Financial Ratio Analysis On Philip Morris.

2573 words - 10 pages

The price customers are willing to pay for a product depends, in part, on the availability of substitutes. The absence of close substitutes in the case of cigarettes means that consumers are comparatively insensitive to price increases. This makes demand for tobacco inelastic with respect to price. The buyer's propensity to substitute cigarettes for another product is largely dependent on their price- performance characteristics. The needs being filled by cigarettes are very complex.Cigarette companies measure average per cigarette yields of nicotine by following standardized machine testing methods. These machine methods were never intended to reflect what and how smokers actually inhale. The method proves that no tests can precisely duplicate conditions of actual human smoking and, within fairly wide limits, no one method can be said to be either 'right' or 'wrong'Philip Morris USA (PMUSA) frequently describes cigarette brands using terms such as "full flavor, medium, mild, light, and ultra light." Smokers have varying preferences; PM USA offers products with differing yields of nicotine, as measured by machine methods. They believe that it is appropriate to contribute to differentiate their brands on this basis that descriptors such as lights, ultra lights, medium, and mild, help communicate these differences to adult smokers.The tobacco industry has many strong competitors with varied portions of market share. As of now, the price leader is Philip Morris. When they increase prices, other brands will follow the lead to avoid price wars. Any attempt to take away market share from the leader will result in more harm than good for the lower companies with fewer shares. Philip Morris is the industry leader and is able to heavily promote and advertise a new product. Marlboro is one of the most well-known brands in the world. We could easily create a line extension and rely on the brand name for customer loyalty. The industry giant is responsible for the development of Marlboro, Virginia Slims, and Basic, three of the best-known brands on the market.Philip Morris has a strong advantage with the Marlboro brand. Marlboro is one of the most well-known brands in the world. The brand loyalty to Marlboro will help Philip Morris keep customers. A discussion of Philips Morris' value chain cannot ignore their operational advantages, such as the economies of scale they have achieved by being the biggest supplier of tobacco products in the market. They also have made a number of production oriented advancements that have allowed them to produce high quality products at sufficiently low cost to buffer profits.The relative bargaining power of suppliers to the tobacco industry is largely small due to the low switching costs cigarette manufactures face and the buyer's ability to backward integrate if necessary. These smaller suppliers lack the size and strength of their larger buyers and can not effectively negotiate higher prices for their goods. Additionally...

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