Plain packaging just a bump for Big Tobacco

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Another remarkable achievement can be added to the many of this Commonwealth Labor Government: the successful introduction of plain packaging for cigarettes.

This is an important first step, and shows that Australia leads the world on reducing the terrible harm that tobacco products do to people and communities.

However, let’s be under no illusions that packaging is just a small part of the marketing arsenal for Big Tobacco. Tobacco companies have had many years developing sales and marketing strategies that do not rely on advertising and packaging. In fact, even with some of the most restrictive laws of any industry and massive public awareness campaigns reducing incidence of smoking, tobacco companies have actually become more profitable.

Australia’s tobacco sales industry is dominated by three main players: Philip Morris, British American Tobacco and Imperial Tobacco who make up 55% of the total market. Our major super market chains, Woolworths and Coles are the biggest sellers of tobacco (32%) with small convenience stores making up 20%.

Since 1990, smoking rates in Australia have halved, from 30% to 15%. Eight in ten new smokers are aged under eighteen years. 1990 marks the national ban on print media advertising.

The biggest benefit for the major tobacco companies is actually the highly regulated nature of the tobacco market. The massive, growing profits for cigarettes (effectively monopoly profits) are due to the utter lack of competition. Simply put, the concentrated nature of tobacco production and high barriers to entry have created a form of protectionism for Big Tobacco.

As a result, the three big tobacco companies need only concern themselves with improving distribution.

What does this mean? Because of sale bans, Big Tobacco relies on supply chain management. They spend enormous resources on building relationships with the people who can promote and sell their products: supermarkets, petrol stations and convenience stores. They fund retailer industry bodies like the Alliance of Australian Retailers. They have created substantial incentives for those retailers to sell more tobacco. For example, they use promotions and prizes to encourage sales.

The other area where they are spending and succeeding is in “product innovation” — which basically means coming up with new types of cigarettes to sell. New flavours, new filters and the like. This is all window dressing, but taps into a powerful marketing tactic of “new” to spur sales.

Finally, their pricing strategies play an important role in driving profits and sales. This means discounting, and some sophisticated tactics like occasion-based pricing and channel pricing (variable pricing based on where the product is sold).

The plain packaging is an important public policy achievement, but to truly combat these destructive, harmful companies, governments will need to reduce the locations where cigarettes can be sold, set prices, standardise the cigarette sticks and filters, and remove the effective monopoly that Big Tobacco holds.

Addendum: Big Tobacco and cause marketing

In other news, Big Tobacco also does its fair share of “cause marketing” through major donations to charities.

British American Tobacco donates to:

  • Mission Australia
  • Conservation Volunteers Australia
  • Surf Life Saver Rescue Helicopter
  • Lifeline
  • Northcott
  • Guide Dogs NSW/ACT
  • Barnados
  • ACT for Kids
  • Victorian Bushfire Disaster Relief
  • The Liberal Party

Philip Morris donates to:

  • Aussie Helpers
  • Red Cross Appeal
  • Habitat for Humanity SA
  • The Liberal Party

Imperial Tobacco donates to:

  • Freedom from Hunger
  • The Liberal Party

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