Pricing Strategy by the Indian Cigarette Industry

Topics: Tobacco, Cigarette, Nicotine Pages: 6 (1528 words) Published: December 25, 2012
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Marketing Program Design

Table of contents
Table of contents2
1 Introduction: Cigarettes3
2 Cigarette Industry in India3
2.1 Cigarette Market Share in India5
2.2 Price Spread of Cigarettes in India5
3 Manufacturing Process6
4.1 Distributor7
4.2 Wholesale Dealer8
4.3 The Retailer8
5 Pricing Strategy11
5.1 Pricing Objective11
5.2 Determining Demand11
5.3 Estimating Cost12
5.4 Selecting a Pricing Method12
5.5 Selecting the Final Price12
6 Taxation on Cigarettes (Exhibit 1)13

1 Introduction: Cigarettes
Nearly 20% of the world’s adult population smokes cigarettes. Smokers consumed nearly 5.9 trillion cigarettes in 2009, representing a 13% increase in cigarette consumption in the past decade. India is the second largest manufacturer of cigarette products in the world after China. India’s consumption per capita stands at 99th place in the world. (Source: World Health Organization)

2 Cigarette Industry in India
Cigarettes account for less than 15% of tobacco consumed in India unlike world pattern of 85% due to prolonged punitive taxation. Cigarettes (15% of tobacco consumption) contribute the bulk of Revenue to the Exchequer from tobacco sector 48% of adult Indian males consume tobacco. Only 10% of adult Indian males smoke cigarettes as compared to 16% who smoke biris and 33% who use smokeless tobacco (Source: Global Adult Tobacco Survey India 2010)

Biri: Cigarettes ratio = 8: 1
Annual per capita adult cigarette consumption in India is approximately one tenth of world average. Future growth depends on relative rates of growth of per capita income and moderation in taxes.

Figure [ 1 ]: Per Capita Consumption of Tobacco in India
Per Capita tobacco consumption is ~ 60% of World Average
(Source: World Cigarettes – ERC Statistics, Tob Board & Industry Estimates – gms/Yr)

Figure [ 2 ]: Per Capita Cigarette Consumption – per annum Per Capita cigarette consumption in India < 11% of World average. (Source: The Tobacco Atlas – 3rd Edition)
3.1 Cigarette Market Share in India

Figure [ 3 ]: Market Share of the Indian Cigarette Industry 3.2 Price Spread of Cigarettes in India
The below graph depicts the price spread of various cigarettes.

Figure [ 4 ]: Cost Comparison per Stick

3 Manufacturing Process
* Cigarette manufacturing process involves processing of tobacco leaf and stem to different tobacco blends, which is cut tobacco. * Cut tobacco is then converted to cigarette using other raw materials for making cigarettes and packing them in various forms as per the trading requirement. * ITD receives various grades of Tobacco Leaf and stem from Indian Leaf Tobacco Division (ILTD) based mainly in Guntur, Andhra Pradesh. * The cut tobacco is then sent to the secondary manufacturing division (SMD) for making and packing cigarettes. * At SMD, there are two processes: Making and Packing

* Making is the process is the rolling of cigarette.
* Packing process is packing of these cigarette sticks in the cigarette packets of various pack styles. 4 SUPPLY CHAN MANAGEMENT
ITC has got over 900 wholesale dealers serving more than 1 million retail outlets. The following components are in supply chain management.
* Production: It all about where business focus on how much to produce, where to produce it and what are the suppliers to use. * Inventory: It all about where the business decides where to store their products, and how much to store. * Distribution: where the business address questions about how there should be moved and stored. * Payments: It concern about where business look for the best ways to suppliers and get paid by customers.

5.3 Distributor
Distributor aids manufacturer spreading its products to various geographical...
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