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Five Forces Analysis & Smokeless Tobacco

With references to Strategy Capsule 3.1 (attached), use the five-forces framework to explain why the US smokeless tobacco industry is so profitable. What corporate social responsibilities, if any, should the industry undertake?

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United States Smokeless Tobacco is extremely profitable for a number of reasons. Their market share is huge. Their brands dominate the market: Copenhagen, Skoal, as well as value brands Red Seal and Husky. They have six out of the top ten brands, and represent 54.6% of the smokeless market share. Altria purchased the company in 2009.

Supplier Power: As a supplier, USST dominates the market place with their aggressive sales force, and low prices to retailers. Unfortunately the retailer does not make much on this product -about 10-15% if they want to be competitive. This is good for USST because it keeps the margins low enough to forbid entrance in the market.

Ads, freshness, and brand loyalty are huge. These items cannot be developed overnight and USST has spent decades fine-tuning their marketing and product. The cost for a consumer to switch is multi-fold: they would pay more in most cases, or pay less for worst quality product.

USST pays for display space and they pay more than any other smokeless company so they get the best space. In ...

Solution Summary

This detailed solution analysis the smokeless tobacco industry per Porter's Five Forces framework. It includes links and examples and is extremely thorough. It discusses why US Tobacco is so profitable and also outlines corporate social responsibility.

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