Introduction

This case is related with the Cigarettes promotion in India in Banned environment. Banned

environment means the direct advertising and promotion of cigarettes is banned in our country

under certain rules and regulation. The main reason behind this banned is to that the cigarette is a

Tobacco Product and cause cancer, which is directly affecting our health and cause of death.

With the advent of a ban on tobacco advertising, several tobacco companies are promoting other

products, which bear the same brand name or logo as their popular tobacco product. These logos

or brand names can easily be spotted on clothing, sports apparel, hats, trays, posters and stickers

affixed to sports vehicles and backpacks. One brand that is visible in almost all metros and towns

is the Wills Lifestyle stores the tobacco industry in India is also veering its investments into

myriad non-tobacco products and seems to persevere in this strategy. Today, tobacco giants are

shifting their focus from industrialized countries to developing countries and India is a prime

target due to its one billion populations, with about 250 million tobacco users and many more

potential smokers.

This case discusses an array of strategies employed by the tobacco industry for promoting

tobacco products in India over time under different circumstances. The British American

Tobacco (BAT) has an Indian subsidiary by the name of Indian Tobacco Company (ITC) Ltd,

Now Imperial Tobacco Company. The company controls about 76% of the entire cigarette

market in India. It manufactures many of India’s most popular cigarette brands, including

Bristol, Scissors, Wills, Gold Flake and Capstan. The second largest manufacturer of cigarettes is

Godfrey Philips India (GPI) Ltd. affiliated to the international player Philip Morris, which

produces the brands Red & White, Jaisalmer and Cavenders. Vazir Sultan Tobacco (VST)

Company, whose brands include Charminar, Charms and Vijay, is the third largest player in the

Indian market. The fourth player is Golden Tobacco Company (GTC), owned by the Dalmia

group which manufactures Indian as well as foreign brands of cigarettes. Among the foreign

brands, Rothmans is one brand of cigarettes that has been manufactured by GTC. Indian brands

such as Panama are under the flag of GTC. The top three companies account for over 90% of all

cigarettes sold in India. Beedi and smokeless tobacco products from another huge segment of

tobacco trade in India, which was earlier an unorganized sector but is now fast shaping up as an

organized, corporate sector. Big producers of chewing tobacco products are Kothari Products and

Dhariwal Industries. They hold a market share of 34.5% and 33.5%, respectively.27 BAT has a

31.7% ownership in ITC and 32% ownership in VST. Philip Morris has 36% ownership in GPI.

The lucrative Indian market is of obvious interest to the tobacco industry, as voiced by its

leaders.

Historical Overview of Tobacco in India

The history of global tobacco trade is integrally linked with the history of India. It was to

discover a sea route to this fabled land, reputed for its spices, silk and gems, that Christopher

Columbus set sail in 1492. His wayward journey took him instead to America. This discovery of

the New World was accompanied by the discovery of tobacco by Portuguese sailors. This plant,

treasured by the American ‘Indians’ for its presumed medicinal and obvious stimulant properties,

was eagerly embraced by the Portuguese who then moved it to the Old World of Europe. Even

though their quest for easy access to Indian spices was delayed by some years, the Europeans did

not fail to recognize the commercial value of this new botanical acquisition. When the

Portuguese eventually did land on Indian shores, they brought in tobacco. They introduced it

initially in the royal courts where it soon found favors. It became a valuable commodity of barter

Trade, being used by the Portuguese for purchasing Indian textiles. The taste for tobacco,

first acquired by the Indian royals, soon spread to the commoners and, in the seventeenth

century, tobacco began to take firm roots in India. Thus, tobacco travelled to the real Indians

from their curiously named American cousins, through the medium of European mariners and

merchants who sailed the seas and spanned the continents in search of new markets and colonies.

It was with the establishment of British colonial rule, however, that the commercial dimensions

of India’s tobacco production and consumption grew to be greatly magnified. Initially, the

British traders imported.

American tobacco into India to finance the purchase of Indian commodities. When the

American colonies declared independence in 1776, the British East India Company began

growing tobacco in India as a cash crop. Attempts were made, under the colonial rule, both to

increase the land under tobacco cultivation and to enhance the quality of the leaves produced.

The British East India Company and its successor, the British Raj, used tobacco as an important

cash crop, both for domestic consumption and foreign trade. The manufacturing industry was,

however, not established till much later, as the British believed in exporting the leaf to Britain

and re-importing cigarettes to India, with considerable value addition in the process. As domestic

consumption of cigarettes rose, the Imperial Tobacco Company commenced production within

India, retaining control and repatriating the profits. In the late nineteenth century, the beedi

industry began to grow in India. The oldest beedi manufacturing firm was established around

1887 and by 1930 the beedi industry had spread across the country. The price differential from

Cigarettes favored the use of beedis by the working classes and this domestic product soon

supplanted cigarettes as the major form of tobacco consumption. The tax policies adopted by the

Indian Government after Independence also favored the beedi in comparison to cigarettes. This

further fostered a growth in beedi consumption. While tobacco chewing was practiced for many

centuries, commercial production and marketing have been markedly upscaled recently, with the

introduction of the gutka. The rate of growth of consumption of gutka has overtaken that of

smoking forms of tobacco.

As a result, oral tobacco consumption has opened a new and broader front in the battle between

commercial tobacco and public health in India. The economics of tobacco, which introduced it

into India and entrenched it during the colonial rule, also provided a compelling reason for

continued state patronage to the tobacco trade, even in free India. The ready revenues that bolster

the annual budgets, the ability to export to a tobacco-hungry world market and the employment

opportunities offered to millions provided the rationale for encouraging tobacco, both as a crop

and as an industry. While economics may have been the principal force propelling the seemingly

inexorable advance of tobacco in India, there are also a multitude of social and cultural factors

which need to be recognized, so that the variations in its use across social, religious and ethnic

subgroups can be comprehended. Such factors have operated since the time tobacco entered

India, though the nature of the socio-cultural determinants that influence individual and

community responses to tobacco may have varied over time, region, religious denomination and

social class. It is this tapestry of international linkages, powerful economic factors and distinctive

cultural influences which make the history of tobacco in India a fascinating study.

Tobacco Industry Today

Tobacco occupies a prime place in the Indian economy on account of its considerable

contribution to the agricultural, industrial and export sectors. India is the second largest producer

of tobacco in the world. China and the USA rank first and third, respectively, in terms of tobacco

cultivation. Brazil, Turkey, Zimbabwe, Malawi, Italy and Greece are the other major tobacco

producing countries. Tobacco contributes substantially to the economies of these countries. In

2000–2001, the contribution of tobacco to the Indian economy was to the extent of Rs 81,820

million, which accounted for about 12% of the total excise collections. Foreign exchange

earnings during the same period were Rs 9030 million, accounting for 4% of India’s total

agricultural exports. Endowed with favorable agro-climatic attributes such as fertile soil, rainfall

and ample sunshine, India has the potential of producing different varieties of tobacco with

varied flavors. Recent Trends in Indian Tobacco Market Continuing with a policy to control

smoking, the tax measures became harsher in 2007, with an increase of 6% in excise and an

additional 12.5% in VAT, bringing the total effective tax to about 20% (although the most

populous state, Uttar Pradesh, imposed 32.5% VAT). As expected, volume sales declined due to

the subsequent price rises. ITC Group, the leading company, is estimated to have taken price

hikes as high as 20% on some brands. The industry expected a volume decline of 5%-10%, but

the overall industry declines have been lower than expected, reflecting consumer resilience to

price rises.

S.W.O.T Analysis of Tobacco and Cigarette Industry

Strength

India is one the largest manufacturers of tobacco in terms of production. Tobacco is

traditional item of India's foreign trade. India is one of the leading Tobacco exporting countries

in the world. India amounts for 5.8% of the international trade and ranks 5 th after Brazil, U.S.A.

Turkey and Zimbabwe.

Weakness

The growth of various varieties of Tobacco is at the mercy of unscrupulous traders and

middlemen. The burden of Tobacco tax has increasingly shifted to cigarette with the removal of

duty on raw Tobacco since 1979, resulting in discriminatory rates of duty compared to other

Tobacco products. A cigarette is a product consumed through smoking and manufactured out of

cured and finely cut tobacco leaves and reconstituted tobacco, often combined with other

additives, then rolled or stuffed into a paper-wrapped cylinder (generally less than 120 mm in

length and 10 mm in diameter). The cigarette is ignited at one end and allowed to smoulder for

the purpose of inhalation of its smoke from the other (usually filtered) end, which is inserted in

the mouth.

They are sometimes smoked with a cigarette holder. The term cigarette, as commonly

used, refers to a tobacco cigarette but can apply to similar devices containing other herbs, such as

cannabis.

Prohibition of Direct advertising.

Opportunities

Central Tobacco Research Institute at Rajamundry has been entrusted with the research

for development of alternative uses of Tobacco in view of anti-smoking campaign.

India's share in world cigarette production has remained at around 1.7% whereas India's

exports of around 2.8 billion sticks of cigarette per year amounts for less than 1% of the world

export of cigarette. There is significant opportunity for cigarette industry to extent and

consolidate its position in intentional market due to some recent trend like withdrawal/reduction

of agricultural subsidy and escalating cost in the traditional cigarette exporting countries.

Threats

Various N.G.O’s and Forums against the use and consumption of tobacco. The passing of

various bans on smoking.

PESTEL ANALYSIS

Political Analysis

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

environment, particularly with respect to taxation and regulations relating to communication and

consumption. The regulations, dictated by circumstances in more developed markets, together

with prolonged punitive and discriminatory taxation have had the effect of being directed almost

exclusively at cigarettes, thereby stifling cigarette consumption in India in comparison with other

forms of tobacco consumption. High rates of taxes on cigarettes, in excess of 130% of the net

value of the product, have rendered cigarettes unaffordable to the majority of tobacco consumers

in the country. Apart from the adverse impact on the Exchequer, the reducing base of domestic

cigarette consumption discourages investment in R&D and quality enhancement of tobacco

varieties and thereby undermines the export potential of high value Indian cigarette tobaccos.

Economical Analysis

India is a major grower and exporter of tobacco in the world. Presently India is among

top three producers of tobacco in the world. Despite lower proportion of total produce being

exported Indian exports it figures among top 10 exporters of the product in the world. Presently

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.

It is estimated that over 2.3 million persons depended on this sector for their livelihood.

The annual wage bill in these enterprises averaged Rs 4 300 million, and annual wages per

worker varied from Rs 8 400 in bidi factories to Rs 55 730 in cigarette, cigar and cheroot

factories. The total net value added by all enterprises averaged Rs 15 000 million per annum, of

which bidi factories contributed 41.2 percent, and cigarette and allied industries 34.3 percent.

The total annual wage bill in the cigarette and allied industries, despite wages per worker being

substantially higher, was only 4 percent of its gross value of output, compared to 16 percent in

the bidi factories, because bidi manufacturing is more labour intensive.

Social Analysis

Moderation in rates of taxes, coupled with the aspiration of tobacco consumers to

upgrade consumption, can multiply the share of cigarettes in India even in a shrinking basket of

tobacco consumption. 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. This includes all forms of advertising like TV commercials,

print ads, pamphlets, hoardings etc. Also banned is the sale of cigarettes to any citizen below the

age of 18. Again, all forms of transaction involving tobacco products should be carried on with a

label displaying the harmful effects of its use. The label should be legible and prominent and

conspicuous as to size and color. 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 raised.

Technological Analysis

On the technological front, ITC cigarettes have came a long way and that can be

concluded by the fact that the supply chain management that the ITC employs now is of the

latest trends- they have a great inventory control, logistics support etc.

Environmental Analysis

Natural Environment-The main source of raw materials for cigarettes is raw tobacco

which is mainly found in the state of Andhra Pradesh. There is no scarcity in supply of raw

tobacco 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. Region Environment-The gap

between urban and rural households in cigarette consumption is the highest in low and lower-

middle income households. Urban low and lower-middle income households consume more

cigarettes compared to the similar income groups in rural areas.

Legal Analysis

The Cigarettes and Other Tobacco Products (Prohibition of Advertisement and

Regulation of Trade and Commerce, Production, Supply and Distribution) Act, 2003, (COTPA)

is being implemented in a phased manner with effect from 1st May 2004 along with the Ban on

Smoking in Public Places with effect from last quarter of 2008 resulting in a dip in sales and

profit.

An Introduction to Godfrey Philips India Limited

Godfrey Philips India Limited is an India-based company. The Company operates in two

segments: Cigarette and tobacco products, and Tea and other retail products. Its products are

distributed to approximately 500 distributors and 800,000 retail outlets. The Company's cigarette

brands include Four Square, Red and White, Jaisalmer, Cavanders and Tipper. Its tea brands

include Rangoli, Utsav, Samovar, Super Cup, Super Cup Duet, Symphony Assam Teas,

Symphony Darjeeling Tea and Symphony Green Tea. As of March 31, 2009, the Company had

two manufacturing facilities in Ghaziabad and Andheri. As of March 31, 2009, the Company's

wholly owned subsidiaries included International Tobacco Company Limited, Chase Investments

Limited, City Leasing and Finance Company Limited and Manhattan Credits and Finance

Limited

As the second largest player in the Indian cigarette industry, our annual turnover exceeds

INR 2200 crores (approx. US $458.05 million). We own some of the most popular cigarette

brands in the country like Four Square,

Red and White, Jaisalmer, Cavanders and Tipper. Over the years we have also set our

own benchmarks in innovation with revolutionary brands like Stellar, the first slim cigarette and

I-gen, the first euro norm cigarette in India.

Our products are distributed over an extensive India wide network of more than 500

distributors and 800,000 retail outlets. With the Corporate Office in Delhi, the Company has

offices all across India in over 8 locations.

BRANDS OF GODFREY PHILIPS

Godfrey Phillips India is best known for its leading brands like Four Square, Red & White,

Jaisalmer and Cavanders along with innovative brands such as Stellar, I Gen and Tipper.

Stellar: The first slim cigarette to be launched in India. It has been specially engineered

to deliver low nicotine without a compromise in taste and flavor. It is available in an elegant slim

shaped 10’s and 20’s pack, aimed at the cognitive consumer who wants to be progressive and

responsible in his habits and lifestyle.

Igen: India’s 1st Euro Norm 10-1-10 cigarette holds the promise of an advanced cigarette

quality and immense style. This progressive brand, known for its innovation, has also introduced

India’s 1st King size 5’s pack, a convenient and stylish pack format for the young adult of today.

Jaisalmer: A Premium King Size brand. It is a luxurious blend of finest sun dried

Virginia tobaccos which deliver a smooth mellow flavor.

Four Square: The flagship brand of Godfrey Phillips, Four Square is the market leader

in the majority of its operating markets. The vibrant brand continues to delight its loyal

consumers through constant innovation and an enriching product experience.

Red & White Flake: One of the most renowned brand names of the nation, it has been

rated in the top 50 brands in the FMCG sector. It is continuing to build upon its iconic stature.

Northpole: Launched in the year 1958 North Pole is the largest selling menthol cigarette

in India. North Pole has recently the Golden Peacock commendation Award for innovation in

packaging.

Cavanders: Cavanders is one of the oldest and most trusted brands of the industry.

Known for its heritage and highest quality standards, Cavanders has been providing superb value

and satisfaction to its consumers.

Tipper: Tipper is the fastest growing micro segment brand from Godfrey Phillips. The

relatively new entrant into the Godfrey Phillips stable, Tipper has driven consumer delight

among micro smokers through intense consumer understanding and continuous innovation. The

brand is the undisputed national leader in the tipped micro segment with significant presence in

states of Maharashtra and Andhra Pradesh.

4 P’s OF GODFREY PHILIPS LTD.

Product: godfrey Philips ltd. Launched their new product tipper by a proper and

systematized market research by which they were able to know their shortcomings of previous

products and how they can improve upon that. They were able to understand that what was the

cause of dissatisfaction among the non filter smokers and also the dual smokers that tobacco kept

falling into their mouth while they fagged, and also that dual smokers usually smoked for style

and image.

So the company introduced TIPPER as a product where compact tip was used to block

tobacco from entering the mouth while smoking and also preventing smoking end from getting

soggy. Moreover the cigarette was developed keeping in mind the style and image factor of the

smokers. So the product contained a gold paper at a tip, giving the cigarette the look of a filter

cigarette and its similar benefits.

Pricing: TIPPER was launched in the price bracket of Rs. 5 per pack. Loose cigarettes

were sold at 50 paisa per stick. The retailer price was kept at Rs.4.50 packet.

Place: Godfrey Philips initially placed their brand TIPPER for the 1st time for about 10

days wherein all the outlets of Kanpur area were covered to start with. The dealers were supplied

only on demand without any inventory pressures. A and B class outlets were given 10 packets of

cigarette whereas C and D outlets were handed over 5 packets or less of cigarettes.

Promotion: Godfrey Philips used a combination of in-shop and out-shops merchandising

displays to stand out in a cluttered cigarette shops.post ad ban, GPI had to cover or remove all

the posters from the market.

Initially, the retailers especially those selling micro cigarettes were targeted as they were

likely to be early adopters and could become heavy users.

Launch of TIPPER by GPIL

GPIL launched its new non-filter cigarette named Tipper – Gold Tipped in January, 2002

in Orissa, Saharanpur, Cuttack and Telangana and in Kanpur. The mission of the company was

to aimed Bidi smokers and Gutkha consumer.

Segmentation of the Market

The company classified its markets in 2 types including filter and non-filter segment. Further it

classifies non filter segment in terms of volume of cigarettes purchases by the outlets as follows:

Class of Outlet Daily Purchases of all Cigarette Brands

A Rs. 1000 or more per Day

B Between Rs. 500 to Rs. 999 per day

C Between Rs. 200 to Rs. 499 per day

D Below Rs. 200 per day

Target Market

Initially, the retailers especially those selling micro-cigarettes were targeted as they were likely

to be early adopters and could become heavy users. The main Target customer of the product is

Bidi smokers and Gutkha consumers.

Positioning

The company has set a standard image in the target customer to that; they are getting the

cigarettes in low price with multiple benefits which are increasing their standard of life.

Trends in tobacco advertisement before the enforcement of the Indian Tobacco Control Act

Newspapers and magazines

Outdoor advertising

Direct advertisements in the print media

Tools Of promotion For Tipper

In shop promotions: The following Point of Sales Material was strategically used during

the launch to grab the consumer’s attention and to ensure brand awareness and to increase trials

through impulse purchase

Thematic posters/art card: were pasted strategically at shop fronts and at eye level at

every outlet so as to make the brand visible right at outlet entry.

Lit racks: with a capacity of 16 cigarette packet were given to selective retail outlets. These racks

were strategically positioned in the shop as to make it properly visible to the smokers.

Lit buntings: were distributed to several retailers which display the features of the brand

and adds to the visibility in the outlet.

In shop promotions: more thematic art cards lit buntings and lit racks were used to make

the product visible.

Dispensers with clock: were distributed to the retailers. These dispensers had the

capacity of holding five pockets of cigarette at a time.

Gravity: These dispensers were very useful in creating the visibility of the brand at

outlets which does not have proper space to place the brand in the shop and are not properly lit.

The dispenser had the capacity of holding five packets of cigarette.

Lit rack: { 20 cigarette packets capacity} were given to selective outlets with the

understanding that the retailers will have to keep 20 live packets of cigarette along with the

strategically placed rack to ensure higher visibility.

Lighter with pop: were distributed as another promotional activity. They used to run on

electricity and were available at retailer outlet for the convenience of smokers.

Promotional Schemes

Redemption Offer: This Scheme provided retailers to redeem 10 Empty Packets with a

free Cigarette packet of tipper

Plus Minus Schemes: This Scheme offered the retailer 1 match box free with every

purchase of tipper and 1matchbox free on returning 1 empty packet of cigarette

Current advertising and promotional trends in India

Sponsorships of sports and cultural events

The Red & White Bravery Awards

Surrogate advertising

The tobacco industries in India are increasingly investing in non-tobacco products by the

same brand name as the tobacco product and are aggressively advertising these products through

all available media. Passion greeting cards, under the imprint of Gold Flake, are now being

marketed through high-end retail stores in all major metros.

Contests

The Wills .Made for Each Other. Contest became one of the most popular contests

sponsored by a cigarette brand in the 1980s. With lucrative offers, including a holiday abroad for

the winning couple, it had courted much controversy over glamorizing and minimizing the

dangers of smoking filter cigarettes. One of the requirements for entry to the contest was that

either of the couple should be a smoker. A Delhi-based consumer group, Voluntary Organization

in Interest of Consumer Education (VOICE) protested against the contest by filing public interest

litigation before the Monopolies and Restrictive Trade Practices Commission (MRTPC), terming

it unethical. The case was eventually lost by VOICE Subsequently, VOICE appealed to the

Supreme Court against MRTPC.s judgment. VOICE lost this case in the Supreme Court as well.

However, after these litigations, this contest has not been relaunched by ITC.

In December 1999, the Four Square brand of GPI ran the .Gold in Gold. Contest offering

gold gift options, which required that entrants to the contest, besides being tobacco users, collect

4 inserts from Four Square Gold cigarette packs. These contests and offers were advertised to

entice existing customers and recruit new ones to use their harmful product. The launch of this

brand attracted huge media publicity and protests from women and health groups. The industry

responded by saying that this product was especially for .emancipated. Women and all models

used for advertising this brand were wearing western attire. GPI tried to associate popular film

celebrities with this brand to increase the sale of this product.

Launch of attractive schemes

Product placement in films

Popularizing tobacco use among Indian women Distribution of free samples

Promoting cigarette use in the rural Population

Launching mini cigarettes

Cigarettes: Future Growth potential

➢ Cigarettes account for only 15% of tobacco consumed in India unlike world Pattern of 85%

due to prolonged punitive taxation Cigarettes (15% of tobacco consumption) contribute nearly

85% of

➢ Of the 58% of adult Indian males who consume tobacco, barely 15% can afford cigarettes

➢ Biri : Cigarettes ratio = 10: 1

➢ Annual per capita adult cigarette consumption in India is appx. one tenth World average: 141

➢ Future growth depends on relative rates of growth of per capita income and Moderation in

taxes

Conclusion

o India is a potential target of tobacco giants due to its billion strong population and

many non-smokers. The Indian Tobacco Company (ITC Ltd) controls about 65%

of the entire cigarette market in India followed by Philips India Ltd (GPI), Vazir

Sultan Tobacco Company (VST) and Golden Tobacco Company (GTC). Beedi

and smokeless tobacco, which form another huge segment of tobacco trade in

India, was earlier an unorganized sector but now is shaping up as an organized

corporate sector.

o Tobacco advertising contributed Rs 3000.4000 million every year to the Indian

advertising industry, before the ban on advertising was enforced. The tobacco

industry used various media to promote and push their products among selected

audiences by sponsoring sports and cultural events such as international cricket,

television programmes, and advertisements in newspapers, magazines, transport

vehicles, etc.

o The tobacco industry in India is increasingly investing in and extensively

advertising nontobacco products by the same brand name. Attractive schemes

such as bravery awards, filmfare awards have also been conducted by several

tobacco companies, indirectly promoting their products

o The tobacco industry has tried to introduce smoking among Indian women by

several innovative methods such as showing smoking scenes in films by famous

personalities who are considered role models for Indian women. Leading film

makers and popular film stars were also indirectly involved in promoting cigarette

brands by consciously using cigarette packs or brand names and logos in films.

o Several tobacco companies have greatly diversified into different fields ranging

from hotels, designer clothing, development programmes, and stationery to the

food business, etc. Despite all diversifications, the cigarette brands still continue

to be their main revenue generator. Whether these efforts of diversification are

plans to reduce investment in tobacco production and manufacturing are not

known.

o Introduction of .mobile smoking lounges. and the Hookah Café/Shisha Bar culture

in India, publishing Tobacco newsletters, and misleading the public through paid

advertisements in favour of tobacco are some of the typical examples of

innovative methods used by tobacco companies to promote their products. As the

tobacco companies are continuously trying to dilute the laws for tobacco control,

enforcement agencies, government and civil society organizations have to be

vigilant about their tactics.