Winter Project Report

MARKET SURVEY AND ANALYSIS FOR THE TWO NEWLY LAUNCHED CIGARETTE BRANDS BY ITC
NAMELY

FLAKE EXCEL AND NAVY CUT(RSFT)

Submitted By: Saurabh Saini SJMSOM,IIT Bombay

Table of Contents
1. About Cigarette industry in India and ITC 2. (a) Hierarchy (b) Methodology 3. (a) Company’s cigarette Portfolio (b) Margin table of all cigarette brand of ITC (c) Classification of brands under Luxury ,Middle level and economic segment (d) Performance analysis of all ITC cigarettes 5. Target segment for Flake Excel and Navy Cut (rsft) 6. 7. Performance analysis of cigarettes in RSFT segment Survey: (a) Questionnaire for Retailers (b) Questionnaire for consumers (c) Results and observations (d) Characteristics of the target segment 8. SWOT analysis 9. Causes of low sales 10. Recommendations

Project
Market research for the two newly launched cigarette brands Flake excel and NC rsft.

Introduction
Cigarette is a product which is harmful for health, in spite of this feeble; its sales are increasing globally. The product has been ban from advertisement and promotional activities. It is a challenge for the companies to sale this product and build its brand. The Cigarette Industry is one of the oldest industries in India. India is the second largest producer of tobacco in the world after China. It produced 572 million kilograms of tobacco in 2002-2003. Approximately 5.5 trillion cigarettes are produced globally each year by the tobacco industry, smoked by over 1.1 billion people, which is more than 1/6 of the world's total population. ITC is the market leader in cigarettes in India. It's highly popular portfolio of brands includes Insignia, India Kings, Classic, Gold Flake, Navy Cut capstan etc. Gold Flake is the top brand of cigarettes in India. It was launched by ITC in the seventies. It is a well-positioned brand in India and is the market leader in its segment. Major amount of the revenue of ITC are earned through the sales of cigarettes. The company today is facing competition from International players. Today the cigarette industry of India is booming in the market. The sales of cigarettes are increasing day-by-day. In future the company may face many challenges from competitors and government, but it is very difficult to change the aspirations of the consumers. Due to this the company is benefited. It has been predicted by the company the sale of Gold Flake will grow at the rate of 8% annually.

Hierarchy

Asst. Manager

Area Executive

Area Executive (Vivek Jain)

Area Executive

WD1 (Rural)

WD2 (City)

WD3 (Town)

Supervisor1(Neeraj) Vinod Gulshan Rajesh Romy Dayashankar

Supervisor 2 (Rashid) Yashpal Govind Virender Naushad

Supervisor3(Sanjay) Rohit Firoz Ramchand Sharwan

Methodology
The project was carried under the guidance of Area executive Mr. Vivek Jain and Supervisor named Rashid who introduced with all the activities carried out at the distributor centre. The Primary Data Collection Method Survey was carries out in which consumers and retailers were asked to give their responses in the questionnaire. To find out the performance the two newly launched brand , survey was carried out. Separate questionnaire were prepared for the retailers and the consumers. Based on their response the reasons for low sale were found out and recommendations were made. Since it was impossible to interview each and every person , a sample size of 33 was chosen i.e. 33 consumers were interviewed. The consumers interviewed were basically middle class or low class people.

Overview of Brand Portfolio:
Brand Name Insignia India Kings B & H(Lts/spl) Gold King NC (Long) Gold Flake(Pr) Nc Rsft Flake Excel Capstan DS Rate per M 6042 4741 4661.51 3968 3100 2658 2132 1686 1746 Retail Rate per M 6090 4779 4699 4000 3125 2680 2150 1700 1760 M.R.P. Rs. 140 Rs. 110 Rs. 105 Rs. 44 Rs. 34 Rs. 29 Rs. 24 Rs. 20 Rs. 19 No. of Sticks 20 stick pack `` `` 10 stick pack `` `` `` `` ``

Margin Table

Brand Name

DS Rate per M

Retail Rate per M

M.R.P.

No. of Stick s

Price for Consumer

Margin of Salesman(% )

Profit % of Retailer per M

Profit Per pack to Retailer

Insignia India Kings B&H(Lts/spl) GoldFlake(Ksft NC(LSFT) Gold Flake(Pr) Nc Rsft Flake Excel Capstan

6042 4741 4661.5 3968 3100 2658 2132 1686 1746

6090 4779 4699 4000 3125 2680 2150 1700 1760

Rs. 140 Rs. 110 Rs. 105 Rs. 44 Rs. 34 Rs. 29 Rs. 24 Rs. 20 Rs. 19

20 20 20 10 10 10 10 10 10

Rs. 7,000 Rs. 5,500 Rs. 5,250 Rs. 4,400 Rs. 3,400 Rs. 2,900 Rs. 2,400 Rs. 2,000 Rs. 1,900

0.794439 0.801519 0.804246 0.806452 0.806452 0.82769 0.844278 0.830368 0.801833

14.94253 15.08684 11.7259 10 8.8 8.208955 11.62791 17.64706 7.954545

Rs. 18.20 Rs. 14.42 Rs. 11.02 Rs. 4.00 Rs. 2.75 Rs. 2.20 Rs. 2.50 Rs. 3.00 Rs. 1.40

Margin of Salesman

: 0.80 %

Margin of Distributors : 1.45 %

Classification of Brands as Luxury, middle and Economic segment brands Brand Name
Insignia
Luxury Segmen t

Price per stick
Rs. 7.00 Rs. 6.00 Rs. 5.50 Rs. 5.00 Rs. 5.00 Rs. 3.50 Rs. 3.00 Rs. 2.50 Rs. 2.00 Rs. 2.00

India Kings B & H (Lts/ Spl) Classic(Reg. , U Mild ,Menthol)

Middle Level Segmen t

Goldflake (KSFT) Navy Cut (LSFT) Gold Flake Premium Navy Cut(RSFT)

Economi c Segment

Flake excel Capstan

Target segment for Flake excel and NC Rsft:
The target consumers for Flake excel and NC Rsft is the people lying in the lower income group roughly around 1 to 3 lc per annum. Saharanpur city has got a good number of smokers and majority of population comes under lower income level. 1.The city is surrounded by a large number of villages and rural areas. 2. There is an ample number of workers engaged in the small scale business. 3. The city enjoys a large crowd coming from villages( be it, for shopping for their small business at their homes or be it selling their crops) and getting back by night. 4.Even the small shopkeepers and businessmen likes to stick to the price range of 13 Rs. Per stick. 5. Majority of students in degree colleges are from the rural areas in and around the city. They prefer to stick to the low cost cigarette segment. 6. People are less heath conscious and hence don’t prefer the cigarettes having large filters and more refined tobacco cigarettes i.e. cigarettes from KSFT segment.

Performance of ITC products:
Saharanpur city is surrounded by a large number of villages. And the standard of living of the people in city is low . KSFT: The sales figure of luxury brands like insignia and India kings is very low. LSFT :Medium Level Classic, gold flake (LSFT) and Navy Cut are performing comparatively better. RSFT :In the lower cost segment Gold Flake (RSFT) and Capstan are performing excellent but on the flipside the performance of Flake Excel and NC rsft is quiet poor.

Sales (number of cigarettes sold per month):

6 2 3

Sales(x M)
100 500 500 Insignia India Kings B & H (Lts/ Spl) Classic Goldflake King Size Navy Cut Large size Gold Flake Premium 3300 Navy Cut(RSFT) Flake excel Capstan

3300

36 36

Competitors in RSFT segment:
     Four Square Red and white Moments Canevders Some local players like number 10,dolphin,paris,golden elephant etc. providing the retailers a very heavy margins of around Rs. 7 on a cigg. Packet of rs. 10.

Performance of the five brands:
      Four square Red and White Moments NC Rsft Cavenders Flake Excel

Sales(packs sold per say basis)
14

15

RnW Four Square Moments Flake Excel NC rsft Capstan Goldflake Premium

15

14

1 1

2

Questionnaire for consumers

Survey is conducted at various places in the city from crowded ones like Railway station , bus stands to various colonies. Observe Age Group: Profession:

1.Do you know under which company the brand you smoke comes? Yes: No: 2. Which is your favorite brand?
6 5
4 3 2 1 0

17 16

3. Since how long you have been smoking this brand?

4. How frequently it gets changed? Ans. 0 -3 months 3-7 months 1-2 years 2-5 years 5. Health conscious : Do you give importance to filter while selecting the cigarette? Consider Never given a thought 10 23

6. Brand selection means by trial By Advertisement By word of mouth. 7. Brand loyalty Vs. Visibility Give a chance to new brand Don’t bother 8. Effect of price hike on buying pattern.. Change: Don’t change 9. What would you prefer A full packet of open. Full packet of favorite brand Open : : 14 19 23 10 8 25 10 5 18

10. What is basis for selecting a particular brand? Ans. Taste and Price

Questionnaire for Pan Vendors and Tea Stalls

o Observe visibility How much cigarette packs of every brand do you sell each day?
50 40 30 20 10 0 1-4 cigg per day 1 packet
Flake Excel

50 40 30 20 10 0 1-4 cigg per day 1 packet
NC rsft

Their opinion regarding low sales of Flake excel and NC rsft Most sold brands and their price range.. Are customers aware of the launch of these two brands. Any availability or supply issues? Effect of schemes (retailers know it better ) on brand loyal customers

Observe which brands are getting sold in boxes and which are getting sold open(especially flake excel and NC) Are people liking NC as they loved the NC Lsft.

Type of people visiting students(which brand),professionals(Brand) Middle class(Brand)

Characteristics of consumers pertaining to this segment
Usually less health consciousness Probably stick to low priced sticks. Not ready to experiment until and unless pushed retailers or tempted with an scheme Taste and price are the two topmost criterions. Passive to online publicity. Highly effected by promotion through TV, Cinemas, flexes and posters( banned by government) Not eager to try new brands i.e. less impulsive. Don’t believe in show off. Prefer to buy open rather than whole packets.

SWOT analysis

Strength

Weakness: Brand is spoiling the youth of our country. Government tax policies and excise duty is very harsh as far as tobacco is concerned. Ban on advertisements and promotional activities.

Very strong and wide spread distribution network. Well established brand name. Computerized operations at distributor’s point.

Opportunity:

Threats: Improving infrastructure and distribution system of the competitors. Increasing health awareness among the people. Hoarding of distributors, wholesellers and retailers at the time of budget declaration. Harsh Government rules like creation of no smoking zones.

Smokers are addictive hence the demand is stable most of the time.

Causes of failure
Cannibalization: Capstan is already well established player at the price of Rs. 2 per stick. Launching a product at the same price level was unable to drag more crowd to its basket. Excel and NC are themselves facing a fierce competition from the other products of ITC Clash with more attractive scheme of R and W (SLIDE SCHEME): Taste plays a very important role in selecting a cigarette, trying cigarette with totally new taste is always distasteful .The schemes offered by Flake Excel almost failed as Red and White and Four square are well accepted brands speaking in terms of taste and the schemes offered by them is more liked the retailers and it was pretty easy for them to push already set brands like R & W and Four Square. (b)When compared to the schemes offered by Flake excel and Navy Cut(rsft), R & W and four square offered more tempting schemes . Flake excel offered (EMPTY PACKET REDEMPTION SCHEME) from 26th Aug 09 to 7th Dec 09. Navy Cut offered OFF TAKE scheme 8 + 1 Gold Flake (rsft) Whereas R & W is offering SLIDE SCHEME (c)Regarding the visibility efforts , ITC lost at some prominent places like railway station where companies like GPI have acquired the front display at all the pan vendors and tea stalls. Competition offered by local brands that provide a good amount of margin to the retailers. In the crowded areas like railways station and Bus stands ,where the target crowd in plenty, the stalls prefer to push the local brands as they getting a handsome amount of profit per pack for instance, they sell a pack for Rs. 10 which cost them around Rs. 3.Hence they earn Rs. 7 per pack in comparison to Rs. 1 or 2 they earn on a packet of RSFT cigarettes. Acceptance level of change: Majority of people in this segment are 35 or above. 90% of people refused to try new brands until pushed by retailers or until they find any profit buying these cigarettes.

Recommendations:
1. The schemes offered should benefit consumers as well as retailers. Till now the schemes were limited to just retailers only, where ITC faces a tough competition by more profitable schemes of R & W and four square. Since cigarettes take some time to become one’s favorite as taste is a very important factor. It takes some time for the consumer to like the taste of a cigarette. 2. ITC should use the established brand like gold flake (rsft) in the schemes to push flake excel and NC.

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