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RJ Reynolds TobaccoEbony BranchMarketing Strategies-MGMT 530Lisa HaddockJune 23rd , 2013Southwestern College Professional StudiesTable of ContentsExecutive SummaryCompany OverviewHistoryProducts ProducedMajor Challenges for the Near FutureSituational AnalysisThe Internal EnvironmentThe Customer EnvironmentThe External EnvironmentSWOT AnalysisStrengthsWeaknessesOpportunitiesThreatsMarketing StrategyPrimary Target Market and Secondary Target MarketsProduct StrategyPricing StrategyDistribution/Supply Chain StrategyPromotion StrategyExecutive SummaryRJ Reynolds Tobacco is a top tobacco manufacturer in the business. Established in late 1800’s, RJ Reynolds worked to establish his brand and make a mark in the industry. This was established by creating the first pre-packaged cigarette in 1913. The tobacco industry is a profitable business and billions of dollars have been made over the years. In 1998, the Master Settlement Agreement put a financial damper on the leading tobacco manufacturers. Billions of dollars had to be paid out for settled state lawsuits that were trying to recover billions of dollars in costs associated with treating smoking-related illnesses. This paper sets to look at the financial records of RJ Reynolds Tobacco to see the effect master settlement agreement payments, economic downturn, and government regulation has had on financial earnings and if the company is still a viable choice for investors.RJ Reynolds: Stable TobaccoIn recent years, the tobacco industry has been the target of many rules and regulations. There have been many anti-smoking laws and commercials, groups and advocates against tobacco and regulations from the FDA that have created restrictions on manufacturers that have impacted financial success. Even with all the attention on tobacco, RJ Reynolds continues to hold the number two spot among US makers of cigarettes and smokeless tobacco through subsidiaries RJ Tobacco and American Snuff. RJ Reynolds History Richard Joshua RJ Reynolds founded RJ Reynolds Tobacco Company in 1875 in Winston-Salem, NC. Reynolds has established his tobacco manufacturing operation despite competition in the area. ‘In 1913, Reynolds developed a great innovation: the packaged cigarette. Most users who smoked cigarettes preferred to roll their own, and there was thought to be a no national market for pre-packaged cigarettes. Reynolds worked to develop a flavor he thought would be more appealing than past products, creating Camel cigarettes, so named because it used Turkish paper. Reynolds undercut competitors on the cost of the cigarettes, and within a year, he had sold 425 million packs of Camels’ (history ). Products ProducedRJ Reynolds is responsible for producing some of the top cigarette brands in the world. R. J. Reynolds brands include Camel, Kool, Winston, Salem, Doral, Eclipse, and Pall Mall. Brands still manufactured but no longer receiving significant marketing support include Barclay, Belair, Capri, Carlton, GPC, Lucky Strike, Misty, Monarch, More, Now, Tareyton, Vantage, and Viceroy. The company also manufactures certain private-label brands. Five of the company's brands are among the top ten bestselling cigarette brands in the United States, and it is estimated that one in three cigarettes sold in the country were manufactured by R. J. Reynolds Tobacco Company. In 2010 R. J. Reynolds acquired the rights to the smokeless tobacco products Kodiak and Grizzly dip.Challenges for the FutureRJ Reynolds and all tobacco manufacturers are faced with the challenge of making a profit while cigarette sales continue to decline 5 to 6 % per year. Due to the social stigma associated with tobacco and health concerns, many consumers have decided to quit smoking or look for cheaper ways to feed their addiction. The creation of electronic cigarettes is a new market that is in direct competition for tobacco manufacturers. Another challenge for RJ Reynolds is the master settlement agreement. The Master settlement agreement was a law that cost tobacco manufacturers billions of dollars. ‘In November 1998, the attorneys general of 46 states signed a Master Settlement Agreement with the four largest tobacco companies in the United States. The agreement states that cigarette companies may not “take any action, directly or indirectly, to target youth . . . in the advertising, promotion or marketing of tobacco products’. (King, 2001) Master settlement agreement resolved litigation brought by the forty six states and settled state lawsuits that were trying to recover billions of dollars in costs associated with treating smoking-related illnesses. It also created new restrictions such as Outdoor, billboard and public transit advertising of cigarettes were eliminated, cigarette brand names could no longer be used on merchandise and it prohibited tobacco advertising that targets people younger than eighteen.MSA Impact on Financials ?-666751530350Annual Payments and Strategic Contribution Payments:Annual Payments and Strategic Contribution Payments00Annual Payments and Strategic Contribution Payments:Annual Payments and Strategic Contribution PaymentsOn April 15, 2000 and on April?15 of each year thereafter in perpetuity, each Original Participating Manufacturer shall severally pay to the Escrow Agent (to be credited to the Subsection IX(c)(1) Account) its Relative Market Share of the base amounts specified below, as such payments are modified in accordance with this subsection (c)(1):YearAmountYearAmountYearAmount2000$4,500,000,0002007$8,000,000,0002014$8,139,000,0002001$5,000,000,0002008$8,139,000,0002015$8,139,000,0002002$6,500,000,0002009$8,139,000,0002016$8,139,000,0002003$6,500,000,0002010$8,139,000,0002017$8,139,000,0002004$8,000,000,0002011$8,139,000,0002018$9,000,000,0002005$8,000,000,0002012$8,139,000,0002019$9,000,000,0002006$8,000,000,0002013$8,139,000,0002020$9,000,000,000Situational AnalysisGovernmental regulations can have a large impact on tobacco companies' revenues and, indirectly, consumer demand. There are two main ways in which governments attempt to regulate the consumption of cigarettes, excise taxes and regulations on smoking in public places. Cigarette excise taxes were created in the United States to discourage smoking and raise government funds at the same time. It created a way for state and federal levels to receive a tax off cigarette sales. Cigarette excise taxes are per-pack taxes placed on cigarettes by governments. According to Jiang, cigarette excise taxes serve two purposes: reducing public cigarette consumption and providing a large source of revenue for treasuries. These two reasons put governments, especially state governments in the U.S., in a somewhat difficult position. While many policymakers want to reduce per-capita smoking rates, the excise taxes collected from tobacco companies’ number in the billions of dollars annually. As a result, governments have a vested interested in the continued viability of Altria and other tobacco companies, making them unwilling allies of the tobacco industry. Excise taxes have risen dramatically in the past three decades and are expected to continue upward. Elected officials have realized that the large profitability of the tobacco industry allows individual companies to absorb a significant percentage of an increase in excise taxes without passing the full cost on to consumers. As such, governments can increase revenues from tobacco companies without severely harming demand for the companies' cigarettes. Restrictions on cigarette consumption include bans on smoking in public places such as restaurants, workplaces, etc. In the U.S., there has been a recent increase in the number of cities with smoking bans in effect. While having no impact on private consumption of cigarettes, these bans prohibit smoking in many public places, limiting the ability of consumers to choose when and where to smoke’ (Jiang, 2006)SWOT AnalysisCigarette sales continue to decrease three to five percent per year even before economic downturn. Even with declining sales, the tobacco industry is more resistant to the effects of economic downturns compared to other industries. Some tobacco smokers will switch from premium brands to savings but most consumers consume the same brands even with economic hardships. Sales revenues are down for RJ Reynolds but they continue to fare better than other industries. This is a major strength for the company. They have established themselves as a primary tobacco brand and loyalty has been created from consumers. A weakness for RJ Reynolds is the ability to compete head to head with Altria. Phillip Morris has been the top tobacco manufacturer for years and they continue to create new cigarette styles at a faster pace than Reynolds. Altria has more money and is capable of producing and launching products at a faster pace. An opportunity is electronic cigarettes. RJ Reynolds is due to create an American made electronic cigarette that is digital. These key differences will set them apart from other consumers. In this day and age, some American consumers are looking for products that are made American instead of other countries like China. A threat is the FDA and other tobacco companies. New cigarette brands are established yearly and each new style can create a threat to share of market Camel and other brands have created in the market. Marketing StrategiesThe primary consumer RJ Reynolds looks to market is adult consumers under the age of forty. The reason for this is due to the younger demographic being open to change. Most adults that are over forty have smoked their brand of choice longer and are not willing to try new brands. They are not open to change. The secondary consumers are thirty. From the ages of 21 to 30, these consumers notice what friends and family members consume and are open to trying new brands. For example, menthol is a segment that continues to grow due to ATC (adult tobacco consumer) under thirty.Product and pricing strategy go hand in hand. Nationwide, RJ Reynolds tries to follow the same marketing guidelines in all retail outlets. The primary focus is displayed for Camel, Pall Mall, Camel Snus and Grizzly. All other brands are important but they are not the bread and butter for the company. Marketing these brand styles helps increase share of market. The other way this is created is with pricing. All retail and corporate outlets that are contracted receive discounting payments on these four styles. Reynolds provides money to lower pricing in stores to pass on to consumers. This is done to have a competitive price in the market and stay competitive. All contracted outlets receive promotional product at retail twice per month. The cigarettes are discounted $.75 cents per pack and are a tool used to get other consumers to try a Reynolds brand. The promotions also provide a treat to loyal customers that already buy the brand. They can buy the cigarettes they enjoy at a lower price point. All products supplied to retail are distributed by wholesale manufacturers. Reynolds American supplies product to wholesale companies and they in turn sell products to retailers. Wholesale manufacturers are the middle men between Reynolds and retailers. Conclusion Cigarette sales continue to decline three to five percent per year due to government regulation, decrease due to health risk and social acceptability of smoking and growth of smokeless tobacco. Another reason for the decline is due to more states enacting laws prohibiting smoking in public places while European customers are cutting back. Do to cigarette sales declining; there is an impact on financials. RJ Reynolds tobacco has experienced how sales decreases, federal excise taxes and master settlement agreement payments can hinder performance and profits to shareholders. Even with declining sales, RJ Reynolds is a profitable company to invest. Through innovative products, such as Camel Snus, Crush technology and Dissolvable, the company continues to set themselves apart from competition. They continue to think outside the box and this is why people are willing to invest, even with declining sales and a tobacco industry that is frowned upon by government and societal standards. Stock price has remained stable despite RAI’s net income declines from 2008 to present. The tobacco industry as a whole does better than other industries in economic downturn and tobacco consumers are very loyal. RJ Reynolds is a company that shows adversity and continues to find ways to improve profit to its shareholders while creating innovative products consumers enjoy. Innovative products and a strategized marketing brand will give RJ Reynolds a bright and foreseeable future and will continue to make its mark to become the number one tobacco manufacturer.ReferencesA Look Into Our Past. General format. Retrieved January 29th, 2013 from \Brealey, R. A., Myers, S. C., & Allen, F. (2011). Principles of corporate finance. (10 ed.). New York, NY: McGraw-Hill.Cramer, J. (2013). Reynolds American Inc. (RAI): Today's Featured Consumer Goods Winner. The Street Wire. King, C. III., & Siegel, M.D. (2001) The Master Settlement Agreement with the Tobacco Industry and Cigarette Advertising in Magazines. DOI:10.1056/NEJMsa003149. National Association of Attorneys General. Multistate settlement with the tobacco industry. Boston: Tobacco Control Resource Center, Tobacco Products Liability Project, 2000. (Accessed July 5, 2001, at .)\Korn, M. (2011). Tobacco Net Gets Price Kick; Profits Climb at Altria, Philip Morris, Reynolds Even as U.S. Volumes Drop. Wall Street Journal Online. ................
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