Harvard Case - A World Without Cigarettes? Actions Speak Louder Than Words
"A World Without Cigarettes? Actions Speak Louder Than Words" Harvard business case study is written by Vanina Farber, Maria Helena Jaen. It deals with the challenges in the field of Strategy. The case study is 13 page(s) long and it was first published on : Nov 13, 2020
At Fern Fort University, we recommend that Philip Morris International (PMI) embrace a disruptive innovation strategy, pivoting away from traditional cigarettes and focusing on reduced-risk products (RRPs) like IQOS. This strategy should be implemented through a digital transformation strategy that leverages technology and analytics, social media, and strategic alliances to build a sustainable competitive advantage in the evolving tobacco industry.
2. Background
This case study focuses on Philip Morris International (PMI), a global tobacco giant facing significant challenges due to declining cigarette sales and increasing regulatory pressure. The company is grappling with the need to adapt to a changing consumer landscape and the growing demand for alternative, less harmful tobacco products. The case highlights the company's efforts to develop and market reduced-risk products (RRPs), specifically IQOS, a heated tobacco system.
The main protagonists in the case are:
- Philip Morris International (PMI): A global tobacco giant facing declining cigarette sales and increasing regulatory pressure.
- Andr' Calantzopoulos: CEO of PMI, leading the company's transformation towards a smoke-free future.
- Consumers: The target audience for PMI's products, increasingly seeking less harmful alternatives to traditional cigarettes.
- Regulators: Governments and health organizations around the world, imposing stricter regulations on tobacco products.
3. Analysis of the Case Study
To analyze the case, we can utilize several frameworks:
1. Porter's Five Forces:
- Threat of New Entrants: High, as the tobacco industry is relatively easy to enter, with many new players developing RRPs.
- Bargaining Power of Buyers: Moderate, as consumers have a wide range of choices, including quitting smoking altogether.
- Bargaining Power of Suppliers: Low, as the raw materials used in tobacco production are widely available.
- Threat of Substitutes: High, as consumers can choose from various alternatives, such as vaping, nicotine patches, and other smoking cessation methods.
- Competitive Rivalry: High, with intense competition among existing players in the tobacco industry, especially in the emerging RRP market.
2. SWOT Analysis:
Strengths:
- Strong brand recognition and established distribution channels.
- Significant financial resources and expertise in manufacturing and marketing.
- A strong focus on innovation and development of RRPs.
- A global presence with a diverse portfolio of brands.
Weaknesses:
- Negative public perception associated with the tobacco industry.
- Dependence on traditional cigarette sales, which are declining.
- Regulatory risks and legal challenges related to RRPs.
- Potential for consumer resistance to new products.
Opportunities:
- Growing demand for less harmful tobacco products.
- Emerging markets with significant potential for growth.
- Technological advancements in RRPs and smoking cessation methods.
- Increasing consumer awareness of health risks associated with traditional cigarettes.
Threats:
- Government regulations and bans on tobacco products.
- Public health campaigns promoting smoking cessation.
- Competition from other tobacco companies and alternative nicotine delivery methods.
- Economic downturns and fluctuations in consumer spending.
3. Value Chain Analysis:
PMI's value chain can be analyzed to understand its core competencies and identify areas for improvement. The key activities include:
- Research and Development: Developing and innovating new RRPs, including IQOS.
- Manufacturing: Producing high-quality tobacco products and RRPs.
- Marketing and Sales: Building brand awareness, promoting products, and managing distribution channels.
- Customer Service: Providing support to consumers and addressing concerns.
4. Business Model Innovation:
PMI needs to implement a business model innovation strategy to adapt to the changing market landscape. This involves:
- Shifting from a cigarette-centric model to a multi-product model: Offering a range of RRPs alongside traditional cigarettes.
- Developing a digital strategy: Leveraging technology and analytics to understand consumer preferences, personalize marketing campaigns, and enhance customer experience.
- Building strategic partnerships: Collaborating with other companies in the healthcare and technology sectors to develop and market innovative products.
4. Recommendations
To address the challenges and capitalize on the opportunities, PMI should implement the following recommendations:
1. Embrace a Disruptive Innovation Strategy:
- Focus on Reduced-Risk Products (RRPs): Invest heavily in research and development, product innovation, and marketing of RRPs like IQOS.
- Develop a Clear Value Proposition: Communicate the benefits of RRPs to consumers, emphasizing their potential to reduce harm compared to traditional cigarettes.
- Address Regulatory Concerns: Proactively engage with regulators, provide scientific evidence supporting the safety and effectiveness of RRPs, and advocate for policies that promote consumer choice.
2. Implement a Digital Transformation Strategy:
- Leverage Technology and Analytics: Use data-driven insights to understand consumer behavior, personalize marketing campaigns, and optimize product development.
- Build a Strong Online Presence: Develop engaging digital content, utilize social media platforms to connect with consumers, and create a seamless online experience.
- Invest in E-Commerce: Expand online sales channels to reach a wider audience and offer convenient purchasing options.
3. Build Strategic Alliances:
- Collaborate with Healthcare Providers: Partner with healthcare professionals to promote RRPs as a harm reduction strategy and provide support to smokers transitioning to less harmful alternatives.
- Form Strategic Partnerships with Technology Companies: Collaborate with technology companies to develop innovative solutions for product development, marketing, and customer engagement.
- Explore Joint Ventures and Acquisitions: Consider acquiring or partnering with companies specializing in RRPs, smoking cessation technologies, or other relevant areas.
5. Basis of Recommendations
These recommendations are based on the following considerations:
- Core competencies and consistency with mission: PMI's core competencies in manufacturing, marketing, and distribution can be leveraged to develop and market RRPs effectively. The company's mission to create a smoke-free future aligns with the focus on RRPs.
- External customers and internal clients: The recommendations cater to the evolving needs of consumers seeking less harmful alternatives while also addressing the concerns of internal stakeholders, including employees and investors.
- Competitors: The recommendations aim to build a sustainable competitive advantage by differentiating PMI from its competitors through innovation, digital capabilities, and strategic partnerships.
- Attractiveness ' quantitative measures if applicable: The recommendations are expected to generate long-term value for PMI through increased market share, improved profitability, and enhanced brand reputation.
All assumptions are explicitly stated, including the growing demand for RRPs, the potential for regulatory acceptance, and the ability to effectively leverage technology and analytics.
6. Conclusion
By embracing a disruptive innovation strategy, implementing a digital transformation, and building strategic alliances, PMI can position itself as a leader in the evolving tobacco industry. This strategy will enable the company to navigate the challenges of declining cigarette sales, increase market share in the growing RRP market, and achieve its goal of creating a smoke-free future.
7. Discussion
Other alternatives not selected include:
- Maintaining the Status Quo: Continuing to focus on traditional cigarettes while investing minimally in RRPs. This approach would likely result in declining market share and increased regulatory pressure.
- Exiting the Tobacco Industry: Completely divesting from the tobacco industry and pursuing alternative business opportunities. This option would be a significant departure from PMI's core business and would require substantial resources and strategic planning.
The key risks associated with the recommended strategy include:
- Consumer Resistance: Consumers may be hesitant to adopt RRPs, especially if they perceive them as being less satisfying or more expensive than traditional cigarettes.
- Regulatory Uncertainty: Governments and health organizations may impose stricter regulations on RRPs, limiting their availability or restricting their marketing.
- Technological Disruption: New technologies or alternative nicotine delivery methods could emerge, challenging the dominance of RRPs in the market.
8. Next Steps
To implement the recommendations, PMI should take the following steps:
- Develop a detailed strategic plan: Define clear goals, objectives, and timelines for the transition to a smoke-free future.
- Allocate resources: Invest in research and development, marketing, and digital infrastructure to support the growth of RRPs.
- Build a strong leadership team: Appoint leaders with expertise in innovation, digital transformation, and regulatory affairs.
- Monitor progress and adapt: Continuously assess the effectiveness of the strategy, make adjustments as needed, and stay ahead of emerging trends in the industry.
By taking these steps, PMI can successfully navigate the challenges and opportunities of the evolving tobacco industry and create a sustainable future for the company.
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Case Description
By March 2020, Philip Morris International (PMI) had defined its purpose, "[to] create a smoke-free future and ultimately replace cigarettes with smoke-free products" and had validated PMI's materiality matrix. PMI's statement of purpose (SoP) was first published in the form of a letter from the board of directors to the company's shareholders and was published in its proxy statement of March 2020. PMI's sustainability leadership team (Huub Savelkouls, Chief Sustainability Officer and Jennifer Motles Svigilsky, Director of Social Impact & Sustainability) were working on the company's first ever integrated report (IR) due for publication by June 2020. Connecting a sound sustainability materiality assessment, a concrete SoP and a detailed IR would, they thought, bring together actions and words, and convey exactly how the company's strategy would create value for society and shareholders. They had the difficult task of setting realistic but ambitious targets, with a timeline to achieve them. They knew that targets - or a timeline - that were too ambitious and that the company could not deliver on could cause blowback for the team. At the same time, targets that were too conservative could lead to disengagement and exacerbate stakeholders' mistrust and undo all their hard work since 2015. The case is about a company in one of the so-called sin industries that has committed to phase out cigarettes in favor of a smoke-free future based on reduced-risk products.
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