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A Case Study On Pakistans Tea Industry MarketingEssay

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Tea is considered to be an essential consumption item in many countries of the world, includingPakistan. The history of tea drinking in the subcontinent can be traced far back. Over a period of time,the colonials improved the quality and taste of tea. At present there are two kinds of tea available in themarket: branded and unbranded (loose) tea, the ratio is (54:46) respectively. Bulk importers sell tea toretailers in loose form, while the second category of bulk importers sell packaged tea under brandnames.

All tea in Pakistan is imported. Therefore, tea, a traditional hospitality item in Pakistan, consumes alarge amount of foreign exchange. Pakistan mainly imports tea from Kenya and other African countrieslike Uganda, Burundi and Tanzania, while multinational companies in Pakistan also import tea from SriLanka, Indonesia and Bangladesh. The current tea imports are approximately 150,000 tons.

There are unlimited quantities of smuggled tea flooding the market. The main problem at present is thatsmuggled tea has now taken over the market, simply because of the high duty and taxes levied by thegovernment on branded tea. Smuggled tea escapes all duties and levies, and therefore can be soldcheaply, as loose tea.

Unilever Pakistan

Today Unilever is a multi billion-dollar global company whose products are distributed in some 140countries, including Pakistan. Pakistan Unilever markets toiletries; oral care products, edible oils, teaand other consumer goods.

Unilever have been distributing products in Pakistan since 1948. Now Lever Pakistan is a highlycompetitive company and its main competition is with the imported products and some other Pakistaniproducts. Consumer response to the Levers products in Pakistan has been excellent.

Lipton Yellow Label

Lipton was first introduced in Pakistan in 1948. Tea was sold in tin packs at the time. The tea giantLipton was merged with Lever Brothers that year in Pakistan, five years after the international takeover of the Lipton Company by Unilever Lipton Yellow Label's main feature is that it i s tea of the "finest

blend" available.

Brooke Bond Supreme

In 1997, Brook Bond, another leading player in the tea business in Pakistan, was merged with Levers,so that Lipton and Brooke Bond, once fierce competitors in the local market now belonged to the sameparent company.

Tapal

Tapal is a well known name in Pakistan. Making a modest beginning over half a century back, today

Tapal has become the largest, 100% Pakistani owned Tea Company in the country. In December 1997,Tapal Tea became the first Pakistani Tea Company to earn the ISO-9001 certification: a symbol of thehighest international quality standards. Tapals success has left many astounded. The most of thegreatest achievement is the best marketers award received by Aftab F. Tapal on October 2, 2004 by21st Century Business Club.
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Tetley Tea

Tetley Tea is a product of Tetley Clover Private Limited. They were hoping to capture 6 to 8 percent of the market share when they had a launch. Due to certain shortcomings in its marketing procedures and

Advertisement strategies they had a product failure. The thematic advertising and launch of differentbrands at one time are some of the reasons. Right now they had a market share of about 3 percent andrestricted to urban market.

The tea market is very much dependant on Political & Legal forces. The price of the tea is to greatextent dependent on taxes. Tea industry is very much dependant on suppliers. Suppliers areconsidered to be the heart of the Tea Industry. All the companies like Tapal, Unilever and Tetley keepgood terms with their supplier since the shortages might be harmful for the company.

Labor unions are present in Unilever, Tapal and Tetley. Tea is basically blended and packed in thesecompanies. The success of tea industry to a great extent lies in the hand of distributors. Tapal,Supreme, Brooke Bond & Tetley share a very much similar policies with the distributor.

The report compares of six companies in all out of which three were studied in the last session byanother group (Tapal, Uniliver{Lipton, Supreme}& Tetly) and three new players are added in current

session ( Vital Tea, Kohinoor & Alpha)

Industry Overview

Overview of Tea Industry

Tea is considered to be an essential consumption item in many countries of the world, includingPakistan. The history of tea drinking in the subcontinent can be traced far back. It is said, that tea wasintroduced with the arrival of the British in the Subcontinent and became popular in the region duringthe British rule. The British people were clever enough to use a powerful slogan, which remained in theminds of the people. They said, In winters it provides warmth and in summers, it gives freshness.

Over a period of time, the colonials improved the quality and taste of tea. Mr. Thomas Lipton was thekey person who introduced the aromatic soothing leaves, to the common man at affordable prices. Thisis one of the main reasons why Lipton even now is one of the most well known brands of tea in thispart of the world.

At present there are two kinds of tea available in the market: branded and unbranded (loose) tea, theratio is (55:45) respectively. Therefore, the importers are also of two types, though both import tea fromthe same countries. Bulk importers sell tea to retailers in loose form, while the second category of bulkimporters sell packaged tea under brand names.

Branded VS Unbranded

Branded

55%

Unbranded

45%

Branded

Unbranded


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Source: Tapal Tea Pvt. Ltd

All tea in Pakistan is imported. Therefore, tea, a traditional hospitality item in Pakistan, consumes alarge amount of foreign exchange. Tea imports through legal route account for about 200 million USdollars per year and is growing. Another 60 million kilograms of tea or nearly half as much of totalconsumption of tea is smuggled, that is imported illegally

Pakistan mainly imports tea from Kenya and other African countries like Uganda, Burundi and

Tanzania, while multinational companies in Pakistan also import tea from Sri Lanka, Indonesia andBangladesh. The current tea imports are 139,000 tons. Out of which 115,000 tons is Legal import and24,000 tons is through illegal channels.

There are unlimited quantities of smuggled tea flooding the market. The main problem at present is thatsmuggled tea has now taken over the market, simply because of the high duty and taxes levied by thegovernment on branded tea. Smuggled tea escapes all duties and levies, and therefore can be soldcheaply, as loose tea.

Now the scenario has changed as the import taxes are reduced up to 10% by the government. Theshare is slightly increasing towards branded tea (Legal imports).

Share of Throat:

Traditional Tea consumption has very strong g grounds through out the world. Especially in NorthEastern part of Europe and Central Asia is most attractive Tea Market. The statistics for Teaconsumption is shown in the following graph.

Tea Leaf Market:

There are different types of tea leaves imported from different gardens of the world. East African belt iswell known for its diverse tea leaf market. Grade PF1 and CTC BP grade Tea is highly in demand. Theshares of different Tea Leaf are shown in the following graph.

Tea Market - By Pack Formats

There are different packaging standards followed by different companies. Tapal, Lipton, Supreme andTetley are some how using similar Packaging standards for their different brands. Following is the givenpercentage for packaging standards.

Usage of Tea on Different Occasions:

The Tea consumption in Pakistan is 0.95 kg i.e. 3 cups per day. This has been consumed in different

time slots of the day. Following is the usage of tea in different time periods of the day.

Breakfast 94%

Evening 70%

After Dinner 29%

Before Breakfast 22%

Major Tea Producing Countries of the World:

China is the largest producer of Tea at the time and then comes India on the second ranking. But major imports are being done from Kenya because of its quality and diversified Tea Leaf Market. The othersare being listed below.

SiriLanka


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Bangladesh

Indonesia

Rawand

Burandi

Tanzania

Malawi

Veitnam

Uganda

Available Tea Market Rural/Urban

According to the current market research the available Tea Market in Pakistan is 34.65% in Urban Areaand the rural market is 65.35%.The Urban Sector is slightly increasing due to promotional efforts of the

industry players.

Industry Attractiveness

Assessment of Industry Attractiveness

Threat of New Entrants

Major players enjoy significant economies of scale due to large sales volumes and have strong brandidentity.

Large capital requirements are required for setting up distribution channels and heavy advertising for new entrants, to compete against major well-established brands. Hence, threat from new entrants isminimum.

However, in Tetleys case, capital requirements were met and global credibility was present. We believethat after WTO the market dynamics may therefore change drastically quid pro quo.

Bargaining Power of Customers

Generally, retailers in Pakistan are not large volume buyers. Therefore, they are not able to bargain for proper discounts.

Upper class consumers have strong brand loyalty, while low-middle class has become increasinglyprice conscious and is therefore, not very brand loyal.

Retailers are likely to stock smuggled tea due to higher margins, and for the same reason, consumersare inclined to buy it, as it is still cheaper for them.

Rivalry among Existing Competitors

Devaluation and import duties make domestically produced consumer goods, including tea, more

expensive than smuggled products.

Smuggling of tea has hampered development and growth in the local tea industry.

There is an oligopoly as there are only a handful of local competitors in the tea industry.


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Bargaining Power of Suppliers

High differentiation of input for the tea industry, due to consumer preference for East African tea.

Pakistan is one of the largest consumers of tea and a major market for Kenyan tea exporters.

Threat of Substitutes

Coffee is a substitute for tea, but consumer propensity for it is low.

Societal & Task Environment

Societal Environment

Social and Cultural Forces

Society and culture plays an important role in determining the marketing plan and business strategy of the organization. Though Unilever, Tapal are big names and enjoy a very good market share but stillthese forces sometimes play a major impact. Recently when Muslims planned to resist against the

foreign made goods it could have greatly affected the sales of Supreme & Lipton Yellow Label but atthe same time this situation could have been good for Tapal. These forces not always play a negativerole but can sometimes be really helpful. Tetley entering this market as a new product can also beeffected by these social and cultural forces. In Asia society and culture does make an impact.Following Factors contribute in social trends.

Tea is taken as traditional drink

Hi-Tea parties in Hotels

Offices

Institutions

Average consumption of Soft Drinks in U.S. is 365 bottles / anum

Pakistan 20 bottles/ anum

Political and Legal Forces

The tea market is very much dependant on Political & Legal forces. In other words we can say thatPolitical & Legal forces can dictate the sales and profitability of the Tea selling firms. Taxes and Excise

duty are of real importance to these organizations. The price of the tea is to great extent dependent ontaxes. On the other hand there are several other requirements that the Tea selling firms need to fulfill.For new entrant specially Tetley there would me many Political and legal barriers

Political Factors:

Govt. Policies

Import Taxes reduced up to 10% which reduces the share of smuggled tea.

Prices are reduced increasing branded tea market.

15% GST is an hurdle for end consumer

Govt. encouraged private sector to grow local tea at Shinkiari Tea gardens.

Technological Forces


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As far as Tea is concerned the Technological forces that may apply are good machinery for refining andpackaging. Tapal is considered to be the pioneer in soft packing. Unilever is also up to the task as far as packaging goes. Unilever and in my opinion Tetley will always have an upper hand and would beable to sustain the pressure of bringing in new technological changes as they are financially strong andhave employees who love technological changes on the other hand Tapal may initially cope up withthese foreign firms but in long run it wont be able to make constant technological changes. Some of theTechnological Turns taken by the industry are as follows

Advent of new Blending & Packaging Machines has increased the efficiency.( Dilatometers & Q.C.Machines)

Use of Digital Scales for Quality Blending

Use of Palm tops in monitoring primary and secondary sales management and trend analysis

Economic Conditions

Being a third world country and trying to progress Pakistan still faces the problem of economic stability,

recently it is believed that Pakistan has been able to maintain economic stability.

Fiscal year 2002-03 has been frustrating for global economic recovery. However, the following keymacroeconomic events took place in 2002-03:

Real GDP at factor cost grew by 5.1% (target: 4.5%)

Contribution of manufacturing & services: 5.3%

Inflation (as measured by change in CPI) stood at 3.3%

Monetary policy showed expansionary stance by lowering the weighed average lending rates from 14to 8.2%

KSE has risen to the order of 5,000 pts

Sharp decline in public debt

Various tax reforms

Growth in exports: 20.8%

Lower income & daily wage earners go for sachets which has increased the share of sachet up to 19%

in the total brand split.

Demand for mini packs has increased in small towns and rural market

Economic conditions play a major impact on tea industry. Like most of the other industries aredependant on economy, tea is also one of the industry that can be greatly effected by economicinstability.

Whether the economy is in a recession or in a boom, it affects the activities of Tea industry in a waythat it influences the demand of their product. In a boom the demand of the product increases. Similarly,in a recession the demand of a product falls since the buyers consume less of the product due to falling

incomes. Though fluctuations in the demand do occur, these are not major fluctuations as demand for tea is inelastic in relation to price.

Inflation plays a major role on the marketing strategies used by a company due to two main reasons.Firstly, inflation affects the consumers psychology and they become more selective in their purchases.


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Secondly, inflation results in rising prices for the raw materials purchased by Tea selling firms, which inturn increases the cost of production. This factor plays a major role especially if the increase in costcannot be transferred to the consumers in the form of raised prices.

Task Environment

Suppliers

Tea industry is very much dependant on suppliers. Suppliers are considered to be the heart of the TeaIndustry. All the companies like Tapal, Unilever and Tetley keep good terms with their supplier since theshortages might be harmful for the company. These companies have various suppliers and are notdependant on any single supplier but still the supply chain needs to be very strong in order to be in thiscompetitive business.

Employees and Labor Unions:

Employees and labor unions need to be tackled with great care. Labor unions are present in Unilever,Tapal and Tetley. All these companies follow Industrial Ordinance that includes labor laws etc. Tea isbasically blended and packed in these companies. After suppliers labors play a very important role inthe progress of these organizations. Great care is taken to provide laborers a good healthy workingcondition. At Unilever there is a sports club for the workers. Tapal has plans to open up sports andrecreation club for their laborers.

Distributors & Sales

The success of tea industry to a great extent lies in the hand of distributors. Tapal, Supreme, BrookeBond & Tetley share a very much similar policies with the distributor. Unilever has the same distributorsfor most of their product. The main distributors of Unilever are M.Saya and Gizri Corporation. Tapal inKarachi has a very big distribution network; it deals with ten different distributors for the sale of its teasome of the distributors are Qiji Enterprise and Sales Promoter. Teltey main distributors are Consumer Channel & Express.

Competitors

Life if full of uncertainties take good care of your customer before the competitor does. Tapal facestough competition from Lipton, Brooke Bond and vice versa. Now Tetley has also joined this rivalry. Allthese three tea blendes face a lot of threat from the lose tea which is sometimes cheaper. Coffee is asubstitute in general and is a threat to tea. Soft drink has also become a threat to tea since theteenagers prefer soft drinks over tea.

Creditors and Financial

These are considered to be the back bone of the company. All these three companies Unilever, Tapaland Tetley have a good reputation and can get loans both short term and long term as when wanted.Teltey has a backing of Lakson group which is one of the biggest and strongest business group in thecountry. Unilever will have an edge over all the other firms in getting cheap loans and better servicefollowed by Tetley and Tapal.

Government

The success of the Tea Industry at macro level depends on the policies and budget decisions of thegovernment. Taxes and General sales tax are in the hand of the government, which are a major threatto tea Industry. If the government can control the smuggling of tea a lot can be done to improve thesales of the legal tea.


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Functional Analysis

Structure

Culture

Information Systems

Commentary on StructureTapal

The company is trying to adopt a diversified culture like multi-national and all top organization but stillseth like values prevail.

There is a centralized authority structure. The seth is involved in almost all decision making. The topmanagement is very seldom allowed to take the decision on its own.

The company has an average Dcor, it is not like multi National companies having extra ordinary office.

Factory and head office both are at the same location.

Transportation and food provided to all management and non management staff

Mostly male staff

Not much spending on training and development. The employees mostly get on job training

The top managers are pretty cautious about sharing the companys information.

Unilever

Unilever enjoys the benefit of open door policy. The company has a very friendly and motivatingenvironment.

Credo: Throw in the deep end of the pool

Empowerment through opportunity

The authority is decentralized. The line of action and area for each manager in certain circumstancesare clearly defined.

There is a lot of emphasis on group discussion. Brain storming session often take place, speciallyincase of budgeting and Planning.

Extraordinary office and exceptional working environment

Factory and head offices both are located at different locations

The staff mainly comprises of males.

Multi ethnic workforce diversity

Low turnover of employees

Massive investment on training and development

Tetley


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Shared values with Lakson group of Companies

Lakson is one of the top most organization in country which is said to have environment pretty muchsimilar to Multi-Nationals

Open door policy prevails in the organization.

Head office and factory both are at different locations

The dcor, working environment of the organization is exuberant

Entrepreneurial culture prevails in the organization

Decentralized authority, line of action for each manager is properly defined and explained

The organization is in a development a stage as far as Tetley is concerned and suggests late sittings inorder to add value.

Training and development is coming from the best group practices of Lakson

TOWS Matrix

WT STRATEGIES

Increase Sales Force in Punjab

Introduce new & regionally attuned blend variances within the same brands to be in a win-winsituation

ST STRATEGIES

Launch Consumer Promotions

Launch Trade Deals

Increase social awareness against smuggling via Advertising, PR & DM

THREATS (T)

Inflationary price pressure (stability is believed to be unsustainable by some economic experts)

New Entrant (Tetley)

Strong Competition particularly from Supreme

Loose Tea & Smuggled Tea

WO STRATEGIES

Engage DM campaigns to increase interest in the tea market from a growth angle

Increase managerial empowerment

Develop alternative brands using shadow & token endorsement techniques for brand portfolioarchitecture building

SO STRATEGIES


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Build Exports in US, Europe to ex-pats as well as Indians

Diversify into iced & flavored tea

Innovative possibility: Instant tea powder i.e. powder + warm water = instant tea

OPPORTUNITIES (O)

Increase in Exports opens up international marketsImprovements in relations with India provide new markets

Recent pick up of flavored/iced tea at local restaurants

Improvements in law & order situations and the rise of PR based carnivals/festivals

WEAKNESSES (W)

Low CDI

Seth like culture

Distribution relatively weaker in areas other than Sindh

Highly Dependant on Tapals equity

Relative Technological Backwardness

STRENGTHS (S)

Experienced & Quality Management

Strong Heritage (Emotional Value)

Integrated Production Process

International Exports

Strong Supply Line

Highly Profitable non credit sales (Rel. High BDI)

Strong Financial Position

Highly Innovative

IFA

EFA

TAPAL

WT STRATEGIESCreative Media Planning to counter the competitor communicationstrategies


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ST STRATEGIES

Launch Consumer Loyalty Programs

Conduct Taste Tests to create interest in Lipton

THREATS (T)

Inflationary price pressure (stability is believed to be unsustainable bysome economic experts)


Strong Competition particularly from Tapal

WO STRATEGIES

Reduce CPs per annum, instead spend on building brand loyalty

Only include relevant promotions

Develop long term trade relations

Market Development: Introduce Kehwah blends in NWFP

Sustain & build the recently launched repositioning campaign

SO STRATEGIES

Develop new packaging

Develop strong and coherent positioning strategies

Introduce Brand Equity Building PR & DM programs e.g. Lipton Club

Launch Lipton Ice Tea in Pakistan

OPPORTUNITIES (O)

Increase in Exports opens up international markets

Improvements in relations with India provide new markets

Recent pick up of flavored/iced tea at local restaurants

Improvements in law & order situations and the rise of PR basedcarnivals/festivals

Youth based loyalty programs e.g. Lipton Club open up new markets


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Rural Markets

WEAKNESSES (W)

Heavy Reliance on CP to sustain brand volumes

Low market share in NWFP

Positioning Image Gap

STRENGTHS (S)

Multinational company

Powerful heritage since 1948.

Familiarity with consumer Dynamics.

Largest Ad Spend in Unilever Beverages

Strong brand image and awareness

Largest sales force

Sound and experienced management.

R&D and financial support from parent Unilever.

Very Innovative in Packaging

IFA

EFA

LIPTON

WT STRATEGIES

Do Nothing

ST STRATEGIES

Do Nothing About Tetley

Counter Tapal by a) creative media strategies and b) using aperpendicular projection strategy

Launch Loyalty Building CP to counter Tapal in the short run


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THREATS (T)

Inflationary price pressure (stability is believed to be unsustainable bysome economic experts)


Strong Competition particularly from Tapal

WO STRATEGIES

Activate the brand on ground and differentiate Tapal FM from Supreme

Introduce rewards programs & augment Value Proposition

Launch Supreme in regional & global markets

SO STRATEGIES

Invest in urbanization of the brand yet remain true to the archetype core(e.g. Levi 501)

Build brand Activation Programs (e.g. Jawad APM)

Increase Ad Spend

Own a Supreme Day e.g. Eid

OPPORTUNITIES (O)

Increase in Exports opens up international markets

Improvements in relations with India provide new markets

Improvements in law & order situations and the rise of PR based

carnivals/festivals

Increased awareness & desire of education opportunity for societalmarketing

WEAKNESSES (W)

Archetype brand

Similarity of positioning with Tapal Family Mixture

Rel. Low market share in Sindh

No International Brand Presence


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STRENGTHS (S)

Multinational company

Second largest Ad Spend in Unilever Beverages

Strong brand image and awareness

Coherent & Focused Positioning

Largest sales force

Largest BDI in UPL Beverages

Sound and experienced management.

R&D and financial support from parent Unilever.

Very Innovative in Communication

Primarily sold in suburban & rural markets

IFA

EFA

SUPREME

TETLEY

IFA

EFA

STRENGTHS (S)

Multinational Company

Strong Financial Backing

International Brand Image & Awareness

Sound & Experienced Management

Good mild taste and aroma

Good Packaging

Owned Plantation

WEAKNESSES (W)


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Weak Marketing

Weak Distribution

Not generally recommended by retailers and dealers to customers

OPPORTUNITIES (O)

Increase in exports open up international marketsImprovements in relationships with India

Recent pickup of flavored tea at local restaurants

Improvements in law & order situations and the rise of PR based carnivals/festivals

SO STRATEGIES

Launch SKU extensions and Ready to Drink variants

Brand Awareness Campaigns targeting youth along the lines of Nescafe brand ambassador programs

WO STRATEGIES

Build Distribution Networks

Relationship management with trade promotions

THREATS (T)

Inflationary price pressure (stability is believed to be unsustainable by some economic experts)Strong Competition particularly from Tapal, Lipton & Supreme

ST STRATEGIES

Conduct Taste tests to create interest in Tetley

WT STRATEGIES

Educate the trade channels about the advantages of selling branded tea and build loyaltyInformation

Resources

In house Software house called CRISS

Group Consumer Database

Moderate Consumer Research

No CRM, Call Centers or IVR

Automated Marketing Services

Paper based Supply Chain BP


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No local intranet

Central Database

In house Consumer Insights Management

Extensive Consumer Research

Lever Raabta Call Center, CRM & IVR

Automated Marketing Services Management

Automated Supply Chain & Factory Operations

Local Intranet linked to region via radio link

Extensive Best Practices Library

In house IT Dept that engineers and manages various functionalapplications

Lipton has its own consumer club which has a web presence at:

http://www.planetlipton.com

Basic MIS infrastructure limited to emails and intranet based repository

In house IT dept

Automated Factory Operations

No Call Centers, CRM etc

In house library and basic AV facilities

Standard software used, minimal customization which is usuallyoutsourced

Paper based Supply Chain Operations

Tetley

Unilever

TapalPortfolio Analysis

BCG MATRIX


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NINE CELL GE BUSINESS SCREEN

FIFTEEN CELL

PLC CHART

BCG Matrix

9 Cell CE Business Screen

15 Cell Product Market Evaluation Matrix

Product Lifecycle Matrix

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