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Pakistan Tobacco Company

A Project of Marketing Principles


Submitted to

Mr. Syed Nawab

Marketers:
Noman Ahmed
Umair Ahmed
Mujahid Hussain Awan
Jay Kumar Vaswani

Pakistan Tobacco Company-The Marketing Principles Project

Table of Contents
Acknowledgement

Executive Summary

Scope of the Project Report

10

Tobacco Industry in Pakistan

11

PTC Profile

About PTC

12
12

Fields of Gold 12
PTC Vision

12

PTC Mission

12

Strategic Objectives

12

Guiding Principles

13

Strength from Diversity

Open Minded

13

13

Freedom through Responsibility 13


Enterprising Spirit

13

Business Principles 13

Mutual Benefit

13

Core Beliefs

14

Responsible Product Stewardship 14


Core Beliefs

14

Good Corporate Conduct 14


Core Beliefs
PTC Brands

14

15

Sales Performance in Recent Years


Seed to Smoke 17
Seed 17
Harvest

17

15

Tobacco types

17

Pakistan Tobacco Company-The Marketing Principles Project

Curing

18

Air-Curing 18
Flue-Curing

18

Sun-Curing 18

Fire-Curing 18
Processing

19

Manufacturing
Distribution

19

20

Cigarette Components and Their Functions


Tobacco Blend

20

Cigarette Paper

20

Filter

20

Plug Wrap 21
Tipping Paper

21

Macro & Micro Environment


SWOT Analysis

22

22

Strengths 22
Weakness 22

Opportunities
Threats

22

23

Porters Model

24

Rivalry among existing firm 24


Bargaining Power of Buyers 24
Bargaining power of suppliers
Potential Entrants

24

Substitutes 24
PESTLEC Analysis

Political

25

25

Economical

25

24

20

Social

25

Technological

25

Pakistan Tobacco Company-The Marketing Principles Project

SAP (System Application Program)


Legal

26

26

Environmental

26

International Brands
Local Brands

27

27

Counterfeit / Other Tax Evaded Brands

Marketing Strategy

29

Market Size and Growth

29

Regulation and Taxations

29

Regulations in Terms of Pricing


Fixation of Prices

27

29

29

Methodology for the Fixation of Minimum Prices of Tobacco


Tobacco Taxation
Types of Taxation

30
30

Federal Excise Duty (FED)

30

Sales Tax 30
Federal Tobacco Cess (FTC)

Customs Duty

30

31

Tobacco Development Cess (TDC) 31

Marketing Mix 32
Introduction 32
Target Market
Product

32

33

Product Development

33

Upper Slap Products

33

Middle Slap Products

33

Lower Slap Products

34

Benson & Hedges

34

John Player Gold Leaf

34

29

Capstan

34

Gold Flake 34

Pakistan Tobacco Company-The Marketing Principles Project

Wills King

35

Embassy

35

Promotion

35

Advertising 35
Sales Promotion

35

Contests and lotteries


Rebates

36

36

Toping up 36
Brand Availability

36

Consumer Contact 36

Market Intelligence36
Temporary Merchandizing Activity

36

Permanent Merchandizing Activity

36

Direct Sales Delivery (DSD) 36


Five Steps for DSD
Personal Selling

37

37

Price 38

Place 38
Managing Business Channels
Cigarette Advertising

40

Brand Stretching

40

Youth Marketing Tactics

38

40

Programs that Target Youth Directly 40


Programs that Target Parents

41

Programs for Retailers to Decrease Youth Access


Direct Funding of Youth Organizations
Illicit Trade
Illicit Trade

42
42

Types of Illicit Trade 42

41

41

What Illicit Trade is not?

42

The Cost of Illicit Trade Globally

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Pakistan Tobacco Company-The Marketing Principles Project

The Cost of Illicit Trade In Pakistan


Tackling Illicit Trade

43

Measures Taken so Far by BAT


BAT Business

43

BAT Suppliers

44

MoUs

42

43

44

Brand Enforcement Group


Export Bond

44

Research

44

44

Training for customs officers

44

Destroying used machinery

44

Supplier Relationship Management

46

Introduction 46
Supplier Segmentation

46

Commodity 47

Performance Management 47
Development
Partner

47

47

Accountability

47

Process and Governance

47

Technology47
Value

48

Resourcing 48
Supply Chain of the Business

48

Valued Business Partners

48

Primary Supply Chain

50

Leaf Suppliers

50

Social Responsibility in Tobacco Production (SRTP)

Integrated Crop Management

51

50

Materials Suppliers

52

Business Enabler Survey Tool (BEST)

53

Pakistan Tobacco Company-The Marketing Principles Project

Business Principles

54

Environment, Occupational Health and Safety (EHS)


What our suppliers say about BEST
Service Providers
Secondary Supply Chain

54

54

56
56

Trade Relationships 57

Trade Marketing and Distribution


Our Customers

58

Customer Satisfaction Surveys

58

Adding Value to Trade Relationships


Tackling Illicit Trade

57

59

59

Corporate Social Responsibility 61

Introduction 61
CSR Programs at PTC 61

Youth smoking prevention

Mobile doctors

62

Afforestation

62

61

Learning Resource Centers 63


Earthquake Relief & Rehabilitation

Water Filtration Units


CSR or CSI?

64

64

64

Social Reporting

65

GRI indicators

66

Strategies that Tobacco Industry Adopts to reframe Corporate Image


Programs that Target Youth Directly
Programs that Target Parents

68

Direct Funding of Youth Organizations


Future Outlook 70
Overview

70

68

68

67

Increased Taxation Combined with Illicit Sales of Cigarettes The Biggest Challenge & Competition?
Improved Distribution Networks Help Sales

70

71

Pakistan Tobacco Company-The Marketing Principles Project

Research and Development

71

More Pressure to Come in the Future


Conclusion

71

72

Future Tobacco Consumption 72


Reasonable Co-Operation
References

73

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Pakistan Tobacco Company-The Marketing Principles Project

Acknowledgement
We are thankful to almighty Allah, who gave us strength and courage to accomplish
this project report.
We would like to express our gratitude to Mr Syed Nawab for encouraging and guiding us
during the course of this project. We are also thankful to those who provided us with
relevant information that was required for successful completion of this project.
It has been an enriching experience for us to conduct a market research and gathering
concerned data to create detail report on the Pakistan Tobacco Companys business.

We wish to express our sincere appreciation to those who have contributed


directly or indirectly to this project.

Pakistan Tobacco Company-The Marketing Principles Project

Executive Summary
Cigarette is a product which is harmful for health, in spite of this feeble, its sales are
increasing globally. The product has been banned from advertisement and promotional
activities. It is a challenge for the tobacco manufacturing companies to sale this product
and build its brand image.
Tobacco production in Pakistan is forecast to increase to 98,500 metric tons (MT) due to
an expected increase in area and yield. Area is forecast to increase in response to
stronger demand and better prices from cigarette manufacturers.
Pakistan Tobacco Company (PTC) a member of British American Tobacco (BAT) group is a
well-reputed multinational organization. PTC uses state of art technology in its every
process. It is the world's most international tobacco group - with brands sold in 180
markets around the world. Pakistan Tobacco's operations in Pakistan began in 1947,
making it one of Pakistan's first foreign investments.
The company produces high quality tobacco products to meet the diverse preferences of
millions of consumers, and it works in all areas of the business - from seed to smoke. The
company provides a number of reputed brands of cigarettes to consumers in Pakistan,
including Benson & Hedges, Embassy, Gold Flake, Capstan and Gold Leaf.
PTC is one of the largest excise tax generator in private sector of Pakistan. In 2004
alone, PTC paid the government close to Rs.16 Billion in excise and sales taxes. This
amounts to over Rs.50 million per working day. Over one million people are economically
dependent on the industry in Pakistan.

Pakistan Tobacco Company-The Marketing Principles Project

Scope of the Project Report


The scope of the project report is to cover mainly the areas studied in our Marketing
Principles course.
We did comprehensive research of the tobacco industry in Pakistan and Pakistan Tobacco
Companys business. This project demonstrates the processes related to cigarette
manufacturing from seed to smoke, Pakistan Tobacco Companys business profile, its
market share, advertising and marketing strategies, customer relationship management,
detailed analysis of political, economic, social, technological, environmental, legal and
competitors of PTC.
Many people believe that PTC is not in a position to be socially responsible but PTC engages
in CSR activities indeed. We covered different CSR activities in which PTC is being engaged.

PTC strongly believes on mutual benefits for which it maintains relationship with its
suppliers, service providers, distributors, wholesalers, retailers and etc. We also
touched upon the supplier relationship management of PTC.
In the end we discussed what will be the future of the company, the research and
development of the company and what pressures are coming in near the future.

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Pakistan Tobacco Company-The Marketing Principles Project

Tobacco Industry in Pakistan


Tobacco industry has been a great source of revenue generation for Pakistani economy
because of its increased demand and increasing number of users for the past ten to
fifteen years. Tobacco Industry, overall contributes 4.4% or Rs. 27.5 billion to the GDP of
Pakistan. This industry provides largest contribution in terms of taxes (i.e. 5% of the all
taxes received) and excise duty. It provides almost 312,500 jobs opportunities and
employs nearly 1.2 million people in Pakistan.
There are few (almost 7-8) players (both includes local and international firms) in the
industry creating an oligopoly situation in the industry. The major firms involved in the
manufacture of finished goods and exports include Pakistan Tobacco Company, Lakson
Tobacco Company, Souvenir Tobacco Company, Saleem Cigarette Industry, Universal
Tobacco Company, Imperial Cigarette Industry, Khyber Tobacco Company, International
Cigarette Industry, Walton Tobacco Company and Sarhad Cigarette Industry. Of these
firms Pakistan Tobacco Company (PTC) is the market leader with Lakson Tobacco
Company (LTC) in the second place.
Because of increased consumption rate of tobacco and resulting health consequences
because of use of cigarette, government of Pakistan imposes various restrictions on the
firms operating in the industry i.e. let them pay high amount of taxes, excise duties and
imposes strict rules and regulations which makes it difficult for the local firms to strive
in the market. The threats of the local manufacturers have increased because of entry
and existence of international Tobacco producing firms with low cost structure. Those
include PMI (Philip Moris Intl) comprising brands of L&M and Marlboro.
Some dominant firms in the market are however, able to sustain in the market but lower
prices and influence of the dominant firms like Pakistan Tobacco and Lakson Tobacco are
creating the situations tougher for the existing firms. Out of all the tobacco firms
operating in the industry (mentioned above), the most competitive local firms are:
Khyber Tobacco Company, PTC, LTC, Sarhad Cigarette industries.
Although PTC is cutting down its prices to be dominant in the market but Lakson Tobacco
and PMI, in response are, doing mergers and acquisitions with other firms to be
competitive in the market. Recently Philip Morris International (PMI mentioned before)
acquired 50.21% stake from Lakson Tobacco companys principal shareholders for PKR
666.89 per share. These sorts of actions can prove to be very significant in terms of
dominance of the firm in the industry. PMI is an international company which is already a
very established manufacturer of cigarette in Pakistani as well as international market
with its strong brands Marlboro, Red & White, L&M etc. This can disturb the market
power and competitive position of PTC in the market.

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Pakistan Tobacco Company-The Marketing Principles Project

PTC Profile
About PTC
Pakistan Tobacco Company Limited was incorporated in 1947 immediately after Partition,
when it took over the business of Imperial Tobacco Company of India that had been
operational in the subcontinent since 1905. It is the largest tobacco company in Pakistan
and is the market leader by both volume and value. PTC is part of the trans-national
British American Tobacco Group, which employs some 54,000 people worldwide and has
a presence in 180 countries. British American Tobacco is the leader in 50 countries
selling over 300 brands. In 2007, the Group produced and sold nearly 16.7% share of the
global market of cigarettes.

Fields of Gold
Pakistan Tobacco Company is the largest cigarette manufacturing company in Pakistan.
PTC also has a special relationship with the land and people of NWFP that goes back to
over half a century. NWFP is the focal area in terms of tobacco-related activities in
Pakistan. It produces around three-fourths of tobacco leaf in the country, and many of
the cigarette manufacturing units are also located in this Province. Pakistan Tobacco
Company plays a prominent role in the economy of the NWFP by generating revenue and
employment in sectors such as Farming, Manufacturing and Retailing. It also contributes
significantly to the Government Exchequer in the form of tax contribution, and to the
social sector through its various Corporate Social Responsibility initiatives. The impact
becomes more pronounced if the huge investments made by PTC in the form of
machinery and infrastructure development, are also taken into consideration.

PTC Vision
First Choice for Everyone

PTC Mission
Transform PTC to perform responsibly with the speed, flexibility and enterprising spirit
of an innovative, consumer-focused Company.

Strategic Objectives
PTC strategy reflects its vision of being the champions of Growth, Productivity,
Responsibility and a Winning Organization.
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Pakistan Tobacco Company-The Marketing Principles Project

Guiding Principles
Our Guiding Principles describe the organization PTC is are and the type of organization PTC
want to be. They represent the common values at the heart of the company success.

PTC follows four guiding principles that represent:


Strength from Diversity

Strength from Diversity reflects the cultural mix within the Company and a work
environment that respects employees individual differences. It also reflects PTC vision
of harnessing diversity of people, cultures, viewpoints, brands, markets and ideas to
create opportunities and strengthen performance. For this reason, PTC is interested in
what will differentiate you from others what makes you unique.
Open Minded

Open Minded reflects PTC openness to change, opportunities and new ideas, including
ways of addressing regulatory issues and changing social expectations. PTC seeks to
listen without prejudice, actively and genuinely considering other viewpoints.
Freedom through Responsibility

Freedom through Responsibility describes how the company makes decisions: as close to
the consumer as possible. It also affirms PTC belief that decision-makers should accept
responsibility for their own decisions.
Enterprising Spirit

Enterprising Spirit has been a characteristic of PTC business for more than a century. It is
reflected in PTC ability to grow PTC business and its value within challenging
environments in the confidence to seek out opportunities for success, to strive for
innovation and to accept considered risk-taking as part of doing business.

Business Principles
PTC follows three fundamental Business Principles:
1 Mutual Benefit
2 Responsible Product Stewardship
3 Good Corporate Conduct
Each principle is supported by a series of core beliefs, which are explained below:
Mutual Benefit

The principle of Mutual Benefit is the basis on which PTC build its relationships with its
stakeholders. The company is primarily in business to build long term shareholder value
and The company is believe the best way to do this is to understand and take account of
the needs and desires of all its stakeholders.
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Pakistan Tobacco Company-The Marketing Principles Project

Core Beliefs
1 Creating long term shareholder value
2 Engaging constructively with its stakeholders
3 Creating inspiring work environment for its people
4 Adding value to the communities in which the company operates
5 Ensuring that suppliers and other business partners have the opportunity to
benefit from their relationship with us
Responsible Product Stewardship

The principle of Responsible Product Stewardship is the basis on which PTC meet
consumer demand for a legal product that, put simply, is a cause of serious diseases.
Therefore, our products and brands should be developed, manufactured and marketed in
a responsible manner.
Core Beliefs

Provision of accurate, clear health messages about the risks of tobacco


consumption
1 Reduction of the health impact of tobacco consumption whilst respecting the
right of informed adults to choose the products they prefer
2 Continued availability of relevant and meaningful information about our products
3 Underage people should not consume tobacco products
4 Responsible marketing of our brands and products and directed at adult consumers
5 Appropriate taxation of tobacco products and elimination of illicit trade
6 Regulation that balances the interests of all sections of society, including
tobacco consumers and the tobacco industry
7 Approach public smoking in a way that balances the interests of smokers and
non-smokers
Good Corporate Conduct

The principle of Good Corporate Conduct is the basis on which all our business should be
managed. Business success brings with it an obligation for high standards of behavior and
integrity in everything PTC does and wherever it operates. These standards should not
be compromised for the sake of results.
Core Beliefs

1 PTC business upholds high standards of behavior and integrity


2 High standards of corporate social responsibility to be promoted within the
tobacco industry
3 Universally recognized fundamental human rights to be respected
4 Tobacco industry to have a voice in the formation of government policies
affecting it
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Pakistan Tobacco Company-The Marketing Principles Project

Achieving world class standards of environmental performance

PTC Brands
PTC has established and continues to maintain a balanced portfolio of brands, operating
and leading in each key segment of the market. 2008 saw continued investment in its
brands resulting in a healthy overall growth.
Dunhill continues to be PTCs main brand in the premium niche segment, it was relaunched at a new price point in 08 and PTC invested in expanding its availability in the
Metros, with encouraging results. Similarly Benson & Hedges (B&H), PTCs leading offer
in the premium segment, grew by 5% over last year capitalizing on its international
equity.
Gold Leaf, the leader in its segment, grew by 10% during 2008 backed by the
introduction of a new communication platform - Know What Matters. This campaign
emphasized Gold Leafs expertise in bringing the best tobacco experience to its
consumers. Going forward the brand will continue to focus on innovation and being a
very current offering to the consumer to maintain its premium image.
In the mid Price segment, Capstan by Pall Mall continued to dominate the market by
offering exciting and innovative consumer promotions. These included the Limited
Edition Packs highlighting the International Heritage of Pall Mall and concluded with the
introduction of the first of its kind, innovative Pop-Up pack which was very well
received by the consumers.
Gold Flake achieved an impressive 19% growth over 2007, maintaining its position as the
fastest growing brand in the market. Key to Gold Flakes success is the fact that a great
product is being offered at a good price backed by focused consumer communications
and aggressive distribution. Gold Flake is the main driver of PTCs volume share growth
in the market and will continue to play a vital role towards the growth of the Company
in future as well. Embassy, PTCs other offering in the low price segment is performing as
expected as more and more of its consumer base is up trading to Gold Flake. PTC,
however, continue to focus on the distribution of the brand in its strongholds.

Sales Performance in Recent Years


The Company delivered a record sales volume of 41.5 billion cigarette sticks, registering a
12 % growth in terms of volume and 20% in terms of value over the previous year. PTC
business has shown remarkable resilience in 2008. While it witnessed very testing times, it
has emerged even stronger. In-depth understandings of consumer needs, focus on product
quality and innovative marketing campaigns, have always been PTC forte and they have
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Pakistan Tobacco Company-The Marketing Principles Project

provided the company with a platform to achieve strong organic growth even in difficult
times.
Dunhill, PTCs premium offer, was under focus during the year and it has responded well
to price repositioning and distribution expansion.
Gold Leaf, with its role as the value driver, performed exceptionally well growing by 10%
over the last year. Gold Flake continued to play a critical role in the companys growth
and grew by 19% during 2008. Capstan by Pall Mall remained the first choice for
consumers in the medium price segment backed by innovative consumer offers. Embassy
performed as per expectations as consumers up-traded to Gold Flake.
In short, the portfolio strategy of the Company is working and brands are well positioned
in different consumer segments to satisfy distinct needs of consumers. The Company
continued to invest in training and development of its sales force in order to better
equip them to reach customers in the most efficient manner. Efforts to this end have
resulted in PTC being rated as the best service provider among FMCGs by an independent
Customer Satisfaction Measurement Survey.

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Pakistan Tobacco Company-The Marketing Principles Project

Seed to Smoke
Seed
The tobacco plant is a member of the same botanical family as tomatoes, potatoes, peppers
or eggplants. An adaptive species, it can be grown economically from 50 Northern to 40
Southern latitude. More than 100 countries grow tobacco. China is the largest producer,
followed by the United States, Brazil, India, Zimbabwe and Turkey. Tobacco thrives in poorer
soils, providing farmers with a welcome alternative crop. In many cases, it provides a higher
income than any other smallholder crop. As a crop, it integrates well into environmentally
friendly rotations, and its inclusion benefits subsequent crops like maize. A typical farmer in
rural Uganda, for example, with two to three hectares of land can earn a good income from
only a small part of that land being planted with tobacco. Pakistan Tobacco Company helps
the farmers of Pakistan by providing seeds and fertilizer and by giving advice on planting,
growing, harvesting and curing tobacco and other crops.
There are some 13,000 seeds in a gram -looking rather like powdery instant coffee. The
seeds are so small that they must be nurtured in specially prepared and protected seedbeds
for 60 days before transplanting to the field. After a couple of weeks, soil is banked up
around the seedlings to protect them and to allow them to develop a good root system. Two
months later, the plants' flowers and some of the upper leaves are 'topped' in order to
concentrate growth in the remaining leaves (in the same way tomatoes are 'pinched out'). All
the time, the farmer needs to provide the appropriate nutrition for the plant and watch out
for pests as the crop grows towards the harvesting stage.

Harvest
With the exception of some countries such as the United States (where the crop is
mechanically harvested), the farmer will typically harvest by hand, sequentially taking
off 2-4 leaves per plant as the leaves ripen from bottom to top, which stretches the
harvesting period from over 2 to 4 months. The typical Pakistani farmer will harvest
about 15,000 plants, each with 22 leaves.

Tobacco types
Virginia is named after the US state where it was first cultivated. It is also called "bright
tobacco" because of its yellow to orange color, achieved during the flue-cure. This type
grows particularly well in subtropical regions with light rainfall, such as Georgia (USA),
Southern Brazil and Zimbabwe. Classic English brands like Benson & Hedges or Dunhill
use exclusively Virginia tobacco.
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Pakistan Tobacco Company-The Marketing Principles Project

Burley is slightly lighter green than Virginia is. After being air-cured, the tobacco turns
brown with virtually no sugar, giving it an almost cigar-like taste. It requires heavier soils
and more fertilizer than Virginia does. The best Burley is grown in the USA, Central
America, Malawi and Uganda. Together with Virginia and Oriental tobacco, it makes up
an American Blend, as used in brands like Lucky Strike or Pall Mall.
Oriental is the smallest and hardiest of all tobacco types, grown into the hot summer of
the Balkans, Turkey and the Middle East. These conditions and a high planting density
create an aromatic flavor, enhanced by sun curing, as in a traditional Turkish cigarette.

Curing
Curing is a carefully controlled process to achieve the texture, color and overall quality
of a specific tobacco type. During the cure, leaf starch is converted into sugar, the green
color vanishes and the tobacco goes through color changes from lemon to yellow to
orange to brown like tree leaves in autumn.
There are four main curing methods.

Air-Curing
Air cured tobacco, for example Burley, is hung in unheated, ventilated barns to dry
naturally until the leaf reaches a light to medium brown color. At this point, there are
virtually no sugars left in the leaf.

Flue-Curing
Heat is introduced into a barn via pipes from an exterior furnace like radiators
connected to the central heating system. This controlled heat allows the leaves to turn
yellow/orange at which point they are fixed. These leaves now contain a high amount of
sugar. Virginia tobacco is flue-cured.

Sun-Curing
Leaves are strung out on racks and exposed to the sun. The whole process takes from 12
to 30 days. The sun's direct heat fixes the leaves at a yellow to orange color with high
sugar content. Oriental is the most prominent among the sun cured tobaccos.

Fire-Curing
Fire curing follows the same principle as producing smoked ham. Brushwood is burnt
under the tobacco leaves, which dries the tobacco and produces a Smokey fragrance.
This type is principally used in some pipe tobaccos such as Dunhill Morning Mixture, or
roll-your-own brands like Samson or Javanese Jongens.

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Pakistan Tobacco Company-The Marketing Principles Project

After curing, the farmer grades the leaves into different leaf positions, qualities and
colors and packs his grades into what is known as a farmer bale of 30-50kg. He then
takes his bales to a buying center or auction for sale.

Processing
The cured leaf is then processed through a Green Leaf Threshing Plant. The main
purpose of the processing is to:
1 Remove sand, dust, scraps and foreign matter.
2 Separate the lamina from the stem (threshing).
3 Drive down the tobacco to a safe 'keeping moisture' content.
4 Processed tobacco is packed into 200kg cardboard boxes, for shipping to
manufacturing sites.

Manufacturing
At the factory, the matured tobacco is checked for quality and then carefully blended
with other ingredients which the brand recipe may call for, such as flavorings or preprocessed tobacco. Keeping track of the various types of tobacco and blend components
is the key and computers are increasingly used to track production runs.
Moisture content is crucial. Too dry and the tobacco leaf will crumble; too moist and it
may spoil during storage. The blended tobacco is treated with just the right amount of
steam and water to make it supple, and then cut into the form in which it appears in the
cigarette. Excess moisture is then removed so that the cut tobacco can be given a final
blending and quality check.
Cigarette making, once done entirely by hand, is today almost fully automated with the
cut tobacco, cigarette paper and filters continuously fed into the cigarette-making
machines. The technology has advanced dramatically over the years, but quality is not
forgotten; each cigarette is automatically quality controlled to ensure that it meets
every aspect of its specification. As packing machines put them into the familiar brand
packs, wrap the packs in protective film, and group them into cartons and cases, further
testing takes place at each stage to make sure the cigarettes are properly protected.
The completed cases are time-dated to ensure the freshest product possible. Now the
cases are ready for distribution.
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Pakistan Tobacco Company-The Marketing Principles Project

Distribution
Finished products are distributed to thousands of retail outlets throughout the country.
As a leading consumer goods company, PTC aims to get its products to the retail outlets
in the most efficient and cost-effective manner, and in the best possible condition. The
company constantly monitors and evaluates global supply chain network to guarantee
that brands are delivered by the best distribution methods.
The retail outlets include supermarkets, convenience stores, hotels, restaurants, cafes,
tobacconists and duty free shops. It's the job of trade marketing to work with retailers,
to enable adult consumers to buy brands where they want, when they want and in
sufficient quantity.
Now a cigarette tracking its origin back to NWFP tobacco fields is now ready to turn into
ash and smoke.

Cigarette Components and Their Functions


Tobacco Blend
Purpose
1. Delivering taste
2. Delivering psychological satisfaction
3. Composition
1. Fuel cured tobacco
2.
Air cured tobacco
3.
Burley tobacco
4.
Stem
5.
Top flavors

Cigarette Paper
Purpose
1.
2.
3.
4.

To contain tobacco blend


To control air dilution
To control burning rate
Composition
6.
Largely cellulose
7.
Contain fiber such as calcium carbonate

Filter
Purpose
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Pakistan Tobacco Company-The Marketing Principles Project

1. Cigarette filter reduce tar/nicotine


2. Act as a mouth pipe keeping tobacco away from smokers mouth.
3. Composition
8.
Mostly cellulose acetate

Plug Wrap
a.

Porous and non porous

Tipping Paper
b. Ventilated and non ventilated

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Pakistan Tobacco Company-The Marketing Principles Project

Macro & Micro Environment


SWOT Analysis
Strengths
Well established brands.
Brand loyal Customers.
Continuous Learning and Improvement.
Market Leadership in the world (BAT), so the learning curve of the management is
high and the people are highly prudent in decision making.
5. Diversified, competent, and motivated workforce and environment.
6. Modern technology Machinery and equipments.
7. Managerial trainings and skills development of employees have made them stand
out better than competitors workforce.
8. Great concern for Health and safety in the company premises.
9. Business Processes re-engineering at its best.
10. Enterprise Resources Management for quick and cost effective operations.
11. Wide, systematic and strong distribution network and supply chain.
12. Strong communication between employees, distributors, and customers that smoothes
out day to day operations and help achieving operational and functional goals.
13. Corporate environment both at the plant sites and at the head office is conducive and
appreciative when it comes to participation of employees in decision making at every
level.
14. Utilization of highly creative and state of the art marketing management tools.
1.
2.
3.
4.

Weakness
1. Wastages of material in production.
2. Cigarette being a controversial product sometimes drive an employee motivation
down and employee commitment to product sale and perfection may hamper
3. Cost of doing business in the region is quite high as PTC spends extravagantly to do
up to the market and social standards.
Opportunities
1. Pakistan Tobacco Company has a big market towards Rural Areas for lower brands
like Embassy and Gold Flake.
2. PTC can diversify its products by offering cigar, menthol cigarettes and pipe
tobacco in Pakistan market for upper middle, and upper class.
3. PTC has the Potential to further improve the cost reduction method.
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Pakistan Tobacco Company-The Marketing Principles Project

4. Export of Premium brands can open an attractive market for the company. This big
opportunity is backed and justified by the existing strong operations of the Area
Sales Office at Peshawar.

Threats
1. The biggest threat that PTC is facing at this point in time is posed by the widespread
rampant smuggling of foreign brands that are much cheaper and eat away a big chunk
of profit of the company. The company is trying its utmost to control forged products
but could not do so because of poor implementation of laws and regulation by the
state authorities. Forged products are threats to PTC because they not only cut down
the revenues but also destroy product image and company repute.
2. Smoking is discouraged in every society and considered as a bad habit because the
link between tobacco and addiction. Since smoking causes moderate to lethal
health problems, people have a negative view about cigarette manufacturers, as
they believe that they are selling devices for death.
3. Government regulations and highly burdened taxations pose a big threat to
cigarette manufacturers.
4. Strong Competition due to presence of a number of premium brands and soaring
illicit trade.
5. Law and order situation in the country is worsening day by day, it definitely
hampers the PTC business in the country.
6. Changing Optimization techniques not only to ensure capacity enhancement but
also to adhere to international Environment, Health and Safety standards.
7. Need of Raw material for meeting rising demand of cigarette.
8. Government intervention for decreasing the cultivation of tobacco.
9. In a future scenario there is a great likelihood of a possible confrontation between
anti-smoking campaigners and tobacco produce.
10. Economics trends such as:
1. Rising Taxes
2. High inflation
3. Rupee devaluation
4. Rising commodity and oil prices
5. Sharp increase in energy costs
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Pakistan Tobacco Company-The Marketing Principles Project

Porters Model
Rivalry among existing firm
In Pakistan only two major companies compete with each other. These are Pakistan
Tobacco Company and Lakson Tobacco Company. So rivalry among firms is normal.

Bargaining Power of Buyers


Cigarette consumption in Pakistan is five times higher than in India with 620
cigarettes per adult per anum against 119 for India. This shows that the market for
tobacco industry is very immense locally. According to Pakistan Pediatric
Association, 1,000 to 1,200 children between the ages of 6 and 16 years take up
smoking every day. Therefore bargaining power is relatively low.

Bargaining power of suppliers


Suppliers of PTC Tobacco Growers have an intensive bargaining power, because
they are large in number. And there is no substitute of raw material available for
P.T.C. So in this case it will be suitable for the organization to pursue a backward
integration strategy to take control of suppliers and get a competitive advantage
over its competitors

Potential Entrants
While the anti-tobacco movement in the USA helped lower cigarette sales, the big
companies like Philip Morris, R.J. Reynolds and Brown and Williamson have continued
to expand overseas. They have flooded the markets in Asia and Europe with
promotional products and cut-price brands designed to encourage new smokers.
However, we do not see any big giant marking its full fledged entry in near future.

There are no entry conditions as such but when a company enters the industry, it
has to abide by all the rules and regulations of government. This is very costly
especially in terms of advertising. The firms have to inform the consumers about
the potential health hazards related to tobacco products. This implies that in
order to enter as a manufacturer, heavy investment is required.
Entry of new competitors is not as much difficult into the Tobacco industry. But
PTC has an edge over the new entrance because of the economies of scale and
also the availability of raw material.

Substitutes
Substitutes are easily available in Pakistan so people have the option to
switch to brands of other firms.
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Pakistan Tobacco Company-The Marketing Principles Project

PESTLEC Analysis
Political
Pakistans political situations have always been in fluctuation. Even then PTC is long
since contributing in the countrys wealth in terms of taxes and providing employment to
hundreds of people. Although it is never denied that tobacco is hazardous to health but
PTCs aim is not to create more customers but to provide quality of tobacco to those who
are already addicted.
Marketing Standards:
PTC has long accepted that smoking is risky.
Its business is not about persuading people to smoke; it is about offering quality
brands to adult so adults who have already taken the decision to smoke

Economical
As a company it understands that its roots are firmly embedded with the nations, it has
been the part of industrial development in the country. Pakistan tobacco has maintained
its growth momentum during the years scaled new heights with the achievement of
millstone and made progress in the every facets of its business. PTC has contributed RS
26,472 m in year 2007 in the form of government levies and taxes which is the indicator
of how PTC is contributing in the economic development of the country along with the
job creation and installation of advanced and sophisticated machinery and equipments.

Social
PTCs marketing is not designed to sell smoking. It is marketing in a long established,
mature product category, where people already know what the basic product is. There
would be no commercial sense in trying to market to informed consumers who do not
want the product. Its marketing is about its brands: retaining the loyalty of the
consumers to the brands, and winning consumers from competing brands. As a company
with long international traditions and roots, PTC is also sensitive to local customs and
cultures. It is working with other companies in the tobacco industry to establish a
common basis for clearly understood conduct, which would set the baseline for
acceptable tobacco marketing worldwide.

Technological
IT is the backbone of every business; with out it concept of successful business is
becoming impossible in modern business environment. Process Technology:

System Application Program (SAP)


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Pakistan Tobacco Company-The Marketing Principles Project

SAP the world leading ERP system.

SAP (System Application Program)

The company undertook the mammoth task in 2004 to replace the existing enterprise
resource planning (ERP) system with SAP, world leading ERP system. A smooth
implementation across the organization, in short period it was possible though excellent
cross functional efforts by the projecting the Sap will greatly facilitate the achievement
of further efficiencies in all key business process.
Process Technology
MARK 9 plants are used for the production. The manufacturing machine manufacture
8500 cigarettes per minute - a packing machine makes between 300 & 400 packets per
minute. The process technology consists of GLT, PMD and SMD.

Legal
A company operating in an industry such as ours faces many legal and legislative Issues.
Our legal team is dedicated to assuring the long-term sustainability of the business, as
well as ensuring that our operations are fully compliant with existing local (and
international) legislation.
The Legal function has within its mandate the following areas:
1 Reputation and Litigation Management
2 Company Secretarial work
3 Ensuring Sustainable Business Practices
4 Intellectual Property registration and protection
5 In-house legal advice
6 Managing Investor Relations

Environmental
Being fully alive to its role as a responsible corporate citizen PTC has implemented a well
structured EH&S programme PTC is committed to ensure that it nurture an environment where
its employees and surrounding communities are safe from any hazards that may affect their
health and minimize the impact of its operation on biodiversity. PTCs commitment to EH&S was
further strengthened during 2006 as PTC achieved significant improvements on the EH&S road
map. Both its production facilities were rectified with ISO 14001 earning the Evergreen status.
PTC has consistently sustained its accreditation in last seven surveillance audits with zero major
and minor points. PTCs efforts has further been
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Pakistan Tobacco Company-The Marketing Principles Project

sustained with National Forum for Environment & Health awarding PTC the Annual Environment
Excellence award on Health, Safety and Environment for second consecutive year in 2006.
Through out the companys history, it has maintained a strong stance on corporate and social
responsibility, it strongly believes in building effective and constructive partnership with
communities by helping address various EH&S issues. Over the years the company has invested
substantial resources in terms of finances and manpower in various initiatives like Mobile Free
Dispensaries, Learning Resource Centre and Portable Water.
International Brands

Lackson Tobacco Company (LTC)


LTC is PTCs largest competitor and the second legal cigarette manufacturer in the Pakistan
..Marlboro and Red & White are a few of its brands. LTC used to be affiliated with Phillip
Morris, the giant in the global cigarette market; however, this association was dissolved few
years ago. Its market share is actually greater than PTC, around 46.2%. The main goal of LTC
is money making and it believes in short-term gains rather than long-term benefits.
Surprisingly, LTC uses quite unethical marketing strategies for example a number of
under-the-table deals are made with the retailers to convince them to take off PTCs
merchandize from their store, and to accept LTCs merchandize. This obviously results in a
huge loss to PTC as it costs around Rs. 100 000 to fully merchandize a small shop.
Local Brands

MARDANWALLAS
These brands are manufactured in Mardan and thus are called the Mardanwallas.
These are normally low category cigarettes (under Rs. 10) for example
Gold Street
The goal of the Mardanwallas is solely money-making, and are not concerned about
acquiring a strong position in the market. These are also 100% tax evaded. The
government has made legislation regarding this issue; however, nothing has been done so
far. Secondly, their factories are located in the northern areas so tax evasion becomes
very easy. No proper marketing structure or strategies exist for these brands. Their ATL
activities, which include electronic and print media, are extremely low. These brands
usually survive on BTL activities, which mainly consist of posters.
Counterfeit / Other Tax Evaded Brands
Counterfeit brands emerge as a threat for PTC, and later become competition as well. In
Pakistan, the concept of copyright laws and its implications is almost non-existent. As a
result, these brands are manufactured without any fear. As a result, PTC has suffered a huge
loss in the recent years as its premium brand Gold Leaf, has been copied in three different
qualities with three different prices for each. These brands are normally sold in
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Pakistan Tobacco Company-The Marketing Principles Project

thickly populated villages to uneducated and low-income people, and at interchanges and
motorways. There are also other tax evaded that is smuggled brands in the market.

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Pakistan Tobacco Company-The Marketing Principles Project

Marketing Strategy
Market Size and Growth
In terms of volume alone, PTC managed to sell 41.5 billion cigarette sticks, an increase
of 12%. Compared to sales volume of the tobacco industry, which increased by only
2.4%, sales volume growth of PTC was remarkable. Due to which the company increased
its market share by 1.3% to a new level of 46.4%. This is thanks to two of the company's
high performing brands, Gold Leaf and Gold Flake. Gold Leaf is the company's main
value generator, growing at a healthy rate of 10%. On the other hand, Gold Flake is the
fastest growing brand in the market with a growth rate of 19%.

Regulation and Taxations


Regulations in Terms of Pricing
Pakistan Tobacco Board (PTB) is responsible for rules and regulations regarding tobacco
industry. The main functions of this body are to protect the rights of stakeholders, buyers,
growers, dealers etc., to maintain a balance between demand and supply for tobacco (crops)
by the companies. It takes into account different aspects including crop sizes, exports,
domestic usage, prices, cultural operations, plant protection measures etc. Usually a special
technical Committee comprising of all stakeholder and members of the body set the
minimum and floor prices for the purchase of the tobacco crops for the local firms.

Fixation of Prices
The Federal Government may, by notification in the Official Gazette, fix the minimum
prices below which and the maximum prices above which, tobacco of various grades
shall not be bought or sold for consumption within Pakistan or for export; and different
prices may be fixed in respect of different areas.

Methodology for the Fixation of Minimum Prices of Tobacco


For the fixation of minimum prices of tobacco, the Pakistan Tobacco Board has constituted
two Special Committees - one each for NWFP and the Punjab to work out cost of production
of tobacco by visiting tobacco growing areas and interviewing tobacco growers selected
randomly in these two provinces. The reports of these two Special Committees, when
become available, are considered in-depth by the Price and Grade Revision Committeeconsisting of the representatives of tobacco growers, tobacco industry, Industries Division,
Government of Pakistan, Agricultural Prices Commission, and Pakistan Tobacco Board
headed by the Agricultural Development Commissioner, Government of Pakistan. This
Committee formulates its recommendations for decision of the Board. And,
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Pakistan Tobacco Company-The Marketing Principles Project

recommendations of the Board are submitted to the Ministry of Commerce for final decision
and notification of minimum prices for various types/grades of tobacco in the Gazette
For the fixation of minimum prices of tobacco, following parameters are taken into account:

1.
2.
3.
4.
5.
6.

Increase in cost of production of tobacco.


Minimum prices and weighted average prices of tobacco.
Rate of inflation in the country.
World Tobacco trends.
Increases allowed in prices of other agricultural commodities
Whole-sale price index of raw materials for the industry.

Tobacco Taxation
The tobacco sector in Pakistan has two types of government levies:
1. Indirect Taxes and
2. Direct taxes.
Government taxes are levied on both domestically produced and imported cigarettes,
comprising of Federal Excise Duty and Sales Tax. However, significant portions of
smuggled cigarettes avoid duties and taxes. Similarly, a portion of the domestic
production falls under the tax-evaded category. It is estimated that the government lost
approximately Rs. 5.5 billion in 2005-06 due to tax evasion. Tax evasion takes place
through undeclared manufacturing and smuggling of cigarettes. The tax relief to nontobacco products and the availability of tax-evaded and smuggled cigarettes cause
substantial competitive disadvantage for tax-paying cigarette manufacturers.

Types of Taxation
Federal Excise Duty (FED)

It is charged and collected on locally manufactured and imported cigarettes on the basis
of retail price. For locally manufactured cigarettes, there exists a 3-tier FED structure
based on retail price. It is a combination of fixed and ad-valorem levy. For imported
cigarettes, FED is applied at the rate of 63% of the retail price.
Sales Tax

Sales Tax is levied on import of tobacco and tobacco products at the rate of 15% advalorem, while on local manufacturing, the Sales Tax is 15% of the retail price.
Federal Tobacco Cess (FTC)
Federal Tobacco Cess (FTC) is levied under Section 9 of Pakistan Tobacco Boards Ordinance,
1968 and collected under S.R.O. No.8/ 98 of 7th January, 1998. FTC is levied on tobacco
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Pakistan Tobacco Company-The Marketing Principles Project

produced at a rate of 3% ad-valorem and goes to the Pakistan Tobacco Board, which is a
regulatory body responsible for development and trade of tobacco in the country.
Customs Duty

The Customs Duty on import of tobacco products is 25% on ad-valorem basis.


Tobacco Development Cess (TDC)

In 1996, the NWFP Government started charging a Tobacco Development Cess (TDC) on
tobacco purchase requirements as indicated by the tobacco companies. It is a provincial
levy on green leaf at the rate of Rs. 2 per kg for FCV, Burley & DAC, and Rs. 1 for WP.
PTC paid Rs. 26.5 Billion Tax in 2006-07 PTC is one of the largest excise tax generators in
private sector in the country. In 2006-07, it contributed around Rs. 26.5 Billion to the
National Exchequer. These taxes are intended to be distributed among all the provinces,
including NWFP, by the Federal Government as per the provisions of the Constitution.
Tax Payments by PTC through Akora Factory in NWFP The details of tax payments
generated by PTC's Akora Khattak factory in NWFP are as follows:
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Pakistan Tobacco Company-The Marketing Principles Project

Marketing Mix
Introduction
When it comes to customer, Pakistan Tobacco Company takes the stance that can
be summarized in the lines quoted by the company:
At Pakistan Tobacco Company, the consumer is at the centre of our business. Marketing in the
tobacco industry requires skills beyond the demands of other products. The ability to
differentiate our marketing initiatives, to manage productive and profitable relationships with
our key accounts, to integrate strategies above and below-the-line and to innovate while
always marketing responsibly, are the fundamentals of the marketing challenge.

The effective management of all elements of the Marketing Mix (with the exception of
above the- line and other marketing activities restricted by law, and by BAT voluntary
internal marketing standards) is critical to PTC marketing success. Those involved in
brand development need to demonstrate a comprehensive understanding of the market
place including how and where consumers buy tobacco products. Key brand
development activities include:
1
2
3
4
5
6
7
8

Development of overall brand strategy


Brand portfolio management
Leading the product development process
Brand positioning and brand template
Developing innovative methods of targeting and communicating with consumers
Developing merchandising strategies and point of sale materials
Managing brand profitability
Managing Retail Media

Target Market
Target market for different products is different. Identification of target market in
tobacco industry is likely to be very difficult. People have misconception about market
segmentation on the basis of income. To segment the market just on the basis of
peoples income is not correct in all situations. Theoretically, people with higher income
are supposed to smoke high-priced cigarettes, yet it is not the case in all contexts. For
instance, many students who tend to smoke Gold Leaf have little money. The isolation of
target market is dependent upon the blend of tobacco. Different people want different
blends of tobacco in cigarettes. Each brand of cigarette has its own distinct blend and
each brand has its own target market. For example, some people dislike K-2 or Royals
due to their strong blend of tobacco. Pakistan Tobacco Company has launched a new
brand of Diplomat for a segment of people who like light blend of tobacco.
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Pakistan Tobacco Company-The Marketing Principles Project

Product
Product Development
We are continually seeking ways to make our products more competitive and relevant to
consumers, and to continuously improve our market leading products. We research consumer
preferences to create products that exceed the expectations of informed adult smokers.

Our work includes:


1 Tobacco blending
2 Materials & product development
3 Designing cigarettes
4 Physical & chemical data analysis
5 Smoking panel & consumer evaluation
PTC has a stretched product line covered every segment but comparative to its competitor
its lower segment is very small. PTC generates most of its revenue from middle slap. The
following are the product line segmented into upper slap, middle slap, and lower slap.
Upper Slap Products

1
2
3
4
5
6

Benson & Hedges 20HL


Benson & Hedges 10HL
Benson & Hedges light
Gold leaf 20HL
Gold leaf 10HL
Gold leaf flavor

Middle Slap Products

1 Capstan int. kS FT 20HL


2 Capstan int. kS FT 10HL
3 Capstan LSFT 10SS
4 Capstan by Pall Mall 20HL
5 Capstan by Pall Mall 10HL
6 Wills kings 20HL
7 Wills Navy Cut 10SS
8 Will international 20HL
9 Will international 10HL
10 Gold flake 20SC
11 Gold flake 10HL
12 Gold flake 20HL
13 Gold flake Supreme 10HL
14 Gold flake Supreme 20HL
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Pakistan Tobacco Company-The Marketing Principles Project

Lower Slap Products

1 Embassy kings 20HL


2 Embassy kings 10HL
3 Embassy 10SS
The cigarettes are packed in two different style boxes. They are called Sheel in slide
(SS) and Henge Led (HL).
A brief overview of some of the most important products is sketched in the line to
follow.

Benson & Hedges


In 1873, Richard Benson & William Hedges started a partnership in London. From the
very start, the idea was to make Benson & Hedges a style statement, which is why the
business started from Londons fashionable West End. PTC launched Benson & Hedges
in Pakistan in March 2003. Made with the finest handpicked golden Virginia tobacco
from across three continents, the brand is packed with perfection to seal its freshness.
The objective of introducing this brand is to establish the locally manufactured B&H
Lights as the most preferred offer amongst consumers, in the premium lights segment
and to add image to the B&H family by offering a wider product range. It was launched
in the three metros of Karachi, Lahore and Islamabad/ Rawalpindi.

John Player Gold Leaf


The story of John Player Gold Leaf starts from the story of its founder, John Player.
An enterprising businessman, John Player started a small tobacco selling business in
1877 and turned it into a thriving cigarette company, John Player and Sons. With a
distinct lifebuoy and sailor trademark, John Player Gold Leaf has an identity
entrenched in sailing and maritime adventure. Thus staying true to John Players very
first big brand-Players Gold Leaf Navy Cut cigarettes. Gold leaf is the key value and
volume contributor for PTC. It remains the most aspire brand in Pakistan. From 2000,
the brand is showing continuously growth.

Capstan
Capstan has a rich heritage, originating in Britain in the 19th century. The brand was created
under the auspices of W.D. & H.O. WILLS at Bristol and London. Capstan has grown by leaps and
bounds to become the fastest growing brand of Pakistan Tobacco Company (PTC) in the year
2001, recording a staggering growth rate of 104%, overtaking sales volume of the major
competitive brand in the early part of the year, and consistently outselling it throughout.

Gold Flake
Gold Flake, like many of our brands, also boasts its origins at W.D. & H.O. WILLS where it was
a premium brand around the end of the 19th century. Launched in 1982, in a 'soft cup'
packaging, the brand took off when it was repositioned in the value for money segment and
later a 'hinge lid' variant was introduced in 2000. Gold Flake is PTCs largest brand in volume
terms and is also a significant contributor towards the value share. A highly successful pack
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Pakistan Tobacco Company-The Marketing Principles Project

design change in 2004, soon after the new pack was launched in the market and Gold
Flake smokers accept the new design of the pack, at this point an aggressive promotion
in the market that would ensure the maximum exposure of competition smokers to the
new pack. There are three new variants were added into the family; Gold Flake 14HL,
Gold Flake 10HL and Gold Flake 10SC, in order to offer the consumers a wider choice.

Wills King
WILLS takes its name from the heritage of one of the original Imperial Tobacco Company
families: the Wills Brothers of London. Wills is also a well known brand in Pakistan.

Embassy
The third leading volume brand in Pakistan is most popular in the Punjab where it enjoys
a leading position due to its equity and loyalty. Embassy continued its growth in the year
2001fortifying its position in the market. The brand registered a growth of 3% over 2000.
Major focus during the year remained on the introduction of more consumer relevant
packaging variants. In the 3rd quarter of 2001 the brand family was extended with the
introduction of Embassy filter 16ss pack followed by Embassy kings 14HL variant. With
the launch of these variants, the family now offers more choice to its consumer at
affordable price.

Promotion
Promotion wars are playing an important role in intensifying competition in the industry.
The tobacco industry spends a lot of money in marketing programs. The enthusiastic,
colorful and catchy advertisements, slogans, sponsorship of sports events and other
marketing techniques are used to target a wide variety of customers (specifically youth),
represent smoking activity as a part of status and youth symbol. Slogans like Capstan
men demand Capstan the world over, Gold Leaf for the taste alone, Gold Flake
together in success etc. attract a large amount of customers (making it more difficult
for the new entrants to sustain in the industry).
The different types of promotional activities that are taken into account at PTC
are as follows;

Advertising
1 Packaging
By packing the product in the different packs and in different quantity to meet
the demand of the different and segmented consumer
2 Point of Purchase Display
By placing products trail packs on the different shops to promote the sales.
3 Posters and Leaflets
Display posters and fliers in fronts of shops.

Sales Promotion
By giving the incentives to the distributors, whole sellers and retailers like to get the
product on credit and sell to the consumer and enhance their and the Company sales.
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Pakistan Tobacco Company-The Marketing Principles Project

Contests and lotteries


PTC uses different schemes, providing gifts in the packs and by giving winning prizes by
means of lotteries to promote sale and to beat competitor.

Rebates
They usually provide the rebates to the retailers and whole sellers who want to establish
their business on their own or who usually contact with them directly.

Toping up
Talking with shopkeeper, tell them about their company, brand and advantages of the
brand. The SP will bring awareness, if the shopkeeper did not know about the company
and their brand. Pack Display/Pack facing: Small 4 or 3 row displays at hotspots in which
prescribed program is implemented.

Brand Availability
To conform from the shopkeeper that all the brands are available or not, means to ensure all
time availability of the stocks in the respective beats by doing the exercise of toping up.

Consumer Contact
It is the SP activity that he will contact the consumers and will write their names,
complete addresses, phone no and will also write the competitors brand which the
consumers use and will also get the consumers feed back after testing their own brand.

Market Intelligence
The SP is also responsible to note the competition Activity of their competitors and look
at their promotional tools they use. And also give market intelligence report to TMO
about the competitors which they use in the market.

Temporary Merchandizing Activity


The following tools include in temporary merchandizing activity.
1 Posters
2 Stickers
3 Bunting
4 Mobile (Rounder)

Permanent Merchandizing Activity


1
2
3
4
5

Facia
Tube shade
Modular
Counter
Tailor made

Direct Sales Delivery (DSD)


As my third tour with DSD, salesman is consider the backbone of the company because he
produce demand and distribute the brands of the company in an efficiently way, the DSD
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Pakistan Tobacco Company-The Marketing Principles Project

will cover a beat of (50-60) shops per day but salesman also visit daily shops, some
salesman also cover three beats the reason is that demand is not too much.
Five Steps for DSD

Every salesman must take care of these steps.


1. Preparation
The company prepare short term and long term plan, these plan are yearly, monthly,
weekly and daily bases.
Steps
1.
2.
3.
4.

in preparation
Decide your target/set your target first.
Analyze the current situation.
Set your aim for achievement of your aim study all aspects and arrange your view.
Before meeting Review your aim and remember of its details and try to make
the meeting personal, consider it first where you are going to perform work
each and check that every necessary resources are available.
5. Before contact prepare your aim and make list of activities by the help of
previous contact information, make sure that you have fulfilled the promise
which you made in the previous meeting with your consumer or shopkeeper.

2. Approach
The duration of meeting/toping up, the salesman must study the surrounding area of the
meeting; he must collect such information before meeting which can be helpful during
meeting with shopkeeper. The salesman must put on shoes of consumers and must see
that which one method is most attractive to attract him. Salesmen also study the
internal environment of the store and analyze the situation as per consumer view.
3. Stock check
Salesman will check the stock every time and must sure that the stock is according to
beat demand, he will also notice the competitors brands (Port Folio) with shopkeeper
that how much stock he buy and how much is available now.
4. Presentation
During this stage salesman will present his brands to shopkeeper and he must present his
brand in such a way that the shopkeeper doesnt refused their brand.

Personal Selling
PTC is using personal selling as a promotional tool in its promotional mix. The company
understands its need and considers it as an important element in promotional mix. In
personal selling, the companys merchandising department plays an important role. Here the
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Pakistan Tobacco Company-The Marketing Principles Project

term merchandising does not mean as it is used in Accounting, but this department that
is concerned with personal selling is called the merchandising department. The sales
person meets different retailers during their visit to make their relationship more
strong. During their visit, salesmen give some gifts to retailers. These gifts are specially
prepared for the purpose of personal selling. These gifts include liters, key rings,
telephone directories, pens, and many other things. On these gifts, the different brand
names of the Pakistan Tobacco Company are written to get more popularity not only
among the customers but also among retailers. The sales persons are consistently doing
the personal selling to retain their customers. Area Sales Manager also helps his sales
force by himself visiting retailers and customers.

Price
PTC is continuously decreasing its prices in order to maintain its market leadership by
Penetration Pricing. The price war started when PTC reduced the prices of its middlepriced brands (in the start of this 2008). It cut down its prices from Rs. 19 to Rs.9
(almost 50% price cut) which reduced the excise duty from 63% to 43% with no change in
the sales tax i.e.15%. Despite reducing prices, PTC was still able to earn normal profits
and was at its break even. As a result more people are purchasing the products, that has
lead PTC to gain a market share of 46.3%. Discount brands of PTC including Gold Flake
have seen a rigorous growth in sales. Almost 18% sales growth in Gold Flake has been
observed as compared to previous year.
On the other hand, government argues that cigarette manufacturers should continue
with high prices and avoid limiting prices so that they can better able to get higher
revenues and moreover increased prices would help discourage excessive smoking
among the users (reducing the health effects of smoking). Although prices of PTC are still
competitive, the existing price war system is a matter of concern for Pakistan Tobacco
Board (PTB) and the government itself. No efforts are proved to be fruitful to reduce the
gap created within the market.

Place
Ensuring that consumers are able to purchase the products they require, both where and
when they want them, plays a major part in achieving a high market share. Key
activities include:
1 Development of distribution strategy
2 Develop and implement distribution plans
3 Implement merchandising and point of sale policy
4 Monitor and manage out of stocks
5 Build an effective sales orientated organization

Managing Business Channels


The effective management of relevant business channels is one of our key
marketing activities.
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Pakistan Tobacco Company-The Marketing Principles Project

Although business channels vary from market to market depending on the trade
structure, building close professional relationships with key accounts and in Hotels,
Restaurants and Cafes (HORECA) are likely to be priorities for most markets.
Key activities include:
1 Channel strategy development
2 Negotiations with key accounts
3 Category management
4 Account portfolio management
5 Account servicing
6 Pricing, promotional control and evaluation

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Pakistan Tobacco Company-The Marketing Principles Project

Cigarette Advertising
Brand Stretching
Despite several countries having imposed a ban on tobacco advertising, promotion and
sponsorship (TAPS), the industry continues to use deceptive tactics to sustain and
replace existing customers and create new ones.
Traditional methods of direct advertising through TV, radio and print media have been
replaced by indirect, surrogate and point of sale advertising methods.
Some examples of these are outdoor advertising through internet marketing; social
networking sites; logos with color patterns; music, fashion and sports events
sponsorships; stylish packaging; free sample distribution; spin-off merchandise like key
chains, cell phone covers, caps and T-shirts; cross-border advertising; celebrity
endorsements and corporate social responsibility (CSR) activities and brand stretching
Brand stretching means to use tobacco brand names, logos, or visual brand identities on
non-tobacco products, activities, or events.
Non-tobacco products, such as clothing or toys, affixed with tobacco brand names
promote the tobacco product and increase brand recognition, allowing tobacco
companies to circumvent traditional tobacco marketing bans.

Youth Marketing Tactics


Some tobacco companies sponsor and design youth tobacco prevention programs.
Research demonstrates that industry-sponsored youth prevention programs are
ineffective at reducing youth tobacco use, and they may even encourage youth to
smoke. When compared with public health programs, industry-sponsored prevention
programs are less appealing and less convincing to youth. Industry-sponsored programs
minimize the health consequences of tobacco use and even promote smoking.
Four types of youth prevention programs have been implemented by the tobacco
industry. Each of these programs actually benefits the tobacco industry in a unique way.

Programs that Target Youth Directly


1
Reinforce smoking as an adult choice.
2 Undermine existing public health campaigns by inappropriately targeting young
teens and publicizing weaker messages on tobacco.
3
Marginalize the opposition to make it appear extreme.
4
Increase credibility, as tobacco companies tend to partner with educators to
roll out their programs.
5
Maintain access to youth.
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Programs that Target Parents


1
Marginalize the opposition to make it appear extreme.
2
Place the blame on parents and society, rather than Tobacco Company
marketing, for youth smoking.
3
Increase credibility, as tobacco companies tend to partner with parent
groups to roll out their programs.

Programs for Retailers to Decrease Youth Access


1
Imply age is the only reason not to smoke.
2
Keep the tobacco industry aware of local legislative activity.
3
Marginalize the opposition to make it appear extreme.
4
Establish and build alliances with retailers.
5
Shift attention away from tobacco industry contribution and responsibility
for youth smoking.

Direct Funding of Youth Organizations


1
2

Increase credibility by allowing tobacco companies to attain a level of legitimacy.


Allow tobacco companies to build alliances with reputable youth groups.

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Illicit Trade
Illicit Trade
It is the supply, distribution and sale of smuggled or counterfeit tobacco products, or
Duty Not Paid (DNP) tobacco products on which duties and taxes have not been paid and
which should have been paid.

Types of Illicit Trade


Illicit Trade takes three forms:1. The first is the importation, for commercial use, of tobacco products on which
payment of applicable taxes, such as duties, excise and sales tax is evaded.
These products may have had no taxes at all paid on them, or may have had
lower taxes paid in another country.
2. The second is undeclared local production, whereby products are produced
and consumed within the same country but without payment of all local taxes.
These products may be manufactured in approved factories, but not declared to
the authorities, or they may be manufactured in illegal covert operations.
3. The third is counterfeit product. This is product which is intended to be an
identical or near identical copy of a genuine branded product and its packaging
so as to give the appearance of being genuine. By definition such product is
illegal as it is not authorized by the brand owner.

What Illicit Trade is not?


The following are not considered illicit trade:
1 Sales of duty free product for consumers own use in quantities allowable under
customs regulations, for example in duty free shops at airports or on ferries.
2 Sales of duty paid product for consumers own use in another country, in quantities
allowable under customs regulations, for example legitimate cross-border shopping.

The Cost of Illicit Trade Globally


Illicit trade in cigarettes is a huge global problem, which is expected to grow as future
excise increases encourage consumers to switch to cheaper products and provide greater
rewards for criminals. Based on estimates prepared by our companies, global illicit
cigarette volumes are approximately 300 billion cigarettes per year, representing some 6
per cent of total world cigarette consumption, and are expected to rise. Based on our
estimates, annual losses to governments around the world are approximately 11 billion
and legitimate manufacturers are losing more than 2 billion per year, with BAT share of
the industry loss being around 800 million per year.

The Cost of Illicit Trade In Pakistan


Pakistan Tobacco Company has always worked closely with the Government to implement
laws and regulations (legislation) to ensure a 'level playing field' for all the companies in the
tobacco sector. As a result, the share of the market held by the illicit sector has come down
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to 18.4% of total cigarette sales, which is still high given local market dynamics. The net
loss to the national exchequer is estimated at Rs. 7.46 billion per annum assuming that
all the illegitimate products sell at the minimum price determined by the Government
for the purposes of tax collection. The loss to the legitimate industry amounts to over
Rs. 2.0 billion per annum.
Smokers in Pakistan pay the highest tax in the world next only to Denmark and the UK
where 85 per cent and 82 per cent of the retail price respectively goes toward taxation.
In Pakistan, 78 per cent of the retail price of premium brands (all brands whose retail
price is over Rs 10 per 20 sticks) and 58 per cent of the retail price of low segment
brands go toward taxation.

Tackling Illicit Trade


PTC is concerned about the growing global problem of illicit trade in tobacco products.
When cigarettes are smuggled across borders or moved into markets without the
applicable duties and taxes being paid, governments and legitimate operators miss out
on revenue, and the market is destabilized.
PTC have Know your Customer guidelines and procedures aimed at ensuring that our
companies supplies to markets are consistent with legitimate demand, and provisions
for ceasing supply to customers if they are believed to have been complicit in smuggling.
The principal driver of illicit trade continues to be economic cheap cigarettes for
consumers and profits for smugglers through tax evasion. However, there are other
factors such as weak border controls and ineffective sanctions. Addressing these
properly would help reduce illicit trade. Through the provision of information,
intelligence and training, PTC believes it can support governments in achieving
appropriate tax policies, strong regulation and effective enforcement.
PTC approach to tackling illicit trade focuses on six themes:
1 Effective internal governance to ensure Know your Customer guidelines are
properly implemented;
2 Gathering and sharing commercial and business information to better understand
the drivers and impact of illicit trade;
3 Working with enforcement authorities to prevent illicit product entering a market;
4 External engagement with relevant stakeholder groups such as the World
Trade Organization (WTO) and enforcement authorities;
5 Educating regulators and legislators on the impacts of illicit trade; and
6 Internal awareness raising of the issue and its challenges.

Measures Taken so Far by BAT


BAT Business
BAT work to ensure that its companies operations are directed only at supporting the legitimate
tobacco trade. BAT companies only market their products in markets where they are legally
available, and cease to supply customers who are knowingly or recklessly involved in illicit trade
activities. The companys Standards of Business Conduct prohibits employees from knowingly
engaging in unlawful trade in the Groups products and require BAT companies to have effective
Know Your Customer controls in place. BAT companies efforts
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in helping to tackle illicit trade are supported by an anti-illicit trade unit at BAT
headquarters and a Group Head of Anti-Illicit Trade who reports to a member of the
Management Board.
BAT Suppliers

BAT efforts can be greatly enhanced by cooperation from its suppliers in restricting the
supply of materials to counterfeiters and smugglers. BAT Business Enabler Survey Tool
(BEST), which establishes the standards BAT expect from suppliers of materials, now
includes extended criteria on tackling illicit trade.
MoUs
BAT working relationships with governments are often formalized in Memoranda of
Understanding (MoUs) with customs authorities, for joint action to tackle contraband and to
enhance information and intelligence sharing. The number of these is increasing as more
governments recognize that BAT can provide valuable support in combating illicit trade.
Brand Enforcement Group

This internal team helps to identify smugglers and counterfeiters of BAT brands through
intelligence gathering and investigation, and delivers this to the appropriate agencies for
enforcement. As a result, BAT have seen more enforcement actions.
Export Bond

BAT is advocating an export bond system to reduce the potential for tobacco products to
be diverted into illicit channels. Exporters would be required to post a bond, such as a
bank guarantee, valued at the amount of tax due on the products in the destination
country. It would be forfeited if the products did not arrive in compliance with customs
requirements and any products not accompanied by a valid bond would be liable to
seizure and destruction. BAT is willing to pay the cost of such bonds to guarantee the
movement of BAT product across borders globally.
Research
Although the scale of illicit trade is very difficult to estimate, BAT has have developed
research and calculation methods to help BAT companies and governments to understand it
better. Some governments are unaware of the scale of the problem and do not acknowledge
its link to tax levels. BAT encourages its companies to adopt its methods and inform
governments of the results, to help demonstrate to governments the economic benefits of
tackling illicit trade and discouraging it through balanced tax policy.
Training for customs officers

BAT provides training for customs officers in several countries in tackling illicit trade and
in identifying and countering illicit product.
Destroying used machinery
BAT destroys its companies used manufacturing equipment instead of selling it second-hand,
to ensure that it cannot find its way into the hands of illegal manufacturers. Through a
global database, all surplus equipment in BAT companies factories and warehouses is
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analyzed and any that cannot be earmarked for use by another Group company is
scrapped, rather than sold.

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Supplier Relationship Management


Introduction
SRM is a discipline of working collaboratively with those suppliers that are vital to the
success of your organization, to maximize the potential value of those relationships.
Once the sourcing (procurement) team has engaged a supplier there is a real need to
maintain a balance of control in the new relationship to ensure the benefits of that deal
are delivered. This can lead to not only the failure to deliver the projected on-boarding
benefit but create frustrating and unsatisfactory relationships which in turn can impact
service, cost and the ability to adapt to changing market influences.
There are of course other benefits to creating robust relationships with suppliers from a
customers perspective especially if a standalone SRM function exists. Cross category
supplier measurement can take place, risk mitigation exercises (both reactive and
proactive) can be undertaken and knowledge and innovation can be shared for mutual
gain. Equally an SRM function can create a community for the SRMs (or Account
Managers, Supply chain Consultants, Supplier Performance Managers) in which they can
centralize knowledge and deliver revenue generating opportunities for both parties
through the exploration of additional, out of current contract business opportunities.
There are a number of published concepts regarding effective SRM however it is
generally accepted there are a number of key modules or building blocks. These are:
1
2
3
4
5
6

Supplier Segmentation
Accountability
Process and Governance
Technology
Value
Resourcing

Supplier Segmentation
In order to develop or improve SRM, an organization needs to implement a supplier
segmentation approach that considers the internal needs of the business, spend, and
also accounts for all risk and business criticality factors. Segmentation traditionally uses
four categories:

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Commodity
Where little or no SRM activity is undertaken as the suppliers provide infrequent one off
goods or services.

Performance Management
Where focus is placed upon cost and service levels as the supplier is providing off the
shelf goods or short to midterm services that are not strategically important and are
provided from a competitive market environment

Development
Where focus is placed upon continuous improvement to service levels and cost as
the arrangements are more mid to long term, with some strategic value.

Partner
Where strategic long term goods and / or service suppliers are managed to secure supply
and drive collaborative engagement with shared benefits.
An additional part of Segmentation relates to assessing the 'Power Dependency' of a
relationship where approach, strategy, engagement and messaging tactics can be
identified for certain types of supplier.

Accountability
Executive involvement is critical to the success of aligning the respective organisations
strategic objectives and forms the basis of building a partnership and ultimately
unlocking value for both organizations. The key challenge is who owns the supplier
relationship, with nine ownership types having been identified.
Procurement functions should take the central role in coordinating supplier
relationships, whilst owning and coordinating the process, governance and technology.

Process and Governance


Organizations have pockets of excellence of clearly articulated processes and roles
often led by the IT function. Organizations have often approach process and governance
in a one size fits all approach and are yet to tailor processes and roles and
responsibilities to the different supplier segments.

Technology
Traditionally there has been confusion about SRM solutions available with organizations
implementing contract management systems or supplier performance management
solutions as an alternative (which are still important but not SRM).

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Leading SRM organizations are using SRM technology as the change agent to get
stakeholders and wider business buy in.

Value
SRM needs to deliver both hard and soft benefits. That is cost savings as a hard benefit
and soft benefits such as access to innovation and increased new product speed to market.

Resourcing
The three key skills required for procurement to implement successful SRM are:
1 Market & category knowledge
2 Cross-functional working
3 Commercial & contractual expertise.
The current SRM role is viewed as a task to be performed in addition to the day job and
a lot of organizations have yet to implement a Supplier Account Management structure
with dedicated resource and set roles and responsibilities.

Supply Chain of the Business


Valued Business Partners
Pakistan Tobacco Company has long term relationships with many loyal and committed
suppliers and commercial partners who are integral to our business. But in a changing
business climate, we seek greater competitive advantage through efficiency gains and
innovation in our products and how we work. All the while we seek to address new
regulatory requirements and expectations from commercial, social and political
stakeholders.
We are taking a more global and strategic approach to our supply chain, and intend to
reduce the complexity of our business operation. We know that we can do more work
with supply partners to identify and manage common problems and exploit opportunities
for mutual growth.
Our stance towards our commercial partners is based primarily on our Statement of
Business Principles, of which there are three:
Good Corporate Conduct
Responsible Product Stewardship
Mutual Benefit
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The following Core belief under Mutual Benefit anchors our philosophy towards our
supply chain partners:
We believe and other business partners should have the opportunity to benefit from
their relationship with us
What this means in practice is that supply chain partners should expect the following:
1

Open and transparent communication

2 Shared responsibility to solve problems rapidly in the supply chain, working together
to minimise and manage business risk and improve business practices
3A joint approach to pursuing improvements in the supply chain through education,
training and sharing best practices
Supply chain and other Valued Business Partners should be aware of our policies and
principles. This is particularly important as we are committed to being a responsible
Company in an industry seen as controversial. Whilst we are not responsible for
standards of employment practice throughout the supply chain, we seek to influence our
business partners to avoid:
1 The employment of children particularly in any industrial process or agricultural
process which also uses chemicals
2

The selling of cigarettes to minors

The use of forced or illegal immigrant labour

Working conditions which do not meet BAT standards on health, safety or hygiene

5
The denial of access to, or unfair application of, a transparent grievance
procedure
6

Any form of unlawful discrimination, harassment, abuse or bullying

While it is the responsibility to manage its employment practice in accordance with its
own business standards, values and local legislation, we will work with them to embrace
these principles.
We are taking a more global and strategic approach to our supply chain, and intend
to reduce the complexity of our business operation
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Primary Supply Chain


One of our three Business Principles is Mutual Benefit. We accept our responsibility not
only to set high standards for those from whom we will buy goods and services, but to
support our suppliers in achieving them.
One of our three Business Principles is Mutual Benefit - the basis on which we build our
relationships with our stakeholders. We believe that the best way to build long term
shareholder value is to seek to understand and take account of the needs of all our
stakeholders.
Suppliers are increasingly seen as a critically important stakeholder group, amidst
growing expectations that businesses should use their influence to encourage good
standards of corporate responsibility in their supply chains. We accept this responsibility
and work not only to set high standards for those from whom we will buy goods and
services, but to support our suppliers in achieving them.
We see this as particularly important for a very large business such as ours, with a supply
chain that includes some 250,000 farmers who grow tobacco, suppliers internationally
from whom we buy other raw materials such as packaging and paper, and some 100,000
service providers from whom we buy indirects, services such as consultancy, technical
and creative work, catering, security, travel services and more.
Leaf Suppliers

With the aim of ensuring that we only purchase leaf from responsible and sustainable
sources, all our leaf supply is covered by our Social Responsibility in Tobacco Production
(SRTP) programme, which covers some 250,000 farmers and works to address the social
and environmental issues associated with tobacco growing and processing.
We purchase on average some two-thirds of our leaf through Group operations under direct
contracts with farmers receiving these leaf growing services, and about one third from other
leaf suppliers who, at our request, have chosen to utilise the SRTP programme.
Social Responsibility in Tobacco Production (SRTP)
Our SRTP programme covers all leaf suppliers to British American Tobacco Group companies.
As part of SRTP, our companies ran direct agronomy support services in 2005 for 170,000
farmers in 23 countries, representing some 190,000 hectares under cultivation.

SRTP includes integrated crop management, soil and water conservation, appropriate use of
agrochemicals, environmental, occupational health and safety standards in tobacco leaf
processing, eliminating exploitative child labour and promoting afforestation programmes to
enable those farmers who require wood for tobacco curing to obtain it from renewable
sources. Since the 1970s, our companies have sponsored and promoted afforestation
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programmes to ensure a supply of wood to tobacco growers. These now total 292,204
hectares holding some 611 million trees, effectively meaning that British American
Tobacco is responsible for one of the worlds largest tree planting operations outside the
timber and paper industries.
Our Social Responsibility in Tobacco Production (SRTP) programme includes integrated
crop management; soil and water conservation; appropriate use of agrochemicals;
environmental, occupational health and safety standards in tobacco leaf processing;
eliminating exploitative child labour and promoting afforestation programmes to enable
farmers who require wood for tobacco curing to obtain it from renewable sources.
In 2005 we enhanced the key elements of SRTP, including integrating biodiversity
conservation elements throughout the programme. Enhanced roadmaps were cascaded
in 2005 to all leaf suppliers and from 2006; the updated roadmaps will be used in our
leaf supplier reviews. One of the key elements of our SRTP programme is:
Integrated Crop Management

This combines viable tobacco production with positive environmental management:


1 Farmer training:
Farmers are provided with technical support in good agricultural practices,
incorporating all elements of Integrated Crop Management into user-friendly
training programmes.
2 Biodiversity:
The enhanced SRTP roadmaps cover a responsibility for suppliers to integrate
principles of biodiversity into their operational systems and to work with local
partners to improve their effectiveness.
3 Seed quality:
Careful selection of seeds based on quality criteria and compliance with
international and local legislation and customer requirements.
4 Integrated pest management:
Seeking to reduce significantly the use of pesticides on crops through alternative
methods of pest control, such as restricting the use of pesticide to appropriate
phases of the growing cycle to reduce residue and bio control, in which specific
natural fungal or insect predators are utilised to eliminate pests on tobacco crops.
The enhanced SRTP roadmaps cover a responsibility for suppliers to monitor and
analyse the impact of their agricultural practices on the flora and fauna affected
by their operations.
5 Integrated pest management safety:
The enhanced roadmaps cover a responsibility for suppliers to ensure that they
are managing and using pesticides safely.
6 Soil resource protection:

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This involves good agricultural practices such as crop rotation, soil mulching, drainage
and land contouring. The enhanced roadmaps cover a responsibility for suppliers to
monitor and manage any impact their operations may have on the soil.
1 Water resource protection:
Preventing the erosion and run off of agrochemicals and nutrients. Fertilisers are
applied at an appropriate rate determined by crop requirements to avoid overapplication. The enhanced roadmaps cover a responsibility for suppliers to
monitor and manage any impact their practices may have on the flora and fauna of
any water systems in the close vicinity of their operations.
2 Use of wood:
The use of wood as fuel in curing flue-cured Virginia tobacco and in building curing
barns is an important issue, especially in areas where wood is a scarce resource
and under pressure. Our approach seeks to ensure the efficient and sustainable
use of wood and the use of alternative fuels wherever possible.
3 Afforestation:
Since the 1970s, British American Tobacco companies have sponsored and
promoted afforestation programmes to ensure a supply of wood to tobacco
growers. The planted area totals 292,204 hectares and holds some 611 million
trees. The scale of the woodland effectively means that the Group is responsible
for one of the worlds largest tree planting operations outside the timber and
paper industries. The enhanced roadmaps incorporate biodiversity elements into
the management of company sponsored woodland; building on our belief that
diversification of woodlands is key to long term.
Materials Suppliers

We are taking a more strategic and global approach to supply chain management to
reduce complexity within our business and to promote continuous improvements
amongst our suppliers in business practices, efficiency, quality and innovation. We aim
to save costs by simplifying and streamlining our processes and materials
requirements as much as possible, while ensuring that any measures to eliminate
waste or simplify processes are conducted responsibly.
In 2005 key areas of focus in procurement were improving efficiencies and productivity,
largely by reducing complexity. We have given suppliers as much notice as possible of
any changes to our requirements and have worked actively with them on any
modifications they might need to make in their businesses as a result. We did not lose
any of our global suppliers during 2005.
To enhance understanding of our approach to working with suppliers, in 2005 we
developed a Group statement on supply chain management, Our Philosophy for Supplier
Partnerships, which builds on our Business Principles and existing Group practices such
as our Business Enabler Survey Tool (BEST), our Supplier Quality Partnership approach
and our Social Responsibility in Tobacco Production programme (SRTP). The statement is
being distributed to key global, regional and local supply partners in 2006.
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Business Enabler Survey Tool (BEST)

Our Business Enabler Survey Tool (BEST) has for some years established the standards we
expect from materials suppliers. A key part of our Supplier Quality Partnership approach,
BEST is designed to identify the suppliers who meet our requirements and to help both
our business and our selected suppliers to develop together through a mutually
beneficial process of continuous improvement. In addition to BEST, the Supplier Quality
Partnership approach also covers aspects such as training, quality validation and
specification management.
BEST is used to assess suppliers business support systems and to identify opportunities
for improvement. It uses 102 criteria for measuring performance, covering process and
quality, manufacturing resources, management policy and finance. These criteria
include, for example: environment, occupational health and safety management;
employee rights and training; business principles and the suppliers ability to trace the
sources of raw materials, including sourcing wood from certified forestry. Through the
BEST process, we supply guidelines and improvement roadmaps to support continuous
improvement. Suppliers are assessed objectively against the 102 BEST criteria in
continuous reviews by an international pool of trained auditors.

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Business Principles
BEST asks suppliers to evidence that they comply with all appropriate regulations and have
policies, procedures and practices demonstrating a commitment to corporate responsibility,
employment principles and good corporate conduct. In 2005 we developed and extended the
criteria on human rights, employee welfare and tackling illicit trade.

The new human rights area is now more detailed and specific. It assesses whether a
suppliers employment principles encompass human rights considerations such as child
labour; forced, bonded and slave labour; discrimination on the grounds of age, gender,
disability, political opinion, pregnancy, maternity, race or ethnic background, social class
or caste, religion, sexual orientation or HIV/AIDS status; collective bargaining and
freedom to join unions; abuse and intimidation.
The labour environment criteria encourage suppliers to have working relationships with
employees that promote a stable and productive workforce working under fair conditions.
These include criteria relating to employees grievance procedures; the effectiveness of
communications between employer and employee; the suitability of working conditions;
benefits; health care issues; the existence of an employee satisfaction survey; records of
harassment, abuse or bullying and the history of any strike action or arbitration.
A new topic assesses suppliers on supporting efforts to tackle illicit trade and counterfeit. In
2005 our Group Operations Director wrote to suppliers asking them to verify that they had
adopted or would adopt rigorous Know Your Customer due diligence controls such as our
own, with the aim of ensuring that sales are made only to reputable customers. Assurance
that suppliers have adopted these controls or similar is now part of BEST.
Environment, Occupational Health and Safety (EHS)

BEST asks suppliers to evidence that they have an effective EHS programme, that they
comply with all appropriate regulations and have policies, procedures and practices
which demonstrate a commitment to environmentally responsible and safe operations.
Environment, occupational health and safety were previously measured separately. To
improve focus, these areas were restructured and merged in 2005, building on the new
criteria relating to biodiversity. Following previous enhancements to BEST, suppliers are
now evaluated on the extent to which they understand the impact of their operations on
biodiversity. They are also asked to identify their sources of raw materials, including
wood pulp, and are evaluated on the extent to which they have considered the
sustainability of their raw materials sources.
What our suppliers say about BEST

We believe that BEST enables suppliers and our business to achieve:

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1 Better communication and understanding, including of our requirements


2 Cost reductions through joint programs to improve logistics and to reduce
waste of materials and time
3 Training, knowledge sharing and joint recognition of future business trends;
4 Quality and service improvements
5 Focused innovation and development work
6 Participation for suppliers in a review process that establishes a culture of
continuous improvement for long term mutual benefit
Many suppliers respond positively about the way BEST helps them to improve
performance in their own businesses.
"The BEST survey is an excellent program tool to benchmark any vendor's manufacturing,
service and management processes in becoming world-class.

The survey is quite exhaustive and helps in internal and customer alignment, apart from
identifying areas for improvement. The collective experience brought by the team
administering the survey is an additional feature which results in sharing of industry
knowledge and best practices."
S.N. Venkataraman, General Manger,
Paperboards & Speciality Papers Division,
ITC Limited, India.
"It is seldom that a customer shows as much initiative and endeavour towards developing
a supplier. We are delighted to have beenpart of the BEST programme. The approach
clearly shows us, as a supplier, the expectations of the customer and forced us to
challenge our thinking. This resulted in us changing some of our approaches to our
internal processes, which has not only benefited British American Tobacco, but also
Henkel. A true win-win situation."
Philip Rayner, General Manager Operations,
Henkel South Africa (Pty) Ltd.
"We have implemented most of the recommendations given to us during the BEST audits
and it is still an ongoing process. We think that in global competition, a tool like BEST
would be highly beneficial to any organisation to meet the needs of customer/supplier.
We have personally benefited from this audit in creating a strong partnership between
British American Tobacco and ourselves, whereby we have become more efficient in the
way we are carrying out our operations and British American Tobacco has benefited from
consistent service and quality. We are also in the process of replicating the same with
our other customers."
Dipak Shah, Chief Executive Officer,
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Dodhia Packaging,
Nairobi, Kenya.
The BEST audit is lengthy and detailed. It promotes a relationship to understand British
American Tobaccos latest requirements and an opportunity to work more closely
towards the customers objectives. Benkert Malaysia (BM) sees the need for continual
improvement in areas that will be beneficial to both BM and British American Tobacco in
the long run. We realized the importance of commitment in quality, cost and managing
environmental impacts, for example, to enhance competitive advantage for both
parties.
Lee Hoh Siang, General Manager,
Benkert, Malaysia.
Service Providers

As we continue to take steps to improve our productivity, we have adopted a global


procurement programme to enable us to make significant cost savings, while also
ensuring that we continue to build and maintain strong and mutually beneficial
relationships with our service providers.
Along with many other businesses, we contract external suppliers of services such as advice
and consultancy, technical services, creative and design work, catering, security and travel
services. In financial terms, these services are known as indirect costs, which means costs
incurred other than on employees salaries and the raw materials to make our products,
such as our leaf, wrapping materials and cigarette making machinery.

Globally, our business has about 100,000 service providers ranging from business
consultancy companies, IT providers and international marketing agencies to smaller
local suppliers, with around 5,000 suppliers in the UK.
We believe that British American Tobacco and its suppliers have many common goals and
interests. Our approach is based on the belief that both parties in a commercial relationship
can benefit from the removal of inefficiencies throughout the business cycle, from
investment that is likely to produce a financial return and from increased sales.

Secondary Supply Chain


We place as strong an emphasis on being a high quality supplier to the trade as we do
on working to ensure high standards amongst our own suppliers.
British American Tobacco not only manages a major primary supply chain for tobacco
leaf, raw materials and services, but is also a major supplier to distributors and retailers,
where we place particular emphasis on high quality service, world-class capability and
successful relationship management.
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Our goal is to manage the relationships in our secondary supply chain with integrity and
efficiency, living by our core belief of mutual benefit to achieve win-win outcomes.
In this field of business, illicit trade is a major issue that harms the legitimate tobacco
industry and its trade partners and poses a major threat to government tax revenues. We
also report on our proactive approach to helping to crack down on illicit trade in
contraband and counterfeit tobacco products.

Trade Relationships
A major part of our marketing activity is trade marketing, managing business-to-business
relationships with the retailers from whom our consumers buy our products. We place as
strong an emphasis on being a high quality supplier to the trade as we do on working to
ensure high standards amongst our own suppliers. Our aim is to become the benchmark
business partner to the trade in the strategic channels where we do business, operating in
the most efficient and effective way to ensure that retailers can offer the products that our
consumers wish to buy where they want them, when they want them, at the right quality
and quantity. Our approach is based on building mutually beneficial relationships,
characterised by integrity, with our trade partners globally, regionally and locally.
Trade Marketing and Distribution

Our aim is to build on our excellent Trade Marketing & Distribution capability which
bears all the hallmarks of a world class field force for effective retailer and
consumer contact.
Trade marketing is a large part of our marketing activities, managing business-tobusiness relationships with the retailers and distributors from whom our consumers buy
our products. We believe our win-win-win approach sets us apart in the market place.
We dont just focus on achieving our own goals, but aim to create benefits for our trade
customers as well as our consumers. We work to operate in the most efficient and
effective way so that retailers can offer the products our consumers want to buy, where
and when they want to buy them, and at the right quality.
Our trade marketing field force provides value added services in complimenting the
distribution effort, in select stores of the retail universe to enable mutually beneficial
partnerships. We make substantial investment in retail, through quality in-store and onstore furniture and fittings to stock and display our products for the convenience of our
consumers.
Around 250 exclusive distributors, employing a contingent of over 1,200 distribution
representatives, provide direct store delivery services for our finished products to the
500,000 plus retail stores throughout the country. In doing so, we aim to optimize our
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finished goods supply chain efficiencies in delivering products of consistent quality ontime, every time.
The strong performance of our brands suggests that were getting it right. Over recent years
weve grown our brands, while remaining well within strict national laws regulating tobacco
marketing, and voluntarily adopting our own International Marketing Standards.
Our Customers

As well as hundreds of regional and local customers, we have 10 key customers managed
at a global level who operate very large businesses mainly in the grocery, convenience
and petrol station convenience trade channels: 7-Eleven, Ahold, BP, Carrefour, Chevron
Texaco, Couchetard, Exxon Mobil, Shell, Tesco and Wal-Mart.
Our approach to trade relationships is to offer a comprehensive insight into consumer
preferences and buying behaviour in the tobacco category. We aim to ensure that this is
broad-based, not simply focusing on our own goals, but providing useful analysis of the
tobacco category as a whole. We engage with senior management of partner companies
to ensure a good mutual understanding of each others global strategies and to identify
potential areas of alignment and cooperation. We call this our win win win approach,
recognising that in order to sustain a successful and mutually beneficial relationship,
there has to be a win for each of the three key stakeholders in the relationship: our
business, our customers and our consumers.
Customer Satisfaction Surveys

In 2005 we conducted a global customer satisfaction survey across 19 of our top markets
to help us assess the quality of our service to trade partners and to develop relationships
further. Our top markets are those identified as particularly significant in volume or
profit terms for the global tobacco industry and/or for our business.
Although our companies have for some years carried out annual customer satisfaction
measurement locally amongst key distribution and retail partners, in 2005 we improved the
quality and thoroughness of the survey by co-ordinating it globally and using a standard
methodology to provide improved quality of information. We now intend to run a global
survey of this kind every two years, using the same best practice research method. In each
market where it is run, the survey benchmarks British American Tobacco against its major
local tobacco competitor and the Fast Moving Consumer Goods (FMCG) supplier perceived as
the best locally in serving the same retailers. It is carried out by independent research
consultants and the customers are selected at random from amongst those we serve.
The measurement covers the quality of our service to trade customers across key areas such
as order placing, service from our sales representatives, deliveries, merchandising materials
and quality of our products. It also explores customers views in areas such as what sets the
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best company in the market apart from other suppliers, what even the best company can
do to improve, what we can do to improve and how we can add more value to trade
customers business.
The results indicate the number of countries where British American Tobacco is rated first
among all FMCG suppliers or better than its major local competitor. For example, in 8 of the
19 markets, British American Tobacco was rated best company overall amongst FMCG
companies and in 12 markets, we were rated best overall amongst tobacco companies.
Adding Value to Trade Relationships

As well as working for alignment and cooperation in business objectives, we seek to offer
wider benefits through our relationships with distributors and retailers. The illicit trade
in tobacco products, estimated at some 300 billion cigarettes a year, harms the business
of legitimate distributors and retailers. Our strong focus on tackling contraband and
counterfeit aims to ensure that our business supports only the legitimate tobacco trade.
Our companies are required to have effective know your customer controls and will
cease to supply customers who are knowingly or recklessly involved in illicit trade
activities. We help to identify illicit traders of our brands through intelligence gathering
and investigation, and have introduced an authorisation device on our products enabling
counterfeits to be identified so that enforcement agencies can confiscate them.
Our companies also work internationally with retailers in youth smoking prevention
programmes, to help retailers uphold the law and to block underage access to tobacco
products at the point of sale.

Tackling Illicit Trade


We believe in the appropriate taxation of tobacco products and the elimination of illicit
trade.
We fully support the aims of regulators and governments in seeking to eliminate all forms of
illicit tobacco trade and would like to see all our markets free of it. Illicit trade deprives
governments of tax revenues, promotes criminality, harms our brands, steals trade from
legitimate retailers and misleads consumers into buying tobacco products of dubious quality.
It also undermines the regulatory regimes governing the legitimate tobacco industry.
We see it as vitally important that governments and multilateral organisations establish
workable taxation regimes and economic policies that do not create conditions for illicit
trade and that they implement strong border controls and effective legislation to combat it.

We estimate that 94% of tobacco products are sold legally in the market of intended
consumption with all applicable taxes paid, and that the illicit market represents 6% of
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world consumption, some 300 billion cigarettes a year. Stronger supply chain controls by
international manufacturers have led to smugglers turning more to counterfeit products.
The World Customs Organisation has estimated that in 2005, worldwide counterfeit sales
of all goods grew to over US$ 450 billion. Illicit trade is increasingly dominated by
sophisticated international criminal operators. The international police organisation
Interpol notes that organisations involved in illegal drugs, people trafficking and arms
smuggling are often also involved in illicit trade in cigarettes and alcohol. Our companies
work closely with governments, customs and other enforcement agencies around the
world to help tackle illicit trade.

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Corporate Social Responsibility


Introduction
As an industry that attracts controversy, many people believe that PTC is not in a
position to be socially responsible. But in our opinion this view, while based on the
strong emotions that surround the product, can be counterproductive. PTC cannot
disassociate from its products and it thinks that it is ideally placed to engage in CSR
activities given the agrarian nature of the supply chain and the resources at its disposal.
Like many companies, PTC recognizes that by running its business well, it helps to drive
the engine of economic development, which in turn helps to achieve social and
environmental development. Accepting Corporate Social and Environmental
Responsibilities, and contributing in the ways that a business can, makes good business
sense. Business cannot deliver every solution, and companies can rarely act alone.
Products like cigarettes do pose risks to health, and if a business is managing such
products, it must believe it is all the more important it does so responsibly.
Governments, societies and companies must together address the best ways of ensuring
responsible management of such products, which millions of adults, balancing pleasure
and risk, are likely to go on consuming and expect to buy at quality and fair prices.
PTC has been at the forefront of CSR subsequent to its initiatives of afforestation, mobile
free dispensaries, eye care via Layton Rehmutullah Benevolent Trust, Learning Resource
Centre, non formal education through the NGO Adult basic education society, supporting
citizens foundation to prove educational facilities for the children and installation of
water filtration units. Rehabilitation of earth quack Affectees in Battagram, inaugurated
in September 2006. In November 2006 PTC undertook a project to combat the spread of
viral hepatitis in northern Areas. In 2005 PTC became the first company in Pakistan to
publish a duly audited social report. Second cycle of the social reporting dialogue, based
on issues identified in the stakeholders mapping classification exercise, was competed in
November 2006 and the social report is planned for publication in early 2008. Best
practices of Good Corporate Conduct Governance being adhered to include producing an
Annual Report that provides quality information to all stakeholders.

CSR Programs at PTC


Youth smoking prevention
PTC strongly believes children should not smoke and smoking should only be for adults
who understand the risks associated with it.
British American Tobacco Group companies support and run programs worldwide tackling
underage smoking. Due to concerns expressed on youth smoking, Pakistan Tobacco Company
has taken initiatives on several fronts such as voluntary withdrawal from electronic media,
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prohibiting the use of celebrities in marketing material and embedding a robust


marketing code; the International Marketing Standards (IMS).
PTC was the first company to pilot a retailer education program in 1999 and continue to
do so. Additionally, PTC packs and advertising materials have a voluntary inscription with
the legend under-age sale prohibited. PTC has supported the Government in raising the
minimum age limit from 16 to 18 through changes in tobacco legislation.
Education programs aim to give young people life skills to deal with the many
challenges they face during adolescence, including peer pressure to smoke. Such
programs are amongst the initiatives that British American Tobacco Group companies
sponsor worldwide and support to help convince young people not to smoke. PTC is
willing to work with the Ministry of Education and the Ministry of Health to develop
educational modules for incorporation in the national curricula, but PTC feel the
program content is best left to experts and its delivery to teachers or youth leaders.

Mobile doctors
Dedicated mobile doctor teams of PTC take pride in providing health care in areas where
there are no medical facilities. Since the early 1980s PTC have been running a mobile
doctors program in the areas where health care facilities are lacking and basic health
care needs are the most acute.
The program has grown over the years and treats close to 7,000 patients on a monthly
basis. The facilities provide free medical check-ups and diabetic screening as well as eye
care and general health advice in the areas around PTC factories and the leaf growing
regions which have poor or absent medical facilities.
Medical camps have also been arranged in collaboration with LRBT and Merck, and PTC
continues to partner with NGOs in its attempts to cater to patients' needs more
effectively. In the aftermath of the earthquake, PTC established a state of the art
Rehabilitation Center in Batagram in partnership with CHAL.
Given its localization and mobile nature, this facility has also been used extensively
during natural calamities such as floods, earthquakes and droughts.

Afforestation
Pakistan Tobacco Company is already widely recognized for its work in afforestation and
currently plants four million trees per year.
Considering the fact that only four percent of Pakistan's land mass is covered by forest
(ideally it should be at least 20 percent), PTC have instituted probably the largest
private sector afforestation program in Pakistan.
In order to promote sustainable development, Pakistan Tobacco Company has been at the
forefront of afforestation efforts in the country. Under this program, PTC has planted over
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52 million trees since the project started in 1981. Our agricultural infrastructure is strongest
where PTC work with our growers and therefore our focus on afforestation has been where
PTC have the appropriate resources to support them. However, PTC is also looking into the
possibility of expanding this activity to other parts of Pakistan. To this end, PTC recently
signed an MoU with the National Highway Authority to exclusively plant 600,000 trees along
the M-1 motorway between Islamabad and Peshawar, over the course of the next two years.

PTC has been winning the annual Environmental Excellence Award, awarded by the
National Forum for Environment and Health consecutively for some years now, and has
continually demonstrated the will and honest endeavor to make a difference to the
communities PTC work with.
In order to create awareness about afforestation efforts and the importance of sustainable
development, PTC also invests in projects aimed at improving civic life. To this end, PTC has
developed two quality parks in Ghourghushti (Attock) and another in Nowshera.

Learning Resource Centers


Keeping in mind the need to invest in education and the non-availability of quality

institutes, the company has established free Learning Resource Centres (LRCs) in its Leaf
Areas in the Punjab (Gujarat), and the NWFP (Mansehra, Yar Hussein, and Buner).
In addition, since PTC lack separate institutes for women, the LRC at Adam Zai in the
vicinity of our factory in Akora Khattak was set up to provide opportunities to local
women. The primary objective was to provide access to IT education free of cost to our
stakeholder's families. It was also agreed to use these centers in the future for imparting
vocational training and generating health and hygiene awareness.
Our LRCs are affiliated with the Skill Development Council which falls under the ambit of
the Ministry of Labour and Welfare. Currently, PTC have seven LRCs, at our factories and
in the leaf growing areas. These centers provide state-of-the-art IT skills to the children
of our employees and to the members of our community. 4,307 students have graduated
from our centers so far.
The expected benefits of the program are summarized below:
Contribute in the development of skilled resources in the country.
Help participants obtain employment.
Generate awareness about technology and its uses.
Bridge the information gap by providing access to the internet.
Provide women with training and awareness, as there are no separate centers
for women in remote areas.
6 Provide a communal forum to discuss and resolve issues.
7 Bring people with diverse interests and backgrounds together in a common forum.
1
2
3
4
5

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Earthquake Relief & Rehabilitation


In addition to that, in the immediate aftermath of the October 8, 2005 earthquake, PTC
initiated many projects of relief and reconstruction/rehabilitation work. A sum of Rs. 20
million was immediately released out of which Rs. 10 million went to the Presidents
Relief Fund and Rs. 5 million each to the provincial government of the NWFP and AJK. In
addition to this the company has initiated rehabilitation programs worth Rs. 35 million in
the NWFP, with the following activities:
1 Funding a rehabilitation centre in Batagram through PIPOS (Rs. 15 Mil.).
2 Sponsoring The Citizens Foundation to set up a school in Buffa Mera (Rs.10 mil.).
3 Rebuilding of a BHU in Kathai, Union Council

Water Filtration Units


Four Water Filtration plants are operational in Buner, Akora Khattak, Isori Payan and Yar
Hussain with a capacity of 2,000 gallons/hour. Year 2007 will see us installing a further four
units in partnership with the Tehsil Nazims and the Community Citizen Boards of NWFP.

CSR or CSI?
CSI (Corporate Social Investment) encompasses investments that are external to the normal
business activities of a company and not directly for purposes of increasing company profit.
These projects have a strong developmental approach and utilize company resources to
benefit and uplift communities and are not primarily driven as marketing initiatives.

Corporate social investment originated from philanthropy when the value it added to the
reputation of the organization was recognized. Previously, the terms CSI and CSR were
used interchangeably, but have now been defined separately. CSR refers to an
organizations total responsibility towards the business environment in which it
operates. CSR programs aim at coming up with social welfare programs for all the people
it can make approach to. But, in case of PTC its CSR portfolio comprises only of the
programs that are benefiting the locals of areas where PTC grows tobacco in general.
These areas are referred to as Leaf Areas of the company. In essence, the programs that
PTC take up as vibrant part of their CSR portfolio and that are introduced to compliment
sustainable development idea/image, are essentially CSI programs.
The efforts of the company, however, for rehabilitation work of earthquake that
shattered very basis of livelihood of people in North, were a response to the natural
catastrophe. Hence, the investment in CSR through this channel may not be termed as
CSI initiative. By and large, major chunk of the CSR budget goes to CSI.

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TOTAL CSI SPENT OF PTC

Social Reporting
Social Reporting, put simply, is the process of listening and responding to stakeholders. It
does not merely consist of a Report that is produced, but a process to ensure that
companies are behaving in line with society's reasonable expectations. Social Reporting
is a highly effective tool for robust and structured engagement with stakeholders.
As demands for transparency and accountability increase, PTC has engaged in Social
Reporting in order to respond to a number of issues. Social Reporting has proved to be
an effective mechanism to address society's needs objectively and robustly while
embedding the idea of engagement into all areas of business.
PTC has chosen to follow the most rigorous international standard, the AA1000 series,
developed by the Institute of Social and Ethical Accountability. In addition, we verify the
entire engagement and reporting process, using Bureau Veritas Quality International
(BVQI) as a social and ethical auditor.
All Group companies producing Social Reports continue to follow the AA1000 Standard and
the Global Reporting Initiative (GRI) Guidelines, basing their Reports on independently
facilitated stakeholder dialogue and applying rigorous independent review and assurance.
These do not include reporting on the GRI indicators but follow the AA1000 Standard as
closely as is possible for a single issue or stakeholder group. Reporting of both types covered
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73% of our sales volume (excluding associate companies). We have continued to hold
social reporting training and CSR workshops across the Group and to appoint local social
reporting and CSR managers.
The AA1000 Standard embodies key reporting principles which aim to encourage a high
standard of transparency and impartiality:
1 Inclusivity: The reflection over time of the aspirations and needs of all stakeholder
groups
2 Completeness: The unbiased inclusion over time of all appropriate areas of
activity relating to social, ethical and environmental performance
3 Materiality: The inclusion of significant information likely to affect stakeholders
assessment of social, ethical and environmental performance
4 Regularity and timeliness: A regular, systematic and timely reporting process to
support the decision making of the Company and its stakeholders
5 Quality assurance: Audit of the process by an independent and competent third party
6 Accessibility: Appropriate and effective communication of the Companys social,
ethical and environmental activities to stakeholders, which can be accessed
cheaply and easily;
7 Information quality: Presenting information that is comparable, reliable, relevant
and understandable;
8 Embeddedness: Embedding reporting processes and principles into policies,
decision making and management systems;
9 Continuous improvement: Recognized and audited steps to improve social
performance in response to stakeholder inputs.
Bureau Veritas provides independent assurance of our social reporting process
internationally. It has a presence in over 140 countries and specializes in quality, health
and safety, and social and environmental management, with over 180 years experience
in providing independent certification and assurance services. For the Bureau Veritas
commentary on this Report, see the Assurance Statement.
The Global Reporting Initiative (GRI) was convened in 1997 by the Coalition for
Environmentally Responsible Economies (CERES) in partnership with the United Nations
Environment Programme (UNEP), to produce globally applicable guidelines for voluntary
use by organizations reporting on the economic, environmental and social dimensions of
their activities.
The GRI Guidelines, based on international consultation in over 50 countries, offer a
reporting framework and recommended topics. They aim to promote comparability
between organizations, while recognizing the practical considerations of reporting across
diverse organizations.

GRI indicators
The GRI Guidelines include economic, environmental and social performance indicators. In
this Report, we again report in summary against the GRI indicator. Our Annual Report and
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Accounts provides financial and business performance in tandem to the publishing of this
report.

Strategies that Tobacco Industry Adopts to reframe Corporate Image


The tobacco industry attempts to improve its public image as a responsible corporation
through:
1 Philanthropy in areas such as education, research, arts and culture.
2 Promotion of youth smoking prevention programs.
Of all the CSR activities undertaken by PTC are undoubtedly depict their effort to nullify
the negative impact the business leaves on people and the environment. If if broadly
classified these strategies include:
Serve the industrys political interests by preventing effective tobacco control
legislation.
1 Marginalize public health advocates.
2 Preserve the industrys access to youth.
3 Create allies and preserve influence for the industry among policymaking and
regulatory bodies.
4 Defuse opposition from parents and educators.
5 Bolster industry credibility.
If CSR programs of PTC in place are scrutinized closely, they clearly reflect the
companys effort to minimize the damage to its image as a responsible corporate in the
country. Take mobile doctors team, water filtration units and educational centers; they
all are aimed at benefiting to the companys existence in the region.
Similarly, in an effort to convince youth that cigarette is meant only to be used by adults,
the company actually promotes its product indirectly. Youth smoking prevention programs
focus on youth and without educating them about the cigarettes are meaningless. In the
process of letting youth be aware of its bad consequences on health, the company actually
introduces the smoking concept to more and more youth. Eventually, who would have
avoided a cigarette otherwise, would go onto giving it a try out of his/her curiosity.

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In a networked effort, a company like PTC would take up following strategies to make it
sure that companies image is not projected as an irresponsible corporate entity yet the
brand equity is kept intact, if not enhanced.
Programs that Target Youth Directly

1 Reinforce smoking as an adult choice.


2 Undermine existing public health campaigns by inappropriately targeting young
teens and publicizing weaker messages on tobacco.
3 Marginalize the opposition to make it appear extreme.
4 Increase credibility, as tobacco companies partner with educators to roll out
their programs.
5 Maintain access to youth.
Programs that Target Parents

1 Marginalize the opposition to make it appear extreme.


2 Place the blame on parents and society, rather than tobacco company
marketing, for youth smoking.
3 Increase credibility, as tobacco companies partner with parent groups to roll
out their programs.
Direct Funding of Youth Organizations
1 Increase credibility by allowing tobacco companies to attain a level of legitimacy.

2 Allow tobacco companies to build alliances with reputable youth groups


This explanation can be summarized by quoting here a sentence that goes:

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The ultimate means for determining the success of this [youth] program will be: 1) a
reduction in legislation introduced and passed restricting or banning our sales and
marketing activities; 2) passage of legislation favorable to the industry; and 3) Greater
support from business, parent, and teacher groups.
J.J. Slavitt, Director of Policyand Planning, Philip Morris19

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Future Outlook
Overview
The ratification of Framework Convention for Tobacco Control (FCTC) by Pakistan,
coupled with marketing restrictions of various kinds has not bid well for tobacco
manufacturers. Furthermore, there have been increased taxes and duties levied by the
government on tobacco products and producers. In fact, in February 2009, the
government increased the Federal Excise Duty on tobacco products. Considering that the
cost of doing business will not subside in the near future for manufacturers due to
prevalence of high inflation and fuel costs, these factors would hurt the future earnings
of PTC. Furthermore, the head office of PTC was destroyed by the Marriott bombings in
Islamabad. The company will continue to incur costs arising due to relocation and
repairs, as their new Head Office is not ready yet and they are still heading their
operations from an alternate location. There is also a lot of concern about the volatile
situation in the NWFP due to terrorism activities. Keep in mind that much of PTC's
tobacco growers are in the NWFP area and so is one of its manufacturing facilities.
Following are major future concerns of the company:

Increased Taxation Combined with Illicit Sales of Cigarettes The


Biggest Challenge & Competition?
Sales of cigarettes in Pakistan continued to increase during 2008 despite the prevailing
economic downturn and rising levels of taxation, although the growth rate was the slowest
seen throughout the review period. The major factor behind this deceleration was increased
taxes and hence unit prices, which also caused illicit trade volume to rise by a substantial
amount that year. The sources of these illicit commodities are Afghanistan and Iran.
According to an estimate around 15%-20% of all cigarettes sold in Pakistan are illegal in
nature. A lot needs to be done on the enforcement of laws to curb this trade. Even a market
leader like the PTC is being badly affected by smuggled products, as it can gain a lot of
market share if these smuggled products can be controlled by the government.
Pakistan Tobacco Co Ltd continues to lead the industry, followed closely in second place by
Lakson Tobacco Co Ltd. Nevertheless, and despite intense competition between them, these
two companies cooperate regarding tactics to protect their volume shares from illicitly
traded supplies of their brands which are smuggled into Pakistan at lower prices and are of
better quality. The government has not taken any action so far to stop this illicit trade, nor is
it expected to do much in the future. In an attempt to address this problem Lakson Tobacco
Co relaunched the Marlboro brand during 2008 utilizing imported cigarettes, and other
companies are expected to do likewise in the foreseeable future as well.

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Improved Distribution Networks Help Sales


Distribution has improved within rural areas of Pakistan despite reductions in the sales
forces at Pakistan Tobacco Co Ltd, which have had to lay off a certain number of employees.
Nevertheless, the restructuring of sales teams throughout Pakistan has paid off in terms of
improved product availability and heightened consumer awareness thanks to better point-ofsale merchandising. Street vendors continues to account for the largest proportion of
cigarettes retail volume sales compared with any other distribution channel.

Research and Development


Tobacco consumption poses real and serious risks to health, so British American Tobacco's
research and development activities are principally focused on better understanding the
harm caused by tobacco use and working to develop potentially less harmful products. The
science involved in this work is complex, extremely challenging and spans many scientific
disciplines. The Group has significantly expanded its research capabilities over the past few
years to reflect the importance it places on work in this area. British American Tobacco is
also committed to seeking guidance from independent scientific and regulatory bodies. Some
organizations concerned about smoking and health are skeptical about the Group's approach
and its motives, but some critics of the tobacco industry are now supporting the objective of
being able to offer adult consumers a range of tobacco products both acceptable to them
and recognized by independent scientists and regulators as posing reduced risks to health.

More Pressure to Come in the Future


The growing number of anti-smoking campaigns and health awareness programs run by social
welfare organizations within Pakistan is exerting pressure on the government to tighten the
relevant laws and regulations and to improve its implementation of those currently in force.
Anticipated forecast period changes in the health warnings displayed on packs from textual
to pictorial versions are expected to raise awareness and so reduce volume sales of
cigarettes for local manufacturers. Moreover, economic uncertainty will have the greatest
impact on middle-class consumers living in urban areas. The anticipated reductions in
purchasing power are likely to boost the consumption of mid-priced cigarettes and reduce
that of premium and economy varieties.

Under a new CEO, PTC is also going through a rigorous business process
reengineering programs which would affect the way, the company is managed.
This would hopefully improve PTC's performance in the long run and enable the
company to face the tough uncertain times ahead.

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Conclusion
Tobacco has been smoked for at least three thousand years and for much of that time it
has divided opinion, sparked controversy and provoked strong views.
Frederick William Fairholt described the progress of the tobacco trade in 1859 as curious
in his book Tobacco, its History and Associations, adding: That a plant originally smoked by
a few savages, should succeed, in spite of the most stringent opposition in church and state,
to be the cherished luxury of the whole civilized world causing so vast a trade and so large
an outlay of money; is a statistical fact, without an equal parallel.

150 years later the tobacco industry supports millions of jobs and hundreds of thousands
of farmers choose to grow this resilient and reliable crop. Governments globally earn
more revenue from tobacco products than the shareholders of the companies that make
them. For example, in 2008, our subsidiaries enabled governments worldwide to gather
almost 22 billion a year in taxes, including excise duty on our products, more than eight
times the Groups profit after tax.
Views on tobacco have, if anything, become more polarised than ever in the 21st
century and today the issue dominating the agenda is the risk to health. Yet tobacco
products are legal and calls for a ban are very rare. Even with universal awareness of the
health risks, around one billion adults worldwide make the choice to smoke.

Future Tobacco Consumption


Few would dispute that for the foreseeable future many hundreds of millions of adults
will continue to be tobacco consumers. A growing world population and rising incomes
might suggest an increase, but we see this being offset as many smokers choose to
consume less per day or to quit.
It seems reasonable to predict a future where there are potentially lower risk products
provided there is regulatory consensus and responsibly managed channels of marketing to
adult smokers based on one-to-one permission marketing, with less reliance on channels
such as mass media. Debate on second-hand smoke is likely to continue, but we hope it will
be around policies that provide real choice for both non-smokers and smokers.

A key question for governments and regulators today as perhaps it always has been is,
after all reasonable regulation, marketing constraints and product modifications, with
prohibition not an option and millions of adults continuing to use tobacco, who would
you prefer to manage the tobacco industry? We doubt that governments would welcome
markets controlled by counterfeiters, organised criminals running illegal cigarettes and
back-door salesmen supplying them to children.
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Reasonable Co-Operation
We believe that governments can achieve a win / win: a scenario of gradually declining
total consumption for health ministries; sustained value for well-run tobacco companies;
higher tax collection for finance ministries; higher quality, potentially safer products for
consumers and less tobacco smuggling and counterfeiting with improved law and order.
The key to such a future is reasonable co-operation between governments and well-run,
responsible tobacco companies.

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References
1 Pakistan Tobacco Companys Official Website www.ptc.com.pk
2 Pakistan Tobacco Companys Annual Reports
3 Pakistan Tobacco Companys Stake Holders Reports
4 Pakistan Tobacco Companys Social Reporting
5 Pakistan Tobacco Companys Business Reviews
6 Pakistan Tobacco Companys Responsible Marketing Journals
7 Pakistan Tobacco Companys Consumer Information
8 Pakistan Tobacco Companys Assurance Statement
9 www.tobacco-control.org
10 www.tobaccofreecentre.org
11 http://www.who.int/tobacco/communications/CSR_report.pdf.
Law
regarding
smoking, Government of Pakistan (Law, Justice and Human Rights Division)

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