Porter's Five Force Model Analysis For Indian Cigarette Industry
Threats of New Entrants=LOW
New Product differentiation differentiation very Tough - already cigarettes at different price points, flavou flavours, rs, brand brand images images .
Access to distribution channel is tough - big & established established players are are present (e.g. ITC)
Capital requirement is very high for a pan India launching;
Loca Lo call lau l aunc nch h cann ca nnot ot catc ca tch h up u p scale scale - Can' Can't use use Econ Econom omies ies of scale scale
Government policy policy - high tax, no TV/Radio TV/Radio Ads
Bargaining Power of Suppliers=LOW
Many inputs are required but in small amount - paper , tobacco, filter
There are many small scale, unorganized suppliers
Cigarette companies are big and have direct access to distribution channel chan nel and and addic ad dicted ted buy buyers ers.. Suppli Sup pliers ers don't don't have much much cont control rol over over smokers.
Bargaining Power of Buyers=LOW
Addicted customers - even after knowing harms people can’t leave it.
Smoking has lot of symbolic and emotional values attached with it
Product quality not much important to smokers - Research shows most people cannot differentiate among the brands in a blind taste
Low switching costs in terms of price
Threat of Substitute Product=LOW
Herbal Cigarettes (e.g. Nirdosh) were launched but did not become popular (no emotional value)
Nicotine patch is another substitute - but again no comparison with cigarettes in terms of popularity and usage
Competitive Rivalry in the Industry=HIGH
Many competing players: ITC, Godfrey Philips, VST, GTC etc - see chart below
Price competition continues
Advertisement for cigarettes is now prohibited in India
Replacement for ads - event sponsorships and sales promotions
All making new product launches
PORTER’S FIVE FORCES- FMCG SECTOR OF ITC
BUYER POWER:- HIGH- UNFAVOURABLE.
*Low switching cost *Buyers are numerous and fragmented *Considering buyer power retailers , they are able to negotiate the price with the company.
THREAT OF SUBSTITUTES :SUPPLIER POWER:-LOW-FAVOURABLE
HIGH- MODERATELY
*Large number of suppliers in the country
UNFAVORABLE
Numerous substitutes are available
*Cost of switching suppliers is low *Prices of substitutes are low PORTER’S FIVE FORCES:
DEGREE OF RIVALRY:-HIGHMODERATELY UNFAVOURABLE *Consumer in this category enjoy
THREAT OF NEW ENTRANTS:HIGH- UNFAVOURABLE *Too
many small firms
multitude of choices.
*No dominating firm
*It does not cost anything for a consumer to buy one brand of shampoo instead of another, making the industry quite competitive.
*Little product differentiation *Customer switching costs are low
Porters 5 forces analysis for I T C hotel 1. BARGAINING POWER OF SUPPLIERS
The term ‘suppliers‘ comprises all sources for inputs that are needed in order to
Provide goods or services. The high class hotels are operating by few hotel chains ITC hotels have control over the industry.
There are no substitutes for spas and five star hotels.
The hotels customers are fragmented, so they have to reduce their bargaining power to attract the customers.
The Taj, ITC& Oberoi are having various rates and tariffs. Because they are having their own brand image.
The hotel chains are operating different services like Spas, Boatels, Resorts, City Centers, Heritage HOTELS, etc.
2. BARGAINING POWER OF CUSTOMERS
The hotel industry is one of the most invested in its fixed assets. So they are trying to recover their amount quickly.
The suppliers are providing better information about them to attract the customers’
Here the buyers are highly informed.
3.
The bargaining power of customers determines how much customers can impose pressure on margins and volumes.
If the hotel price changes are moderate, the Customers have low margins and are price-sensitive. Some unseasoned timings the hotels are offering discounts and incentives to reduce the bargaining power of buyers.
THREAT OF NEW ENTRANTS
ITC being premium name in 5 star and 7 Star hotel industry and also the capital requires to run premium hotel would be very high for new entrant. The foreign hotel chains are tied up with Indian hotels to reduce the initial cost and using the latter’s brand name. Brand loyalty of customers like ITC, TAJ, and LEELA
PALACE affects the new entrants.
4.
Access to raw materials and Distribution channels are controlled by Existing players like TAJ, ITC, and LEELA PALACE. The cost of land in India is high at 50% of total project cost as against 15% abroad. This acts as a major deterrent to the Indian hotel industry. In India the expenditure tax, luxury tax and sales tax inflate the hotel bill by over 30%. Effective tax in the South East Asian countries works out to only 4-5%.
THREAT OF SUBSTITUTES
A threat from substitutes exists if there are alternative products with lower prices of better performance parameters for the same purpose. They could potentially attract a significant proportion of market volume and hence reduce the potential sales volume for existing players.
5.
Brand loyalty of customers (ITC, Taj, LEELA PALACE, etc.) is dominating the substitutes. The hotel relationship with customer and costs also the reasons to switching to substitutes. The price variation of same class hotel services from various brands is one of the reasons to choose a substitute. The present demand and supply of hotel rooms is one of the reasons to choose a substitute. More fixed cost and switching costs affects the business.
COMPETITIVE RIVALRY BETWEEN EXISTING PLAYERS
This force describes the intensity of competition between existing players (companies) in an industry. High competitive pressure results in pressure on prices, margins, and hence, on profitability for every single company in the industry. The top competitors in hotel industry are having the same services like five star, spas, boatels and motels, heritage hotels and palaces. The healthy competition among the all players is helping to increase the industry growth. Intense in metro cities, slowly picking up in secondary cities
