Executive Summary Tobacco

This marketing plan analyses an alternative tobacco product that could be used in place of the riskier tobacco rolls. For more than a century, there have been problems arising from continuous use of tobacco. Health institutions, such as the World Health Organization, have indicated a relationship between the tobacco smoke and cancer cases. British American Tobacco Company has constantly warned its customers on the dangers of smoking tobacco. The main component that is required in the substance is nicotine. Nicotine is the substance in tobacco that is responsible for addiction. For this reason, it was necessary that a new product that is environmentally and health friendly was created. The paper covers the product in line with the maximization of the gaps left by the companies producing tobacco rolls. The analysis of the paper is in connection with the demands of the customers, the requirements of the countries and the positive economic impact of its application. The study encompasses all the research areas of marketing including the analysis and the calculation of the break-even point.

IQOS e-cigarette is a type of cigar that does not produce any smoke or tar when consumed. The cigarette is a combination of the analogue and the electronic inventions. The original tobacco is used to refill the cigarette device which produces a vapor, with a flavor of tobacco into its own chambers. The IQOS e-cigarette is suitable for the smokers that are trying to quit the habit, but are experiencing withdrawal challenges.

Tobacco addicts are faced with difficulties in quitting smoking and will relapse if proper mechanisms for withdrawal are not put in place. While the device provides an alternative to the smoking habit, some individuals find it hard to replace the pleasures of smoking. The usual tobacco is burnt at about 600 degrees Celsius which then produces dangerous chemicals through the smoke. The electronic device, in contrast, heats the tobacco at about 350 degrees Celsius without burning it hence no smoke is produced. The vapor containing nicotine is inhaled providing the pleasure desired from tobacco (Wills et al. 37).

2.0 Situational Analysis

2.1 Demand and demand trends

Having been established in 2014 in Japan, the product has found a good market in South Korea. The IQOS e-cigarette intends to provide an alternative to the tobacco smokers especially to those who are planning to quit. Currently, the market is controlled by the Phillip Morris Company (Barrington-Trimis et al. 75). The company controls all the operations in the present situation. In Japan alone, 60% of the total smoking population has switched to the product. By 2016, approximately 16 million people were found to have embraced the technology (Barrington-Trimis et al. 80). In less than three years, IQOS e-cigarette has been established in 24 countries around the world. The fast rate of growth is an indication that the e-cigarette will cover the global market in the next few years. The Phillip Morris Company has its agents stationed throughout the countries so as to aid the customers with the purchasing process (Kim, Arnold, and Makarenko 412).

2.2 Social and cultural factors

The health risks of tobacco use are on the rise because of the increase in the rates of smoking. More people are getting warned against the use of the smoke and the importance of reducing the intake of tobacco and related products. As more people are considering the need to quit smoking tobacco, an alternative is necessary. Because smoking tobacco is not acceptable in many cultures, the requirements of the society as well as the addictions of the tobacco users should be balanced (Kim, Arnold, and Makarenko 414).

2.3 Demographics

By 1960, the United States had already banned smoking in public places. The dangers had been known to the public and plans to reduce its effects were underway. The number of tobacco users reduced significantly (Barrington-Trimis et al. 79). By 2009, 20.9% of the citizens in the United States smoked tobacco. This figure reduced to 15.1% in 2015 (Barrington-Trimis et al. 80). Kim, Arnold, and Makarenko predict that there will be a reduction in the use of this substance by 3% per year. By 2025, the Philip Morris Company could displace about 30% of the tobacco companies. Health organizations in Japan, South Korea, Italy and Switzerland have considered using the government to promote this solution as it has been embraced in the United States (Christensen, Welsh, and Faseru 94).

2.4 Economic and business conditions of the market

A majority of the countries are increasing the tax rates on tobacco products to discourage the consumption of tobacco products (Christensen, Welsh, and Faseru 91). More people are quitting the use of this substance because of the heavy taxation. Fewer companies are surviving in the business because there is a reduction in the number of customers. The statistics show that the numbers of smokers are going to reduce further in the next few years. Such provisions provide an ample environment for business and economic growth of the e-cigarette (Pokhrel et al. 124).

2.5 The state of technology

The current technology used in the manufacture of the IQOS e-cigarette is unique and yet to be duplicated by any competitors. The technology used in the e-cigarette has received some criticism from the potential competitors. The merging of the electrical components in the e-cigarette devices and the use of actual tobacco was an original idea. Since most of the established companies such as the British American Tobacco Company did not understand the technology, they chose to stick the traditional tobacco rolls (Christensen, Welsh, and Faseru 95).Besides, other e-cigarette brands do not produce the nicotine flavored vapour which further makes the technology unique to IQOS.

2.7 The political situation

The current political situations have not affected the state of the product. The fact the company is offering a lasting solution to a problem that affects every economy has reduced any possible political influence. Equally, the product is sold by the Philip Morris Company agents. The company agents are strategically located within the host countries hence providing sources of employment. The governmental protection and the increasing influence in the world is a proof that the users look beyond the political interests.

2.8 The laws and the regulations

Since the product is not based in a single country, different laws and regulations regulating businesses and specifically the use of tobacco are applicable. In the United States, the Food and Drug Administration (FDA) regulates the sales and the use of tobacco. Even with this regulation, IQOS e-cigarette had been approved by the FDA and was recommended for use on the individuals with withdrawals problems. Countries such as Italy and South Korea have their administering bodies that control the intake of tobacco. The IQOS e-cigarette has to comply with all these requirements. Since it has been tested and approved by most of these administering bodies, the application is growing. The major challenge that the product is currently facing is the application of the technology in China. China has stricter rules on foreign investments regardless of the salience of the product (Pokhrel et al. 124).

3.0 The Neutral Environs

3.1 Financial Environment

The IQOS e-cigarette is an innovative product that targets the global market. To reach this target substantial financial support will be required. Currently, the product is active in 24 countries and it is still open for growth. Availability of finances would enhance the growth and expansion process. Since the company dealing with IQOS e-cigarette has strategic development plans, the financial instability is the major setback. Sufficient finances would improve the growth rate of the product. The raw materials have to be bought in addition to the maintenance of stable technology. The Philip Morris Company has been developing plans to expand its tobacco firms for easier planning. Funds availability would improve the efficiency of the process (Barrington-Trimis et al. 79).

3.2 Government environment

The current legislative actions have very little effects on the development of the IQOS e-cigarette. Most countries in which the product operate have a problem with the effects of tobacco smoking. They are looking for ways to eradicate the addiction and reduce its influence. For this reason, the legislations that have been developed by the government are stricter on the tobacco companies and more lenient on the solutions provided by the IQOS e-cigarette. The fact that the product has indicated a positive growth in the 24 countries confirms that governmental environment supports its operations. The benefits of the product provide a solution to the biggest problems faced by the tobacco consuming countries (Karniouchina, Uslay, and Erenburg 34).

3.3 The media environment

The work of the media has improved the face of the product and increased its popularity. The dangers of tobacco smoke have been represented in the correct light. The media has done a good job in educating the masses on the reasons why they should stop smoking tobacco. Millions of innocent tobacco smokers cite media as the main reason for their withdrawals. The Philip Morris Company has spent some time and resources in sensitizing the public on the importance of the IQOS e-cigarettes. The Italian market learnt about the product from the American media and most of the Italian citizens asked about it before it was introduced there (Nayir et al. 18).

3.3 The special interest groups

The American Food and Drug Administration and the Japanese Medical Devise Regulations have gained special interest in the product. These two groups have been working together with the Philip Morris Company to ensure that the economies of the two countries are not affected by the extensive use of tobacco. Since the bodies understand the withdrawal effects, they have fully embraced the use of IQOS e-cigarette for the addicts. Equally, since nicotine is the most important component, the IQOS e-cigarette gives it in full. In 2016, the United States Environmental Program (UNEP) openly supported the use the product since it does not produce any smoke.

4.0 The competitor environs

The tobacco producing companies are the main competitors of Philip Morris Companies. The British American Tobacco Company and the Altria Group of companies are the closest competitors of Philip Morris. Currently, there is no company in the world apart from the Philip Morris that uses its technology to ensure that the Tobacco users are safe. The closest competitors count on their years in business and the experiences of the employees to outdo the new product in the market.

The British American International Company has the highest number of customers. The company is present in almost over 100 countries around the world. Most of these countries, especially in Africa, have not developed strict rules on the use of tobacco. At the same time, the Philip Morris Company has not introduced the IQOS e-cigarette in most parts of the world. Given that the British American Company has been in operation for more than a century, countering its influence is the greatest challenge for the Philip Morris Company.

The greatest strength of the British American Company is the popularity and huge market base. With hundreds of millions of people using tobacco in the world, the company has enjoyed monopoly for a long time that its popularity is unchallenged. Currently, the greatest weakness of the company is the introduction of the strict policies and high taxation on the tobacco companies and products. The second weakness of the company is that it makes adverts against its own operations. Under every pack of cigarettes, the company has an inscription that says ‘tobacco smoking is harmful to your health.’ This inscription itself works against the operations of the companies since the consumers understand the dangers of the smoke.

The British American International Company has built several companies across the world. The company does its operations from the host countries so that nothing is imported or exported. In the host countries, the company makes tobacco as a product. Since it is a source of employment in the companies in which it operates, the popularity and the services offered to the customers are the greatest achievements.

5.0 The company environs

The IQOS e-citizen is produced, marketed and sold by the Philip Morris Company. The company operates in 24 countries currently and is set to go global in the next few years. The product seeks to provide a solution for the problems caused by the tobacco smoke. The problems are posed to both the smokers and the non-smokers. To the smokers, the influence of the burning is eliminated and to the non-smokers, the act of passive smoking has been found to be more dangerous (Barrington-Trimis et al. 79).

Since most of the Tobacco users are likely to suffer from cancer, the IQOS provides a solution to the problem. The most desired component in the substance is nicotine. This product is giving a way in which the substance can be obtained without posing a problem to the user or causing harm to the environment. Because of this, the product enjoys the trust of the customers. The financial and human resources are almost certain. The product has received boosts from different investors and its influence will be felt in the other parts of the world. Africa is the next market that the product eyes.

The quality of the company and the health benefits are the biggest strengths. On the other hand, the fact that the company is not found in the other parts of the world is a big weakness. There are millions of tobacco users that need replacements for their addictions. Being that the product is found in specific locations, accessibility is an issue.

6.0 The target market

The target market of the product is the tobacco users especially the addicts. In as much as billions are addicted to tobacco, the product targets the population between the ages of 18 and 45. The users in these ages tend to use the substance extensively. The product targets the entire continent since tobacco use is global. From demography, about 3 billion people are between the ages of 18 and 45. Out of this, close to 1 billion people are found to be using tobacco and most of who are addicts. Currently, about 14 million people in the United States and Britain are suffering from diseases related to tobacco use. All these people are targeted by the product (Ernst, Hoyer, and Rübsaamen 88).

7.0 Problems and opportunities

7.1 Problems

The first problem encountered by the company is area of operations. The product is very important that it requires the attention of the world. The fact that it is only found in 24 countries is a limiting factor. This is a problem because there is a bigger market outside the 24 countries which is not covered by the product.

The second problem is the market value of the competitors. A company like the British American Tobacco Company has created a big influence in the market that is hard to influence. The company has even formed partnerships with most of the governments for the employment sources. Having governmental support is one of the successes of a business operation.

7.2 Opportunities

The negative effects of tobacco especially on its link to cancer have been well documented. Many people are dying because of smoking tobacco. The product offers a solution which has reduced effects but the desired substance is not affected. The consumers have an option of using the IQOS e-cigarette so that they can enjoy the taste of tobacco without suffering the effects. The quality of the product presents a huge opportunity for its acceptance. More investors have gained interest in supporting the product. Since the company has not been introduced in many areas around the world, the support of the investors is a stepping stone towards faster development. The company can grow faster than the intended rate.

Lastly, the taxation on the product is not as high as the ones offered by the competitors. Since this is a solution to one of the major problems faced by the countries, the taxes are reduced and the product has an opportunity to increase its operations and to market its services (Pokhrel et al. 124).

8.0 Marketing Objectives and Goals

The main objective of the product is to be the world’s leading in the production and the sales of smokeless tobacco products. The world needs to get quality and healthy products and at the same time, not losing the salience of tobacco.

The second objective of the company is to provide a chance for effective growth and development. This opportunity has to be created by the product by ensuring that the product’s quality is high and sustainable. Thirdly, the product is to ascertain that the financiers are encouraged by the consistency of giving dividends to the investors without fail. This would improve the operations of the company which will further enhance proper development of the product. Customer service is one of them most important aspects of marketing. The customers cannot be retained by killing them. The product has to take care of the health of the consumers. While the nicotine required in the tobacco is retained, it is important to reduce the influence of smoke and the dangers which it would pose to the clients (Pokhrel et al. 121).

In the next decade, there is a plan to ensure that all the smoked tobacco are removed from the market. The product is not only interested with overtaking the competitors in the market, but it is concerned with the health effects of the smoke both to the active and the passive smokers.

9.0 The market strategy

9.1 Solution provision

Being a new product, the focus is on finding a solution to the impending problem. The product did not come as a competitor but it came as a means of providing an alternative service with reduced effe4cts. In fact, the product has completely eradicated the possible effects which are to be brought by smoke. This influence is necessary as the consumers would find their desired components without having to risk their lives. There is no such product ad IQOS e-cigarette in the world today. The fact that the product provides a solution is necessary of consideration (Freng Svendsen et al. 521).

9.2 Late entry

The tobacco products have been in the market for years. The competition is mainly created on basis of the company sizes and fast developments. Similar products have been competing against each other with the only difference being the branding of the products. The late entry of IQOS e-cigarette has raised brows in the market. the product has been created at the right time and when it is needed most (Freng Svendsen et al. 521).

9.3 Product differentiation

Creating competition for the sake of competition is not healthy. Companies have come up with similar products, same inscriptions and services but with a different packaging. IQOS e-cigarette has created a differentiated product. The product did not focus on the huge markets and the weaknesses of the people to expand its market and operations. The product is easily differentiated from the others. The quality can be tested and the operations proved (Ernst, Hoyer, and Rübsaamen 88).

9.4 Distribution

The product was first developed in areas which required it was required. Japan, South Korea and the United States suffered a lot of negative tobacco effects. With the high populations, it was evident that the product was effective in its operations. The tobacco smokers and the bodies supporting both environment and health supported the move giving the product a proper head start.

10.0 Marketing tactics

The product will be introduced in all the other parts of the world with different tactics. First, the electronic devise will be bought once since its use can be repeated. The devise will be placed on promotion and there will be discounts on purchases. Since the company intends to use distributors in the other parts of the world, the sources of tobacco have to be ensured.

Pricing is one of the most crucial aspects of marketing. The IQOS e-cigarette has no standard price since it does not exist in equal sizes. The electrical component would be sold in promotional prices to gain the trust of the consumers. This promotion would be done after the health benefits have been explained. There are markets where the smoked tobacco has gained a lot of strength, in these markets; it is salient to do more promotions (Mackey, Miner, and Cuomo 100).

On distributions, each location has a certain culture of life. There are areas that have a higher culture of smoking than others. In these areas, more distributors would be needed. Being that the product is intended to provide a solution to the impending problem, research on the areas of users would be required.

11.0 Implementation and control

Expanding the product into the required requires a proper initial capital. With the African Market, most of the tobacco is produced from the western and eastern parts of Africa.

The total variable costs would be $20 per unit. This is the average cost per unit of the variable costs combined. The total value of the fixed costs as projected would be $5 million for start-up. With this information, the breakeven point would be $5million/$20 = 250000 units

The company would need to sell 250000 products in order to reach the value of the original investment.

Fixed cost

Variable costs (Per Unit)

Adverts

Cost of Goods ($ 2 per unit)

Legal

Direct Labor ($2 per unit)

Insurance

Overheads ($1 per unit)

Rent

Taxes

Utilities

Total: $5million

Total variable costs = $5

Breakeven Units = Total Fixed Cost/(Selling price-variable costs)

Selling price = $40

$5million/ (40-20) = 250000 units

The scale of the graph is in (‘000). With these values, within the three year period, the company would have made its profits in the expansion operations. The monthly budget would be dependent on the daily requirements of the business.

Works Cited

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Christensen, Trevor, Ericka Welsh, and Babalola Faseru. “Profile of E-Cigarette Use and Its Relationship with Cigarette Quit Attempts and Abstinence in Kansas Adults.” Preventive Medicine 69, 2014: 90–94.

Ernst, Holger, Wayne D Hoyer, and Carsten Rübsaamen. “Sales, Marketing, and Research-and-Development Cooperation across New Product Development Stages: Implications for Sucess.” Journal of Marketing 74.5, 2010: 80–92.

Freng Svendsen, Mons et al. “Marketing Strategy and Customer Involvement in Product Development.” European Journal of Marketing 45.4, 2011: 513–530.

Karniouchina, Ekaterina V, Can Uslay, and Grigori Erenburg. “Do Marketing Media Have Life Cycles? The Case of Product Placement in Movies.” Journal of Marketing 75.3, 2011: 27–48.

Kim, Annice E., Kristin Y. Arnold, and Olga Makarenko. “E-Cigarette Advertising Expenditures in the U.S., 2011-2012.” American Journal of Preventive Medicine 46.4, 2014: 409–412.

Mackey, Tim K., Angela Miner, and Raphael E. Cuomo. “Exploring the E-Cigarette E-Commerce Marketplace: Identifying Internet E-Cigarette Marketing Characteristics and Regulatory Gaps.” Drug and Alcohol Dependence 156, 2015: 97–103.

Nayir, Erdinc et al. “Electronic Cigarette (E-Cigarette).” Journal of Oncological Science 2.1, 2016: 16–20.

Pokhrel, Pallav et al. “Receptivity to E-Cigarette Marketing, Harm Perceptions, and E-Cigarette Use.” American Journal of Health Behavior 39.1, 2015: 121–131.

Wills, Thomas A et al. “Risk Factors for Exclusive E-Cigarette Use and Dual E-Cigarette Use and Tobacco Use in Adolescents.” PEDIATRICS 135.1, 2015: e43–e51.