This document analyzes Porter's Five Forces model for the Indian cigarette industry. It finds that the threats of new entrants and bargaining power of suppliers are low due to high capital requirements, established players, and cigarette companies having direct access to distribution channels. The bargaining power of buyers is also low because customers are addicted and attached emotionally to smoking. Threats of substitute products are low as alternatives like herbal cigarettes did not become popular. Competitive rivalry in the industry is high as there are many competing players engaging in price competition and new product launches to replace prohibited television and radio advertisements.

1. Porter’s Five Force Model
Analysis ForAnalysis For
Indian Cigarette Industry
© www.tnmg4u.com. All rights reserved.Author: Angshu

2. •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)
Threats of New Entrants=LOW
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

3. 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.

4. •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
Bargaining Power of Buyers=LOW
among the brands in a blind taste
•Low switching costs in terms of price

5. 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

6. •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
Competitive Rivalry in the
Industry=HIGH
•All making new product launches

7. Thank You
© www.tnmg4u.com. All rights reserved.Author: Angshu