British American Tobacco Marketing Strategy

1.0 Introduction

The purpose of this report is to develop a next 3 years marketing plan for British American Tobacco. British American Tobacco is listed as the 19th company in the FTSE100 index. Analysis of the company’s situation in various aspects will be undertaken as well as implementing several marketing strategy to increase the sales and completing company’s objective. We make sure that the above strategies and method of marketing will help to improve stakeholders’ profit and satisfied every need of our existing/future customers.

2.0 Background of British American Tobacco

British American Tobacco has history of more than 100 years and it was formed in year of 1902. They are the second largest tobacco company by global market share, with brands sold more than 180 markets. They hold robust market positions in each of our regions and have leadership in more than 50 markets. Their subsidiary companies produce some 724 billion cigarettes through 50 cigarette factories in 41 countries. Five of this plus one separate plant also make either cigarillo, roll your own or pipe tobacco. They also produce smokeless snus. This company is a joint venture with UK’s Imperial Tobacco Company founded by James ‘Buck’ Duke. Even during the time of war, British American Tobacco has been trading and doing business in this time of chaos. Despite its name, derived from the home bases of its two founding companies, British American Tobacco was established to trade outside both the UK and the USA, and grew from its roots in dozens of countries across Africa, Asia, Latin America and continental Europe. In 2009, this company purchased approximately 400,000 tonnes of tobacco leaf, grown by 250,000 farmers (Information taken from www.bat.com ). According to tobacco free center organization, a research stated that BAT is the second most profitable publicly traded tobacco company and is currently value at $80 billion USD.

2.0 Mission Statement

Our company’s primary mission is to protect and increase stakeholders’ value and deliver high quality cigarettes to ensure customer satisfaction as well as having the awareness of corporate social responsibility.

3.0 Management Overview

Chief Executive Officer (Paul Adams)

Chief Operating Officer (John Daly)

Director of Western Europe (Jack Bowles)

Director of Americas (Mark Cobben)

Director of Asia-Pacific (David Fell)

Director of Africa &Middle East (Andrew Gray)

Director of Human Resources (Rudi Kindts)

Director of Eastern Europe (Des Naughton)

Director of Marketing (Jean-Marc Levy)

Director of Corporate and Regulatory Affairs (Michael Prideaux)

Director of Operations (Peter Taylor)

Director of Legal and General Counsel (Neil Withington)

Chart 1: Organizational Structure of American British Tobacco

(Chart taken from British American Tobacco website/management board)

4.0 Market Share

Besides British American Tobacco group, there are others competitors as well. They are Philip Morris International, Japan Tobacco, and Imperial Tobacco. These four companies include British American Tobacco are the four largest international tobacco companies compete and owned 46% of the global market. For now, Philip Morris International has the largest market share then British American Tobacco comes second. The chart below shows clearly how much market share these tobacco companies have acquired in the market. However, BAT best performing region would be Africa and Middle East.

According to statistic, found that China is the top tobacco consumption nations. The biggest market is China where 350 million smokers consume around 2,200 billion cigarettes a year or 38% of the global total (Daniel Workman, 2006).

Countries

Consumption

China

2.66 Million tonnes (38% of world total 7 million tonnes)

European

0.71 Million tonnes (10.2%)

India

0.52 Million tonnes (7.4%)

Russia

0.44 Million tonnes (6.4%)

United States

0.43 Million tonnes (6.2%)

Brazil

0.23 Million tonnes (3.3%)

Japan

0.18 Million tonnes (2.6%)

Indonesia

0.17 Million tonnes (2.4%)

Turkey

0.14 Million tonnes (2%)

Pakistan

0.10 Million tonnes (1.4%)

(Table 2: Top ten tobacco consuming nations)

(Information taken from http://www.suite101.com/content/top-ten-tobacco-countries-a8450)

5.0 Values

British American Tobacco is the second most profitable publicly traded tobacco company in the world behind PMI. Now, BAT is valued at $80 billion USD. In 2009, BAT manages to gain profit (after tax) of $ 4.8 billion USD.

6.0 American British Tobacco Financial Situation 2009

Financial Situation

$ (million)

Income Statement

1. Gross Turnover (include duty, excise, and other taxes)

26,505

2. Profit (after tax deduction)

2,956

Comprehensive Income

2,747

Balance Sheet

1. Total Asset

26,614

2. Total Liabilities

8,878

Cash Flow

1,979

7.0 Competitor’s Analysis and SWOT analysis

As we have mentioned above, there are four top global tobacco companies include British American Tobacco, they are Philip Morris International (PMI), Japan Tobacco (JTI), and Imperial Tobacco. The table below will show all the four companies’ signature brands.

Tobacco Companies

Signature Brands

• Philip Morris International
• Marlboro, L&M, Chesterfield, Philip Morris, Parliament, Virginia Slim
• British American Tobacco
• Dunhill, Kent, Pall Mall, Lucky Strike, Peter Stuyvesant
• Japan Tobacco
• Winston, Camel, Mild Seven, B&H, Silk Cut, Sobranie, Glamour, LD
• Imperial Tobacco
• Davidoff, Gauloises, West

(Information taken from British American Tobacco Annual Report 2009)

7.1 Philip Morris International (PMI)

Philip Morris International is the top tobacco company and owned the biggest market share among the “Big Four”. Their most popular and best selling cigarettes brand is Marlboro. However, although PMI base in U.S, they only sells its product outside of U.S. According to Yahoo Finance, the value of this company is worth $100.9 billion USD. PMI held a 16% market share (excluding Chinese market) and a global market share of 26%. According to research done by experts, PMI’s overall cigarettes volume and profitability decreased due to economic downturn and contractions in developed markets. In year 2008, Marlboro Black Menthol was introduced to Asia market and the results seem to be very positive, it is the “most successful launch ever” in Japan. In result, the launching of this product has helped PMI to gained 1.3% market share. In Indonesia, PMI is the biggest rival for BAT with a market share almost 30% (Smoker, 2009).

7.2 Japan Tobacco International (JTI)

JTI is the third largest tobacco company after BTI and has market share of 16%. JTI’s Global Flagship Brand (GFB) consists of Winston, Camel, Mild Seven, B&H, Silk Cut, Sobranie, Glamour, LD. Their strongest brand among the GFB is Winston. Their adjusted net sales excluding tax increased by 10.4% to US$ 2,372 million (2009: US$ 2,148 million) driven by strong pricing in Russia, the United Kingdom and Turkey. Market share continued to grow in most key markets including Russia, Italy, France and turkey due to JTI’s well balanced portfolio (Japan Tobacco International, JTI business results for January, March 2010). However, the report shows that total sales volume and GFB sales volume decreased by 6.8% to 94.1 billion cigarettes and4.4% to 54.6 billion cigarettes respectively (Japan Tobacco International, JTI business results for January, March 2010). JTI is also focusing their target towards emerging countries like Turkey because most profit generated from these countries.

8.0 SWOT

Strengths

Weakness

• Strong brand(s) names (e.g. Kent and Pall Mall)
• Good quality of premium cigarettes
• Customer loyalty
• World second largest tobacco company
• Relatively weak brand names in certain region such as Eastern Europe.
• Similarity of products with competitors
• Lack of marketing expertise

Opportunities

Threats

• Potential market of emerging countries such as Indonesia, Pakistan, Argentina, Philippines, and etc.
• Removal of international trade barriers
• Rapid population growth in emerging countries
• Open of potential and big market (e.g. China)
• New government regulation
• New products launched by competitors
• Shift in customer’s taste away from BAT products
• Barriers to entry
• Increased of taxes and economic recession
• Threat of substitution

Table 3: SWOT Analysis of British American Tobacco Company

9.0 Customer Analysis

9.1 Segmentation

The segmentation that the marketing plan will choose is the young adult segment. Young adults are said to be the most vulnerable group and has the biggest potential. It is because the entry barriers into their heart and minds are lesser than grownups adults.

9.2 Target Market

Emerging countries like Indonesia and Philippines are potential markets to focus on. However, in this marketing plan, Indonesia is the market that we strongly focus on. Indonesia cigarettes market is considered as the world’s fastest developing country with 30% of 248 million adults smoke (Smoke, 2009). According to research, the rapid population growth will lead to increased of young adults and the probability of smoking is higher as well. Furthermore, the education level in Indonesia is slightly lower than develop countries. On the other hand, country like Indonesia is a tobacco-friendly market which has no smoking ban policy or other restrictions. This would be a great advantage for BAT to tackle the market effectively.

9.3 Positioning

The motive and brand image of our product are perfectly matched with young adults’ preferences. The image of our products portrays cool, young, and stylish which most young adults are actively pursuing for. More variety of cigarettes will be created to cater young adults’ taste and preferences.

10.0 PESTLE Analysis

Environmental scanning is very important for a BAT before they plan to strike certain markets. PESTLE (Political, Economic, Social, Technology, Legal, and Environmental) is to aid organization by understanding the environmental factors that potentially benefit or harm BAT. It is know that these external forces are uncontrollable and pre-cautious action need to be taken before entering existing or new market.

10.1 Political

According to Pushparaj (2008), the stability of government, political organizations such as philosophy of political parties, foreign policy, ideology of government, military policy will influence the business to a great extent. In addition, political changes such as taxes and financial influence of a country will greatly impacts the business of BAT. For example, the government decided to increase cigarettes excise tax and this lead to BAT suffered a 4% decline in volume and 13% decline in profit in Eastern Europe region. BAT should be aware of the government policies as well, regulations such as banning of smoking area and banning of cigarettes advertising do affect BAT as well. However, political changes have the good side as well. Some new business policies may benefit BAT to improve their business in some way. For example, China had opened their market to foreign country to invest in it and many businessmen found the opportunity to tackle China’s market due to the huge population of people.

10.1 Economic

The economics of the country may be very crucial to BAT to ensure that that particular country acquired stable economy. When economy is at its best state, citizens spending power tend to increase. Consumer will save money instead of spending during poor economy, such as economic recession. The exchange rate should not be neglected as well because the condition (favorable or unfavorable) of exchange rate will affect BAT’s business.

10.2 Social

The social group is one of the factors that determine the success of one business and they are mutually dependant. Business supply to them according to the demand they requested. The demographic size does matter and the larger the demographic of that country had, the business opportunity is bigger. For example, emerging countries like Indonesia and Philippines, the population is growing and young adults would be BAT target market. The type of lifestyle that these young adults possessed also needs to take into consideration. However, many tobacco company faced significant dropped in revenue due to constantly growing prices, public health concern, and anti-smoking policies.

10.3 Technological

The advancement of technology had enable business to grow in a more effective and productive way. The invention of internet had allows virtual company like E-Bay and Amazon to make million business out of it. Besides that, many non-virtual businesses also owned a company website to provide useful information to consumers, in the same time, the purpose of advertising. In addition, information system also comes in handy and useful in managing company’s information processing. For example, the Customer Relationship Management (CRM) is one of the information system that help firms to collect customer’s information for after sales purpose. They are able to analyze customer’s data (taste and preferences) from the data they collected in the CRM.