Nirdosh Case study Nirdosh Case

Brief:

Nirdosh is a non-smoking device developed by Mr. Natvarlal Bhavsar. It is a unique herbal smoking device made of 14 herbs developed as a tobacco free cigarette with medicinal values. Mr. Bhavsar is the proprietor of Maans Products (India), a family run, biri -manufacturing business with a total sales volume of Rs. 10 lakhs a year.

Current Scenario:

Nirdosh was developed by Mr.Bhavsar and over the last 8 years he has worked towards perfecting the product and increasing its sales. Accordingly in the developmental stages, there has been systematisation of the raw-material procurement process, addition of filter, conversion of Nirdosh from biri form to cigarette and use of a handmade material for its wrapper. Though, it is still manufactured manually. The cigarette packet is currently priced at Rs. 5. In terms of promotion and publicity, the product has received favourable response from healthcare sector and film personality, Ashok Kumar. It also received free publicity via articles in newspaper and magazines about this non-tobacco smoking product. Even door sales has received favourable response. In terms of distribution, it is through a main outlet in Ahmedabad and distribution to ordering parties and resellers through VPP.

Assumptions:

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to view other documents in full you will need to become a subscriber. The solution has been arrived upon using 1990 as the base year. Also it is assumed that Mr. Natvarlal currently has a manual manufacturing process with low volume output. Mr. Natvarlal intends to spend a minimal amount on publicity. All this is based on one fact that he refuses to spend 70-80lakh on mechanising the manufacturing process.

Alternatives:

Nirdosh is a non tobacco smoking device with medicinal values. It has a 2 fold benefit of serving people to quit smoking and also serve as a medicinal supplement for various ailments like cold, cough, headache, gas trouble and indigestion. It can either compete with cigarette manufacturing companies in the highly competitive cigarette market or the pharmaceutical industry as a medicinal tool. The market for either alternative is very large and would require sophisticated manufacturing techniques, high spending on publicity and distribution.

Solution and Analysis: The solution is aimed at a slow approach so as to gauge the market feedback and thereafter enhance the scope, thereby ensuring minimum risks and optimal profit.

Target Geography: The Gujarat state should be the target area as a starting point for the first year. The idea is to keep sales volume sufficient enough to be handled by manual manufacturing and at the same time expand and solidify distribution network within the state.

Target age group: The age group below 30 years should be targeted based on the assumption that this group consists of amateur smokers and would find it easy and helpful solution to quit smoking.

Target income group: The target here should be the low income and middle income group as these can be reached conveniently via the publicity and distribution process being proposed.

Target literacy group: No restrictions should be considered on the literacy rate of the target group as the product is aimed for the biri consuming to cigarette smoking people who can range from the illiterate to literate.

Target Sales: With the focussed approach and enhanced distribution and publicity, the sales are aimed to increase 3 fold to 3 Lakh packets from 1lakh target achieved in 1989.

Target production: Forecasting a rise in sales, the production capacity is to be maintained at 3.5Lakh packets. In order to achieve high production output via manual process, double shift working with an increased labour capacity to 50 from 40 is needed. (Assuming only 10 of the existing workers are working on manufacturing Nirdosh).

Pricing: Considering that the product has done favourably well at a price of Rs. 5 per packet albeit in a local market, it would be sensible to maintain the price as other factors are being expanded.

Distribution Channels: The reseller channel should be expanded to target new towns and districts. Considering that door to door sales was a success, emphasis on this needs to be given. Dealership option should be explored to further penetrate the distribution. The existing direct sale through the store is to be maintained. Sales division through various channels is: Direct sale Reseller Dealership Door to door 40000 packets 80000 packets 120000 packets 60000 packets

Publicity: Nirdosh is a healthy proposition for smokers. Considering its utility and its users, it needs to be promoted as a stylised health option so as to negate the hip factor associated with cigarettes amongst youth. A promotion with a tagline Lets smoke the health way can be adopted. Nirdosh has received a favourable response from all segments of the society. The newspapers and magazines have run articles praising the product. It has received favourable response from the medical fraternity and other renowned people. Also Mr. Bhavsar has healthy contacts. All of these need to be tapped. Since target area is Gujarat, major publicity is to be done in local language. Weekly articles should be published in the English and Guajarati dailies and magazines. Radio advertising and hoardings should be used to spread the message.

Option 1

Advantages:

1) Customers are already used to the pricing model, so promotion of our product is easier and economic. 2) 3) No middle parties are involved, so higher margins than other carriers. Better off- peak hours and fewer hidden charges.

Disadvantages: 1) Contractual service offers would discourage the target audience. Customers below 18 years of age need to go through rigorous credit checks or bring in their parents for signing the contracts. 2) The target segment of youth does not trust the current industry pricing plan.

Option 2

Advantages: 1) Plan will be cheaper than the industry average for certain key buckets (like usage of 100 min to 300 min), ensuring that the target customers get the best price. 2) Better off- peak hours and fewer hidden charges.

Disadvantages:

1) Price wars: Other carriers with better financial resources can retaliate and lower the prices of mobile services in the market.

2) This approach is less profitable because Virgin is targeting a niche market of youth where volumes are low.

Option 3 Advantages: 1) Prepaid plan and no binding contracts of service; hence this plan would be highly beneficial for the target segment. 2) 3) Simple and transparent pricing with no hidden charges. Off - peak hours that matches the lifestyle of the target segment.

4) Increased subsidy on handsets resulting in reduction of price. Customers would feel more invested and loyal. Disadvantages: 1) High churn rate as there would be no contracts of service.

2) Low customer loyalty in case of prepaid plan, so less chances of recovering the customer acquisition cost.

Cost analysis: Total Cost price Raw material cost of 3.5 Lakh packets (at Rs. 1.8 per packet) 630000 Labour cost (Rs 0.5 per packet) Net 175000 805000 ... (i)

Total sales price of 3 Lakh packets (at Rs. 5 per packet)

1500000 ... (ii)

Additional distribution Cost

Direct sales Door to door sales (Ps 50 commission per packet sold) Reseller (Sold to reseller at Rs 4 per packet) Dealership (Sold to dealer at Rs 3.5 per packet) Net

0 30000

80000

180000

290000 ... (iii)

Publicity Cost 2 Monthly quarterly article in Times Of India 2 Monthly quarterly article in Gujarat Samachar 2 Monthly article in Sports week 2 Monthly article in Chitralakha 7-second daily spot in radio 2 hoardings (at Rs. 600 per month) Net 72000 64800 21000 60000 10800 14400 243000 ... (iv)

Net Expenses

1338000 ... (v)

Profit

162000

Nirdosh is a non-smoking device developed by Mr. Natvarlal Bhavsar. It is a unique herbal smoking device made of 14 herbs developed as a tobacco free cigarette with medicinal values. Mr. Bhavsar is the proprietor of Maans Products (India), a family run, biri -manufacturing business with a total sales volume of Rs. 10 lakhs a year.

Additional options: Considering that foreign entities are interested in the product, Mr. Bhavsar would be in a position to export the same as and when demand arises. He can utilise the excessive production or can go for enhanced production on need basis. He can further utilise his healthy political contacts to further the clearances and can demand healthy profit from the foreign entities without incurring any publicity costs.