Definition of Industry Market Concept
The tobacco industry consists of many competitors trying to satisfy a specific customer need. Companies such as Philip Morris, RJ Reynolds, Brown and Williamson, and Lorillard hold almost the entire market share in the tobacco industry. While each company has different advertising and marketing techniques, they all target the same customer group. Tobacco companies try their best to generate interest in their particular brand or brands. Companies market a number of attributes that usually include, but are not limited to: taste, flavor, strength, size and image in order to distinguish themselves from competitors (Business Week 179, November 29, 1999). However, all tobacco companies are satisfying the same needs. Many long-time smokers are addicted to the nicotine in cigarettes. They smoke because the nicotine is needed to help them feel normal (Focus group). Many addicts go through withdraw without nicotine. All tobacco companies have nicotine in their cigarettes, which fulfills the need of long-time smokers. Other smokers depend on cigarettes in social settings. Many smoke to look sophisticated and mature. Tobacco companies make many kinds of cigarettes that target different groups. Social smokers may perceive certain brands as more sophisticated, and therefore they shy away from other lesser-known brands. For example, a person who smoked generic cigarettes at the bar may be perceived as uncultured. On the other hand, the smoker with the Marlboro Lights may be more socially accepted because they have a brand name product (Focus group). Many types of cigarettes cater to the many markets of smokers who want to portray a certain image in social settings. Tobacco companies do not create the need to smoke, but try to generate interest in their particular brand (Hays, New York Times, November 24, 1999). Overall, the tobacco companies satisfy consumer demand for the millions of adult Americans who choose to use tobacco by providing differentiated products to different target markets of smokers.
The tobacco industry has developed a rather large array of products. Companies such as Philip Morris, Lorillard, RJ Reynolds, and Brown and Williamson, as well as the other smaller competitors, all provide the same product- cigarettes. The tobacco industry is filled with fierce competitors. But underneath the brand names and images, the product is relatively the same. All tobacco companies produce an inhalant that is made with tobacco, tar, and nicotine. These materials are rolled in a special kind of slow-burning paper for longer smoking time. The cigarettes are approximately three to four inches long and come in packs of twenty to twenty-five. With so many similarities, one would think that the market would resemble that of a commodity. However, through brand marketing and promotions, each cigarette is uniquely different in the mind of the customer.
Boundaries The tobacco industry can be broadly or narrowly defined. Many products use tobacco as the main material. We chose to define the market by focusing on the tobacco and the way it is smoked. Companies such as Philip Morris, Lorillard, RJ Reynolds, and Brown and Williamson are the main competitors in the tobacco industry (Pollack, Advertising Age, August 30, 1999). They produce cigarettes, which are lit and the smoke is inhaled to the lungs. Tobacco products such as cigars, snuff, and chew are considered close substitutes to cigarettes. Cigar smoke is just taken into the mouth, but not inhaled like cigarettes. Snuff and chew do not even contain smoke, but are put on the skin for nicotine absorption. Companies such as Imperial Tobacco, which produce a wide array of chew and snuff products, would be considered a company that provides substitutes to cigarettes. They would not fall in the cigarette industry itself.
2 .Situation Analysis
2.1 Industry Structural Analysis
2.1.1 Threat of Entry
The tobacco industry has a very low threat of entry. A few powerful firms, such as Philip Morris, RJ Reynolds, Lorillard, and Brown and Williamson, control most of the industry (Pollack, Advertising Age, August 30, 1999). Any new entrants would be sure to receive heavy retaliation from the other companies fighting to keep their share of the lucrative industry. For example, Philip Morris is by far the industry leader with estimated tobacco sales of $46.7 billion is 1999 (Business Week 179,