Effect of Plain Packaging on the Cigarette Market Demand and Supply in Australia Research Paper

Plain Packaging on the Cigarette Market Demand and Supply in Australia

The Australian cigarette market is reported to be a "subset of the global industry." (Carter, 2003) There are three companies operating in Australia including: (1) British American Tobacco Australia (BATA); (2) Philip Morris International (Australia) PMA and (3) Imperial Tobacco Australia (ITA) all whom are wholly owned subsidiaries of their overseas parent. While the Australian tobacco market is a mature market with per capita consumption in decline the tobacco companies "remain highly profitable entities and business is strong…the equivalent of 1100 packs of 25 cigarettes are sold in Australia every minute." (Carter, 2003) Because the tobacco companies are owned by overseas companies, none of them are listed on the Australian Stock Exchange and that means that the information available on the specific local company operations is limited.

Australian Cigarette Brand Examined

Carter (2003) examines brand identity in Australian cigarette brands, brand positioning, brand image and brand equity. Results from the study report that cigarette manufacturers benefit from their competitors brand equity as well as their own. Australian smokers are viewed by the industry as less brand loyal and more strongly oriented to low tar cigarettes. There are three categories of successful Australian brands: (1) premium; (2) mainstream; and (3) supervalue. Premium cigarettes are 'quality' while mainstream is a "fair go" for ordinary Australians with Supervalue being "value for money." (Carter, 2003) Brand equity has been undermined in Australia by tobacco control activities. (Carter, 2003, paraphrased) In 1976 Federal Australian, law made the majority of forms of tobacco marketing illegal and this was strengthened in the 1992 Federal Tobacco Advertising Prohibition (TAP) Act.

It is reported that the Australian cigarette market is "far simpler than the complex matrix of brands available internationally." (Carter, 2003) In supermarkets, it is reported that ten brands account for approximately 95% of the volume. (Carter, 2003, paraphrased)

II. Impact of Plain Packaging on Tobacco Consumption and Prices

Padilla (2010) examines the impact of plain packaging on tobacco consumption and prices in Australia and states that plain packaging serves to "remove an important method by which cigarettes suppliers can distinguish their brands. Given current restrictions on advertising, packaging is perhaps the most important, if not the only, method of branding still available. Plain packaging will therefore significantly reduce, if not eliminate, the role of brands." Padilla states that two types of goods are distinguished by economists: (1) homogenous products, where the product of a supplier is the same to those of any other supplier; and (2) differentiated products which are products that consumers are not viewed as the same as products of other suppliers. (2010) Economic theory is stated to show that "when products are homogenous the main way to producers to compete is one price, and all products will tend to sell for the same price. However, when products are differentiated price competition is reduced and prices will vary." (Padilla, 2010) Specifically stated is that suppliers of products that are valued highly by consumers are able to charge prices that are higher for those products. (Padilla, 2010, paraphrased)

III. Effects to Plain Packaging of Cigarettes

There will be several effects to plain packaging of cigarettes according to Padilla including: (1) product differentiation will be reduced within the cigarette market "thereby increasing price competition and leading to a reduction in prices; (2) market entry for non-branded products will be made easier increasing competition and further reducing prices; (3) it will be easier and cheaper to produce counterfeit cigarettes that.....