Growing industry: UST Inc. was the largest producer of
moist smokeless tobacco products. In the U.S. smokeless tobacco industry itself
generated $2 billion of revenue in 1998 with approximately 5 million consumers
of moist smokeless tobacco (accounted for 50% of tobacco consumption). USDA has
reported that moist smokeless tobacco has been the fastest growing segment of
the tobacco industry, with 3.7% annual growth rate and 2% annual decline in
cigarette volume over 17 years. More people were shifting to smokeless tobacco due
to the increased prevalence of smoking bans. Consumers perceived that moist
smokeless tobacco is less harmful to health risk than cigarettes and it is also
cheaper compared to cigarettes based on an average per week usage measurement.
Dominant moist smokeless tobacco producer: UST controlled over 77% of moist smokeless tobacco market in 1998, followed
by Conwood and Swedish Match with their market shares of 13% and 5%
respectively. UST aimed to expand market primarily through product innovations
such as new forms and flavors.
Increasing in competition: Due to its price
raising strategy over more than two decades, UST’s market share was threatened by
small competitors through price cut. As a result, UST introduced its new
product, Red Seal Brand tobacco aimed to compete with the price-value brands
and preserve bargaining power and profitability of its premium brands.
Nevertheless, firm was too slow in responding to threat and price value
competitor had already gained 9% market share. Later, firm introduced other competitive
products to battle with its rivals including Conwood.
Intensive Marketing Campaign: Although firm
faced restrictions on public advertising, UST focused its marketing campaign on
free samples, mail-in rebates, and promotional sales as well as other marketing
incentive and promotions e.g. 4-for-3 pricing on selected products, wholesaler
Pending lawsuits and Smokeless Tobacco Master Settlement: the number of pending lawsuits from smokeless tobacco manufacturers were
far less than those from cigarette manufacturers. The health-related studies
from smokeless is less conclusive compared to research of cigarettes prone to
cancer. UST has settle its Medicaid disputes amount of $100 to $200 million
over a decade and agree to advertising and promotion restrictions, aiming at
Future of UST: It is expected that lawmakers will
continue to push for new laws to remedy the use amongst youth, which could
impact company’s sales in the future. In addition, fierce competitions are anticipated
in this emerging industry. There is high possibility that new entrants will
enter market and small player will continue threaten firm’s market share. Furthermore,
more health-related research could possibly harm UST and its sales. It is very
important for company to combat these challenging to benefit industry’s growth
and optimized its market share.