itc wills navy cut audit relationship report s3g6

Group 6, Section S3

A POST PURCHASE AUDIT RELATIONSHIP RESEARCH PROJECT ON

WILSS NAVY CUT

A PRODUCT OF ITC LIMITED

Group - 6

Team Members:

Avnish Kaushik

Bhavana Bhandari

Maunil Shah

Shivendu Shekhar Mishra

Saurabh Srivastava

Great Lakes Institute of Management

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ContentsINTRODUCTION...........................................................................................................................................5

INCEPTION AND EVOLUTION...................................................................................................................5

ITC – A BRIEF PROFILE..........................................................................................................................5

CIGARETTES HISTORY..........................................................................................................................7

CIGARETTES & TOBACCO INDUSTRY....................................................................................................7

ITC TIMELINE.......................................................................................................................................9

COMPANY BUSINESS PROFILE...................................................................................................................10

INDUSTRY & SECTOR PROFILE...............................................................................................................10

TOBACCO INDUSTRY PROMOTION AND SPONSORSHIP........................................................................11

LEADING CIGARETTE BRANDS PROMOTED IN INDIA.........................................................................12

MARKETING TACTICS.............................................................................................................................12

SLIM CIGARETTES TARGETING WOMEN............................................................................................12

TARGETING HEALTH CONSCIOUS CONSUMERS.................................................................................13

SURROGATE ADVERTISING METHODS-POST BAN ADVERTISING TOBACCO PRODUCTS IN INDIA.....14

ITC SWOT ANALYSIS...............................................................................................................................15

STRENGTHS........................................................................................................................................15

WEAKNESS.........................................................................................................................................15

OPPORTUNITY...................................................................................................................................15

THREATS............................................................................................................................................16

COMPETITIVE MARKET OF WILLS NAVY CUT (WNC)..........................................................................17

PRODUCT PORTFOLIO............................................................................................................................18

CIGARETTES PORTFOLIO:.......................................................................................................................21

GROWTH:..................................................................................................................................................22

KEY FINANCIALS.........................................................................................................................................25

NET PROFIT MARGIN (NPM)..................................................................................................................25

CURRENT RATIO.....................................................................................................................................26

MERGERS & ACQUISITIONS...................................................................................................................27

AUDIT RELATIONSHIP SUMMARY..............................................................................................................29

SURVEY QUESTIONS..............................................................................................................................29

OVERVIEW OF SURVEY DATA.................................................................................................................29


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CONSUMER DETAILS AND ANALYSIS..................................................................................................29

CONSUMPTION FREQUENCY AND SATISFACTION.............................................................................31

CONSUMER PREFERENCE FOR LOOSE CIGARETTES...........................................................................32

CUSTOMER RELATIONSHIP................................................................................................................33

CUSTOMER SATISFACTION................................................................................................................34

NAVY CUT FOR ITS USERS..................................................................................................................37

IMPACT OF BRAND WILLS ON NAVY CUT...........................................................................................37

STATISTICAL ANALYSIS...............................................................................................................................39

REFERENCES..............................................................................................................................................41

ANNEXURES...............................................................................................................................................41


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Table of Figures

Figure 1: Indian Tobacco Industry- Major Players.......................................................................................8Figure 2: Indian Cigarette Market- Major Players & Market share..............................................................9Figure 3: ITC Diversification Profile............................................................................................................11Figure 4: Slim Cigarettes for Women.........................................................................................................13Figure 5: Cigarettes for health conscious consumers................................................................................14Figure 6: ITC Product Collage.....................................................................................................................21Figure 7: ITC Cigarette Portfolio.................................................................................................................22Figure 8: ITC Sales Distribution (Rs. Crores)...............................................................................................23Figure 9: ITC Cigarette Sales Growth (Million Nos.)...................................................................................24Figure 10: Indicative Sales of individual product categories (Mar 2010)...................................................25Figure 11: ITC Net Profit Margin for last 5 years........................................................................................26Figure 12: ITC Current Ratio for last 5 years..............................................................................................27Figure 13: Age of Users..............................................................................................................................31Figure 14: Occupation of users..................................................................................................................31Figure 15: Income range of users.............................................................................................................31Figure 16: Income Class Division................................................................................................................32Figure 17: Cigarette consumption of users................................................................................................32Figure 18: Consumption Patterns..............................................................................................................33Figure 19: Impulse Behaviour Analysis......................................................................................................33Figure 20: Users smoking time period.......................................................................................................34Figure 21: Factors for Purchase.................................................................................................................34Figure 22: Choice of Navy Cut Vs Other brands.........................................................................................35Figure 23: Customer Satisfaction...............................................................................................................36Figure 24: Product Availability...................................................................................................................36Figure 25: WNC Vs Other Brands...............................................................................................................37Figure 26: Product Recommendation........................................................................................................37Figure 27: Navy Cut to its users.................................................................................................................38Figure 28: Brand Impact............................................................................................................................39Figure 29: Brand Ranking...........................................................................................................................39


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INTRODUCTION

INCEPTION AND EVOLUTION

ITC – A BRIEF PROFILE

ITC a century old company initially named as Imperial Tobacco Company of India Ltd and later India Tobacco Company Ltd in 1970, I.T.C Limited in 1974 and finally in 2001 rechristened to ‘ITC Limited’

ITC has a multiple portfolio ranging from of business Cigarettes & tobacco, Hotels, Information Technology, Packaging, Food & Agri-business, Retail, Education & Stationary and Personal health care products.

For the initial six years, ITC targeted Cigarettes and leaf tobacco business slowly the company started moving into different sectors as a result of this packaging& printing business was set up in 1952 as a strategically backward integration towards its tobacco unit.

ITC always had the nation’s interest on its agenda and acquisition of a hotel in Chennai was done for the same, so as to create tourism infrastructure, create employment and earn foreign exchange thus ITC Welcomgroup Hotel Chola came into being. Today the company is a strong hold in the hospitality industry with over 100 hotels across the country.

ITC under the name of ITC Bhadrachalam Paperboards Ltd. ventured in paperboards market which later in the year 2002 became a division of the company retaining its name. In November, this division merged with company’s Tribeni Tissues Division and Paperboard & Specialty Papers Division was formed. In 2004, company acquired a paperboard manufacturing facility BIPCO which improved customer service and a wide array of products.

Surya Tobacco Co was set up in 1985 in Nepal, in August 2002 it became a subsidiary of the company and renamed as Surya Nepal Pvt. Ltd.

In 1990, Agri-business division was set up to export commodities. ‘Choupal’ initiative was started in 2000 in MP with soya farmers. India’s first rural mall ‘Choupal sagar’ was started in August 2004 at Sehore. At present 24 such choupal sagar are operating in 3 states.


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In 2000, Expressions range of greeting cards was launched. Paperkraft, notebooks was started in 2002 classmate notebooks were launched in 2003 to cater to a wide range of students. Other stationary items were launched under the same brand name.

ITC ventured in lifestyle retailing segment with the same Wills for men and women in the year 2000. A man’s clothing brand, John Players was initiated in 2002. In 2006, Wills Lifestyle became the title partner for India Fashion Week this helped gain recognition from buyers and retailers as a single largest B2B platform for fashion industry.

In 2000, ITC ventured into another flourishing sector information technology and started its own subsidiary ITC Infotech India Ltd.

ITC’s entry into food business started in 2001 with the launch of ‘Kitchens of India’ ready to

eat dishes. In the forthcoming years ITC launched various brands like mint-o, candyman, ashirvaad atta, sunfeast and bingo. Totally comprising of 200 products under six brand names.

Safety matches initiatives was started in 2002 and brands like iKno, Mangaldeep (incense stick), Aim, Aim Mega and Aim Metro were launched.

In 2005 ITC introduced a range of bath & body care products with Essenza Di Wills brand name.


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CIGARETTES HISTORY

ITC is a market leader in cigarettes in India. 1300 crores were invested to have state of art technology to deliver a product of finest quality to its consumers. ITC has four production units; the Kolkata production factory is the world’s first cigarette company to earn ISO140001 certification making itself a benchmark for companies around the world.

CIGARETTES & TOBACCO INDUSTRY

Tobacco chewing is a tradition in India. India is second largest producer of tobacco following China holding a total global market share of 0.7 percent of a $30 billion global market. The chart below shows the total tobacco production.

78%

13% 9%

Tobacco IndustryITC Godfrey Phillips VST

Figure 1: Indian Tobacco Industry- Major Players


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India, inspite of being the second largest producer of tobacco is the ninth largest exporter of tobacco and related products. In the domestic market there are four major players, ITC is the market leader, and the market share is shown below.

72%

12%

8%8%

Indian Cigarette Market

ITC Godfrey Phillips VST Others

Figure 2: Indian Cigarette Market- Major Players & Market share


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ITC TIMELINE


1920

Imperial Tobacco Co. of India was incorporated. Company manufactured and distributed cigarettes. Sole manufacturer of specialty papers like cigarettes tissue paper.

1953

Company got manufacturing business of Tobacco Manufacturing India Ltd.

1973

Government approval for setting three new processing factories.

1986

ITC Filtrona Ltd, a joint venture between ITC and Filtrona was started to manufacture high technology filters.

1987

‘Wills Flake Premium Filter’ and ‘Scissors Filter’ were introduced

1993

‘Hero’ and ‘Classic mild’ cigarettes launched at small lengths and premium ends respectively

1994

‘Scissors Standard’ introduced.

1996

‘Classic Ultra Milds’ and ‘Wills Natural Lights’ brands were launchedFlat 10 packs were launched.

1997

10s hinged –lid packs were introduced for regular size filters

1999

Factory in Bengaluru began its operations.

2003

‘India kings’ marketed in contour packs and ‘insignia’ was launched in shoulder box.

2008

Navy cut launched at Rs 24 for a pack of 10 sticks.

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COMPANY BUSINESS PROFILE

INDUSTRY & SECTOR PROFILE

As a part of its diversification strategy, ITC has evolved from a major Tobacco producing company to a dominant FMCG business. ITC also has significant presence in Hospitality, Paperboards and Packaging, Agri-business and Information technology sector.

Figure 3: ITC Diversification Profile


FMCG

Cigarettes & Cigars

Food

Lifestyle Retailing

Personal Care

Education & Stationery

Safety Matches

Agarbattis

Hotels

Hotels

Restaurants

Paperboards and Packaging

Paperboards & Specialty Papers

Packaging

Agri-Business

Agri Commodities & Rural Services

e-Choupal

Leaf Tobacco & Spices Inputs

Information Technology

ITC Infotech

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TOBACCO INDUSTRY PROMOTION AND SPONSORSHIP

The tobacco industry engages in a comprehensive marketing through direct advertising (ads on TV or in magazines and at point of sale) and indirect advertising such as sponsorship of sports and concerts, product placement, and brand stretching. In India, despite an advertising ban having passed in 2003, cigarette companies in particular consistently exploited loopholes in the law and relaxed enforcement to market their products and attract new users. Examples include:

In 2010, Godfrey Phillips India broke into the Indian chewing industry with the launch of Pan Vilas, a premium pan masala brand, and planned to invest Rs 1 billion ($US 22 million) over three years on marketing the product. Therefore parallel branding exercise is done for Pan masala which in turn adds to brand value of cigerret

The ITC group uses two of its popular cigarette brands, Wills and John Player, as the brand name of lifestyle retailing stores that sell clothing. The Wills Lifestyle brand is a well-established brand and also sponsors India’s annual Fashion Week, stretching the cigarette brand name so that it is associated with the glamour of fashion and not just the deadly tobacco product.

Surrogate advertising techniques are used by the companies for advertising, for example in an auto-rickshaw or a local bus the adds of tobacco-free pan masala( whose advertising is not banned in INDIA) are used and in turn they promote the tobacco products. The advertising ban in India is not strictly enforced and tobacco companies take advantage by promoting their products in ways that are illegal. In 2009, Four Square, a popular Godfrey Phillips India brand, sponsored a concert series and talent contest in the city of Chennai. The event titled “Four Square- GET FAMOUS- be Tamil Nadu’s Next Singing Sensation” was heavily promoted through limited edition cigarette packs, large billboards, point of sales displays and contest entry locations across the city.


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LEADING CIGARETTE BRANDS PROMOTED IN INDIACigarette companies aggressively advertise their brands in order to attract new smokers and to encourage current smokers to switch brands. International, cigarette companies are focusing on targeting young urban consumers and middle-upper income consumers. Companies are also shifting brands away from unfiltered variants to filtered variants. Local brand Gold Flake had the largest cigarette market share in India (31%), followed by Wills (18%) and Scissors (8%) - all of which are owned by ITC Group.

MARKETING TACTICS

SLIM CIGARETTES TARGETING WOMEN

Although the female smoking population is currently very small (about 3%), cigarette companies in India see the potential for growth by attracting women. Slim cigarette brands have been launched to appeal to women smokers. The first slim cigarette to hit the Indian market was the Stellar Slims brand by Godfrey Phillips in 2007.

Figure 4: Slim Cigarettes for Women

The brand is marketed as having lower levels of nicotine with the satisfaction of a regular cigarette.

In 2008, ITC Group launched Wills Classic Verve slim cigarettes targeted at women and first time smokers. ITC describes the brand packaged in a shiny red as “India’s trend setting cigarette…defines ubercool urban style.

Golden Tobacco also has a slim cigarette called June.


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TARGETING HEALTH CONSCIOUS CONSUMERS

As Indian customers become more aware of the health risks associated with tobacco use, cigarette companies have created new products and tactics to counteract consumer knowledge. One such tactic is to use misleading terms (ex “low-tar”) on cigarette packaging or in advertisements that encourage health concerned smokers to switch to cigarettes brands that they perceive as safer.

Figure 5: Cigarettes for health conscious consumers

This also offers consumers that are concerned about health risks from tobacco an alternative to quiting. As of 2006, India prohibits tobacco product packaging and labeling from containing information that is “false, misleading or deceptive,” or that is likely to create misperceptions about the characteristics or heath effects of tobacco products. This includes prohibiting the use of terms such as “light”, “mild” and “low-tar”.

Despite these restrictions, cigarette brands are still misleadingly marketed as being healthier. Low Tobaco cigarettes launched by Golden Tobacco in 2006 claim to contain 50% less tobacco than regular cigarettes.

Golden Tobacco also claimed that ‘LoeTobac has been found to have “safer delivery levels” of tar, carbon monoxide and tobacco-specific nitrosamines than other brands.’

Stellar Slims Cigarette ad “Low nicotine, King sized satisfaction” . December 2010 Campaign for Tobacco-Free Kids

Golden Tobacco markets Diet Blue cigarettes which use “ECOTINE technology and is low in TSNA does less damage to smokers.” On the company website, Diet Blues are also described as having almost zero carcinogens making them “the safer option for existing habitual smokers.”


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ITC plans to peruse creating “less harmful cigarettes” and is expected to promote mid and low tar cigarettes towards consumers in the future.

SURROGATE ADVERTISING METHODS-POST BAN ADVERTISING TOBACCO PRODUCTS IN INDIA

Direct advertising of display-boards at point-of-sale advertising. Launching Mobile Smoking Lounge(MSL)- the introduction of this air-conditioned

smoking lounge which has a long queue of young smokers waiting to get inside to smoke

Innovative Collaboration- ITC and Vyakti vikas Kendra, a NPO by ‘Shri Ravishankar’ of ‘Art of Living’

Releasing mis-leading new letters Introduction to Hooka-Café Collaboration with hotels by using- ‘Courtsey of Choice’- where smoking is allowed Influencing public opinion through print media


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ITC SWOT ANALYSIS

STRENGTHS

• Smoking is addictive• The main strength of the company is the brand Image of Wills Navy cut. In spite of ban

on the advertisement the product was at No.2 position within the cigarette portfolio• The ability to provide a product range of exceptional originality and quality• The steady margins and sales value of the product are due to its high perceived quality

and less price• The company can easily take care of demand and supply of the product with its excellent

distribution network• Will navy cut has excellent brand image and is promoted by various indirect

advertisement like ITS having Wills lifestyle showrooms or sponsoring sports tournaments

WEAKNESS

• In ability of the company to hold large advertisement campaign after Ban on cigarette advertisement in INDIA.

• It is because of this reason that company is not able create further brand Image of the product

• There are many products in the same market produced by ITC, for example Gold flake etc, which are of same price segment. So it is difficult for ITC to maintain its focus on promotion and distribution on one brand.

OPPORTUNITY

• If the smokers who currently smoke bidi is switched to factory made cigarettes, then India’s cigarette consumption would increase to around 640 billion sticks. This increase would make India the second largest volume cigarette consumer in the world behind China.

• Because of its addictive nature the demand elasticity of tobacco products, especially cigarettes, is relatively low at about 0.4 to 0.6.


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• In India the current population 713998 (in thousands) people out of 1334914 are expected to be in the range of 15 to 49 years by 2020 which will be a huge representation of potential target consumer

• Due to diversity in the range of products, it will eventually be possible to explore new outlets not previously seen as preferred target market.

• India is a potential target of tobacco giants due to its billion strong populations and many non-smokers.

• 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; they successfully associated smoking behaviour with increasing social liberation and emancipation of women.

• Introduction of ‘mobile smoking lounges’ and the Hookah Café/Shisha Bar culture in India, publishing Tobacco newsletters, can be used by companies to promote their project.

• Indirect advertising campaign for example by ITS's E-chaupals and awards are used to promote the brand and the product.

• Out of almost 950 million population of INDIA, only 120 million are smokers which give a lot of scope to expand.

THREATS

• Uncertainty of government regulation, for example recently the 'Logo' that 'smoking kills' was required to cover almost 80% of the pack area, because of which major players like ITC and Godfrey Philips had to stop production of cigarettes

• Increasing taxation on tobacco products cause the prices of cigarettes to go up and due to this the retail consumption of a particular brand gets adversely effected

• The next threat may also be the changing habits of the consumer; they may quit smoking due to its ill effects and hazards. This may affect the sales as well as the brand image of the product

• The launch of anti-smoking campaign by Govt. and NGO's causes adverse effect on the sales Wills navy cut is perceived to be a brand that causes most number of incurable cancer disease, this causes the migration of regular smokers to a less perceived mild brands.


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COMPETITIVE MARKET OF WILLS NAVY CUT (WNC)

WNC faces a competition from sources in India and outside India. The companies outside of India are called Transnational Tobacco Companies (TTC). Companies within India include Godfrey Phillips India Ltd., which is the second largest cigarette company in India. It owns some of the popular cigarette brands in the country like Four Square (Four Square Kings, Four Square Special, Four Square Premier and Four Square Super), Red and White, Jaisalmer, Cavanders and Tipper. The other competitor of WNC is VST Industries, which is the third largest cigarette manufacturer in India. VST owns brands like Charms, Charminar and Gold. The other major company in India which produces cigarettes is Golden Tobacco Limited. It holds a market share of 1% in Indian cigarette industry. The major brands of cigarette it produces include Panama, Chancellor and Flair.

Additional to the competition from other companies, WNC faces tremendous competition from other cigarette products of its own manufacturer, ITC Company. Competition is with brands like Gold Flake and Scissors, among which Gold Flake is the market leader in India in terms of retail volume with more than 30% of market share in 2009.

Apart from Indian companies, the competition with Transnational Tobacco Companies is not that fierce. The reason for this is attributed to the restriction laid on foreign direct investment in cigarette manufacturing. The major players among TTC are British American Tobacco (BAT), which is a British company and ranked third in global tobacco market. BAT attempted to raise its stake in ITC but was restricted by the Indian government because of the FDI restriction. The other TTC Company is Philip Morris International, which is ranked second in the global tobacco market behind China National Tobacco Company. They have stake in Godfrey Phillip India Ltd. and manufacture one of the brands like Marlboro, which is sold in India. Japan Tobacco International is the other TTC Company which has their product in India. It is affiliated with ITC Company and manufactures the brand called Berkley, which makes up 1.3% of Indian Cigarette Market.


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PRODUCT PORTFOLIO

Category ProductsFMCG Cigarettes & Cigars:

W. D. & H. O. Wills, Gold Flake Kings, Gold Flake Premium, Navy Cut, Insignia, India Kings, Classic (Verve, Menthol, Menthol Rush, Regular, Mild & Ultra Mild), 555, Benson & Hedges, Silk Cut, Scissors, Capstan, Berkeley, Bristol, Lucky Strike, Players and Flake.Foods:

i. Kitchen of India: Ready to eat products, Conserves, Chutneys, Biryanis and Desserts.

ii. Aashirvaad: Staples, Spices, Instant Mixes and Ready Meals.iii. Sunfeast: Snack food (Sunfeast Milky Magic, Sunfeast Marie Light,

Sunfeast Golden Bakery, Sunfeast Dark Fantasy, Sunfeast Dark Fantasy Choco fills, Sunfeast Glucose, Sunfeast Dream Cream, Sunfeast Snacky, Sunfeast Sweet ‘n’ Salt, Sunfeast Nice, Sunfeast Benne Vita Flaxseed Biscuits, Sunfeast Special, Sunfeast Pasta, Sunfeast Yippee!)

iv. Mint-o (Confectionary)v. Candyman (Confectionary)

vi. Bingo (Snack Food)Lifestyle Retailing:

i. Willis Lifestyle (Wills Classic work wear, Wills Sport relaxed wear, Wills Clublife evening wear)

ii. John Player (offers a complete fashion wardrobe)Personal Care

i. Essenza Di Wills (Range of Fragrances)ii. Fiama Di Wills (a premium range of personal care products comprising

shampoos, conditioner, shower gels and bathing bar)iii. Vivel Portfolio (Vivel Di Wills and Vivel are high quality ranges of soaps

and shampoos for the upper-mid and mid-market consumer segments)iv. Superia (Superia range of soaps and shampoos have been launched to

cater to the large popular market in the personal care category)Education and Stationary

i. Colour Crew (Wax Crayons, Colour Pencils)ii. Classmate (Stationery)

iii. Papercraft (Premium Executive Stationery Needs)Safety Matches (Brands: i Kno, Stylites, Aim and Aim Mega)Agarbattis(Mangaldeep)

Hotels Restaurantsi. Branded Cuisine ( Bukhara, Dakshin and DumPukht)

ii. International Cuisine (West View and Pan Asian)Hotels (ITC Green Centre in Gurgaon is the headquarters of ITC's Hotels Business)

i. WelcomHotels: WelcomHotel Rama International Aurangabad, WelcomHotel Vadodara and WelcomHotel Grand Bay


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Vishakhapatnam.ii. Sheraton Hotels: Sheraton Rajputana Hotel Jaipur, Sheraton Chola

Hotel Chennai, Sheraton Park Hotel and Towers, Chennai and Sheraton New Delhi

iii. Fortune Hotelsiv. WelcomHeritagev. WelcomEnviron (ITC Hotels' vision for a green world)

Paperboards and Packaging

Paperboards and Specialty Papersi. Packaging (Virgin: Folding Box Boards, Solid Bleached Boards; Recycled:

Coated Duplex Whiteback, Coated Duplex Greyback and White Liner)ii. Specialty (Liquid Packaging, Barrier Coated Cartonboards, Cupstock,

Cast Coated Boards and Gypsum Liners)iii. Papers (Woodfree Fine Papers, MG Craft Papers, Opaque Papers,

Cigarette Tissues, Electrical Insulation Papers, Niche Papers, Superfine Printing)

iv. Graphics (Coated Cards, Ivory Cards, Playing Card Boards)Packaging

i. Carton Board Packaging (Printed Carton and Fluted Cartons)ii. Flexible Packaging

iii. Tobacco PackagingAgri-Business Agri Commodities and Rural Services

E-ChoupalLeaf Tobacco, Spices and Agri Inputs

Information Technology

ITC Infotech: Banking Financial Services & Insurance (BFSI), Consumer Packaged Goods (CPG), Retail, Manufacturing, Engineering Services, Media & Entertainment, Travel, Hospitality, Life Sciences and Transportation & Logistics.


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Figure 6: ITC Product Collage


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CIGARETTES PORTFOLIO:

Figure 7: ITC Cigarette Portfolio


Cigarettes & Cigars

Cigars

Armentros Hand Rolled

Cigarettes

W. D. & H. O. Wills

Gold Flake Kings

Gold Flake Premium

Navy Cut

Insignia

India Kings

Classic (Verve, Menthol, Menthol Rush, Regular, Mild & Ultra Mild)

555

Benson & Hedges

Silk Cut

Scissors

Capstan

Berkeley

Bristol

Lucky Strike

Players

Flake

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GROWTH:

Cigarettes are a major driver of business in the ITC portfolio and can be seen from the below sales data that they contribute the maximum revenues.

Branded

Packag

e Foods

Cigarett

es

Coffee

Fruit P

ulp

Hotel Sa

les/Se

rvices

Marine P

roducts

Miscell

aneo

us Item

s

Branded

Garmen

ts

OthersPap

er

Printing/P

ackag

ing Mate

rials

Rice

Smokin

g Tobacc

os

Soya

Extra

ction

Soya

Oil

Soya

Seed

s

Unmanufac

tured To

bacco

02000400060008000

100001200014000160001800020000

20062007200820092010

Figure 8: ITC Sales Distribution (Rs. Crores)


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Cigarettes also are the maximum volume drivers and have a consistent growth in the volume of cigarette sales as reflected in the chart below.

Mar 2006 Mar 2007 Mar 2008 Mar 2009 Mar 2010 70000

72000

74000

76000

78000

80000

82000

84000

86000

75894

8126580723

78370

84040

Cigarettes

Cigarettes

Figure 9: ITC Cigarette Sales Growth (Million Nos.)


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Cigarette’s pie in ITC portfolio can be seen below(as per records in 2010)

Branded Package FoodsCigarettesCoffeeFruit PulpHotel Sales/ServicesMarine ProductsMiscellaneous ItemsBranded GarmentsOthersPaperPrinting/Packaging MaterialsRiceSmoking TobaccosSoya ExtractionSoya OilSoya SeedsUnmanufactured Tobacco

Figure 10: Indicative Sales of individual product categories (Mar 2010)


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KEY FINANCIALS

Financial strength of a company determines the actual performance of a company. Below are some key indicators regarding the finances of the company.

NET PROFIT MARGIN (NPM)

The NPM of 22.2% in Mar’ 06 declined to 21.4% in Mar’ 07. The NPM for Mar’ 10 stands at ~21.2 %. The decline in margins was explained by the experts due to the increased taxes and duties levied by the Govt. ITC’s profit margin consistently lingers in early twenties.

Mar '06 Mar '07 Mar '08 Mar '09 Mar '1020.6

20.8

21

21.2

21.4

21.6

21.8

22

22.2

22.4

Net Profit Margin(%)

Net Profit Margin(%)

Figure 11: ITC Net Profit Margin for last 5 years


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CURRENT RATIO

Current ratio for ITC was around 1.2 in March ’06 which increased to 1.4 in March’ 09, currently it is just under 1.

Mar '06 Mar '07 Mar '08 Mar '09 Mar '100

0.2

0.4

0.6

0.8

1

1.2

1.4

1.6

Current Ratio

Current RatioLinear (Current Ratio)Linear (Current Ratio)

Figure 12: ITC Current Ratio for last 5 years


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MERGERS & ACQUISITIONS

ITC Ltd., every now and then tried to diversify its businesses. Following this strategy ITC acquired West Indian Match Company also known as WIMCO. WIMCO had a market share of 13% and was not generating profits at the time it was acquired by ITC.

ITC Ltd. acquired Bilt Industrial Packaging Company Ltd (BIPCO). ITC bought BIPCO for Rs. 233 crores.

Bilt Industrial Packaging Company Ltd. was a Coimbatore based company. After the acquisition it was renamed to ITC Paperboards and Speciality Papers. This acquisition enhanced the company’s capacity to generate paperboards by 65,000 tonnes. The acquisition was aimed keeping in mind increasing market demand of a range of such products.

ITC signed a contract with Gilat Satellite Networks Ltd. Growing market demand of ITC’s e-choupal was the driving force behind the signing of this contract. ITC aimed at expanding the project to several other than existing states of the country. As per the contract, the Israel based firm had to supply more VSAT to ITC. ITC also had plans to use its e-choupal setup and diversify services in areas such as healthcare, insurance etc.


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ITC Ltd. declared tie-up with Marubeni Corporation, Japan. ITC wanted to indulge in agriculture commodities export business supplying to Japan and few other countries in Asia. Marubeni was a Fortune 500 multinational and dealt in a number of industries other than food. Companies decided on exporting grain products, soya-bean, maize etc. Companies had plans to gradually move towards food processing and grain storage.

ITC Ltd. through its investment division Russell Credit took over Australian agriculture-biotech company Technico. With the acquisition, ITC also acquired Technico’s proprietary technology used for cost beneficial and quick introduction of new varieties of potatoes. With Technico’s subsidiaries ITC also reached markets of potato supplying in Canada, China, India and Middle Eastern countries. The “Technituber” technology developed by Technico benefited ITC in providing different varieties of potatoes. This move strengthened ITC’s food business.

ITC through its subsidiary Russel Credit bought 27.1 lakh shares in Leelaventure. ITC increased its hold in EIH group to 14.98% by acquiring 93,943 shares. ITC steadily bought Leela’s shares and gradually moved its stake to 3.72%. Even though ITC management declared these moves as regular business activities, company’s desire to hold a strong position in the hospitality industry cannot be ignored.


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AUDIT RELATIONSHIP SUMMARY

An Audit Relationship survey is basically a post purchase exercise to measure the relationship between the consumer and the product/service.

SURVEY QUESTIONSAnnexure A: List of survey questions

OVERVIEW OF SURVEY DATAAnnexure B: Summary of survey data

CONSUMER DETAILS AND ANALYSISOut of the total number of respondents, 88.24% users of Wills Navy Cut are male. Age group of the consumers lies in the range 18 to 30 with 70.59% consumers in the 26-30 years age group and the remaining 29.42% in the 18-25 age group. Students constitute 23.53% of consumers and the remaining 76.43% are either salaried or self employed. Among those who are employed, 58.33% have a salary bracket of Rs. 250000-50000 and 33.33% draw a salary of more than Rs. 500000.

15; 88%

2; 12%

Gender

MaleFemale

Figure 11: Gender of users


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5; 29%

12; 71%

Age

Below 1818-2526-3031 above

Figure 13: Age of Users

10; 59%

3; 18%

4; 24%

Occupation

SalariedSelf EmployedUnemployedStudent

Figure 14: Occupation of users

4; 25%

1; 6%

7; 44%

4; 25%

Income

less than 1 lack1-2.5 lacks2.5-5 lacks5 Lacks above

Figure 15: Income range of users


Group 6, Section S3

Wills Navy cut is more popular among males. None of the consumers are un-employed and around 25% of the respondents who use Wills Navy cut are students. Major chunk of earning consumers are working for a company. Among those who earn, most of the consumers fall in the upper-middle and high income class (Please refer ).

Income Class Rs per annum

Middle 90,001-135,000

Upper-middle 135,001-175,000

High >175,000

Figure 16: Income Class Division

CONSUMPTION FREQUENCY AND SATISFACTION

Please refer Figure 17 below for consumption frequency details. On an average consumers smoke around 4 sticks per day. Range of number of sticks smoked per day is 10. Standard deviation is approximately 3.46 and Median value 3. Average number of cigarettes smoked per day by an Indian is 6.2 as per Global Adult Tobacco Survey 2009-2010 released by Ministry of Health and Family Welfare, Government of India. On an average Wills Navy cut consumers from the survey smoke less than country average. Consumption of cigarette varies from the mean at approximately 3.4 cigarettes per day.

8; 47%

3; 18%

4; 24%

2; 12%

Cigarettes Per day

<= 23 to 56 to 89 above

Figure 17: Cigarette consumption of users


Group 6, Section S3

Mean 3.882352941

Median 3

Standard Deviation 3.461978353

Range 10

Figure 18: Consumption Patterns

CONSUMER PREFERENCE FOR LOOSE CIGARETTES

Interestingly, consumers buy loose cigarettes for varied reasons. Number one reason is that they strongly agree to buy loose cigarettes in order to limit the consumption. Next important reason is that they do not want to carry a packet back home due to family constraints. Lastly they feel that it is costly to buy a packet. Even those who smoke daily are concerned about the quantities they smoke.

Strong Agree

Agree

Neutral

Disagree

SD NA

Why do you buy loose cigarette

5 4 3 2 1 0 Total Rank

Costly to buy a pack 3 1 5 3 3 2 43 3

Don't want to carry a pack (Family issue)

2 7 2 2 1 1 49 2

To limit the consumption 10 3 3 0 0 1 71 1

Easy availability of loose cigarette

2 4 2 0 3 3 35 4

Figure 19: Impulse Behaviour Analysis


Group 6, Section S3

CUSTOMER RELATIONSHIP

50% of the respondents have been smoking Wills Navy cut for more than 2 years. 25% started with 6 months. 12.5% have been smoking Wills Navy cut for past 6 months to 1 year and the remaining 12.5% in the bracket of 1 year to 2 years. Half of the respondents have been loyal to the brand for past 2 years. At the same time, new consumers have started smoking the brand. It is a good mix of old and new consumers indicating brand loyalty and scope to target new consumers.

4; 25%

2; 13%

2; 13%

8; 50%

Smoking Duration

less than 6 months6 months to 1 year1 - 2 yearmore than 2 years

Figure 20: Users smoking time period

Major reason why respondents prefer Wills Navy cut over other brands of cigarettes is that they feel they have become used to smoking it. Next comes the fact the Wills Navy cut is a hard cigarette and consumers like its taste in that particular order. Even though Wills Navy cut is cheap when compared to other cigarettes, price is not top criterion to buy the cigarette. The kind of relation that consumers have with the product can be termed as dependency for most of the users. Consumers also like functional properties of the cigarette such as taste and hardness.

Why do you prefer WNC 5 4 3 2 1 Total Rank

It is a hard cigarette 6 7 0 1 2 62 2

I like its taste 5 6 3 0 2 60 3

Become used to it 8 3 2 1 2 62 1

It is relatively cheap 2 4 4 4 3 49 4

Figure 21: Factors for Purchase


Group 6, Section S3

About 65% of respondents say that they would prefer Wills Navy cut over any other brand. However, 35% think otherwise. Some other brands have higher preference for these customers at present.

11; 65%

6; 35%

Smoke Navy cut if other brands are available

yesNo

Figure 22: Choice of Navy Cut Vs Other brands

CUSTOMER SATISFACTION

Customer Satisfaction is an important performance indicator. Expectations are a crucial factor, a reason for customer satisfaction. When expectations are high and the product fails to live up to the expectations, customers will be disappointed, look out for other options to satisfy their need.

A satisfied customer is a loyal customer and acts like a brand ambassador for the product. As word to mouth marketing is very effective and free of cost.

Over 85% of the customers have expressed their satisfaction with Wills Navy Cut cigarettes. When enquired if Navy Cut has met or exceeded expectations, 85 % customers expressed that they are extremely delighted with the product.


Group 6, Section S3

Figure 23: Customer Satisfaction

The various reasons for customer satisfaction are different; the top reasons are as stated below:

The nicotine level gives a much needed kick. Relaxation of mind Sensational on minimum quantity. Low cost Distastefulness, no bad smell after smoking Availability

All the customers are extremely delighted with the availability of Wills Navy Cut in the market.

100%

Availablility

YesNo

Figure 24: Product Availability


Yes84%

No16%

Customer Satisfaction

Group 6, Section S3

Will Navy Cut has numerous loyalists, as most of the user show high probability to continue using Navy Cut and very few unsatisfied customers plan to switch to other brands. We found that dissatisfied customers go for India Kings, another product from ITC Limited.

Excellent very good good fair Poor0123456789

10

Chances To Continue WNC

Figure 25: WNC Vs Other Brands

We asked our customers if they would recommend Navy Cut to their friends, we found that maximum of out user are likely to play a role of brand ambassadors.

Most Likely Likely Neutral Inlikely Most Unlikely0

1

2

3

4

5

6

7

8

9

10

Recommend Navy Cut to others

Figure 26: Product Recommendation

NAVY CUT FOR ITS USERS


Group 6, Section S3

Navy Cut is found to be an essential product for its users. It gives psychological pleasure and a sense of satisfaction which cannot be replaced by any other product. To some it is excuse from work to grab some moments of pleasure. It acts as a stimuli to concentrate or a screen which filters out all the distractions and result in mental alertness.

Our customers admit that Navy cut relaxes their mind and gives a desired kick; some call it a package of pleasure. We also came across users who feel that Navy Cut gives what any other cigarette gives. And to some it means fun and a style statement.

A

B

C

D

0 10 20 30 40 50 60

Wills Navy Cut gives me….

Customers interpretation of Wills Navy CutA Desired kick, a package of pleasure.B Helps relax/think. Blows troubles away.C Fun & Style Statement.D What other cigarettes gives.

Figure 27: Navy Cut to its users..

IMPACT OF BRAND WILLS ON NAVY CUT

Brand equity plays an important role in the sales of a product. Its effects and outcome creates a huge impact on the product. Brand popularity is related to the customer’s knowledge of the brand. Brand Wills acts as a financial asset to Navy Cut. There are equal chances that a Navy Cut user may or may not continue to use the product once Wills brand name is removed from it. Even though the quality of the product might remain same but the purchasing decision or deciding factor to buy a particular product is its brand.


Group 6, Section S3

Strongly Agree Agree Neutral Disagree Strongly Disagree0

1

2

3

4

5

6

7

Brand Impact

Figure 28: Brand Impact

Wills brand equity also impacts its market share and mind share of the customer, when asked the customers ranks Wills’ as its most preferred brand of cigarettes and Benson & Hedges is the least preferred.


Wills Marlboro Benson & Hedges Camel

Most Prefered Brand

Group 6, Section S3

Figure 29: Brand Ranking

STATISTICAL ANALYSIS

CORRELATION ANALYSIS FOR PRODUCT “MEETING EXPECTATIONS” USING SPSS

The survey was based on data collected to analyze the relationship between the consumers and the product or service they consume. We can also try to find the correlation between whether the expectations of the customer were met and the various factors contributing to the expectations of the consumer as shown in the table below.

Here the dependent variable for the measurement was the “Expectations met” factor of a consumer and the various factors contributing to it were as follows

It is a hard cigarette with relatively higher nicotine levels It has a likeable taste Loyalty to the product i.e. being used to the brand Relative cheapness to other products in the market

The sign of the Spearman correlation indicates the direction of association between X (the independent variable) and Y (the dependent variable). The Spearman correlation increases in magnitude as X and Y become closer to being perfect monotone functions of each other. When X and Y are perfectly monotonically related, the Spearman correlation coefficient becomes 1.

Spearman's rho for “Expectations being met”

Hard Cigarette Likeable taste Used to the brand

Relative cheapness

.404 .356 .418 .266


Group 6, Section S3

Correlation Coefficient

Significance (2-tailed)

.108 .160 .095 .302

N17 17 17 17

**. Correlation is significant at the 0.01 level (2-tailed).*. Correlation is significant at the 0.05 level (2-tailed).

Based on above correlation coefficients and significance data calculated, we can say that:

1) Consumer’s expectation from Navy cut is dependent on the “Hard taste of the cigarette” and “Being used to the brand” as both the parameters have positive values around 0.4+. But still the factors do not have a very high correlation to the expectations being met. Also, “Likeable taste” and “relative cheapness” are having a positive correlation but not very high values.

2) Hence “Expectations being met” appears to be loosely correlated with the stated factors. Also, significance levels are far more than .05 indicating that there is not a statistically significant relationship between the parameters.

Also, it should be noted here that correlation cannot be used to infer a causal relationship between the variables.


Group 6, Section S3

REFERENCES

Database: Prowess CMIE

http://www.moneycontrol.com/company-facts/itc/history/ITC

http://www.itcportal.com/

http://money.rediff.com

http://www.economictimes.indiatimes.com

http://www.telegraphindia.com

http://www.businessline.com

http://investor.itc-holdings.com/annuals.cfm

GATS (Global Adult Tobacco Survey) India 2009 - 2010

ANNEXURES

A: List of survey questions

B: Summary of survey results


http://www.kwiksurveys.com/online-survey.php?surveyID=NIDHKN_396519cc

http://www.kwiksurveys.com/online-survey.php?surveyID=NIDHKN_396519cc

http://investor.itc-holdings.com/annuals.cfm

http://www.businessline.com/

http://www.telegraphindia.com/

http://www.economictimes.indiatimes.com/

http://money.rediff.com/

http://www.itcportal.com/

http://www.moneycontrol.com/company-facts/itc/history/ITC

itc wills navy cut audit relationship report s3g6

Documents

great lakes

net profit

wills navy

income class

individual

global tobacco

indian cigarette

indian tobacco