Lorillard, Inc. is weaker relative to two of its closest rivals and within the same level as another close rival. Large conglomerates control the United States tobacco industry. These major players sell various product lines and brands to gain as much market share as possible. The industry experience fierce competition because of the discretionary power of customers and the high saturation of the market (Hoovers, 2009a).
Lorillard holds the third position in the tobacco industry (Hoovers, 2009a) and developing its appropriate competitive strategy requires an understanding of its relative competitive strength and weaknesses. Philip Morris USA is stronger than Lorillard, Inc because it has more brands including a low-cost brand, which means the capability to attract different market segments worldwide, it has a wider distribution network, and it excels in advertising expressed by the very high market recognition of its brands, particularly Marlboro and Virginia Slims.
In addition, Philip Morris USA also experiences a good level of cost control because even if it spends a sizable amount for advertising, it also gains returns from sales. These make Philip Morris USA the top company in the industry. (Hoovers, 2009b) Although weaker than Philip Morris, Reynolds American also performs well in the areas of cost control by reaping the benefits of economies of scale, distribution network, and advertising. However, it has lesser number of brands and without a distinct low-cost brand. These place Reynolds American at second place.
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(Hoovers, 2009c) Lorillard, Inc. is weaker relative to its two competitors because Newport is its sole top selling brand, with its other brands not experiencing a similar position. It also has a low-cost brand but with a lesser degree of market recognition and sales. It has an international distribution channel but the reach or spread depends on the brand, with Newport experiencing the widest distribution network. Its advertising also is most effective for its top brand. (Hoovers, 2009a) Commonwealth Brands is in the same position as Lorillard, Inc.
Although Commonwealth Brands caters to the discount or low-cost market, it performs better in controlling cost via economies of scale although it has a weaker performance in terms of clever advertising. (Hoovers, 2009d) Based on the relative position of Lorillard, Inc. , it faces a number of strategic issues, which are: How to reduce operating cost and gain more from economies of scale? ? How to compete with the discounting strategy of Commonwealth Brands? How to sustain its position with stronger demand for discounting brands? Whether to expand its low-cost brands?
Whether to seek growth from the foreign market? The company needs to consider and prioritize these issues in determining its competitive strategy, particularly in light of the growing trend towards low-cost brands. Are the Company’s Prices and Costs Competitive? Apart from considering the relative strengths and weaknesses of Lorillard, Inc. , understanding its position or situation to support responsive and sound strategy development would also come from analyzing the value chain (David, 2008) of the company and the implications of prices and costs. The primary activities of Lorillard, Inc. are supply chain management in purchasing raw tobacco from farmers, product development coinciding with brand diversification to cater to different market segments, packaging as an important selling point, marketing to influence customers to purchase its brands instead of that of its competitors, and distribution to make its brands accessible to as many market segments as possible. (David, 2008) Product development and marketing are areas involving the highest cost because these activities determine the competitiveness of players in the tobacco industry.
These are also the determinants of the price of its brands since its Newport premium brand (Hoovers, 2009a) involves a high advertising cost. Its support activities include procurement as a necessary activity in supply chain management, human resource management to develop and harness creativity in packaging and promoting its brands, and a number of infrastructure support such as cost and quality control, administration or leadership, and finance planning (David, 2008). There is consistency in the prioritized support activities of Lorillard, Inc.
because human resource management and infrastructure support activities directly usher its product development and marketing activities. Thus, the prices and cost structure of Lorillard, Inc. find support in the link between its primary and support activities in creating value for customers. However, by using benchmarking analysis (David, 2008) to compare the prices and costs of Lorillard, Inc. with top performers in the industry, its pricing for its premium brand Newport is competitive but this cannot be concluded for its other brands.
Its cost is also competitive for its Newport brand but not necessarily so, for all its brands taken together since three closes, competitors fare better in cost control. Lorillard, Inc. has to consider the strategic issues identified as target options in developing its strategy.
- David, F. (2008). Concept of strategic management (7th ed. ). New York: Prentice Hall. Hoovers. (2009a). Lorillard, Inc. Retrieved February 2, 2009, from http://www. hoovers. com/lorillard/--ID__55993,FRIC__256--/free-co-competition.xhtml
- Hoovers. (2009b). Philip Morris USA. Retrieved February 2, 2009, from http://www. hoovers. com/philip-morris-usa/--ID__55933--/free-co-profile. xhtml
- Hoovers. (2009c). Reynolds American Inc. Retrieved February 2, 2009, from http://www. hoovers. com/reynolds-american/--ID__55935--/free-co-profile. xhtml
- Hoovers. (2009d). Commonwealth Brands. Retrieved February 2, 2009, from http://www. hoovers. com/commonwealth-brands/--ID__104160--/free-co-profile. xhtml
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