PMI Case Summary

PMI’s size and global reach are internal weaknesses in regard to litigation as they operate as a major tobacco products seller in many markets with different legal systems. The threat in the external environment from increasingly health-conscious consumers and governments that seek to regulate the tobacco products industry combine litigation to create a situation that PMI must mitigate.

Fortunately, for PMI, their global reach, high revenues, and experience in transnational business operations are advantages in countering these legal claims against them. PMI recognizes that eventually they may be required to pay out for some of the current or future legal claims against them. Adopting a strategy of using their large size to minimize their

One method would be through increases in prices. In a strong economy, this may be a successful strategy as smokers would have the financial ability to absorb the increase. If economic conditions are poor, a price increase could have the negative effect of causing customers to down trade away from premium brands, such as Marlboro.

An additional option would be to increase efficiency in operations. This could mean layoffs, sourcing less expensive raw materials for cigarette manufacturing, and closing redundant factories if consumption volumes drop. While none of these strategies are attractive for PMI, and at this time likely not justified as operating income remains steady, the decline of this market plus PMI’s high percent of operating income that come from this region mean some defensive strategies should be considered.

Migrate brands with marginal value to other brands with stronger profit margins:
The top tier tobacco product companies have a long history of acquisitions, mergers, divestments, and product rollouts that lead to each of them having a large portfolio of brands. While overall this is a strength for the top tier, there are situations where having too many brands with limited markets and little name recognition lead to

These migrations are implemented over a three to six-month time span to allow consumers time to adjust and become loyal customers of another brand offered by Imperial. In the last year, Imperial has migrated consumers from five marginal brands and claimed success at retaining their consumers.

The goal of Imperial Tobacco to close out marginal brands and move consumers to growing brands, is a strategy that PMI should consider. With PMI’s existing strong brand portfolio, there are many possible alternatives for consumers. Coupons, such as “buy one get one free” offers, and product giveaways (where legal), can introduce the new brand to consumers and offer financial incentives to purchase them. Like their smaller peer, a strategy of brand migration is a mitigation effort to retain customers while increasing efficiency in operations.