Marketing Plan Karachi Tobacco Company

Marketing Plan Karachi Tobacco Company
Kamran Ali Khan Umair Wajid Tahir Kaleem Ahmed Amirali
2201286 2200967 PDGN 0289 2201055
Submitted to Mr. Iftikhar Munir Marketing Management
Marketing Plan: Karachi Tobacco Company ___________________________________________________________________________
Transmittal Message
May, 28, 2013 Mr. Iftikhar Munir Marketing Management Hamdard Institute of Management Sciences Karachi, Pakistan. Dear Mr. Munir, Enclosed is a copy of Marketing Plan for Karachi Tobacco Co which was assignment to our group for the course Marketing Managment conducted by you. This business plan is a summary of our study and findings of business processes, facts sheet, implications as well as our recommendations during the time allotted to us. This business plan shows the critical analysis of the BU (Tobacco) and the principles applied in marketing management which further revolves around the strategic intent of the BU and how it is produced. A number of basic principles being applied have also been explained. We are grateful to Allah and all the people who helped us in completing this report. If you have any questions and/or comments regarding the interpretation of this report please feel free to contact us. Thank you for your initiation of this report. Sincerely, Kamran Ali Shahid Umair Wajid
Tahir Kaleem
Ahmed Amirali
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Marketing Management
Letter of Acknowledgement
Standing on the bank of a river, a man cannot determine its depth unless and until he sets foot in it. It has always been said that the best way to Learn is through experience.
All praise and thanks to the Almighty Allah who gave us the strength and will to complete the task. I would like to extend our thanks to Mr. Iftikhar Munir, who conducted the course of Marketing Management and taught the basic knowledge and the core concepts of the subject, its infrastructure and provided enough assistance and guidance in materializing of this marketing plan. This has definitely been a unique learning experience for all of us. This research has helped us a lot in applying the theoretical concepts and learning the practical aspects of marketing management.
Sincerely, Kamran Ali Shahid Umair Wajid

Tahir Kaleem
Ahmed Amirali
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TABLE OF CONTENTS
1.0 OVERVIEW OF TOBACCO INDUSTRY.........................................................................................................................6 1.1 PAKISTAN MARKET.............................................................................................................................................................6 1.2 MARKET SEGMENTATION....................................................................................................................................................7 1.3 FRAME WORK FROM HARVESTING TO CIG. MANUFACTURING...........................................................................................8 1.4KEY EMERGING TRENDS......................................................................................................................................................9 1.5 HIGH BARRIERS TO ENTRY FOR NEW ENTRANTS.................................................................................................................9 2.0 KARACHI TOBACCO COMPANY LIMITED..............................................................................................................10 2.2 REGION..............................................................................................................................................................................10 2.3 THE CLIENTELE:................................................................................................................................................................11 2.4 THE SUPPLIERS:.................................................................................................................................................................11 2.5 MANAGEMENT TEAM:.......................................................................................................................................................11 3.0 Business Scope.............................................................................................................................................................12 3.1 WHERE..............................................................................................................................................................................12 3.2 WHAT NEEDS....................................................................................................................................................................12 3.3 WHOSE NEEDS..................................................................................................................................................................12 3.4 ADDED VALUE..................................................................................................................................................................12 4.0 EXTERNAL ANALYSIS ...................................................................................................................................................13 4.1 MARKET STRUCTURE........................................................................................................................................................13 4.1.1 Market Segmentation................................................................................................................................................13 4.2 ANALYSIS..........................................................................................................................................................................15 4.2.1 Fact Sheet.................................................................................................................................................................15 4.2.2 Implications..............................................................................................................................................................16 4.3 MARKET SIZE & SHARE....................................................................................................................................................16 4.3.2 Projected Market Growth for next 4 years...............................................................................................................17 4.4 SEGMENT LIFE CYCLE.......................................................................................................................................................18 4.4.1 Industry.....................................................................................................................................................................18 4.4.1.1 Critical Analysis ...................................................................................................................................................19 4.5 DISTRIBUTION STRUCTURE...............................................................................................................................................20 4.6 COMPANY & COMPETITOR MARKET SHARE.....................................................................................................................21 4.6.1 2012-13.....................................................................................................................................................................21 4.7 MARKET PROFITABILITY ANALYSIS..................................................................................................................................22 4.8 COST STRUCTURE..............................................................................................................................................................22 4.9 DRIVING FORCES OR KEY SUCCESS FACTORS..................................................................................................................23 4.10 TRENDS IN THE INDUSTRY..............................................................................................................................................25 4.10.2 Bargaining Power of Suppliers..............................................................................................................................25 4.10.4 Threat of New Entrant:...........................................................................................................................................25 4.10.5 Exit Barriers:..........................................................................................................................................................25 5.0 INTERNAL ANALYSIS.....................................................................................................................................................26 5.1 VALUE CHAIN...................................................................................................................................................................26 5.2 SWOT ANALYSIS..............................................................................................................................................................27 5.4 PORTFOLIO ANALYSIS.......................................................................................................................................................29 5.4.1 KTC Brands:.............................................................................................................................................................29 5.4.2 BCG Matrix:.............................................................................................................................................................30 5.5.1 Financial Highlights ................................................................................................................................................32 5.6 PERFORMANCE STANDARDS..............................................................................................................................................33 6.0 VISION, MISSION AND OBJECTIVES..........................................................................................................................33
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6.1 VISION...............................................................................................................................................................................33 6.2 MISSION STATEMENT........................................................................................................................................................33 6.3 BUSINESS OBJECTIVES......................................................................................................................................................34 6.4 KEY ISSUES.......................................................................................................................................................................34 6.5 STRATEGIC DIRECTION......................................................................................................................................................35 7.0 PRICING STRATEGY.......................................................................................................................................................36 7.1 INFLUENCES ON PRICING STRATEGY: ..............................................................................................................................36 7.1.1 Government Intervention..........................................................................................................................................36 7.1.2 The firms corporate and marketing objectives .......................................................................................................36 7.1.3 The degree of product differentiation.......................................................................................................................37 8.0 COMMUNICATION STRATEGY...................................................................................................................................37 8.1 PRODUCT...........................................................................................................................................................................37 8.2 ADVERTISING....................................................................................................................................................................37 9.0 PRODUCT MARKETING PLAN.....................................................................................................................................38 9.1 CURRENT SCENARIO..........................................................................................................................................................38 9.2 FUTURE PLAN....................................................................................................................................................................38 10.0 OPERATIONAL PLAN....................................................................................................................................................39 11.0 ACTION PLAN ................................................................................................................................................................39 12.0 CONCLUSION..................................................................................................................................................................41
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1.0 Overview of Tobacco Industry

In response to stronger demand and better prices from cigarette manufactures, Vegetables and sugarcane compete with tobacco and farmers have started inter-cropping tobacco to increase return. Tobacco is grown mainly in the Northwest Frontier Province (NWFP) and Punjab. Flue cured and burley tobaccos are used primarily in higher-quality cigarettes. Oriental varieties (knows locally as white patta) are used in low-quality cigarettes and for chewing tobacco. Dar air-cured varieties are largely used for filler, while light air-cured varieties are used primarily for traditional Pakistani tobacco products. Yields in Pakistan are about twice those for neighboring countries largely due to the extensive services provided by the industry. Quality, however, is improving only slowly due to problems related to climate and soil. An estimated two-thirds of the tobacco produced in Pakistan is utilized for cigarettes and the reminder for other tobacco products or exported. Globally, tobacco industry is facing stiff sanctions from governments regarding promotion of their brands. It started with the sanctions on advertisement on electronic media, health warnings getting bolder and so on and so forth. It is making this industry suffer a great deal especially whenever there is a new launch of any brand.
1.1 Pakistan Market

Pakistan is mainly Virginia Tobacco Market. Most of the Tobacco is grown in NWFP and partly in Punjab. Annual Tobacco Requirement of Pakistani Market is 60 Million KG, out of which 40 45 Million Kg is grown in NWFP near Mardan and Sawabi in NWFP and Okara Region in Punjab. Rest of the Tobacco is imported. There are about 24 companies that manufacture cigarettes in Pakistan. However the number is
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Marketing Plan: Karachi Tobacco Company ___________________________________________________________________________ even greater if we include the illegal companies that are mostly operating in NWFP and Balochistan. In Pakistan there are two major players. PTC - Pakistan Tobacco Company operating under license from BAT British American Tobacco and LTC Karachi Tobacco Company, now operating under License of Philip Morris International. Both LTC and BAT are more than 90% of the total Tobacco Market in Pakistan. Other players are Sarhad Tobacco Company, Mughal Tobacco Company, while others smaller have insignificant volume contribution. Pakistan has an estimated Cigarette consumption of 79 Billion stick (Unofficial data) per annum. It includes both organized and unorganized sector. Of this total market, 63 Billion stick is with the organized sector, while rest is produced / smuggled illegally. In terms of Pak Rupees the total market of cigarettes is about Rs. 60 billion per year. Pakistan has a total smoking population of 11.07 million, averaging 16 sticks per smoker. (Source: Economic Survey of Pakistan 2005).
1.2 Market Segmentation

Pakistani Market is divided into several categories on the basis of prices. It is quite clear that as far as the segmentation of market is concerned it is purely on income based. Broadly speaking market segmentation for the whole market is not on geographical basis except for one or two brands. Major cigarettes manufacturers target the market on price basis and mainly their. target market comprises of consumers having their monthly incomes from Rs. 6000 to Rs.12,000 a month . These consumers are the major consumers of all available brands in Pakistan with the exception of some expensive brands which are for higher social classes. These brands include Gold Leaf, Marlboro, Dunhill etc. Major consumers of cigarettes are mainly those who have their monthly income of about 12,000 per month. They have more then four children, paying rent for their living and even if they own their house, it is mostly of two rooms. More than 60% have TVs in their houses. So, all major cigarettes manufacturer are targeting from lower to middle class smokers in Pakistan as these represents the major percentage of our population.
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Marketing Plan: Karachi Tobacco Company ___________________________________________________________________________ The cigarette market is divided in to the following Categories (Segments) based on the price SKU. Price Range 20 Cig. > Rs.70.00 Rs. 30.01 Rs. 70.00 Rs. 20.01 Rs. 30.00
Segments Segment A Segment B Segment C
Segment D <Rs. 20.00 Farmers contracting & Registration

Retails Price March 2013
Seed Beds / Nursery
1.3 Frame work from Harvesting to Cig. Manufacturing

Transplantation Since most of the tobacco grown in Pakistan is utilized for local consumption, Big companies like PTC and LTC help farmers to increase their yields / HA. Both companies have their Topping & Suckering agronomists working in close loop with the farmer to help achieve better yields to meet the increasing demand which is rising some 3% per annum. Harvesting & Curing Government is also helping the farmers to get good rates for their crop. According to Pakistan Tobacco Board (PTB), the price of crop, category wise cannot be less than what was last year. Also to safe guard the farmers, each company has to buy / loose their share of crop in Tobacco Marketing percentage of their demand submitted to the board. For example, this year there is a price increment of 17% of tobacco, but this is also giving Tobacco Threshing & Processing companies to look for imported tobacco more and more, which is better in taste and quality as compared to locally grown tobacco. / Local Consumption Both Karachi and PTC have Export registered farmers of around 25,000 farmers out of about 44,000 farmers who they help in agronomy. Warehousing & Distribution of Prized Tobacco The whole cycle from Farmers registration to Cigarette output from the factories is as under. Processing & Blending Cigarette Making & Packing
Distribution to Sales warehouses
1.4

Key Emerging Trends

Due to Government and self imposed ban on ATL activities, concept of Personal Selling is emerging very fast. It means marketing through salesman. Tax stamp introduction on Finish goods instead of conventional taxing system by the government a step to minimize counterfeit products in the market. Nicotine and Tar contents awareness. Flavored especially mentholated cigarettes are coming up as boutique brands that need to be addressed by the big players. Slim cigarettes although not a very small market that exists only in urban areas is emerging as a feminine cigarettes.
1.5 High Barriers to entry for new entrants

Very high investment is required to enter into the industry and market. Stiff competition among different tobacco companies- which has grown even more after acquisition of Lakson Tobacco by Philip Morris Ban on ATL activities limit the scope of success of any new brands. Low priced / Low margins market required high volumes for sustainability.
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2.0 Karachi Tobacco Company Limited
2.2 Region
Mainly serving for the local market, with major share of Market (around 20%) in Punjab Province, Karachi is operating with two cigarette manufacturing unit located across Pakistan. With the largest manufacturing unit operating in Sahiwal, Other unit is in Karachi. Karachi consist of 4 Cigarette Depots, 1 st point of contract of its product is with distributors, who are responsible to distribute under guidance of Karachi sales force. With the market volume distribution, 6 Depots are strategically located in Sindh, 7 Depots in Punjab and 1 each in NWFP and Balochistan.
Jac oba bad
Total Cigarette Depots: 19
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2.3 The Clientele:

KTC Clientele base is very getting strong, supported by some 1,200 sales persons operating all over Pakistan. Through 12 sales offices in various districts of Pakistan, Karachi is maintaining its own fleet of distribution network for primary sales, while keeping the eye on the secondary sales. The major consumers are in low income group as Karachi has almost no presence in A, B and C category / segment. Mostly labor class is the main client for its brands, resulting in huge volume with low revenue as compared to its rival PTC. Many attempts have been made to launch a brand in B segment of the market like Park Lane, Premier Classic but all attempts were futile.
2.4 The Suppliers:

Most of the raw and packaging material for cigarette manufacturing is imported. However Hinged Lid packs (HL), Soft cup packs and duplex board used in the product manufacturing is local. Karachi has always maintained a very good relationship with their local as well as imported material supplier that is why; whenever there is shortage of raw material either locally or internationally, they were not struck as bad as its rival PTC. Since a part of a group company, Karachi tobacco has supported its sister concerns in terms of business. Few of them are Merit Packaging, Century paper and board mills etc. However, as a policy they NEVER relied their whole business on single supplier both locally and internationally.
2.5 Management Team:

Karachi management team previously and after the take over is always committed to its work professionally with a very caring culture towards its employees, that is why they were able to take the rival Pakistan Tobacco by the horns. But the main problem is the reactive management, besides few things like White Tipping and Hinged Lid packaging etc. But now after the take over by Global player Philip Morris, this approach is likely to change to proactive by utilizing their global experiences and vision.
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3.0
Business Scope
3.1 Where
All Across Pakistan with major presence in the province of Punjab where around 70% of the product is sold.
3.2 What Needs

Tobacco covers the need of mental satisfaction that people desire, the peer acceptance and the prestige and stylish look they desire. Pleasure requirement for adults
3.3 Whose Needs

All segments of consumers, based on price categorization in segments from A-E. All adult ( 18 +) cigarette smokers
3.4 Added Value

Offer cigarettes to adult consumers with proper health warnings providing them good, smooth smoke every time they smoke a cigarette. Wide availability almost every where to adult consumers Provide quality, consistent product
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4.0 External Analysis

4.1 Market Structure
4.1.1 Market Segmentation
The cigarette market is divided in to the following Categories (Segments) based on the price SKU.
MARKET SEGMENTATION
Segment A Price range > 70 for 20s Cig Pack Segment B Price range 40 for 20s Segment C Price range 15 to 22 for 20s
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END USERS
Segment A
SEC A / A+: Income Level 30 K and above, who believe in high quality products which can give them a good image.
Segment B
SEC A: Income Level 20 - 30 K, who believe in high quality but settle for local products more often.
Segment C
SEC C: Daily wagers who cant afford expensive cigarettes, usually stick buying behavior prevails in this segment.
PRODUCTS
Segment A Prism Gold
Segment B Challenger
Segment E Boss.
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CHANNELS
Distributors
Distribution and Outbound logistics are handled mostly by companies themselves
Large Wholesalers
About 65% of product is handled by wholesalers in the market for distribution
Large Scale Retailers

About 35% of products are handled by large scale retailers.
4.2 Analysis
4.2.1 Fact Sheet
KTC Cigarette Market is divided in 3 segments, A, B, C, based on price of the product. Cigarettes consumers are very price conscious and that is why all the segmentation is based on their price of product in the market. KTC major concentration is in A and C segments where there are many products of their own competing each other in the market. High dependence on distributors for communication of products to the actual consumers.
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4.2.2 Implications
Our product is of sensory nature and consumers are very receptive of its taste and smoke. Consumers are brand conscious but they tends to switch to similar or superior brands if they cant seek the satisfaction they wanted from their own brand. Cigarette is a part of the personality of the consumer that he looks forward towards its packaging and style that would match his social standing. In short the company needs to build a strong packaging along with consistent taste building a strong brand persona, though it is facing a strong challenge of Black Marketing due to ban on ATL activities.
4.3 Market Size & Share

Market share of 2012-13 is mentioned below. If we evaluate the data. Growth (2.1%) S. No 1 2 3 Industry Market Segments Segment A Segment B Segment C Total 2012-13 801 355 93 1249
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100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0%
HL20 HL10 SC20
Demand
2012-13 61% 31% 8%
4.3.2 Projected Market Growth for next 4 years

(Units in millions) Growth Growth (2.1%) (2.3%) Market Segments of 2012-13 2014 industry Segment A Segment B Segment C Total 850 377 97 1249 870 395 101 1366
Growth (2.5%) 2015 914 418 106 1438
Growth (2.7%) 2016 948 432 111 1491
S. No 1 2 3
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Marketing Plan: Karachi Tobacco Company ___________________________________________________________________________ As forecasted by the market research agents, it is seen that the overall growth of the tobacco industry is going to increase proportionally and gradually 2% annually as the players are going to focus more on the upper segments and will be using aggressive marketing and trade initiatives.
4.4 Segment Life Cycle
Segments B &C Segment A &B
4.4.1 Industry
The tobacco industry has attained maturity stage as the massive market of segment B & C has been penetrated with the percentage of penetration being 75% which consists mostly of the rural areas and some of the urban areas. Less than 5% of the market are those potential people who either dont take cigarettes as there means of nicotine satisfaction and go for other alternatives such as paan, eatable tobacco, shisha or hukka and cigars. The others are those who casually take cigarettes as a sign of attitude and prestige. Segment A and B are still in the growth stage which still needs to go in the maturity stage.
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4.4.1.1
Critical Analysis
It has been observed that the market segments of the tobacco industry are in two stages one is in the growth stage which includes segment A, B and the maturity stage which includes segments B & C. The major reasons for the segments to be divided into these major groups are: There is a greater range of different brands in the lower segments like C then the upper segments which are A, B. Hence, consumers of the tobacco industry have a more differentiated choice of cigarettes in the lower segments then the upper segments and hence the lower segments have grown rapidly then the upper segments. Price is a main factor because of which the lower segments have reached their maturity stage as more of the rural areas have responded to these stages then the urban areas who prefer to respond to the upper segments.
S.No 1 2 3
Market Segment Segment A Segment B Segment C
Intro .
Growth Maturity Decline
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4.5 Distribution Structure
Local Manufacturing
Inbound Logistics
Imports
Company
Distributor And Outbound Logistics Large Scale Retailers (35%) Wholesalers (65%) Consumers Retailers (Small Scale) / Trolleys
The distribution norm in the industry is very conventional that the manufacturers sell from their warehouses to their major distributors, which sell directly to wholesalers and large scale retailers. The whole sellers pass it to the retailers and trolleys who then pass it to the consumers. Also, there are distributors who sell directly to large retailers and then the product is passed onto the consumers. This distribution trend of the industry is very similar to what Karachi follows. In order to not only have a greater sale in the tobacco industry but to have a better market coverage, companies are brainstorming on strategies of how to effectively use the distribution channel to achieve this milestone. The example of this is that the companies in the tobacco industry is making a strong alliance with the distribution agencies who are much organized then the local distributors and using there particular expertise and widely spread network, the company can easily and effectively improve the coverage of the market they are entertaining or plan to entertain.
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4.6 Company & Competitor Market Share
4.6.1 2012-13
60% 50% 40% 30% 20% 10%

47%
52%
KTC PTC Others
1%
0%
2012-13
Company Segment LTC KTC PTC PTC C C C A
Brand MORVEN GOLD KSF 20HL B 20HL GOLD FLAKE KSF 10HL GOLD LEAF KSF 20HL
Mkt. Share 23.6% 16.5% 7.7% 6.3%
The above table is showing the top 4 Brands, Volume wise in the Industry with their market share and the segment they belong to. Karachi is present with its major brand BOSS in the 2 nd brands list.
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4.7 Market Profitability Analysis

The tobacco industry is not highly fragmented with few local players offering different variants of cigarettes (hard and light), different prices (lower segment and upper segment) and different benefits (various taste, quality, brand satisfaction, variation of nicotine, package convenience). If we compare the two giants of the tobacco industry, PTC caters to the upper segment of the tobacco industry where as LTC caters to the lower segment of the tobacco industry. PTC has healthier brand equity because of its healthier brands which Karachi lacks in its product portfolio. Further more PTC captured the rural market before Karachi came into existence, which is the highest profit producing market. Karachi has the advantage of providing its users with a much larger range of products for each segment of the tobacco industry therefore giving the choice to the consumer to have a variety of choice on the same price category. Profitability of Karachi Tobacco Company can be measured with the turnover of PKR 12 Billion last year, as per the annual report publication. The total share in the market is 37% while its rival has a share of 52% of the total organized sector. While the remaining is with Mardan brands and imported cigarettes both in organized and unorganized sectors. Profitability of Pakistan Tobacco increased after a dip during 2011 2012 where they put massive investment, but the company survived it due to aggressive market and sales promotions overtaking karachi in both profitability and market share. Another factor for PTCs more profitability is the emergence of dark Marketing, after government regulations on the ATL activities. They were too quick as compared to Karachi to go for merchandizing of their products. The smuggled cigarettes are present in the market via illegal routes. These brands are very economical as there is no tax which is enforced to these brands by the government.
4.8 Cost Structure

The cost structure in the industry does not follow any set pattern. The Tobacco market is so continuous that cigarettes in the premium segment as well as in the non-premium segment follow same value chain and cost structure pattern. The taxation structure for cigarettes is set by the government based on the retail price of the product. As seen from the below table, government is charging very high taxes, which are as
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Marketing Plan: Karachi Tobacco Company ___________________________________________________________________________ much as 73 % of the total cost. Of which 10 15 % is on the tobacco used for the manufacturing of the cigarettes. Per 20 Cigs. UPPER MEDIUM LOWER
Retail Price ABOVE Rs. 70.00 > Rs. 15 & up to Rs. 40.00 UPTO Rs. 15
Cost of raw material used in manufacturing of cigarette is also high as both the rivals use imported raw and packaging materials. But the volume is justifiable for their usage to give product a good quality and sustainability . KTC has placed itself somewhere towards the middle continuum. It cannot sell itself solely on the basis of its brand name; hence, it has to practice a high level of marketing and sales promotion activities. On the other hand, since most of its raw material is imported, and its volume sales are high enough, yet its major chunk of the budget should be spent on marketing but this is not a common practice.
4.9 Driving Forces or Key Success Factors

Quality: Low cost of production while maintaining quality of product his is because of using high quality imported raw material and high volumes production that gives them a good bargaining power on the purchase of raw material for both imported and local materials. High Volumes: Targeting major low price chunk of the market, resulting in Successful new Cigarette brand, like BOSS and Challenger. Commitment from top: Top management is always committed to go with the new ideas and help the middle management exercising various options in the market. Networking: The tobacco industry is highly dependent on the effective and efficient network of the distributors, since there is a restriction of the using media by the government, therefore the players use the distributors to market there products to retailers and consumers and see that there products availability is high so that people 23
Marketing Plan: Karachi Tobacco Company ___________________________________________________________________________ can get aware of it. Also good relationship with the suppliers help them reduce their inventory costs and benefit on part of them whenever there is shortage of any raw material in the global as well as local markets. Sales Promotion Strategies: Merchandising, sales promotion and other aggressive marketing techniques are the rules of the game in this industry. Most common is the inserts practice that is always offered to the consumers by both the rivals. Also there is a practice of offering incentives to the big retailers and wholesalers in terms of volumes of sales made by them for the company. Product Portfolio: Since the lower segments of the tobacco industry is getting saturated therefore the major players of the industry require a set of healthy brands which not only bring in profit to them but are also strong brands as they would be ultimate instruments with which the major players will hit and capture the upper segments of the market.
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4.10 Trends in the Industry
4.10.2
Bargaining Power of Suppliers
The suppliers of the industry have a considerably neutral bargaining power, since the pool of local suppliers for various materials is considerably large. As the industry has developed a lot through the years therefore more and more local suppliers have started there operations in the country and hence are providing raw material to the companies in the tobacco industry and hence reducing the cost of the tobacco products for the consumers. But still there are still some raw materials which are only provided by some specific manufactures. For example is the Packages Ltd. Is a supplier for Corrugated Cartons, Cigarette paper and Tipping paper from Germany, namely Tann paper and Wattens paper respectively.
4.10.4
Threat of New Entrant:
The threat of new entrant in the tobacco industry is relatively less, on account of the capital investment involved in producing high quality cigarettes. However, there is an ever growing number of Mardan products who produce brands in the lower price categories and evade taxes, on account of which they are able to earn handsome margins. Also, as the government rules and regulations are high therefore, new competitors have to think a thousand times to come into this industry, as heavy taxes are imposed on the tobacco industry. An example of the heavy taxes imposed is that almost 68% of the revenue generated by KTC goes to the government as tax.
4.10.5
Exit Barriers:
As the tobacco industry involves high investment in the specialized assets and secondly it requires a major fixed cost to exit from the tobacco industry therefore the exit barriers are high and the industry is mildly unfavorable. Hence the competitors of the tobacco industry would have to strive hard to remain in the industry by striving for new marketing strategies that can help them to remain in the competition with its competitors. In short in this industry is a highly competitive.
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5.0 Internal Analysis

5.1 Value Chain
Tobacco Purchasing Local / Imported
Threshing and grading of Local Tobacco
Prized Tobacco Warehousing
Import of Raw / Packaging Material
Local Raw / Packaging Material Procurement
Tobacco Logistics to factory
Centralized Warehousing
(3 Months Production Forecast)
Onsite Warehousing 15 Days Stock
Primary Processing (Blending)
Onsite Warehousing 1 Month Stock
Cigarette Manufacturing & Packaging
Inhouse Finished Good Warehousing
Out Bound Finished Good Depots
Retailers & Warehouses
Consumer
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5.2 SWOT Analysis

STRENGTH[S] WEAKNESS[S]
Local company, therefore good and flexible Not having strong presence in urban areas relation ships with Inbound and Outbound channel members. Now will enjoy more experienced approach of World Giant Philip Morris. 35 Plus of Years of learning experience. Absence of premium products Trusted name by both the trade, and the end Restriction by the government over consumers advertising and promotional activities. They cannot target females, children under 18 or families in Pakistan Strong distribution network (Established Lack of Strategic Focus, which now hopefully relationship with distributors). improve after Philip Morris Acquisition. Maintaining and improving quality in products Market share deteriorating. and services High cash inflow. Severe Labor Union problem faced in one of the manufacturing unit. Strong R&D: Technology advancements for quality enhancements and knowledge engine Involvement in community services
OPPORTUNITY[S] Growth potential in Segment A & B. Introduction of menthol cigarettes
THREAT[S] Competitor taking most of the market share
Increasing level of taxes due to which cigarette prices increasing Niche market for flavored products 70% of total revenue taken by government yearly Potential market in urban areas specially of Counterfeit Products Sindh Increasing segment of young smokers
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Marketing Plan: Karachi Tobacco Company ___________________________________________________________________________ Higher Levels of Disposable Income Export sales
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5.4 Portfolio Analysis

5.4.1 KTC Brands:
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5.4.2 BCG Matrix:
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Stars Problem Child
Challengerr Boss
Cash-Cows Dogs
Prism and Boss
Prism
Karachi Tobacco as a whole business is at the moment in the moderate or even low growthhigh share stage, that is, it is nearing the star as well as dogs. It is a growing business with a moderately 2nd highest share in the market. The companys current strategy is to invest to build with emphasis on the segments A, B and C with its short term plans to capture segment A & B as well.
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5.5.1 Financial Highlights

($ Mio.) FY 2012-13 Volume (Bio) Net Sales COGS DME/Selling/G&A Pre Tax Income Net Income Exchange Rate 30.4 164.8 93.6 29.5 39.5 25.7 62.8
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5.6 Performance Standards
6.0 Vision, Mission and Objectives

6.1 Vision
To exceed the expectations of our customers by producing and supplying high quality products while executing with strong ethical standards, total transparency and complete fairness in all areas of our business.
6.2 Mission Statement

We are the most trusted name in customer and partner relationship management. We are Number 1 in volume and value at all categories, including export We are Number 1 amongst the top 25 companies in the KSE We are a caring organization We are a system based organization, striving to establish / maintain our operations revolving around ISO/SAP/6 Sigma and Reengineering Performance Management. We believe that our people are sincere and committed to continuously produce high quality products at lowest possible cost by meeting expectation of all stockholders. We are a team of satisfied, daring and caring professionals who respect and trust others, and strive to be proactive in their decisions, while continuously measuring our performance in numbers and taking responsibility of our actions. We work in an open environment of boundaryless organization where conflict is a norm.
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6.3 Business Objectives

To maintain and improve our market share by 5% every year. To capture a major chunk of the growth of 10 to 15 percent with our emerging new variants. To reduce our costs of production by 5 percent every year. To focus penetration in the urban areas mostly of Sindh because of rural market saturation. To increase communication and information flow across functional areas in order to improve employee efficiency. To enhance our production and logistics division with injection of latest upcoming technology To target segment A and B, with special emphasis on B category within next 6 months To invest 10-12% more in out R&D division for enhancing our product portfolio Increasing shelf space in urban market by 10% within next 10 years To align processes with Philip Morris, especially Quality standards, procurement and follow GAP in financial aspects. To increase productivity and improve men per million ratios.
6.4 Key Issues

Ensure that KTC does not lose its share to new lower-priced products, and smuggled counterfeited items.
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Marketing Plan: Karachi Tobacco Company ___________________________________________________________________________ Since majority of Karachis raw material is imported, it is subject to foreign exchange rates, import and excise duties. Provide consumers with quality products like KTC has always done, and attempt to decrease cost at the same time, especially in the face of such fierce competition based solely on price. Employee resistance to change toward new technology. Competitor having strong positioning in the Urban areas due to which segment A and B are left untouched. Unionized work force.
6.5 Strategic Direction

Target the upper segments of the market by increasing our portfolio for Segment A & B with slightly premium prices. Rationalize factories to optimize production cost and reduce reject rates and increase factory yields. Improve taste of product by using hybrid seeds that would enhance tobacco tastes and aroma. Study the cost price relationship in accordance with the revenue being generated from each variant of the product so as to determine the weak link which can be shelved so as to balance the production Anticipate the demands of our target consumers with regards to prices and quality. Resist the rejection towards high prices of imported cigarettes by enhancing our quality image and brand name competence. Negotiate with retailers to increase our visibility through strategic placement and shelf space. Continue our R&D efforts in the product engineering stage to provide consumers with better value in terms use, image and satisfaction.
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Marketing Plan: Karachi Tobacco Company ___________________________________________________________________________ To restructure and reorganize functional departments, making them more attuned to each others activities.
7.0 Pricing Strategy

Prices of major products of the KTC Portfolio for 20s Cigarettes is given as under
Product
PRISM Challenger BOSS
Price
Rs. 70 Rs. 40 Rs. 15
Benchmark
Rs. 65 Rs. 40 Rs. 15
Since PRISM has been targeted for the upper middle and upper class therefore its priced highest. But the volumes that were coming from the market were simply too low for the brand to operate and now the management is planning to shelf it. Challenger fall at the lower pricing then PRISM.
7.1 Influences on Pricing Strategy:

Pricing strategies are a result of certain influences coming from all directions; these are:
7.1.1 Government Intervention

Pakistani government imposing high taxes on Tobacco products cause prices to increase every year. This is done to achieve the revenue target as well as being able to pay off the required taxes.
7.1.2 The firms corporate and marketing objectives

It is fair to say that this is the major influence behind pricing and the main criterion for pricing is that Karachi wishes to promote its line of brands as non-premium brands and adapting low prices. By providing both high quality and high prices, they aim to attract these segments of the market mostly, those who are price conscious.
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7.1.3 The degree of product differentiation

Differentiation does certainly influence price because the specification under which the Cigarette ingredients are produced is important; in fact, KTC claims superior quality because of its production process and import of best quality raw material.
8.0 Communication Strategy

Government has imposed several restrictions on the promotion activities on Cigarettes industry.
8.1 Product
30% Health Warning on packs (front and back) has been imposed since May 2012 but there is still no Tar / Nicotine ceilings set by the government, but it is already anticipated by both players. Both are working to gradually reduce Nicotine and Tar levels so that the consumer cannot perceive.
8.2 Advertising
Ads allowed in age controlled cinemas only and not on Television or Radio. Sampling is allowed at non-public events. No ads less than 50 meters from schools Models are allowed. Even in ads the age of model used must be over 40 years old. The size of Billboards is limited to max 1m with 20% health warning. After all these regulations, the communication to the consumers is limited to merchandizing only or through sales promotions. Concerts and other BTL activities are still available to communicate the message to the consumer.
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9.0 Product Marketing Plan

9.1 Current Scenario
Market Segment Segment A Segment B Segment C
Product
Positioning Positioned at premium level, with the same international brand image. Position for good taste and Modern Approach. Positioned as hard, energetic and rugged.
PRISM Challenger BOSS
9.2 Future Plan

Market Segmen t Segment A Segment B Segment C Product Positioning For Marlboro it would remain same, but more aggressive marketing will be done by merchandizing and sales promotion. Positioned for style and taste No change just repositioned with new packaging early this year No change Why To make it available in the market and emphasize of freshness as compared to Smuggled cigarettes.
PRISM Challenge r BOSS
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10.0 Operational Plan

Benefits (sought by customer)
Strong Preference Price Concious Packaging consideration Quality Prestige
Positioning
Largest leader in providing a variety of strong taste brands Targeting consumers who want to enjoy highest standard of tobacco at affordable prices Being the only players providing far superior soft packs and Emperor packaging Providing the finest American blended tobacco Providing highest quality tobacco to the lower segment masses Available in every shop of every city
Advertising Program
Ads in magazines, kiosk for product trial Sales promotion, personalling selling Kiosk showing packaging features Products carrying int. ISO achievements Ads providing the association between the product and the lower segment masses, merchandising on outlets in the lower segement areas Merchandising on outlets, increased shelf share and incentives to the distributor, building an association of the distributor with the concerned brands
Easy Availability
11.0 Action plan

What
New Brand Introduction Improve in Marlboro Distribution Product Portfolio Analysis
How
By launching a new brand in B category and A category of the segment New markets and distribution network Evaluate each products performance, its potential and contribution to revenue. By induction of high speed packers
Who
By Marketing Department Sales & brand Management Marketing Director, Operations Director and Operational & Marketing Finance Team Operations Department
When
As early as possible ASAP Immediately to get rid of non performing SKUs. By Mid 2014
Production Increase Production capacity of 10s
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Marketing Plan: Karachi Tobacco Company ___________________________________________________________________________ SKU. Improve Increase productivity by Factories and ASAP Productivity and proper maintenance Production planning Yield scheduling of equipment department and better production planning. Distribution More emphasis Sales Team, should Sales Department As soon as on secondary analyze the secondary GM Sales, possible sales to have data collected from NSM, DSM, ASM better ideas of SAP. sales Promotion Aggressive Have to give the Brand Management As soon as promotional merchandisers good Team. possible activities at promotional offer to merchandizing push the product into level the market and make it available. Kiosks building and distribution on a large scale. Consumers More emphasis should Brand Management ASAP interaction be given to urban area Sales and Marketing markets and attract Team more consumers through BTL activities like concerts, shows sponsoring Innovation and R&D New product Product Research & R&D and Marketing 2015 development in Development team Manager and Boutique along with Marketing Marketing Research products research team should focus on this developing trend in the market for boutique brands. Financial Cost Cutting in Financial records New advance 2014 various areas reviewing machinary and plant setup to cut the variable cost in the long run
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12.0 Conclusion
To sum up all the findings presented in this report in order to move to the position of a company that excels and wins in the dynamic marketing environment today from the position it is in today Karachi needs to take the strategic direction outlined by the following points. KTC must increase its product portfolio for Segment A & B. This is to eliminate the concern of being present in the market but not in visibility. These segments are profitable and KTC almost doesnt exist in these segments. Karachi needs to change and develop a better and clearer positioning statement for its products, which it lags now after the imposition of government regulations. For operational point, KTC needs to cut down its FME and improve in quality even further to excel and compete in the market.
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Marketing Plan Karachi Tobacco Company

Kamran Ali Khan Umair Wajid Tahir Kaleem Ahmed Amirali

2201286 2200967 PDGN 0289 2201055

Submitted to Mr. Iftikhar Munir Marketing Management

Marketing Plan: Karachi Tobacco Company ___________________________________________________________________________

Marketing Plan: Karachi Tobacco Company ___________________________________________________________________________

Sincerely, Kamran Ali Shahid Umair Wajid

Marketing Plan: Karachi Tobacco Company ___________________________________________________________________________

Marketing Plan: Karachi Tobacco Company ___________________________________________________________________________

Marketing Plan: Karachi Tobacco Company ___________________________________________________________________________

1.0 Overview of Tobacco Industry

1.1 Pakistan Market

1.2 Market Segmentation

Segments Segment A Segment B Segment C

Segment D <Rs. 20.00 Farmers contracting & Registration

Seed Beds / Nursery

1.3 Frame work from Harvesting to Cig. Manufacturing

Distribution to Sales warehouses

Marketing Plan: Karachi Tobacco Company ___________________________________________________________________________

Key Emerging Trends

1.5 High Barriers to entry for new entrants

Marketing Plan: Karachi Tobacco Company ___________________________________________________________________________

2.0 Karachi Tobacco Company Limited

Jac oba bad

Total Cigarette Depots: 19

Marketing Plan: Karachi Tobacco Company ___________________________________________________________________________

2.3 The Clientele:

2.4 The Suppliers:

2.5 Management Team:

Marketing Plan: Karachi Tobacco Company ___________________________________________________________________________

3.2 What Needs

3.3 Whose Needs

3.4 Added Value

Marketing Plan: Karachi Tobacco Company ___________________________________________________________________________

4.0 External Analysis

Marketing Plan: Karachi Tobacco Company ___________________________________________________________________________

Segment A Prism Gold

Marketing Plan: Karachi Tobacco Company ___________________________________________________________________________

Large Scale Retailers

Marketing Plan: Karachi Tobacco Company ___________________________________________________________________________

4.3 Market Size & Share

Marketing Plan: Karachi Tobacco Company ___________________________________________________________________________

2012-13 61% 31% 8%

4.3.2 Projected Market Growth for next 4 years

Growth (2.5%) 2015 914 418 106 1438

Growth (2.7%) 2016 948 432 111 1491

4.4 Segment Life Cycle

Segments B &C Segment A &B

Marketing Plan: Karachi Tobacco Company ___________________________________________________________________________

Market Segment Segment A Segment B Segment C

Growth Maturity Decline

Marketing Plan: Karachi Tobacco Company ___________________________________________________________________________

4.5 Distribution Structure

Marketing Plan: Karachi Tobacco Company ___________________________________________________________________________

4.6 Company & Competitor Market Share

60% 50% 40% 30% 20% 10%

KTC PTC Others

Company Segment LTC KTC PTC PTC C C C A

Mkt. Share 23.6% 16.5% 7.7% 6.3%

Marketing Plan: Karachi Tobacco Company ___________________________________________________________________________

4.7 Market Profitability Analysis

4.8 Cost Structure

4.9 Driving Forces or Key Success Factors