p & b project

8/4/2019 P & B PROJECT

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SUBMITTED BY:

Debapriya raha Priyanka jaiswal

Tanumay hazra Sudip bhattacharya

Rajdeep shill Pritam saha

Deeptarup saha Sharmistha sarkar


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THE INDUSTRY IN SPECIFIC

The cigarette industry is one of the oldest industries in India. It is an important AGRO based Industry. It is highly labor intensive & provides livelihood to about 5 million people directly and indirectly Cigarette is an item falling under the First Schedule to the Industries (Development & RegulationAct, 1951 and requires an industrial license. India is the second largest producer of tobacco in the world. It exports a good amount of cigarette in various countries, which generates a handsome amount o

revenue for the company.

Cigarette exports during 2009-2010 increased by 11 % in volume terms over the exports ofprevious year.

Major markets for cigarettes are UAE and USA, Romania, Saudi Arabia and Iraq where thedemand for generic low cost cigarettes is growing.


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Cigarettes: Growth potential

Cigarettes account for only 15% of tobacco consumed in India unlike world pattern of 85%due to prolonged punitive taxation

Cigarettes (15% of tobacco consumption) contribute nearly 85% of Revenue to theExchequer from tobacco sector

Of the 58% of adult Indian males who consume tobacco, barely 15% can afford cigarettes Biri : Cigarettes ratio = 10 : 1 Annual per capita adult cigarette consumption in India is approx. one tenth world average

85

Future growth depends on relative rates of growth of per capita income and moderation intaxes


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DATA SOURCE: - TNN SURVEY

67%

13%

13%

7%

Sales

ITC

VST

GPI

GTC


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ITCS CIGARETTE BUSINESS

Market leader in India. Powerful Brands across segments. Leadership in all segments - geographic & price. Extensive FMCG distribution network. Direct servicing of 1, 00,000 markets & nearly 2 million Retail outlets. Exciting long term growth potential.


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World-class state-of-the-art technology and products. Investment - Rs.10 billion in six years About 71% of the Total Turnover depends upon this Business.

Category attractiveness analysis:-

Porters Five Forces TheoryCigarette industry (ITC)

Threat of New EntrantsLow

New product differentiation is very toughalready cigarettes at different price points, flavors,

brand image. Access to distribution channel is very toughbig

and established players are present.

Capital requirement is very high. Local launch cannot catch up scale. Government policyhigh tax, no TV / Radio

Ads.

Bargaining power of suppliersLow

Many inputs are required but in small amountpaper, tobacco, filter.

There is small scale, unorganized suppliers. Cigarette companies are big and high direct access to distribution channel and addicted

buyers.

Suppliers do not have much control over smokers.

Bargaining power of Buyers - Low

Addicted customerseven after knowing harmspeople can not leave it. Smoking has lot of symbolic and emotional values attached with it. Product quality not much important to smokers. Low switching cost in terms of price.


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Threat of substitute productLow

Herbal cigarette (e.g. Nirdosh) were launchedbut did not become popular (no

emotional value).

Nicotine patches is another substitutebut again no comparison with cigarettes in termsof popularity and usage.

Competitive Rivalry in the Industry - High

Many competing players : Godfrey Philips, VST, GTC etc. Price competition continues. Advertisement for cigarette is now prohibited in India.

Replacement of Ads - event sponsorship and sales promotions. All making new launches.

SWOT Analysis Of Godfrey Phillips [nearest Competitor to ITC Cigarette business]

Internal analysis

Strength

The second biggest tobacco company in India.


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Godfrey Phillips India can claim to be the first and only tobacco company to Organize the

fragmented cigar market in India and secure its position as the market leader in the cigar

distribution.

Weakness

Weakness can be citied on aspects of low popularity of most of its products. Most

Of its products cater to niche markets and the revenues generated from it are not that much.

External Analysis

Opportunities

Already present in the Middle East, West Africa, South East Africa and South East Asia,

Godfrey Phillips India can strengthen its position as an international player by entering

New markets.

Even expanding market share in the Indian tobacco market is an opportunity.

Threats

ITC getting into the cigar market, Godfrey Philips has to defend its market share in this

Regard as ITC boosts of a very good logistics and supply chain. Further it has a mere

12% in market share so it has to defend that aggressively.


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:: CUSTOMER ANALYSIS

The following are Secondary Research findings in India regarding the purchase process in the

cigarettes category and Buyers decision making process.

1. Problem Recognition

First-time use is triggered by external stimuli such as peer group, first-time consumption

is influenced by others almost 100% of the time

Significantly, first-time use does not have a high correlation with brand loyalty

Habitual users consumption need recognition may be divided into the following

categories

o With established consumption patternsConsumption is ranked as a majority who smoked

anytime of the day, those who smoked after a fixed interval of time, and those that smoked after

meals or during breaks.

o With established consumption occasions Frequent smokers did not exhibit specific occasion

consumption. Less frequent smokers ranked occasions as follows with friends, office breaks,

with alcoholic beverages, when alone, when stressed and lastly to improve concentration.

O Significant variation was found in the sample based on consumer gender wherein frequency of

consumption with females was substantially lower and occasions were largely with friends orwith alcoholic beverages. Females tended not to smoke at office or in public places.

2. Information Search/Generation of Alternatives

Rarely an active searchbrand familiarity and loyalty among smokers is significant

Alternative seeking is minimal and varies inversely with rate of consumption

(I.e. frequent smokers do not exhibit variety seeking buying behaviour)


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2. Evaluation of Alternatives

o Not structured evaluation, vaguely-defined criteria.

o Parameters for evaluation declared as follows taste, brand, association with self-image,

availability, size, hardness, price, health.

o Parameters were more in the consumers mind than obviously conscious decisions and varied

with psychographics instead of demographics (common demographic segment exhibited varied

evaluation criteria)

4. Purchase Decision and Implementation

o Limited Problem Solving Behavior

Huge degree of brand loyalty Time and non-availability are not significant constraining factors for brand decision or

long-term consumption. However, short-term consumption may be dependent on

availability.

Transforming a purchase intention into a purchase decision is influenced by a variety offactors. In the long-term decision to purchase is based on the decision to continue, reduce

or quit smoking, and is based on the following criteria (in descending order of rank)

Personal health, family pressure, family health, religious reasons, guilt. Brand decision

is based on image (further dependent on peer image and association with self-image). It

should be noted however; that these ranks were given by consumers themselves and

guilt is liable to play a larger part among the younger target audience (i.e. first-time

smokers) than admitted.


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6. Post-purchase Behavior

Satisfaction or dissatisfaction is not dependent on many factors and remains roughly similar for

each consumer across purchase periods

Post-purchase evaluation of ITC cigarettes is very significant for first-time users (First time use

is defined as consumption not purchase as it is not usually linked with direct purchase by the

final user). This phenomenon decreases as use become more prevalent, though no specific

dividing timeline or use could be identified where such evaluation loses significance.

Thus, cigarette consumers exhibit typical habitual buying behavior. Once loyalty is

established, they change brand infrequently, and tend to remain loyal to a brand for extended

periods of time, which change only due to extrinsic factors like change in peer group,

discontinuation of brand (as in the case of Wills Lights) etc. Habitual buying results in

automatic reach for the brand behavior, thus minimizing the sales push opportunity and

maximizing the need for advertising and positioning in the consumers mind. There is a

high-degree of brand familiarity as opposed to brand conviction and consumers find it hard to

defend their purchase decision. Post-purchase evaluation is not a frequent occurrence though

must be considered by the marketer, as given the frequency of consumption, a single bad

experience could put a loyal consumer off the brand for life.

SOME MORE PURCHASE DECISION PARAMETERS::

TIME BAND ASSOCIATED WITH THE PURCHASE OF THE PRODUCT:

so, the last mile transportation and infrastructural requirements are not that critical in this

respect


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3. HIGHER FREQUENCY OF PURCHASE:

diction based products

4. TENDENCY TO POSTPONE PURCHASE:of cigarettes the extent of felt need is extremely high as this is an addiction on which

people dont have any control. As soon as the urge is felt for smoking, the smokers will

desperately look for cigarettes

is not at all relevant for cigarettes category.


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5. LEVEL OF FAMILIARITY/KNOWLEDGE ABOUT THE PRODUCT (OF THE

BUYER):

ited to the extent of making the product available

6. DEGREE OF BRAND LOYALTY:

changing brands annually

mportant as their will be pull demand

7. PURCHASED ON IMPULSE:

transportation system

8. LEVEL OF INVOLVEMENT :

t go through any information search at all

9. PURCHASED AS A BASKET OF GOODS:paan

shop. So it should be presented within easy reach of the customer

10. SPEED AND COMPLEXITY OF DECISION MAKING PROCESS:

11. PRESENCE OF EXPERT INFLUENCER IN THE DECISION MAKING PROCESS:present as it does not involve

complex decision making process


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Segmentation Variables

1. Demographic Segmentation --- Consumption of cigarettes can be segmented on factorssuch as age, income, gender, occupation.

a) Age- Consumption of cigarettes depends highly on the age factor. Minors areprohibited from smoking and are considered to be illegal in our country. As one

reaches the age where smoking is considered to be legal prefers cigarettes which

are very light and does not create any nausea effect or is suitable for them.

b) Income- Consumption of cigarettes depends on the income factor also. With risein income the taste or brand of cigarettes which one smokes tends to change. At acertain level one would prefer brands which suit their status and moreover

smoking cigarettes today is considered to be more a show off.

c) Gender- Consumption of cigarettes differ from male to female. The choice ofcigarettes which males smoke and female smoke are very different. While males

prefer to smoke something which is little hard females on the other hand prefer

smoking cigarettes which are light especially menthol lights and etc... These

cigarettes lure women to smoking which are very light and does not has very greateffect on the health of the women.

d) Occupation- Consumption of cigarettes depends on ones occupation also.Occupation very much influences the consumption of cigarettes. Occupation

decides the income of the consumers and income does effect the consumption of

cigarettes. Labor class people in our country generally prefer bidis over

cigarettes. A study shoes in India 7 bidis are consumed for 1 single cigarette

consumed.


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ECONOMIC ENVIRONMENT

Of the total tobacco produce in India, only 50% is used in the domestic market and of this

domestic consumption of tobacco, only 16% is used by cigarette industry. On the cigarettes

account for about 85% of tobacco consumption globally, whereas cigarettes shares have declined

from 21% two decades ago to about 14% currently. Natural Environment , There is no scarcity in

supply of raw tobacco (mainly produced in Andhra Pradesh) Since the net income earned by the

farmers from cultivating tobacco has been found to be much higher than the net income earned

from other crops.

POLITICSL LEGAL ENVIRONMENT

The cigarette industry in India continues to operate in a challenging economic Environment

particularly with respect to taxation and regulations relating to communication Too

consumption, thereby stifling cigarette consumption in India in comparison with other forms of

tobacco consumption. It is estimated that contraband cigarette trade in India gets the country

back by nearly Rs.2000 carors annually through loss of tax revenue and unprecedented outflow

of foreign exchange.

SOCIO CULTURAL

There is a growing public concern regarding increasing consumption of tobacco, its

Health implications and the need to prevent access to minors and non-users. With a View to

achieving improvement of public health in general, the Government of India has banned theadvertising of cigarettes in India, sale of cigarettes to any citizen below the age of 18 etc. All

such restrictions by the government have made the promotion of cigarettes almost impossible. It

is mostly by word of mouth that the sales of cigarettes have risen. Implications. The cigarette

industry has always been on the receiving end when it comes Impose of taxes and duties in the

financial budget of the country affecting its Competitiveness in the global market. Its growth is

being further stifled by the imposing its band on public places and ban on advertisements.


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In addition to this, increasing Awareness of the harmful effect of smoking and lawsuits has made

the entire scenario pretty gloomy for the Industry. This leads to increased government regulation

and public litigation and a reduced ability to promote the product. In such a scenario, cigarette

companies in India are going in for unrelated diversification.

The major players of cigarettes in India are Indian Tobacco Company (ITC), Godfrey Philips(GPI), Golden Tobacco Company (GTC), Philip Morris and there are a number of local players.


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CLASSIFICATION OF ITC CIGARETTE

Super Premium Products

INSIGNIA ITC Insignia. 97 mm. Cost: Rs 140 for 20 Where quality touches infinity, redefine perfection Advertised in Higher SES area

555

ITC 555 premium filter: regular 84 mm.


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Cost: Rs 100 for 20 Advertised in Higher SESIndia King

ITC India King. 84 mm. Cost: Rs 100 for 20 Rule your World Advertised in Higher SES area

Wills Silk Cut (king size)


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ITC Wills Silk Cut Filter: 84 mm. Cost: Rs 88 for 20 A blend so right a filter so fine Advertised in Higher SES

Premium Products

Wills Classic/Mild/Regular/Menthol / Ultra Mild

ITC Wills Classic/Mild Filter: King 84 mm. Cost: Rs 94 for 2 Discover a passion Advertised in Higher SES


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Wills Navy Cut(Filter Tipped)

ITC Wills Navy Cut Filter: ,74 mm. Cost: Rs 68 for 20 Made for each other Advertised in Higher SES

Wills Navy Cut(Duotec) ITC Wills Navy Cut Filter: ,84 mm. Cost Rs 80 for 20 Advertised in Higher SES Navy Cut(Regular Size) ITC Wills Navy Cut Filter: ,69 mm. Cost Rs 48 for 20


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Advertised in Higher and Lower SES.

Gold Flake(Premium) ITC Gold Flake Premium: Regular 69 mm. Cost: Rs 58 for 20 Its Honeydew Smooth, Smooth, exquisite. Timeless. But then, all art is Advertised in Higher and lower SES

Gold Flake King/Lights/Ultra Light Filter ITC Gold Flake King/Light: Regular 84 mm. Now in a Bevelled Edge pack


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Cost: Rs 88 for 20 Advertised in Higher and lower SES Benson & hedges(light & hard)o B & H under ITC Regular Size 84mm.o Cost : Rs 100 for 20o Advertised in Higher and Lower SES Benson & hedges(light & hard)

oB & H under ITC Regular Size 84mm.

o Cost : Rs 100 for 20o Advertised in Higher and Lower SES

Bingo Products


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Wills Flake

o ITC Wills Flake Filter Regular Size 69mm.o Cost : Rs 58 for 20o Advertised in Higher and Lower SES

Bristolo ITC Bristol Regular Size 69 mm.o Cost : Rs 32 for 20o Rise to the taste


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o Advertised in Higher and Lower SES

SOURCE OF INFORMATION: - ITC WEBSITE

PRODUCT MIX OF ITC CIGARATTES

WIDTH

SUPAR PRIMIUM PRIMIUM BRANDS BINGO BRAND

Total width is: 3


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LENGTH


INSIGNIA WILLS CLASSIC WILLS FLAKE

INDIA KINGS REGULAR BRISTOL

555 MILDS SILKCUT

ULTRAMILD

WILLS SILKCUT

WILLS NEVYCUT (FILTERED)

NEVY CUT DUO TECH

NEVY CUT DUO (REGULAR SIZE)

GOLD FLAKE (PRIMIUM

GOLD FLAKE KING

GOLD FLAKE LIGHT

GOLD FLAKE ULTRA LIGH

Total length: 21


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DEPTH


INSIGNIA CLASSIC WILLS FLAK

INDIA KINGS BRISTOL

555 SILKCUT

WILLS NEVYCUT

GOLD FLAKE

Total depth is: 10


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ITC CIGARETTE LABELLING

The ITC FMCG Cigarette Business complies fully with the following Acts with relevant

amendments:

Standards of Weights and Measures Act (Packaged Commodities Rules) Cigarettes Act Central Excise Act COTPA [Cigarettes and Other Tobacco Products (Prohibition of Advertisement and

Regulation of Trade and Commerce, Production, Supply and Distribution) Act]

The business has provisions in place to ensure validation of the product with respect to all

relevant statutes prior to commercial launch.

At the design stage of any new product, a rigorous system of approval, following the principlesof Six Sigma, has been instituted. One of the defined stages is the confirmation of adherence toall the statutes listed above by an internal legal expert (further reinforced with opinions from

external counsel). This ensures that every new product complies with all the relevant Acts and

laws before specifications are finalised. Finally, the product design is approved by the Corporate

Management Committee.

In addition, for every product and process of manufacture, there are quality protocols to ensureadherence to specifications. The statutes applicable to factory operations have been converted

into standardised checklists. These checklists are constantly updated by a central expert panel to

reflect any changes in Acts and laws.

ITC CIGARETTE PACKAGING

ITC's Packaging & Printing Business is the largest value added converter ofpaperboard packaging in South Asia.

Its client list includes several well-known national and international companies likeNokia, Colgate Palmolive, Pernod Ricard, Diageo, British American Tobacco, Philip

Morris International, Agio Cigars, UB Group, Tata Tetley, Tata Tea, Reckitt Benckiser,Radico Khaitan, etc

Product LinesITC's Packaging Business for FMCG(includes cigarettes) has 3 major product lines

Carton Board Packaging Flexible Packaging


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Tobacco Packaging ITC Packaging has also pioneered offering ofGreen Packaging which includes usage of

raw material from sustainable sources and converting it in a facility which is 100%

powered by renewable WIND ENERGY.

PRODUCT PORTPOLIO:

Cigarettes Sizes Prices

Insignia (Wills) 97mm 140/-

KSFT- 84mm 100/-

IK Regular (Rich Gold) 84mm 88/-

IK Crystal Blue 84mm 88/-

Ocean Blue 84mm 88/-IK Menthol 84mm 88/-

B&H Special 84mm 100/-

B&H Light 84mm 100/-

Classic Regular 84mm 88/-

Classic Mild 84mm 88/-

Classic Ultra Mild 84mm 88/-

Classic Menthol 84mm 88/-

Gold Flake Kings 84mm 54/-

Gold Flake Light 84mm 44/-

Silk Cut Kings 84mm 44/-

555 84mm 100

Wills Navy Cut 74mm 24/-

Wills Navy Cut Light 74mm 34/-

Gold Flake Premium 69mm 88/-

Silk Cut Premium 69mm 88/-

Wills Flake 69mm 24/-

Wills Capstan 69mm 22/-

SOURCE: - FINANCIAL TIMES


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ITC CIGARETTE DIVISON PRICING STRATEGY

The objective of the company is to maximize its market share, as the cigarettes industry works

on low margins so the company here tries to maximize its sales quantity so that it can maximize

its profits. Further the company does not raise the price of its most selling Brands.(Gold Flake)

so that it can get max market share and earn money on its premium brands(Insignia).The

demand is here is inelastic as per the price changes as the customer are addicted. But there is an

inter brand elasticity as the people shift to competitive brands if the price of on is raised.

[i.e. if the price of Gold flake (s) is raised then the consumers will shift to Wills Navy cut as the

consumer will get longer cigarettes and also a similar brand, The cost structure of the company

plays a major role in determining the prices the Various stages and the companies cost structure

is as follows:- Fixed Cost(Plant operations] There are not much price or product variations in the

competitors brands and all of them work in the same segment. The company is following a

mark-up pricing method wherein the company mark-ups The goods at a margin and then

provides discounts to the various channel partners According to its policy (e.g. the distributors

have a fixed margin of 1.45% and the dealers have a margin of.8%).

the company also follows the consumer perceived value as the while launching its New

products in the super premium segment the company will price it at a higher Price that which

consumer perceives it to be a high priced product.ITC as the company works on the low margin,

high volume strategy and also its channelpartners work on the same strategy, so the

company raising its prices will have a huge Impact on its value chain (e.g. If the company raises

its price without raising the mark up Price the channel partners will have to forgo part of their

profits which would lead to Conflict between the channel partners and the company). Further on

the company can afford to raise its mark-up due to the presence of intense competition. So before

making changes to the prices the company will have to consider the interest of the channel

partners, and also the strategy adopted by us ITC


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.Recently we have seen sales & display of ITC's cigarettes in front of many malls in India .there are also there are 6

akh retail outlets, the Endeavour of the marketer is to increase the presence rather the visibilty. Because visibility

will automatically come with reach. The main purpose of display in malls is not to increase the sales of ITC's

igarettes brands but to reinforce the brand image.

2. Convenience Displays: - The cigarette market in India is very interesting. People buy in loose. That means instea

of buying a pack of 10 cigarettes, he/she will buy 1 or 2 at a time. Just think if an average smoker smokes 10

igarettes, he/she she is going to visit the nearby pan wala shop couple of times in a day, when they will see the ITC

tand and the hording then the image of the brand will be reinforced .

. Promotional Schemes: I still remember a promotion by Godfrey Philips for their brand "Four Square". The

promotion was - "Get 1 pack for 4 empty Four Square Packs". But this actually worked, as people started buying

more packs to get the extra pack. Also as the concept was very novel.

4. Surrogate Advertising: like Red & White Bravery Awards. and Wills sportswear. Now these help to again

ncrease the brand equity. There are 42 Wills Lifestyle retail outlets in India or Wills fashion week, they are indirect

einforcing Wills Classic, Wills Milds etc.they also sopnser golf parties by using the brand wills life style etc.

. Events: Godfrey's Red and White Bravery Award and Wills Fasion Shows can again be used.

6. These days we have seen CSR being used by most of the big giants. Many companies

contribute 1% of the PAT to these causes. These types of Gestures can also helps.


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BTL

Advertisement for cigarette is now prohibited in India.

Replacement of Ads - event sponsorship and sales promotions.

ITC -- under its Gold Flake brand -- used to sponsor Gold Flake Open Championships,

which was among the biggest tennis tournaments in India. The championship has more

than 20 top tennis players around the world participating in it. When the tobacco

legislation was going through the Indian Parliament, ITC (Gold Flake) was forced to pull

out of the sponsorship.

When Akshay Kumar first came to Mumbai from Bangkok, he did Ads for Red & White

cigarettes were some of the earliest ads he did.


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DATA SOURCE:- ITC WEBSITE


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