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Strategic change management of British American Tobacco

1935 words (8 pages) Essay in Marketing

5/12/16 Marketing Reference this

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British America Tobacco (BAT) was formed over 100 years ago, as a joint venture between the UK’s Imperial Tobacco Company and the American Tobacco Company in a bid to end an intense trade war. James ‘Buck’ Duke founder of America Tobacco Company became the first chairman. Despite deriving its name from the home bases of its two founding companies, British American Tobacco was established to trade outside both the UK and the USA; the two companies will not trade in each other’s domestic markets and acquire the right to use each other’s brands and trade marks in their own territory.

The early period of the company formation saw a lot of expansion, consolidation, merging and de-merging until resent past when the 1902 agreement was revocated and BAT gains exclusive rights of is original brands.

The company vision to achieve leadership of the global tobacco will be based on Growth, Productivity, Responsibility and building a Winning Organization. (BAT, 2008)

PRODUCTS OVERVIEW

Cigarettes; This account for about 95 per cent of the company’ product

Smokeless snus; Swedish-style snus is a form of tobacco that isn’t smoked, usually placed under the lip, chewed or in the nostrils. It is reported to be much less harmful than cigarettes.

Cigars; British American Tobacco produces wide range of various shapes, strength and flavors.

Roll-your-own; the oldest form of smoking sometimes referred to as hand-rolling tobacco or fine cut.

Pipe tobacco; is aged, A pipe like tube for smoking tobacco.

Global Drive Brands: Dunhill, Kent, Lucky Strike and Pall Mall are marks.

International brands – Rothmans, Kool, Benson and Hedges, 555, Peter Stuyvesant and John Player Gold Leaf. The company is also improving the sales of Vogue and Viceroy.

MARKETING STRATEGY

Strategic management for most organization is a ‘way of thinking’ and a term used in everyday conversation. A market generally is made up of sellers/producers/suppliers of Products/ services and buyers of these products/ services. Key to this exchange between buyers and sellers is the concept of needs and wants which marketers must strive to satisfy. Marketing is all about getting the right products and services to customers who want/need them. Strategy is looks into the future then develops and implements the plans that will drive the organization in the right direction; it presents the broad marketing approach to meet the marketing plan objectives. The marketing planning should be aimed towards designing marketing strategies that are efficient, effective, flexible and adaptable. According to (Brassington and Pettitt 2000), marketing strategy cannot be design in isolation, it has to include the objectives of the organization and take into consideration other strategies of the organization.

Competition

British America Tobacco faces competition from many international and local players in the industry. Notable among them are; Imperial Group, Gallaher limited, Tltria, Japan tobacco, Altadis.

They all compete in sharing the Global volume.

Marketing

Three stages of marketing techniques

5’Ps’

(Adapted from the Times 100)

Market research enables the organization to identify the most appropriate marketing mix for effective promotion. (The times 100)

Successful marketing is the bedrock of growth for any fast moving consumer goods business.

The company’ strategy to build its Organization. Growth, according to Marketing Director, Jimmi Rembiszewski does not mean increasing the number of smokers rather it means increasing the company’ share of those adult who have chosen to smoke there by increasing the value of share.

Marketing in many businesses is based on the fundamental ‘5 Ps’:  product, price, packaging, promotion and place.  For BAT, promotion is now much more limited and very carefully controlled due to increasing regulations.

Product

Product value and quality are high on company agenda. The company first Chairman once said to achieve success there need to be a quality product and right people. BAT also offers consumers smokeless Swedish-style snus, considered to be less harmful than cigarette.

Price

Pricing is one of the most important marketing strategies employed by tobacco companies all over the world. The rise of America Tobacco Company was largely due to aggressive pricing strategies used by James Duke led to the rise of American Tobacco Company, this was made possible by the cost advantages derived. This forced competitors to join him or leave the market. (Chaloupka et al, 2002) BAT is prided for quality, choice of flavors, diversified, segmented global brands at the super premium, premium, mid-price and value-for-money price points.

Promotion

Tobacco companies all over the world use myriad activities to promote their products. Laws governing tobacco brand advertising mean that promotion now has far less relevance than the other ‘4 Ps’, and that mass media promotion is going or gone. As traditional marketing avenues have closed, tobacco industries now use other marketing strategies. One such strategy is the use of “advertainment”, possibly derived from two words advertisement and entertainment. This is a way of trying to link brand image to an entertainment event.

Some of the Activities use by tobacco companies to promote their products includes:

Event sponsorship

For many years Tobacco companies have been using event sponsorships to promote their products, by sponsoring an event, a brand ties that event’s image to its own. While the parameters within which they can pursue this strategy are narrowing due to legislation, tobacco marketers continue to find ways to make connections between the images of events and the images of their products.

Bars and Clubs

Tobacco companies host high concerts and budget parties, which target a particular group. Tobacco products posters and signs are also used to promote the bars.

Direct Mail Advertisement / Direct Marketing

Tobacco marketing has in recent past shifted from traditional method of advertising to developing relationships with individual customers. (Anderson, et al). A major element of direct marketing is direct mail targeted to individuals on tobacco companies’ extensive mailing lists. Direct mail was found to be a major distribution channel for coupons, sweepstakes offers, brand-loyalty program catalogs and event sponsorship notice. (Delnevo, et al 2004).

Point Of Sale Advertisement

Advertising at the point of sale remains a major component of tobacco marketing. Places where cigarettes are sold are packed with promotional messages. Companies compete for trademark presence and best shelf space. Successful retailers are also rewarded sometimes. (Physicians for a smoke-free Canada 2002).

Other methods commonly use by tobacco companies include; distribution of Giveaways and Print ads at events.

Place

The target group must be aware of the existence and availability, should never be out of stock and be at the right outlet.

SWOT Analysis

This part depicts opportunities and threats faced by BAT caused by the external environment

Strengths

The Community and BAT:

• world’s second largest quoted tobacco group by global market share, with brands sold in more than 180 markets . • products released under an open-source license meaning it is free to acquire and distribute • the licensing structure means can benefit from Community involvement • Global tobacco market with largest market in china where around 2,100 billion cigarettes are consumed by about 350 million smokers annually development team and other support for the Community and products

• A very broad geographic base, well placed to meet the changing environment • Portfolio of some 300 brands based on distinct ‘must-win’ consumer segments • 47 cigarette factories in 40 countries • providing farmers with a welcome alternative crop.  In many cases, it provides a higher income than any other smallholder crop.  It integrates well into environmentally friendly crop rotations, benefiting subsequent crops like maize.

Weaknesses • Tobacco consumption poses real risks to health, • illicit tobacco trade • Inability to totally eliminate non target group • Child Labour in Tobacco Growing • black market driven by ever higher taxes, • Weak criminal penalties, poor border controls, low arrest rates • Non-Compliance Strategy e.g. selling in unlicensed establishment

Opportunities • Delivering innovations and refinements to our products across leaf blends, finer cut tobacco, new filters, new formats such as slimmer products and improved tastes in segments such as menthol. •Able to innovate constantly

• Over 100 countries grow tobacco •Largest leaf supply chain having no match in the industry of tobacco

• This industry is possessed with the ability to rescuing itself for a long term

Threats

• Price competition in tobacco industry can be fierce.  • the presence of many brands products in the marketplace • the open-source license regime means anyone can re-brand and redistribute under new name • Laws governing tobacco brand advertising and company’ restrictions • Counterfeiting • Smoking and health litigation (third party reimbursement, class action, individual action)

The success of marketing activity should be monitored.

General criticisms

Tobacco use has been found to be harmful and addictive product that has huge health and economic impact for the users and passive users. It was found to be a single most preventable cause of morbidity and mortality in most developed nations and addiction is one of the greatest threats facing young people (British Columbia Ministry of Health Services, 2003)

Tobacco use has huge economic, social and environmental consequences. Some of which are highlighted in the table below:

Direct Health

Social & economic

Environmental

Disability

Reduced productivity

Fire damage

Premature death

Worker absenteeism

Liters from cigarette buts

Lost income due to premature death

direct health care costs

Studies also found a link between advertising and promotions and encouraging adolescents to initiate smoking, and that point-of-sale advertising influences youths’ intentions to smoke in the future (Chaloupka et al, 2007).

RECOMMENDATION AND CONCLUSSION

Several studies have found tobacco product to be harmful to health with enormous economic and incalculable social impact. Reducing its use has also been found to improved general health and wellness. Government has always been torn between forfeiting a large sum derived from Tobacco industry through tax and job creation, and listening to the voice of experts who are determine to see that tobacco usage is banned.

Tobacco companies all over the world use all sort of tactics, including lobbying, campaigns aim at health improvement, looking for allies to ensure they have a free market.

It is identified in this report that

• Tobacco industries will use any means of publicity to reach their target group

• increasing global share value (profit) and tax are key strategic elements defining battlefield for the industry

• Costs and impacts of smoking are misinterpreted, and Tobacco companies will always found allies in stakeholders (Ross 2008))

This report suggests that any form of advertisement or promotion that has a large percentage of spilling over to non target group should be restricted e.g. point-of-sale advertisement.

Authorities should put more effort in helping people to quit and protect passive smokers. There should be a clear definition of where smoking is allowed or not, it is not uncommon to see smokers smoking at bus stop or on the street.

More research needs to be done on the effect of Nicotine, main component of tobacco products.

Where products are found to be extremely harmful, companies should be mandated to withdraw such products.

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