i dentity have played a huge role in the success of both Altria and R. J. Reynolds. Altria leads the market with its well-known brand Marlboro and is taking on opportunities with new products and international markets. While R. J. Reynolds has a small share in the market they are also trying to grow by focusing on the akin opportunities. Both companies also face many of the same weaknesses and threats, that being in the tobacco industry pose, such as government regulation and health awareness. They are taking action to deal with them by exploring new opportunities.