1. L/O/G/O
Case Study:
The Objective and
Strategy of Firms in
The Cigarette Industry
Syndicate 5
Muhammad Ridwan – 29112555
Machadi Dhana – 29112303
Mahammad Khadafi – 29112324
Pedro Putu Wirya – 29112565
Seto Kusparyanti – 29112306
Yuliani Dewi Risanti – 29112321
Rahdianto Maulana – 29112554

2. Cigarette Industry
• The objective of the firms: maximization of
long-run profits or firm value
• The doubling of the federal excise tax on
cigarettes and rise in other taxes since
1983 resulted in a sharp increase in
cigarette prices and a reduction in
consumotion

3. Cigarette Industry
• Out of 6 major producers, three
companies creates generic cigarettes:
– Cheaper tobacco
– Plain black and white packages
– Advertised very little
– Sell at less than half the price of name brands

4. Cigarette Industry
• The other three companies followed the
strategy of marketing proliferation
– Introduced new brands
– Big advertising
– Discount products, cost more than generic but
less than the traditional brands

5. Price War
• Generic cigarettes had bigger market share than
branded ones
• Philip Morris cut the prices of Marlboro
cigarettes and its other premium brands by 20
percent
• RJR Nabisco followed the same price cut
strategy

6. Abroad Market
• In some countries, antismoking campaigns are
still in their infancy and cigarette media
advertisings are permitted
• Both groups of cigarette producers greatly
expanded sales abroad
• Sales in domestic are declining and sales in
abroad market are growing rapidly

7. Health Regulation
• World Health Organization and national
government of the countries started global
antismoking campaign
• The regulation affected on reducing
advertising and marketing practices

8. Courts and Lawsuits
• In 1998, pay $206 billion over 25 years to
recoup public health costs linked to
somiking
• In 1999, charged of $25 billion for defraud
and mislead the public about health effect
of smoking and to recover the spending of
smoke-related illnesses

9. Courts and Lawsuits
• In 2000, a Miamy jury ordered 5 US
tobacco companies to pay $145 billion
• Tobacco companies became more
vulnerable to private lawsuits and charged
of multimillion dollar compensation for
damages

10. Companies Strategy
• American tobacco companies have
increased prices for lawsuits settlements
and higher taxes
– 45 cents in November 1998
– 22 cents in August 1999
• Shift assets to other lines of business in
oreder to limit resources available to settle
pending and future private legal suits

11. L/O/G/O
Thank You!