Promotion Of Indian Cigratte Industry

ASSIGNMENT NO: 1(Cigarettes)

An Assignment on Product & Brand Management

SUBMITTED TO: Prof. Anil Ramesh. (HOD) Mktg. Siva Sivani Institute of Management

SUBMITTED BY: Aisik Sur Roll No: M2-05

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 & Regulation) Act, 1951 and requires an industrial license. The cigarette market is oligopolistic, with four large manufacturing companies. The Indian market for cigarettes and other tobacco products is highly price sensitive. Following the reduction in excise duty and consequently prices in 1994, there was an explosion in demand for micros (cigarettes shorter than 60 mm). Trade sources estimated that consumption of micros rose from 300 million pieces in 1993 to around 4 000 million pieces in 1994, 18 000 million pieces in 1995 and over 19 000 million in 1996. However, with the increased excise duty on these cigarettes since the 1996/97 budget, demand has declined, and led to a drift back towards small filter products by some smokers and towards bidis by others. Prices of different types and size of cigarettes depend inter alia on the level of and changes in excise duty imposed by the central government in its annual fiscal budget. Any more than moderate increase in excise duty (say over 3 percent) effectively raises prices of cigarettes. At times, a modest increase in taxation has helped to maintain retail prices. Owing to the variations in prices as a result of differential changes of taxation on different types and size of cigarettes, their share in total sales has changed considerably. Cigarette is basically a tobacco transformed product. From the raw tendoo leaves the cigarette is processed through various ways. India is one of the major tobacco producing country in all over world. It exports a good amount of cigarette in various countries, which generates a handsome amount of revenue for the company.

Cigarette exports during 2006-07 increased by 9 % in volume terms over the exports of previous year. Major markets for cigarettes are UAE and USA, Romania, Saudi Arabia and Iraq where the demand for generic low cost cigarettes is growing

TABLES SHOWING THE EXPORTS OF CIGRATTES

2006-2007 USA UAE Saudi Arabia

g

Qty

% Change

1441

M

2080

13 2

Value

ark

2005-2006 % Change

Qty

48.89

30

1273

39.83

22

2032

Value

etin

37.58 32.56

427

44

11.83

35

296

8.79

Kuwait

222

66

6.64

65

134

4.02

Romania

449

-51

5.85

-53

920

12.44

West Africa

218

129

4.85

157

95

1.89

Qatar

157

115

4.59

157

73

1.79

Iraq

293

-29

3.41

-48

411

6.55

Egypt

145

-

3.12

-

0

0.00

Turkmenistan

129

193

2.28

322

44

0.54

Montenegro

217

-

1.22

-

0

0.00

Others

646

6

15.88

21

607

13.08

6424

9

148.39

24

Total

channels for bidis and cigarettes

5885

119.24

LIST OF MAJOR PLAYERS IN INDIAN CIGRATTE INDUSTRY:

M/s. Godfrey Phillips (India) Ltd Four Square House, D.No.41826 Chandramouli Nagar, Ring Road GUNTUR 522 007 (AP) Phone: 08632351114 Fax: 08632350557

M/s. G.T.C.Industries Ltd

M/s. ITC Limited P.B.No.317, G.T.Road Srinivasarao Thota GUNTUR 522 004 (AP) Phone: 08632354001 to 2354008 Fax: 08632354017, 2354018

M/s. International Tobacco Co. Ltd

M/s.V.S.T. Industries Ltd

M/s. Tamilnadu Tobacco Co. Ltd

1st Lane, Vidya Nagar GUNTUR 522 007(AP) Phone: 08632350478

1/23, Alakattapudur Thengalpalayam (PO) Athanur (via) NAMAKKAL 636 301 (TN) Phone: 04287222411

M/s. New Tobacco Company

M/s. Hilton Tobaccos Ltd

1 & 2, Old Court House CALCUTTA 700 001 Phone: 0332209441 Fax: 0332206388

H1, Samrat Complex Saifabad HYDERABAD 500 004 (AP)

M/s. The Hyderabad Deccan Cigarette

M/s. Western Tobacco Ltd

Factory (P) Ltd. 17140, Musheerabad HYDERABAD 500 048 (AP) Phone: 04027616658,27616167 Fax: 04027612760

A6, KoheFiza, Indore Road BHOPAL 462 001 (MP) Phone: 2739331 Fax: 2739331

M/s. Asia Tobacco Co. Ltd

M/s. Reliable Cigarette & Tobacco

M/s. Laxmi Ventures (I) Ltd

M/s. A.V.M. Tobacco Company Pvt.

4A, Bussa Udyog Bhavan Thouersey Jivraj Road Sewri MUMBAI 400 015 Phone: 0774483351, 83352

Ltd. A.T.C Complex M.L.Nehru Road, Pan Bazar GUWAHATI 1

Guna Complex, 3rd Floor 304/305, Anna Salai CHENNAI 600 018 Telex No. 0417112 SELPL IN

P.B.No.64 Mangalagiri Road GUNTUR 522 001 (AP) Phone: 08632221937

C/o G.P.I. Ltd D.No.418126, Ring Road Chandramouli Nagar GUNTUR 522 007 (AP) Phone: 08632351114 Fax: 08632350557

Industries (P) Ltd. E20, BDA, Kohe Fiza Opp:Saifia College Gate No.2 Post Box No.94 A6, Kohe Fizer, Indor Road BHOPAL 462 001 (MP) Phone: 07552540655 Fax: 07552540686

MAJOR BRANDS IN THIS INDUSTRY: ITC LTD.

• •

Bristol. Wills Flake.

GODFREY PHILLIPS INDIA LTD.

THE HYDERABAD DECAN CIGRATTE.

• • • • • • • • • • • • • • • • • •

Silk Cut. Gold Flake. Gold Flake Kings Gold Flake Lights. Navy Cut. Wills Classic. Classic Milds Classic Menthol. India Kings Insignia. Four Square. Cavanders. Jaisalmer . Steeler. Red & White. I-Gen. Tipper. Charminar.

MOST FAMOUS BRANDS OR ICONIC BRANDS: • • • • • • •

Gold Flake. Gold Flake Kings Gold Flake Lights. Navy Cut. Wills Classic. Classic Menthol. Insignia.

MARKET SHARE FOR INDIVIDUAL COMPETITORS: •

ITC, a British American Tobacco (BAT) affiliate, is the largest cigarette manufacturer with 66% of the market share. Godfrey Phillips India (GPI), a Phillip Morris affiliate, and Vazir Sultan

•

Tobaccos (VST), a BAT each have 13% of the total market share.

•

Golden Tobacco Company (GTC) has 8% of the Market share.

SAMPLES OF FAMOUS PROMOTION AD’S, PRESS, TV, OUTDOOR, ETC.

FAILURES: (1)

Problems for low cost cigarette:

Low-cost filter cigarette brands — Clock, Supermatch, Indus and Fursat — are stealing a march over industry leaders like ITC and Godfrey Phillips, which are finding it unviable to sell filter cigarettes due to the high duty incidence.

Industry sources attribute the cost advantage enjoyed by low-cost filter brands to rampant duty evasion in that segment. According to industry estimates, cigarette grey market has grown by over 25% to Rs 1,800 crore in the last six months alone as against Rs 1,400 crore last year. Although cigarettes account for mere 15% of the total tobacco consumption in India by volume, it contributes 85% to the total excise revenues collected from the tobacco industry, amounting to Rs 8,500 crore, according to Tobacco Institute of India (TII). By value, cigarette industry forms 32% of the Rs 72,000-crore tobacco industry. The balance is shared among a host of traditional products such as bidis, chewing tobacco, gutka and Khaini. Though low-cost cigarettes have been around for over two years, high excise duty imposed on non-filter cigarettes, which accounts for 30% of the industry, have given a huge fillip to the makers of cheap filter cigarettes. With non-filters now priced almost 33% higher than filters, the industry is witnessing a dramatic shift towards low-cost filter cigarette segment. If tax statistics are taken into account, excise duty on a pack of 10 comes to Rs 8.43 in addition to VAT of Rs 1.05. The total tax burden comes to about Rs 10 per pack. After fulfiling excise duty obligations, cigarette majors such as ITC and Godfrey Phillips sell a pack of filter cigarettes at Rs 15-20. Whereas, manufacturers who indulge in tax evasion manage to sell the pack at Rs 5-10. As of now, about 75 cheap cigarette brands have proliferated across the country, with volumes concentrated in Delhi, Uttar Pradesh, Madhya Pradesh, Rajasthan and Punjab. Some of these brands include Clock, Supermatch, Indus, Fursat, Forever, Midland, Herbal, Palam and Indus. Industry sources say most low-cost cigarette makers don’t even have operating licences. Moreover, some manufacturers also use low-grade tobacco, which is more injurious to the health. Estimated loss to the exchequer on account of sale of non-duty paid cigarettes is close to Rs 600 crore a year. “If sale of cheap cigarettes go unchecked then the marketshare of

manufacturers of cheap cigarettes could increase to 25% thereby severely affecting the exchequer and the legitimate cigarette industry. (2)

Godfrey Phillips test-marketing India's first clove cigarette:

But what if the cigarette is filled with healthy clove a la the imported Gudang Garams from Indonesia that vend across the country. Godfrey Phillips India (GPI), the Rs 1,593crore tobacco major, seems to have taken a cue and is test-marketing India’s first clove cigarette,

Cluv

Spice,

across

geographies.

The 10 clove-stick pack is priced at Rs 25 in the largest 69mm format prevalent in the industry. Though the company is tightlipped about target smokers, industry sources claim that the price is a good enough reason for the company to tap entry-level smokers. But this project which started with a bang but ended in a whimper owing to impotency fears around the menthol tag.

POSITIONING STRATEGY OF MARKET LEADER: (1) Cigarette companies manipulate menthol levels to lure young smokers:

Tobacco companies manipulate menthol levels in cigarettes to hook young smokers a new study says.. The tobacco industry has carefully manipulated menthol content not only to lure youth but also to lock in lifelong adult customers. said Howard Koh, professor and associate dean for public health practice at the Harvard School of Public Health (HSPH) and co-author of the study. HSPH reviewed internal tobacco industry documents on menthol product development, conducted laboratory tests to measure menthol content in US brands, examined market research reports and drew data from the 2006 National Survey on Drug Use and Health. "Menthol cigarette brands have been rising in popularity with adolescents, and the highest use has been among younger, newer smokers. Menthol masks the harshness and irritation of cigarettes, allowing delivery of an effective dose of nicotine, the addictive chemical in cigarettes. The tobacco companies regularly researched how controlling menthol levels could increase brand sales among specific groups. The companies then positioned and marketed milder menthol products to appeal primarily to new smokers. ITC India Ltd. did the same with their brand with Classic Menthol Cigarette, to increase their sale. This created a huge effect on the customers, especially within the young and the adult smokers.

(2) Cigarette advertising in Mumbai, India: targeting different socioeconomic groups, women, and youth (Strategy taken by ITC India ltd.):

• Major brands and their advertising campaigns:

Of the four major cigarette manufacturers, ITC and GPI were the most visible tobacco advertisers in Mumbai. Of the ITC brands, we often see the advertising for the recently launched Wills Insignia in the super premium segment, Wills Classic/Milds, Wills Navy Cut, Wills Silk Cut, and Gold Flake/Lights in the premium segment and Bristol in the ‘‘bingo’’ (plain segment cigarette brand competing with bidis and sold in mini-packs of 10) segment. GPI’s major advertised brands included Four Square in the premium segment and Red and White in the bingo segment. Summarizes the major Cigarette brands by market segment. Wills Insignia, Wills Silk Cut and Gold Flake/Lights were advertised on billboards only in high SES areas whereas Bristol, a bingo segment brand, was advertised on billboards predominantly in low SES areas. On Marine Drive (high SES area), there was a stretch of street lamp posters for Wills Classic cigarettes followed by five large billboards advertising Wills Clothing. GPI’s premium brand Four Square was advertised both on billboards and bus stop shelters in higher SES areas. Bus stop shelters in both high and low SES areas displayed Red and White advertisements but there were no billboard advertisements. Storefront signs and posters inboth areas advertised all the brands (except the super premium Wills Insignia and premium Silk Cut brands)

(3) Distribution Strategy for ITC India Ltd.: When because of liberalization several foreign brands started operating their business in India, like- Marlboro, B&H, 555, New Work etc. because of these cigarettes used to came in Indian market in a smuggled way so their cost was relatively low comparing to the premium brands of ITC cigarettes. And Indian consumers were inclined in taking foreign brands , so that was solving their purpose. Then ITC handled this situation in a masterful way. They stop giving their brands to those retailers and the pan shops who used to sell foreign brands. Now those retailers

started feeling the pain , because the numbers of foreign brand taking customers were very few. So they were not getting profit after selling those brands. So they stopped keeping those brands in their shop.

REFERENCES: •

http://www.indiantobacco.com/cgi.php

•

http://www.itcportal.com/the_itc_profile/history_evolution.html

•

http://www.indiantobacco.com/reports.php

•

http://www.tobaccocontrol.com/supplemental

•

tc.bmjjournals.com

•

www.itcportal.in

•

http://economictimes.indiatimes.com/News/News_By_Industry/Cons_Products/T obacco/Lowcost_filter_cigarette_brands_burn_a_hole_in_fag_leaders_pockets/articleshow/art icleshow/3044639.cms

•

MarketResearch.com/Cigarette

•

http://www.dipp.nic.in/industry/content_industries/CIGARETTE%20INDUSTRY. htm

•

www.Alibaba.com

•

http://www.agriculture-industry-india.com/agricultural-commodities/tobacco.html