Tobacco Industry Analytic Essay

The barriers to entry in the tobacco industry are initially low and it is easy for small local and regional companies to enter into the market, but the barriers to enter the market nationally are very high. The economies at scale in manufacturing, distribution costs, and marketing at the national level make it very difficult for start-up companies to enter into the national market. There are substantial costs in raising the capital needed to build manufacturing facilities that can mass-produce tobacco products at the national level. Also, the costs of packaging goods such as cigarettes, at a mass level can generate high costs.

Brand identity can also pose a barrier to entry for new entrants. Advertising restrictions imposed on electronic media by the U.S. government make it hard for any new entrant to gain brand awareness and also make it difficult for current top players in the market to increase their brand awareness. While many companies once relied on brand incentives in order to increase customer loyalty, they agreed to no longer use these incentives in the Master Settlement Agreement (MSA) in 1998. Also with many already established brands such as Altria’s Marlboro Cigarettes brand already have a huge stake in the market place. They have generated a lot of brand loyalty and awareness making it difficult for a new company to generate enough brand awareness to enter the market.

Suppliers

In the tobacco industry farmers supply the tobacco to dealers and manufacturers. Many of the tobacco farmers in the U.S. are located in the Southeastern states such as North Carolina, South Carolina, Georgia, and Florida. Farmers usually sell their tobacco at public auctions to the highest bidders. A federal program that started with the Agricultural Adjustment Act of 1933 once protected tobacco farmer’s prices. The tobacco growers were guaranteed minimum prices in exchange for limiting their production through allotments and quotas. U.S. grown tobacco