Pakistan Tobacco CompanyA Project of Marketing PrinciplesSubmitted toMr. Syed NawabMarketers:Noman Ahmed0936130Umair Ahmed0936141Mujahid Hussain Awan0936123Jay Kumar Vaswani0936115Pakistan Tobacco Company-The Marketing Principles ProjectTable of ContentsAcknowledgement8Executive Summary9Scope of the Project Report10Tobacco Industry in Pakistan11PTC Profile12About PTC12Fields of Gold12PTC Vision12PTC Mission12Strategic Objectives12Guiding Principles13Strength from Diversity13Open Minded13Freedom through Responsibility13Enterprising Spirit13Business Principles13Mutual Benefit13Core Beliefs14Responsible Product Stewardship14Core Beliefs14Good Corporate Conduct14Core Beliefs14PTC Brands15Sales Performance in Recent Years15Seed to Smoke17Seed17Harvest17Tobacco types171Pakistan Tobacco Company-The Marketing Principles ProjectCuring18Air-Curing18Flue-Curing18Sun-Curing18Fire-Curing18Processing19Manufacturing19Distribution20Cigarette Components and Their Functions20Tobacco Blend20Cigarette Paper20Filter20Plug Wrap21Tipping Paper21Macro & Micro Environment22SWOT Analysis22Strengths22Weakness22Opportunities22Threats23Porters Model24Rivalry among existing firm24Bargaining Power of Buyers24Bargaining power of suppliers24Potential Entrants24Substitutes24PESTLEC Analysis25Political25Economical25Social25Technological252Pakistan Tobacco Company-The Marketing Principles ProjectSAP (System Application Program)26Legal26Environmental26International Brands27Local Brands27Counterfeit / Other Tax Evaded Brands27Marketing Strategy29Market Size and Growth29Regulation and Taxations29Regulations in Terms of Pricing29Fixation of Prices29Methodology for the Fixation of Minimum Prices of Tobacco29Tobacco Taxation30Types of Taxation30Federal Excise Duty (FED)30Sales Tax30Federal Tobacco Cess (FTC)30Customs Duty31Tobacco Development Cess (TDC)31Marketing Mix32Introduction32Target Market32Product33Product Development33Upper Slap Products33Middle Slap Products33Lower Slap Products34Benson & Hedges34John Player Gold Leaf34Capstan34Gold Flake343Pakistan Tobacco Company-The Marketing Principles ProjectWills King35Embassy35Promotion35Advertising35Sales Promotion35Contests and lotteries36Rebates36Toping up36Brand Availability36Consumer Contact36Market Intelligence36Temporary Merchandizing Activity36Permanent Merchandizing Activity36Direct Sales Delivery (DSD)36Five Steps for DSD37Personal Selling37Price38Place38Managing Business Channels38Cigarette Advertising40Brand Stretching40Youth Marketing Tactics40Programs that Target Youth Directly40Programs that Target Parents41Programs for Retailers to Decrease Youth Access41Direct Funding of Youth Organizations41Illicit Trade42Illicit Trade42Types of Illicit Trade42What Illicit Trade is not?42The Cost of Illicit Trade Globally424Pakistan Tobacco Company-The Marketing Principles ProjectThe Cost of Illicit Trade In Pakistan42Tackling Illicit Trade43Measures Taken so Far by BAT43BAT Business43BAT Suppliers44MoUs44Brand Enforcement Group44Export Bond44Research44Training for customs officers44Destroying used machinery44Supplier Relationship Management46Introduction46Supplier Segmentation46Commodity47Performance Management47Development47Partner47Accountability47Process and Governance47Technology47Value48Resourcing48Supply Chain of the Business48Valued Business Partners48Primary Supply Chain50Leaf Suppliers50Social Responsibility in Tobacco Production (SRTP)50Integrated Crop Management51Materials Suppliers52Business Enabler Survey Tool (BEST)535Pakistan Tobacco Company-The Marketing Principles ProjectBusiness Principles54Environment, Occupational Health and Safety (EHS)54What our suppliers say about BEST54Service Providers56Secondary Supply Chain56Trade Relationships57Trade Marketing and Distribution57Our Customers58Customer Satisfaction Surveys58Adding Value to Trade Relationships59Tackling Illicit Trade59Corporate Social Responsibility61Introduction61CSR Programs at PTC61Youth smoking prevention61Mobile doctors62Afforestation62Learning Resource Centers63Earthquake Relief & Rehabilitation64Water Filtration Units64CSR or CSI?64Social Reporting65GRI indicators66Strategies that Tobacco Industry Adopts to reframe Corporate Image67Programs that Target Youth Directly68Programs that Target Parents68Direct Funding of Youth Organizations68Future Outlook70Overview70Increased Taxation Combined with Illicit Sales of Cigarettes The Biggest Challenge & Competition?70Improved Distribution Networks Help Sales716Pakistan Tobacco Company-The Marketing Principles ProjectResearch and Development71More Pressure to Come in the Future71Conclusion72Future Tobacco Consumption72Reasonable Co-Operation73References747Pakistan Tobacco Company-The Marketing Principles ProjectAcknowledgementWe 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.8Pakistan Tobacco Company-The Marketing Principles ProjectExecutive SummaryCigarette 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.9Pakistan Tobacco Company-The Marketing Principles ProjectScope of the Project ReportThe 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.10Pakistan Tobacco Company-The Marketing Principles ProjectTobacco Industry in PakistanTobacco 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.11Pakistan Tobacco Company-The Marketing Principles ProjectPTC ProfileAbout PTCPakistan 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 GoldPakistan 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 VisionFirst Choice for EveryonePTC MissionTransform PTC to perform responsibly with the speed, flexibility and enterprising spirit of an innovative, consumer-focused Company.Strategic ObjectivesPTC strategy reflects its vision of being the champions of Growth, Productivity, Responsibility and a Winning Organization.12Pakistan Tobacco Company-The Marketing Principles ProjectGuiding PrinciplesOur 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 DiversityStrength 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 MindedOpen 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 ResponsibilityFreedom 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 SpiritEnterprising 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 PrinciplesPTC follows three fundamental Business Principles:Mutual Benefit Responsible Product Stewardship Good Corporate Conduct Each principle is supported by a series of core beliefs, which are explained below:Mutual BenefitThe 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.13Pakistan Tobacco Company-The Marketing Principles ProjectCore BeliefsCreating long term shareholder value Engaging constructively with its stakeholders Creating inspiring work environment for its people Adding value to the communities in which the company operates Ensuring that suppliers and other business partners have the opportunity to benefit from their relationship with us Responsible Product StewardshipThe 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 consumptionReduction of the health impact of tobacco consumption whilst respecting the right of informed adults to choose the products they prefer Continued availability of relevant and meaningful information about our products Underage people should not consume tobacco products Responsible marketing of our brands and products and directed at adult consumers Appropriate taxation of tobacco products and elimination of illicit trade Regulation that balances the interests of all sections of society, including tobacco consumers and the tobacco industry Approach public smoking in a way that balances the interests of smokers and non-smokers Good Corporate ConductThe 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 BeliefsPTC business upholds high standards of behavior and integrity High standards of corporate social responsibility to be promoted within the tobacco industry Universally recognized fundamental human rights to be respected Tobacco industry to have a voice in the formation of government policies affecting it 14Pakistan Tobacco Company-The Marketing Principles Project Achieving world class standards of environmental performancePTC BrandsPTC 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 re-launched 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 YearsThe 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 have15Pakistan Tobacco Company-The Marketing Principles Projectprovided 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.16Pakistan Tobacco Company-The Marketing Principles ProjectSeed to SmokeSeedThe 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.HarvestWith 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 typesVirginia 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.17Pakistan Tobacco Company-The Marketing Principles ProjectBurley 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.CuringCuring 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-CuringAir 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-CuringHeat 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-CuringLeaves 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-CuringFire 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.18Pakistan Tobacco Company-The Marketing Principles ProjectAfter 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.ProcessingThe cured leaf is then processed through a Green Leaf Threshing Plant. The main purpose of the processing is to:Remove sand, dust, scraps and foreign matter. Separate the lamina from the stem (threshing). Drive down the tobacco to a safe 'keeping moisture' content. Processed tobacco is packed into 200kg cardboard boxes, for shipping to manufacturing sites. ManufacturingAt 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 pre-processed 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.19Pakistan Tobacco Company-The Marketing Principles ProjectDistributionFinished 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 FunctionsTobacco BlendPurposeDelivering taste Delivering psychological satisfaction Composition Fuel cured tobacco Air cured tobacco Burley tobacco Stem Top flavors Cigarette PaperPurposeTo contain tobacco blend To control air dilution To control burning rate Composition Largely cellulose Contain fiber such as calcium carbonate FilterPurpose20Pakistan Tobacco Company-The Marketing Principles ProjectCigarette filter reduce tar/nicotine Act as a mouth pipe keeping tobacco away from smokers mouth. Composition Mostly cellulose acetate Plug Wrapa. Porous and non porousTipping Paperb. Ventilated and non ventilated21Pakistan Tobacco Company-The Marketing Principles ProjectMacro & Micro EnvironmentSWOT AnalysisStrengthsWell 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. Diversified, competent, and motivated workforce and environment. Modern technology Machinery and equipments. Managerial trainings and skills development of employees have made them stand out better than competitors workforce. Great concern for Health and safety in the company premises. Business Processes re-engineering at its best. Enterprise Resources Management for quick and cost effective operations. Wide, systematic and strong distribution network and supply chain. Strong communication between employees, distributors, and customers that smoothes out day to day operations and help achieving operational and functional goals. 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. Utilization of highly creative and state of the art marketing management tools. WeaknessWastages of material in production. Cigarette being a controversial product sometimes drive an employee motivation down and employee commitment to product sale and perfection may hamper Cost of doing business in the region is quite high as PTC spends extravagantly to do up to the market and social standards. OpportunitiesPakistan Tobacco Company has a big market towards Rural Areas for lower brands like Embassy and Gold Flake. PTC can diversify its products by offering cigar, menthol cigarettes and pipe tobacco in Pakistan market for upper middle, and upper class. PTC has the Potential to further improve the cost reduction method. 22Pakistan Tobacco Company-The Marketing Principles ProjectExport 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. ThreatsThe 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. 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. Government regulations and highly burdened taxations pose a big threat to cigarette manufacturers. Strong Competition due to presence of a number of premium brands and soaring illicit trade. Law and order situation in the country is worsening day by day, it definitely hampers the PTC business in the country. Changing Optimization techniques not only to ensure capacity enhancement but also to adhere to international Environment, Health and Safety standards. Need of Raw material for meeting rising demand of cigarette. Government intervention for decreasing the cultivation of tobacco. In a future scenario there is a great likelihood of a possible confrontation between anti-smoking campaigners and tobacco produce. Economics trends such as: Rising Taxes High inflation Rupee devaluation Rising commodity and oil prices Sharp increase in energy costs 23Pakistan Tobacco Company-The Marketing Principles ProjectPorters ModelRivalry among existing firmIn 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 BuyersCigarette 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 suppliersSuppliers 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 competitorsPotential EntrantsWhile 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.SubstitutesSubstitutes are easily available in Pakistan so people have the option to switch to brands of other firms.24Pakistan Tobacco Company-The Marketing Principles ProjectPESTLEC AnalysisPoliticalPakistans 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 smokeEconomicalAs 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.SocialPTCs 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.TechnologicalIT 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)25Pakistan 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 TechnologyMARK 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.LegalA 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:Reputation and Litigation Management Company Secretarial work Ensuring Sustainable Business Practices Intellectual Property registration and protection In-house legal advice Managing Investor Relations EnvironmentalBeing 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 been26Pakistan Tobacco Company-The Marketing Principles Projectsustained 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 BrandsLackson 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 BrandsMARDANWALLASThese brands are manufactured in Mardan and thus are called the Mardanwallas. These are normally low category cigarettes (under Rs. 10) for exampleGold StreetThe 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 BrandsCounterfeit 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 in27Pakistan Tobacco Company-The Marketing Principles Projectthickly 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.28Pakistan Tobacco Company-The Marketing Principles ProjectMarketing StrategyMarket Size and GrowthIn 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 TaxationsRegulations in Terms of PricingPakistan 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 PricesThe 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 TobaccoFor 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 Committee-consisting 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,29Pakistan Tobacco Company-The Marketing Principles Projectrecommendations 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 GazetteFor the fixation of minimum prices of tobacco, following parameters are taken into account: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 TaxationThe tobacco sector in Pakistan has two types of government levies:Indirect Taxes and 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 non-tobacco products and the availability of tax-evaded and smuggled cigarettes cause substantial competitive disadvantage for tax-paying cigarette manufacturers.Types of TaxationFederal 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 TaxSales Tax is levied on import of tobacco and tobacco products at the rate of 15% ad-valorem, 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 tobacco30Pakistan Tobacco Company-The Marketing Principles Projectproduced 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 DutyThe 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:31Pakistan Tobacco Company-The Marketing Principles ProjectMarketing MixIntroductionWhen 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: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 MarketTarget 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.32Pakistan Tobacco Company-The Marketing Principles ProjectProductProduct DevelopmentWe 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:Tobacco blending Materials & product development Designing cigarettes Physical & chemical data analysis 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 ProductsBenson & Hedges 20HL Benson & Hedges 10HL Benson & Hedges light Gold leaf 20HL Gold leaf 10HL Gold leaf flavor Middle Slap ProductsCapstan int. kS FT 20HL Capstan int. kS FT 10HL Capstan LSFT 10SS Capstan by Pall Mall 20HL Capstan by Pall Mall 10HL Wills kings 20HL Wills Navy Cut 10SS Will international 20HL Will international 10HL Gold flake 20SC Gold flake 10HL Gold flake 20HL Gold flake Supreme 10HL Gold flake Supreme 20HL 33Pakistan Tobacco Company-The Marketing Principles ProjectLower Slap ProductsEmbassy kings 20HL Embassy kings 10HL 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 & HedgesIn 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 LeafThe 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.CapstanCapstan 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 FlakeGold 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 pack34Pakistan Tobacco Company-The Marketing Principles Projectdesign 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 KingWILLS 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.EmbassyThe 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.PromotionPromotion 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;AdvertisingPackaging By packing the product in the different packs and in different quantity to meet the demand of the different and segmented consumer Point of Purchase Display By placing products trail packs on the different shops to promote the sales. Posters and Leaflets Display posters and fliers in fronts of shops. Sales PromotionBy 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.35Pakistan Tobacco Company-The Marketing Principles ProjectContests and lotteriesPTC uses different schemes, providing gifts in the packs and by giving winning prizes by means of lotteries to promote sale and to beat competitor.RebatesThey 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 upTalking 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 AvailabilityTo 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 ContactIt 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 IntelligenceThe 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 ActivityThe following tools include in temporary merchandizing activity.Posters Stickers Bunting Mobile (Rounder) Permanent Merchandizing ActivityFacia 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 DSD36Pakistan Tobacco Company-The Marketing Principles Projectwill 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 DSDEvery salesman must take care of these steps.1. PreparationThe company prepare short term and long term plan, these plan are yearly, monthly, weekly and daily bases.Steps in preparationDecide 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. 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. 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 checkSalesman 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. PresentationDuring 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 SellingPTC 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 the37Pakistan Tobacco Company-The Marketing Principles Projectterm 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.PricePTC 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 middle-priced 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.PlaceEnsuring 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:Development of distribution strategy Develop and implement distribution plans Implement merchandising and point of sale policy Monitor and manage out of stocks Build an effective sales orientated organization Managing Business ChannelsThe effective management of relevant business channels is one of our key marketing activities.38Pakistan Tobacco Company-The Marketing Principles ProjectAlthough 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:Channel strategy development Negotiations with key accounts Category management Account portfolio management Account servicing Pricing, promotional control and evaluation 39Pakistan Tobacco Company-The Marketing Principles ProjectCigarette AdvertisingBrand StretchingDespite 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 stretchingBrand 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 TacticsSome 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 DirectlyReinforce smoking as an adult choice. Undermine existing public health campaigns by inappropriately targeting young teens and publicizing weaker messages on tobacco. Marginalize the opposition to make it appear extreme. Increase credibility, as tobacco companies tend to partner with educators to roll out their programs. Maintain access to youth. 40Pakistan Tobacco Company-The Marketing Principles ProjectPrograms that Target ParentsMarginalize the opposition to make it appear extreme. Place the blame on parents and society, rather than Tobacco Company marketing, for youth smoking. Increase credibility, as tobacco companies tend to partner with parent groups to roll out their programs. Programs for Retailers to Decrease Youth AccessImply age is the only reason not to smoke. Keep the tobacco industry aware of local legislative activity. Marginalize the opposition to make it appear extreme. Establish and build alliances with retailers. Shift attention away from tobacco industry contribution and responsibility for youth smoking. Direct Funding of Youth OrganizationsIncrease credibility by allowing tobacco companies to attain a level of legitimacy. Allow tobacco companies to build alliances with reputable youth groups. 41Pakistan Tobacco Company-The Marketing Principles ProjectIllicit TradeIllicit TradeIt 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 TradeIllicit Trade takes three forms:-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. 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. 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: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. 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 GloballyIllicit 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 PakistanPakistan 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 down42Pakistan Tobacco Company-The Marketing Principles Projectto 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 TradePTC 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:Effective internal governance to ensure Know your Customer guidelines are properly implemented; Gathering and sharing commercial and business information to better understand the drivers and impact of illicit trade; Working with enforcement authorities to prevent illicit product entering a market; External engagement with relevant stakeholder groups such as the World Trade Organization (WTO) and enforcement authorities; Educating regulators and legislators on the impacts of illicit trade; and Internal awareness raising of the issue and its challenges. Measures Taken so Far by BATBAT BusinessBAT 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 efforts43Pakistan Tobacco Company-The Marketing Principles Projectin 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 SuppliersBAT 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.MoUsBAT 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 GroupThis 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 BondBAT 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.ResearchAlthough 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 officersBAT provides training for customs officers in several countries in tackling illicit trade and in identifying and countering illicit product.Destroying used machineryBAT 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 is44Pakistan Tobacco Company-The Marketing Principles Projectanalyzed and any that cannot be earmarked for use by another Group company is scrapped, rather than sold.45Pakistan Tobacco Company-The Marketing Principles ProjectSupplier Relationship ManagementIntroductionSRM 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:Supplier Segmentation Accountability Process and Governance Technology Value Resourcing Supplier SegmentationIn 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:46Pakistan Tobacco Company-The Marketing Principles ProjectCommodityWhere little or no SRM activity is undertaken as the suppliers provide infrequent one off goods or services.Performance ManagementWhere 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 environmentDevelopmentWhere focus is placed upon continuous improvement to service levels and cost as the arrangements are more mid to long term, with some strategic value.PartnerWhere 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.AccountabilityExecutive 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 GovernanceOrganizations 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.TechnologyTraditionally 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).47Pakistan Tobacco Company-The Marketing Principles ProjectLeading SRM organizations are using SRM technology as the change agent to get stakeholders and wider business buy in.ValueSRM 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.ResourcingThe three key skills required for procurement to implement successful SRM are:Market & category knowledge Cross-functional working 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 BusinessValued Business PartnersPakistan 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 ConductResponsible Product StewardshipMutual Benefit48Pakistan Tobacco Company-The Marketing Principles ProjectThe 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 usWhat this means in practice is that supply chain partners should expect the following:Open and transparent communication Shared responsibility to solve problems rapidly in the supply chain, working together to minimise and manage business risk and improve business practices A 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:The employment of children particularly in any industrial process or agricultural process which also uses chemicals 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 The denial of access to, or unfair application of, a transparent grievance procedure 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 operation49Pakistan Tobacco Company-The Marketing Principles ProjectPrimary Supply ChainOne 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 SuppliersWith 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 afforestation50Pakistan Tobacco Company-The Marketing Principles Projectprogrammes 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 ManagementThis combines viable tobacco production with positive environmental management:Farmer training: Farmers are provided with technical support in good agricultural practices, incorporating all elements of Integrated Crop Management into user-friendly training programmes. 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. Seed quality: Careful selection of seeds based on quality criteria and compliance with international and local legislation and customer requirements. 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. Integrated pest management safety: The enhanced roadmaps cover a responsibility for suppliers to ensure that they are managing and using pesticides safely. Soil resource protection: 51Pakistan Tobacco Company-The Marketing Principles ProjectThis 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.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 over-application. 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. 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. 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