EXECUTIVE SUMMARY

We are launching our product a cigarette named ‘Elegant’ in Karachi an urban metro city
of Pakistan. The idea behind our product is non smoking factor of our cigarette. The
finely tuned promotion of Elegant will assure long-lasting profitable customer
relationships. Elegant’s aim is to provide greater satisfaction and value added aspect than
its competitors in Karachi like Benson, Gold Leaf and Marlboro. These local and some
foreign brands are having strong loyalty and image among people. Penetrating and
getting a deserved slice will be challenging for Elegant. That is why we have planned to
apply most of the marketing tactics like campaigns, TV and Radio advertisements,
Internet advertisement, free sampling, seminars and awareness programs, selling teams
directly communicating to target audiences and market.
Further in the report a proper distribution channel is comprehensively described about the
company. A Feasibility report is also enclosed so to show the estimated equity standing
and profitability of the company.

1
INTRODUCTION:
This project is to expose us the traits and techniques of marketing a product or a service.
How as future Marketers we will Market our product, use proper intermediaries and
promotional techniques to make our product the next wonder.

Mission Statement:
“We shall continue to deliver best value to our Customers and employees by providing
superior offerings to our customers, maintaining our high financial performance and
improving our standing as a good corporate citizen of Pakistan by aligning our direction
in long-term sustainable fashion.”

METHODOLOGY
Following procedures would be used by our group to complete this product.

1. Market Research:
To execute the project, First what we have to do is a comprehensive Market Research,
keeping in mind the Micro and Macro environments, analyze the product need (or create
the need if so), select a target market, and make the product available to those target
market by using proper distribution channels. Besides the customer point of view, we also
have to analyze the competitors and threats to our product.

2. SWOT Analysis:
A comprehensive S.W.O.T analysis would be conducted on the product. We will allocate
the Strength, Eliminate the Weaknesses, avail the opportunities and Eradicate the threats
of our product as so our product could domestically be accepted.

3. Target Market Analysis:

We will analyze the target market through the Market Research. Although (for the
proposal sake) our product would be launched in Karachi first, then it would be promoted
in all corners of the Country. There would not be any age restrictions but the limit
allocated by the government to use nicotine (Cigarette) would be affianced. No
segmentations would be made in gender regards.

4. Analysis of Marketing Mix:

A comprehensive analysis would be carried out on the Marketing Mix. All the major
aspects of marketing mix would be discussed thoroughly and presented in the same
manner.

2
 Marketing Mix
Product
Production
The cigarette would be produced under supervision of PBT a subsidiary of British
American Tobacco. Most of the raw material would be obtained by PBT as well.
Reference “the production costing”.

Appearance
Elegant Smokeless Cigarette comes in the shape and size of a cigarette. It is pure white in
color, with initials and logo drawn upon it. It would not be a paper coated cigarette rather
plastic coated one.

Packaging
Elegant would come in a very attractive package, It would be sleek and smart, Black in
color with a little red and orange blend in between. It would be of a shape and size of a
classical cigarette pack with initials, logo, company information and product contact
number on it. The Packaging would be done in contract with “Plastechnique” located in
Landhi Site area.

Characteristics
The characteristics of Elegant are: -
1. Environment Friendly: The Elegant Brand’s best feature is that it is
environmental friendly which we don’t see in other smoking brands. It keeps
environment secure and safe.
2. Premium Quality : There is no compromise in the quality of Elegant because it is
the quality for which our product exist and it is our first priority

3. Smokeless: As we mentioned earlier that our brand is environment friendly, the

main reason for this is that our cigarette is smokeless which does not release any
hazardous substance that is dangerous for the environment.

4. Stylish and Unique: The look and packaging of Elegant is quite stylish and
unique that it differentiates from other brands in the market. Therefore it gives a
separate brand identity and image because of its unique style.

5. Health Oriented: Elegant is 80% healthier then a cigarette because it does not
have the chemical “Carbon monoxide” which is substance while the process of
lighting a cigarette saves from many diseases i.e., - lung cancer, cardiovascular
disease etc. Therefore a consumer won’t be having a concern about health while
using this brand as compare to other tobacco related brands.

3
4
 Market Research
In Pakistan we have focused Karachi where ELEGANT will be marketed, but views on
national level are also given importance as much as our business needed.

Our direct competitors are nicotine gums and cigarettes, cigarettes are produced locally
by Pakistan Tobacco, Khyber Tobacco & Lakson Tobacco while some cigarettes brands
and nicotine gums are imported also. Here from upper classes and middle classes people
spend their 20% income on smoking cigarettes & sheesha. And 96% of smokers use
cigarettes while other 4% uses other narcotics like sheesha and nicotine gums.

Market share Income spending Social class loyalty

Cigarettes 92% 20% All strong
Nicotine gums 4% 4% Upper weak
Sheesha 4% 15% Upper, middle weak

Competitors:
(1)Cigarettes. (2) Nicotine gums

In Karachi Cigarette smokers are not easily switched to other brands, because of taste
specially, to some extent cost also play a role, according to an estimate 68% percent
smokers never switch, while other 32% switch due to price or unavailability. Which
means that our competitors could give us tough time in the Market. That’s why, we have
a better taste and price to attract our target market so that they can switch and take upon a
better and more healthier alternative.

Pricing & Costing:

Our competitors (Pak. & Lakson Tobacco) cigarettes are having local labor at low wage,
from tobacco to cigarette filter’s cotton are purchased locally, packaging is done
internally, they got wholesalers and retailers as primary customers. Some have
outsourced packaging work like Khyber tobacco does. The labor is working at nominal
salary of 3000 per month in interior areas where our major competitors are
manufacturing. Upper management costs them from Rs. 35000 to 75000. For outsourcing
our Packaging we have enough finance up to Millions (yearly Budget), we also are self-
sufficient in producing, we manage manufacturing to printing process with feasible cost,
we are investing in industrial area “Landhi”, for managing factors of production we will
employ skillful employees at moderate salaries.

5
 Market Operating Promotion Price per Distribution Raw
share cost Expenses unit cost material
Pakistan 33% Above 20 Above 5 Between N/A Above 5
Tobacco Million. Million PKR 1 - 5 Million

Above 20 Above 5 Between N/A Above 5

Lakson Tobacco 47% Million. Million PKR 1 - 7 Million

Foreign Above 10 Above 5 Between N/A N/A

cigarettes 22% Million. Million PKR 5 -15

Nicotine gum Below 8 N/A Above N/A N/A

(vs. cigarettes) 2% Million PKR 10
per unit

Consumption & Consumer Behavior:

Cigarette consumption is almost equal in posh and middle-level areas or slightly higher
and lower sometimes, while it is comparatively high in underprivileged areas. Smokers
are strong loyal to their brands having personality like achievers and strugglers and
smokes one regular bases. People in Karachi like smoking when they are outside home,
the brands are positioned to young and middle-aged people. Young and middle-aged
people contribute 85% to market share of cigarettes. Their advertisement include
outrageous and adventure themes. Smokers in Karachi like smoking any time any where
whenever they want.

Vacant room in market:

The advantage we can take here is to introduce and shift public towards a better idea of
non smoking, health conscious and innocent cigarette with same pleasure and relief. Here
we have to focus on image of elegant and to shift people’s mind towards entirely different
idea of having a cigarette in formal gathering, or having it instead of nicotine gum.
Changing minds in Karachi is not a big issue if your positioning is smart.
We have to remind and influence public abundantly and on continuous basis as according
to a research 80% of billboards advertisement is forgotten by individual at the end of day,
with these strong competitors which already have loyal customers we have to struggle by
our campaigns based on our strategies widespread through all advertisement tools.

Target audience Health

Conscious
Elegant Parents, professionals, students, Young, High
elderly, medicated.(Both Male & Female).
Pak. Tobacco Young, elderly Low
Local cigarettes Young, elderly Low
Foreign cigarettes Young, elderly Low
Nicotine gum Young, elderly Highest

6
Marketing tactics in market:
Elegant might remain in introduction stage for long time, during this period we should
have effective strategies and resources to communicate our brand. We are considering to
promote Elegant by using tactics like providing stands, pamphlets containing information
about harm from smoking and its solution, assistants on big retailers which will guide
customers, selling teams which will communicate about the product in various
exhibitions, conducing seminars and workshops in different universities and
organizations about the harmful effects of smoking and guide medical sector towards
health conscious product and providing free samples.

Advertisement tools Tactics

Billboard, TV-ads, Free sampling, selling teams,
Elegant pamphlets, Mobile ads, Customer assistants, awareness
hoardings camps and Seminars.
Pak. Tobacco Traditional Traditional
Lakson Tobacco Traditional Traditional
Foreign cigarettes Traditional Traditional

Elegant tactics are far better than its rivals as they are market leader now they don’t feel
these are necessary, but we initiate by these tactics.

Threats in market:
The biggest threat for us is political and economic situations, for these contingencies we
have planned by sufficient finance and legal support. Government policies and political
situations some times becomes unavoidable suffering in Pakistan through which we
should pass and that can be done only by means of following govt. laws at any cost and
baring unfavorable with help of insurance and other financing activities. While handling
stakeholders like public and environment is also vital, for which we have great concerns
which are assured by our latest ISO certification and which are clear through our fine
manner of conducting our business activities.

7
 Micro Environmental
Analysis

Micro Environmental Factors

The internal factors close to the product and that will have a direct impact on the product
strategy. These factors include:
Customer
Elegant cigarette survive on the basis of health, taste, providing friendly environment &
cost benefits for their customers. Failure to do so will result in a failed business strategy.
Employees
Employing the correct staff and keeping these staff motivated is an essential part of the
strategic planning process of an organization. Training and development plays an
essential role particular in service and production sector marketing in-order to gain
a competitive edge. This is one of our pioneer techniques in increasing production and
sales.
Suppliers
The supplier is Pakistan Tobacco a subsidiary of British American Tobacco. Besides this
we will also use the services of Plastechnique ltd. for our Packaging.
Media
Though we believe it will be hard for Elegant to capture market That’s why it will be
spending a lot on advertisement or awareness Consumer programmers on TV like the
GEO etc., the local channels with an organizing public shows for making them aware
about the reality of our product and how it’s different from other products a wider and
more direct audience can also have a very powerful and positive impact towards our
product.
Competitors
The competitors of the smokeless cigarettes are nicotine chewing gums and the normal
cigarettes. Although Shesha, Tobacco and pipe can be the competitors as well but our
primary competitor is the portable smoking and Nicotine products

8
 Macro Environmental
Analysis
Micro Environmental Factors
The external factors that change the Micro Environment and that will have an indirect
impact on the product strategy. These factors include:

Economy
One of the most influential factor. Economic Instability and Inflation are the major
factors in the up rise and downfall of prices of any product; we will also keep in vision
the economical condition while determining the price of Elegant.

Government
The Government is the authority body we will be answerable to. The government would
setup policies and regulations which we have to follow; Different Taxes and Dues would
be charged so our price will also be affected by the government policies.

Technological
If the Technology changes with in 5 years then we will have to change all of our front
line Production Machinery. This would cause us heavy loss

Cultural
The product Elegant is a narcotic product that is not accepted in our culture. Further more
the cigarette is more part of the youth culture and it is difficult to change that culture and
penetrate the smokeless cigarette into this culture.

9
 List of Competitors
Brand Name Nature Brands Product
Benson Smoke Cigarette
Marlboro Smoke Cigarette
L&M Smoke Cigarette
Dunhill Smoke Cigarette
Gold Leaf Smoke Cigarette

Fire Break Nicotine Chewing

Gum
Fe.rO Pipe

BACCRAT Cigar

10
 SWOT ANALYSIS
“Elegant Vs. Competitors”
Strengths
 Monopoly in the Market.
 No direct competitor.
 80% less side effects.
 Cheapest as it can be.
 Premium Quality.
 No area restrictions.
 No 2nd hand smoke.
 Environment Friendly.
Opportunities
 New undiscovered Market,
“absolute advantage”. (being the
1st one advantage)
 More profit and higher market
share. (estimate)
 More chances of growth.
 No Govt. Tobacco Tax
 Advertisement on TV.
Weakness
 Less awareness.
 Initial stage.
 Distribution channel setup.
(Less outlets)
 Taste not like cigarette.
 Less production.
 Limited Market Segmentation.
 Confusion as a medical product.
Threats
 Indirect competitor, i.e., the
cigarette (huge Market)
 High taxes.
 Unstable City conditions
(political and economical)
 Difficult to switch a cigarette
user. (loyal)
 Bad attitude of society towards
narcotic.
 Nicotine chewing gum, a
healthier alternative.
11
 Analytical SWOT analysis*

Smokeless Nicotine
Key Factors Weighting Cigarette
S. no. Cigarette Chewing gum

1. Distribution (popularity) 10 5 10 2

2. Target Market
10 8 10 5
(segmentation)

3. Health 10 9 2 10

4. Revolutionary (Life
10 10 7 6
Changing)

5. Cost 10 10 9 8

6. Environment Friendly. 10 10 4 8

7. Advertisement 10 10 2 10

8. Taste 10 6 10 2

9. Culture (adaptability) 10 7 8 3

10. Loyalty 10 8 10 4

Totals 100 83 72 58

∗ We have done a SWOT analysis in an Innovative form; the different factors that
might attract or repel customers are discussed and further are analyzed regarding
the product Elegant and its competitors.
∗ We came up with a fruitful result that our product would do well in the market
after proper marketing and promotional activities.

12
 Target market analysis
Our potential customers will be male smokers (25-55) and female smokers (20-40)
which are comparatively less but can increase our sales reasonably as they will tend to a
more health conscious cigarette. Since the place is Karachi which contain dozens of
marketing and sales opportunities for us, allocating Elegant to our desired marketing
spots in Karachi will be very important. Our product is in introduction stage, we would
be looking for place where thousands of people will see Elegant daily such as big
retailers like and well known busy markets.

Malls Markets
Macro Bhadurabad
D-Mart Tariq road
Aghas Hadri Market
Naheed Super Market Zamzama Market
Imtiaz Stores Hasan Square

Geographic:
Pakistan’s urban metro city Karachi where Elegant will be introduced and available.
Karachi is having amalgamation of different social classes and lifestyles, our target are
consumers from upper middle, middle and lower middle class. The density of population
in our desired areas in Karachi is urban. The climate is not cold, but also not severe hot,
and people like cigarettes here, size of the city is above 16,000,000 The value added
aspect which gives us edge on smoke-cigarettes is that Elegant’s consumer will not feel
guilty anywhere, and can consume it any time as it don’t have that bothering smell and
smoke, a gentle man ready to join a meeting can use it just five minutes before meeting,
even it could be used in a gathering of friends, moreover one can use it on public non-
Smoking places also. Thus it’s suitable and strongly attracts professionals, students and
sociable people who want cigarette but no guilt. For those people of upper and middle
classes of Karachi we have chosen areas like Gulistan, Gulshan, Defence, and North
Nazimabad with upper class urban density.

Country Pakistan
City Karachi
City size 16,000,000
Density Urban
Climate Hot

13
Demographics:
Our targets are males ranging from 25 to 55 years and females 20 to 40 years. As females
are more sensitive to their health therefore our plan is to attract them by Elegant’s smoke-
less feature. That’s why females which have a comparatively less ratio of cigarette usage
in Pakistan are also included as our target. There is not much consideration to family size,
but our Target Customer will be more from males having families, as they are more
conscious to their health. From upper to middle class, Elegant’s consumers are likely to
have income from 20,000 and above. Elegant have considered to improving self-image,
which is convincingly present in educated people belonging to upper and middle classes.
About religion and races our consumers can be from any, it also have room to attract non-
smokers who are worried just because of injurious smoke. The targeted generation is
generation Y and nationality can be any.

Age 20-45
Gender Male, Female
Family size ---
Family Life cycle Married (preferred)
Occupation Professionals, students, managers, officials, operatives
Education College and above
Religion ---
Race ---
Generation Generation Y
Nationality ---
Income (Rs.) 20,000 and above

Psychographic:
Elegant’s consumer will be from upper middle, middle and lower middle class. Life style
of our product consumer should be achievers. We have designed our product to be
suitable for authoritative and sociable personalities. The advantage we have on our
competitors is our fine image and product with care, quality and convenience, the social
class we have targeted take into account their looks, personality, lifestyle, character and
self-importance realistically when they buy and seek utility from a product. Considering
this behavior towards product, we have shaped ‘Elegant’ as a product which ultimately
provides a functional and self-expressive benefit.

Social class Upper middle, middle and lower middle

Lifestyle Avant-garde and Achievers
Personality Authoritative, sociable.

14
Behavioral:
Our product will be for regular users, it is shaped according to desire of an individual
which arises in timely manner. Benefits of Elegant which gave it edge on smoke-
cigarettes are quality and convenience, as a person not need to repel an odor after using
which bothers smokers in other cases often, as well as 2nd hand smoke problem is also
solved here as Elegant does not expel any smoke which can bother neighboring person
We want our customers to be loyal and positive with us, so as our product image appeals
to them. The ‘smoke less’ features of Elegant promises to capture positive attitude of not
only actual consumers but of their neighboring also, which shows that people will be
informed soon and loyalty will be strong.

Occasions Through out

Benefits Quality, convenience
User status Regular user or Loyal
User rates Heavy user
Loyalty status Strong
Readiness stage Informed
Attitude towards product Positive

15
 Promotion
Promotion basically involves disseminating information about a product, product line,
brand, or company. It is one of the four key aspects of the marketing mix. So, the
promotion of Elegant will be divided in sub-parts that are: -

1) Above the line promotion

2) Below the line promotion

First we will implement the:

1. Above the line promotion: - The tools that we are going to use to promote our
brand “Elegant” are: -

i. Audio / Video Media: Because it will cover the wide range of target audience as
Televisions can be found at every home. The TV channels that we will aim for
promotion are the news channel such Geo News, ARY one world, Dawn News etc as
well the entertainment channels such as Geo TV, Hum TV, Indus vision, ARY digital,
HBO etc because they will cover our target market that is from age 28-50. So, in this
way the awareness about Elegant will be created in the minds of consumers.

ii. Print Media: This will be our second tool that we will employ to promote Elegant. In
the print media we have the option of newspapers where we can place an add of our
brand to create awareness among the consumers and our target Market. The
newspapers in which we will advertise will be Dawn, Jung Akhbar, and The news
Secondly; we will advertise Elegant in different magazines in order to create wide
promotional campaign of our brand. The magazines in which we will advertise our
brand will be Herald, News line, spider, the Cricketer, the Economist, Financial times,
and cosmopolitan.

iii. Internet: The internet will also be a very good to tool to advertise Elegant because
lots of people are having an access to the internet these days. The sites in which we
can promote our brand will be Pakistani entertainment sites, news sites and sports
sites and the international sites as well. Therefore, in this way our brand will get much
more awareness in the minds of consumers.

iv. Billboards: The billboards are even a better option for promoting a brand as we all
normally can see lots of billboards across Karachi. We can place different print
Advertisement of Elegant on billboards in various parts of the city, so that consumers
are going to have a look on them and they will get to know about our brand.

All the tools that we have mentioned in the above line promotion will be enforced when
we are going to pay the advertisement agencies to place our ads in these tools that we
have mentioned. We will contact various advertising agencies like Art Techniques, Brand
COM, Innovative Communications etc, and check out the costs, benefits, features for
each of the advertising agency and select any one best within them which will satisfy our

16
 needs that we will be looking for an advertising agency. We will try to run both
informative and persuasive advertisements for our brand so that it will satisfy the needs
of consumers as far as their need for advertisement is concerned.

Then comes the other form of promotion which will be implemented is:

1. Below the line promotion: The tools that we are going to use in this form of
promotion after our brand Elegant will be well-established in the market are:

i. Sponsorship: We will sponsor our brand Elegant in various events whether it be any
music event, sports event, or any other event that will take place in the country. In this
way our brand will gain much more popularity that will help to enhance even higher
image in the market which will be beneficial for us as more consumers will be
attracted towards Elegant.

ii. Public Relation: In this scenario, we can have seminars, workshops arranged in
various universities, colleges, hotels etc so that we can create more awareness about
our brand and inform them about its features, benefits etc. We can tell them about its
positive features such as they are environment friendly, not containing any hazardous
substance etc which will not only commercialize our brand in the market but will also
enforce a good image in the minds of consumers.

iii. Sales Promotion: After achieving a good market share, we will use sales
promotion to further penetrate our product. There are various forms of sales
promotion techniques through which we can promote our products for e.g.

- Price deal in which we can temporarily reduce the price of our brand to create
more demand.
- Free Coupons that are widely used in sales promotions.
- Lucky Draws, Special Offers are all the types of sales promotion techniques that
we can use after our brand Elegant has been established in the market which helps
to reinforce the image of a brand amongst the target market.

So, these are they ways through which we will promote our brand through below the line
promotion as it will give us an opportunity to have a publicity about our brand with the
help of these tools so that the our consumers will be constantly reminded about our brand
no matter how much it gets old and how well it gets established in the cigarette industry.

17
 Distribution
For a value delivery network Elegant will manage the whole community of suppliers,
resellers, and complementary who must work effectively together to make life easier for
Elegant’s customers.
Our criteria are not limited to building relationships with customers but also with key
suppliers and resellers in the company’s supply chain. Naturally there are no such up
stream partners for us as we are importing the product, so our focus is on down stream
partners like wholesalers and retailers.
Our aim is to deliver superior value to customers by managing our supply chain.
After the Elegant leaves our door, the dealers takeover. They are out there making sure
that when the product is delivered, it’s in the condition it’s supposed to be in. We design
distribution channels to make Elegant available to customers in different ways, as Elegant
is going to be launched in Karachi we will be designing the most convenient channel for
distribution.

The channel levels

The channel level basically, are the layers of marketing intermediaries that will be
performing work to bring the product and it’s ownership closer to buyers that will be
involving different middlemen, wholesalers and suppliers that will be delivering elegant
at the each corner of targeted areas like- Makro, D-mart, Mumtaz and well known busy
markets like Traiq Road, Hedri market, Zamzama. The channel levels are as follows

 Direct Marketing Channel

 Indirect Marketing Channel

Indirect Channel:-
We prefer the indirect marketing channel for distributing Elegant it suits to the kind of
product that we are offering in market of Karachi, indirect market channel has
intermediaries these intermediaries can be used to gain results from their greater
efficiency in making goods available to target markets like- Traiq Road, Hedri market,
Zamzama. The intermediaries perform it through their contacts, experience,
specialization and scale of operation. The use of intermediaries is beneficial for us and
the consumer no doubt.

The indirect channel can provide economies it saves time because we will be only
concerned with the intermediaries not with customers; the intermediaries will meet the
demand of the population of Karachi specially, the target consumers from upper middle,
middle and lower middle class.

18
Direct Marketing Channel is not Suitable:-
Our product is of such nature that it can’t be distributed directly to consumer that’s why
this direct marketing channel will not be suitable for Elegant because it has no
intermediary level (suppliers and resellers), means it will be sold directly to consumers
due to which Elegant can’t manage value delivery network. The direct marketing channel
can not reduce the number of channel transaction because it has no distributor it deals
directly to consumers

Factors of Distribution:-
The factor that helps to finalize the process of distribution is physical distribution

The physical distribution:-

Physical distribution refers to transporting or making the product available to the
intermediaries and distributors, the choice of transportation carries will be affecting our
product price, delivery performance, and the condition of goods when they arrive in the
hands final consumers all will affect customer satisfaction, we will choose the best mode
for distribution that is trucks, that’s why we have decided to contract with different
carriages that will distribute Elegant to retailers or at the most convenient places as it may
reach easily to our final users.

Stores and Markets

Malls Markets
Makro Bhadurabad
D-Mart Tariq road
Pak Towers Hadri Market
Naheed Super Market Zamzama Market
Aghas Hasan Square
Forum (ebco) Do Talwar (Two Talwar)
Millennium Mall CSD Market
Dolmen Mall Delton Mall
Shaaz Super Market Boat Baisin
Imtiaz Super Stores P.E.C.H.S Block 6 Market
Times Medico Defence Market
Hotels and Clubs
Hotels Clubs
Pearl Continental Creek Club
Marriot Karachi gym Khana
Sheraton Sindh Club
Avari Karachi Club
Carlton Marina Club
Beach Luxury DHA Golf Club
Mehran Hotel DHA Club
Grand Mercure Beach View

19
 Pricing
As per the target Market, the price at which a pack of Elegant (containing 24 cigarettes)
would be available for PKR 150/-, the cigarette would be individually available at a cost
of PKR 8/-. The product would not have Dynamic pricing, fixed prices would be allotted
all over the city.

Fixed Cost analysis

As Elegant is a product that is being produced in Pakistan, Elegant would have a higher
fixed cost because of the added machinery costs and the Factory cost.

Current Cost Analysis

Elegant used raw material to be produced as a final product, there are different raw
material as direct current cost and Over head charges as indirect current cost.

Over
Yearly head Expenses
Costing Fixed (Cost Yearly
in PKR)
Factor Cost Units / Year Cost Production per unit Unit per Per pack
Cost / Cost/
numbers Units cost Pack cost
Years to Cost/ year unit Units / Pack(PK
Front Line 84000 35 2940000 2400000 1.23 23 28.175
Fixed Asset Total Cost Depreciate PKR Units (PKR) pack R)
Wage(PKR 7000
Donglong
Monthly) J -
160 Plastic
Supervisor 180000 10 1800000 2400000 0.75 24 18
Molding
Wage(PKR 15000
Machine 5000000 20 250000 2400000 0.10 24 2.5
Monthly)
Donglong F -
Electricity Expenses 100000 12 1000000 2400000 0.50 24 12
1820p
Installment of Loan
Cigarette Filler 255000 2400000 0.11 24 2.55
/Total
FilterOver Head
attach 364000
12000000 30 6195000
400000 2400000 2.48
0.17 24 58.1754
HP high Def
jet DJ - 2600
(Production
line) 1500000 10 150000 2400000 0.06 24 1.5

Building 18000000 50 360000 2400000 0.15 24 3.6

Total Fixed
Cost 800000 0.33 8

Yearly Costing Direct Cost (Cost in PKR)

PKR Cost per Per unit Cost per
per Units to year Number Cost Units per Box
Raw Material unit be bought (PKR) of Units (PKR) Pack (PKR)
Tobacco Dark Air Cured
(P Virginia (DAC). (PBT) 24 24000 576000 2400000 0.24 24 5.76
Plastic Sheets (610 x
610mm) (500/sheet) 20 4800 96000 2400000 0.04 24 0.96
filters synthetic cotton
Fiber (Plastechnique) 0.2 2400000 480000 2400000 0.20 24 4.8
Packaging 100000
(Plastechnique) 5 100000 500000 pks - 1 5
Printing on Cigarette 0.15 2400000 360000 2400000 0.15 24 3.6

20
Total Variable Cost 2012000 0.63 20.12

Total Cost
Total cost is basically the cost of a production including all of its fixed and Direct Current
cost. The costing will not include the over head expenses as they will go to the income
statement as then deducted over there. As we can see that the total reduction cost of a
Pack of Elegant is only PKR 36.46 but the mater of fact is when over head expenses is
added to the cost leaving it some what above PKR. 80. So to be on the safer hand we
have priced our product for PKR 150.

Calculation of Total Cost of Product (Value in PKR)

Per unit
Total per year (2400000 Pcs) Per Pack Cost (24 Pcs) Cost
Variable Fixed Total Variable Fixed Total Total
Factors Cost Cost Cost Cost Cost Cost Cost
Tobacco Nicotine 576000 576000 6 6 0.25
Plastic Sheets 96000 96000 0.96 0.96 0.04
Filters 480000 480000 4 4 0.17
Packaging 500000 500000 5 5 0.00
Printing 360000 360000 6 6 0.25
Plastic Molding Machine 250000 250000 2.5 2.5 0.10
Cigarette Filler and Filter
Attacher Machine 400000 400000 5 5 0.21
Production Line Printer 150000 150000 2 2 0.08
Building 360000 360000 3 3 1.08
Total Cost 2012000 1160000 3172000 21.96 12.5 34.46 2.19

21
General pricing Approach
The pricing approach we will be adopting is Cost-Based Pricing, also known as Cost
Leadership in Management and Absolute Advantage in Economics and Finance. We will
place our price as our main objective and priority because of the following reasons

• Being First one in the market advantage.

• Target market “Middle, Upper Middle and Upper Class”.
• A health oriented product
• An environmental friendly product.
• High Government Taxes in the Market.
• Increasing Variable cost.
• Economic and Political instability.
• No government restriction of narcotics and Smoking Cigarette.

Break Even Analysis

We presently are selling at a quantity which is tremendously higher then the break even
point so to capture and create demand in the Market, as well as to attain the First movers
Advantage. Afterwards, we will increase the production and sales even more.

800000 = 7000 units per year.

150-22.12

Final Costing
Estimated
Yearly Per Pack Per Unit
Factors Total Cost Total Cost Total Cost
Tobacco Nicotine 576000 6 0.25
Plastic Sheets 96000 0.96 0.04
Filters 480000 4 0.17
Packaging 500000 5 0.00
Printing 360000 6 0.25
Plastic Molding Machine 250000 2.5 0.10
Cigarette Filler and Filter Attaching Machine 400000 5 0.21
Production Line Printer 150000 2 0.08
Building 360000 3 1.08
Labor 2700000 22.5 0.94
Utility and Electricity 1000000 10 0.41
Total Cost 7540000 68.96* 3.54*

∗ So one pack of Cigarette costs us exactly PKR 69.96, where as one cigarette costs
us PKR 3.54.

22
 Profit and Loss Statement
Estimated

Profit and Loss Statements

2008
PKR
Net Sales 19,200,000.00
Cost of goods sold 3,172,000.00
Gross Profit 16,028,000.00

Administrative Expences 2,250,000.00

Promotional Activities 3,540,000.00
Electricity Expences 1,000,000.00
Packaging 500,000.00
Total Expences 7,290,000.00

Profit Before Interest and Taxation 8,738,000.00

Interest Expence 255,000.00
Profit Before Interest and Taxation 8,483,000.00
Provision for taxation (40%) 3,393,200.00
Profit after taxation 5,089,800.00

23
 Balance Sheet
Estimated

BALANCE SHEET
As at June 30, 2008
2008
PKR
Assets
Non Current Assets
Office Building 15,000,000
Donglong J - 160 Plastic Molding 5,000,000
Donglong F - 1820p Filling and Filter 12,000,000
HP high Def jet DJ - 2600 (product print) 1,500,000

Current Assets
Tobacco Dark Air Cured (P Virginia (DAC). (PBT) 576,000
Plastic Sheets (610 x 610mm) (500/sheet) 96,000
filters synthetic cotton Fiber (Plastechnique) 480,000
Packaging (Plastechnique) 700,000
Printing on Cigarette 360,000
Cash and Bank Balances 1,000,000

Total Assets 35,560,000

Liabilities
Current Liabilities
Short term Loan for Operating Activities 2,712,000
Interest Payable 500,000

Non - Current Liabilities

Long term loan for Financing Activities 10,000,000

Share owners Equity

Share Capital 10,000,000
Capital Reserve 7,758,200
Net Profit 5,089,800

Total Equity 35,560,000

24