Monday, February 7, 2011

Case Analysis on Philip Morris

I. EXECUTIVE SUMMARY:
Philip Morris had been known for many decades now as the largest cigarette company in the United States with a market share of 42 % share, Marlboro is the company’s most prized-product, topping other cigarette brands. However, despite its reputation as a primary cigarette manufacturer, the company diversified into other line of products in order to widen its operations and to have a smooth transition from the tobacco dependence. Their venture includes brewing and food industries, making Philip Morris one of the largest food processing companies in the United States.
This bold leap to diversification procedure reflected in the company’s mission statement to penetrate globally with its large variety of products not only in cigarettes line but also in food and brewing to respond to consumers’ demand of high-quality products, greater in volume and low prices. Moreover, the company took a pride in having growing returns of investors because of its diversification system.
Philip Morris owed its success to its strategic technique of acquisitions. The company financed its acquisition ventures from its high-margin tobacco products. Their unique technique includes acquiring companies already established in the market to easily build and develop it, established products are easily to promote also therefore saving lots in promotional expenses on the side of the parent company. Philip Morris, later on, joined the discount brand sales to compete with each brand of cigarette available in the market and lure customers to patronize their products. By 1991, Philip Morris International established a strong market share around the world and its leading brand, Marlboro, continued to dominate as the most preferred brand among the smoking consumers.
But Philip Morris encountered some low turn on its profit margin in the succeeding years because of the strict foreign policy on cigarettes. Many countries imposed restrictions and collected huge taxes on imported cigarettes which effectively cut the company’s sales by 80%. In addition, the company’s food business especially the Kraft brand, suffered a low return on investment partly because its CEO decided to impose higher prices on cheese in while the private labels maintained a low price. The company made a rebound by cutting prices to regain their market share but the move did not help much as the consumers began seeing cheese products as unhealthy. Despite the major set-back in sales, Philip Morris remains one of the most liquid companies in the United States and retained its solid financial positions. The company is consistently ranked as one of the most progressive employers in the U.S.
However, Philip Morris faced with multiple dangers on their operations concerning profit and market share. Due to health issues, cigarette industry is declining in almost all countries in the world and there’s a possibility that it would be banned soon by the Federal Drug Administration because of the increasing health problems and harm it inflict. The company could no longer promote their cigarette products through advertising because it is already banned following the warning of all medical practitioners that smoking is disastrous to overall health. Cigarettes’ sales continue to slump each year, and investors are wary on tobacco’s legal status, on top of that, court litigation against cigarette manufacturers were increasing. Philip Morris’s another concern is the effect of recession which greatly affected the sales of their food brand particularly on cheese. The company’s top executives began planning for food acquisitions in the European market to cope up with the effect on the decline of the tobacco industry.
II. STATEMENT OF THE PROBLEM
Philip Morris International is facing a major threat on its sales as cigarettes business is declining because of strict foreign policies on tobacco. Almost all countries in the world banned advertisement in any forms of cigarettes making it hard to promote in public. Public places imposed heavy fines which lead smokers to cut down on cigarettes.
The company is now suffering a low investment return which might lead to the withdrawals of some of its big investors. Since cigarettes are its primary product and the main source of their finances, it is now feared what will happen to the profit margin and liquidity of the company if tobacco will forever be banned.
The cheese industry is threatening to slump because of some health issues in terms of fatty foods too. People become wary with foods rich in cholesterol and saturated fats that cheese product is feared to suffer a heavy decline, consumers, because of global crisis, began to look for cheaper brand which affected Kraft cheese.
III. CAUSES OF THE PROBLEM
Health issues concerning smoking made Philip Morris’ revenue to slump down, company’s top executives began planning to venture into food industry to save the investment and prevent investors from pulling their investment. Countries around the world also imposed higher taxes on imported cigarettes and banned all forms of advertisement of tobacco. Medical practitioners also warned people that smoking is dangerous to health as it contributed to lung cancer and other chronic illnesses.
The company’s other product, Kraft cheese, is not doing well in the market because of the product’s high concentration on fats. People became wary on fatty foods because of health-related issues; healthy lifestyle is now being promoted publicly. In addition, the economic recession made people appreciate and patronize cheaper products which affected the sales of Kraft cheese. These problems gave Philip Morris company difficult time to regain what they had lost in the market in terms of investment and profit.
IV. DECISION CRITERIA AND ALTERNATIVE SOLUTIONS
A. Decision Criteria
Consumers are beginning to follow a healthy lifestyle because of the escalating expenses on hospitalization and health-related insurance issues, so they are now more concerned in choosing high in nutrition products and consequently combat smoking habit and avoid eating fatty foods. Philip Morris’ products are not appealing to health-conscious consumers. Cigarettes, Beer, Cheese, processed foods and some brands of chocolates are considered potentially risky to people’s health. These threats pose a possible danger to the company’s profit margin. Therefore, reorganizations and diversifying into other line of products, which they have already a background, is a good move for the company. Venturing into health-related food products will be a good move of Philip Morris International.
B. Alternative Solutions
1. Though the company could not totally eradicate tobacco manufacturing as part of their business because there are still consumers who want to buy cigarettes, they should impose strict policies on manufacturing cigarettes.
1.a Maintain the low nicotine/low tar ingredients and emphasized it
in the level to inform consumers.
1.b Put additional features on the cigarette sticks to filter smoke
so that it will minimize the danger on smokers’ health.
2. Give attention to food industry
2.a As tobacco industry is declining because of so many restrictions, the company should look on other opportunities in the market. Food industry is one business that never diminished its value. People always look for new food products in the market.
2.b Manufacture healthy foods with emphasis on nutritional contents. Although cheese is always viewed as generally unhealthy, the company can always find good alternatives in reducing fats and adding some low cholesterol ingredients, consumers would be enticed to buy it because cheese is still part of consumers’ need as it has many uses in cooking and baking.
2.c The company’s plan to buy European chocolates company is a good move to proliferate their food business. Chocolate industry is also growing and almost all countries import chocolates.
3. Revitalize its marketing strategy especially on foreign trading market.
3.a People across the globe always patronize foods no matter how unhealthy the ingredients are. But in order to gain a large market share in the food industry, the company must give special attention to health issues by integrating healthy ingredients to entice consumers.
3.b Though tobacco industry’s future is often regarded as bleak because of government restrictions on cigarettes, Philip Morris whose trademark is in the tobacco business, should provide healthy programs for their cigarette consumers to give them a message that the company is also concerned towards their overall health.
V. RECOMMENDATIONS, IMPLEMENTATION, JUSTIFICATION
A. Recommended Solution
As the public struggled to live in a healthy environment and lifestyle, their consciousness dictates them to be more circumspect with their habit and food choices and this include quitting smoking and avoiding unhealthy diet. These factors create a major blow to Philip Morris products, so what the company needed in order to maintain the desired profit margin, is to divert their investment to food industry that promotes high nutritional products.
Cheese is still a thriving industry because it is one of the major ingredients in pastries and culinary preparations, so it should not be neglected by the company. Aside from lowering its prices to compete with cheaper brands, the company must put additional nutritional ingredients to make it more attractive to health-conscious consumers.
The company must also pursue their intention to acquire food brand in the European market. This is a huge market and very promising when it comes to sale and profit. People always love to eat and any food coming from a well-established company is heavily favored compared to not famous brands. Philip Morris can invest enough expenses on advertising and promotion of a new food brand so it would not give them a hard time introducing the product to the public.
B. Implementation
Re-evaluation on the company’s goal towards manufacturing healthy products is a good point to start the revamp on its goals and objectives. The company should continue manufacturing cigarettes because it is where they are known but should not put too much investment into that line of business, instead look for alternatives in the food industry.
The company must now put its energy into acquiring other food line business to enhance its appeal to consumers. The loss on profits because of the declining cigarette market could be recovered by pulling some of the huge investment from cigarette line and put it in other acquisition which is potentially growing.
Chocolates and Cheeses are both growing businesses and this opportunity must be taken into consideration. Though people are very cautious when it comes to the above-mentioned food products, these foods are still very much around because of its varied uses in different dessert and culinary concoctions. What the company needed is to observe a potential food company to acquire to take a good timing.
C. Justification
The future of tobacco industry is unpredictable the company must not focus its investment to this line of business, instead diverting its cash and expenditure to food industry which offers a bright future for the company. Some of the most admired companies in the world are into food business and their status as the most recommended or sought-after companies only justified a reality that food industry is a huge and growing industry.
Philip Morris Company is already established and has a reputation of being one of the most stable companies in the world, this advantage in the market favored Philip Morris an edge in the competition. Concentrating and diverting its attention to food industry by using its investment to acquire another food brand is a brilliant solution. This strategy would give them a competitive advantage in the market because they have already proven their worth as one of the most popular companies in the world with high quality products.

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