TABLE OF CONTENTS

Sr. No. CONTENTS Pages

1. Introduction of topic. 1-4

2. Research Objectives. 53. Research Methodology. 6

4. Analysis. 7Consumer Questionnaire Analysis. 7-25Retailer Questionnaire Analysis. 26-28Objective wise analysis (secondary data) 29-32

7. Appendix. 33Consumer Questionnaire. 33-36Retailer Questionnaire. 36

8. Conclusion of study. 37-38

9. Recommendations. 39

10. Bibliography. 40.

INTRODUCTION

The Cigarette Industry is one of the oldest industries in India (almost 100 years old). It is an important agro-based industry. It is highly labour intensive and provides livelihood to about thirty million people directly and indirectly.

India's tobacco industry is one of the largest in the world, with India having the second largest area planted to tobacco leaf after China. Furthermore, India's production of leaf is only exceeded only by China and the USA.

Structure of the market: -

The tobacco industry in India is quite complex when compared to the nature of the industry in many other countries. The particular features that distinguish the Indian industry are the existence of three district consumer markets for tobacco products, each of which comprises approximately one third of the national market for tobacco products.

One consumer market is formed by what is called the 'organized sector' and is based on filter tipped cigarettes; a second consumer market exists in what is called the 'unorganised sector' and this is for bidis; the third consumer market also exists in the 'unorganised sector' and this includes chewing tobacco, smokeless tobacco and a number of other forms of tobacco products.

A further characteristic of the domestic Indian market for tobacco products is the pattern of consumption. Although there is a very large population in India, in general, incomes are relatively low and this leads to consumers purchasing small quantities of goods on a very regular basis.

Cigarettes account for only 18.8% of domestic tobacco consumption in India. Bidis account for 53.5%, and the balance is mainly non-smoking tobacco (NST) products.

Current Scenario:-

In India, there are about 200mn tobacco consumers. About 18% of people in India smoke either bidi or cigarette. Among them 25mn smoke cigarettes. The relative share of smokers is higher in rural areas at 18.9%, compared to 15.4% in urban areas. However, penetration of cigarettes is extremely low in rural areas.

- 1 -

Only 2.1% of rural adults smoke cigarettes, compared to 6% of urban adults in India. In contrast as high as 16.9% of rural adults smoke bidis, compared to 9.6% of urban adult population. Overall penetration of bidis is 14.8% and that of cigarette is 3.2%. Awareness of these products among adult male population is over 90%.

Volume consumption of cigarettes declined sharply in 2001. The share of cigarettes in tobacco consumption has been declining steadily, falling to a record low of 87.8 billion sticks in March 2002; down from its peak at 104.2 billion sticks in March 1998. The share of cigarettes in the total consumption has been declining year after year and has gone down to a mere 14% as against an average of 86% in the rest of the WorldCigarette sales have been adversely affected by rising excise duties and legislation against public smoking. There has been a movement in consumption patterns towards smokeless tobacco.

Smoking is being gradually curbed in public places. There is growing health consciousness among the premium cigarette smokers

Trend of demand of cigarettes: -

Demand: Past & Future

Year Bn pieces

1990-91 78.5

1991-92 81

1992-93 84

1993-94 87

1994-95 90

1995-96 97.9

1996-97 104.2

1997-98 108.1

1998-99 101.8

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1999-00 99.3

2000-01 101.8

2001-02 102.2

2002-03 103.5

2003-04 104.8

2004-05 106

2005-06 107.2

2006-07 108

2011-12 108

Players: -

There are four major players who control 99% of the market in India.

1.) ITC (Indian Tobacco Company).2.) GPI (Godfrey Phillips India).3.) VST (Vazir Sultan Tobacco).4.) GTC (Golden Tobacco Company).

ITC commands 66% of the market.

Their major brands and sales figures are as follows;

Leading Cigarette Brands Of Major Players

ITC VST GPI GTCMajor Filter brandsPremium India King Kingston Rothmans Chancellor

Classic, State Legend JaisalmerHarvard, Craven

- 3 -

Express555,

Benson & Hedges Burton Chesterfield, Marlboro

Dunhill, Cartier

Medium Wills Charms Mini Four Square Panama Filter, King

Navy Cut King, Gold Premium, Charms Viginia Filter

Red & White Baton

Popular Gold Flake Charminar Gold Filter Red & White Filter Panama Filter

Bristol, Capstain Commando, Originals

Major non filter brandsUpper Scissors Charminar Gold Red & White Flair, StyleLower Hero Charminar, Charms Standard Cavenders Panama

Sales in past 5 yrs:

Figures in mln. Stick ITC GTC VST GPI Total Var.(%)FY2001-02 60865 7208 9040 8854 85967 -12FY2000-01 66478 8624 11636 10611 97349 -1FY1999-2000 66145 8311 11884 12114 98454 -3FY1998-1999 67753 8367 12873 12797 101790 -6FY1997-1998 68137 12924 13942 13100 108103 --

Background of research: -

We chose to carry out our project in this field because of the unique nature of this industry. After flourishing for nearly a 100 years, the cigarette industry seems to be heading for tough times. Players in this sector talk of product diversification and portfolio management, a clear sign of coming strife foe them.

As was shown, the demand for cigarettes is slowing down, successive governments have shown step fatherly attitude towards this industry, recently an advertising ban was imposed on cigarette brands, taxes on cigarettes are imposed regularly and also increased regularly etc.

The recent influx of foreign brand and allegations of smuggled cigarettes have also added a new dimension to the situation, as can be expected the players are not amused at the situation.

…THE cigarette industry has been hit by "prohibitive and discriminatory tax and marketing restrictions", according to Mr. R.A. Shah, Chairman, Godfrey Phillips India (GPI).

- 4 -

Speaking at the company's annual general meeting (AGM) here on Tuesday, Mr. Shah urged the Government to come up with a reasonable and practical regulatory mechanism for the industry, which was facing stagnation. According to a release, a 15 per cent hike in excise duty coupled with the economic downturn following the September 11 attacks in the US had crippled the cigarette industry, which provides employment to nearly 30 million people. Further, the dumping of "cheap, smuggled cigarettes" had come as yet another setback to the sector. GPI posted a turnover of Rs 960 crore in 2001-02. The profit before tax stood at Rs 71.84 crore. The shareholders on Tuesday approved a dividend of Rs 18.50 per share compared to Rs 16 per share in the previous year (2000-01)…

(Source: - Hindu Business Line, Wednesday, Sep 25, 2002)

Thus, we felt it would prove to be a leaning experience if we tried to analyze what was wrong with the scenario, and hence, important learning’s can be derived from this exercise that would provide an insight into the situation.

OBJECTIVES OF STUDY

Primary Objective: -

The primary objective of this report study is to gather information and present an overview of the Indian cigarette industry.

Secondary objectives: -

The secondary objectives are as follows;

Identify all the major players in India who compete within this industry.

Analyze the market dynamics of this industry, i.e., details of product variation, price competition, market share of the players etc.

Examine the pricing policy followed by the players.

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Study the non-price competition among the players, issues therein like,

after sale service, discount offers etc.

Comment on the type of market structure of the cigarette industry.

Evaluate and present consumer preferences.

RESEARCH DESIGN

For the proper gathering of information related to this topic, and also to fulfill the research objectives laid out earlier in the report, we chose the following research methodology.

Collection of data: -

1.) Primary Sources of data collection.

Primary sources were explored through the process of direct, structured formal questionnaire method and informal interview process.

Due to time and cost constraint, it was agreed by the group to undertake a combination of random and convenience sampling.

A sample of 75 respondents was agreed upon by the group and after the questionnaire was drafted, the method of simple random sampling was chosen to conduct our survey.

- 6 -

Apart from consumer survey, a retailer survey was also undertaken. For this a sample of 5 retailers was chosen. Again, the tool was the questionnaire, and the sampling method was random sampling.

It was felt that a questionnaire would be an effective tool and the results could be analyzed and presented better and with a very low margin of error, hence it was chosen as our research tool.

2.) Secondary Sources.

A lot of information regarding the project has come from secondary sources. These secondary sources majorly comprise various websites like, company websites, industry observer websites, research firms etc.

ANALYSIS OF DATA GATHERED.

In this analysis of the data, no distinction will be made as to the source of the data, since that is mostly self-explanatory. But, where comprehension of the analysis is a problem, there the source will be mentioned.

This analysis is framed according to the research objectives we had outlined earlier.

Analysis of consumer questionnaire.

1.) Overview of respondents: -

Consumers: - 75 respondents.

Parameter Smokers Non smokers

- 7 -

No of Respondents 59 16Total = 75.

0

2 0

4 0

6 0

1 2

s m o k e r s a n d n o n s m o k e r s

s m o k in g p o p u la t io n

S e r i e s 1

Out of the total sample survey of 75 respondents the no. of respondents who

smoked cigarettes were 59 and the rest 16 were non smokers.

2.) Age group classification.

Parameters 18-22 22-26 26-30 30 and above

No. of Respondents

19 39 9 8

- 8 -

1 8 - 2 2

2 2 - 2 6

2 6 - 3 0a b o v e 3 0

05

1 01 52 02 53 03 54 0

1

A g e g r o u p s

a g e g r o u p c l a s s i f i c a t i o n o f r e s p o n d e n t s

1 8 - 2 2

2 2 - 2 6

2 6 - 3 0

a b o v e 3 0

The data sample as shown in the above graph shows the classification of the

respondents into various price categories.

The age group category of 18-22 years the number of respondents were 19 and

the age category of 22-26 years had the maximum number of respondents with

39 respondents

3.) Type of smoker.

Parameters Chain Smoker

Occasional Smoker

Regular Smoker

Not applicable

No of respondents.

17 28 14 16

- 9 -

The Following Graph shows the smoking habits of the respondents surveyed.

The study shows that out of the sample surveyed majority of the respondent

are occasional smokers with 28 out of 75 occupying 37.33% of the share.

Followed by chain smokers occupying 22.6 % of the share among the sample

surveyed.

4.) Major brand names smoked.

Brands Benson

And

Hedges

Classic Gold

Flake

India

Kings

Wills Cavender

s

Not

Applicabl

e

5 14 20 1 18 1 16

- 10 -

17

28

1416

0

5

10

15

20

25

30

Smoking habits

Smoking Habits

Chain Smoker

OccasionalSmoker

RegularSmoker

Not Applicable

The various preferences (in terms of brands of cigarettes) of the smoking

population of the survey have been depicted in the graph above. The choices of

the respondent’s lies in brands of gold flake having 20 respondents of 75

surveyed choosing the brand, however a major chunk of the population of the

smokers also have their preference of brand in favour of Wills with 18 of them

selecting the brand.

(sub division based on cut of the brands smoked)

The further sub division of the brands has been depicted in the tables

Benson And Hedges (5 respondents)

BRAND B/H REGULAR B/H LIGHT

- 11 -

Brands Smoked

514

20118

1

16

Benson and Hedges

Classic

Gold Flake

India Kings

Wills

Cavenders

Not applicable

2 3

Wills (18 respondents)

BRANDS NAVY CUT

WILLS LITES

INSIGNIA SILK CUT

15 1 1 1

Classic (14 respondents)

BRANDS REGULAR MILDS ULTRA MILDS

8 5 1

Gold Flake (20 respondents)

BRANDS LARGE SMALL

18 2

5.) Change of brand from the starting one.

Change of brand from the time of smoking

PARAMETERS YES NO

38 21

- 12 -

The graph above shows that the respondents do change their brands from the

time they started smoking 38 of the 59 saying they have changed their brands

of cigarettes. As a result we can infer that the trial smoke could have been

influenced by the peer group or on recommendation of the others. But the

preference changed with for the consumer as he/she tried out new products

different from the original.

6.) Loyalty to the current brand.

Loyalty towards the brand

Parameters Yes No

- 13 -

38

21

0 10 20 30 40

YES

NO

CHANGE OF BRANDS FROM THE TIME OF STARTED SMOKING

49 10

The graph depicts hat that the loyalty towards their respective cigarette brands

is high in terms of number of respondents mentioning that the they are the

loyal towards their brands (49 yes). This shows that in the cigarette industry the

customer loyalty is high, however the loyalty factor emerges after the

respondent as decide his/her brand after they have started smoking for the first

time. The brand changes from the first time and thereafter the loyalty towards

the brand is there.

7.) Criteria for change of brand, if any.

CRITERIA FOR CHANGE OF BRAND OF CIGARETTE

Paramet Same Better Better Taste/ Availability(4 New Prestige

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Loyalty towards the cigarette brand

49

10

Yes

No

er quality ,

lower

price(1)

quality

, same

price(2

)

Smoothness(3

)

) Produc

t

trial(5)

value

attached(

6)

8 13 29 2 4 3

The criteria that would entice the consumer to change the brand of cigarette

were given to the respondents and the criteria which influenced the

respondents to change the brand was “better taste and smoothness” with 29

out of 59 respondents stating the fact. The next criteria which influenced the

consumer were “better quality at the same price” which 13 respondents

endorsed.

8.) Different parameters for change of brand.

- 15 -

Criteria for change of brand of cigarettes

1

2

3

4

5

6

Change of brand in case of price increase

Parameter Yes No

9 50

The loyalty factor is further endorsed by the fact that the majority of the

respondents (50 out of the smoking population of 59) studied in the project

would not change their brands incase of a change in price.

10.) Gender wise analysis for change of brand.

- 16 -

Change of brand in case or price rise

9

50

YesNo

CRITERIA FOR CHANGE OF BRAND OF CIGARETTE(male)

Male Same

quality ,

lower

price(1)

Better

quality

, same

price(2

)

Better Taste/

Smoothness(3

)

Availability(4

)

New

Produc

t

trial(5)

Prestige

value

attached(

6)

8 12 25 2 3 2

The above graph shows that the criteria for change in brands of cigarettes for

the male population studied is “better taste and smoothness” with 25

respondents of the 52 male smoking population choosing the criteria. The

criteria’s of availability and prestige value attached have the least selection

which shows that these two criteria’s are least important in terms of influencing

them to change their brands of cigarettes.

- 17 -

CRITERIA FOR CHANGE IN BRAND (MALE)

1

2

3

4

5

6

CRITERIA FOR CHANGE OF BRAND OF CIGARETTE(female)

Female Same

quality ,

lower

price(A)

Better

quality

, same

price(B

)

Better Taste/

Smoothness(

C)

Availability(

D)

New

Produc

t

trial(E)

Prestige

value

attached(F

)

0 1 4 0 1 1

The graphs depicts female criteria for change of brand of cigarette thought the

smoking population of the female in not a substantial number but none the less

the majority choose “better taste and smoothness” as the criteria for change in

the brand , also the criteria of new product value and , prestige value attached

also are selected by the female respondents.

11.) Brand awareness among non-smokers.

- 18 -

CRITERIA OR CHANGE IN BRANDS OF CIGARTTES

(FEMALE)

0 1

4

0

1

1

A

B

C

D

E

F

BRAND AWARENESS OF NON SMOKING POPULATION

(16 RESPONDENTS)

WILLS GOLDFLAKE CLASSIC MALBROS

2 6 5 3

The brand awareness among the non smoking population brings out new names

of brands; however the majority of the respondents (6 out of 13) recall Gold

flake as the brand which comes to their mind first. Followed by Classic (5) and

then come the brand of Malbros (3). The recall value that emerges is influenced

to a certain extent by some one they know who smokes that particular brand of

cigarette.

12.) Brand awareness amongst the smokers.

- 19 -

BRAND AWARENESS AMONG THE NON SMOKING POPULATION

2

65

3 WILLS

GOLD FLAKE

CLASSIC

MALBROS

BRAND AWARENESS AMONG THE SMOKING POPULATION(59)

WILLS BENSON

AND

HEDGES

GOLDFLAKE CAVENDERS CLASSI INDIA

KING

MARLBOROS

18 6 19 1 11 1 3

B r a n d a w a r e n e s s a m o n g t h e s m o k in g p o p u la t io n ( 5 9 )

6

1 9

11 113

1 8

B e n s o n a n d H e d g e s

G o ld F la k e

C a v e n d e r s

C la s s i c

In d i a k i n g s

M a lb r o s

W i lls

The brand awareness among the smoking population shows that the first band

that comes to their mind when we talk cigarettes is the brand they smoke

themselves. Gold Flake and Wills having the maximum recall value and this

fact were portrayed in the fact that these two brands had the maximum

respondents in the study. However the brand of Marlboros also has some in

roads in the recall value in spite not being in the smoking brand of the

respondents.

- 20 -

13.) Importance of various product attributes in selection of a brand.

IMPORTANCE OF “PRICE” AS A CRITERIA FOR SELECTION

Rank 1 Rank 2 Rank 3 Rank 4 Rank 5 Rank 6

3 12 8 15 8 13

The graph depicts importance of price as selection criteria for choosing a brand

rank 1 being very important and rank 6 being least important the study shows

that price is an important factor for only few respondents ( out of 59) thus

emphasizing the fact that price is not a determining the brand, also

emphasizing the fact that the cigarette industry is not a Price Sensitive

- 21 -

Importance of 'PRICE' for choosing a brand

3

12

8

15

8

13

0 5 10 15 20

Rank 1

Rank 2

Rank 3

Rank 4

Rank 5

Rank 6

industry. This fact is emphasized by a majority of the respondents rating price

as 4th 5th or 6th ranks.

IMPORTANCE OF “Taste/Smoothness” AS A CRITERIA FOR

SELECTION

Rank 1 Rank 2 Rank 3 Rank 4 Rank 5 Rank 6

44 5 4 2 3 1

The criteria, as evident from the graph shows that “taste and smoothness” as

the most important criteria for selection of a cigarette with a majority of the

respondents depicting it as their first preference and other categories having

very low frequency.

- 22 -

Importance of "Taste and Smoothness" in choosing a brand

44

5

4

2

3

1

0 10 20 30 40 50

Rank 1

Rank 2

Rank 3

Rank 4

Rank 5

Rank 6

IMPORTANCE OF “Availability” AS A CRITERIA FOR SELECTION

Rank 1 Rank 2 Rank 3 Rank 4 Rank 5 Rank 6

3 16 19 12 6 3

The graph depicts the importance of ‘Availability’ of brand as a criterion in

selecting a brand. The study reveals that the ‘availability’ criteria have been

given reasonable importance by the respondents. This is reflected in the fact

that majority of the consumers have given rank 2(16) and 3(19) to the criteria.

IMPORTANCE OF “Brand Image” AS A CRITERIA FOR

SELECTION

Rank 1 Rank 2 Rank 3 Rank 4 Rank 5 Rank 6

- 23 -

3

16

19

12

6

3

0 5 10 15 20

Rank 1

Rank 2

Rank 3

Rank 4

Rank 5

Rank 6

Importance of 'Availability' in choosing a Brand

4 19 15 12 6 3

The graph depicts the importance of brand image in choosing a brand of

cigarette based on the study it can be inferred that the respondents give

reasonable importance to the criteria , with the majority giving it Rank 2 (19)

and 3 (15). Thus the brand image of the manufacturer does play a role in

selection of the cigarette; in this case the established brands like ITC and GPI

excel for being already in the market. And the lesser known brands like GTC

and VST lose out for not being well known in the market.

IMPORTANCE OF “Opinion of Others” for SELECTION of a

cigarette brand

- 24 -

4

19

15

12

6

3

0 5 10 15 20

Rank 1

Rank 2

Rank 3

Rank 4

Rank 5

Rank 6

Importance of 'Brand Image' in Choosing a brand

Rank 1 Rank 2 Rank 3 Rank 4 Rank 5 Rank 6

3 3 3 12 19 19

The graph depicts the importance of ‘opinion of others’ in choosing a brand of

cigarette. The study reveals that this criteria in not considered important by

the respondents in choosing a brand with majority of the respondents giving it

rank 5 (19) rank 6 (19). Thus we can infer that the opinion of peers matter in

the beginning when a person starts smoking but when later on the person

chooses his own brand by not getting influenced by others.

IMPORTANCE OF “Prestige Value Attached” for SELECTION of

a cigarette brand

- 25 -

3

3

3

12

19

19

0 5 10 15 20

Rank 1

Rank 2

Rank 3

Rank 4

Rank 5

Rank 6

Importance of 'Opinion of Others' in Choosing a Brand

Rank 1 Rank 2 Rank 3 Rank 4 Rank 5 Rank 6

2 4 10 6 17 20

The graph above depicts that importance of Prestige Value attached in choosing

a brand. The study shows us that the respondents majority don’t give it

considerable importance with majority ranking it either 5 (20) or 6 (17) .but a

substantial share also gives reasonable importance, ranking it 3(10). Thus the

study gives a mixed result, for occasional smokers the prestige value matters

but for regular or chain smokers prestige value is not so importance.

Analysis of retailer questionnaire: -

- 26 -

2

4

10

6

17

20

0 5 10 15 20

Rank 1

Rank 2

Rank 3

Rank 4

Rank 5

Rank 6

Importance of 'Prestige Value Attached' In choosing a Brand

Retailer survey: the survey was carried out to understand the market

happening, whether the companies provide any kind of after sale services to

the vendors, the margin offered. This research was aimed at getting such in

formations and how these service are further going to be passed on to the

consumers.

Margin offered: the basis of this research was to find out how much margin the

vendors were getting incase they were getting a higher percentage of margin

then in that case some of the margin could get passed on to the consumer.

While vendors were not very cooperative regarding this information, yet on an

average a vendor get Rs1 on a pack of 10 cigs and around Rs 1.50 on a pack of

20 cigs.

Examples: A small gold flake cig costs to vendor ---- Rs 18

A small gold flake cig costs to consumer –Rs 19

Discount offered: From our survey it can be inferred demand is more than

supply as such policies of discount to consumers is not in vogue, similarly for

after sale service.

There were various schemes and discounts offered before but now as company

is very much sure about the demand and there is 100% sale, so no discounts

are offered as such.

In addition when a new brand is launched discounts are offered but to the

vendors and not consumers.

Example: Jaisalmer.

- 27 -

After Sale Service: Being a fast moving product category the cigarette industry

doesn’t has any scope of any after sale services as once the pack is opened up

the scope of after sale service is out of question.

Though in certain cases the services may be provided to the vendor. These

cases indirectly are benefits to the consumers as no sub standards products

reach the consumer.

Incase of expensive cigarette brands like Marlboro when the cigarette packs

remain unsold for over six months, then those packs are taken away by the

representative of GPI through the wholesalers. Similar service is also provided

by ITC.

Major brand price analysis:

1.) Gold flake.

Small (10) = Rs. 19.King-size (10) = Rs. 28.

2.) India Kings. (20) = Rs. 80.

3.) Benson and Hedges. (20) = Rs. 72.

4.) Classic. (20) = Rs. 59.

{Regular MildsUltra Milds}

5.) Jaisalmer. (20) = Rs. 65.

6.) Red and White (10) = Rs. 14.

7.) Four Square. (10) = Rs. 15.

8.) Capstan. (10) = Rs. 12.

- 28 -

9.) Cavenders. (10) = Rs. 10.

10.) Wills (Navy Cut) = Rs. 23.

11.) Wills Flake = Rs. 12.50.

12.) Wills Insignia = Rs. 80.

- 29 -

Analysis and Results obtained through overall research according to the sub-objectives outlined earlier: -

1.) Major players: -

ITC. Godfrey Phillips India.

VST (a BAT affiliate).

GTC.

2.) Market Dynamics: -

The market is fairly saturated; the four major players are present in various parts of the country in strength. The rural market is now being seen, as a growth sector with current cigarette smoker’s population estimated at 2.8% only, there appears to be a lot of scope for growth.

Competition Structure: -

The market is segmented according to cut of the cigarette. (The following table will also show the product variations.)

Length Type Size of MarketUnder 60mm Non-filter 0.8%60-70mm Non-filter 74.6%Under 70mm Filter 75.4%70-75mm Filter 19.3%75-85mm Filter 5.3%

Competition is mainly amongst these segments, like mini battles the competition is brand image and price related.

- 30 -

There are various brands that dot the market place, some of them are: -

ITC VST GPI GTCMajor Filter brandsPremium India King Kingston RothmansChancellor

Classic, State Express555,

Legend Jaisalmer Harvard, Craven

Benson & Hedges Burton Chesterfield, Marlboro

Dunhill, Cartier

Medium Wills Charms Mini Four Square Panama Filter, King

Navy Cut King, Gold Premium, Charms Viginia Filter

Red & White Baton

Popular Gold Flake Charminar Gold Filter Red & White Filter

Panama Filter

Bristol, Capstan Commando, Originals

Major non filter brandsUpper Scissors Charminar Gold Red & WhiteFlair, StyleLower Hero Charminar, Charms Standard Cavenders Panama

But, overall, the distribution of the brands being marketed is the key in winning. Here, clearly ITC leads the pack with 2 million retailers.

Market Share: -

ITC => 70%.GPI => 12%VST => 9%GTC => 8%

Price Competition: -

Price competition is a “follow the leader” pricing strategy followed by all the players.

The market leading brand, irrespective of the player it belongs to, will set the price of all the product variants in it’s class.

Hence, the others will be forced to follow the leader in their pricing policy too.

Example: -

Maxus, a filter cigarette brand of GPI has been recently launched in competition to Gold Flake. It promises a “king size” taste and feel from a regular size cigarette. It has been test market launched in Hyderabad and Chandigarh. It

- 31 -

has been competitively priced wrt Gold Flake, i.e., Rs. 25 vs. Rs. 28 of Gold Flake.

3.) Non-price competition: -

By the method of our retailer survey and some secondary sources of data that we analyzed it was discovered that there exists little to no non-price competition.

The only major non-price competition is the product diversification that the cigarette majors seem to be considering very carefully now. That and the brand image that was established and might still be sought to be established for newer brands that are launched after the ad ban, through subliminal advertising.

The product diversification was initially prompted due to a perceived slowing of demand for cigarettes in India, but now due to worsening conditions and the recent ad ban the players are making concrete efforts to move in the direction of product diversification.

Example: - GPI is planning on making the Red and White an all year property and extend its scope from 9 states to all of them to generate media interest and resultant publicity and mind share.

4.) Market Structure: -

With four large manufacturing firms, the market structure of the cigarette industry is one of oligopoly.

…An oligopoly exists when a few companies dominate an industry. This concentration often leads to collusion among manufacturers, so that prices are set by agreement rather than by the operation of the supply and demand mechanism. For an oligopoly to exist, the few companies do not need to control all the production or sale of a particular commodity or service. They only need to control a significant share of the total production or sales. As in a monopoly, an oligopoly can persist only if there are significant barriers to entry to new competitors. Obviously, the presence of relatively few firms in an industry does not negate the existence of competition. The existing few firms may still act independently even while they collude on prices. In an oligopolistic market, competition often takes the form of increased spending on marketing and advertising to win brand loyalty rather than on reducing prices or increasing the quality of products…

(Source: - University of Indiana Website).

- 32 -

This is exactly indicative of our own industry. Together, ITC, GPI, VST and GTC hold 99% of the market, and hence, control a more than substantial portion of the cigarette market.

They “used” to spend extensively in advertising and publicizing their brands and sponsoring events.

The very competitive nature of the market is one reason for the high cost barrier of entry into the Indian market. Thus we find foreign brands like Marlboro and Benson and Hedges etc. forming joint ventures and signing MOA (memorandum of understanding) with Indian partners to find a niche in this highly competitive market.

They can, but don’t control prices because of the decreasing nature of demand for cigarettes in India and also because of government control of prices through taxes.

APPENDIX- 33 -

Questionnaire for Consumer Survey

Dear Respondent, We thank you for sparing your valuable time in filling this questionnaire

and helping us in our attempt to study the cigarette Industry in India.We assure you that the information collected through this survey would

be used strictly for academic purpose

Section-“A”

Name: - _____________________________ Address: _________________________________

Occupation: _________________________Phone Number: _____________________________

Age Group:

____ 18-22

____ 22-26

____ 26-30

____ 30 and above

Section – “B”

Ques 1: Do You Smoke?

o YES (continue)

o NO

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Ques: 2 If ‘YES’ would you call yourself a…

o Chain Smoker

o Occasional Smoker

o Regular Smoker.

o Not applicable.

Ques: 3 What Brand of cigarettes comes first to your mind when you think if

cigarettes.

_____________________________________.

Ques: 4 What Brand of cigarettes do you Smoke? (You can select more than

one.)

o Gold Flake. (Please specify the cut).

o Wills. (Please specify which cut).

o Benson and Hedges

o Classic. (Please specify)

o India Kings.

o Four Square.

o Jaisalmer.

o Red and White.

o Any other, please specify

____________________ ___________________ ___________________

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Ques 5: On what parameters do you choose a brand of cigarettes?

(Please Rank according to preference, 1 for most important and 5 for

least important)

____ Price

____ Taste /Smoothness

____ Availability

____ Brand Image

____ Opinion of others.

____ Prestige Value attached

____ Not applicable.

Ques 6: Have you changed your brand from the time you started smoking?

____ YES

____ NO

Ques 7: Are you loyal towards your brand of cigarettes?

____ YES

____ NO

Ques 8: What Criteria would make you change your Brand of cigarettes?

(Please Rank, 1 for most important and 5 for least important)

____ Same quality lower price.

____ Better Quality, same price.

____ Better Taste/ smoothness.

____ Availability.

____ New Product Trial.

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____ Prestige Value Attached.

Ques 9: Would you change your brand of cigarettes if it’s price increases?

_____ Yes.

_____ No.

Local Vendor Questionnaire

Name: -

Locality: -

Margin Offered: -

ITCGPIVSTGTC

Discount Offered: -

ITCGPIVSTGTC

After Sale Service: -

ITCGPIVSTGTC

Observation (Products stocked and prices thereof).

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CONCLUSION OF THE STUDY

The conclusions of this report with respect to each sub objective is: -

The major players in India who compete within this industry.

ITC.

Godfrey Phillips India.

VST (a BAT affiliate).

GTC.

The market dynamics of this industry.

Product Variations.

There exist many products among majorly two categories, filter and non-filter. Within these two categories, there are sub categories based on the cut of the cigarettes.

Time duration in the market.

ITC => operating since 1910.

GPI => operating since 1936.

VST => operating since 1930.

GTC => data could not be found.

Competition Structure.

Competition Structure is based only on brand image and the number of distributors of that particular player. In this industry it is imperative to be have a vast distribution network, and also a good image.

Price Competition.

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Price competition is defined by uniformity. Prices amongst filter brands vary according to the image being projected, but in the non-filter brands price sensitive policy is followed and there is not much difference in prices.

Prices are not cut at random for short-term sales; rather the only price changes are induced by government taxation.

Market Share.

ITC => 70%.GPI => 12%VST => 9%GTC => 8%

The pricing policy followed by the players.

Pricing policy is generally fixed across the industry. Thus it can be said that a “cost par” pricing policy is followed. It is essentially a “follow the leader” strategy.

The non-price competition among the players.

Looking at criteria like after sale service, discount offers, sales etc, it can be said that in the cigarette industry there is no non-price competition amongst the players, other than promotional methods.

Market structure => Oligopoly.

Consumer preferences

Are fixed. Consumers tend to be fiercely brand loyal. Price increases tend not to bother them. Mostly they identified their choice as one of taste and smoothness of the tobacco in the cigarette they smoke.

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RECOMMENDATION

After completing this project, we have recognized that some important learning’s have emerged from it. These learning’s provide an insight into some aspects of the cigarette industry that were hitherto unknown to us.

These learning’s might also prove useful to the various players in this industry; hence, they are being noted here for reference.

1.) Customers are fiercely brand specific and loyal, thus, changing customers’ brand preferences is very tough. Hence, any new brand that is launched takes time to find acceptance. The decreasing number of smokers and prospective smokers in India worsens the situation. Thus, for faster product trial and market penetration it is suggested that new brands not be launched in the “cold”, rather they should be aligned with an already existing and well-known brand.

Also, in all future public communication, they should Initiate the use of “suggestive stimuli” for the various brands that they market. Then subliminal perception will ensure greater acceptance for any brand launch/re-launch. It will also ensure “impulse” purchases that can lead the way to brand loyalty.

2.) The recent ban on cigarette advertising will make garnering publicity for all brand launches and new product launches very tough. Thus, it is thought that here too differentiation strategy be followed.Different players should position themselves in such manner that is legally allowable and is also effective in getting mind share.One suggestion is that the concept of “responsible smoking” should be promoted through the proper channels.

This will take care of the CSR (corporate social responsibilities) activities, and also earn legitimate publicity.

For direct sales, innovative channels like Internet marketing, creative new points of purchase and attracting prospective smokers through “stimuli” marketing should be explored.

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REFERENCES FOR BIBLIOGRAPHY

For the purpose of compiling substantial amount of information regarding the status of the cigarette industry in general and other specific details regarding price structure and the like, we had to majorly seek the help of the Internet

To substantiate our research, reference of certain books was taken in case of the formation of questionnaires and also later in the research for the analysis.

The books referred to were: -

1.) Managerial Economics (1st Edition) by Dr. D N Pandey. (Chapter 6, Market Structure)

2.) Modern Microeconomics (9th Edition) by Dr. H L Ahuja. (Chapter 29 – 30, Oligopoly)

3.) Business Statistics (5th Edition) by Amir D. Aczel and Jayavel Sounderpandian. (Chapter 16, Sampling Methods)

4.) Modern Market Research (6th Edition) by Boyd and Westfall. (Chapter 5 – 7, Research methodology, sampling, questionnaire formation etc.)

5.) Annual Summer Training Reports. (2003) (IMT Library).

The websites visited were: -

1.) www.domain-b.com 2.) www.indiainfoline.com 3.) www.itcportal.com 4.) www.godfreyphillips.com 5.) www.myiris.com 6.) in.biz.yahoo.com/p/v/vsti.bo.html7.) www.governmentofindia.com 8.) www.indiastat.com 9.) www.icraindia.com 10.) Hindu businessline.

And some other assorted websites, which were got through, search commands on www.google.com.

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