Complete Report

Assignment On Pricing Strategy GROUP ASSIGNMENT – No.

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Pricing Strategies for consumer products Submitted to: Dr. S. R. Singvi

Group no. –

2, Section - B

Ajay Aggarwal Anuj Sharma Karan Madogaria Prakahar Singh Shubhro De

062 075 087 100 112

Acknowledgement We would like to express our gratitude to Dr S.R Singhvi for encouraging and guiding us during the course of this assignment. We would also like to take this opportunity to extend our acknowledgement to the ITC Distributer Aggarwal & Co, Dealer Nation Agency, Goyal and sons wholesalers , Mr. Raj Kumar, ITC Distribution Manager and also the whole lot of retailers who took time from his busy schedule to answer our questions and explain the intricacies of the business .We are also thankful to the retailers and semi wholesalers for providing us with relevant information that was required for successful completion of this assignment . It has been a enriching experience for us to conduct a market research, interact with the retailers, wholesalers and distributors face to face and gain an insight into the different pricing strategies adopted by different companies. in the highly competitive and regulated framework of the cigarette industry.

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TABLE OF CONTENTS S. No. 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29

Topic Acknowledgement Table of Contents Cigarette Industry in India Methodology Used Price Spread The Manufacturer The Distributor The Wholesaler The Retailer Indian Tobacco Industry (ITC) Godfrey Phillips India Unbranded Pricing Strategy followed by manufacturer (ITC) Observations and Conclusions Problems Faced Exhibit 1 Exhibit 2 Exhibit 3 Exhibit 4 Exhibit 5 Exhibit 6 Exhibit 7 Exhibit 8 Exhibit 9 Exhibit 10 Exhibit 11 Exhibit 12 Exhibit 13 Bibliography

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Page No. i ii 1 3 5 7 10 13 16 17 19 20 21 22 23 iii v vi vii viii ix x xi xiii xiv xv xvi xvii xviii

Cigarette Industry in India The cigarette industry is highly labour intensive and important agro based industry providing livelihood to about 5 million people directly and indirectly. Cigarette is an item falling under the First Schedule to the Industries (Development & Regulation) Act, 1951 and requires an industrial license. Environmental Analysis Demographic Age – In the age group of 25-64, 24.5% of the population has at some time consumed some form of tobacco (of which cigarettes is roughly one-sixth). Changing demographics indicate an increasingly young consuming class with nearly 60% of the population in the age group 15-59. Gender – Approximately 12.8% of the male population and 1.1% of the female population in urban metros have consumed some form of cigarettes. Thus, the male population is the primary target for the cigarette industry. Income - Upper-middle income households consume the highest cigarettes. While consumption declines in higher income group in urban areas, increasing consumption trend is observed in rural higher-income households. Poor households in rural areas are the lowest cigarette consumers. Region - Urban low and lower-middle income households consume more cigarettes compared to the similar income groups in rural areas. Education -Unlike in developed countries, in India, as the education increases, urban and rural households with a higher education smoke more cigarettes compared to lower educated households. 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 average, 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. Political-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 and 1

consumption, thereby stifling cigarette consumption in India in comparison with other forms of tobacco consumption. It is estimated that contraband cigarette trade in India sets the country back by nearly Rs.2000 crores annually through loss of tax revenue and unaccounted outflow of foreign exchange. Social-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 the advertising 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 to imposition 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 imposition of ban on smoking at public places and ban on advertisements. In addition to this, increasing awareness about 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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Methodology Used The whole process of acquiring information was broadly divided into parts • •

Primary data Secondary data

Primary data – Data was collected through interaction with the various channel partners, i.e. Distributers, Wholesalers, retailers. They gave us insights into various intricacies of the business and we were able to understand the business in a much better way. We conducted surveys in Delhi and adjoining areas to gather information.

Apart from the marketers and channel partners we also tried to analyse the customers in order to determine demand, their perception about various brands and also their preferences.

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Problems Faced - There were many problems faced while indulging in this study, some of them are as follows:• • •

People reluctant to give data Chances of gathering incorrect data Analysing the gathered data, and making appropriate adjustments

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Price Spread

This Graph represents the price spread of various brands of cigarettes when normalised as price per 10 mm.

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This graph depicts the price spread of various cigarettes, when considering a single cigarette. We can see the variance in price right from Rs 1 per cigarette to Rs 7.

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The Manufacturer

• Purchase • Carrying Procurement • Storage

Processing

Cigarette Making

Shipping

• Stemming • Plant Operation • Reconstituting • Blending / Cutting • Drying

• Plug Making • Cigarette Making • Packaging

• Transportation • Quality Control

Note : the actual cost of manufacturing could not be ascertained due to company’s confidentiality matters. The operating profit was accounted to be at 41% and net profit at 14%, but we did not extrapolate on that as they are a cumulative figures and and cannot be estimated for specific brands

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Manufacturing Process - Cost Analysis

The graph shows the components of costs in manufacturing a cigarette (exhibit exhibit 1). It gives a relative picture of the costs involved in manufacturing. The major portion is bored by purchase of tobacco, processing processin it and then making cigarettes. The manufacturer produces cigarettes at its factory and then delivers them to distributor. There is a strict code of financial practices followed by the manufacturer, the distributor needs to make the payment in advance and only upon receiving of the money does the manufacturer ships the goods. The goods can be dispatched on a regular basis or if there there is a higher demand the distributor can place an order with the manufacturer. manufacture In case of certain brands like Benson and Hedges, 555, Rothmans etc, etc, the cigarettes are manufactured by organizations other than the parent company. E.g. Benson and Hedges a product of British American Tobacco is manufactured and distributed by ITC India Ltd, under 8

a licence agreement. Here ITC is making use of the brand image of B&H to sell a premium cigarette (price Rs 90/20 cigs) which increases its profits also at the same time establishes ITC as premium cigarette player which enhances its own premium brands like Classic and India Kings

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The Distributor A distributor is an organization which enables a manufacturer to spread its products to

various geographical locations. In return to this it gets a certain amount of the profit margins. These margins (usually 1.45%) can be decided by the manufacturer or be determined by market demand (Exhibit 5). Usually a distributor has a certain geographical boundary in which it distributes goods. The manufacturer supplies goods to the distributor’s warehouse from where it supplies to retailers and wholesalers. The distributor has its hawkers, who on commission basis (0.6%-0.8%) sell the goods to retailers. A large distributor (large geographies) may also supply to smaller dealers who then sell to retailers. This reduces their profit margin but the cigarette industry is more of a volume based industry rather than margin based.

A Danda

The manufacturer gives the distributor a target i.e. the amount of stock it must sell. At times the distributor might find it difficult to reach those targets, in such conditions it may indulge in irregular practices like selling in different regions. The manufacturer does not approve of such practices but it is very hard to keep a check on them as most of the business is done over telephone and on strictly cash basis.

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Types of Lot M – 1000 cigarettes Danda – outer cover having 10 – 20 cigarette packets Carton – many Danda

Brand

Insignia Garam India Kings Gold Flake Classic Mild Classic Ultra Mild Classic Regular Wills Classic Menthol Classic Verve Wills Navy Cut Silk Cut Gold Flake (s) Flake Wills Flake Four square Red & White Cavanders

Distributor Cost Selling Margin 5.9553

6.0417

0.0864

% 1.4500

4.2538 4.3155 0.0617 1.4500 3.5692 3.6210 0.0518 1.4500 3.9116 3.9683 0.0567 1.4500 3.9116 3.9683 0.0567 1.4500 3.9116 3.9683 0.0567 1.4500 3.9116 3.9683 0.0567 1.4500 3.9116 3.9683 0.0567 1.4500 3.0559 3.1002 0.0443 1.4500 1.9754 2.0040 0.0286 1.4500 2.4448 2.4802 0.0354 1.4500 1.7113 1.7361 0.0248 1.4500 1.7113 1.7361 0.0248 1.4500 1.7113 1.7361 0.0248 1.4500 1.6624 1.6865 0.0241 1.4500 1.7113 1.7361 0.0248 1.4500 11

555 Benson & Hedges B&H - Light Marlboro Marlboro Light Marlboro Menthol

3.9995 3.9116 3.9116 3.9115 3.9115 3.9115

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4.0575 3.9683 3.9683 3.9682 3.9682 3.9682

0.0580 0.0567 0.0567 0.0567 0.0567 0.0567

1.4500 1.4500 1.4500 1.4500 1.4500 1.4500

The Wholesaler The wholesaler in the cigarette market work on very low profits (Exhibit 6) here a lot of wholesalers work on a "Gatta" (i.e. The wholesalers are not very keen to give the carton to the customers unless and until the customer takes a quantity as the empty carton sells for Rs. 20/- and that is what the wholesaler earns in the whole transaction. The wholesalers procure their goods from various channels i.e. Distributors, wholesalers etc. While surveying the market we came across a very interesting thing i.e. the distributor supplied cigarettes at a price but the wholesaler sold the cigarettes at a lower price then the distributor (e.g. Gold Flake (s) was available for Rs. 2460/- a "M" whereas the distributor was selling it at Rs. 2480/-).On enquiring we were surprised to find out that:a) They procure their cigarettes at lower price from distributors outside the state and also from wholesaler outside the state, on further enquiry we came to know that these outside distributors supply at a lower price than the local distributors as they want to clear their stocks due to lack of funds or completion of targets. The company does not allow them to sell their goods in the same market so they sell in markets outside their locality or state. b) As Gold Flake was the highest selling cigarette the some wholesalers were selling it at cost or even lower than that to attract maximum customers and they can sell other branded and non branded cigarettes to them.

An M 13

A Carton

During the survey we came across certain terminologies : a) 1 "M" -- 1000 cigarettes b) "Danda/outer" -- A standard pack of boxes of cigarettes from the company (different for different brands) c) "Gatta" -- A carton carrying outer d) "Dibbi"-- A box carrying either 10 or 20 cigarettes. The price in the market is determined by a major player who opens the price in the morning and the other smaller wholesalers have to sell at the same price. The prices in the wholesale market fluctuate and there are no fixed prices as there is always a price war going on in the market. The day the major player is absent from the market the price in the market goes up.

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Note: See Exhibit 6

The non branded cigarettes sell at a higher profit margin and there is no fixed rate for these cigarettes. The payment conditions in the wholesale market is advance or across the counter cash payments. On further enquiring we came to know that it is due the low profit margins and cut throat competition that at they don’t give credits. Credit of a few hours is given when the wholesaler in the same market takes the goods, that too to maintain relationships.

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The Retailer The retailers in the cigarette industry is working on avg. 11% margin and 35.65% margin in branded and non branded cigarettes The profit margin on the branded cigarettes is lower than the margin on the non-branded, as in the non branded segments the there is no rate printed on the box and the rate is determined as per the demand and supply dynamics (Exhibit 9). The ITC brands are the most selling brands in the market app. 60% of the sales of a retailer is contributed by its brands Being a low margin product the major inventory driver is the quantity sales as in case of Gold Flake (s) which is the highest selling cigarettes in most of the markets and shops they keep its stocks to the maximum level. The procurement rate of all the retailers is same for the branded cigarettes and the selling rates too but in case of the non branded cigarettes the rates depend on various factors such as (quantity of order purchased, payment, etc.) On the selling side there is no competition in terms of price and most of the times the customers are fixed but in case of non-branded the retailers do enter a price war as the procurement rates are different and there are larger margins as compared to the branded cigarettes.

Retailer % Margin 15.00 14.00 13.00 12.00 11.00 10.00 9.00 8.00 7.00 6.00

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Indian Tobacco Company (ITC) Manufacturer

Distributor

Wholesaler

Wholesaler

Dealer

Retailer

Consumer

Note: The manufacturer stores its finished goods with CnF agents at the outskirts of the city ITC is the market leader in cigarettes in India. With its wide range of brands, it has a leadership position in every segment of the market. It's highly popular portfolio of brands includes Insignia, India Kings, Classic, Gold Flake, Silk Cut, Navy Cut, Scissors, Capstan, Berkeley, Bristol and Flake. It has 66% market share of the Indian cigarette industry. It has 22 distributors and multitutedes retailers in Delhi and NCR. It has cigarette brands for almost every market segment because it offers various brands of cigarettes in a wide price range of Rs. 2.0 to Rs. 7.0 per stick. Also it offers a wide variety of cigarettes in terms of flavour and size. ITC Limited also manufactures and distributes

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cigarettes of other companies under licence. E.g. Benson and Hedges, State Express 555 under license from British American Tobacco. ITC had introduced new brands, with the main purpose being the promotion and advertisement of few of its cigarette brands. But few of these brands turned out to be very successful over time and came to be established as major brands in their own sector of market. E.g. Wills Lifestyle was initially established to advertise and promote ITC’s Wills brand of cigarettes. Brand

Insignia India Kings Gold Flake Classic Mild Classic Ultra Mild Classic Regular Wills Classic Menthol Classic Verve Wills Navy Cut Silk Cut Gold Flake (s) Flake Wills Flake

Cost price (Box)

Selling Price (Box)

Percentage Margin

Size = 10 mm

Size = 10 mm

Size = 10 mm

12.56

13.40

6.73

10.71 4.50 4.76 4.76 9.52 9.52 9.52 4.32 2.91 3.62 2.50 2.75

11.90 4.76 5.24 5.24 10.48 10.48 10.48 4.59 3.19 3.91 2.75 2.90

11.11 5.26 10.00 10.00 10.00 10.00 10.00 6.25 7.32 8.00 8.57 5.26

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Godfrey Phillips India Godfrey Phillips India is the second largest player in the Indian cigarette industry. They own some of the most popular cigarette brands in the country like Four Square, Red and White, Jaisalmer, Cavanders and Tipper, as well as revolutionary brands like Stellar (the first slim cigarette) and I-gen (the first euro norm cigarette in India). Its products are distributed over an extensive India wide network of more than 500 distributors and 800,000 retail outlets. Godfrey Phillips India has two major stakeholders, one of India's leading industrial houses - the K. K. Modi Group and one of the world's largest tobacco companies, Philip Morris.

Brand

Four square Red & White Cavanders

Cost price (Box)

Selling Price (Box)

Percentage Margin

Size = 10 mm

Size = 10 mm

Size = 10 mm

2.60

2.75

11.11

2.60

2.75

11.11

2.80

2.90

5.26

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Unbranded

In the Unbranded segment, there are number of manufacturers. Typically the cigarettes of these manufacturers are priced between Rs. 0.5 – Rs. 2 per stick. Most of them being priced at Re. 1. Due to its low price its sales are more prevalent in the Rural market. Also, the retailers have higher margins in unbranded cigarettes than in branded cigarettes, thus they prefer to stock and sell them more. One important characteristic of unbranded cigarettes is the low Brand Loyalty and Brand Recognisition. When customers buy an unbranded cigarette they are more conscious of the price than the brand, the decision of the brand is more dependent on the retailer. Such cigarette manufacturers are regional in nature. There sales coverage is over a certain region, and they usually dominate their low price segment in that region.

Brand

Cost price (Box)

Selling Price (Box)

Percentage Margin

Golden Elephant Clock 100 Lucky 10 Davidoff Classy Popa No. 10 Kartoos

Size = 10 mm 3.62 1.01 1.09 8.33 5.94 5.94 0.94 1.38

Size = 10 mm 3.62 1.30 1.45 10.00 7.25 7.25 1.45 1.45

Size = 10 mm 0.00 28.57 33.33 20.00 21.95 21.95 138.46 5.26

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Pricing Strategy Followed by manufacturer (ITC) 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 dose not raise the price of its most selling brand (Gold Flake (S)) 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 one 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, Similar is the case with Red & White and Gold Flake (s) 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) .69% & Variable (manufacturing , packaging etc. 99.31%) There are not much price or product variations in the competitor’s 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 as the consumer perceives it to be a high priced product. ITC as the company works on the low margin, high volume strategy and also its channel partners 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 cannot 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 strategies adapted by its competitors.

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Observations and Conclusion 1. There is a constant problem of distributors selling across there boundaries, which is

because of higher targets for distributors and market demand helping them in achieving higher margins. Also some distributors do not have large enough warehouses to store large number of SKUs, so they need to disperse goods quickly. Sol – manufacturer needs to keep a check on such activities and should keep a check on the number of distributors, as they are under constant pressure with growing number of distributors, eroding their territory. 2. The consumer survey (Exhibit 7), shows that consumers are less driven by price and more by brand loyalty. And with the growing number of young demography they are more chances of shifting to higher brands. An organization like ITC can make sure that there is a higher availability to premium brands in all regions. This could fetch them higher margins as they are more flexible towards price variation. 3. The distributor has more or less constant margins across all brands, which makes storage and transportation a more costly affair and hence discourages them to keep such SKUs. This restricts the flow of premium brands in the market. So the manufacturer must encourage its storage by providing higher incentives 4. There is dearth of bridge products across price segments of similar brands. The consumer survey shows that consumers are taste and brand oriented. And premium brands command a higher profit margin so introducing products like a smaller 69mm classic, or a 84 mm flake. To move customers to higher segment, larger profit and more attractive brands.

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Problems Faced 1. There is no price differentiation between Brands in the same segments, which means most brands lie in a very narrow price range (as narrow as Rs. 2-3). 2. There is also very little product differentiation with respect to taste and size.

3. Taking length as the common standard may not have been the best way of price comparison of different brands.

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Exhibit 1

Description Filter made of 95% cellulose acetate. 1. Tipping paper to cover the filter. 2. Rolling paper to cover the tobacco. 3. Tobacco blend.

Manufacturing Process of Cigarettes HARVESTI G Growing Tobacco seeds are tiny but they germinate in 5 to 10 days. With in 2 months it grows to a 15 to 20 cms before being transferred to the field. Picking The plants are ready for harvesting in a span of 3 to 4 months. The main type of tobacco that are harvested are virginia and oriental. Curing The Curing the process plays an important in getting the tobacco its characterstics and its taste. The Virginia tobacco leaves are hung in specialized curing barns, and heated air removes water from the leaves while the oriental tobacco is dried in the sun. Buying Further the company buys as per the quality based sorting done by the farmers and the assessment of quality done by the company. BLE DI G Handling Under controlled atmosphere the tobacco is then treated to get it ready for cigarettes and as the leaves are very delicate after the drying treatment. iii

Mixing An appropriate mix of the tobacco is then worked upon to get an appropriate taste in the final product. The ingredients that are mixed are processing aids and humectants for keeping the tobacco moist and pliable. There are further preservatives and brand specific flavours added to the mixture to give it the required features. Cutting The tobacco leaves are then passed through the cutter, where the rotating blades chop them with consistency. After the tobacco has been cut it is stored in cilos. Checking Post the cutting process the tobacco is then passed through stringent quality control checks before being forwarded for the process of manufacturing cigarettes. PACKAGI G Supply The tobacco is then transferred to the cigarette making factories by pneumatic transportation. Rolling The tobacco is then rolled in paper strips that may even range up to the length of 6000 meters. Slicing The rolled cigarettes is then sliced into pieces of the specified standards Distribution Post slicing and inspection the cigarettes are then packed and then transferred to the distribution department.

Procurement of tobacco • Purchase • Carrying • Storage Processing • Stemming • Plant operation • Reconstituting • Blending • Cutting • Drying Cigarette Making • Plug making • Cigarette making • Packaging Shipping iv

39.67 36.99 1.46 1.22 4.94 0.03 0.69 3.52 0.16 0.40 0.14 54.39 10.64 18.0 25.75 1.00

Exhibit No.-2 Excise duty rates on Cigarettes, 1993/94-2007/08(Rs. Per thousand cigarettes-current rupees)

Year

Nonfilter≤60mm

1993-94 1994-95 1995-96 1996-97 1997-98 1998-99 1999-00 2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08

120 60 60 75 90 100 110 115 135 135 135 135 150 160 168

Nonfilter(6070mm) 250 280 300 315 350 370 370 390 450 450 450 450 495 520 546

Filter≤70mm Filter(7075mm)

Filter (75- Filter>85mm 85mm)

330 370 400 430 500 550 550 580 670 670 670 670 740 780 819

850 950 1000 1070 1100 1200 1200 1260 1450 1450 1450 1450 1595 1675 1759

630 710 750 800 820 900 900 945 1090 1090 1090 1090 1200 1260 1363

*Rs 600 or 300 percent + Rs.20 whichever is higher Source: Department of revenue, Ministry of finance

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* 1350 1350 1350 1350 1470 1470 1545 1780 1780 1780 1780 1960 2060 2163

Exhibit No - 3 Components of excise duty on cigarettes, 2007/08(Rs. Per thousand sticks) Type of cigarette Filter >85 mm 75-85 mm 70-75 mm ≤70 mm Non-filter >60 mm ≤60 mm

Total

CENVAT*

NCCD*

HC*

2163 1759 1323 819

1748 1424 1068 659

235 190 145 90

180 145 110 70

546 168

441 133

60 20

45 15

Source: Department of revenue, Ministry of finance CENVAT- central value added tax NCCD-national calamity contingent duty HC-health cess

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Exhibit 4 Brand Insignia Garam India Kings Gold Flake Classic Mild Classic Ultra Mild Classic Regular Wills Classic Menthol Classic Verve Wills Navy Cut Silk Cut Gold Flake (s) Flake Wills Flake Four square Red & White Cavanders Benson & Hedges B&H - Light Marlboro Marlboro Light Golden Elephant Clock 100 Lucky 10 Davidoff Classy Popa No. 10 Kartoos

Manufacturer

Original (Single) (Rs.)

Original (10 mm) (Rs.)

Indian Tobaco company Indonesia Cigarettes Indian Tobaco company Indian Tobaco company Indian Tobaco company Indian Tobaco company Indian Tobaco company Indian Tobaco company

7.00

0.72

7.00

0.83

5.00 4.00 5.00 5.00 5.00 5.00

0.60 0.48 0.60 0.60 0.60 0.60

5.00 3.50 2.50 3.00 2.00 2.00 2.00 2.00 2.00 5.00

0.60 0.47 0.36 0.43 0.29 0.29 0.29 0.29 0.29 0.60

5.00

0.60

5.00

0.60

5.00

0.60

2.00 1.00 1.00 5.00 5.00 5.00 1.00 1.00

0.29 0.14 0.14 0.56 0.72 0.72 0.14 0.14

Indian Tobaco company Indian Tobaco company Indian Tobaco company Indian Tobaco company Indian Tobaco company Indian Tobaco company Godphrey Phillips Godphrey Phillips Godphrey Phillips British American Tobacco British American Tobacco British American Tobacco British American Tobacco Philip Morris Philip Morris Reemtsma -

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Exhibit 5 Distributor Data Survey Name : Aggarwal & Co. Brand

Insignia Garam India Kings Gold Flake Classic Mild Classic Ultra Mild Classic Regular Wills Classic Menthol Classic Verve Wills Navy Cut Silk Cut Gold Flake (s) Flake Wills Flake Four square Red & White Cavanders 555 Benson & Hedges B&H - Light Marlboro Marlboro Light Malboro Menthol Golden Elephant Clock 100 Davidoff Classy Popa No. 10 Kartoos

Product Variation

Length

Premium

97

Cost Selling Per 1000 Piece 5955.30 6041.70

84 Filter Kings

84

4253.80

4315.50

84

3569.20

3621.00

84

3911.60

3968.30

84

3911.60

3968.30

84

3911.60

3968.30

84

3911.60

3968.30

84

3911.60

3968.30

74

3055.90

3100.20

69

1975.40

2004.00

69

2444.80

2480.00

69

1711.30

1736.10

69

1711.30

1736.10

69

1711.30

1736.10

69

1662.40

1686.50

Non Filter

69

1711.30

1736.10

International

69

3999.50

4057.50

84

3911.60

3968.30

84

3911.60

3968.30

84

3911.50

3968.20

84

3911.50

3968.20

84

3911.50

3968.20

Filter Medium Filter Lower

Non- Branded

69 69 90

69 69 69 69

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Box Pieces 20

12 20 10 10 10 20 20 20 10 10 10 10 10 10 10 10 20 20 20 20 20 20 10 10 20 10 10 10 10

Cost Selling Per Box 119.11 120.83

85.08 35.69 39.12 39.12 78.23 78.23 78.23 30.56 19.75 24.45 17.11 17.11 17.11 16.62 17.11 79.99 78.23 78.23 78.23 78.23 78.23

86.31 72.42 79.37 79.37 79.37 79.37 79.37 62.00 40.08 49.60 34.72 34.72 34.72 33.73 34.72 81.15 79.37 79.37 79.36 79.36 79.36

Exhibit 6 Wholesaler Data Survey Name : Goyal & Sons. Brand

Insignia Garam India Kings Gold Flake Classic Mild Classic Ultra Mild Classic Regular Wills Classic Menthol Classic Verve Wills Navy Cut Silk Cut Gold Flake (s) Flake Wills Flake Four square Red & White Cavanders 555 Benson & Hedges B&H - Light Marlboro Marlboro Light Malboro Menthol Golden Elephant Clock 100 Davidoff Classy Popa No. 10 Kartoos

Product Variation

Length

Premium

97 84 84 84 84 84 84 84 84 74 69 69 69 69 69 69 69 69 84 84 84 84 84 69 69 90 69 69 69 69

Filter Kings

Filter Medium Filter Lower

Non Filter International

Non- Branded

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Cost Selling Per 1000 piece

6041.7 4315.5 3621.0 3968.3 3968.3 3968.3 3968.3 3968.3 3100.2 2004.0 2480.2 1736.1 1736.1 1736.1 1686.5 1736.1 4057.5 3968.3 3968.3 3968.2 3968.2 3968.2

6089.2 4349.5 3650.0 4000.0 4000.0 4000.0 4000.0 4000.0 3125.0 2020.0 2500.0 1750.0 1750.0 1750.0 1700.0 1750.0 4100.0 4000.0 4000.0 4000.0 4000.0 4000.0

Box Pieces 20

12 20 10 10 10 20 20 20 10 10 10 10 10 10 10 10 20 20 20 20 20 20 10 10 20 10 10 10 10

Cost Selling Per Box 120.83 121.78

86.31 36.21 39.68 39.68 79.37 79.37 79.37 31.00 20.04 24.80 17.36 17.36 17.36 16.86 17.36 81.15 79.37 79.37 79.36 79.36 79.36

86.99 36.50 40.00 40.00 80.00 80.00 80.00 31.25 20.20 25.00 17.50 17.50 17.50 17.00 17.50 82.00 80.00 80.00 80.00 80.00 80.00

Exhibit 7 Column1 choosing cigarette

1

2

3

5

5

Does taste matter Does price change effect you How much the brand matters

3 4

How are you affected by price change

2

Does size of the cigarette affect your decision Does packaging matter Does Availability Matter

3 3 4

How Often do you change your Brand

Brand Rating Gold Flake Red n White Wills Navy Cut Classic Menthol Classic Gold Flake Filter King Benson N Hedges Marlboro Insignia

4

2

Value for money

Taste 3 2 4 3 5 4 4 4 4

x

5 4 4 2 4 4 4 5 3

Brand Availability Value 5 3 5 2 4 4 3 3 2

4 3 3 2 4 3 4 5 4

Exhibit No. 8: Price & Margin Distribution From Manufacturer To Retailers

Brand Insignia Garam India Kings Gold Flake Classic Mild Classic Ultra Mild Classic Regular Wills Classic Menthol Classic Verve Wills Navy Cut Silk Cut Gold Flake (s) Flake Wills Flake Four square Red & White Cavanders 555 Benson & Hedges B&H - Light Marlboro Marlboro Light Malboro Menthol

Size = 10 mm Original Size = 10 mm Original Distributor Distributor Wholesaler Wholesaler Cost Selling Margin % Cost Selling Margin % Cost Selling Margin % Cost Selling Margin 5.9553 6.0417 0.0864 1.4500 0.6140 0.6229 0.0089 1.4500 6.0417 6.0892 0.0475 0.7854 0.6229 0.6277 0.0049 6.5500 4.2538 4.3155 0.0617 1.4500 0.5064 0.5138 0.0073 1.4500 4.3155 4.3495 0.0340 0.7879 0.5138 0.5178 0.0040 3.5692 3.6210 0.0518 1.4500 0.4249 0.4311 0.0062 1.4500 3.6210 3.6500 0.0290 0.8009 0.4311 0.4345 0.0035 3.9116 3.9683 0.0567 1.4500 0.4657 0.4724 0.0068 1.4500 3.9683 4.0000 0.0317 0.7988 0.4724 0.4762 0.0038 3.9116 3.9683 0.0567 1.4500 0.4657 0.4724 0.0068 1.4500 3.9683 4.0000 0.0317 0.7988 0.4724 0.4762 0.0038 3.9116 3.9683 0.0567 1.4500 0.4657 0.4724 0.0068 1.4500 3.9683 4.0000 0.0317 0.7988 0.4724 0.4762 0.0038 3.9116 3.9683 0.0567 1.4500 0.4657 0.4724 0.0068 1.4500 3.9683 4.0000 0.0317 0.7988 0.4724 0.4762 0.0038 3.9116 3.9683 0.0567 1.4500 0.4657 0.4724 0.0068 1.4500 3.9683 4.0000 0.0317 0.7988 0.4724 0.4762 0.0038 3.0559 3.1002 0.0443 1.4500 0.4130 0.4189 0.0060 1.4500 3.1002 3.1250 0.0248 0.7999 0.4189 0.4223 0.0034 1.9754 2.0040 0.0286 1.4500 0.2863 0.2904 0.0042 1.4500 2.0040 2.0200 0.0160 0.7984 0.2904 0.2928 0.0023 2.4448 2.4802 0.0354 1.4500 0.3543 0.3594 0.0051 1.4500 2.4802 2.5000 0.0198 0.7983 0.3594 0.3623 0.0029 1.7113 1.7361 0.0248 1.4500 0.2480 0.2516 0.0036 1.4500 1.7361 1.7500 0.0139 0.8006 0.2516 0.2536 0.0020 1.7113 1.7361 0.0248 1.4500 0.2480 0.2516 0.0036 1.4500 1.7361 1.7500 0.0139 0.8006 0.2516 0.2536 0.0020 1.7113 1.7361 0.0248 1.4500 0.2480 0.2516 0.0036 1.4500 1.7361 1.7500 0.0139 0.8006 0.2516 0.2536 0.0020 1.6624 1.6865 0.0241 1.4500 0.2409 0.2444 0.0035 1.4500 1.6865 1.7000 0.0135 0.8006 0.2444 0.2464 0.0020 1.7113 1.7361 0.0248 1.4500 0.2480 0.2516 0.0036 1.4500 1.7361 1.7500 0.0139 0.8006 0.2516 0.2536 0.0020 3.9995 4.0575 0.0580 1.4500 0.5796 0.5880 0.0084 1.4500 4.0575 4.1000 0.0425 0.7899 0.5880 0.5942 0.0062 3.9116 3.9683 0.0567 1.4500 0.4657 0.4724 0.0068 1.4500 3.9683 4.0000 0.0317 0.7989 0.4724 0.4762 0.0038 3.9116 3.9683 0.0567 1.4500 0.4657 0.4724 0.0068 1.4500 3.9683 4.0000 0.0317 0.7989 0.4724 0.4762 0.0038 3.9115 3.9682 0.0567 1.4500 0.4657 0.4724 0.0068 1.4500 3.9682 4.0000 0.0318 0.8009 0.4724 0.4762 0.0038 3.9115 3.9682 0.0567 1.4500 0.4657 0.4724 0.0068 1.4500 3.9682 4.0000 0.0318 0.8009 0.4724 0.4762 0.0038 3.9115 3.9682 0.0567 1.4500 0.4657 0.4724 0.0068 1.4500 3.9682 4.0000 0.0318 0.8009 0.4724 0.4762 0.0038

Average % Profit of Distributor Average Profit % of Wholesaler Average Profit % of Retailer

1.45 0.809817166 10.37261181

% 0.7854 0.7879 0.8009 0.7988 0.7988 0.7988 0.7988 0.7988 0.7999 0.7984 0.7983 0.8006 0.8006 0.8006 0.8006 0.8006 1.0474 0.7989 0.7989 0.8009 0.8009 0.8009

Exhibit No. 8: Price & Margin Distribution From Manufacturer To Retailers (contd. 2) Cost 6.0892 6.5500 4.3495 3.6500 4.0000 4.0000 4.0000 4.0000 4.0000 3.1250 2.0200 2.5000 1.7500 1.7500 1.7500 1.7000 1.7500 4.1000 4.0000 4.0000 4.0000 4.0000 4.0000

Original Retailer Selling Margin 6.5000 0.4109 6.6700 0.1200 5.0000 0.6505 4.0000 0.3500 4.4000 0.4000 4.4000 0.4000 4.4000 0.4000 4.4000 0.4000 4.4000 0.4000 3.4000 0.2750 2.2000 0.1800 2.7000 0.2000 1.9000 0.1500 2.0000 0.2500 1.9000 0.1500 1.9000 0.2000 2.0000 0.2500 4.5000 0.4000 4.5000 0.5000 4.5000 0.5000 4.5000 0.5000 4.5000 0.5000 4.5000 0.5000

% 6.7472 1.8321 14.9557 9.5890 10.0000 10.0000 10.0000 10.0000 10.0000 8.8000 8.9109 8.0000 8.5714 14.2857 8.5714 11.7647 14.2857 9.7561 12.5000 12.5000 12.5000 12.5000 12.5000

Cost 0.6277 0.7798 0.5178 0.4345 0.4762 0.4762 0.4762 0.4762 0.4762 0.4223 0.2928 0.3623 0.2536 0.2536 0.2536 0.2464 0.2536 0.5942 0.4762 0.4762 0.4762 0.4762 0.4762

Size = 10 mm Retailer Selling Margin 0.6701 0.0424 0.7940 0.0143 0.5952 0.0774 0.4762 0.0417 0.5238 0.0476 0.5238 0.0476 0.5238 0.0476 0.5238 0.0476 0.5238 0.0476 0.4595 0.0372 0.3188 0.0261 0.3913 0.0290 0.2754 0.0217 0.2899 0.0362 0.2754 0.0217 0.2754 0.0290 0.2899 0.0362 0.6522 0.0580 0.5357 0.0595 0.5357 0.0595 0.5357 0.0595 0.5357 0.0595 0.5357 0.0595

Consumer Cost % 6.7472 1.8321 14.9557 9.5890 10.0000 10.0000 10.0000 10.0000 10.0000 8.8000 8.9109 8.0000 8.5714 14.2857 8.5714 11.7647 14.2857 9.7561 12.5000 12.5000 12.5000 12.5000 12.5000

6.5000 6.6667 5.0000 4.0000 4.4000 4.4000 4.4000 4.4000 4.4000 3.4000 2.2000 2.7000 1.9000 2.0000 1.9000 1.9000 2.0000 5.0000 4.5000 4.5000 4.5000 4.5000 5.0000

Retailer Charge 7.0000 7.0000 5.0000 4.0000 5.0000 5.0000 5.0000 5.0000 5.0000 3.5000 2.5000 3.0000 2.0000 2.0000 2.0000 2.0000 2.0000 5.0000 5.0000 5.0000 5.0000 5.0000 5.0000

Margin per pc. % Change 0.5000 0.3333 0.0000 0.0000 0.6000 0.6000 0.6000 0.6000 0.6000 0.1000 0.3000 0.3000 0.1000 0.0000 0.1000 0.1000 0.0000 0.0000 0.5000 0.5000 0.5000 0.5000 0.0000

7.6923 5.0000 0.0000 0.0000 13.6364 13.6364 13.6364 13.6364 13.6364 2.9412 13.6364 11.1111 5.2632 0.0000 5.2632 5.2632 0.0000 0.0000 11.1111 11.1111 11.1111 11.1111 0.0000

Compiled Retail Survey Location : Central Delhi ( Nayabas, Fatehpuri,INA Market, India Gate) Brand

India Kings Gold Flake Classic Mild Classic Ultra Mild Classic Regular Classic Verve Wills Navy Cut Silk Cut Gold Flake (s) Flake Wills Flake Four square Red & White Cavanders 555 Dunhill Benson & Hedges B&H - Light Lucky 10 Davidoff No. 10 Kartoos

Cost price Single Box

Selling Price Single Box

Market Segmentation

Manufacturer

Standard Length

Pieces

Filter Kings

Indian Tobaco company Indian Tobaco company Indian Tobaco company Indian Tobaco company Indian Tobaco company Indian Tobaco company Indian Tobaco company Indian Tobaco company Indian Tobaco company Indian Tobaco company Indian Tobaco company Godfrey Phillps India Ltd Godfrey Phillps India Ltd Godfrey Phillps India Ltd

84 84 84 84 84 84 74 69 69 69 69 69 69 69

20 10 10 10 20 20 10 10 10 10 10 10 10 10

4.5 3.8 4.0 4.0 4.0 4.0 3.2 2.05 2.5 1.75 1.9 1.8 1.8 1.9

90 38 40 40 80 80 32 20.5 25 17.5 19 18 18 19

5 4 5 5 5 5 3.5 2.5 3.0 2.0 2.0 2.0 2.0 2.0

100 40 44 44 88 88 34 22 27 19 20 19 19 20

84 84 69 90 69 69

20 20 10 20 10 10

4.0 4.0 0.75 3.75 0.65 0.95

80 80 7.5 75 6.5 9.5

5.0 5.0 1.0 5.0 1.0 1.0

90 90 10 90 10 10

Filter Medium Filter Lower

Non Filter International Filter Kings

British American Tobacco British American Tobacco British American Tobacco

Non - Branded Reemtsma

Exhibit 9 xiii

Compiled Retail Survey Location : South Delhi ( Katwaria Sarai,Jia Sarai, Kalkaji, Faridabad) Brand Market Manufacturer Standard Segmentation Length

India Kings Gold Flake Classic Mild Classic Regular Wills Navy Cut Silk Cut Gold Flake (s) Flake Wills Flake Marlboro Golden Elephant Clock 100

Filter Kings

Filter Medium Filter Lower

Pieces

Cost price

Selling Price

Single

Box

Single

Box

Indian Tobacco company

84

20

4.50

90.0

5.0

100.0

Indian Tobacco company Indian Tobacco company Indian Tobacco company Indian Tobacco company Indian Tobacco company Indian Tobacco company Indian Tobacco company Indian Tobacco company Philip Morris

84 84 84 74 69 69 69 69 84 69 69

10 10 20 10 10 10 10 10 20 20 10

3.80 4.00 4.00 3.20 2.00 2.50 1.75 1.90 4.00 1.25 0.70

38.0

4.0

40.0

40.0

5.0

44.0

80.0

5.0

88.0

32.0

4.0

34.0

20.0

3.0

22.0

25.0

3.0

27.0

17.5

2.5

19.0

19.0

2.0

20.0

80.0

5.0

90.0

25.0

2.0

25.0

7.0

1.0

9.0

Non- Branded

Exhibit 10

xiv

Compiled Retail Survey Location : Gurgaon Brand

Insignia India Kings Gold Flake Classic Mild Classic Ultra Mild Classic Regular Wills Navy Cut Silk Cut Gold Flake (s) Flake Wills Flake Cavanders Benson & Hedges B&H - Light Marlboro Marlboro Light Clock 100 Kartoos

Market Segmentation

Super Premium Filter Kings

Filter Medium Filter Lower

Non Filter International Filter Kings

Manufacturer

Indian Tobacco company Indian Tobacco company Indian Tobacco company Indian Tobacco company Indian Tobacco company Indian Tobacco company Indian Tobacco company Indian Tobacco company Indian Tobacco company Indian Tobacco company Indian Tobacco company Godfrey Phillps India Ltd British American Tobacco British American Tobacco Philip Morris Philip Morris

Non- Branded

Exhibit 11

xv

Standard Length

Pieces

97

84 84 84 84 84 74 69 69 69 69 69 84 84 84 84 69 69

Cost price

Selling Price

20

Single 6.10

Box 122

Single 7

Box 130

20 10 10 10 20 10 10 10 10 10 10 20 20 20 20 10 10

4.50 4.00 4.00 4.00 4.00 3.20 2.05 2.50 1.75 1.90 1.90 4.00 4.00 4.00 4.00 0.70 0.95

90 38 40 40 80 32 20.5 25 17.5 19 19 80 80 80 80 7 9.5

5 4 5 5 5 3.5 2.5 3.0 2.0 2.0 2.0 5.0 5.0 5.0 5.0 1.0 1.0

100 40 44 44 88 34 22 27 19 20 20 90 90 90 90 9 10

Compiled Retail Survey Location : West Delhi (Naraina, Dwarka) Brand Market Segmentation

Insignia India Kings Gold Flake Classic Mild Classic Ultra Mild Classic Regular Wills Classic Menthol Wills Navy Cut Silk Cut Gold Flake (s) Flake Wills Flake Four square Cavanders Marlboro Marlboro Light Golden Elephant Clock 100

Super Premium Filter Kings

Filter Medium Filter Lower

Non Filter

Manufacturer

Indian Tobacco company Indian Tobacco company Indian Tobacco company Indian Tobacco company Indian Tobacco company Indian Tobacco company Indian Tobacco company Indian Tobacco company Indian Tobacco company Indian Tobacco company Indian Tobacco company Indian Tobacco company Godfrey Phillps India Ltd Godfrey Phillps India Ltd Philip Morris Philip Morris

Non- Branded

Exhibit 12

xvi

Standard Length

Pieces

97

84 84 84 84 84 84 74 69 69 69 69 69 69 84 84 69 69

Cost price

Selling Price

20

Single 6.09

Box 121.8

Single 7.0

Box 130.0

20 10 10 10 20 20 10 10 10 10 10 10 10 20 20 20 10

4.50 3.80 4.00 4.00 4.00 4.00 3.20 2.05 2.50 1.75 1.90 1.80 1.90 4.00 4.00 1.25 0.70

90.0 38.0 40.0 40.0 80.0 80.0 32.0 20.5 25.0 17.5 19.0 18.0 19.0 80.0 80.0 25.0 7.0

5.0 4.5 5.0 5.0 5.0 5.0 4.0 2.5 3.0 2.0 2.0 2.0 2.0 5.0 5.0 2.0 1.0

100.0 40.0 44.0 44.0 88.0 88.0 34.0 22.0 27.0 19.0 20.0 19.0 20.0 90.0 90.0 25.0 9.0

Exhibit 13 Compiled Retail Survey Location : North Delhi (Narela,Bawana, Goga,Sanoth) Brand Market Manufacturer Segmentation

Garam India Kings Gold Flake Classic Mild Classic Ultra Mild Classic Regular Wills Classic Menthol Wills Navy Cut Silk Cut Gold Flake (s) Flake Wills Flake Four square Red & White Benson & Hedges B&H - Light Marlboro Marlboro Light Marlboro Menthol Clock 100 Lucky 10 Davidoff Classy Popa Kartoos

Filter Kings

Filter Medium Filter Lower

Non - Branded

Indonesia Cigarettes Indian Tobacco company Indian Tobacco company Indian Tobacco company Indian Tobacco company Indian Tobacco company Indian Tobacco company Indian Tobacco company Indian Tobacco company Indian Tobacco company Indian Tobacco company Indian Tobacco company Godfrey Phillps India Ltd Godfrey Phillps India Ltd British American Tobacco British American Tobacco Philip Morris Philip Morris

Reemtsma

xvii

Standard Length

Pieces

Cost price

Selling Price

Single

Box

Single

Box

84 84 84 84 84 84 84 74 69 69 69 69 69 69 84 84 84 84

12 20 10 10 10 20 20 10 10 10 10 10 10 10 20 20 20 20

4.6 4.5 3.8 4.0 4.0 4.0 4.0 3.2 2.05 2.5 1.75 1.9 1.8 1.8 4.0 4.0 4.0 4.0

55 90 38 40 40 80 80 32 20.5 25 17.5 19 18 18 80 80 80 80

7 5 4.5 5 5 5.5 5.5 4 2.5 3.0 2.0 2.0 2.0 2.0 5.0 5.0 5.0 5.0

80 100 40 44 44 88 88 34 22 27 19 20 19 19 90 90 90 90

69 69 90 69 69 69

10 10 20 10 10 10

0.7 0.75 3.75 4.1 4.1 0.95

7 7.5 75 41 41 9.5

1.0 1.0 5.0 5.0 5.0 1.0

9 10 90 50 50 10

xviii

Bibliography 1. 2. 3. 4. 5. 6. 7. 8. 9.

http://www.godfreyphillips.com/brands.html http://www.itcportal.com/sets/cigarette_frameset.htm http://www.gtcil.com/p-sales.htm http://www.wikipedia.com http://www.indiastats.com http://www.icra.in/ http://economictimes.indiatimes.com/archive.cms http://www.rbi.org.in 13th edition of “Marketing Management - A South Asian Perspective” By Kotler, Keller, Koshy and Jha.

xviii