Documentos de Académico
Documentos de Profesional
Documentos de Cultura
(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.
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TABLE OF CONTENTS
S. No.
Particulars
Page No.
Introduction
Vision
Mission
4.1
4.2
4.3
4.4
Threat of Substitutes
4.5
Competitors
4.6
Competition Analysis
4.7
10
Disruptive Change
5
11
SWOT analysis
13
15
16
Plan
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Business Model
18
10
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
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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.
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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.
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.
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
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.
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.
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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.
HUL
P&G
P&G
HUL
ITC
DISTRIBUTION
CHANNEL
M
L
BRAND IMAGE
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ITC
QUALITY
P&G,HUL
M
L
H
M
INNOVATION
Quality
Innovation
Distribution channel
Brand image
Variety of products
Promotion
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.
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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.
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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.
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SWOT ANALYSIS
STRENGTHS:
Managing diverse business. ITC has 105 subsidiaries connected with its various
operations.
Excellent brand making capability helping it to diversify it into Retailing, IT & Hotel
segments
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.
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.
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.
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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.
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:
Government is under huge pressure from public organizations for banning tobacco
products which could affect it adversely.
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.
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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 leverage the existing pattern of stock out of milk products in Bihar during Peak
season
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.
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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.
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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
Product
Flanking,
New Planning
Product
control,
launches
Marketing
Branch
Evaluation
market share
managers,
penetration,
New
market Regional
development
Sales
head
diary
distribution
channel
Operation level
of distributors
rural segment of
Bihar
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in Area managers
at
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
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Business
organizations
Measures
Target
Initiative
20%
Increase
in
product
portfolio
from
Aggressive push
FMCG
sales
Customer
in
marketing
30%
Effective
presence of our
Promotions,
FMCG brands in
increasing
the
no
customer
segment
the
of
distributors
< 10%
customer Churn
Proper
Consumer
insights
Improvement in
complain
handling
Internal
Change in the
Business
average
credit
Process
collection period
either increasing
time
cash discount or
Ratio
policy,
reducing
credit
period
Learning &
Increase the
Growth
spending in
patents
R&D,
Hiring good
researchers
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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
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