marketing plan karachi tobacco company

7/28/2019 Marketing Plan Karachi Tobacco Company

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Marketing Plan

Karachi Tobacco Company

Kamran Ali Khan 2201286

Umair Wajid 2200967

Tahir Kaleem PDGN 0289

Ahmed Amirali 2201055

Submitted to Mr. Iftikhar Munir

Marketing Management


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Marketing Plan: Karachi Tobacco Company___________________________________________________________________________

Transmittal Message

May, 28, 2013

Mr. Iftikhar MunirMarketing ManagementHamdard Institute of Management SciencesKarachi, Pakistan.

Dear Mr. Munir,

Enclosed is a copy ofMarketing Plan for Karachi Tobacco Co which was assignment toour group for the course Marketing Managment conducted by you. This business plan is a

summary of our study and findings of business processes, facts sheet, implications as well as

our recommendations during the time allotted to us.

This business plan shows the critical analysis of the BU (Tobacco) and the principles applied in

marketing management which further revolves around the strategic intent of the BU and how it

is produced. A number of basic principles being applied have also been explained.

We are grateful to Allah and all the people who helped us in completing this report. If you have

any questions and/or comments regarding the interpretation of this report please feel free to

contact us. Thank you for your initiation of this report.

Sincerely,

Kamran Ali Shahid

Umair Wajid

Tahir Kaleem

Ahmed Amirali

2Marketing Management


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Letter of Acknowledgement

Standing on the bank of a river, a man cannot determine its depth unless and until he sets foot in it. It

has always been said that the best way to Learn is through experience.

All praise and thanks to the Almighty Allah who gave us the strength and will to complete the

task.

I would like to extend our thanks to Mr. Iftikhar Munir, who conducted the course of Marketing

Management and taught the basic knowledge and the core concepts of the subject, its

infrastructure and provided enough assistance and guidance in materializing of this marketing

plan. This has definitely been a unique learning experience for all of us. This research has

helped us a lot in applying the theoretical concepts and learning the practical aspects of

marketing management.

Sincerely,

Kamran Ali Shahid

Umair Wajid

Tahir Kaleem

Ahmed Amirali



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TABLE OF CONTENTS

1.0 OVERVIEW OF TOBACCO INDUSTRY.........................................................................................................................6

1.1 PAKISTAN MARKET.............................................................................................................................................................61.2 MARKET SEGMENTATION....................................................................................................................................................7

1.3 FRAMEWORKFROM HARVESTINGTO CIG. MANUFACTURING...........................................................................................8

1.4KEY EMERGING TRENDS......................................................................................................................................................9

1.5 HIGH BARRIERSTOENTRYFORNEWENTRANTS.................................................................................................................9

2.0 KARACHI TOBACCO COMPANY LIMITED..............................................................................................................10

2.2 REGION..............................................................................................................................................................................10

2.3 THE CLIENTELE:................................................................................................................................................................11

2.4 THE SUPPLIERS:.................................................................................................................................................................11

2.5 MANAGEMENT TEAM:.......................................................................................................................................................11

3.0 Business Scope.............................................................................................................................................................12

3.1 WHERE..............................................................................................................................................................................12

3.2 WHAT NEEDS....................................................................................................................................................................123.3 WHOSE NEEDS..................................................................................................................................................................12

3.4 ADDED VALUE..................................................................................................................................................................12

4.0 EXTERNAL ANALYSIS ...................................................................................................................................................13

4.1 MARKET STRUCTURE........................................................................................................................................................134.1.1 Market Segmentation................................................................................................................................................13

4.2 ANALYSIS..........................................................................................................................................................................15

4.2.1 Fact Sheet.................................................................................................................................................................15

4.2.2 Implications..............................................................................................................................................................16

4.3 MARKET SIZE & SHARE....................................................................................................................................................16

4.3.2 Projected Market Growth for next 4 years...............................................................................................................17

4.4 SEGMENT LIFE CYCLE.......................................................................................................................................................18

4.4.1 Industry.....................................................................................................................................................................184.4.1.1 Critical Analysis ...................................................................................................................................................19

4.5 DISTRIBUTION STRUCTURE...............................................................................................................................................204.6 COMPANY & COMPETITORMARKET SHARE.....................................................................................................................21

4.6.1 2012-13.....................................................................................................................................................................21

4.7 MARKET PROFITABILITY ANALYSIS..................................................................................................................................22

4.8 COST STRUCTURE..............................................................................................................................................................22

4.9 DRIVING FORCESORKEY SUCCESS FACTORS..................................................................................................................23

4.10 TRENDSINTHE INDUSTRY..............................................................................................................................................25

4.10.2 Bargaining Power of Suppliers..............................................................................................................................25

4.10.4 Threat of New Entrant:...........................................................................................................................................254.10.5 Exit Barriers:..........................................................................................................................................................25

5.0 INTERNAL ANALYSIS.....................................................................................................................................................26

5.1 VALUE CHAIN...................................................................................................................................................................26

5.2 SWOT ANALYSIS..............................................................................................................................................................275.4 PORTFOLIO ANALYSIS.......................................................................................................................................................29

5.4.1 KTC Brands:.............................................................................................................................................................29

5.4.2 BCG Matrix:.............................................................................................................................................................30

5.5.1 Financial Highlights ................................................................................................................................................32

5.6 PERFORMANCE STANDARDS..............................................................................................................................................33

6.0 VISION, MISSION AND OBJECTIVES..........................................................................................................................33



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6.1 VISION...............................................................................................................................................................................33

6.2 MISSION STATEMENT........................................................................................................................................................33

6.3 BUSINESS OBJECTIVES......................................................................................................................................................34

6.4 KEY ISSUES.......................................................................................................................................................................34

6.5 STRATEGIC DIRECTION......................................................................................................................................................35

7.0 PRICING STRATEGY.......................................................................................................................................................36

7.1 INFLUENCESON PRICING STRATEGY: ..............................................................................................................................36

7.1.1 Government Intervention..........................................................................................................................................36

7.1.2 The firms corporate and marketing objectives .......................................................................................................36

7.1.3 The degree of product differentiation.......................................................................................................................37

8.0 COMMUNICATION STRATEGY...................................................................................................................................37

8.1 PRODUCT...........................................................................................................................................................................37

8.2 ADVERTISING....................................................................................................................................................................37

9.0 PRODUCT MARKETING PLAN.....................................................................................................................................38

9.1 CURRENT SCENARIO..........................................................................................................................................................38

9.2 FUTURE PLAN....................................................................................................................................................................38

10.0 OPERATIONAL PLAN....................................................................................................................................................39

11.0 ACTION PLAN ................................................................................................................................................................39

12.0 CONCLUSION..................................................................................................................................................................41



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1.0 Overview of Tobacco Industry

In response to stronger demand and better prices from cigarette manufactures, Vegetablesand sugarcane compete with tobacco and farmers have started inter-cropping tobacco toincrease return.

Tobacco is grown mainly in the Northwest Frontier Province (NWFP) and Punjab. Flue curedand burley tobaccos are used primarily in higher-quality cigarettes. Oriental varieties (knowslocally as white patta) are used in low-quality cigarettes and for chewing tobacco. Dar air-curedvarieties are largely used for filler, while light air-cured varieties are used primarily fortraditional Pakistani tobacco products. Yields in Pakistan are about twice those for neighboringcountries largely due to the extensive services provided by the industry. Quality, however, isimproving only slowly due to problems related to climate and soil. An estimated two-thirds ofthe tobacco produced in Pakistan is utilized for cigarettes and the reminder for other tobaccoproducts or exported.

Globally, tobacco industry is facing stiff sanctions from governments regarding promotion oftheir brands. It started with the sanctions on advertisement on electronic media, healthwarnings getting bolder and so on and so forth. It is making this industry suffer a great dealespecially whenever there is a new launch of any brand.

1.1 Pakistan Market

Pakistan is mainly VirginiaTobacco Market. Most of theTobacco is grown in NWFP andpartly in Punjab. Annual TobaccoRequirement of Pakistani Marketis 60 Million KG, out of which 40

45 Million Kg is grown inNWFP near Mardan and Sawabiin NWFP and Okara Region inPunjab. Rest of the Tobacco isimported.

There are about 24 companiesthat manufacture cigarettes inPakistan. However the number is



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Marketing Plan: Karachi Tobacco Company___________________________________________________________________________even greater if we include the illegal companies that are mostly operating in NWFP andBalochistan.

In Pakistan there are two major players. PTC - Pakistan Tobacco Company operating underlicense from BAT British American Tobacco and LTC Karachi Tobacco Company, now

operating under License of Philip Morris International. Both LTC and BAT are more than 90%of the total Tobacco Market in Pakistan. Other players are Sarhad Tobacco Company, MughalTobacco Company, while others smaller have insignificant volume contribution.

Pakistan has an estimated Cigarette consumption of 79 Billion stick (Unofficial data) perannum. It includes both organized and unorganized sector. Of this total market, 63 Billion stickis with the organized sector, while rest is produced / smuggled illegally. In terms of PakRupees the total market of cigarettes is about Rs. 60 billion per year.

Pakistan has a total smoking population of 11.07 million, averaging 16 sticks per smoker.

(Source: Economic Survey of Pakistan 2005).

1.2 Market Segmentation

Pakistani Market is divided into several categories on the basis of prices. It is quite clear thatas far as the segmentation of market is concerned it is purely on income based. Broadlyspeaking market segmentation for the whole market is not on geographical basis except forone or two brands.

Major cigarettes manufacturers target the market on price basis and mainly their. target marketcomprises of consumers having their monthly incomes from Rs. 6000 to Rs.12,000 a month .These consumers are the major consumers of all available brands in Pakistan with theexception of some expensive brands which are for higher social classes. These brands includeGold Leaf, Marlboro, Dunhill etc.

Major consumers of cigarettes are mainly those who have their monthly income of about12,000 per month. They have more then four children, paying rent for their living and even ifthey own their house, it is mostly of two rooms. More than 60% have TVs in their houses. So,all major cigarettes manufacturer are targeting from lower to middle class smokers in Pakistanas these represents the major percentage of our population.



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The cigarette market is divided in to the following Categories (Segments) based on the priceSKU.

Segments

Price Range20 Cig.

Segment A > Rs.70.00

Segment B Rs. 30.01 Rs. 70.00

Segment C Rs. 20.01 Rs. 30.00

Segment D


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1.4 Key Emerging Trends

Due to Government and self imposed ban on ATL activities, concept of Personal

Selling is emerging very fast. It means marketing through salesman.

Tax stamp introduction on Finish goods instead of conventional taxing system by the

government a step to minimize counterfeit products in the market.

Nicotine and Tar contents awareness.

Flavored especially mentholated cigarettes are coming up as boutique brands that need

to be addressed by the big players.

Slim cigarettes although not a very small market that exists only in urban areas is

emerging as a feminine cigarettes.

1.5 High Barriers to entry for new entrants

Very high investment is required to enter into the industry and market.

Stiff competition among different tobacco companies- which has grown even more after

acquisition of Lakson Tobacco by Philip Morris

Ban on ATL activities limit the scope of success of any new brands.

Low priced / Low margins market required high volumes for sustainability.



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2.0 Karachi Tobacco Company Limited

2.2 Region

Mainly serving for the local market, with major share of Market (around 20%) in PunjabProvince, Karachi is operating with two cigarette manufacturing unit located across Pakistan.With the largest manufacturing unit operating in Sahiwal, Other unit is in Karachi.

Karachi consist of 4 Cigarette Depots, 1st point of contract of its product is with distributors,who are responsible to distribute under guidance of Karachi sales force. With the marketvolume distribution, 6 Depots are strategically located in Sindh, 7 Depots in Punjab and 1 eachin NWFP and Balochistan.


Jac

oba

bad

Total Cigarette Depots: 19


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2.3 The Clientele:

KTC Clientele base is very getting strong, supported by some 1,200 sales persons operatingall over Pakistan. Through 12 sales offices in various districts of Pakistan, Karachi ismaintaining its own fleet of distribution network for primary sales, while keeping the eye on thesecondary sales.

The major consumers are in low income group as Karachi has almost no presence in A, B andC category / segment. Mostly labor class is the main client for its brands, resulting in hugevolume with low revenue as compared to its rival PTC.

Many attempts have been made to launch a brand in B segment of the market like Park Lane,Premier Classic but all attempts were futile.

2.4 The Suppliers:

Most of the raw and packaging material for cigarette manufacturing is imported. HoweverHinged Lid packs (HL), Soft cup packs and duplex board used in the product manufacturing islocal. Karachi has always maintained a very good relationship with their local as well asimported material supplier that is why; whenever there is shortage of raw material either locallyor internationally, they were not struck as bad as its rival PTC. Since a part of a groupcompany, Karachi tobacco has supported its sister concerns in terms of business. Few of them

are Merit Packaging, Century paper and board mills etc. However, as a policy they NEVERrelied their whole business on single supplier both locally and internationally.

2.5 Management Team:

Karachi management team previously and after the take over is always committed to its workprofessionally with a very caring culture towards its employees, that is why they were able totake the rival Pakistan Tobacco by the horns. But the main problem is the reactivemanagement, besides few things like White Tipping and Hinged Lid packaging etc.

But now after the take over by Global player Philip Morris, this approach is likely to change toproactive by utilizing their global experiences and vision.



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3.0 Business Scope

3.1 Where

All Across Pakistan with major presence in the province of Punjab where around 70% of

the product is sold.

3.2 What Needs

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

3.3 Whose Needs

All segments of consumers, based on price categorization in segments from A-E.

All adult ( 18 +) cigarette smokers

3.4 Added Value

Offer cigarettes to adult consumers with proper health warnings providing them good,

smooth smoke every time they smoke a cigarette.

Wide availability almost every where to adult consumers Provide quality, consistent product



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4.0 External Analysis

4.1 Market Structure

4.1.1 Market Segmentation

The cigarette market is divided in to the following Categories (Segments) based on the priceSKU.

MARKET SEGMENTATION


Segment APrice range > 70 for 20s CigPack

Segment BPrice range 40 for 20s

Segment CPrice range 15 to 22 for 20s


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END USERS

PRODUCTS


Segment ASEC A / A+: Income Level 30 Kand above, who believe in high

quality products which can givethem a good image.

Segment BSEC A: Income Level 20 - 30 K,who believe in high quality butsettle for local products more often.

Segment CSEC C: Daily wagers who cantafford expensive cigarettes, usuallystick buying behavior prevails inthis segment.

Segment A

Prism Gold

Segment BChallenger

Segment EBoss.


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CHANNELS

4.2 Analysis

4.2.1 Fact Sheet

KTC Cigarette Market is divided in 3 segments, A, B, C, based on price of the product.

Cigarettes consumers are very price conscious and that is why all the segmentation is

based on their price of product in the market.

KTC major concentration is in A and C segments where there are many products of

their own competing each other in the market.

High dependence on distributors for communication of products to the actual

consumers.


DistributorsDistribution and Outbound logistics are handled mostly bycompanies themselves

Large WholesalersAbout 65% of product is handled by wholesalers in themarket for distribution

Large Scale RetailersAbout 35% of products are handled by large scale retailers.


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4.2.2 Implications

Our product is of sensory nature and consumers are very receptive of its taste and

smoke.

Consumers are brand conscious but they tends to switch to similar or superior brands if

they cant seek the satisfaction they wanted from their own brand.

Cigarette is a part of the personality of the consumer that he looks forward towards its

packaging and style that would match his social standing.

In short the company needs to build a strong packaging along with consistent taste

building a strong brand persona, though it is facing a strong challenge of BlackMarketing due to ban on ATL activities.

4.3 Market Size & Share

Market share of 2012-13 is mentioned below. If we evaluate the data.

Growth(2.1%)

S. NoIndustry Market

Segments2012-13

1 Segment A 801

2 Segment B 355

3 Segment C 93

Total 1249



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4.3.2 Projected Market Growth for next 4 years

(Units in millions)Growth(2.1%)

Growth(2.3%)

Growth(2.5%)

Growth(2.7%)

S. NoMarket Segments of

industry2012-13 2014 2015 2016

1 Segment A 850 870 914 948

2 Segment B 377 395 418 432

3 Segment C 97 101 106 111

Total 1249 1366 1438 1491


0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Demand

HL20 61%

HL10 31%

SC20 8%

2012-13


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Marketing Plan: Karachi Tobacco Company___________________________________________________________________________As forecasted by the market research agents, it is seen that the overall growth of the tobaccoindustry is going to increase proportionally and gradually 2% annually as the players are goingto focus more on the upper segments and will be using aggressive marketing and tradeinitiatives.

4.4 Segment Life Cycle

4.4.1 Industry

The tobacco industry has attained maturity stage as the massive market of segment B & C hasbeen penetrated with the percentage of penetration being 75% which consists mostly of therural areas and some of the urban areas. Less than 5% of the market are those potential

people who either dont take cigarettes as there means of nicotine satisfaction and go for otheralternatives such aspaan,eatable tobacco, shisha orhukka and cigars. The others are thosewho casually take cigarettes as a sign of attitude and prestige.

Segment A and B are still in the growth stage which still needs to go in the maturity stage.


Segments B& C

Segment A& B


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4.4.1.1 Critical Analysis

It has been observed that the market segments of the tobacco industry are in two stages oneis in the growth stage which includes segment A, B and the maturity stage which includessegments B & C. The major reasons for the segments to be divided into these major groupsare:

There is a greater range of different brands in the lower segments like C then the uppersegments which are A, B. Hence, consumers of the tobacco industry have a moredifferentiated choice of cigarettes in the lower segments then the upper segments and hencethe lower segments have grown rapidly then the upper segments.

Price is a main factor because of which the lower segments have reached their maturity stageas more of the rural areas have responded to these stages then the urban areas who prefer to

respond to the upper segments.

S.No Market SegmentIntro

.Growth Maturity Decline

1 Segment A

2 Segment B

3 Segment C



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4.5 Distribution Structure

The distribution norm in the industry is very conventional that the manufacturers sell from theirwarehouses to their major distributors, which sell directly to wholesalers and large scaleretailers. The whole sellers pass it to the retailers and trolleys who then pass it to theconsumers. Also, there are distributors who sell directly to large retailers and then the productis passed onto the consumers. This distribution trend of the industry is very similar to whatKarachi follows.

In order to not only have a greater sale in the tobacco industry but to have a better marketcoverage, companies are brainstorming on strategies of how to effectively use the distribution

channel to achieve this milestone. The example of this is that the companies in the tobaccoindustry is making a strong alliance with the distribution agencies who are much organizedthen the local distributors and using there particular expertise and widely spread network, thecompany can easily and effectively improve the coverage of the market they are entertainingor plan to entertain.


InboundLogistics

Wholesalers(65%)

Company

Retailers(Small Scale)

/ Trolleys

DistributorAnd Outbound

LocalManufacturing

Imports

Consumers

Large ScaleRetailers

(35%)


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4.6 Company & Competitor Market Share

4.6.1 2012-13

Company Segment BrandMkt.

Share

LTC C MORVEN GOLD KSF 20HL 23.6%

KTC C B 20HL 16.5%

PTC C GOLD FLAKE KSF 10HL 7.7%

PTC A GOLD LEAF KSF 20HL 6.3%

The above table is showing the top 4 Brands, Volume wise in the Industry with their marketshare and the segment they belong to. Karachi is present with its major brand BOSS in the 2 nd

brands list.


47%

52%

1%

0%

10%

20%

30%

40%

50%

60%

2012-13

KTC

PTC

Others


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4.7 Market Profitability Analysis

The tobacco industry is not highly fragmented with few local players offering different variants

of cigarettes (hard and light), different prices (lower segment and upper segment) and differentbenefits (various taste, quality, brand satisfaction, variation of nicotine, package convenience).

If we compare the two giants of the tobacco industry, PTC caters to the upper segment of thetobacco industry where as LTC caters to the lower segment of the tobacco industry.

PTC has healthier brand equity because of its healthier brands which Karachi lacks in itsproduct portfolio. Further more PTC captured the rural market before Karachi came intoexistence, which is the highest profit producing market. Karachi has the advantage of providingits users with a much larger range of products for each segment of the tobacco industrytherefore giving the choice to the consumer to have a variety of choice on the same price

category.

Profitability of Karachi Tobacco Company can be measured with the turnover of PKR 12 Billionlast year, as per the annual report publication. The total share in the market is 37% while itsrival has a share of 52% of the total organized sector. While the remaining is with Mardanbrands and imported cigarettes both in organized and unorganized sectors.

Profitability of Pakistan Tobacco increased after a dip during 2011 2012 where they putmassive investment, but the company survived it due to aggressive market and salespromotions overtaking karachi in both profitability and market share.

Another factor for PTCs more profitability is the emergence of dark Marketing, aftergovernment regulations on the ATL activities. They were too quick as compared to Karachi togo for merchandizing of their products.

The smuggled cigarettes are present in the market via illegal routes. These brands are veryeconomical as there is no tax which is enforced to these brands by the government.

4.8 Cost Structure

The cost structure in the industry does not follow any set pattern. The Tobacco market is socontinuous that cigarettes in the premium segment as well as in the non-premium segmentfollow same value chain and cost structure pattern.

The taxation structure for cigarettes is set by the government based on the retail price of theproduct. As seen from the below table, government is charging very high taxes, which are as



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Marketing Plan: Karachi Tobacco Company___________________________________________________________________________much as 73 % of the total cost. Of which 10 15 % is on the tobacco used for themanufacturing of the cigarettes.

Per 20

Cigs. Retail Price

UPPER ABOVE Rs. 70.00

MEDIUM > Rs. 15 & up to Rs. 40.00

LOWER UPTO Rs. 15

Cost of raw material used in manufacturing of cigarette is also high as both the rivals useimported raw and packaging materials. But the volume is justifiable for their usage to giveproduct a good quality and sustainability.

KTC has placed itself somewhere towards the middle continuum. It cannot sell itself solely onthe basis of its brand name; hence, it has to practice a high level of marketing and salespromotion activities. On the other hand, since most of its raw material is imported, and itsvolume sales are high enough, yet its major chunk of the budget should be spent on marketingbut this is not a common practice.

4.9 Driving Forces or Key Success Factors

Quality: Low cost of production while maintaining quality of product his is because ofusing high quality imported raw material and high volumes production that gives them agood bargaining power on the purchase of raw material for both imported and localmaterials.

High Volumes: Targeting major low price chunk of the market, resulting in Successfulnew Cigarette brand, like BOSS and Challenger.

Commitment from top: Top management is always committed to go with the newideas and help the middle management exercising various options in the market.

Networking: The tobacco industry is highly dependent on the effective and efficientnetwork of the distributors, since there is a restriction of the using media by thegovernment, therefore the players use the distributors to market there products toretailers and consumers and see that there products availability is high so that people



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can get aware of it. Also good relationship with the suppliers help them reduce theirinventory costs and benefit on part of them whenever there is shortage of any rawmaterial in the global as well as local markets.

Sales Promotion Strategies: Merchandising, sales promotion and other aggressivemarketing techniques are the rules of the game in this industry. Most common is theinserts practice that is always offered to the consumers by both the rivals. Also there isa practice of offering incentives to the big retailers and wholesalers in terms of volumesof sales made by them for the company.

Product Portfolio: Since the lower segments of the tobacco industry is gettingsaturated therefore the major players of the industry require a set of healthy brandswhich not only bring in profit to them but are also strong brands as they would beultimate instruments with which the major players will hit and capture the uppersegments of the market.



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4.10Trends in the Industry

4.10.2 Bargaining Power of Suppliers

The suppliers of the industry have a considerably neutral bargaining power, since the pool oflocal suppliers for various materials is considerably large. As the industry has developed a lotthrough the years therefore more and more local suppliers have started there operations in thecountry and hence are providing raw material to the companies in the tobacco industry andhence reducing the cost of the tobacco products for the consumers. But still there are stillsome raw materials which are only provided by some specific manufactures. For example isthe Packages Ltd. Is a supplier for Corrugated Cartons, Cigarette paper and Tipping paperfrom Germany, namely Tann paper and Wattens paper respectively.

4.10.4 Threat of New Entrant:

The threat of new entrant in the tobacco industry is relatively less, on account of the capitalinvestment involved in producing high quality cigarettes. However, there is an ever growingnumber of Mardan products who produce brands in the lower price categories and evadetaxes, on account of which they are able to earn handsome margins.

Also, as the government rules and regulations are high therefore, new competitors have tothink a thousand times to come into this industry, as heavy taxes are imposed on the tobaccoindustry. An example of the heavy taxes imposed is that almost 68% of the revenue generatedby KTC goes to the government as tax.

4.10.5 Exit Barriers:

As the tobacco industry involves high investment in the specialized assets and secondly itrequires a major fixed cost to exit from the tobacco industry therefore the exit barriers are highand the industry is mildly unfavorable. Hence the competitors of the tobacco industry wouldhave to strive hard to remain in the industry by striving for new marketing strategies that can

help them to remain in the competition with its competitors. In short in this industry is a highlycompetitive.



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5.0 Internal Analysis

5.1 Value Chain


Tobacco PurchasingLocal / Imported

Threshing and grading of LocalTobacco

Prized TobaccoWarehousing

Tobacco Logistics to factory

Primary Processing(Blending)

Cigarette Manufacturing &

Packaging

Inhouse Finished GoodWarehousing

Import of Raw / PackagingMaterial

Centralized Warehousing(3 Months Production Forecast)

Onsite Warehousing1 Month Stock

Local Raw / PackagingMaterial Procurement

Onsite Warehousing15 Days Stock

Out Bound Finished GoodDepots

Retailers & Warehouses

Consumer


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5.2 SWOT Analysis

STRENGTH[S] WEAKNESS[S]

Local company, therefore good and flexiblerelation ships with Inbound and Outboundchannel members. Now will enjoy moreexperienced approach of World Giant PhilipMorris.

Not having strong presence in urban areas

35 Plus of Years of learning experience. Absence of premium products

Trusted name by both the trade, and the endconsumers

Restriction by the government overadvertising and promotional activities. They

cannot target females, children under 18 orfamilies in Pakistan

Strong distribution network (Establishedrelationship with distributors).

Lack of Strategic Focus, which now hopefullyimprove after Philip Morris Acquisition.

Maintaining and improving quality in productsand services

Market share deteriorating.

High cash inflow. Severe Labor Union problem faced in one of the manufacturing unit.

Strong R&D: Technology advancements for

quality enhancements and knowledge engineInvolvement in community services

OPPORTUNITY[S] THREAT[S]

Growth potential in Segment A & B. Competitor taking most of the market share

Introduction of menthol cigarettes Increasing level of taxes due to which

cigarette prices increasingNiche market for flavored products 70% of total revenue taken by government

yearly

Potential market in urban areas specially ofSindh

Counterfeit Products

Increasing segment of young smokers



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Higher Levels of Disposable Income

Export sales



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5.4 Portfolio Analysis

5.4.1 KTC Brands:



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5.4.2 BCG Matrix:



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Karachi Tobacco as a whole business is at the moment in the moderate or even low growth-high share stage, that is, it is nearing the star as well as dogs. It is a growing business with amoderately 2nd highest share in the market. The companys current strategy is to invest to buildwith emphasis on the segments A, B and C with its short term plans to capture segment A & Bas well.


Stars

Boss

Problem Child

Challengerr

Cash-Cows

Prism and Boss

Dogs

Prism


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5.5.1 Financial Highlights

($ Mio.)

FY 2012-13

Volume (Bio) 30.4

Net Sales 164.8

COGS 93.6

DME/Selling/G&A 29.5

Pre Tax Income 39.5

Net Income 25.7Exchange Rate 62.8



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5.6 Performance Standards

6.0 Vision, Mission and Objectives

6.1 Vision

To exceed the expectations of our customers by producing and supplying high qualityproducts while executing with strong ethical standards, total transparency and completefairness in all areas of our business.

6.2 Mission Statement

We are the most trusted name in customer and partner relationship management.

We are Number 1 in volume and value at all categories, including export

We are Number 1 amongst the top 25 companies in the KSE

We are a caring organization

We are a system based organization, striving to establish / maintain our operations revolvingaround ISO/SAP/6 Sigma and Reengineering Performance Management.

We believe that our people are sincere and committed to continuously produce high qualityproducts at lowest possible cost by meeting expectation of all stockholders.

We are a team of satisfied, daring and caring professionals who respect and trust others, andstrive to be proactive in their decisions, while continuously measuring our performance innumbers and taking responsibility of our actions.

We work in an open environment of boundaryless organization where conflict is a norm.



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6.3 Business Objectives

To maintain and improve our market share by 5% every year.

To capture a major chunk of the growth of 10 to 15 percent with our emerging new

variants.

To reduce our costs of production by 5 percent every year.

To focus penetration in the urban areas mostly of Sindh because of rural market

saturation.

To increase communication and information flow across functional areas in order to

improve employee efficiency.

To enhance our production and logistics division with injection of latest upcoming

technology

To target segment A and B, with special emphasis on B category within next 6 months

To invest 10-12% more in out R&D division for enhancing our product portfolio

Increasing shelf space in urban market by 10% within next 10 years

To align processes with Philip Morris, especially Quality standards, procurement and

follow GAP in financial aspects.

To increase productivity and improve men per million ratios.

6.4 Key Issues

Ensure that KTC does not lose its share to new lower-priced products, and smuggled

counterfeited items.



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Since majority of Karachis raw material is imported, it is subject to foreign exchange

rates, import and excise duties.

Provide consumers with quality products like KTC has always done, and attempt to

decrease cost at the same time, especially in the face of such fierce competition basedsolely on price.

Employee resistance to change toward new technology.

Competitor having strong positioning in the Urban areas due to which segment A and B

are left untouched.

Unionized work force.

6.5 Strategic Direction

Target the upper segments of the market by increasing our portfolio for Segment A & B

with slightly premium prices.

Rationalize factories to optimize production cost and reduce reject rates and increase

factory yields.

Improve taste of product by using hybrid seeds that would enhance tobacco tastes and

aroma.

Study the cost price relationship in accordance with the revenue being generated from

each variant of the product so as to determine the weak link which can be shelved so asto balance the production

Anticipate the demands of our target consumers with regards to prices and quality.

Resist the rejection towards high prices of imported cigarettes by enhancing our quality

image and brand name competence.

Negotiate with retailers to increase our visibility through strategic placement and shelfspace.

Continue our R&D efforts in the product engineering stage to provide consumers with

better value in terms use, image and satisfaction.



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To restructure and reorganize functional departments, making them more attuned to

each others activities.

7.0 Pricing Strategy

Prices of major products of the KTC Portfolio for 20s Cigarettes is given as under

Product Price Benchmark

PRISM Rs. 70 Rs. 65

Challenger Rs. 40 Rs. 40

BOSS Rs. 15 Rs. 15

Since PRISM has been targeted for the upper middle and upper class therefore its

priced highest. But the volumes that were coming from the market were simply too lowfor the brand to operate and now the management is planning to shelf it.

Challenger fall at the lower pricing then PRISM.

7.1 Influences on Pricing Strategy:

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

7.1.1 Government InterventionPakistani government imposing high taxes on Tobacco products cause prices to increaseevery year. This is done to achieve the revenue target as well as being able to pay off therequired taxes.

7.1.2 The firms corporate and marketing objectives

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



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7.1.3 The degree of product differentiationDifferentiation does certainly influence price because the specification under which theCigarette ingredients are produced is important; in fact, KTC claims superior quality because ofits production process and import of best quality raw material.

8.0 Communication Strategy

Government has imposed several restrictions on the promotion activities on Cigarettesindustry.

8.1 Product

30% Health Warning on packs (front and back) has been imposed since May 2012 but there is

still no Tar / Nicotine ceilings set by the government, but it is already anticipated by bothplayers. Both are working to gradually reduce Nicotine and Tar levels so that the consumercannot perceive.

8.2 Advertising

Ads allowed in age controlled cinemas only and not on Television or Radio. Sampling isallowed at non-public events. No ads less than 50 meters from schools Models are allowed.Even in ads the age of model used must be over 40 years old. The size of Billboards is limitedto max 1m with 20% health warning.

After all these regulations, the communication to the consumers is limited to merchandizingonly or through sales promotions. Concerts and other BTL activities are still available tocommunicate the message to the consumer.



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9.0 Product Marketing Plan

9.1 Current Scenario

MarketSegment

Product Positioning

Segment A PRISMPositioned at premium level,with the same internationalbrand image.

Segment B Challenger Position for good taste andModern Approach.

Segment C BOSSPositioned as hard, energeticand rugged.

9.2 Future Plan

MarketSegmen

t

Product Positioning Why

SegmentA

PRISM

For Marlboro it would remain same,but more aggressive marketing willbe done by merchandizing and salespromotion.

To make it available in themarket and emphasize offreshness as compared toSmuggled cigarettes.

SegmentB

Challenger

Positioned for style and taste Nochange just repositioned with newpackaging early this year

SegmentC

BOSS No change



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10.0 Operational Plan

Benefits

(sought bycustomer)

Positioning Advertising Program

StrongPreference

Largest leader in providing a variety ofstrong taste brands

Ads in magazines, kiosk for product trial

PriceConcious

Targeting consumers who want to enjoyhighest standard of tobacco at affordableprices

Sales promotion, personalling selling

Packagingconsideration

Being the only players providing farsuperior soft packs and Emperorpackaging

Kiosk showing packaging features

Quality Providing the finest American blendedtobacco

Products carrying int. ISO achievements

Prestige Providing highest quality tobacco to thelower segment masses

Ads providing the association between thproduct and the lower segment massemerchandising on outlets in the lowesegement areas

EasyAvailability

Available in every shop of every city Merchandising on outlets, increased sheshare and incentives to the distributobuilding an association of the distributor witthe concerned brands

11.0 Action plan

What How Who WhenNew BrandIntroduction

By launching a newbrand in B category and

A category of thesegment

By MarketingDepartment

As early aspossible

Improve inMarlboroDistribution

New markets anddistribution network

Sales & brandManagement

ASAP

Product PortfolioAnalysis

Evaluate each productsperformance, its

potential andcontribution to revenue.

Marketing Director,Operations Director

and Operational &Marketing FinanceTeam

Immediately toget rid of non

performingSKUs.

ProductionIncreaseProductioncapacity of 10s

By induction of highspeed packers

OperationsDepartment

By Mid 2014



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SKU.

ImproveProductivity andYield

Increase productivity byproper maintenancescheduling of equipmentand better production

planning.

Factories andProduction planningdepartment

ASAP

DistributionMore emphasison secondarysales to havebetter ideas ofsales

Sales Team, shouldanalyze the secondarydata collected fromSAP.

Sales DepartmentGM Sales,NSM, DSM, ASM

As soon aspossible

PromotionAggressivepromotionalactivities at

merchandizinglevel

Have to give themerchandisers goodpromotional offer to

push the product intothe market and make itavailable.Kiosks building anddistribution on a largescale.

Brand ManagementTeam.

As soon aspossible

Consumersinteraction

More emphasis shouldbe given to urban areamarkets and attractmore consumersthrough BTL activities

like concerts, showssponsoring

Brand ManagementSales and MarketingTeam

ASAP

Innovation andR&DNew productdevelopment inBoutiqueproducts

Product Research &Development teamalong with Marketingresearch team shouldfocus on this developingtrend in the market forboutique brands.

R&D and MarketingManager andMarketing Research

2015

FinancialCost Cutting invarious areas

Financial recordsreviewing

New advancemachinary and plantsetup to cut thevariable cost in thelong run

2014



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12.0 Conclusion

To sum up all the findings presented in this report in order to move to the position of acompany that excels and wins in the dynamic marketing environment today from the position itis in today Karachi needs to take the strategic direction outlined by the following points.

KTC must increase its product portfolio for Segment A & B. This is to eliminate the

concern of being present in the market but not in visibility. These segments areprofitable and KTC almost doesnt exist in these segments.

Karachi needs to change and develop a better and clearer positioning statement for its

products, which it lags now after the imposition of government regulations.

For operational point, KTC needs to cut down its FME and improve in quality evenfurther to excel and compete in the market.

marketing plan karachi tobacco company

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