Tobacco Industry Analytic

The barriers to entry in the baccy effort be ab initio low and it is easy for small local and regional companies to enter into the merchandise, just the barriers to enter the commercialize nationally atomic number 18 very high. The economies at outmatch in manufacturing, distribution costs, and commercialiseing at the national level contribute it very difficult for start-up companies to enter into the national market. There are demonstrable costs in raising the capital needed to reconstruct manufacturing facilities that butt end mass-produce baccy products at the national level.Also, the costs of packaging goods untold(prenominal)(prenominal) as rear ends, at a mass level bottomland make high costs. Brand identity can also fuck off a barrier to entry for wise freshmans. Advertising restrictions imposed on electronic media by the U. S. governance make it hard for any in the altogether entrant to gain score awareness and also make it difficult for actual top players in the market to increase their grease awareness. While some(prenominal) another(prenominal) another(prenominal) companies erst relied on brand incentives in order to increase guest loyalty, they agreed to no longer use these incentives in the repress answer Agreement (MSA) in 1998.Also with many already established brands much(prenominal)(prenominal) as Altrias Marlboro Cigarettes brand already deem a long stake in the market place. They hand over generated a attractor of brand loyalty and awareness making it difficult for a freshly club to generate enough brand awareness to enter the market. Suppliers In the baccy plant plant plant industry farmers supply the baccy to dealers and manufacturers. Many of the baccy plant farmers in the U. S. are located in the southwesterneastern states such as North Carolina, South Carolina, Georgia, and Florida. Farmers usually sell their tobacco at public auctions to the highest bidders.A national program th at started with the Agricultural Adjustment Act of 1933 once protected tobacco farmers sets. The tobacco waxers were guaranteed minimum prices in ex diversity for check their production through allotments and quotas. U. S. grown tobacco is generally practically big-ticket(prenominal) than non-U. S. grown tobacco because of the U. S. governments price-support system. Then in 2004 the government allowed for buyouts of the quotas, and then eliminating the price support system. How eer, in recent news many tobacco farmers are protesting for the entire buyout of their quotas and equipment.They say that the U. S. tobacco growing industry is on the baton of disappearing and they shoot down the high taxes on cigarettes and cheap tobacco imports. therefrom illustrating that the farmers have little bargaining power ascribable to the government inter fulfil. Buyers Buyers in the tobacco industry are colossally impact by the preservation and the level of their spendable income. W henever a buyers disposable income descends, 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 pricy brands.Buyer power was displayed in 1993 whenever Phillip Morris USA Inc. slashed their prices on leadership brands such as Marlboro by 20% to raise their part of the market, indeed stellar(a) many other starring(p) companies to also reduce the prices of their universal brands. After many companies lowered their prices, discount cigarette brands saw a drop in their percentage of the market. However, in 2003 premium cigarette brands embossed 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 fall in put ins are promptly increasingly becoming more concerned with health issues. Consumer health awareness has hurt the market for tobacco sellers and has also led to the increase for government regulation. Many companies are now going international to focus on the increasing demand for tobacco products abroad. They are foc use on developing countries where the population is increasing much faster than in the United States and many of these countries have less government regulation, which can help with advertising and prices.Countries that have less taxation on tobacco changes can lead to higher receiptss and sales of tobacco products because the costs problematic are less. Industry Competitors/Intensity of Rivalry at heart the tobacco industry there are three main competitors that support 90% of the domestic market. These three main players are Altria concourse, Inc. (Domestically known as Phillip Morris USA) Reynolds American and Carolina Group. Phillip Morris USA, the United States largest tobacco company since 1983, controlled 50. 3% of the market share in the twelvemonth 2006.Phillip Morris USAs ahead(p) brand Marlboro had a 40. 5% share of the market in 2006 thus, displaying the enormousness of brand identity in the tobacco industry. Phillip Morris USA also offers incompatible brands such as their premium brands Virginia Slims and Parliament, while also targeting the discount market with its brand Basic. The United 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 United 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 have declined and the price of cigarettes has increased,thus creating higher net revenue for companies. Many companies are using cost efficient strategies and are concourse to help gain profits in the industry. For example, R. J.Reynolds and Brown & Williamson baccy merged and now have a higher share of the market. tobacco wasting disease declined a lot from 1994 to 2004 and the decline has started to slow down in the past couple of years, the suppuration rate is still not what it once was. pic Figure 1 Market share holders in 2006 Rivalry 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 potential growth in the menthol sector, the leading tobacco company Marlboro introduced their menthol brand with strong promotions to compete with already existing brands. early(a) potential areas of domestic gro wth in the tobacco industry embroil cigars, which are on the rise again and snuff or smokeless, which is mavin the rise repayable to smoke restrictions in public places.By using the Porters Five Forces Framework I was able to address the five basic competitive forces within the tobacco industry. The level of worry for new entrants the lack of bargaining power of suppliers the bargaining power of buyers amongst different brands the high level of potential substitutes and the competition rivalry, as closely 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 influence smorgasbord in the tobacco industry.The potential impact that theses forces could play on the tobacco industry could be harsh if companies dont adjust and change with them. Strengths Altria and R. J. Reynolds some(prenominal) display much strength within the tobacco industry. both(pren ominal) companies display high levels of brand identity and brand awareness with many different fountainhead-known brands. Altria has dominant control of the market with their diversified Marlboro brands of cigarettes that triumph 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 help to control 29. 8% of the market. two companies can use their strong brand awareness to build customer value with existing and new products. Both companies are aline with their mission statements to ply for their customers and maintain levels of responsibility and integrity for their operations. Altria, for instance offers a wide array of information concerning health issues, tobacco laws, cigarette ingredients, and juvenility roll of tobacco prevention on their website. While R. J. Reynolds offers information to the public on legal and regulatory issues, maintaining responsible marketing, and also health issues related to their products that consumers can access on their website. Also, both companies produce mass amounts of tobacco products and in order to be the top two producers in the United State they must both have strong manufacturing infrastructures. Weaknesses Both companies present the failing of selling dangerous products to consumers. tobacco plant products obviously involve a great deal of health risks and consumers have been made well aware of the risks involved in tobacco use.Both companies face liability issues and litigation 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 about frequently due to the health liability issues. Recent cases involving the light cigarettes have been brought against Altria, these cigarettes have light amounts of nicotine and tar but still can be just as harmful as regular cigarettes.Also a lot of blame for such high health care costs in the United States is placed on these companies as well. Another weakness that Altria and R. J. Reynolds suffer from is their dependencies to verify solely on the sale of tobacco products in order for them to detain such profitable companies in the market place. Sales from 2000 to 2005 declined at close to an average rate of 4% a year and a decline of about 1% in 2006. If sales continue to decline every(prenominal) year, this could lead to substantial loads on profits. With the cigarette consumption declining, companies such as Altria and R. J. Reynolds have began to look towards international markets with growth opportunities. With so much concentration on tobacco sales both companies also have the weakness of creation 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 hazard to expand their companies internationally to target new customers in areas that provide potential for growth in sales.With the help of countries with move up personal incomes, high per capita cigarette consumption, and less government regulation in foreign countries Altria is victorious action to expand their horizons abroad. An article from Wall thoroughfare Journal by Vanessa OConnell describes how Altria is using spin off, Phillip Morris world(prenominal) 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 china offers 50 one thousand million more tobacco buyers than in the United States, thus showing that China offers great potential market opportunities. R. J. Reynolds is also focusing on the global market with creation of R. J. Reynolds Global Products. R. J. Reynolds is participating in joi nt 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 presence in Puerto Rico and the Caribbean and are supplying cigarettes to the U. S. military outlets and U. S. Duty Free sectors. R. J. Reynolds also manufactures cigarettes to be interchange by other companies in foreign countries. Both companies are taking advantage of the potential growth in international markets. Another opportunity that both companies are focusing 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 smo keless 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 existent 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 oppose public erudition because of providing such dangerous products and must deal with this perception accordingly in order to remain in the market. With the holy terror of being seen so negatively in the public eye companies must provide support in educating consumers about the dangerous health risks involved with smoking. governance regulation also poses a threat to both companies.In the 199 8, the Master 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 public smoking laws that threatens both these companies that rely on cigarette sales. The threat of Altrias and R. J. Reynolds consumer base growing old and dying off from tobacco related illness and Americas new focus on healthy living styles display how these compa nies are affected by the benefits of substitutes for smoking and quitting smoking.There has also been a large decline in the total of smokers in the United State over the past 40 years, which has stinger 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 identity 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 little share in the ma rket they are also trying to grow by focusing on the same 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.