L/O/G/O

Case Study:

The Objective and Strategy of Firms in The Cigarette Industry

Case Study:

The Objective and Strategy of Firms in The Cigarette Industry

Syndicate 5Muhammad Ridwan – 29112555

Machadi Dhana – 29112303

Mahammad Khadafi – 29112324

Pedro Putu Wirya – 29112565

Seto Kusparyanti – 29112306

Yuliani Dewi Risanti – 29112321

Rahdianto Maulana – 29112554

Cigarette IndustryCigarette Industry

• The objective of the firms: maximization of long-run profits or firm value

• The doubling of the federal excise tax on cigarettes and rise in other taxes since 1983 resulted in a sharp increase in cigarette prices and a reduction in consumotion

Cigarette IndustryCigarette Industry

• Out of 6 major producers, three companies creates generic cigarettes:– Cheaper tobacco– Plain black and white packages– Advertised very little– Sell at less than half the price of name brands

Cigarette IndustryCigarette Industry

• The other three companies followed the strategy of marketing proliferation– Introduced new brands– Big advertising – Discount products, cost more than generic but

less than the traditional brands

Price WarPrice War

• Generic cigarettes had bigger market share than branded ones

• Philip Morris cut the prices of Marlboro cigarettes and its other premium brands by 20 percent

• RJR Nabisco followed the same price cut strategy

Abroad MarketAbroad Market

• In some countries, antismoking campaigns are still in their infancy and cigarette media advertisings are permitted

• Both groups of cigarette producers greatly expanded sales abroad

• Sales in domestic are declining and sales in abroad market are growing rapidly

Health RegulationHealth Regulation

• World Health Organization and national government of the countries started global antismoking campaign

• The regulation affected on reducing advertising and marketing practices

Courts and LawsuitsCourts and Lawsuits

• In 1998, pay $206 billion over 25 years to recoup public health costs linked to somiking

• In 1999, charged of $25 billion for defraud and mislead the public about health effect of smoking and to recover the spending of smoke-related illnesses

Courts and LawsuitsCourts and Lawsuits

• In 2000, a Miamy jury ordered 5 US tobacco companies to pay $145 billion

• Tobacco companies became more vulnerable to private lawsuits and charged of multimillion dollar compensation for damages

Companies StrategyCompanies Strategy

• American tobacco companies have increased prices for lawsuits settlements and higher taxes– 45 cents in November 1998– 22 cents in August 1999

• Shift assets to other lines of business in oreder to limit resources available to settle pending and future private legal suits

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