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An Over View Of Pakistan Tobacco Company Limited Marketing Essay

Pakistan Tobacco Company Limited (PTC) is division of British American Tobacco, the world's most famous international tobacco group, with brands sold in 180 markets around the world. The company produces high quality tobacco products to meet the miscellaneous preferences of millions of consumers, and it works in all areas of the business - 'from seed to smoke'.

Pakistan Tobacco's operations in Pakistan began in 1947, making it one of Pakistan's first foreign investments. Pakistan Tobacco provides a number of apparent brands of cigarettes to consumers in Pakistan, counting Benson and Hedges, Embassy, Gold Flake, Capstan and Gold Leaf.

Growth and Development over time [1] 

PTC is listed on the three stock exchanges of the country.

Pakistan went from being a net importer of tobacco in 1948, which is when Pakistan Tobacco Company started operations, to becoming self sufficient in tobacco production in 1969.

It had three branches – Karachi, Jehlum and Akora Khattak, the Karachi factory however has been closed in 90’s owing to heavy losses and some other reasons.

The first plant was put in a warehouse in Karachi port with monthly production of 30 million cigarettes next to sales of 60 million, the gaps being filled up by import. When Pakistan came into being all tobacco was imported in for production of cigarettes. But in 1952, an enlargement project was started in N.W.F.P. and the apex quality American Tobacco found way to Pakistan.

A plant was established in 1955 at Jehlum, and PTC became a Public Limited Company in the same year. In1975 a fresh cigarette factory was put up at Akora Khattak to meet up the increasing demand. Akora Khattak factory is at the moment one of the largest factories of N.W.F.P.

Pakistan Tobacco Company, as the largest cigarette producer in Pakistan, has a special association with the land and people of the NWFP. The fruit of these actions is that in just 30 years Pakistan became the 5th major tobacco producer in the world and 4th in maximum yield.

As a result of PTC’s efforts, the present tobacco production in the country exceeds 100 million kilograms per year, although what is perhaps more significant is the types of tobacco grown in the country.

Product Development [2] 

Following is the brief chronicle of PTC’s brands and their origins.

BENSON & HEDGES

In 1873, Richard Benson & William Hedges started a partnership in London. From the very start, the idea was to make Benson & Hedges a style statement, which is why the business started from London’s fashionable West End.

PTC launched Benson & Hedges in Pakistan in March 2003. Made with the finest hand picked golden Virginia tobacco from across three continents, the brand is packed with excellence to seal its originality.

JOHN PLAYER GOLD LEAF

The tale of John Player Gold Leaf has to initiate from the account of its founder, John Player. An innovative entrepreneur, John Player started a small tobacco selling business in 1877 and turned it into a flourishing cigarette company, John Player and Sons.

John Player Gold Leaf is the most preferred cigarette brand in Pakistan and is enjoying leadership in its segment from last couple of decades. The year 2008 witnessed a change in John Player Gold Leaf communication platform which was positioned over the years around the maritime theme reflecting its masculinity and adventure. With the changing times and evolving consumers, a need of a new platform was necessary which would steer JPGL in times to come. This resulted in the birth of a new era in JPGL rich history by the name of KNOW WHAT MATTERS which revolved around the brand commitment to providing to its consumers a quality product.

GOLD FLAKE

Gold Flake, like many of their brands, also boasts its origins at W.D. & H.O. WILLS where it was a premium brand around the end of the 19th century. Launched in 1982, in a 'soft cup' packaging, the brand took off when it was repositioned in the value for money segment and later a 'hinge lid' variant was introduced in 2000.

WILLS

WILLS takes its name from the heritage of one of the original Imperial Tobacco Company families: the Wills Brothers of London.

EMBASSY

Embassy, the third leading volume brand in Pakistan, is most popular in the Punjab where it enjoys a leading position due to its equity and loyalty.

DUNHILL

Dunhill was launched back in 2005 in the Pakistan as a quality offer for the top end market. It was freshly imported and launched targeting the super premium segment at the price point of Rs.82/-. Dunhill’s was re-launch in 2008 which revolved around quality product and new pricing keeping the premium cues intact. With the re-launch, the production was localized, price repositioned to Rs.64/- and distribution expanded in addition to the introduction of the 10s packs in both Full Flavor and Lights variants.

Growth of Company [3] 

Over the years, Pakistan Tobacco has revealed a growing tendency as obvious from the inspiring growth in gross, net and operating profits.

Until 1994, Pakistan Tobacco ranked among the top level of the blue chip companies that earned huge profits and paid robust dividends to the shareholders. The 10-rupee share in Pakistan Tobacco touched five-year (1990-1994) high at Rs 162 in '94. The company had suffered the first serious setback in '94, when it could only increase earnings through the sale of immovable property (residential property at Clifton, Karachi). During '96, the company sold its Karachi factory premises, which produced gain of Rs134.7m

Then in 1999 the share was priced at Rs 16. After six years of sequential losses (1997-2002), Pakistan Tobacco Company Limited had managed to sway back to a profit of Rs354 million in 2001. The accounts for the six months to end-June 2002 show 2% fall in the top line to Rs10.8 billion, from Rs.11.0 billion for the equivalent period of last year. New products introduced for the period of 2000-2002 accounted for 33 % of PTC's sales during the six months of 2002, during which the company said to have unmatched performance in new product improvement in the cigarette industry.

The operating profits grew by 28% and net profit by 44% in 2006 compared to 2005. The strong financial performance is attributable to appreciably higher sales volume, improved margins across all brands, and sustained control over cost through focus on operational efficiencies and other initiatives. The company maintained double-digit volume growth in 2006 with a record sales volume of 34.5 billion sticks - 13% higher against the same period in2005. This is a extraordinary performance keeping in view the overall industry growth, which was estimated at 3%. Gold Flake remained the volume leader in the portfolio and grew at an exceptional rate of 27% as compared to that in same period in 2005.

Year 2009 [4] 

Year 2009 was very fruitful year for Pakistan Tobacco Company. It was a difficult year in which PTC faced much turbulence in the form of lethargic economy, unstable security situation, increasing regulation and high excise led price increases that resulted in the heavy down trading in the market to the tax evading sector.

Despite all odds, PTC managed to show good all round performance and posted growth in terms of high market share and better financial results.

During the year ended December 31, 2009, the Company had sales of 41.2 billion cigarette sticks which resulted in further increase of market leadership, growing share by 1.2 percentage points to 48.5%. The profitability was increased with 18.9% higher operating profit while profits before and after tax also grew by 19.4% each. This was achieved despite the increase in duties by Government which decreased the sales and the costs were raised due to inflation, energy crisis and security issues.

Contribution to Government’s revenue rested at an extraordinary Rs. 38 billion, which is around 18.8% higher as compared to year 2008. Due to Government’s action against the insurgency in Swat and Buner, PTC’s leaf operations were severely affected. Thus PTC had to make extraordinary efforts to moderate its impact on their business and purchased a record quantity of leaf.

The strength and toughness of PTC’s portfolio is evident from the fact that it has managed to grow market share even in 2009, a time of severe economic turmoil and aggressive price increases.

Product Development

PTC’s efforts for continued superiority and competitive edge on this facade during the year included the launch of a new brand ‘Wills Kings’, limited edition products, innovative packaging and targeted consumer promotions. All the key brands have registered growth during the year. Dunhill, fuelled by the introduction of the new beveled edge panel pack and distribution expansion, strengthened its position by registering growth in market share as well as sales as compared to 2008.

Similarly, Benson & Hedges sustained its strong growth trend, posting higher sales as well as growth in market share. 2009 was an important year for John Player Gold Leaf. The new modern JPGL pack is seen to drive modernity and premium in the brand, and has been well accepted by both consumers and retailers. Despite being burdened by successive price increases in a recession period.

Wills Kings was launched in July to defend PTC’s position in the very low price segment. Extensive retailer support and consumer communication were central to its success. The brand managed to capture 2.7 % market share within five months of its introduction.

Year 2010 (January-September) [5] 

According to the performance of the Company for the nine months ended September 30, 2010. Sales of Pakistan Tobacco Company are at 27.2 billion for the nine months, which are 12% less as compared to the same period last year.

The price increase caused by increased excise duties and consumers' decreased purchasing power owing to unfavorable macro economic conditions has led to tapering of the total cigarette market. PTC’s cost base remained under stress due to inflation, higher marketing investment and increase in energy and security expenses. Profits are 55% less as compared to those in the same period last year.

The tension on Company's finances continues to rise due to rising costs combined with the fact that the recent price increases were insufficient to cover increases in Excise duties as well as inflation. The Company therefore has posted a loss during the three months period of Jul - Sep 2010.

Operating in a weak economy which is challenged more by the extensive destruction of the recent floods, the Company aims to protect its market share through the low medium segment brands while enhancing its equity through focused marketing and trade activities throughout the year. To effectively influence the opportunities in this area, the Company has amplified its efforts supported by a 45% higher sales and distribution expenses as compared to that in same period last year.

Placing high significance on its human capital the Company invests a lot in its people by offering them competitive compensation schemes, world-class work surroundings and training opportunities. This along with the prevalent inflationary pressures increased their admin expenses by 14% as compared to that in same period last year. In spite of tough times, the contribution to the Government’s revenue has increased significantly. The Company contributed Rs. 29.7 billion during first nine months in the form of Excise Duties, Sales tax, Income tax and Custom Duties etc, an increase of 6.5% over same period last year. Regardless of the noteworthy increase in Excise incidence, this increase is substantially lower than the past growth this industry has delivered. Excise increases cannot deliver the desired results in the presence of a large unrestrained illegal segment, which remains a growing threat to the lawful industry as well as Government Revenues. Graphical Health Warning implementation in the presence of freely available non compliant smuggled brands, adds to PTC’s worries in this area.

Product Development

To react to the new market realities, the Company recently took some daring portfolio initiatives. These moves were well received by the market. Their new Value for Money brand "Capstan by Pall Mall Original" is meeting expectations, with sales growing constantly since its launch in Jun 2010.

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