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Marlboro (Phillip Morris)

Strategic analysis
by

Julia Zhabina

on 5 December 2013

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Transcript of Marlboro (Phillip Morris)

Market penetration
• Indonesia:
more than 69% of Indonesia population older than
20 regularly smoking

• China:
over 300 million smokers
– the largest consumer
of tobacco, premium
price band expected to
triple-digit growth
Strategic Analysis
The old days...
Marlboro
Basics
Benson & Hedges
Cambridge
Chesterfield
Commander
Dave's
English Ovals
Lark
L&M
Merit
Parliament
Players
Saratong
Virginia Slims
Capabilities
Resource based view
SWOT Analysis
Strenghts
Weaknesses
Opportunities
Threats
Marlboro Red Marlboro Gold Marlboro Menthol
Strongest
Lightest
Coolest
Well-known brands
Economies of Scale
Great distribution channel
Strong relationships with relators
R&D: Constantly new innovations, high budget, World-class activities and scientist
Owning patents
Credit rating: A2 stable
Talented managerial team
Effective sales promotion
Superior brand management
Skillful market segmentation
Philip Morris International Inc. (PMI) is the leading international tobacco company, with seven of the world’s top 15 international brands
180 countries
strongest and most diverse brand portfolio
leading international and local brands
Marlboro
Parliament
Virginia Slims
Basics
L&M
41.6%
1.6%
1.8%
3.4%
1.3%
US: 62% market share
EU: 7 out of 10 top selling brands
Marlboro, the world’s best-selling cigarette brand.
Market worth 32 billion dollar
Economical
Environmental
Political
Technological
Taxation policy
One of the most heavily taxed products in the USA
Both federal and state level taxes
Taxes: 55% of costs
2014: Federal excise tax proposed to increase by 93%

Lifestyle changes: more aware of health issues

Level of educations is higher

Is it still cool to smoke?

Decline in the number of smokers

Age distribution: Aging but not as fast as in e.g. European countries


Sociocultural

GDP growth: 2.2%
Stable growth
Inflation: 1%
Unemployment: 7.3%
Disposable income: 12600$
Crisis
Fully automated technology
Recent and future discoveries, innovations
Reducing the harm of smoking
Nicotine aerosol technology
E-cigarettes
Flavored cigarettes
Stylized cigarettes

Waste:
Ban on smoking on beaches because of cigarette litter
Illinois: Litter Control Act
Intense water needs
Use of chemicals
Air pollution


Family Smoking Prevention and Tobacco Control Act
Public Cigarette Smoking Act
Federal Cigarette Labeling and Advertising Act
Comprehensive Smokeless Tobacco Health Education Act





Legal

Porter’s 5 forces analysis of tobacco industry in USA

TEAM #7
Alexandra Molnar, Yulia Nikolaeva, Maria Murasheva, Svetlana Falesova, Margarita Venediktova, Yulia Zhabina
PRIMARY ACTIVITIES

SUPPORT ACTIVITIES

Recruiting, hiring,
training, developing,
and compensating
all personnel

Process design
Product design
R&D

Infrastructure

Outbound logistics

Assembly
Packaging
Maintenance


Materials handling
Warehousing
Inventory control

Michael Porter’s Value Chain

Human resources

Margin


Systems of planning
Finance
Quality control
Information management

Technological development

Procurement

Purchasing raw
material (packed
tobacco leaf), supplies
(paper, filters, flavorings)

Marketing &Sales

Inbound logistics

Operations

Warehousing
Order processing
Picking
Finished product
delivery

Consumer
service and
feedback

Brand establishment
Advertising
Promotion
Sales force effectiveness

Service

The possibility for greater efficiency are limited under government regulation

Materials are held in sizable quantities in a warehouse

Agile Supply Chain Management
Economies of scale

World Class Operations: implemented Supply Chain Initiative on Process & Inventory Optimization which searches for ways to
improve cash flow through reducing inventories and response times

Inbound logistics & Operations

The industry leader in distribution

Convenience stores
Gas stations

Discount stores

Bars



Distribution

Skillful branding

Understand their adult consumers and
cater specific product developments

Differentiation through aggressive promotional strategies

Strong relationships with cigarette retailers (Marlboro is always in a prominent place)

Rewards program for retailers (get bonuses for giving them freedom in the store, in-store advertising)

The message about their products in all (legal) media
Superior Sales &
Marketing

Opened R&D center in Neuchatel Switzerland

The top priority of research efforts is the development of a portfolio of innovative Next Generation Products that have the potential to reduce the risk of smoking-related diseases

Acquisitions of small tobacco research companies and taking control of their patents

Development of innovative product concepts – recently introduced new hybrid product with capsule within its filter that easily converts into a menthol product


Leading-Edge R&D

Tangible resources:





Intangible resources:
Financial - Tremendous cash flow
Physical - 53 production facilities in 33 different countries
Technological - World-class R&D, Patents
Reputation - High quality products, Loyalty of cigarette retailers
Human - Talented managerial and marketing teams
Superior branding
Effective sales promotion
Research capability
Strong relationships with retailers
Acquisition Management
Corporate Social Responsibility
New product development


Superior brand management

Skillful market segmentation

R&D capabilities
Unique resources and Core capabilities
Unique resources:


Valuable brand of Marlboro

World-class R&D labs
Core capabilities:
Marlboro Business strategy

Marlboro – a flagship PM brand and Marlboro man is an American Icon
Advertising campaign is simply amazing : Formula 1, movies

According to M. Porter an Bowman’ Strategy clock Marlboro has

differentiation strategy – they take advantage of the perceived added value by users and huge market share in US (43%)

They exploit their brand
Focus on young adult (21-26)
Premiumisation – adding value to premium brands. PM centers its innovation on Marlboro in order to increase its share
Develops sub-brand variants for price-sensitive consumers (in different price bands). That allows to take over larger share of market

Currently Marlboro markets up to 50 sub-brands in USA

They follow a
quick response strategy
– they adapt easily to market trend and consumer needs- Marlboro Gold Edge – is a response to market new trend –unisex


Marlboro
Business strategy

Weak position in certain markets and segments (e.g. menthol cigarettes, e-cigarettes)
Health destroying products
Decreasing sales of cigarettes
Competing with its own brands

Rise in the demand of electronic cigarettes
Widening ownership in e.g. Egypt, Algeria
Heavy smoking countries (e.g.China)
Premiumisation
Winning over shares from competitors in areas such as menthol and electronic cigarettes
Smokeless alternatives development (e.g. Nicotine aerosol)


Tax increase
Higher level of education
Increasing Health Awareness
Aging society
Decreasing number of smokers
Strict regulations
Increasing environmental protection
Threat of entrants on a national level

Corporate
level
strategies

Horizontal integration
Vertical integration
Related diversification
Unrelated diversification
Market development
Product development
Eastern Tobacco
(Egypt):
Only producer in Egypt
PMI has 12% market share
Regime change makes sell-off more likely
SNTA (Algeria):
PMI's growth market
E-cigarettes market entry
By 2030, market is expected to be 1/3 of tobacco industry.
In 2013, it already accounts for 3 bln USD globally
Strategic options:
• Issue e-cig under one of existing brand names
• Establish own e-cig company and new brand
• Buy up leading players
• Set up research-focus joint venture
• Invest in current firms (buying shares)
Suggestion:
Introduce e-cig under Marlboro brand to bridge the divide between conventional and alternative tobacco products
• Increased regulation of tobacco market
• Increased consumer health awareness
• Price advantage accounts for 20%
• Opportunity to build a new product base which is more sustainable and ethically sound
• Owning number of modern research centers
• Reduce business risks
• Sound #1 brand name, known by everyone
QR codes on packs to show you
where smoking is allowed
Reduced-risk products:
- addictive-free types of cigarettes
- cigarettes made of organic leaves
1. Polarization of strategies
• Developed economies:
- Add value by further differentiation and raise prices to make up for declining purchase volume
- Product innovation, including modified risk tobacco products
- Promotion of snuff and alternative tobacco products
- Strong alignment between pricing and brand portfolio, sub-brand extensions in other price bands to retain price-sensitive buyers
• Developing economies:
- Cost leadership to capture market share in economy segment, predatory pricing
- Market development and expansion to benefit from lax regulations and rising disposable incomes
2. Concentration on small number of international flagship brands in PMI’s portfolio in each price segment
Premium segment: Marlboro (world’s no.1)


Middle-price: L&M (world’s no.4)


Economy: Bond Street (world’s no.12)
3. Portfolio diversification with most perspective tobacco and alternative products: snuff, electronic cigarettes, with investment in reduced-risk products
Full transcript