Tobacco Industry Analysis

(Porter’s Five Forces)

1) Threat of New Entrants (LOW)

→ New Product differentiation very tough - already cigarettes at different

price points , flavours, brand image
→ Access to distribution channel is tough - big & established players are present
→ Capital requirement is very high for a pan India Launching
→ Local launch cannot catch up sales – can’t use Economies of scale
→ Government policy – high tax, no TV/Radio Ads

2) Threat of Substitute Product (LOW)

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

3) Bargaining Power of Buyer (LOW)

→ Addicted customers – Even after knowing harm, people can’t leave it

→ Smoking has lot of symbolic and emotional values attaches with it
→ Product quality not much important to smokers – Research shows most people cannot
differentiate among the brands in a blind taste
→ Low switching cost on terms of price

4) Bargaining Power of Supplier (LOW)

→ Many inputs are required but in small amount – papers, 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

5) Competitive Rivalry in the Industry (High)

→ Many competing players : ITC (72%), Godfrey Philips (12%), VST (8%), GTC (8%) etc
→ Price competition continues
→ Advertisement for cigarettes is now prohibited in India
→ Replacement for ads – event sponsorship and sales promotions
→ All making new product launches