Cigarette Industry Analysis

1070 words - 5 pages

The Cigarette Industry is under attack from all sides. They have battled public opinion, government regulations, and medical warnings since the mid 1900’s. A front-page article by Reader’s Digest in 1952 entitled “Cancer by the Carton” started the national dialogue about the negative health affects of smoking cigarettes. The medical community had published articles since the 1930’s about the possible negative affects of smoking, but it took until the 1950’s to gain public attention. Smoking prevalence among adults in the United States has dropped from 42% to 18.1% from 1968 to 2014. With the number of smoker dropping, and government regulation increasing, one could make the assumption that the Cigarette Industry is falling into steep economic decline. A little research shows the opposite. In Barbarians at the Gate: The Fall of RJR Nabisco Warren Buffet said, “I'll tell you why I like the cigarette business. It cost a penny to make. Sell it for a dollar. It's addictive. And there's a fantastic brand loyalty.” Using Porter’s Five Forces and analyzing the general environment, one can see that the Cigarette Industry is not only surviving, it is thriving.
Cigarette companies have been forced to evolve over the past fifty years. Smoking a cigarette used to be a societal normal, but a smoker needs to be thirty feet from the building to smoke. Stepping outside to smoke a cigarette is almost taboo in today’s culture. Cigarette companies have had to fundamentally change the way they do business. In the early 1900’s it was common to see everyone from doctors to Santa endorsing a particular brand of cigarettes. They were cool, fashionable, sophisticated, and healthy.

What it does
What affects it the most

The major tobacco companies are relatively safe from new entrants into large-scale cigarette manufacturing. There are several barriers for new companies that would be very difficult to overcome. Cigarette manufactures have the luxury of brand loyalty that is particularly strong among smokers. In _______, it states that,
“…cigarette brands enjoy the highest brand loyalty of all consumer products, with less than 10% changing brands annually. Brand choices are usually made early during the life of a smoker, with a high concordance between the brand first smoked and the brand eventually selected as a usual brand. Thus, once a consumer embraces a cigarette brand, it is quite unlikely that they will change.”
New entrants to the cigarette industry would also find it difficult to gain brand awareness. There are significant laws restricting the marketing of tobacco products. Since 1971, television and radio advertising has been prohibited. Outdoor advertising, including billboards and bus ads, are prohibited in 46 states. ________. Entering into a market with exceptionally high brand loyalty and without the ability to market would be very difficult.
Another barrier to enter the cigarette industry is the high cost of building a cigarette...

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