Market Analysis Assignment Evaluating Global Tobacco Industry

Question

Task: Big tobacco
The tobacco industry provides a fascinating focus for studying business strategy. Its marketing environment is highly dynamic and this, in conjunction with Increasing regulation, has resulted in tobacco manufacturers developing some of the most sophisticated marketing strategies and activities.

For this market analysis assignment, you will provide a concise, but comprehensive strategic analysis of the contemporary marketing environment of the global tobacco industry.

This description will focus on the key dimensions that have shaped the strategies of multinational tobacco companies. This analysis, along with the application of strategic planning tools covered in the unit, will enable you to describe and explain the contemporary business strategies of a key industry player, or players.

Answer

Introduction
The concept of market analysis performed in the market analysis assignment can be defined as a research of the market for formulating a business plan. Strategic market analysis is a process to research the market for a company to formulate an appropriate strategic model for market development and capturing the market share and deliver a competitive advantage for the company. The strategic analysis delivers better-formulated strategies by using a systematic and logical approach. It helps to increase the communication between the customers and company, provide data to evaluate the market and helps to identify the target audience and delivers appropriate promotional initiatives that the company needs to take in the form of long- and short-term strategies which ensures long term success (Ma, 2020).In the following assignment, strategic analysis has been provided for the Australian tobacco industries and proper theoretical concept and framework has been applied for identification of strategies of global tobacco industries in the Australian industry and evaluate the same to understand its impact on current Australian business landscape.

Strategic Market analysis
PESTLE analysis:
PESTLE analysis informs about the external marketing environment. The considerations of Australia’s political, economic, social, legal, environmental and technological scenario have shaped the market players’ marketing strategies applied by them while functioning in the tobacco industry.

Political factor:
Political interventions by the Australian Government create a great impact on multinational tobacco companies. Australian government applying the high rating taxes on tobacco products (Burton et al., 2020). These tobacco products create a great negative impact on the health of the Australian that includes different types of cancer, stroke, heart disease, lung and chest illness, stomach ulcers, etc. Instead of banning tobacco products, the Australian Government increases the excise rate on tobacco products by 12.5% in 2020 to reduce the consumption of tobacco products (Tobacco taxes in Australia - Tobacco in Australia, 2020).Though high taxes can create a negative impact on expanding the business of the Big Tobacco Companies in Australia lack of ban gives them opportunities to increase productions in order to bear the taxes.

Economical factor:
The Australian market is a highly developed economy market. It is an opportunity for the Big Tobacco Company to expand its business in Australia. Australian has more than enough disposable income to purchase tobacco, so this extra spare cash increases the demand for tobacco products.

Social factor:
The Addictive Nature of the Australian towards tobacco products increases the demands for the tobacco industry. It is like an opportunity for the Big Tobacco Company. On the other hand, consuming tobacco products causes various types of diseases that include cancer, stomach ulcer, heart and lung disease, and many more (health.gov.au. 2020). It increases awareness among Australian and prevents many more Australian from consuming tobacco products. It may create a negative impact on the Big Tobacco Company that may reduce the sale of the tobacco product.

Technological factor:
In this 21st century, the development of the new Vaping device which is the alternative of Tobacco smoking. This vaping device provides the feel of the smoking and it contains flavoured warm water with some amount of nicotine. The vaping device creates fewer negative impacts on the health that increases the demand of the aping device. It is like a threat to the tobacco company that reduces that sales volume.

Legal factor:
Australian Government applying many laws on tobacco products and tobacco industry such as Smoke-free laws, illicit tobacco taskforce, E-cigarette laws, and youth law to prevent the Australian from consuming the tobacco. Australian Government also applying the age limits on the tobacco products to prevent youth from smoking (health.gov.au. 2020). These all may create various legal issues in the tobacco industry. On the other hand, maintaining legal laws may help the tobacco industry to avoid legal issues.

Environmental factor:
The Australian government is also applying many environmental laws on tobacco products to maintain the smoke-free environment. Consuming tobacco products not only increases the smoke pollution but also the butts of the cigarette contain toxic chemicals that also cause environmental pollution (Wallbanket al., 2017). It is like the threat and weakness of the multinational tobacco industry.

Porter’s Five Forces:
Porter’s Five Force analysis informs about the competitive forces and the influence of competitive rivalry in the industry which tobacco companies must take into considerations for developing strategies. Due to restrictions in advertising most of the marketing strategies are directed towards the distributors and suppliers and not customers thus to handle competitive forces it is necessary to have knowledge about industry competition.

Competitive rivalry:
The competitors in the market of tobacco are high in Australia. The huge number of tobacco companies produces tobacco products along with the high quality to Australians. The main competitors for the Big Tobacco Company are Philip Morris Limited Australia, British America Tobacco limited, Imperial Tobacco Limited (Tobaccoinaustralia, 2020). It indicates that it creates high forces over the multination tobacco industries to expand their business in the Australian market.

Threats of the new companies or entrants:
Big tobacco Company maintains the proper developing strategies in the time of expanding their business in the global market. The risk-taking factors of these companies also high in nature. So, the threats of the new companies in the same field may create moderate forces on the operation of the business. On the other hand, entrants of the new tobacco companies with the feature of fewer negative effects on health can create high force over the multinational tobacco industry. It indicates the tobacco companies should focus on reducing the negative effects on health by their tobacco products to develop a competitive position in the Australian market (Mirzabegian, 2019).

Power of suppliers:
The number of suppliers of the raw materials for tobacco products is high. It means the switching cost from one supplier to another is also low. However, it indicates that the suppliers have low power. The Big Tobacco Company can keep their operational cost lower that helps the tobacco companies to increase its profit percentage.

Power of the buyers:
The number of Buyers is also high in the Australian market. Australia is a highly developed economic country and Australians have enough spare cash to purchase tobacco products. It indicates that the power of the customers is also low. The multinational tobacco company can increase the cost of tobacco by integrating high-quality tobacco ingredients and flavours to enhance its profitability.

The threat of substitutes:
The number of substitute companies is high. Many substitute companies also produces the same tobacco products to Australians that may create a high force on the business of the new multinational tobacco companies. The tobacco company needs to develop their production strategy to make their product different from the other substitute tobacco company that may help multinational companies to enhance their competitive position in the Australian market.

SWOT analysis:

The above identified strengths, weaknesses, opportunities and threats are key in strategizing because using the strengths and opportunities the market players can eliminate the weaknesses and threats.

Evaluation of tobacco industry marketing strategies
Marketing strategy mainly consists of the following aspects targeting markets and developing an appropriate marketing mix, whichbased on 4Ps i.e. place, price, promotion and product, and it is important to identify for the tobacco companies that marketing should havea broader scope than promotion and advertisement. The determination of the price of the product, including the applicable taxes, determines the cost to the seller and the concept of the time and effort required to obtain the consumer product. Companies usually determine their inter-equivalent point and estimate whether they can bear all their costs or make a profit by using a product listed at a fixed price (Tobacco in Australia, 2016). Managers can estimate the profitability of an alternative price level. Every 4P should be designed and integrated to ensure well-defined target markets and a consistent and consistent brand product. Australia is considered a 'dark' market as there are limited options for brand communication. In such markets, tobacco companies convert their advertising into retail and price has become an important part of tobacco companies' marketing strategies. Different marketing strategies are used by Australian tobacco companies which offers them advantages of market growth, increased market share and competitive advantage. To retain existing consumer base and form new ones companies may focus on different product design, packaging, improving distribution channel and product placement. Conventional advertising is restricted but companied can use hoardings with company names or sponsor events (Tobacco in Australia, 2016).As advertising is difficult, these companies have invented and implemented effective and comprehensive marketing strategies so far especially for cigarettes and other tobacco products. Tobacco companies to protect their position have argued for decades that their efforts in advertising neither increase overall demand nor influence non-smokers to use their products. They also do not affect young people or influence them to use tobacco products. Instead, their argument is that, the marketing and promotional initiatives is for the sole purpose of competition. Conversely, the weight of evidence from innovative and extensive research over the past few decades suggests that industrial marketing activities are an important factor in attracting youth to tobacco, which prevents from quitting and increasing consumption (Greenland et al., 2016).

Price
Value-based pricing
The Australian cigarette market is well-divided. In Australia the important market players are brand families in the tobacco industry. The brand families segmented on value-based market segmentation. The common pricing strategies used by companies arepremium pricing, value-based pricing and mainstream pricing. The Big tobacco company can apply the same pricing strategy as well as providing extensively focus on value-based pricing and deliver the products or introduce new products in the new market based on value-based pricing.

Psychological pricing techniques:
In Australian market companies pricing methods are generally three types which are: Value, mainstream and premium. However, companies are using odd and even pricing to attract customers. Some companies intendedly charge higher prices than its competitors to make a psychological impact that their product is better in quality than other companies. Also, companies used odd pricing i.e. they charged a pack of cigarette price is AU$ 4.99 instead of AU$5.00. Research shows that odd pricing helps to increase sales more than normal pricing.

Product
Pre plain packaging strategy and family branding strategy:
Prior to the implementation of the cigarette brand and plain packaging of various departments of the three largest tobacco companies operating in Australia. Also using the branding family strategies which allows then to operate various brands under one company roof. Each brand family supports an average of 6 categories. Many companies sell only 13 brands and sub-brands of the same type, including Big Tobacco Company. In addition to the wide variety available in the cigarette brand in the market which is made in Australian factory (Greenland et al., 2016).

Extensive product portfolio strategy& Umbrella branding strategy:
Extensive product portfolios are often offered renowned cigarette brands. It is an example of umbrella branding strategy(Morton and Greenland, 2017).Such branding is a place at whichbranded houses offer a wide variety of products in the form of different packet sizes, different sizes of product, sub-brands, and variants. Such branding is an ideal strategy for Australia's highly controlled tobacco market, where there is little opportunity to market new products. Branding is common in the umbrella market with the introduction of new sub-brands (also known as brand extensions) in the existing brand family. Apart from the umbrella business, tobacco companies are also involved in rationalizing the supply of products before idle pace. It is also a perfect strategy for Big Tobacco Company in view of the current market landscape (Morton and Greenland, 2017).

Promotion
Media and advertising strategies:
In the current scenario and the directives of the World Health Organisation there can be no direct marketing like TV or newspaper advertisement, social media promotion, etc. can be done to promote tobacco-based products. However, companies are developing various hidden messages which are printed in the wall posters and cigarette packets, sponsoring in movies and using various celebrities who are smoking during the movies largely influence and aspire youths to smoke cigarettes. It has been proven to be a very effective strategy for tobacco companies. Because of the current ban on promoting tobacco products in the market, this strategy can generate a large number of customers and also it is still abided by the legislative directives (Morton and Greenland, 2017).

Place
Distribution Strategy:
In the Australian market, companies are following conventional methods of distribution (Greenland et al., 2016). Most of the companies follow the channel sales method. The channel sales strategy includes Manufacturer, Agent, Distributor and retailer. In general, channel sales of companies mainly use distributor and retailer. Most of the big companies in Australia currently follow this strategy. Also, companies use point of sales promotion and marketing as well by using props and posters, light boards, etc. This also helps to promote the company’s brand as well. It has been observed that tobacco companies invested most of their promotional budget in the retail promotion and somehow it proves to be very effective (Greenland et al., 2016).

Other Strategies
The tobacco companies in Australia applied various types of strategies to promote their product because of the various legislative norms for promoting and usage of tobacco based product in the market. The application of various strategic mix somehow prove to effective in the market however because of taxation price volatility is also present in the market along people are becoming very health conscious and government also promoting various campaigns regarding various bad health impacts which are caused because of smoking which somehow declining the sale of various companies. To maintain the sale companies are also adopted various kind of strategies based on psychological aspects of the consumer to promote their product:

1. Various companies using aspirational message which inspire the user to smoke more (Arli et al., 2015). Companies promoting their brand as a trend for youth and style also promote it as it is fashionable or a product that people should be seen with. This also helps to elevate the product’s sale and create strong brand equity for the company.

2. Because of the harsh effect on throat especially to the younger people companies targeted young customers with various flavoured and menthol cigarettes. The application of the product differentiation strategy proves to be very effective as well because young people also attracted to these flavoured cigarettes which are tastes much better than regular cigarettes(Balint, 2018).

3. Also, various companies used product development strategy on their existing products. Some companies manipulate the nicotine level via blending andtechnological implications. Also, the increase the nicotine in the gas phase as well. This helps customers to be more addicted to the product.

Conclusion
Any business strategies allow companies to grow and helps to achieve the desired success as well. Also, a business strategy allows companies to identify and evaluate their performance and to understand and assess the company’s weaknesses and strengths as well. An effective strategy allows companies to identify the opportunities and potential threats and helps to decide where the companies’ resources can be spent best.An effective strategy planning points to the correct direction for the company and helps to develop measurable goals which are essential for growth and success. Marketing planning for the market helps companies to identifytheir current market activities and helps them to formulate necessary actions that needed to achieve the goals set by the company. This effective marketing strategy planning is ensured through proper strategy development.From the above discussion it can be understood that because of the changing market scenario in the Australian market, strategic planning is needed to sustain its competitive advantage.

Reference List
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Greenland, S.J., Johnson, L., and Seifi, S., 2016. Tobacco manufacturer brand strategy following plain packaging in Australia: implications for social responsibility and policy. Social Responsibility Journal, 12 (2), 321–334.

health.gov.au. 2020. Smoking-And-Tobacco. [online] Available at: [Accessed 18 August 2020].

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Morton, A. and Greenland, S.J., 2017. Tobacco CSR and the Ethics Game Paradox: A Qualitative Approach for Evaluating Tobacco Brand Name Strategy Following Plain Packaging. The Goals of Sustainable Development, (978-981-10-5046–6), 179–192. Tobacco in Australia, 2016. 10.9 Brand portfolio strategies in the Australia market - Tobacco in Australia [online].

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