TOBACCO SECTOR

PORTER’S FIVE FORCES

Threats of New Entrants=LOW
•New Product differentiation Very Tough – already cigarettes at different price points, flavors, brand
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• Access to distribution channel is tough – big & established players are present (e.g. ITC)
• Capital requirement is very high for a pan India launching;
• Local launch can not catch up scale – Can’t use Economies of scale
• Government policy – high tax, no TV/Radio Ads

Bargaining Power of Suppliers=LOW

•Many inputs are required but in small amount – paper, tobacco, filter
•There are many small scale, unorganized suppliers
•Cigarette companies are big and have direct access to distribution channel and addicted buyers.
Suppliers don’t have much control over smokers.

Bargaining Power of Buyers=LOW

•Addicted customers - even after knowing harms – people can’t leave it
•Smoking has lot of symbolic and emotional values attached with it
•Product quality not much important to smokers – Research shows most people cannot differentiate
among the brands in a blind taste
•Low switching costs in terms of price

Threat of Substitute Product=LOW

•Herbal Cigarettes (e.g. Nirdosh) were launched – but did not become popular (no emotional value)
•Nicotine patch is another substitute – but again no comparison with cigarettes in terms of
popularity and usage

Competitive Rivalry in the Industry=HIGH

•Many competing players: ITC, Godfrey Philips, VST, GTC etc - see chart below
•Price competition continues
•Advertisement for cigarettes is now prohibited in India
•Replacement for ads – event sponsorships and sales promotions •All making new product launches