Assignment

On
Pricing Strategy
GROUP ASSIGNMENT – No. 1
Pricing Strategies for consumer products
Submitted to: Dr. S. R. Singvi

Group no. – 2, Section - B

Ajay Aggarwal 062
Anuj Sharma 075
Karan Madogaria 087
Prakahar Singh 100
Shubhro De 112
Acknowledgement
We would like to express our gratitude to Dr S.R Singhvi for encouraging and guiding us
during the course of this assignment. We would also like to take this opportunity to extend
our acknowledgement to the ITC Distributer Aggarwal & Co, Dealer Nation Agency, Goyal
and sons wholesalers , Mr. Raj Kumar, ITC Distribution Manager and also the whole lot of
retailers who took time from his busy schedule to answer our questions and explain the
intricacies of the business .We are also thankful to the retailers and semi wholesalers for
providing us with relevant information that was required for successful completion of this
assignment .

It has been a enriching experience for us to conduct a market research, interact with the
retailers, wholesalers and distributors face to face and gain an insight into the different
pricing strategies adopted by different companies. in the highly competitive and regulated
framework of the cigarette industry.

i
 TABLE OF CONTENTS

S. No. Topic Page

No.
1 Acknowledgement i
2 Table of Contents ii
3 Cigarette Industry in India 1
4 Methodology Used 3
5 Price Spread 5
6 The Manufacturer 7
7 The Distributor 10
8 The Wholesaler 13
9 The Retailer 16
10 Indian Tobacco Industry (ITC) 17
11 Godfrey Phillips India 19
12 Unbranded 20
13 Pricing Strategy followed by manufacturer (ITC) 21
14 Observations and Conclusions 22
15 Problems Faced 23
16 Exhibit 1 iii
17 Exhibit 2 v
18 Exhibit 3 vi
19 Exhibit 4 vii
20 Exhibit 5 viii
21 Exhibit 6 ix
22 Exhibit 7 x
23 Exhibit 8 xi
24 Exhibit 9 xiii
25 Exhibit 10 xiv
26 Exhibit 11 xv
27 Exhibit 12 xvi
28 Exhibit 13 xvii
29 Bibliography xviii

ii
Cigarette Industry in India
The cigarette industry is highly labour intensive and important agro based industry providing
livelihood to about 5 million people directly and indirectly. Cigarette is an item falling under
the First Schedule to the Industries (Development & Regulation) Act, 1951 and requires an
industrial license.

Environmental Analysis

Demographic

Age – In the age group of 25-64, 24.5% of the population has at some time consumed some
form of tobacco (of which cigarettes is roughly one-sixth). Changing demographics indicate
an increasingly young consuming class with nearly 60% of the population in the age group
15-59.
Gender – Approximately 12.8% of the male population and 1.1% of the female population in
urban metros have consumed some form of cigarettes. Thus, the male population is the
primary target for the cigarette industry.
Income - Upper-middle income households consume the highest cigarettes. While
consumption declines in higher income group in urban areas, increasing consumption trend
is observed in rural higher-income households. Poor households in rural areas are the
lowest cigarette consumers.
Region - Urban low and lower-middle income households consume more cigarettes
compared to the similar income groups in rural areas.
Education -Unlike in developed countries, in India, as the education increases, urban and
rural households with a higher education smoke more cigarettes compared to lower
educated households.

Economic Environment

Of the total tobacco produce in India, only 50% is used in the domestic market and of this
domestic consumption of tobacco, only 16% is used by cigarette industry. On the average,
cigarettes account for about 85% of tobacco consumption globally, whereas cigarettes
shares have declined from 21% two decades ago to about 14% currently.

Natural Environment

There is no scarcity in supply of raw tobacco (mainly produced in Andhra Pradesh)since the
net income earned by the farmers from cultivating tobacco has been found to be much
higher than the net income earned from other crops.

Political-Legal Environment

The cigarette industry in India continues to operate in a challenging economic environment,

particularly with respect to taxation and regulations relating to communication and

1
consumption, thereby stifling cigarette consumption in India in comparison with other
forms of tobacco consumption. It is estimated that contraband cigarette trade in India sets
the country back by nearly Rs.2000 crores annually through loss of tax revenue and
unaccounted outflow of foreign exchange.

Social-cultural

There is a growing public concern regarding increasing consumption of tobacco, its health
implications and the need to prevent access to minors and non-users. With a view to
achieving improvement of public health in general, the Government of India has banned the
advertising of cigarettes in India, sale of cigarettes to any citizen below the age of 18 etc. All
such restrictions by the government have made the promotion of cigarettes almost
impossible. It is mostly by word of mouth that the sales of cigarettes have risen.

Implications

The cigarette industry has always been on the receiving end when it comes to imposition of
taxes and duties in the financial budget of the country affecting its competitiveness in the
global market. Its growth is being further stifled by the imposition of ban on smoking at
public places and ban on advertisements. In addition to this, increasing awareness about
harmful effect of smoking and lawsuits has made the entire scenario pretty gloomy for the
industry. This leads to increased government regulation and public litigation and a reduced
ability to promote the product. In such a scenario, cigarette companies in India are going in
for unrelated diversification.

The major players of cigarettes in India are Indian Tobacco Company (ITC), Godfrey Philips
(GPI), Golden Tobacco Company (GTC), Philip Morris and there are a number of local
players.

2
Methodology Used
The whole process of acquiring information was broadly divided into parts

• Primary data
• Secondary data

Primary data – Data was collected through interaction with the various channel partners, i.e.
Distributers, Wholesalers, retailers. They gave us insights into various intricacies of the
business and we were able to understand the business in a much better way.

We conducted surveys in Delhi and adjoining areas to gather information.

Apart from the marketers and channel partners we also tried to analyse the customers in
order to determine demand, their perception about various brands and also their
preferences.

3
Problems Faced - There were many problems faced while indulging in this study, some of
them are as follows:-

• People reluctant to give data

• Chances of gathering incorrect data
• Analysing the gathered data, and making appropriate adjustments

4
Price Spread

This Graph represents the price spread of various brands of cigarettes when normalised as
price per 10 mm.

5
This graph depicts the price spread of various cigarettes, when considering a single
cigarette. We can see the variance in price right from Rs 1 per cigarette to Rs 7.

6
The Manufacturer

• Purchase
• Carrying
Procurement • Storage

• Stemming
• Plant Operation
• Reconstituting
Processing • Blending / Cutting
• Drying

• Plug Making
• Cigarette Making
Cigarette • Packaging
Making

• Transportation
• Quality Control
Shipping

Note : the actual cost of manufacturing could not be ascertained due to company’s
confidentiality matters. The operating profit was accounted to be at 41% and net profit at
14%, but we did not extrapolate on that as they are a cumulative figures and and cannot
be estimated for specific brands

7
Manufacturing Process - Cost Analysis

The graph shows the components of costs in manufacturing a cigarette (exhibit

exhibit 1). It gives a
relative picture of the costs involved in manufacturing. The major portion is bored by
purchase of tobacco, processing
processin it and then making cigarettes.

The manufacturer produces cigarettes at its factory and then delivers them to distributor.

There is a strict code of financial practices followed by the manufacturer, the distributor
needs to make the payment in advance and only upon receiving of the money does the
manufacturer ships the goods.

The goods can be dispatched on a regular basis or if there

there is a higher demand the distributor
can place an order with the manufacturer.
manufacture

In case of certain brands like Benson and Hedges, 555, Rothmans etc,
etc, the cigarettes are
manufactured by organizations other than the parent company. E.g. Benson and Hedges a
product of British American Tobacco is manufactured and distributed by ITC India Ltd, under

8
a licence agreement. Here ITC is making use of the brand image of B&H to sell a premium
cigarette (price Rs 90/20 cigs) which increases its profits also at the same time establishes
ITC as premium cigarette player which enhances its own premium brands like Classic and
India Kings

9
The Distributor
A distributor is an organization which enables a manufacturer to spread its products to
various geographical locations. In return to this it gets a certain amount of the profit
margins. These margins (usually 1.45%) can be decided by the manufacturer or be
determined by market demand (Exhibit 5).

Usually a distributor has a certain geographical boundary in which it distributes goods. The
manufacturer supplies goods to the distributor’s warehouse from where it supplies to
retailers and wholesalers.

The distributor has its hawkers, who on commission basis (0.6%-0.8%) sell the goods to
retailers. A large distributor (large geographies) may also supply to smaller dealers who then
sell to retailers. This reduces their profit margin but the cigarette industry is more of a
volume based industry rather than margin based.

A Danda

The manufacturer gives the distributor a target i.e. the amount of stock it must sell. At times
the distributor might find it difficult to reach those targets, in such conditions it may indulge
in irregular practices like selling in different regions. The manufacturer does not approve of
such practices but it is very hard to keep a check on them as most of the business is done
over telephone and on strictly cash basis.

10
Types of Lot -

M – 1000 cigarettes
Danda – outer cover having 10 – 20 cigarette packets
Carton – many Danda

Brand Distributor
Cost Selling Margin %

Insignia 5.9553 6.0417 0.0864 1.4500

Garam
India Kings 4.2538 4.3155 0.0617 1.4500
Gold Flake 3.5692 3.6210 0.0518 1.4500
Classic Mild 3.9116 3.9683 0.0567 1.4500
Classic Ultra Mild 3.9116 3.9683 0.0567 1.4500
Classic Regular 3.9116 3.9683 0.0567 1.4500
Wills Classic Menthol 3.9116 3.9683 0.0567 1.4500
Classic Verve 3.9116 3.9683 0.0567 1.4500
Wills Navy Cut 3.0559 3.1002 0.0443 1.4500
Silk Cut 1.9754 2.0040 0.0286 1.4500
Gold Flake (s) 2.4448 2.4802 0.0354 1.4500
Flake 1.7113 1.7361 0.0248 1.4500
Wills Flake 1.7113 1.7361 0.0248 1.4500
Four square 1.7113 1.7361 0.0248 1.4500
Red & White 1.6624 1.6865 0.0241 1.4500
Cavanders 1.7113 1.7361 0.0248 1.4500

11
555 3.9995 4.0575 0.0580 1.4500
Benson & Hedges 3.9116 3.9683 0.0567 1.4500
B&H - Light 3.9116 3.9683 0.0567 1.4500
Marlboro 3.9115 3.9682 0.0567 1.4500
Marlboro Light 3.9115 3.9682 0.0567 1.4500
Marlboro Menthol 3.9115 3.9682 0.0567 1.4500

12
The Wholesaler
The wholesaler in the cigarette market work on very low profits (Exhibit 6) here a lot of
wholesalers work on a "Gatta" (i.e. The wholesalers are not very keen to give the carton to
the customers unless and until the customer takes a quantity as the empty carton sells for
Rs. 20/- and that is what the wholesaler earns in the whole transaction.

The wholesalers procure their goods from various channels i.e. Distributors, wholesalers etc.

While surveying the market we came across a very interesting thing i.e. the distributor
supplied cigarettes at a price but the wholesaler sold the cigarettes at a lower price then the
distributor (e.g. Gold Flake (s) was available for Rs. 2460/- a "M" whereas the distributor
was selling it at Rs. 2480/-).On enquiring we were surprised to find out that:-

a) They procure their cigarettes at lower price from distributors outside the state
and also from wholesaler outside the state, on further enquiry we came to know
that these outside distributors supply at a lower price than the local distributors as
they want to clear their stocks due to lack of funds or completion of targets. The
company does not allow them to sell their goods in the same market so they sell in
markets outside their locality or state.

b) As Gold Flake was the highest selling cigarette the some wholesalers were selling
it at cost or even lower than that to attract maximum customers and they can sell
other branded and non branded cigarettes to them.

An M

13
 A Carton

During the survey we came across certain terminologies : a) 1 "M" -- 1000 cigarettes b)
"Danda/outer" -- A standard pack of boxes of cigarettes from the company (different for
different brands) c) "Gatta" -- A carton carrying outer d) "Dibbi"-- A box carrying either 10
or 20 cigarettes.

The price in the market is determined by a major player who opens the price in the morning
and the other smaller wholesalers have to sell at the same price. The prices in the
wholesale market fluctuate and there are no fixed prices as there is always a price war going
on in the market. The day the major player is absent from the market the price in the
market goes up.

14
Note: See Exhibit 6

The non branded cigarettes sell at a higher profit margin and there is no fixed rate for these
cigarettes.

The payment conditions in the wholesale market is advance or across the counter cash
payments. On further enquiring we came to know that it is due the low profit margins and
cut throat competition that
at they don’t give credits. Credit of a few hours is given when the
wholesaler in the same market takes the goods, that too to maintain relationships.

15
The Retailer
The retailers in the cigarette industry is working on avg. 11% margin and 35.65% margin in
branded and non branded cigarettes

The profit margin on the branded cigarettes is lower than the margin on the non-branded,
as in the non branded segments the there is no rate printed on the box and the rate is
determined as per the demand and supply dynamics (Exhibit 9).

The ITC brands are the most selling brands in the market app. 60% of the sales of a retailer
is contributed by its brands

Being a low margin product the major inventory driver is the quantity sales as in case of
Gold Flake (s) which is the highest selling cigarettes in most of the markets and shops they
keep its stocks to the maximum level.

The procurement rate of all the retailers is same for the branded cigarettes and the selling
rates too but in case of the non branded cigarettes the rates depend on various factors such
as (quantity of order purchased, payment, etc.)

On the selling side there is no competition in terms of price and most of the times the
customers are fixed but in case of non-branded the retailers do enter a price war as the
procurement rates are different and there are larger margins as compared to the branded
cigarettes.

Retailer % Margin
15.00
14.00
13.00
12.00
11.00
10.00
9.00
8.00
7.00
6.00

16
Indian Tobacco Company (ITC)
Manufacturer

Distributor

Wholesaler Dealer
Wholesaler

Retailer

Consumer

Note: The manufacturer stores its finished goods with CnF agents at the outskirts of the city

ITC is the market leader in cigarettes in India. With its wide range of brands, it has a leadership
position in every segment of the market. It's highly popular portfolio of brands includes Insignia,
India Kings, Classic, Gold Flake, Silk Cut, Navy Cut, Scissors, Capstan, Berkeley, Bristol and Flake. It
has 66% market share of the Indian cigarette industry. It has 22 distributors and multitutedes
retailers in Delhi and NCR. It has cigarette brands for almost every market segment because it offers
various brands of cigarettes in a wide price range of Rs. 2.0 to Rs. 7.0 per stick. Also it offers a wide
variety of cigarettes in terms of flavour and size. ITC Limited also manufactures and distributes

17
cigarettes of other companies under licence. E.g. Benson and Hedges, State Express 555 under
license from British American Tobacco. ITC had introduced new brands, with the main purpose being
the promotion and advertisement of few of its cigarette brands. But few of these brands turned out
to be very successful over time and came to be established as major brands in their own sector of
market. E.g. Wills Lifestyle was initially established to advertise and promote ITC’s Wills brand of
cigarettes.

Brand Cost price Selling Price Percentage

(Box) (Box) Margin
Size = 10 mm Size = 10 mm Size = 10 mm
Insignia 12.56 13.40 6.73
India Kings 10.71 11.90 11.11
Gold Flake 4.50 4.76 5.26
Classic Mild 4.76 5.24 10.00
Classic Ultra Mild 4.76 5.24 10.00
Classic Regular 9.52 10.48 10.00
Wills Classic Menthol 9.52 10.48 10.00
Classic Verve 9.52 10.48 10.00
Wills Navy Cut 4.32 4.59 6.25
Silk Cut 2.91 3.19 7.32
Gold Flake (s) 3.62 3.91 8.00
Flake 2.50 2.75 8.57
Wills Flake 2.75 2.90 5.26

18
Godfrey Phillips India
Godfrey Phillips India is the second largest player in the Indian cigarette industry. They own some of
the most popular cigarette brands in the country like Four Square, Red and White, Jaisalmer,
Cavanders and Tipper, as well as revolutionary brands like Stellar (the first slim cigarette) and I-gen
(the first euro norm cigarette in India). Its products are distributed over an extensive India wide
network of more than 500 distributors and 800,000 retail outlets. Godfrey Phillips India has two
major stakeholders, one of India's leading industrial houses - the K. K. Modi Group and one of the
world's largest tobacco companies, Philip Morris.

Cost price Selling Price Percentage

Brand (Box) (Box) Margin
Size = 10 mm Size = 10 mm Size = 10 mm
Four
2.60 2.75 11.11
square
Red &
2.60 2.75 11.11
White
Cavanders 2.80 2.90 5.26

19
Unbranded

In the Unbranded segment, there are number of manufacturers. Typically the cigarettes of these
manufacturers are priced between Rs. 0.5 – Rs. 2 per stick. Most of them being priced at Re. 1. Due
to its low price its sales are more prevalent in the Rural market. Also, the retailers have higher
margins in unbranded cigarettes than in branded cigarettes, thus they prefer to stock and sell them
more. One important characteristic of unbranded cigarettes is the low Brand Loyalty and Brand
Recognisition. When customers buy an unbranded cigarette they are more conscious of the price
than the brand, the decision of the brand is more dependent on the retailer. Such cigarette
manufacturers are regional in nature. There sales coverage is over a certain region, and they usually
dominate their low price segment in that region.

Cost price Selling Price Percentage

Brand (Box) (Box) Margin
Size = 10 mm Size = 10 mm Size = 10 mm
Golden Elephant 3.62 3.62 0.00
Clock 100 1.01 1.30 28.57
Lucky 10 1.09 1.45 33.33
Davidoff 8.33 10.00 20.00
Classy 5.94 7.25 21.95
Popa 5.94 7.25 21.95
No. 10 0.94 1.45 138.46
Kartoos 1.38 1.45 5.26

20
Pricing Strategy Followed by
manufacturer (ITC)
The objective of the company is to maximize its market share, as the cigarettes industry
works on low margins so the company here tries to maximize its sales quantity so that it can
maximize its profits. Further the company dose not raise the price of its most selling brand
(Gold Flake (S)) so that it can get max market share and earn money on its premium brands
(Insignia).

The demand is here is inelastic as per the price changes as the customer are addicted. But
there is an inter brand elasticity as the people shift to competitive brands if the price of one
is raised (i.e. if the price of Gold flake (s) is raised then the consumers will shift to Wills Navy
cut as the consumer will get longer cigarettes and also a similar brand, Similar is the case
with Red & White and Gold Flake (s)

The cost structure of the company plays a major role in determining the prices the various
stages and the companies cost structure is as follows:- Fixed Cost(Plant operations) .69% &
Variable (manufacturing , packaging etc. 99.31%)

There are not much price or product variations in the competitor’s brands and all of them
work in the same segment.

The company is following a mark-up pricing method wherein the company mark-ups the
goods at a margin and then provides discounts to the various channel partners according to
its policy (e.g. the distributors have a fixed margin of 1.45% and the dealers have a margin of
.8%) the company also follows the consumer perceived value as the while launching its new
products in the super premium segment the company will price it at a higher price as the
consumer perceives it to be a high priced product.

ITC as the company works on the low margin, high volume strategy and also its channel
partners work on the same strategy, so the company raising its prices will have a huge
impact on its value chain (e.g. If the company raises its price without raising the mark up
price the channel partners will have to forgo part of their profits which would lead to
conflict between the channel partners and the company). Further on the company cannot
afford to raise its mark-up due to the presence of intense competition. So before making
changes to the prices the company will have to consider the interest of the channel partners
and also the strategies adapted by its competitors.

21
Observations and Conclusion
1. There is a constant problem of distributors selling across there boundaries, which is
because of higher targets for distributors and market demand helping them in
achieving higher margins. Also some distributors do not have large enough
warehouses to store large number of SKUs, so they need to disperse goods quickly.
Sol – manufacturer needs to keep a check on such activities and should keep a check
on the number of distributors, as they are under constant pressure with growing
number of distributors, eroding their territory.

2. The consumer survey (Exhibit 7), shows that consumers are less driven by price and
more by brand loyalty. And with the growing number of young demography they are
more chances of shifting to higher brands. An organization like ITC can make sure
that there is a higher availability to premium brands in all regions. This could fetch
them higher margins as they are more flexible towards price variation.

3. The distributor has more or less constant margins across all brands, which makes
storage and transportation a more costly affair and hence discourages them to keep
such SKUs. This restricts the flow of premium brands in the market. So the
manufacturer must encourage its storage by providing higher incentives

4. There is dearth of bridge products across price segments of similar brands. The
consumer survey shows that consumers are taste and brand oriented. And premium
brands command a higher profit margin so introducing products like a smaller 69mm
classic, or a 84 mm flake. To move customers to higher segment, larger profit and
more attractive brands.

22
Problems Faced
1. There is no price differentiation between Brands in the same segments, which
means most brands lie in a very narrow price range (as narrow as Rs. 2-3).

2. There is also very little product differentiation with respect to taste and size.

3. Taking length as the common standard may not have been the best way of price
comparison of different brands.

23
Exhibit 1

Description
Filter made of 95% cellulose acetate.

1. Tipping paper to cover the filter.

2. Rolling paper to cover the tobacco.
3. Tobacco blend.

Manufacturing Process of Cigarettes

HARVESTI G

Growing
Tobacco seeds are tiny but they germinate in 5 to 10 days. With in 2 months it grows
to a 15 to 20 cms before being transferred to the field.

Picking
The plants are ready for harvesting in a span of 3 to 4 months. The main type of
tobacco that are harvested are virginia and oriental.

Curing
The Curing the process plays an important in getting the tobacco its characterstics and
its taste. The Virginia tobacco leaves are hung in specialized curing barns, and heated
air removes water from the leaves while the oriental tobacco is dried in the sun.

Buying
Further the company buys as per the quality based sorting done by the farmers and the
assessment of quality done by the company.

BLE DI G

Handling
Under controlled atmosphere the tobacco is then treated to get it ready for cigarettes
and as the leaves are very delicate after the drying treatment.

iii
Mixing
An appropriate mix of the tobacco is then worked upon to get an appropriate taste in
the final product. The ingredients that are mixed are processing aids and humectants
for keeping the tobacco moist and pliable. There are further preservatives and brand
specific flavours added to the mixture to give it the required features.

Cutting
The tobacco leaves are then passed through the cutter, where the rotating blades chop
them with consistency. After the tobacco has been cut it is stored in cilos.

Checking
Post the cutting process the tobacco is then passed through stringent quality control
checks before being forwarded for the process of manufacturing cigarettes.

PACKAGI G
Supply
The tobacco is then transferred to the cigarette making factories by pneumatic
transportation.

Rolling
The tobacco is then rolled in paper strips that may even range up to the length of 6000
meters.

Slicing
The rolled cigarettes is then sliced into pieces of the specified standards

Distribution
Post slicing and inspection the cigarettes are then packed and then transferred to the
distribution department.

Procurement of tobacco 39.67

• Purchase 36.99
• Carrying 1.46
• Storage 1.22
Processing 4.94
• Stemming 0.03
• Plant operation 0.69
• Reconstituting 3.52
• Blending 0.16
• Cutting 0.40
• Drying 0.14
Cigarette Making 54.39
• Plug making 10.64
• Cigarette making 18.0
• Packaging 25.75
Shipping 1.00

iv
 Exhibit No.-2
Excise duty rates on Cigarettes, 1993/94-2007/08(Rs. Per
thousand cigarettes-current rupees)

Year Non- Non- Filter≤70mm Filter(70- Filter (75- Filter>85mm

filter≤60mm filter(60- 75mm) 85mm)
70mm)
1993-94 120 250 330 630 850 *
1994-95 60 280 370 710 950 1350
1995-96 60 300 400 750 1000 1350
1996-97 75 315 430 800 1070 1350
1997-98 90 350 500 820 1100 1350
1998-99 100 370 550 900 1200 1470
1999-00 110 370 550 900 1200 1470
2000-01 115 390 580 945 1260 1545
2001-02 135 450 670 1090 1450 1780
2002-03 135 450 670 1090 1450 1780
2003-04 135 450 670 1090 1450 1780
2004-05 135 450 670 1090 1450 1780
2005-06 150 495 740 1200 1595 1960
2006-07 160 520 780 1260 1675 2060
2007-08 168 546 819 1363 1759 2163

*Rs 600 or 300 percent + Rs.20 whichever is higher

Source: Department of revenue, Ministry of finance

v
 Exhibit No - 3
Components of excise duty on cigarettes, 2007/08(Rs. Per
thousand sticks)

Type of Total CENVAT* NCCD* HC*

cigarette
Filter
>85 mm 2163 1748 235 180
75-85 mm 1759 1424 190 145
70-75 mm 1323 1068 145 110
≤70 mm 819 659 90 70
Non-filter
>60 mm 546 441 60 45
≤60 mm 168 133 20 15

Source: Department of revenue, Ministry of finance

CENVAT- central value added tax
NCCD-national calamity contingent duty
HC-health cess

vi
 Exhibit 4

Brand Manufacturer Original Original

(Single) (Rs.) (10 mm) (Rs.)
Insignia Indian Tobaco company 7.00 0.72
Garam Indonesia Cigarettes 7.00 0.83
India Kings Indian Tobaco company 5.00 0.60
Gold Flake Indian Tobaco company 4.00 0.48
Classic Mild Indian Tobaco company 5.00 0.60
Classic Ultra Mild Indian Tobaco company 5.00 0.60
Classic Regular Indian Tobaco company 5.00 0.60
Wills Classic Indian Tobaco company 5.00 0.60
Menthol
Classic Verve Indian Tobaco company 5.00 0.60
Wills Navy Cut Indian Tobaco company 3.50 0.47
Silk Cut Indian Tobaco company 2.50 0.36
Gold Flake (s) Indian Tobaco company 3.00 0.43
Flake Indian Tobaco company 2.00 0.29
Wills Flake Indian Tobaco company 2.00 0.29
Four square Godphrey Phillips 2.00 0.29
Red & White Godphrey Phillips 2.00 0.29
Cavanders Godphrey Phillips 2.00 0.29
Benson & Hedges British American 5.00 0.60
Tobacco
B&H - Light British American 5.00 0.60
Tobacco
Marlboro British American 5.00 0.60
Tobacco
Marlboro Light British American 5.00 0.60
Tobacco
Golden Elephant Philip Morris 2.00 0.29
Clock 100 Philip Morris 1.00 0.14
Lucky 10 - 1.00 0.14
Davidoff - 5.00 0.56
Classy - 5.00 0.72
Popa - 5.00 0.72
No. 10 Reemtsma 1.00 0.14
Kartoos - 1.00 0.14

vii
 Exhibit 5
Distributor Data Survey
Name : Aggarwal & Co.
Brand Product Variation Length Cost Selling Box Cost Selling
Per 1000 Piece Pieces Per Box
Insignia Premium 97 5955.30 6041.70 20 119.11 120.83
Garam 84 12
India Kings Filter Kings 84 4253.80 4315.50 20 85.08 86.31
Gold Flake 84 3569.20 3621.00 10 35.69 72.42
Classic Mild 84 3911.60 3968.30 10 39.12 79.37
Classic Ultra Mild 84 3911.60 3968.30 10 39.12 79.37
Classic Regular 84 3911.60 3968.30 20 78.23 79.37
Wills Classic Menthol 84 3911.60 3968.30 20 78.23 79.37
Classic Verve 84 3911.60 3968.30 20 78.23 79.37
Wills Navy Cut Filter Medium 74 3055.90 3100.20 10 30.56 62.00
Silk Cut 69 1975.40 2004.00 10 19.75 40.08
Gold Flake (s) Filter Lower 69 2444.80 2480.00 10 24.45 49.60
Flake 69 1711.30 1736.10 10 17.11 34.72
Wills Flake 69 1711.30 1736.10 10 17.11 34.72
Four square 69 1711.30 1736.10 10 17.11 34.72
Red & White 69 1662.40 1686.50 10 16.62 33.73
Cavanders Non Filter 69 1711.30 1736.10 10 17.11 34.72
555 International 69 3999.50 4057.50 20 79.99 81.15
Benson & Hedges 84 3911.60 3968.30 20 78.23 79.37
B&H - Light 84 3911.60 3968.30 20 78.23 79.37
Marlboro 84 3911.50 3968.20 20 78.23 79.36
Marlboro Light 84 3911.50 3968.20 20 78.23 79.36
Malboro Menthol 84 3911.50 3968.20 20 78.23 79.36
Golden Elephant Non- Branded 69 10
Clock 100 69 10
Davidoff 90 20
Classy 69 10
Popa 69 10
No. 10 69 10
Kartoos 69 10

viii
 Exhibit 6
Wholesaler Data Survey
Name : Goyal & Sons.
Cost Selling Box Cost Selling
Brand Product Variation Length
Per 1000 piece Pieces Per Box
Insignia Premium 97 6041.7 6089.2 20 120.83 121.78
Garam 84 12
India Kings Filter Kings 84 4315.5 4349.5 20 86.31 86.99
Gold Flake 84 3621.0 3650.0 10 36.21 36.50
Classic Mild 84 3968.3 4000.0 10 39.68 40.00
Classic Ultra Mild 84 3968.3 4000.0 10 39.68 40.00
Classic Regular 84 3968.3 4000.0 20 79.37 80.00
Wills Classic Menthol 84 3968.3 4000.0 20 79.37 80.00
Classic Verve 84 3968.3 4000.0 20 79.37 80.00
Wills Navy Cut Filter Medium 74 3100.2 3125.0 10 31.00 31.25
Silk Cut 69 2004.0 2020.0 10 20.04 20.20
Gold Flake (s) Filter Lower 69 2480.2 2500.0 10 24.80 25.00
Flake 69 1736.1 1750.0 10 17.36 17.50
Wills Flake 69 1736.1 1750.0 10 17.36 17.50
Four square 69 1736.1 1750.0 10 17.36 17.50
Red & White 69 1686.5 1700.0 10 16.86 17.00
Cavanders Non Filter 69 1736.1 1750.0 10 17.36 17.50
555 International 69 4057.5 4100.0 20 81.15 82.00
Benson & Hedges 84 3968.3 4000.0 20 79.37 80.00
B&H - Light 84 3968.3 4000.0 20 79.37 80.00
Marlboro 84 3968.2 4000.0 20 79.36 80.00
Marlboro Light 84 3968.2 4000.0 20 79.36 80.00
Malboro Menthol 84 3968.2 4000.0 20 79.36 80.00
Golden Elephant Non- Branded 69 10
Clock 100 69 10
Davidoff 90 20
Classy 69 10
Popa 69 10
No. 10 69 10
Kartoos 69 10

ix
 Exhibit 7

Column1 1 2 3 4 5
choosing cigarette

Does taste matter 5

Does price change effect you 3
How much the brand matters 4
How are you affected by price
change 2
Does size of the cigarette affect
your decision 3
Does packaging matter 3
Does Availability Matter 4
How Often do you change your
Brand 2

Value for Brand

Brand Rating Taste money Availability Value
Gold Flake 3 5 5 4
Red n White 2 4 3 3
Wills Navy Cut 4 4 5 3
Classic Menthol 3 2 2 2
Classic 5 4 4 4
Gold Flake Filter King 4 4 4 3
Benson N Hedges 4 4 3 4
Marlboro 4 5 3 5
Insignia 4 3 2 4

x
 Exhibit No. 8: Price & Margin Distribution From Manufacturer To Retailers
Original Size = 10 mm Original Size = 10 mm
Brand Distributor Distributor Wholesaler Wholesaler
Cost Selling Margin % Cost Selling Margin % Cost Selling Margin % Cost Selling Margin %
Insignia 5.9553 6.0417 0.0864 1.4500 0.6140 0.6229 0.0089 1.4500 6.0417 6.0892 0.0475 0.7854 0.6229 0.6277 0.0049 0.7854
Garam 6.5500
India Kings 4.2538 4.3155 0.0617 1.4500 0.5064 0.5138 0.0073 1.4500 4.3155 4.3495 0.0340 0.7879 0.5138 0.5178 0.0040 0.7879
Gold Flake 3.5692 3.6210 0.0518 1.4500 0.4249 0.4311 0.0062 1.4500 3.6210 3.6500 0.0290 0.8009 0.4311 0.4345 0.0035 0.8009
Classic Mild 3.9116 3.9683 0.0567 1.4500 0.4657 0.4724 0.0068 1.4500 3.9683 4.0000 0.0317 0.7988 0.4724 0.4762 0.0038 0.7988
Classic Ultra Mild 3.9116 3.9683 0.0567 1.4500 0.4657 0.4724 0.0068 1.4500 3.9683 4.0000 0.0317 0.7988 0.4724 0.4762 0.0038 0.7988
Classic Regular 3.9116 3.9683 0.0567 1.4500 0.4657 0.4724 0.0068 1.4500 3.9683 4.0000 0.0317 0.7988 0.4724 0.4762 0.0038 0.7988
Wills Classic Menthol 3.9116 3.9683 0.0567 1.4500 0.4657 0.4724 0.0068 1.4500 3.9683 4.0000 0.0317 0.7988 0.4724 0.4762 0.0038 0.7988
Classic Verve 3.9116 3.9683 0.0567 1.4500 0.4657 0.4724 0.0068 1.4500 3.9683 4.0000 0.0317 0.7988 0.4724 0.4762 0.0038 0.7988
Wills Navy Cut 3.0559 3.1002 0.0443 1.4500 0.4130 0.4189 0.0060 1.4500 3.1002 3.1250 0.0248 0.7999 0.4189 0.4223 0.0034 0.7999
Silk Cut 1.9754 2.0040 0.0286 1.4500 0.2863 0.2904 0.0042 1.4500 2.0040 2.0200 0.0160 0.7984 0.2904 0.2928 0.0023 0.7984
Gold Flake (s) 2.4448 2.4802 0.0354 1.4500 0.3543 0.3594 0.0051 1.4500 2.4802 2.5000 0.0198 0.7983 0.3594 0.3623 0.0029 0.7983
Flake 1.7113 1.7361 0.0248 1.4500 0.2480 0.2516 0.0036 1.4500 1.7361 1.7500 0.0139 0.8006 0.2516 0.2536 0.0020 0.8006
Wills Flake 1.7113 1.7361 0.0248 1.4500 0.2480 0.2516 0.0036 1.4500 1.7361 1.7500 0.0139 0.8006 0.2516 0.2536 0.0020 0.8006
Four square 1.7113 1.7361 0.0248 1.4500 0.2480 0.2516 0.0036 1.4500 1.7361 1.7500 0.0139 0.8006 0.2516 0.2536 0.0020 0.8006
Red & White 1.6624 1.6865 0.0241 1.4500 0.2409 0.2444 0.0035 1.4500 1.6865 1.7000 0.0135 0.8006 0.2444 0.2464 0.0020 0.8006
Cavanders 1.7113 1.7361 0.0248 1.4500 0.2480 0.2516 0.0036 1.4500 1.7361 1.7500 0.0139 0.8006 0.2516 0.2536 0.0020 0.8006
555 3.9995 4.0575 0.0580 1.4500 0.5796 0.5880 0.0084 1.4500 4.0575 4.1000 0.0425 0.7899 0.5880 0.5942 0.0062 1.0474
Benson & Hedges 3.9116 3.9683 0.0567 1.4500 0.4657 0.4724 0.0068 1.4500 3.9683 4.0000 0.0317 0.7989 0.4724 0.4762 0.0038 0.7989
B&H - Light 3.9116 3.9683 0.0567 1.4500 0.4657 0.4724 0.0068 1.4500 3.9683 4.0000 0.0317 0.7989 0.4724 0.4762 0.0038 0.7989
Marlboro 3.9115 3.9682 0.0567 1.4500 0.4657 0.4724 0.0068 1.4500 3.9682 4.0000 0.0318 0.8009 0.4724 0.4762 0.0038 0.8009
Marlboro Light 3.9115 3.9682 0.0567 1.4500 0.4657 0.4724 0.0068 1.4500 3.9682 4.0000 0.0318 0.8009 0.4724 0.4762 0.0038 0.8009
Malboro Menthol 3.9115 3.9682 0.0567 1.4500 0.4657 0.4724 0.0068 1.4500 3.9682 4.0000 0.0318 0.8009 0.4724 0.4762 0.0038 0.8009

Average % Profit of Distributor 1.45

Average Profit % of Wholesaler 0.809817166
Average Profit % of Retailer 10.37261181
 Exhibit No. 8: Price & Margin Distribution From Manufacturer To Retailers (contd. 2)
Original Size = 10 mm
Retailer Retailer Consumer Cost Retailer Charge Margin per pc. % Change
Cost Selling Margin % Cost Selling Margin %
6.0892 6.5000 0.4109 6.7472 0.6277 0.6701 0.0424 6.7472 6.5000 7.0000 0.5000 7.6923
6.5500 6.6700 0.1200 1.8321 0.7798 0.7940 0.0143 1.8321 6.6667 7.0000 0.3333 5.0000
4.3495 5.0000 0.6505 14.9557 0.5178 0.5952 0.0774 14.9557 5.0000 5.0000 0.0000 0.0000
3.6500 4.0000 0.3500 9.5890 0.4345 0.4762 0.0417 9.5890 4.0000 4.0000 0.0000 0.0000
4.0000 4.4000 0.4000 10.0000 0.4762 0.5238 0.0476 10.0000 4.4000 5.0000 0.6000 13.6364
4.0000 4.4000 0.4000 10.0000 0.4762 0.5238 0.0476 10.0000 4.4000 5.0000 0.6000 13.6364
4.0000 4.4000 0.4000 10.0000 0.4762 0.5238 0.0476 10.0000 4.4000 5.0000 0.6000 13.6364
4.0000 4.4000 0.4000 10.0000 0.4762 0.5238 0.0476 10.0000 4.4000 5.0000 0.6000 13.6364
4.0000 4.4000 0.4000 10.0000 0.4762 0.5238 0.0476 10.0000 4.4000 5.0000 0.6000 13.6364
3.1250 3.4000 0.2750 8.8000 0.4223 0.4595 0.0372 8.8000 3.4000 3.5000 0.1000 2.9412
2.0200 2.2000 0.1800 8.9109 0.2928 0.3188 0.0261 8.9109 2.2000 2.5000 0.3000 13.6364
2.5000 2.7000 0.2000 8.0000 0.3623 0.3913 0.0290 8.0000 2.7000 3.0000 0.3000 11.1111
1.7500 1.9000 0.1500 8.5714 0.2536 0.2754 0.0217 8.5714 1.9000 2.0000 0.1000 5.2632
1.7500 2.0000 0.2500 14.2857 0.2536 0.2899 0.0362 14.2857 2.0000 2.0000 0.0000 0.0000
1.7500 1.9000 0.1500 8.5714 0.2536 0.2754 0.0217 8.5714 1.9000 2.0000 0.1000 5.2632
1.7000 1.9000 0.2000 11.7647 0.2464 0.2754 0.0290 11.7647 1.9000 2.0000 0.1000 5.2632
1.7500 2.0000 0.2500 14.2857 0.2536 0.2899 0.0362 14.2857 2.0000 2.0000 0.0000 0.0000
4.1000 4.5000 0.4000 9.7561 0.5942 0.6522 0.0580 9.7561 5.0000 5.0000 0.0000 0.0000
4.0000 4.5000 0.5000 12.5000 0.4762 0.5357 0.0595 12.5000 4.5000 5.0000 0.5000 11.1111
4.0000 4.5000 0.5000 12.5000 0.4762 0.5357 0.0595 12.5000 4.5000 5.0000 0.5000 11.1111
4.0000 4.5000 0.5000 12.5000 0.4762 0.5357 0.0595 12.5000 4.5000 5.0000 0.5000 11.1111
4.0000 4.5000 0.5000 12.5000 0.4762 0.5357 0.0595 12.5000 4.5000 5.0000 0.5000 11.1111
4.0000 4.5000 0.5000 12.5000 0.4762 0.5357 0.0595 12.5000 5.0000 5.0000 0.0000 0.0000
 Compiled Retail Survey

Location : Central Delhi ( Nayabas, Fatehpuri,INA Market, India Gate)

Standard Cost price Selling Price
Brand Market Segmentation Manufacturer Pieces
Length Single Box Single Box
India Kings Filter Kings Indian Tobaco company 84 20 4.5 90 5 100
Gold Flake Indian Tobaco company 84 10 3.8 38 4 40
Classic Mild Indian Tobaco company 84 10 4.0 40 5 44
Classic Ultra Mild Indian Tobaco company 84 10 4.0 40 5 44
Classic Regular Indian Tobaco company 84 20 4.0 80 5 88
Classic Verve Indian Tobaco company 84 20 4.0 80 5 88
Wills Navy Cut Filter Medium Indian Tobaco company 74 10 3.2 32 3.5 34
Silk Cut Indian Tobaco company 69 10 2.05 20.5 2.5 22
Gold Flake (s) Filter Lower Indian Tobaco company 69 10 2.5 25 3.0 27
Flake Indian Tobaco company 69 10 1.75 17.5 2.0 19
Wills Flake Indian Tobaco company 69 10 1.9 19 2.0 20
Four square Godfrey Phillps India Ltd 69 10 1.8 18 2.0 19
Red & White Godfrey Phillps India Ltd 69 10 1.8 18 2.0 19
Cavanders Non Filter Godfrey Phillps India Ltd 69 10 1.9 19 2.0 20
555 International
Dunhill Filter Kings British American Tobacco
Benson & Hedges British American Tobacco 84 20 4.0 80 5.0 90
B&H - Light British American Tobacco 84 20 4.0 80 5.0 90
Lucky 10 Non - Branded 69 10 0.75 7.5 1.0 10
Davidoff Reemtsma 90 20 3.75 75 5.0 90
No. 10 69 10 0.65 6.5 1.0 10
Kartoos 69 10 0.95 9.5 1.0 10

Exhibit 9
xiii
 Compiled Retail Survey
Location : South Delhi ( Katwaria Sarai,Jia Sarai, Kalkaji, Faridabad)
Brand Market Manufacturer Standard Pieces Cost price Selling Price
Segmentation Length Single Box Single Box
India Kings Filter Kings Indian Tobacco company 84 20 4.50 90.0 5.0 100.0
Gold Flake Indian Tobacco company 84 10 3.80 38.0 4.0 40.0
Classic Mild Indian Tobacco company 84 10 4.00 40.0 5.0 44.0
Classic Regular Indian Tobacco company 84 20 4.00 80.0 5.0 88.0
Wills Navy Cut Filter Medium Indian Tobacco company 74 10 3.20 32.0 4.0 34.0
Silk Cut Indian Tobacco company 69 10 2.00 20.0 3.0 22.0
Gold Flake (s) Filter Lower Indian Tobacco company 69 10 2.50 25.0 3.0 27.0
Flake Indian Tobacco company 69 10 1.75 17.5 2.5 19.0
Wills Flake Indian Tobacco company 69 10 1.90 19.0 2.0 20.0
Marlboro Philip Morris 84 20 4.00 80.0 5.0 90.0
Golden Elephant Non- Branded 69 20 1.25 25.0 2.0 25.0
Clock 100 69 10 0.70 7.0 1.0 9.0

Exhibit 10

xiv
 Compiled Retail Survey
Location : Gurgaon
Brand Market Segmentation Manufacturer Standard Pieces Cost price Selling Price
Length Single Box Single Box
Insignia Super Premium Indian Tobacco company 97 20 6.10 122 7 130
India Kings Filter Kings Indian Tobacco company 84 20 4.50 90 5 100
Gold Flake Indian Tobacco company 84 10 4.00 38 4 40
Classic Mild Indian Tobacco company 84 10 4.00 40 5 44
Classic Ultra Mild Indian Tobacco company 84 10 4.00 40 5 44
Classic Regular Indian Tobacco company 84 20 4.00 80 5 88
Wills Navy Cut Filter Medium Indian Tobacco company 74 10 3.20 32 3.5 34
Silk Cut Indian Tobacco company 69 10 2.05 20.5 2.5 22
Gold Flake (s) Filter Lower Indian Tobacco company 69 10 2.50 25 3.0 27
Flake Indian Tobacco company 69 10 1.75 17.5 2.0 19
Wills Flake Indian Tobacco company 69 10 1.90 19 2.0 20
Cavanders Non Filter Godfrey Phillps India Ltd 69 10 1.90 19 2.0 20
Benson & Hedges International British American Tobacco 84 20 4.00 80 5.0 90
B&H - Light Filter Kings British American Tobacco 84 20 4.00 80 5.0 90
Marlboro Philip Morris 84 20 4.00 80 5.0 90
Marlboro Light Philip Morris 84 20 4.00 80 5.0 90
Clock 100 Non- Branded 69 10 0.70 7 1.0 9
Kartoos 69 10 0.95 9.5 1.0 10

Exhibit 11

xv
 Compiled Retail Survey
Location : West Delhi (Naraina, Dwarka)
Brand Market Manufacturer Standard Pieces Cost price Selling Price
Segmentation Length Single Box Single Box
Insignia Super Premium Indian Tobacco company 97 20 6.09 121.8 7.0 130.0
India Kings Filter Kings Indian Tobacco company 84 20 4.50 90.0 5.0 100.0
Gold Flake Indian Tobacco company 84 10 3.80 38.0 4.5 40.0
Classic Mild Indian Tobacco company 84 10 4.00 40.0 5.0 44.0
Classic Ultra Mild Indian Tobacco company 84 10 4.00 40.0 5.0 44.0
Classic Regular Indian Tobacco company 84 20 4.00 80.0 5.0 88.0
Wills Classic Menthol Indian Tobacco company 84 20 4.00 80.0 5.0 88.0
Wills Navy Cut Filter Medium Indian Tobacco company 74 10 3.20 32.0 4.0 34.0
Silk Cut Indian Tobacco company 69 10 2.05 20.5 2.5 22.0
Gold Flake (s) Filter Lower Indian Tobacco company 69 10 2.50 25.0 3.0 27.0
Flake Indian Tobacco company 69 10 1.75 17.5 2.0 19.0
Wills Flake Indian Tobacco company 69 10 1.90 19.0 2.0 20.0
Four square Godfrey Phillps India Ltd 69 10 1.80 18.0 2.0 19.0
Cavanders Non Filter Godfrey Phillps India Ltd 69 10 1.90 19.0 2.0 20.0
Marlboro Philip Morris 84 20 4.00 80.0 5.0 90.0
Marlboro Light Philip Morris 84 20 4.00 80.0 5.0 90.0
Golden Elephant Non- Branded 69 20 1.25 25.0 2.0 25.0
Clock 100 69 10 0.70 7.0 1.0 9.0

Exhibit 12

xvi
 Exhibit 13
Compiled Retail Survey
Location : North Delhi (Narela,Bawana, Goga,Sanoth)
Brand Market Manufacturer Standard Pieces Cost price Selling Price
Segmentation Length Single Box Single Box
Garam Indonesia Cigarettes 84 12 4.6 55 7 80
India Kings Filter Kings Indian Tobacco company 84 20 4.5 90 5 100
Gold Flake Indian Tobacco company 84 10 3.8 38 4.5 40
Classic Mild Indian Tobacco company 84 10 4.0 40 5 44
Classic Ultra Mild Indian Tobacco company 84 10 4.0 40 5 44
Classic Regular Indian Tobacco company 84 20 4.0 80 5.5 88
Wills Classic Menthol Indian Tobacco company 84 20 4.0 80 5.5 88
Wills Navy Cut Filter Medium Indian Tobacco company 74 10 3.2 32 4 34
Silk Cut Indian Tobacco company 69 10 2.05 20.5 2.5 22
Gold Flake (s) Filter Lower Indian Tobacco company 69 10 2.5 25 3.0 27
Flake Indian Tobacco company 69 10 1.75 17.5 2.0 19
Wills Flake Indian Tobacco company 69 10 1.9 19 2.0 20
Four square Godfrey Phillps India Ltd 69 10 1.8 18 2.0 19
Red & White Godfrey Phillps India Ltd 69 10 1.8 18 2.0 19
Benson & Hedges British American Tobacco 84 20 4.0 80 5.0 90
B&H - Light British American Tobacco 84 20 4.0 80 5.0 90
Marlboro Philip Morris 84 20 4.0 80 5.0 90
Marlboro Light Philip Morris 84 20 4.0 80 5.0 90
Marlboro Menthol
Clock 100 69 10 0.7 7 1.0 9
Lucky 10 69 10 0.75 7.5 1.0 10
Davidoff Non - Branded Reemtsma 90 20 3.75 75 5.0 90
Classy 69 10 4.1 41 5.0 50
Popa 69 10 4.1 41 5.0 50
Kartoos 69 10 0.95 9.5 1.0 10

xvii
xviii
Bibliography

1. http://www.godfreyphillips.com/brands.html
2. http://www.itcportal.com/sets/cigarette_frameset.htm
3. http://www.gtcil.com/p-sales.htm
4. http://www.wikipedia.com
5. http://www.indiastats.com
6. http://www.icra.in/
7. http://economictimes.indiatimes.com/archive.cms
8. http://www.rbi.org.in
9. 13th edition of “Marketing Management - A South Asian Perspective” By Kotler, Keller, Koshy
and Jha.

xviii