Applying Economics in ITC

ITC or Indian Tobacco Company was started in 1910 as “Imperial Tobacco Company”.

The basic operation was in cigarettes manufacturing, which later diversified its presence in FMCG sector like food, oil, cosmetics etc.

1.    Oligopoly market competition-

                                                       ITC cigarette manufacturing occupies the oligopoly market as it is the first market big leader in cigarette manufacturing since 1910 followed by few companies like-Godfrey Philips, AJE India Pvt Ltd. The nature of product is unique & due to many licensing & Govt. bans & promotion of anti-smoking initiatives. It has been tough for the other’s in this segment, thus restrictive market.

2.    Elasticity of Demand-

ITC understands the elasticity & inelasticity of demand & came up with its presence in FMCG & cosmetic goods.

It bought many variants in different domain from season to season, keeping in mind the geographical contexts to keep product demand in inelastic zone.

3.    Cross price elasticity of Demand-

CPED plays an important role for both substitute & complimentary. ITC variants like- SUNFEAST noodles were perfect substitute of Nestle’s Maggi.

Similar goes with the fluctuation in demand & events like when Maggi went down, the supply increased to accommodate the need of the noodles.

4.    Spending behaviour & budget constraint-

ITC in cigarettes division understood the economies condition of the country & introduced cigarettes smaller in length like-60-65 mm to make it affordable & help people migrate from bidis to cigarette. They are able to capture 19% of tobacco users in the country.

   

5.    Economies of Scale-

Mass production of goods in cigarettes as well as FMCG sectors, making goods such as ready to eat food products, chocolates, cosmetics have reduced the average production & handling cost with increase in output.