Essay: Philip Morris Pakistan Ltd (PMPKL) – Term Project

Introduction
The history of Philip Morris can be traced back to Mr. Philip Morris opening a small shop on London’s Bond Street in 1847, by selling tobacco and ready-made cigarettes. The business was taken over by his wife, Margaret and brother, Leopold after Philip Morris’s death. The company went public in 1881. The company left the founding family’s control in 1894. It was taken over by William Curtis Thomson and his family. The year 1919 was an important one for the company as the coronet logo. The same year saw the acquisition of the firm by an American company; with its incorporation in Virginia under the name of Philip Morris & Co., Limited. The company is headquartered in New York and have 53 manufacturing facilities.
Philip Morris International Inc. (PMI) is the leading tobacco company in the world with seven of the world’s top 15 international brands. Their international and local brands are sold in over more than 180 countries. The company has a very diverse product portfolio and Marlboro is the world’s number one selling brand.
Philip Morris Pakistan (PMPKL) is an affiliate of Philip Morris International and is a public limited company which is listed on the Karachi and Lahore Stock Exchange. Philip Morris acquired a major share in Lakson Tobacco Company in 2007 which was incorporated in 1969. The name of the company was however changed in 2011. The company also runs an extensive tobacco leaf agronomy program in the tobacco growing areas of Khyber ‘ Pakhtunkhawa. The company is also involved in CSR initiatives namely education, environmental sustainability and disaster relief sectors. The company offers 10 of its main brands; international and local such as Marlboro, Red & White, Morven Gold, Diplomat and K2.
At Philip Morris Pakistan Limited, the business follows the highest level of integrity according to its vision statement. They are committed towards continuous betterment of the employees by providing them with professional training, emphasizing on team work efforts, a clean and safe working environment and leadership imbued with humility.
Business Goal
‘More Cigarettes, More Leaders’
Business Ambition
‘Be admired by the strength of our results, the caliber of our Leaders and Warriors and the integrity in how we conduct our business’
We had a formal interview with the area sales manager, Mr Hassan Shafi. In this Interview he said that currently they have four leading brands under PMPKL which are listed below.
1. Morven Gold
‘ King Size Filter Chesterfield ( Red Package)
‘ Morven Royal Rich ( Blue Package)
2. Red and White
3. Malbro
‘ Light
‘ Hard
4. K2 and Diplomat
He stated that Morven Gold is our flagship brand, It focuses on catering Sec C needs and its retailer price in 65rs. Now it has increase to 67 PKR/- according to the new regulations from the government implemented by the company (Business Recorder, 2016)
Each carton has 50 sticks of cigarettes which is 500 packs (Rs: 39,070/-).
500 packs x 20 = 10,000 sticks
Area sales manager is always in contact with sales rep and daily sales men. On average a sales rep covers 55 shops every day. And currently the company has deployed 21 salesmen in Gulberg and 10 Sales men in Cantt.
Goals and Objectives at Philip Morris Pakistan Limited
Lahore Region:
‘ Achieve maximum possible sales volumes per year.
‘ Achieve maximum employee productivity on the field as sales representatives.
‘ Future goals and objectives as assigned to the area sales manager of Lahore region:
Sales quota targets to be achieved which is 1.6 billion sticks of cigarettes to be successfully sold for the fiscal year 2016.
High Selling Brands:
Morven and Capstan are placed in front on shelves in less urban/ less affluent shops, whereas Marlboro is brand for Sec A so it is preferred to be placed on premium shops.
Problems with brands:
‘ As mandi stocks are cheaper, so as a result retailer products are not at all sold out
‘ At the time of budget the sales of the company drops as retailers hold stock and wait for the prices to go up. As a result the company experiences less sales in budget time period and shortage of product occurs in the market.
‘ Automation devices are given to the salesreps but as they are not educated and trained enough they are sometimes unable to use it and company has to face uncertain losses in terms of both data and money.
‘ Sales reps don’t go to all of their assigned shops as they achieve their quotas buy bulk selling on certain shops. So that they can save their time. As a result the availability of the company’s product becomes less.
Industry Analysis
The cigarette industry is highly monopolized and it has a few major players in the market who deal in this business. Pakistan Tobacco Company is one of the largest industries in Pakistan contributing to approximately more than 4.5% in the GDP and providing employment to 1 million people in the country according to the 2013 industry statistics. Philip Morris comes up next according to its market share.
Pakistan’s consumption of cigarettes: 86 billion
According to the coalition of Tobacco Control, there are about 22 million smokers in Pakistan; and 55% of the local households had at least one individual who smoked tobacco in 1999 during the time of the control.
Pakistan’s legal domestic sales are estimated to be at approximately 64 billion cigarettes for the year recorded in 2012. Whereas, British American Tobacco Company and Philip Morris International constitutes virtually 99.7% of the legal sales in Pakistan overall, according to the International tax and Investment Center 2014 statistics. Moreover, approximately more than 5% above of all taxes comes from the tobacco industry. PMPKL paid up to $1 billion in taxes per year that is 60 to 70% in taxes in 2015, according to the company executives themselves.
Tobacco Taxes
According to the 2013 statistics, estimated tax losses from illicit consumption increased from PKR 24,332 million to PKR 26,851 million. And the loss in sales tax revenues resulted in PKR 5943 million and had an increasing trend.
The Pakistani government earned Rs. 55 billion from the tobacco industry in terms of the taxes and excise duties on tobacco related products which was the highest during the 2010 and 2011 years.
Studies show that cigarettes are being sold in Pakistan at the cheapest rates compared to global prices in the market. Cheapest rates of cigarettes according to the statistics of 2012, are of the following countries:
COUNTRY NAME CIGARETTE RATES (in $)
Srilanka 2.83
India 1.65
Nepal 0.84
Afghanistan 0.51
Pakistan 0.33
Pakistan burnt almost Rupees 200 million on smoking in 2011 and the rate kept increasing till date as the production was over 65.4 billion cigarettes during the fiscal years 2010-2011. Also there has been a consistent incremental increase by 1.7% in growth of the demand of cigarettes in the developing countries ever since 2002 (Pakistan Tobacco Industry).
After the industrial maturity of 2009, is on a gradual verge of decline. PMI which is the world’s largest tobacco company, has been operating in Pakistan since 2008 has been experiencing decline in its sales volume. Company’s leading brands such as Morven Gold & R&W both are experiencing continuous decline year on year basics. It’s the biggest cause of concern for the company as it is resulting in decline in revenues. One of the biggest reason for this decline has been the rise of illicit trade which is causing a dent in company’s revenues. As illustrated in the figure below;
Since the market is no longer growing, therefore the key competition is to maintain the existing market share and retain those customers that are already users of cigarettes. The increasing competition of local and Mardan brands in what alarms the big giants like PTC and PMI to work on neutralizing their increasing market share inorder to survive in the market.
Competitors
Philip Morris Pakistan Limited has basically one major competitor, Pakistan Tobacco Company (also known as British American Tobacco Company).
Also there is an informal sector competing in the cigarettes industry as unbranded products under ‘Mardaan Brands’ which produces ‘khulay – loose cigarettes’. Due to the rising threat of this informal segment, the private companies are facing problems from the price sensitive target market customers from lower income brackets who are a major chunk of the population as well as of the loyal customers.
In Pakistan, the main competitor for PMI is PTC (Pakistan Tobbaco Company), which holds the major market share because of it’s brands and wide distribution network.
PTC Current Sales Force Structure
The GM Pakistan is responsible for three other countries with Pakistan, namely Sri Lanka, Bangladesh and Burma. All these countries have a similar terrain so distribution of the products are be done effectively and efficiently. The Key Purchasing Officer ads the supporting function in which forecasts of the products are by him/her. The Director of Marketing in PTC makes the key decisions regarding sales performances because he/she is concerned with the performance of the region. Under DOM, it is the National Sales Manager, who communicates the information to employees under him.
There are a total of 4 Regional Sales Manager, who report to directly to the National Sales Manager. Under Regional Sales Manager, there are 22 Area Sales Manager, in which 2 ASM look after Lahore. Under RSM there are 190 territories executives in change of the distributors and the sales Report.
Sales Operations:
PTC adopts many various technical techniques for the sales forecasting, which are done on the yearly basis. It helps them to match their expected and actual performance. Similarly, the RSM distribute the sales quotas to territories and which is passed onto the territories executives. The ASM has the right to change the quota if ASM thinks that the quota is not realistic then it is revised by RSM. The revised sales quota is known as the ‘outlook’. A percentage of different brands is expected to be sold. A daily sales report is checked by area managers to have an overview of the work and performance indicators.
Sales Process:
The sales process consists to two sales categories, primary and secondary sales. In primary sales are done to the distributors, whereas, secondary sales are done to wholesalers. They have a total of 200 distributors, who can only work with PTC. So, the distribution are bifurcated to perform activities only for one tobacco company. PTC owns 12 self owned distributors. The purpose is to distribute the quantites to the distributors and the whole sellers through those warehouses. In the process, the sales men go on their daily route, who ensure that each and every shop is catered. And their routes are designed in a cost effective way.
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Methodology
We would be using a combination of qualitative and quantitative research for the analysis of the sales force program at PMPKL. We have conducted two in depth interviews of the sales department executives of the company, who are as follows:
1. Area Sales Manager (ASM) of Lahore Region: MR. HASAN SHAFI
2. Sales Supervisor: MR. OMER LIAQUAT
3. Zonal Manager: MR. MUHAMMAD USMAN
4. Sales Representative: MR HAFIZ TAHIR
Also one on one interviews leading to discussions have been conducted of the entire sales force at the Lahore region specifically targeting the sales employees of Gulberg and Cantt territory. Our focus area is Lahore Gulberg where we visited different cigarette selling units and pan shops and actually interacted with different retailers and sales reps and company order takers through questions and answers. We physically followed their bikes while the daily sales rep and the daily salesmen supervisor interacted with the retailers to sell their products on regular basis.
Qualitative Research
‘ In-depth Interviews of sales executives
‘ Panel discussions with sales force team
‘ On field follow up of sales reps
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Current Strategy
MARKETING STRATEGY AT PMPKL:
Philip Morris Pakistan Limited uses a Push Strategy to make sales. As the company produces cigarettes so the demand is already very known and forecasted evidently according to known consumption rates presumably. Therefore, all supply forces are directed towards selling all cigarettes forcibly as it is a push strategy so all produced is sold.
However, the target market and targeted consumers are very specifically only the ones who are smokers already. Acquiring new customers is not the policy of the company in any case as it follows the specific rules and SOPs laid by the government and the tobacco regulation industry. New customers is not the focus, thus push strategy is followed.
Salesforce Structure
Key:
– RSM = Regional Sales Manager.
– ZSM = Zonal Sales Manager.
– ASM = Area Sales Manager.
– DSMS = Daily Sales Manager Supervisor.
– DSR = Daily Sales Representatives.
There is only one General Manager, who is responsible for 4 RSM and the activities run in their regions. Each RSM has a one ZSM, which further is reported by 3 ASM. These ASM are present at each distributor performing the functions for Phillip Morris. The distributor has only one ASM, which is on the payroll of PMI, except everyone was the paycheck of the distributor. The ASM is responsible of the activities and responsible of the performance for the distributor.
Now each ASM has 4 DSMS, in which each of them looks for 4 to 5 DSR. And every week they check the performance of 5 to 6 sales representatives out with them in the field. In the Gulberg Distributor, there area total of 21 DSR performing the sale functions in the market. Each sales rep has been allocated in 150 countries, which sums to be 1.5 m shops. And the sales rep were allowed to meet their family twice a week. A total of 50-55 shops would be visited by each sales reply on the daily basis. So, ASM directly interacts with the sales representatives and the DSMS report the performance of the sales representative. The warehousing manager has the duty to maintain an adequate level of inventory of varipus different brands in PMI. Lastly, the Key Purchasing Officer ads the supporting function in which forecasts of the products are by him/her.
DISTRIBUTION MODEL:
At Philip Morris Pakistan Limited, the strategy followed in their distribution centers is highly significant in playing a strategic role for the company in its operations as well as its sales force management. Mr. Hasan Shafi, the area sales manager, told us about the 50 ‘ 80 distribution model followed at PMPKL in its Lahore region. Merchandising and distribution of the company is outsourced. Cash selling the main type of selling they use and mainly sales are not done on credit.
The 50 ‘ 80 distribution model applied at PMPKL represents that the 80 percent of the sales volumes earned are coming from 50 percent coverage of the sales territory in Lahore region. This shows that maximum of the sales revenues and profit margins are earned from some specific areas for example Cantt area out of Lahore region. On average 55 shops are covered in Lahore region by the daily sales men along with their sales men supervisors.
Also the CSR policy is followed at PMPKL which is: C4 is the legal binding for the company.
Name of Distributor: Consolidated Marketing
Clients: Phillip Morris and Colgate Palmolive
Earnings of distributor
Cost Plus
There are different ways of accommodating the profits and earnings of distributor. One of the new and improved method of doing so is through ‘Cost Plus’ method. This method is entirely different form Pakistan Tobacco Company’s margin base system where they are given the SKUs at a cheaper price which is sold to retailer at a margin. All the capital and expenditure is recovered through that profit margin.
Whereas in cost plus the distributor aggregate its cost including logistics, rent etc and is compensated on that. It is distributor’s job to hire the competent salesforce team working under company employed Area Sales Manager. Distributors are also assigned with quotas and target which when achieved are rewarded with compensations as follows;
‘ If 105% of target was achieved, 16% of the cost base is given to distributor
(Cost base for the month of March 2016 = Rs: 1,360,000)
Target Achieved Percentage commission of cost base
105% 16%
100-104.9% 14%
98-99.9% 9%
95-97.9% 7%
90-94.9% 5%
Less than 90% 3%
(Appendix C)
Incentives
Apart from cost plus method distributor is also accommodated on the bases of meeting upto the quality standards of warehousing, salesforce and distribution. It includes all those factors that are considered while evaluating a distributor. (Appendix D)
Wint fall
This means of income involves holding/purchasing extra stock before the budget period and taking advantage of the price increase after the budget.
Hence there are many ways through which a distributor can make money and still lie within the acceptable criteria of the company.
Distribution Channel
Primary Sales
The total stocks dispatched from warehouse or directly from the factory to a particular area are known as PRIMARY SALES of that area. The primary sales can be calculated by the monthly dispatches to an area.
Secondary Sales
The total stock sold by the distributors of an area to retail and wholesale market is known as SECONDARY SALES. Secondary sales are given by distributor of an area. It can be calculated by a simple equation
SEC SALES = Opening stock + Monthly Purchase ‘ Closing Stock + Claim Adjustment
Consumer Off-Take
The consumer off-take is the ‘sales being done by retailer to end consumer’ the consumer off-take is being calculated by Neilson by surveyors. Neilson conducts Retail Audit on monthly basis and submits report to regional offices and head office on monthly basis.
Classification of customers
Primary Secondary Customer Consumers
Distributor Retailer End consumer
PMPKL work on the philosophy that secondary customer are their direct consumers, since they are a key player in running the demand and sales of their products. Therefore a lot of activities and rewards are provided to facilitate their needs. For some retailers leverage of a few hours is given to highly profitable shops. Such shops are high end shops which are awarded with the award of Trade King
Trade King is an incentive package given to the retailers , these retailers are the shining starts of the company which achieve the targets of merchandising and shelf space in their shops/ Khokhas.
There are two main types of incentives given to retailers;
If the retailers are able to achieve the set targets they are given incentives in terms of cash ranging from 500 to 6000Rs and other than that they are also given cigarette packs relative to the incentive amount. By this the company benefits as they earn more profit by this method.
1. Cigarette ‘ Lighter Scheme
Lighters are given to highly profitable retail shops for improving sales
2. Collaboration with Match stick distributor:
This is a mutual selling process of matchboxes and cigarettes together. The locations of distribution hubs are closely situated. Therefore when the cartons of cigarettes are being distributed Hockey match boxes are also sold along with them to the retailers.
SALES STRATEGY
Spot selling is used by the company and all sales are on cash transactions only. No credit purchases or selling method is enabled by the sales force. The sales men personally visit shops on the field daily and take orders and deliver orders according to the specific on ground demand of the retailers.
It is like the Fast moving goods selling industry so they are always working on the go. This is a type of industry in which sales force is highly empowered as they have a face to face interaction and relationship building with different retail customers. They have to meet demand and ensure order fulfillment according to the desired retailer orders which are asked and offered on spot. Moreover, strong competition from PTC Brands exists so it is quite obvious for PMPKL to ensure it is fulfilling the needs of the retailers providing them enough incentives to cater to the shelf placement of their brands.
There is a very fixed predictable demand for the product and the company knows approximately how much to produce and how much to deliver. No formal forecasting method is implemented at the company.
Sales Force Automation (SFA) is the standard operating procedure currently implemented at PMPKL for making sales. Automated devices are used by the sales men on every day basis. These are devices used to automatically record and enter data about the order taking, bills, receipt checking, inventory management, booking order for the next day, cash deposit and delivery transactions on the devices. Transactions are recorded on the server and money is received on daily basis. The system is highly organized and automated and it is easier for the responsible area sales head to follow up on the performance of the sales reps.
However, these are complicated battery operated and technical devices so training is needed and it is strongly given to the sales reps at Philip Morris for using these SFA devices. For the sales reps, sales on the job training programs are followed rigorously as the sales men are the most valuable source of income and a means of sales quotas achievement for the company.
Sales Process
Since the product is a fast moving commodity it solely relies on traditional personal selling. Qualify of retailers is done based on their sales and shelfing. PMI has some fixed rules/procedures that are necessary for carrying on a sale. They make sure that the process is followed by the DSM. The process and steps include;
Roles performed by salesmen
DSM is the front line force & back bone of a distributing network. Following are the roles of DSM.
‘ Market visit
‘ Availability of stock in DD & Wholesale.
‘ Effective area coverage
‘ Target achievement
‘ Market exploration & penetration
‘ Stock check at shop
‘ Visibility of stock
‘ Complaint handling
‘ PR development
‘ Administration
‘ Evaluation
Logistics
Mechanical Resources
Type of Assets No of Items Requirements
1 Motorcycles 100cc 32 32
2 Qinqi 5 5
3 Ravi 3 3
4 Motorcycles 70cc 6 6
Each bike can carry 3 to 5 shipping cases, while each Qinqi can carry upto 15 to 18 and lastly ravis can carry large quantity of cases i.e. 50 which are suitable for deliveries to wholesalers.
Salesmen Salary
Following formula can best describe the take home of sales man
Fixed Amount + commission = Take Home
Commission rates are fixed for a sales rep which is as follows;
Commission = Rs: 4000 (For achieving the individual target) + Rs:2000 (if the entire distribution achieves the target)
‘ Observation
‘ Fixed commission doesnot motivate the DSR to excel and pitch more than the
‘ Some salesmen are not mentally satisfied with their salaries in comparison with the work they do. It can affect their performance & motivation level.
Sales Forecasting
At Phillip Morris, jury of executive opinion method of sales forecasting is used in combination with the quantitative approach of moving averages. Top management, including Zonal sales manager of each zone, sits together with general manager and in light of previous year’s sales along with their judgment of economic growth and growth insurance sector, a sales forecast is set. In case of cigarettes the rate is on constant decline due to increasing taxes therefore the targets and quotas are usually applied a negative rate. Along with the demand trends, the fiscal year’s budget and the time when it’s going to be announced is also pondered upon when setting the budgets and quotas. Once the annual sales figure is decided, this lump sum figure is given to regional sales managers, who further break it into sub forecasts for the area sales managers; the area sales manager then further break it down in form of sales quota down the hierarchy. This way each manager along the hierarchy is assigned a specific task in terms of Rupee sales quotas. There is no over indexing of quotas down the hierarchy.
In sales forecasting, a top to bottom approach is followed i.e. no of inputs is taken from the sales force with respect to annual sales target, as the company believes in setting a target and then motivating the sales force to an extent where they deliver the targets. Although each area sales manager is responsible of reporting his ‘Average Monthly Volume’ (AMV) for annual forecasting. Refer to Exhibit 2 for the table of the calculations of Annual Monthly Volume table.
NEW SALES STRATEGY
Problem 1:
Compared to current sales force structure:
Each daily salesmen supervisor is responsible for 5-6 salespersons; as a result there is a flaw in the sales on the daily basis. As the supervisor cannot accompany them all at the same time so the sales reps make the order taking, cheque filling, sales quota fulfillment mistakes and also face difficulty in using the sales automation devices as they are not fully educated and trained by the company.
Solution
Therefore each Daily salesmen supervisor should be assigned maximum 1 or 2 salesperson, so that they can easily follow them on their routes and ensure that the selling process in done at its best. This will also eliminate another problem of the salesperson, as they do not go to every shop to make the sale, as a result all the shops are not covered, therefore the availability and the accessibility of Phillip Morris products increases.
Solution
There should be 1 DSMS supervising 1 salesman on daily basis, as a result there will be a chck and balance and the products will be available at shops shelf.
Problem 2: (MAJOR problem)
Salesmen do not fill in the receipts at all shops although they have automation devices they are still able to dodge the company. The problem mainly lies in the dishonest salespersons.
Recommended Solution:
1. Install RFIDs at retail shops, This RFID system would be used to detect salesmen presence and receipt cheque being filled out at all shops and stores on daily basis.
2. Finger print readers at all retail stores should be installed to ensure that all the salesperson paid a visit to that respective shop on daily basis despite the fact the sales are made or not made. This method will ensure the visit of each salesmen at every shop and dishonesty amongst them will decrease.
3. Placement of barcode readers at every shop. Using the barcode system will manage salesmen work as they would check for:
‘ GPS
‘ Salesmen visit assurance
‘ Give details of the quantity of products to be sold
‘ At what time they were sold
‘ Which salesmen sold the products
‘ Monthly business with that respective shop
‘ Retailers demand and supply
‘ Forecasting of stock outs and profitability dependent on demand and supply patterns
RFID (New System Introduction)
‘ Ensure transparency of information and also allowing continuous replenishment of cigarette stocks.
‘ Activated devices allow for order takers to be detected with each shop and at each receipt filed.
‘ The devices (RFIDs) would ensure that all sales reps are taking orders at all shops i.e. reaching out to full potential (55shops daily) rather than completing the monthly quotas by cutting bills on few high volume shops.
Problem 3:
From on field observations we realized that the sales representatives lacked the technical know-how of the SFA devices and in case of any error in feeding the right information, they were unable to rectify that mistake without assistance from sales supervisor. Along with technical understanding they also lacked in Basic English and grammar. In some cases they had to add data and fill out retailer form which they clearly had difficulty in. Refer to the interview in the appendix A for the interview insights.
Solution:
Training
Current training programs at PMPKL are not enough. There are no formal method or technique being used by PMPKL to evaluate sales person performance during the training period. Moreover, training period is too short for a newly recruited sales person to understand market dynamics and company policies. Furthermore, the current training program does not enhance/polish sales skills i.e. persuading power. There should an evaluation form for the DSMS to rate and access the performance of each sales reps. Refer to appendix F for the complete recommended structure of the employee evaluation form. Also the criteria for evaluation and its indicators as well as its ratings (scale of 1 to 5) are mentioned. The option of giving formal and informal training is also specified if it is necessary or not which is going to be recommended by the supervisor for each sales rep.
Changes in commission packages
Since the regions are divided into territories keeping in mind the potential of each territory however, the majority of the sales as mentioned by the sales rep in the interviews comes from the major cities of each province. Secondly, there are areas in which making sales is almost impossible due to security concerns and purchasing power of the people. Therefore, in territories like NBU of KPK, Sindh and Baluchistan the base salary of the sales rep will be increased to Rs. 20,000 as these areas seems to require more sales efforts.
Problem 4:
Routes
Currently Phillip Morris does not have fixed routes for its DSM, all they know is the number of shops they will visit per day, which leaves the decision of visiting specific shops first up to the DSM. This usually results in overlapping of same route, which increases the unproductive travelling time. Although SFA has the information regarding the shops to be visited but it lacks the order of visiting. Through proper routes calculated by algorithms can help prevent time wastages which eventually can help cater to greater number of shops per day.
Solution:
Fixed routes assigned to each sales rep and no over lapping routes given to avoid unproductivity.
Problem 5:
Future possible threats to the company:
Considering the declining trend and the dwindling sales situation of the overall tobacco industry as the government is highly discouraging the use of cigarettes by levying taxes and increasing the rates each year as the international tobacco taxes go up. According to the regulations set recently, price for Morven increased from PKR 65 to 67/- (Business Recorder, 2016). Philip Morris does have a global threat of going out of business in the tobacco industry so they need to have a backup solution for that. Also refer to Sales Financials of year end 2015, there are increasing losses incurred by the firm from 2014 to 2015 annual report. The taxation increased from Rupees 30,814 to Rupees 361,931 (2014-2015). This shows huge potential for decline.
Solution:
Diversify into other businesses like production of similar products like for instance soya bean, tea, coffee, etc. This would save PMI from wearing out of business and expand into a variety of different products with a diverse product range which will help it grow in future.
RECOMMENDATIONS
These recommended changes in the sales force program could help improve the capabilities and capacities of the sales rep at Phillip Morris. Thus leading to improved success of PMPKL and enhancing productivity of the salesmen, making sales at their full potential. This would also lead to the integration of the sales force being aligned and fully informed.
The company can implement RFID systems for the sales force reps assurance of making sales so that it would ensure making sales and every shop and the stock status can be known to the distributor. Secondly, they can use of Finger print readers or/and barcodes reading systems to ensure that stocks sales are achieved at all the shops for full coverage. It will avoid fakes on every shop whereas the sale is made on few shops which covers the sales rep quotas so it will automatically ensure that their stock is present on every shop hence customers would get their products at each store. It is very important to train sales reps for using SFA devises because it will increase their productivity and work can be done more effectively and efficiently. And they should make a criteria for hiring sales persons which should be based on specific education because it would increase the overall distributor productivity. Sales reps should be identified, motivated & acknowledged on the sense uniforms for the sales people should be mandatory because it would be easy for the shops to recognize them and it could be used as a promotional technique.
Lastly, the merchandising is the main important reason for the promotion of PMI products therefore flex posters should be displayed & posted on motor bikes & automobiles of sales reps so to ensure enough marketing efforts are put in.
Appendix A
Interview 1
Interviewee Profile:
Name: Hafiz Tahir
Designation: Sales Representative
Age: 28
Experience: 2 years
Salary: Basic salary = Rs: 13,000 + Commission of Rs: 6,000 if 60 shipping cases are sold per month
Job Description:
‘ Have to achieve the quota assigned
‘ Cover 55 shops daily, whereas the total shops assigned are 150. It takes three days to cover the total shops assigned which are covered twice a week
‘ The products should be available at all shops
‘ They need to motivate the retailers to increase the sales by giving them more incentives
‘ Ensures that conflicts between retailer and company are avoided and removed
‘ If shopkeeper refuses to buy the stock from them they give exceptional benefits to them in form of free Marlboro lighters, thus ensuring that bills are cut from all assigned shops.
‘ Have a benchmark of educational background in order to know how to operate Sales Force Automation devices.
Interview Insights
From on field observations we realized that the sales representatives lacked the technical know-how of the SFA devices and in case of any error in feeding the right information, they were unable to rectify that mistake without assistance from sales supervisor. Along with technical understanding they also lacked in Basic English and grammar. In some cases they had to add data and fill out retailer form which they clearly had difficulty in.
Similarly, it’s a common norm that key clients get the leverage of credit sales in almost every industry except for those who carryout spot selling like Phillip Morris. In such circumstances they only provide credit service to star shops that are bring set by the company based on their performance indexes and quota completions. Even the credit policies for them are too stringent, they are only allowed the credit for 1 day, where they are supposed to pay before the day’s closing.
In every sales related jobs the major motivator to perform an extra mile is to give commissions for the extra effort put in. The reward for the sales representatives of Phillip Morris is on selling of minimum 60 shipping cases per month. The very first reward is of Rs: 6,000 from where it keeps on building up. That’s the key to motivate the sales force to pitch in extra sales.
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Interview 2
Interviewee Profile:
Name: Mr. Hasan Shafi
Designation: Area Sales Manager
Age: 27
Experience: 1.5 years in PMPKL
Interview Details
We had a formal interview with the area sales manager, Mr Hassan Shafi. In this Interview he said that currently they have four leading brands under PMPKL which are listed below.
5. Morven Gold
‘ King Size Filter Chesterfield ( Red Package)
‘ Morven Royal Rich ( Blue Package)
6. Red and White
7. Malbro
‘ Light
‘ Hard
8. K2 and Diplomat
He stated that Morven Gold is our flagship brand, It focuses on catering Sec C needs and its retailer price in 65rs. Now it has increase to 67 PKR/- according to the new regulations from the government implemented by the company (Business Recorder, 2016)
Area sales manager is always in contact with sales rep and daily sales men. On average a sales rep covers 55 shops every day. And currently the company has deployed 21 salesmen in Gulberg and 10 Sales men in Cantt.
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Interview 3
Interviewee Profile:
Name: Mr. Omer Liaquat
Designation: Sales Supervisor
Age: 32
Experience: 3 years in PMPKL
Job Description: Regulates accomplishment of quotas from daily sales men.
Span of control:
There are total of 4 DSMS in a territory, with each of them having 6 daily sales representatives working under them. Amongst the six, five of them caters to retailers which one caters to the wholesale customer.
Interview Insights
Tasks performed by the supervisor
The task performed by the DSMS are divided into two categories;
‘ Work with
Where the DSMS spends the entire day in the field with the DSRs for the supervision and observations concerning the performance of the sales rep. In this way he can evaluate their performance based on the criteria set by the company.
‘ Work along
He inspects to the arising queries of the customers (retailer, wholesalers) and regulates smooth performance and routes of DMS from the back end i.e. distributor. In short it is the on phone supervision of the supervisor that keeps him in the loop of daily activities performed by the sales force. Moreover, irrespective of merchandising being out sourced to a third party, DSMS also performs a second check on ‘Bellow The Line’ merchandising i.e. whether placed correctly, according to the SOPs of the company or not. He is also responsible for giving incentives to ‘TRADE KINGS’ retailers for achieving a specific sales volume for the month. They act as a continuity trade promotion program that keeps of accumulating till the month end. The reward is based on cigarettes which is equivalent to cash. Level of incentives are as follows;
‘ Rs: 500 worth of Morven packs
‘ Rs: 1,000 worth of Morven
‘ Rs: 1,500 worth of Morven
‘ Rs: 2,000 worth of Morven
The reason they are only given Morven is because it’s a fast moving product which brings quick and easy money for the retailer.
‘ Daily sales men was not authorized to issue incentives, they were automatically calculated by the sales force automation device based on the purchases made by the retailers on daily bases.
‘ The incentives were to be signed by the retailer and the sales supervisor in order to ensure receiving and delivery. All the record of incentives was maintained on a Trade King log provided my PMPKL as illustrated in Exhibit
‘ The receipts had three carbon copies, one remained with the retailer, one with the distributor while the third was sent to PMPKL head office.
‘
Interview 4
Interviewee Profile:
Name: Mr. Muhammad Usman
Designation: Zone Manager PMPKL
Agenda:
Aim of the interview was to identify the problems in distribution and sales structure of the company what steps PMPKL is taking to counter the problems. The interview was done in an extremely cordial atmosphere and we tried our best to get into the depth of the problem.
Transcription
Currently what is the biggest issue that the company is facing in Pakistan?
Muhammad Usman: the most important issue that is keeping the management awake at night is growth of the illicit trade. It can be divided into three components. First the GND (genuine non domestic) products which are non-duty paid products. Although these are genuine but are smuggled into the country and relevant taxes are not paid. This includes dunhill, benson & hedges and Marlboro and several others. They are generally priced 30 to 50PKR above the local products sometimes even more depending on the type of variant and its demand. There are also other types of GNDs, like PINE, which are targeting the value-price segment at around 40PKR pack. This pretty much explains the GND landscape in Pakistan – it is no more than 10-15 percent of consumption but with room to grow if not tackled
Secondly the biggest portion of the illicit market is comprised of domestic players who are selling way below the minimum legal price in the market. They are defining an uneven playing field, meaning if you buy a pack of Morven Gold, you pay 60PKR per pack. If you go and buy a domestic illicit brand, you can pay as low as 10PKR, or as high as 40PKR. They generate bulk of their revenue from the 10 to 30 PKR segment. Thirdly there is the counterfeit segment which is pretty much nonexistent in Pakistan
This creates several problems. First, we the legal players are unable to compete. Secondly, the government is losing a large amount in taxes. Last fiscal year, the legal industry’s contribution to the government revenue was PKR103 billion and according to various sources the government lost a revenue of approximately PKR25 billion due to the illicit sector. And this problem is only getting bigger and uglier. I believe this is one of those areas where we need to find simple, effective solutions, in collaboration with the government, to arrest the proliferation of such products.
What is the current market distribution like in terms of market share?
MU: The total cigarette market of Pakistan in terms of consumption is estimated to be 80-85 billion sticks annually. The contribution of the legal sector is 60-62 billion (sticks consumed per year), and about 20 to 23 billion for the illicit players, including the GNDs.
What is the distribution within the illicit market?
MU: It is 90-10. The domestic, non-taxpaying players make 90 percent of the illicit market while the genuine non-duty (smuggled) products account for 10 percent.
But don’t you think that smuggling has come down over the years?
MU: According to different studies that are carried out on a more regular basis, both GND and domestic illicit are going up. The trend is certainly upwards. Even if you go buy a pack of duty-evaded cigarettes, and ask the retailer, he will tell you that it’s going up.
We are much more interested in the dynamics of the illicit business – where is it growing and how are they bypassing the system in place. The answer we get on those two fronts is yes, it is growing, and it is penetrating more rural areas with strong growth in urban centers of Pakistan as they continue to spread distribution with more and more outlets handling these types of products. In other to curb this menace there should collaboration between ourselves and the government in terms of policies aimed to curtail such trends in the market.
How has the government response been so far?
MU: It is not a new problem. FBR has a good understanding of the problem and is working to curtail it. However, due to the magnitude of the issue more resources are required to tackle the problem and this is why the legal industry and the government need to work together. What I can say is the longer we wait, the bigger it will get. The government is trying to hear from a variety of parties different aspects to a holistic solution. It will definitely need more collaboration and co-ordination on many fronts; the problem is complex and it will not be easy to tackle overnight.
Could you shed some light on the solution?
MU: The ability and willingness to enforce is the key. It’s not that we or the government are standing still. The government has for example has many issues on its agenda and it is difficult to assess in which position the illicit problem sits on their priority list.
I think what we are saying is not different to what other industries are saying. If you talk to the pharma industry, for example, they will use the word counterfeit a lot more intensely. The problem is an opportunity loss. Greater co-operation from the authorities to create a levelled playing fields is the need of the hour.
What are PMPKL’s future plans?
MU: Ours plans are very simple; as our manifesto says we want to become the most admired and respected company in Pakistan.
We are going to be aggressive and bold. There is a lot of room for us to grow, from 30 percent market share to 100 percent market share in the formal sector as an example. We are trying to make Pakistan (Philip Morris Pakistan) more of PMI and less of what is used to be – Lakson. We have only been here for eight years; and we want to make sure we do the right things in the time to come
‘
REFERENCES
International Tax and Investment Center. (2013). Asia-11 Illicit Tobacco Indicator 2012. Oxford
Economics.
Pakistan’s tobacco consumption: The most in South Asia. (2013, Februray 7). Retrieved Februray 29, 2014, from Pakistan Today: http://www.pakistantoday.com.pk/2013/02/pakistans-tobaccoconsumption-the-most-in-south-asia/
Recorder, B. (2013). Pakistan among top Asian states in illicit tobacco consumption.
Business Recorder. (2013, August 21). Retrieved from http://www.brecorder.com/companynews/235/1223325/
Tobacco Industry in Pakistan. (2002 , June 18). Retrieved from YesPakistan: http://www.yespakistan.com/people/tobacco.asp
Khan, A. (2011, Febuary 24). Pakisan Today. Retrieved from http://www.pakistantoday.com.pk/2011/02/24/comment/editors-mail/smoking-trend/
Philip Morris International. (n.d.). Retrieved from http://www.pmi.com/eng/about_us/charitable_giving/pages/charitable_giving.aspx Philip Morris Pakistan. (n.d.). Retrieved from http://www.philipmorrispakistan.com.pk/companyprofile.htm’
Appendix AB
Industrial Trend
‘
Appendix B
Exhibit 1
Territory Design (Southern Canal)
‘
Appendix C
Distributor Cost Plus
Exhibit 1
Back Office
Type of Assets No of Items Requirements
1 Writing Table 54 54
2 Chair 54 54
3 Cabinets 50 50
4 Desktop/Laptop 3 3
5 Printer 2 2
6 UPS 2 2
7 Water Dispenser 2 2
8 Stock Carrying Boxes 32 32
9 Wooden Pallets 26 26
10 Fire Extinguisher 2 2
11 Meeting Table 2 2
12 Chairs 14 14
13 Projector 2 2
14 White Board 2 2
Exhibit 2
Mechanical Resources
Type of Assets No of Items Requirements
1 Motorcycles 100cc 32 32
2 Qinqi 5 5
3 Ravi 3 3
4 Motorcycles 70cc 6 6
Exhibit 3
Human Resource
Type of Assets No of Items
1 Total Salesman 34
2 Relief Salesman 3
3 Sales Supervisor 6
4 Distribution Manager 1
5 Cashier 2
6 Key Punch Operator 2
7 Warehouse Incharge 2
8 Security Guard 4
9 Field Driver 0
Appendix D
Targets 2015
Exhibit 1
Exhibit 2
AMV 2015
LAHORE C 32.35M
GULBERG 23.23M
CANTT 9.12M
Marlboro 3.1M
R&W 2.83M
MbC 100’s 1.37M
MbC 23.89M
Appendix E
Trade king’s Segregation
Exhibit 1
Platinum Gold Silver Total Top 35% Below 35%
OUTLETS 129 43 103 275 275 0
Appendix F
Evaluation Form
MANAGEMENT TRAINING NEED FORM
CONFIDENTIAL
Name: _______________________ Grade: _____ Department: _________________
Location: ____________________ Time in Present Position: _____ Age on 30 Sep: _________
Supervisor Name: ___________ Supervisor Title: ___________ Review Date: ______________
STATEMENT OF PHILOSOPHY
This training form is designed to evaluate an employee’s performance over a specified period of time. The objective of this process is that the employee and his/her supervisor plan together to build on strengths and develop those areas needing improvement via training.
SUPERVISOR In evaluating an employee’s performance you are to identify strengths and areas of performance which require improvement/training. In the appraisal meeting, give as many examples as you can to illustrate/justify the ratings you have given. Follow up the development plans; mutually established by you are the employees.
EMPLOYEES The more involved you are in the training need process, the more effective the process is likely to be. Discuss freely your concerns over the rating given by your supervisor.
Signature Appraiser/Dept Head Signature GM/Board
Date: Date:
FORM INSTRUCTION
‘ Complete management training need form for the employee.
‘ Schedule meeting to discuss the training needs.
‘ Conduct performance appraisal.
‘ Provide copy of signed appraisal form to the employee.
‘ Place original signed management appraisal in the employee’s departmental file.
‘ Rate the overall performance on each objective/task using the following rating.
1 Unsatisfactory Employee must demonstrate improved work performance within immediate period of time (e.g. 3 months)
2 Development Needed Performance standards are not fully achieved, employee needs to improve performance during next appraisal period. (e.g. 12 month).
3 Successful Work is fully satisfactory; employee consistently meets and occasionally may exceed performance standards. This represents the expected level of performance as established by the supervisor.
4 4 Above Expectations Work is fully satisfactory and often exceeds performance standards.
5 Exceptions Work performance consistently exceeds performance standards.
‘ Place a tick in the ‘DAR’ column if you think Development Action (Training, wider experience, counselling etc.) is to be taken
‘ Place a tick in ‘I or F’ column to indicate
I ‘ Action by Dept Head/GM (coaching, planned experiences, etc)
F ‘ Formal training
PERFORMANCE MEASURE N/A 1 2 3 4 5 DAR I OR F
JOB KNOWLEDGE/ FUNCTIONAL & TECHNICAL SKILLS
Has achieved required level of knowledge and
skills in position-related areas.
Applies knowledge and skills to meet job
requirements
Keeps up to date in all relevant knowledge and
skills areas to meet job requirements
INTERPERSONAL COMMUNICATION
Relates well to all people – up, down, and
across – internally and externally to the
School/Department.
Establishes rapport; builds and maintains
effective working relationships
Practices attentive and active listening
Uses diplomacy and tact; can diffuse
high-tension situations comfortably
ORGANIZING AND PLANNING
Prioritizes multiple activities and assignments
effectively and adjusts as appropriate
Determines tasks and secures appropriate
resources to get things done
Uses time effectively and stays focused to
ensure work is completed
Meets commitments and deadlines consistently
PERFORMANCE MEASURE N/A 1 2 3 4 5 DAR I OR F
QUALITY OF WORK
Ensures a high-quality output of work (resultingin minimal acceptable/zero errors)
Attentive to all details and aspects of a job or
process to ensure a complete, high quality
output
WORK HABITS
Conducts work within the established (and
accepted) department practices
Conducts work according to the established
and approved work schedule
Demonstrates professionalism and workplace
etiquette
– Select Rating — Select Rating — Select Rating -Examples that Support Rating
PROBLEM SOLVING
Identifies problems in a timely manner
Gathers and analyzes information skillfully
Develops alternative solutions
Resolves problems in early stages
INITIATIVE
Volunteers readily
Undertakes self-development activities
Seeks increased responsibilities
Takes independent actions and calculated risks.
SUMMARY OF CURRENT YEAR OBJECTIVES
””’
IDENTIFY DEVELOPMENT OPPORTUNITIES
””’
SUPERVISOR’S OVERALL SUMMARY AND RATING
SUMMARY:
RATING
””’
Employee Signature/Date Supervisor Signature/Date
Print Name: ” Print Name:
‘
Appendix G
Fig 1
Targets for DSMs which are updated daily in order know number of SKUs left to be sold to achieve or exceed the target
Fig 2A
Record of Trade King Incentives. Currently undergoing the receiving of the respective rewards
Fig 2B
List of trade kings to be awarded the rewards
‘
Fig 3
Retailer receipt printed from portable printer attached with SFA device
‘
Fig 4
SFA device along with the portable printer
Fig 5
Distributors inventory checks
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Fig 6A
Merchandising
Fig 6B
LATEST SALES FINANCIALS 2015
INCOME STATEMENT OF THE FISCAL YEAR 2015