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Porter’S Five Force Model Analysis For Indian Cigarette Industry @ tnmg4u.Com

by Angshuman Ghosh on Oct 24, 2009

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Porter’S Five Force Model Analysis For Indian Cigarette Industry

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Porter’S Five Force Model Analysis For Indian Cigarette Industry

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Porter’S Five Force Model Analysis For Indian Cigarette Industry @ tnmg4u.Com — Presentation Transcript

Threats of New Entrants=LOW •New Product differentiation Very Tough – already cigarettes at different price points, flavors, brand images • 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

Geojit at Geojit thanks..it was a great help....m doin bachelor in finance and my sector of analysis for this sem was tobacco...ur ppt is awesome and a good source.. 6 months ago

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Michael Miello , Business Analyst, Social & Natural Language Solutions at RightNow Technologies Hi Angshu, I'm apologize for the delayed response....I tried responding a couple days ago but I must have had some internet issues.

I definitely see 'new game' on the horizon like you.....but I feel that this argument has been going on for the past 20 yrs or so, at least during my lifetime. Anti-smoking campaigns, stricter regulations and the supposedly 'decreasing market share', all have constantly been imposed and suggested, but I don't see cigarette companies making large strides to switch to new games. Maybe they're not facing such horrific problems. Rather I think they are getting smarter with development of their products to ensure that they can stay in the game without having to change dramatically. (ie. more social responsibility initiatives, smoking alternatives, .etc)

Again, sorry for the delay 2 years ago

Angshuman Ghosh , PhD Scholar at XLRI, Jamshedpur, India Hey Michael, Thanks for ur comments.
Regarding Indian Cigarette Industry - the most important factor now is legal regulations. The advertisement for tobacco is banned. New laws are coming which prohibit smoking in the public place.
So, the future of the industry does not look bright. Even actions of leading players validate this point. The leader ITC is moving towards FMCG and Food business from Cigarette.
So, definitely 'new game' may be on the horizon but not in Cigarette industry! :D 2 years ago

Michael Miello , Business Analyst, Social & Natural Language Solutions at RightNow Technologies Hi Angshu, I just came across your Porter analysis of the cigarettes and was curious if you see anything in the near future that will be changing in India's cigarette industry. Since threats of substitutes and new entrants are low, will there be a 'new game' arising between already existing competitors?

Just commenting to start some fun biz talk :) 2 years ago

Porter’S Five Force Model Analysis For Indian Cigarette Industry @ tnmg4u.Com

by Angshuman Ghosh on Oct 24, 2009

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Porter’S Five Force Model Analysis For Indian Cigarette Industry @ tnmg4u.Com — Presentation Transcript