The Business Environment And Strategic Analysis Marketing Essay

The Business Environment And Strategic Analysis Marketing Essay ITC is one of Indias foremost private sector companies with a market capitalization of nearly US $ 19 billion and a turnover of over US $ 5 billion.* ITC is rated among the Worlds Best Big Companies, Asias Fab 50 and the Worlds Most Reputable Companies by Forbes magazine, among Indias Most Respected Companies by Business World and among Indias Most Valuable Companies by Business Today. ITC ranks among Indias `10 Most Valuable (Company) Brands. SWOT is an acronym used to describe the particular Strengths, Weaknesses, Opportunities and Threats that are strategic factors for a specific company. SWOT analysis should not only result in the identification of a companys distinctive competencies, the particular capabilities and resources that a firm possess but also in the identification of opportunities that the firm is currently able to take advantage of due to lack of appropriate resources. SWOT analysis is an analytical technique used in strategic management BCG MATRIX The Boston Consulting Group (BCG) reflects the companys portfolio of investments. Each of the companys product lines are plotted in a matrix according to its growth rate of the industry and its relative market share The BCG matrix results in four types of decisions they are Question marks, Stars, Cash Cows and Dogs. PEST ANALYSIS Pest term is used to describe macro environmental factors namely political (legal), economic, social and technological. It helps the firm in understanding market growth or decline, its market position, its potential and its direction PORTERS 5 FORCES MODEL Michael Porters famous Five Forces of Competitive Position model provides a simple perspective for assessing and analyzing the competitive strength and position of a corporation or business organization ITC- INTRODUCTION ITC is one of Indias foremost private sector companies with a market capitalization of over US $ 19 billion and a turnover of US $ 5 billion. Rated among the Worlds Best Big Companies, Asias Fab 50 and the Worlds Most Reputable Companies by Forbes magazine, among Indias Most Respected Companies by Business World and among Indias Most Valuable Companies by Business Today, ITC ranks third in pre-tax profit among Indias private sector corporations. As one of Indias most valuable and respected corporations, ITC is widely perceived to be dedicatedly nation-oriented. Chairman Y.C. Deveshwar calls this source of inspiration a commitment beyond the market. In his own words: ITC believes that its aspiration to create enduring value for the nation provides the motive force to sustain growing shareholder value. ITC practices this philosophy by not only driving each of its businesses towards international competitiveness but by also consciously contributing to enhancing the competitiveness of the larger value chain of which it is a part. HISTORY EVOLUTION The story of the Imperial Tobacco Company of India Ltd. extraordinarily though it may sound, starts long before the company was established, or even thought of. It starts not in India, but in the US. It was started by James Buchaman Duke in 1881. W. Duke Sons Company was doing a flourishing business around 1889 merged with other four players in the market and set up the American Tobacco Company ( ATC ). ATC looked at the British market along with Imperial Tobacco Company Ltd. floated a new company, the British American Tobacco Company Ltd.( BAT ) which was to handle trade outside USA and Britain. With India having centuries old tradition of tobacco, BAT looked into this market. ITC was incorporated on August 24, 1910 under the name of Imperial Tobacco Company of India Limited. Its beginnings were humble. A leased office on Radha Bazar Lane, Kolkata, was the centre of the Companys existence. The Company celebrated its 16th birthday on August 24, 1926, by purchasing the plot of land situated at 37, Chowringhee, (now renamed J.L. Nehru Road) Kolkata, for the sum of Rs 310,000. This decision of the Company was historic in more ways than one. It was to mark the beginning of a long and eventful journey into Indias future. The Companys headquarter building, Virginia House, which came up on that plot of land two years later, has become Kolkatas most venerated landmarks. The Companys ownership progressively indianised, and the name of the Company was changed to I.T.C. Limited in 1974. In recognition of the Companys multi-business portfolio encompassing a wide range of businesses Cigarettes Tobacco, Hotels, Information Technology, Packaging, Paperboards Specialty Papers, Agri-Exports, Foods, Lifestyle Retailing and Greeting Gifting Stationery the full stops in the Companys name were removed effective September 18, 2001. The Company now stands rechristened ITC Limited. ITC- MISSION STATEMENT An organizations mission is the purpose or reason for the organizations existence. it tells what the company is providing for the society. A well conceived mission statement defines the fundamental, unique purpose that sets the company apart from other firms of its type and identifies the scope of the companys operations in terms of product, services offered and market served. SUSTAIN ITCS AS ONE OF INDIAS MOST VALUABLE CORPORATIONS THROUGH WORLD CLASS PERFOMANCE, CREATING GROWING VALUE FOR THE INDIAN ECONOMY AND THE COMPANYS STAKEHOLDERS ITC-VISION A vision statement describes wat the organization would like to become in the future. It helps in creating a sense of direction for the company and its employees and leads them towards attaining the goals. TO ENHANCE THE WEALYH GENERATING CAPABILITY OF THE ENTERPRISE IN A GLOBALISING ENVIRONMENT DELIVERING SUPERIOR AND SUSTAINABLE STAKEHOLDER VALUE ITC LEADERSHIP- CORPORATE GOVERNANCE The governance framework determines whom the organization is there to serve and how the purposes and priorities of the organization should be decided. It is concerned with both the functioning of the organization and the distribution of power among different stake holders. Governance chain- the governance chain identifies all those groups that have a legitimate influence on the organizations purposes. There are likely to be several conflicts of interest both between different stake holder groups and for individual managers of directors as they try to balance these various interests. The role of the governing bodies- the primary statutory responsibility of the governing body of an organization is to ensure that the organization actually fulfills the wishes and purposes of the owners. THE ITC WAY ITC defines Corporate Governance as a systemic process by which companies are directed and controlled to enhance their wealth generating capacity. Since large corporations employ vast quantum of societal resources, ITC believes that the governance process should ensure that these companies are managed in a manner that meets stakeholders aspirations and societal expectations. ITC has won the National Award for Excellence in Corporate Governance 2006 from the Institute of Company Secretaries of India. Leadership within ITC is exercised at three levels. The board of directors Corporate management committee Divisional management committee The Board of Directors at the apex, as trustee of shareholders, carries the responsibility for strategic supervision of the Company. The strategic management of the Company rests with the Corporate Management Committee comprising the whole time Directors and members drawn from senior management. The executive management of each business division is vested with the Divisional Management Committee (DMC), headed by the Chief Executive. Each DMC is responsible for and totally focused on the management of its assigned business. This three-tiered interlinked leadership process creates a wholesome balance between the need for focus and executive freedom, and the need for supervision and control. Since the commencement of the liberalization process, Indias economic scenario has begun to alter radically. Globalization will not only significantly heighten business risks, but will also compel Indian companies to adopt international norms of transparency and good governance. Equally, in the resu ltant competitive context, freedom of executive management and its ability to respond to the dynamics of a fast changing business environment will be the new success factors. ITCs governance policy recognizes the challenge of this new business reality in India. CORE PRINCIPLES ITCs Corporate Governance initiative is based on two core principles: Management must have the executive freedom to drive the enterprise forward without undue restraints This freedom of management should be exercised within a framework of effective accountability ITC believes that any meaningful policy on Corporate Governance must provide empowerment to the executive management of the Company, and simultaneously create a mechanism of checks and balances which ensures that the decision making powers vested in the executive management is not only not misused, but is used with care and responsibility to meet stakeholder aspirations and societal expectations. CORNERSTONES From the above definition and core principles of Corporate Governance emerge the cornerstones of ITCs governance philosophy, namely trusteeship, transparency, empowerment and accountability, control and ethical corporate citizenship. ITC believes that the practice of each of these leads to the creation of the right corporate culture in which the company is managed in a manner that fulfils the purpose of Corporate Governance. The governance structure of ITC, Strategic supervision by Board of Directors Strategic management by Corporate Management Committee Executive management by the Divisional Chief Executive assisted by the Divisional Management Committee The 3-tier governance structure thus ensures that: Strategic supervision (on behalf of the shareholders), being free from involvement in the task of strategic management of the Company, can be conducted by the Board with objectivity, thereby sharpening accountability of management. Strategic management of the Company, uncluttered by the day-to-day tasks of executive management, remains focused and energized. Executive management of the divisional business, free from collective strategic responsibilities for ITC as a whole, gets focused on enhancing the quality, efficiency and effectiveness of its business. CORPORATE SOCIAL RESPONSIBILITY Corporate social responsibility is the detailed issues on which an organization exceeds its minimum required obligations to stake holders. It has been noted that companies increased their awareness of and level of activity in some aspects of social responsibility but they seemed to limit their involvement to a relatively narrow range of issues. It was also indicated that most organizations failed to seek out best practice elsewhere and this they suggested, indicated that social responsibility considerations were not pursued as keenly as commercial activities. ITC believes that an effective growth strategy for our nation must address the needs of rural India, home to 75% of our poor. It is imperative to ensure that Indias economic growth is inclusive, embracing its villages, so as to free millions of our disadvantaged citizens from the indignity of poverty. It is ITCs belief that Indias rural transformation cannot be brought about by the government alone. Nor can the efforts of a few enterprises make a decisive difference. Only an inspired public-private partnership can transform lives and landscapes in rural India. ITCs humble endeavors have demonstrated that it is possible to create and sustain a model that can harmonize the need for shareholder value creation with making a substantial contribution to society. For ITC, these are expressions of a commitment beyond the market. Of a conviction that country must come before corporation of a true pride in being Citizen First. E-CHOUPAL The e-Choupal model has been specifically designed to tackle the challenges posed by the unique features of Indian agriculture, characterized by fragmented farms, weak infrastructure and the involvement of numerous intermediaries, among others. E-Choupal, launched in June 2000 unshackles the potential of Indian farmer who has been trapped in a vicious cycle of , Low risk taking ability Low investment Low productivity Weak market orientation Low value addition Low margin Low risk taking ability This made Indian farmers and Indian agribusiness sector globally uncompetitive, despiterich abundant natural resources. The Model in Action: Appreciating the imperative of intermediaries in the Indian context, e-Choupal leverages Information Technology to virtually cluster all the value chain participants, delivering the same benefits as vertical integration does in mature agricultural economies like the USA. With a judicious blend of click mortar capabilities, village internet kiosks managed by farmers called sanchalaks themselves, enable the agricultural community access ready information in their local language on the weather market prices, disseminate knowledge on scientific farm practices risk management, facilitate the sale of farm inputs (now with embedded knowledge) and purchase farm produce from the farmers doorsteps (decision making is now information-based). Real-time information and customized knowledge provided by e-Choupal enhance the ability of farmers to take decisions and align their farm output with market demand and secure quality productivity. The aggregation of the demand for farm inputs from individual farmers gives them access to high quality inputs from established and reputed manufacturers at fair prices. As a direct marketing channel, virtually linked to the mandi system for price discovery, e-Choupal eliminates wasteful intermediation and multiple handling. Thereby it significantly reduces transaction costs. e-Choupal ensures world-class quality in delivering all these goods services through several product / service specific partnerships with the leaders in the respective fields, in addition to ITCs own expertise. While the farmers benefit through enhanced farm productivity and higher farm gate prices, ITC benefits from the lower net cost of procurement (despite offering better prices to the farmer) having eliminated costs in the supply chain that do not add value. ITC has taken care to involve farmers in the designing and management of the entire e- Choupal initiative. The active participation of farmers in this rural initiative has created a sense of ownership in the project among the farmers. They see the e-Choupal as the new age cooperative for all practical purposes. This enthusiastic response from farmers has encouraged ITC to plan for the extension of the e-Choupal initiative to altogether 15 states across India over the next few years. On the anvil are plans to channelise other services related to micro-credit, health and education through the same e-Choupal infrastructure. CAUSE OF UNDERPRIVILEGED CHILDREN ITC launched its notebooks brand Classmates, deliberately pricing itself 10-15 per cent higher than the competition, between Rs 10 and Rs 40. This ensured that it created an affordable-yet-aspirational image and also send a hidden message of being a superior product (60 gsm paper, bleached without using chlorine). Then, ITC focused on the design elements of notebooks: each Classmate notebook has a theme on the cover and related information inside. Then, the last two pages of the notebook have trivia and the back cover highlights the corporate social responsibility initiatives of the company Re 1 from each notebook sold is set aside for the cause of underprivileged children ITC supports 60,000 children in rural India. Providing uniforms and books, improving school buildings, adding electricity connections, lights and fans and running over 674 Supplementary Learning Centers, helping rural children aspire to a better tomorrow. This is one of the many ways in which ITC expresses its belief that country must come before corporation. WOMEN ENTREPRENEURS The need of the hour is to diversify rural livelihoods. Towards this end, ITC has forged an empowering partnership with rural women the most effective development workers. ITCs intervention leverages micro-credit and skills training to generate alternate employment opportunities. Increased income in the hands of rural women means better nutrition, health care and education for their children. Working with NGOs, ITC has organized village women into micro-credit groups. Group members make monthly contributions to create a savings corpus. The corpus is used to extend soft loans to group members, thereby eliminating the stranglehold of the moneylender. ITC provides training to group members to handle bank accounts and understand the nuances of government development programs. Empowered groups function autonomously and take their own decisions, including sanction of loans to fellow-members and collection of repayments. Well-managed micro- credit groups with no default records receive further support from ITC in the form of seed money for self-employment activities. Venture funds provided by ITC have already spawned hundreds of women entrepreneurs. Their earnings, ranging from Rs 70 to Rs 150 per day, not only supplement household incomes but also significantly enhance their self-esteem. ITC also conducts skills training to enhance employability. Pickle-making, fish- processing, vermicomposting, spice processing and agarbatti-rolling in rural areas and chikankari, garment-sewing, driving and computer-aided secretarial training in semi- urban areas are some of the examples. ITC goes a step further to help find employment for these trained women in areas related to its operations. This program is helping women across Andhra Pradesh, Karnataka, Madhya Pradesh, Uttar Pradesh and Bihar. Through its various initiatives, ITC touches the lives of 4 million villagers and has proved that it is socially responsible ITC STRATEGIES ITCs diversified status originates from its corporate strategy aimed at creating multiple drivers of growth, anchored on its above mentioned time-tested core competencies. Over time, the strategic forays into new businesses are expected to garner a significant share of these emerging high-growth markets in India. CONGLOMERATE DIVERSIFICATION When the management feels that the firms outstanding capabilities or skills can be better utilized and transferred into other industries, though unrelated to the current one, the firm then adopts conglomerate diversification strategy. ITC has adopted Conglomerate (Unrelated) Diversification strategy and accordingly has entered into an array of business apart from its traditional tobacco industry that includes stationery, FMCG, branded apparel, agri-business and packaging and paperboards. STRATEGIC BUSINESS UNIT It is that part of the organization which is a cruicial unit for implementing its strategies. It is also that part which fetches largest revenues. In ITC, tobacco industry is its SBU, as it fetches largest revenue and is its first business which has given the conglomerate a national identity. Also it has empowered ITC with an excellent distribution network which is vital for its success. This network is shared by all other business units of ITC. BACKWARD INTEGRATION ITCs Packaging Printing Business Division was set up in 1925 as a strategic backward integration for ITCs Cigarettes business. It is today Indias most sophisticated packaging house. State-of-the-art technology, world-class quality and a highly skilled and dedicated team have combined to position ITC as the first-choice supplier of high value added packaging. ITCs Packaging Printing Business is the countrys largest convertor of paperboard into packaging. It converts over 35,000 tonnes of paper and paperboard per annum into a variety of value-added packaging solutions for the food beverage, personal products, cigarette, liquor, cellular phone and IT packaging industries. It has also entered the Flexibles and Corrugated Cartons business. The Division supplies value-added packaging to the Companys Cigarettes business. Its client list includes several well-known national and international companies like British American Tobacco, Surya Nepal Private Limited, VST Industries, , UB Group, Shaw Wallace, Seagrams, Allied Domecq, Whyte Mackay, Hindustan Lever, Tata Tetley and Nestle, Reckitt Benkiser India Limited, etc. STRATEGIC BUSINESS UNIT It is that part of the organization which is a cruicial unit for implementing its strategies. It is also that part which fetches largest revenues. In ITC, tobacco industry is its SBU, as it fetches largest revenue and is its first business which has given the conglomerate a national identity. Also it has empowered ITC with an excellent distribution network which is vital for its success. This network is shared by all other business units of ITC. FORWARD INTEGRATION ITC Limited, the tobacco-cum-hotels major which has been fast transforming itself into a FMCG company, is targeting students by customizing notebooks for schools under the Classmate brand name and this is a part of the companys diversification plans to foray into the other sectors. Classmate notebooks, a sub-brand of Expressions has been customized for schools and is available at retail stores across the country. For this purpose, ITC has entered into arrangements with 150 renowned ICSE schools across the country. A portion of the money coming from the sale of the notebooks would be contributed to some social. The division is targeting the revenue of 100 crore. The business division of ITC is primarily a forward integration of the companys paper manufacturing activity. With ITC having a state of the art paper manufacturing plant at Bhadrachalam in Andhra Pradesh the division has been using the high quality ECF paper for its notebook to make it more eco friendly. MARKETING STRATEGY The marketing logic by which business unit hopes to achieve its marketing objectives. PROMOTION STRATEGY Promotion strategy is the strategy used to communicate the merits of the products and to persuade the target customers to buy it. Wills Lifestyle offers a complete lifestyle wardrobe for the premium consumers incorporating the latest fashion trends. Their clothing is not only the latest in fashion but they also come out with clothing for different seasons. They are very active in promoting their products by conducting fashion shows in national and international levels and sponsoring many fashion shows like India Fashion Week etc. PUSH STRATEGY THE MYSTERY SHOPPER A push strategy involves pushing the product through distribution channels to the final consumer. The firm directs its marketing activities (primarily personal selling and trade promotions) towards channel members to induce them to carry the product and to promote it to final consumers. Companies spend a large amount of money on trade promotion in order to gain or hold shelf space in retail outlets. Trade promotion includes discounts, in-store special offers designed to push products through the distribution system. As a part of its promotional strategy, ITC put up posters in the kiranas and used the concept of mystery shopping in case of the tobacco industry. Promoters were sent to the kiranas in town to inform the kirana owners of the mystery shopper, who will visit them at any time, any day and ask for a cigarette. The shop owner has to offer him only an ITC brand cigarette first, even if he requests for another brand. If he insists on another brand, then the shop owner can give h im the requested brand. If he does so, he will be rewarded with gifts like lighters. He will then be qualified to enter into a lucky draw and if he becomes lucky will get a fan or radio set. Also a bumper prize comprising of a trip to Mumbai or Singapore was offered. ITC adopted this strategy to increase its sales and awareness and to gain favoritism from the kirana owners. In anticipation of the mystery shopper, the kirana owners kept offering ITC cigarettes to all customers first and only upon a request or insistence they sold the requested brand. This increased the awareness and sales, while the prizes gathered the favoritism of mystery shoppers. PULL STRATEGY The Pull strategy is where the producer directs its marketing activities (primarily advertising and consumer promotion) towards final consumers to induce them to buy the product. If the pull strategy is effective, consumers will then demand the product from channel members, who will in turn demand it from producers. Thus under a pull strategy, consumer demand pulls the product through the channels. The sunfeast Ready to Eat Pasta came into the market recently. They have been able to establish its presence with 6 per cent in volumes of the branded noodles market and they come number two behind MTR foods in the ready-to-eat market. This has been achieved by excessive advertising which pulls the products through the distribution channels. The strategy adopted is to spend more money on consumer advertising designed to build brand awareness so that shoppers will ask for the products. COMPETITIVE TACTICS PIONEER FIRST MOVER Timing tactic- The first company to manufacture and sell a new product or service is called first mover or pioneer. The advantage of being a first mover is that the company is able to establish a reputation as industry leader, gain cost leadership, and achieve high profits from buyers. The first mover can also set standards for all subsequent products. The first mover has sufficient resources to both exploit the new markets and defend its position against its late rivals. ITC-Welcomgroup pioneered a holistic concept of branded accommodation in the hospitality industry. It was the first to launch the powerful idea of a Hotel within a Hotel by segmenting and branding the hotel services. It created exclusives hotels and executive clubs each catering to the needs of the global business traveler with unmatched quality and a range of services. ITC-Welcomgroup was also the first to brand its cuisine. The Bukhara, the Dakshin and the Dum Pukht are today powerful cuisine brands, which delight connoisseurs in restaurants in several ITC-Welcomgroup hotels. LATE MOVER Late Movers are those who are able to imitate the technological advance of others, keep risks down by waiting until a new market is established and take advantage of the first movers inclination to ignore market segments. ITC entered the biscuit business very late when the two major players Britannia and Parle were busy biting of chunks of the national market among themselves, with a host of smaller brands in various regions. The strategy that the company followed was to find loopholes in the industry into which they can tap. Therefore before entering the segment, ITC dug into market research. Research revealed that the category had gaps which ITC could settle into. Findings revealed that consumers wished to taste new and innovative products. That was precisely what the competition had not done in a big way. ITC launched Sunfeast with six ranges. But it was a calculated risk. ITC stuck to category favorites like Glucose, Marie and Bourbon cream. Along with that, it also launched innovations such as orange-flavored Marie, Marie light and butterscotch-flavored cream biscuits. Sunfeast followed this up with the launch of Sunfeast Milky Magic. More recently, it also has launched the Sunfeast Snacky and Su nfeast In August 2003, a month after its launch, the company undertook a major sampling exercise to promote the product. For two years then, the brand did all the usual rounds riding behind buses, blocking television spots, booking that corner space in your favorite newspaper and so on. Well differentiated advertisements, some which showed a complete cream world with cream rivers, cream mountains and cream trees, were targeted at kids watching cartoon channels. At the same time, on general entertainment channels, mothers received information on the importance of glucose, the wholeness of wheat and so on. Also, the company tied up with Bey Blades, the popular television series that was a rage among children, to promote itself. PRICING MODEL TWO PRONGED STRATEGY The biscuits industry is very competitive and the players fight for market shares. One way of gaining market share is by pricing the products attractively. The industry now has two clear models. Parle products play the low price game at all varieties of biscuits from glucose to cream. Sunfeast looks at a two-pronged strategy where it looks for high margins in cream variants and volumes from the Marie and Glucose segments. It does this as it cannot expect volumes of sales in the cream variant business and so they have a higher margin of profit. In the marie and glucose segment there is heavy competition and the biscuits hardly have any differentiation like the cream biscuit market and the consumers dont pay extra if there is no innovation in the product, so they look for having a lower margin of profit and more volume of sales. The strategy adopted by them is very profitable for the company. FUNCTIONAL STRATEGY Outsourcing is purchasing from someone else a product or service instead of provided it internally. The key to outsourcing is to purchase from outside only those activities that are key to the companys distinctive competencies. ITCs agarbatti SBU and Cottage Industries, Aurobindo Ashram, Pondicherry, which makes the Spriha brand of handmade incense sticks have a strategic tie-up The agarbatti SBU, which recently launched the Mangal Deep range of agarbattis through 100 per cent outsourcing from the small, medium and cottage sector, has launched an assorted Spriha gift pack product. The gift packs, designed and developed in-house by ITC and specially created (with handpicked materials) by Cottage Industries, Aurobindo Ashram, will be in two sizes, and will contain items like high quality incense sticks in two fragrances, a perfumed designer candle, a collection of choice dhoops and a handy ceramic agarbatti/dhoop holder (all hand-made) in a compact box pack. Priced at Rs 100 and Rs 150 (two sizes), the gift packs have been launched in Bangalore as part of a test marketing exercise through outlets stocking ITCs Greetings Cards (Expressions). Planned as a stand-alone gift item, especially for festive occasions, the plan is to utilize the available in-house greeting cards distribution channel to position the product, and gradually scale up visibility at various gift shops through a national roll-out. Cottage Industries, Pondicherry, produces half-a-million packs of handmade Spriha agarbattis per month for ITC under a contractual agreement. ITC follows strict quality parameters in all its sectors and in this sector has expressly stated that it will buy from any cottage industry that agrees to adhere to their quality standards. GROWTH STRATEGIES Growth strategies are defined to achieve growth in sales, assets profits or