Growing entrants will enter market and small

Growing industry: UST Inc. was the largest producer of
moist smokeless tobacco products in the United States. The industry generated
$2 billion of revenue in 1998 with approximately 5 million consumers of moist
smokeless tobacco (this accounted for 50% of tobacco consumption). USDA reported
that moist smokeless tobacco has been the fastest growing segment of the
tobacco industry, experiencing almost 4% annual growth rate and 2% annual
decline in cigarette volume over 17 years. A major reason for this
transformation was due to the fact that people viewed smokeless tobacco is less
harmful and also cheaper than smoking cigarettes (based on an average usage
measurement per week)

Dominant moist smokeless tobacco producer: UST controlled almost 80% of moist smokeless tobacco market in 1998, this
was 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 of more than two decades, UST’s market share was threatened by
small competitors through price cut. UST attempted to introduce its new
product, Red Seal Brand tobacco in order to compete with the price-value brands
and preserve premium bargaining power. However, firm was too slow in responding
to the threat and price value competitor had already gained 9% marketshare.

Later, firm also launched 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
incentive programs.

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
youth.

Future of UST: It is expected that lawmakers will
continue to push for new laws to remedy the use amongst youth. In addition, fierce
competitions are anticipated in this emerging industry with a high possibility
that new entrants will enter market and small player will continue to 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
challenges to enjoys a industry’s growth and optimized its market share.