Key Tobacco Manufacturer Revives by Developing High-Grade Products

Source from:  Changde Cigarette Factory 09/30/2004

Changde Cigarette Factory in south central China's Hunan Province - one of the 36 key Chinese tobacco manufacturers designated by the State Tobacco Monopoly Administration - has revived and profited heavily through the development of high-grade cigarette products over recent years. [img border=0 hspace="4" vspace="4" align="left" src=http://www.tobaccochina.com/english/picture/2001my14.jpg] [b]TORTUOUS PATH TO GREAT BUSINESS SUCCESS[/b] The 1990s was actually a period of warring between Chinese tobacco manufacturers and their brands. In 1992, the STMA announced at a meeting held in southwest China's Chengdu City that restrictions on cigarette prices in China would be lifted, and that the market principle would be adopted in the operation of the tobacco industry that has long been a government monopoly in China. Taking advantage of such a policy change, some Chinese tobacco manufacturers raised prices of their cigarette products, in a bid to take greater shares of the market of medium-grade cigarettes in China. At that point, Changde Cigarette Factory did not act immediately to improve the quality or raise the price of Jinfurong (Golden Hibiscus), one of its competitive brands that had been well sold in China for more than 20 years, narrowly missing a chance to upgrade it. As a result, Changde Cigarette Factory was in a difficult situation. Established in 1951, Changde Cigarette Factory was the second largest Chinese tobacco manufacturer in the 1980s, with a big capacity of cigarette-making technologies. On September 30, 1994, Changde Cigarette Factory developed a new brand named Furongwang (Hibiscus King), as a core brand of the competitive Furong brand family. While all positively reacting to the unique fine, outstanding flavor of Furongwang, people were worrying about its extraordinarily high price of over 300 yuan (over 36 U.S. dollars) per carton. The price of a packet of Furongwang was equivalent to 50 kilograms of grain in China. During those years, high-grade cigarettes were rare and precious in China. For Changde Cigarette Factory, its cigarette products were priced from 20 yuan (2.4 U.S. dollars) per carton to over 300 yuan (over 36 U.S. dollars) per carton. So, the extraordinarily high price of Furongwang was really something astonishing. However, the producer of Furongwang was not eager to create an immediate miracle with Furongwang. On the contrary, it acted to restrict the output and sales volume of Furongwang, making the high-priced product all the more mysterious. In the first year of the development of Furongwang, the output and sales volume of Furongwang was only 35 cases (1.75 million cigarettes). In the following year, its output and sales increased to more than 1,600 cases (more than 80 million cigarettes). It was the development of Furongwang that has proven to be a revolutionary step in promoting Changde Cigarette Factory to a higher level of subsequent great business success. In the years following the development of Furongwang, the consumption of high-grade cigarettes in China kept developing, pushing up the demand for high-priced cigarettes like Furongwang. This just proved that the decision of Changde Cigarette Factory to develop Furongwang as an expensive, competitive new product was highly opportune and forward-looking. Two years after its development, Furongwang was in a position to face China's No. 1 high-grade cigarette brand - Chunghwa (China) of Shanghai Tobacco Group, which is as old as the People's Republic of China, and which was also sold at a market price of over 300 yuan (over 36 U.S. dollars) per carton. So, the decision-makers of Changde Cigarette Factory had to make a choice: Should Furongwang remain at the same price level of over 600 yuan (over 36 U.S. dollars) per carton as Chunghwa and vie with it in winning the No. 1 position? Or should it develop in a separate way? After careful consideration, they recognized a gap in the development of new products of over 200 yuan (over 24 U.S. dollars) per carton, which was below Chunghwa and above Hongtashan (Mount Hongta) of Hongta Tobacco Group in southwest China's Yunnan Province. Then, Changde Cigarette Factory made a strategic shift by developing new products priced at over 200 yuan (over 24 U.S. dollars) per carton under the brand of Furongwang, in an effort to fill in this gap. Facts again proved that this decision was absolutely correct and that the decision-makers of Changde Cigarette Factory really had a foresight in this respect. Then, Furongwang virtually entered a period of rapid development: The output and sales volume of Furongwang reached over 10,000 cases (over 500 million cigarettes) in 1996, 20,000 cases (1 billion cigarettes) in 1997, and over 60,000 cases (over 3 billion cigarettes) in 2000, ranking Furongwang the second biggest of high-grade Chinese cigarette brands and the first of those priced at 200 yuan to 300 yuan (24 U.S. dollars to 36 U.S. dollars) per carton. In December 2000, the blue-lid Furongwang registered brisk sales. In January 2003, the soft-packaging blue super Furongwang did the same. By then, Changde Cigarette Factory had won a great business success with the development of Furongwang. Called a "blue hurricane" or a "blue shock wave" in the tobacco industry of China, the success of Changde Cigarette Factory in the development of blue Furongwang has contributed to profoundly influencing the development of high-grade cigarette products in China, and strengthening the leading status of Furongwang in the market of high-grade cigarettes in the country. It has vividly proven correctness of Changde Cigarette Factory’s strategy to develop high-grade products. [b]FORWARD LOOKING, SYSTEMATIC MARKET DEVELOPMENT AND BALANCE[/b] The course of development of Furongwang over recent years has actually been a process of expanding to markets in all parts of China under the guideline of forward looking, systematic market development and balance. While getting a firm foothold in the home province of Hunan, Changde Cigarette Factory has striven to develop markets for Furongwang in other Chinese regions. In the initial years following the development of Furongwang, Changde Cigarette Factory managed to establish multiple points of sales for Furongwang in many Chinese regions and restrict its output and sales volume as a development strategy then. During those years, the factory would send a shipment of only one or two cases (50,000 to 100,000 cigarettes) of Furongwang to each market in developing markets with restricted sales. "Any sales, no matter how small it is, means something of great significance," according to the leadership of Changde Cigarette Factory. It was such restricted sales that contributed to Furongwang's great marketing success in the home province of Hunan, the neighboring province of Hubei, Guangdong Province in south China, Zhejiang Province in east China and so on. At that time, however, Furongwang was but a regional cigarette brand influential in south central China. In 1995, Furongwang stood a severe test in the market. In that year, neighboring provinces started applying local trade protectionism against competitive cigarette brands of Hunan. Following suit, a large number of other Chinese regions whose cigarette production outdoes sales erected high trade barriers to Furongwang, in an effort to protect their own cigarette brands. Before such a crisis, the decision-makers of Changde Cigarette Factory became better aware of the risk from the concentration of markets, and accelerated the pace in expanding to markets in all parts of China. In a major policy shift, Changde Cigarette Factory intensified efforts to promote sales of Furongwang to north China, northwest China and northeast China where the local tobacco industry is relatively weak. While, it actively took steps to establish and develop marketing networks in all parts of China, employing 300 more well-performing sales representatives and setting up seven major regional representative offices. Moreover, it established strategic partnership with commercial enterprises in Beijing City, Shanxi Province and Inner Mongolia Region in north China, Shaanxi Province and Qinghai Province in northwest China, Jilin Province and Dalian City in northeast China, Hainan Province in southernmost China and so on. Consequently, under such an unfavorable situation, Changde Cigarette Factory succeeded in well establishing its marketing networks in China. Since 2001 - the year of China's entry into the World Trade Organization (WTO), the STMA has successively adopted a series of policies to fundamentally reform the structure of China's tobacco industry to sharpen its competitive edge, including the separation of the commercial sector of the tobacco industry from its manufacturing sector. Separation of the manufacturing sector from the commercial sector of the tobacco industry means that under the existing system of State tobacco monopoly in China, provincial tobacco companies (or provincial tobacco monopoly administrations) will no longer be under the dual responsibility of controlling the local tobacco trade and managing the local tobacco manufacturing enterprises. After the separation, provincial tobacco companies will only take charge of controlling the local tobacco trade, and will no longer be eligible to manage the local tobacco manufacturing enterprises. Through this reform, Chinese tobacco manufacturing enterprises are fundamentally separated from commercial enterprises of the tobacco industry. As a result, commercial enterprises of the tobacco industry only need to operate the tobacco trade in accordance with the market demand while the newly established provincial China Tobacco Industry Corporations are responsible for overseeing the operation of the tobacco manufacturing enterprises in their respective regions, under the direct leadership of the STMA. As a result, the marketing environment in all the Chinese regions has obviously improved, and Furongwang has got yet another fine opportunity of market development. Taking advantage of this favorable policy of the STMA, Changde Cigarette Factory has been busy filling in all the so-called "blank spots" in remaining parts of China. So far, Furongwang has been well sold in 69 percent of China including the Hong Kong and Macao Special Administrative Regions, and has been exported to other countries in Oceania, Latin American and Southeast Asia. It is particularly well received by the Chinese communities in these regions. Enditem