Está en la página 1de 20

PROJECT REPORT

A PROJECT ON THE MARKET ANALYSIS AND STRATEGY


FORMULATION OF LEADING FMCG PLAYER "ITC"

(SESSION-2014-16)

SUBMITTED TO:
PROF. K BALAKRISHNAN

SUBMITTED BY:
MANISH KUMAR (70023)

ACKNOWLEDGEMENT
We take this opportunity to express my profound gratitude and deep regards to our guide
Prof. K Balakrishnan for his exemplary guidance, monitoring and constant encouragement
throughout the course of this project. The blessing, help and guidance given by him time to
time shall carry us a long way in the journey of life on which we are about to embark.
We are obliged to our respondents, for the valuable information provided by them in their
respective fields. We are grateful for their cooperation during the period of our assignment.
Lastly, We thank almighty and friends for their constant encouragement without which this
project would not have been possible.

2|Page

TABLE OF CONTENTS
S. No.

Particulars

Page No.

Introduction

Vision

Mission

Industry & Market Analysis

4.1

Threat of New Entrant

4.2

The Power of suppliers

4.3

The Power of Customers

4.4

Threat of Substitutes

4.5

Rivalry Among Existing

Competitors
4.6

Competition Analysis

4.7

Typologies and locus of

10

Disruptive Change
5

The Macro environment

11

SWOT analysis

13

Objectives for the Period

15

Strategy & Implementation

16

Plan

3|Page

Business Model

18

10

The Balance Scorecard

19

11

References

20

INTRODUCTION
ITC was incorporated on August 24, 1910 under the name Imperial Tobacco Company of
India Limited. As the Company's ownership progressively Indianised, the name of the
Company was changed from Imperial Tobacco Company of India Limited to India Tobacco
Company Limited in 1970 and then to I.T.C. Limited in 1974. In recognition of the
Company's multi-business portfolio encompassing a wide range of businesses - Fast Moving
Consumer Goods comprising Foods, Personal Care, Cigarettes and Cigars, Branded Apparel,
Education and Stationery Products, Incense Sticks and Safety Matches, Hotels, Paperboards
& Specialty Papers, Packaging, Agri-Business and Information Technology - the full stops in
the Company's name were removed effective September 18, 2001. The Company now stands
rechristened 'ITC Limited, 'where ITC is today no longer an acronym or an initialized form.
Working Divisions

ITC

FMCG

4|Page

HOTELS

PACKAGING

PAPERBOARDS

AGRIBUSINESS

IT

VISION
Sustain ITC's position as one of India's most valuable corporations through world class
performance, creating growing value for the Indian economy and the Company's
stakeholders.
One of India's most valuable corporation- The road Ahead for the conglomerate
World class performance- The process of attainment to the target
Creating Growing Value- The final Outcome for the Indian economy and the its shareholders
MISSION
To enhance the wealth generating capability of the enterprise in a globalizing environment,
delivering superior and sustainable stakeholder value.
Wealth generating capability- The purpose of existence and they want to enhance that
capability of the group.
Delivering sustainable and superior stakeholder's value- This is the final goal of the business
INDUSTRY & MARKET ANALYSIS
THREAT OF NEW ENTRANTS
If we see the conglomerate as a whole then the threat of new entrant is low because in some
of its business threat of entrant is high( FMCG, HOTEL, IT) but in some of its business the
threat of entrant is low.
Analyzing each of the factors that becomes a barrier for the new entrant it can be concludes
asSupply side economies of scale- This factor is very much on the high side for the FMCG
industry in which the major players are producing at larger volumes and that is why enjoying
lower cost per unit, as they can spread the fixed cost over more units, and having deep
pockets they can employ the best of technological and human resources and they are basically
commanding their suppliers due to volumes. For a new entrant either he will have to enter
with huge capital or he will have to suffer with extra cost and which forces them not to enter
to the market. Even there are small players but those are restricted to some specific areas
only.
5|Page

If we talk of logistics then in that case also due to huge volumes they have a bargaining
power over their logistics partners to have low cost.
This factor is same for its all divisions as in all its divisions it has a massive turnover either it
be in turns of produced goods or even the services which it offers through packaging, hotels
and IT.
Demand side benefit of scale- In the FMCG division the customer is more inclined towards
branded and well known products and customers are willing to pay premium for the branded
products. The bandwagon effect applies here to a great extent. In some of the cases the brand
loyalty is also at its par which allows companies to capture value on that. The network effects
holds good in this case as consumers are paying premium to associate with the product of
any particular company because other members are also buying.
In other divisions which mainly B2B (Packaging, paperboards, IT) this network effect is very
much at its high side. But if we see the agribusiness it is somewhat low due to less brand
awareness and differentiability of product within the industry.
So, these demand side benefits of scale discourage entry by limiting the willingness of
customers to buy from a newcomer.

CUSTOMER SWITCHING COST


In case of its FMCG division as the product is mainly for the mass market so in that case the
switching cost for the customer is not so important. But if we look at its packaging division
and IT in that case for a customer switching cost is much more. So in case of FMCG as the
switching cost is low so it will be easier for new entrant to gain customer. But in case of IT
services offered the customer will have to train its employees again on the new software and
even the other miscellaneous costs will increase, thereby prevents the new entrant from
entering the industry.
CAPITAL REQUIREMENTS
For economies of scale in the FMCG industry one player has to have huge capital
investments. This is because in the industry already the big players are there with deep
pockets who has poured a huge capital base. In this industry although the inventory turnover
6|Page

time is high and cash to cash cycle time is low then also it needs a huge amount of capital to
have intermediary credit, inventory and start -up losses for a new entrant.
The capital requirement for up-front advertising is huge because advertising here plays an
important role as most of the products are of impulse purchase. This all says that capital
requirements deter the entry but if we see the growth prospects in 2000-11 the industry has
shown a growth of 11.2% and annual volume growth rate of 8.5% which is attractive. The
profit after tax is also growing at an average rate of 10.34%. So. in this case the investors can
help the new firm for capital requirements and make it easier to enter the market.
INCUMBENCY ADVANTAGE INDEPENDENT OF SIZE
The major players who are there have advantages of quality no matter what their size are and
that is why MDH masale even it was not so big, was having advantages over the others in
terms of quality. Due to leading contribution in the economy they are having advantages over
the government policies in subsidy , land provisions etc.
Being there for such along years many of the big players are now having sufficient
cumulative experience developed in serving the market and tackling to the consumer needs.

UNEQUAL ACCESS TO DISTRIBUTION CHANNELS


If we talk of major players like ITC, HUL, P&G and others they are all having a strong
distribution channel. They are having good relationship with their intermediaries which
allows them to have good amount of shelf space. This is also affected due to demand of the
product. For anew player it will be difficult to have access to those distribution channels
because access to distribution channel requires both money and trust, and as the new entrant
is new so it will be difficult for him to make that trust. therefore this existing channel of
distribution and the control over that prevents the new entrant.
RESTRICTIVE GOVERNMENT POLICIES
Restrictive government policies are there like FSSAI guidelines then the packaging norms
and other several guidelines which restricts the new entrants from doing some of the things.
The current FDI of 100% under the automatic route is allowed in the food processing sector,
which is considered as a priority sector. FMCG sector accounted for 1.9% of the nations
7|Page

total FDI inflows in April 2000- September 2012. Cumulative FDI inflows into India from
April 2000 to April 2013 in the food processing sector stood at `9,000.33 crore, accounting
for 0.96% of overall FDI inflows while that in the soaps, cosmetics and toiletries was
`3,115.54 crore in, accounting for 0.32%. The food processing sector attracted FDI inflows of
`6,198 crore during April 2009 to December 2012. So this gives opportunity for new entrant
to enter the market.
THE POWER OF SUPPLIERS
In case of FMCG industry Prices are generally governed by international commodity
markets, making most FMCG companies price takers. Due to the long term relationships with
suppliers etc., FMCG companies negotiate better rates during times of high input cost
inflation. So, the bargaining power of suppliers is moderate.
The reasons associated with this include

Suppliers are in moderate concentration than the Industry.

Low switching cost for the industry participants as most of the things are commodity
that are standard.

Most of the raw materials they use are standardized and there is no such
differentiation. only in some the categories there is some differentiation in the
suppliers' offering like coffee beans, tea leaves etc.

As in some cases there are substitutes to the what the supplier provides.

Due enormous capital need supplier cannot threat of forward integration.

THE POWER OF CUSTOMERS


High brand loyalty for some products, thereby discouraging customers product shift. But low
switching cost and aggressive marketing strategies under intense competition within the
FMCG companies, induce Customers to switch between products, thereby driving value for
money deals for consumers. So overall bargaining power of customers are low and some
possible reasons for this are

No customer purchases in huge volumes

None of the products are standard rather each brand is having some differentiation.

They are not in a position to have backward integration and start producing
themselves.

8|Page

THREAT OF SUBSTITUTES
Being an essential commodity the demand for consumer products is elastic. Multiple brands
positioned with narrow product differentiation. Companies entering a category /trying to gain
market share compete on pricing which increases products substitution. Hence, threat of
substitute is high in the industry.

RIVALRY AMONG EXISTING COMPETITORS


Competitiveness among the Indian FMCG players is high. With more MNCs entering the
country, the industry is highly fragmented. Advertising spends continue to grow and
marketing budgets as well as strategies are becoming more aggressive. Private labels offered
by retailers at a discount to mainframe brands act as competition to undifferentiated and weak
brands.
COMPETITION ANALYSIS

NEAR COMPETITORS OF ITC (FMCG):


From the charts drawn below, it becomes obvious that following are the competitors of ITC:

HUL
P&G

P&G
HUL
ITC

DISTRIBUTION
CHANNEL

M
L

BRAND IMAGE

9|Page

ITC

QUALITY

P&G,HUL

M
L
H
M
INNOVATION

KEY SUCCESS FACTORS OF ITC:


There could be number of factors that contribute to the success of the company, but the key
factors for the success of ITC include:

Quality
Innovation
Distribution channel
Brand image
Variety of products
Promotion

TYPOLOGIES AND LOCUS OF DISRUPTIVE CHANGE


In case of FMCG products as the portfolio is so wide that even if

in some segment some

disruptive change happens then also there will no such adverse effect to the overall brand.
Yes disruptive change may happen in the consumption habits of consumer due pursuance
from media or some other means and which can lead to significant loss to the industry.

10 | P a g e

THE MACRO ENVIRONMENT (PESTLE)


POLITICAL FACTORS/LEGAL FACTORS:
The political environment is quite favorable for ITC and has a positive impact on FMCG and
Hotel business. For example, the removal of the expenditure tax from2007-08 and the new
GST

which

is

coming

will

boost

the

disposable

income

of

consumer

(http://indiabudget.nic.in) The increase in the tax policies such as increase in excise duty and
the vat from 12.5% to 20% in three major cigarettes consumption states of Maharashtra,
Rajasthan and Delhi have resulted in the increase in the overall selling price of the cigarettes
which deters the potential customers and results in lower sales.
ECONOMIC FACTORS:
2014 marked yet another year of modest global economic growth. According to the
International Monetary Funds April 2015 World Economic Outlook, world output grew by
3.4% - at par with the growth recorded in 2013. While economic growth picked up in the
Advanced Economies, the Emerging Market & Developing Economies witnessed further
deceleration in growth. The Emerging Market & Developing Economies slowed down further
- from 5% in 2013 to 4.6% in 2014 with China recording a decline in growth rate - from 7.8%
in 2013 to 7.4% in 2014.
SOCIAL FACTORS:
The aspirations of the tobacco consumers to upgrade the consumption can multiply the shares
of cigarettes. However, growing public concern with regard to the consumption of tobacco
has led the government to ban all sorts of advertisements like the commercials, print media
and pamphlets. This may act as a setback for the company. For the hospitality business, the
society is now turning more towards an individual oriented culture which means that people
spend only for themselves. The rise in the per capita income and the working population in
the country is also a good sign for the company because the number of people willing to
spend more on leisure increases with per capita income.
TECHNOLOGICAL FACTORS:
ITC came a long way on the technological front. With state of the art factories and cheap
labor supply from the second largest tobacco producing country in the world, India, the
supply chain management of the ITC follows the latest trend. ITC also has the great inventory
control and logistics support. They have also been adapting other quality concepts such as
quality control, total quality management and 6-sigma concepts.
11 | P a g e

ENVIRONMENTAL FACTORS:
The main source of raw material for cigarettes is tobacco which is found mainly in the states
of Andhra Pradesh and Karnataka in India. The environment is favorable for the company
because of the abundance of raw material and inexpensive and large availability of cheap
labor in state of Bihar where it has its production location.
LEGAL FACTORS:
The developments in the environmental and consumer regulations and protection such as the
ban on smoking and the ban on selling cigarettes to minors have resulted in setbacks for the
company in terms of the number of sales of their product which draws them the most
revenue. The legal issues related to the hospitality industry affect the international customers
because of the visa and other administrative issues involved.

12 | P a g e

SWOT ANALYSIS
STRENGTHS:

Managing diverse business. ITC has 105 subsidiaries connected with its various
operations.

Wealth of local knowledge & international expertise helps it to be globally


competitive.

High quality standard products & services

Excellent export earnings.

Highly professional management.

Excellent distribution network.

Excellent brand making capability helping it to diversify it into Retailing, IT & Hotel
segments

Agro-export segment showing excellent growth of 28 % & earning Rs. 4 billion


foreign exchange.

A lasting impression by catchy ads.

ITC ltd is one of the most liquid scripts in the capital market. With domestic
institutions having a considerable stake this is likely to improve liquidity in De-mat
trading.

Good returns by way of dividend per share every year.

The lifestyle retailing segment has won acclaim & moving towards higher sales.

The expression greeting card is widening its base all over India & it is available at
most retail shops.

Steady increase in the return on capital employed.

Sophisticated research & development facilities.

WEAKNESS:

Diversification into various lines in which it does not have much knowledge would be
very risky proposition.

High competition from established brands which has resulted in reduction in profit
margins.

Steep increase in cigarette taxes has adversely affected the revenue earned.

13 | P a g e

Due to high price of cigarette, consumers are switching to other cheaper forms of
tobacco.

Its hotel industry has still not created a big share in the market size.

OPPORTUNITIES:

Big untapped market available. For cigarettes, hotels, it, retail garment, packaging &
agricultural products.

High growth potential could be achieved.

Good source of revenue & foreign exchange available by way of exports of


agricultural products, hotels & cigarettes.

Its competitors dont have the financial banking like it so it can take advantage of this.

Proper publicity of the hotels would increase its brand image & revenue.

Threats:

Negative publicity for smoking could affect its cigarette segment.

Government is under huge pressure from public organizations for banning tobacco
products which could affect it adversely.

High competition from established brands.

Competition from unbranded products.

Due to terrorist attacks the tourism industry has taken a back seat which would affect
the hotel segment.

Poor monsoon leads to poor agricultural growth which would affect the agro-exports.

14 | P a g e

OBJECTIVES FOR THE PERIOD (2015-2020)


PRIMARY OBJECTIVES

To achieve a compound annual growth of 15% in sales

To increase the market share in FMCG segment and bring it to a average of 30%
across all category.

To increase the number of intermediaries in the rural segment of Bihar, Bengal &
Odisha

To position ourselves as a FMCG company in the minds of consumers.

To leverage the existing pattern of stock out of milk products in Bihar during Peak
season

To generate new sources of revenue from lending our distribution channel

Justification:- Company's targeted growth rate is around 20% but if we look at industry
growth rate , the compounded annual growth rate is around 10.43%. so to achieve 15 %
growth seems something realistic but to achieve 20% is somewhat like setting very tough
targets. These types of stringent targets will de-motivate employees so there should be
realistic achievable targets.
It has been found that in the rural segments of the above mentioned states intermediaries are
not so strong and I was not able to find such plan of creating new intermediaries in this
segment in the annual report. If we see the potential of these states these states contribute
37% of the overall rural population and has a huge market potential for these FMCG
products.
It has been seen that during the peak season(MAR- JUNE) in Bihar demand for raw milk and
milk products are huge, but the existing players fails to cater to the demand. Even during
the normal days it seems that there is a sense monopoly in the market so there is huge
potential in this market and as the company has plans to enter into this sector so think they
should start from this market.
As company is having a good distribution network and for smaller companies to build such a
network is a tough task so the company can lend them their distribution network which will
be a new source for revenue.

15 | P a g e

STRATEGY & IMPLEMENTATION PLAN


Some of the growth strategies that it can follow to achieve the targeted objectives are

Focus on product innovation/ relaunches / development of new markets- If we see the


soap category then our brand Vivel is not so popular, it is advisable to relaunch Vivel
with new positioning .

Encirclement attack- We will launch product in the detergent segment which has the
same characteristics as of Ghadi to attack the market leader .

Price cut to increase sales of Natural juice or to attack Real and other players.

Ad spends- The level of ad spends will depend on competitive intensity and product
innovations. Launches and relaunches will keep happening. However, over the near
term, ad spends are likely to remain high. Ad spends are unlikely to go back to10% of
sales.

Product Flanking- In order to gain access in the rural market where price is more
important we will flank the original product with smaller packs. By doing so a
customer's affordability will enhance and now he can choose from multiple size
alternatives of the same brand.

In order to increase the distribution network in the rural segment of the above mentioned
states we are going to take over the local players . We are going to focus more on the
paan/plus where from any means our cigarette is being sold. As we have done for matchstick
we will leverage this to sell our other products also and in the mean time we will develop
some strong distributors in those areas.
Through extensive promotions and product launches we can change the mind set of
consumers that we are no more just a tobacco company rather we are a leading FMCG
producer. For this in each year the advertisement cost will be around 15-20% of the total
sales. We are going to sponsor local games, national games & international games. We are
going to have regional stars in the TV advertisements.
In order to leverage the milk demand we are going to use a separate distribution mechanism
for packet milk but same distribution channel for other milk products.
Although these strategies are not exhaustive multiple other thing will need to be done to
supplement these strategies.

16 | P a g e

IMPLEMENTATION PLAN
Corporate Level

Objective

Action step

Person

Target Date

Responsible
To position ITC Aggressive

Marketing

as

Communications

FMCG Promotion,

company

Product

& 2020

Head

launches
Business Level

To increase the Product


sales revenue

Product

Flanking,

New Planning

Product

control,

launches

Marketing

Each year end


and

To increase the Product

Branch

Evaluation

market share

managers,

each year end

penetration,
New

market Regional

development

Sales

head

To leverage the Establishment of Branch manager, 2017


milk shortage in new
Bihar

diary

in Plant head dairy

Bihar, Creation Division


of

distribution

channel
Operation level

To increase the Creation of new Area Executives, 2016


no
intermediaries

of distributors

rural segment of
Bihar

17 | P a g e

in Area managers

at

BUSINESS MODEL (ITC FMCG BUSINESS)


Key Partners

Key Activities

Value Proposition

Intermediaries
Logistic
company
Contract
Farmers
Contract
Manufacturers

Manufacturing
Marketing

Good Quality
FMCG
products(
Cigarettes &
cigars, Foods,
Lifestyle
retailing,
personal care,
Education &
Stationery,
Safety matches
and Agarbattis)

Key Resources
People
Production
plants
Process patents

Outsourcing
distribution
channel to
other
companies

Customer
Relationships

Customer
Segments

High quality
products

Mass market
Retail
consumers

Proper action
for complains

Channels
Retail shops
Choupal Sagar
Brand store(
Lifestyle, John
players)

Cost Structure

Revenue Streams

Production
Marketing Activities
People

Product sale
Usage fee for distribution

18 | P a g e

Business
organizations

THE BALANCE SCORECARD(FMCG DIVISION)


Objective
Financial

Measures

To increase the Percentage


revenue in the change

Target

Initiative

20%

Increase

in

product

next fiscal year Revenue

portfolio

from

Aggressive push

FMCG

sales

Customer

in

marketing

To increase the Market Share

30%

Effective

presence of our

Promotions,

FMCG brands in

increasing

the

no

customer

segment

the
of

distributors

To decrease the Churn rate

< 10%

customer Churn

Proper
Consumer
insights
Improvement in
complain
handling

Internal

To decrease the Debtors turnover 12

Change in the

Business

average

credit

Process

collection period

either increasing

time

cash discount or

Ratio

policy,

reducing

credit

period
Learning &

To increase the No of process 20

Increase the

Growth

no of process Patents in a year

spending in

patents

R&D,
Hiring good
researchers

19 | P a g e

REFERENCES
http://www.itcportal.com/about-itc/shareholder-value/annual-reports/itcannual-report-2015/pdf/report-accounts-2015.pdf
http://www.dinodiacapital.com, The Indian FMCG Industry
http://www.cmie.com, Monthly Review of Indian Economy
Business model generation, A handbook for visionaries , Game Changers,
and challengers, Alexender Osterwalder and Yves Pigneur
The balance scorecard, Robert S. Kaplan

20 | P a g e

También podría gustarte