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Porters 5 Forces Bat Essay

1015 words - 5 pages

The tobacco industry is a very competitive market and only about 3 very large corporations control the entire market. In Malaysia, British American Tobacco (BAT) is the biggest company in the industry, but others such as JT International are steadily growing in brand name. All companies battle for market share through heavy advertising budgets and slotting deals. The cigarette market is well into the maturity stage, and some might even argue that given the recent anti-smoking campaigns and lawsuits the industry is nearing the decline phase. However, sales show that decline has not yet been reached. Apparently, brand loyalty still exists. 
The tobacco industry has a very low threat of entry. ...view middle of the document...

One of the biggest obstacles to a new entrant would be finding a decent place on the shelf with such heavy-handed competition already occupying that space. Store managers may be hesitant to give away prime slots for fear of losing discounts or other offers from major players. Government policy is another possible deterrent to enter the market. Large settlements against the tobacco companies have been the norm in the past several years. Although gigantic companies like Philip Morris and BAT are able to handle the charges because of their extensive monetary resources, it is difficult to imagine how a small startup company would be able to burden the expense. Switching costs are very high in the tobacco industry. Many smokers are still smoking the same brand they first started smoking. Even if the price of their brand is raised, they would not consider switching to another brand (Focus group). Many companies who would want to come into the industry would not easily take away market share, due to high brand loyalty. 
The suppliers in the tobacco industry have a low level of influence, even though there are no close substitutes that the industry can use in place of tobacco. Tobacco is purchased from farmers, who essentially have to take the market-determined price for their crops. Tobacco is a commodity, so it makes no difference from which supplier a firm buys its materials. The large number of individual farms that supply the industry makes it almost impossible for anyone to raise the price. There is not a threat of forward integration from suppliers because they have none of the tools necessary to manufacture or market tobacco products. The farmers have only the land and equipment necessary to grow the leaf. If they were to try to produce cigarettes, they would probably not be able to compete with the many large companies that have economies of scale (from Threat of Entry section). 
The stores that sell tobacco products have a moderate influence on the market. Retailers have...

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