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 2005-2006
Qty % Change Value % Change Qty Value
USA 48.89 30 1273 37.58
1441 13
UAE
M ark etin
2080 2 39.83 22 2032 32.56
Saudi Arabia g 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
Total 6424 9 148.39 24 5885 119.24
channels for bidis and cigarettes
LIST OF MAJOR PLAYERS IN INDIAN CIGRATTE INDUSTRY:
M/s. Godfrey Phillips (India) Ltd M/s. G.T.C.Industries Ltd
Four Square House, D.No.41826 P.B.No.64
Chandramouli Nagar, Ring Road Mangalagiri Road
GUNTUR 522 GUNTUR 522
007 (AP) 001 (AP)
Phone: 08632351114 Phone: 08632221937
Fax: 08632350557

M/s. ITC Limited M/s. International Tobacco Co. Ltd

P.B.No.317, G.T.Road C/o G.P.I. Ltd
Srinivasarao Thota D.No.418126,
GUNTUR 522 Ring Road
004 (AP) Chandramouli Nagar
Phone: 08632354001 GUNTUR 522
to 2354008 007 (AP)
Fax: 08632354017, Phone: 08632351114
2354018 Fax: 08632350557

M/s.V.S.T. Industries Ltd M/s. Tamilnadu Tobacco Co. Ltd

1st Lane, Vidya Nagar 1/23, Alakattapudur
GUNTUR 522 Thengalpalayam (PO)
007(AP) Athanur (via)
Phone: 08632350478 NAMAKKAL 636
301 (TN)
Phone: 04287222411

M/s. New Tobacco Company M/s. Hilton Tobaccos Ltd

1 & 2, Old Court House H1,
CALCUTTA 700 Samrat Complex
001 Saifabad
Phone: 0332209441 HYDERABAD 500
Fax: 0332206388 004 (AP)

M/s. The Hyderabad Deccan Cigarette M/s. Western Tobacco Ltd

Factory (P) Ltd. A6,
17140, KoheFiza,
Musheerabad Indore Road
HYDERABAD 500 BHOPAL 462
048 (AP) 001 (MP)
Phone: 04027616658,27616167 Phone: 2739331
Fax: 04027612760 Fax: 2739331

M/s. Asia Tobacco Co. Ltd M/s. Reliable Cigarette & Tobacco
Guna Complex, 3rd Floor Industries (P) Ltd.
304/305, Anna Salai E20,
CHENNAI 600 BDA, Kohe Fiza
018 Opp:Saifia College Gate No.2
Telex No. 0417112 Post Box No.94
SELPL IN A6,
Kohe Fizer, Indor Road
BHOPAL 462
001 (MP)
Phone: 07552540655
Fax: 07552540686
M/s. Laxmi Ventures (I) Ltd M/s. A.V.M. Tobacco Company Pvt.
4A, Ltd.
Bussa Udyog Bhavan A.T.C Complex
Thouersey Jivraj Road M.L.Nehru Road, Pan Bazar
Sewri GUWAHATI 1
MUMBAI 400
015
Phone: 0774483351,
83352

MAJOR BRANDS IN THIS INDUSTRY:

ITC LTD. • Bristol.

• Wills Flake.
 • Silk Cut.
• Gold Flake.
• Gold Flake Kings
• Gold Flake Lights.
• Navy Cut.
• Wills Classic.
• Classic Milds
• Classic Menthol.
• India Kings
• Insignia.
GODFREY PHILLIPS INDIA LTD. • Four Square.
• Cavanders.
• Jaisalmer .
• Steeler.
• Red & White.
• I-Gen.
• Tipper.
THE HYDERABAD DECAN CIGRATTE. • 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 1,593-
crore 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/Low-
cost_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