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Philip Morris - A case analysis

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Introduction

Philip Morris A case analysis Submitted to Prof A. Sahay Post-Graduate Programme in Management 2003-05 by Group -B03 Ashish Virmani 03P083 Apurva Shah 03P079 Kapil Sood 03P095 Naveen John Akkara 03P103 Suresh Sethumadhavan 03P132 Vishu Goel 03P138 Management Development Institute Gurgaon 122 001 14th August, 2004 PHILIP MORRIS LTD. "Working to Make a Difference The People of Philip Morris" Recommended Mission statement "Create quality products in the area of tobacco, beer and packaged foods. Protect our shareholders interests while being social responsible. Create an environment where our members can be challenged and grow." About the company The Phillip Morris family of companies is the world's largest manufacturer and marketer of consumer packaged goods. It has three main lines of businesses - 1) Tobacco 2) Kraft Foods Division 3) Miller Brewing. It revenues were $72 Billion in 1997. It has got 12 brands whose sales are $1 billion or more. Competition - The US market of 1999 SWOT analysis Strengths * Brand names (Marlboro, B&H) * Core Competency * High ROE * Little use of financial leverage * Management Effectiveness * Different products for same market (Cigarettes, Beer) Weakness * Product is bad for health * Government Regulation * Litigation * Social / Cultural Acceptance * Losing Ability to Promote Product Opportunities * International Expansion * Purchase of Nabisco * Further Diversification Threats * ANTI TOBACCO * Bankruptcy * Billions of Dollars in Settlements Diversification & Philip Morris Philip Morris is using the portfolio diversification as its main strategy. ...read more.

Middle

Their charity activities became more intense after the time period of 1997 given in the case. The Industry There are several entry barriers in the tobacco industry. Economies of scale are very important because companies can leverage their fixed costs with a bigger market share, which enables a company to be able to decrease its prices if necessary. As described in the case, the market share for less expensive cigarettes has been increasing in the last years due to government taxes and regulations. As the markets become more sensitive to the price factor, economies of scale will play an even more important role as an entry barrier to the tobacco industry. Product differentiation is a not a high entry barrier to the industry. The biggest difference between all the different cigarette brands is not the product itself but the brand and image it transmits. If a company can develop a smokeless cigarette or a non-harmful, non-addictive substitute to nicotine, the product differentiation factor would be much higher. Capital requirements present a high entry barrier. The costs associated with producing and marketing cigarettes are quite considerable. A company in this industry has to gather capital for physical facilities, marketing activities and liabilities, between others. Government policies are another important entry barrier. The tobacco industry has been increasingly regulated since the sixties. ...read more.

Conclusion

The company should also ensure that they invest in a strategy that will decrease its dependence on the North America tobacco revenues. This action is very important due to the increased liability risks and regulations in that market. Another important step to decrease its revenue dependence from tobacco is to expand its packed food and beer operations The next 5 years - Philip Morris should focus on leveraging their different operations in order to create further synergies between them. The degree of diversification should depend of current events on the tobacco industry. If the company expects the government to take a more extremist approach, by for example considering nicotine an illegal substance, it needs to be prepared to react or, even better, to avoid it. To accomplish that the company should focus in two main courses of action. The first is R&D. Philip Morris needs to invest in other alternatives to the current cigarette. This is not a simple task since the cigarette has been practically the same for decades. How can they eliminate the negative effect to the consumers' health? How can they diminish or eliminate the second hand smoke? The second is to expand diversification. The company should look for attractive companies that complement its actual products in the areas of packaged food and beer. The company should also continue to work on its image. It should disassociate itself from all the negative publicity resultant from the tobacco lawsuits. 1 Group B03 ...read more.

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