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Plain Cigarette Packaging - emerging unintended consequences from the Australian experiment

In recent years the tobacco control industry has focused on two main objectives, to have smoking banned in all public places, and to change the design of cigarette packs. Regarding the latter, notable successes include the placement of health warnings (universal in the western world), graphic images of diseases caused by smoking (widespread in western countries) and the latest, plain packaging.

Plain packaging means exactly that – the removal of all branding, save for the product name which is printed in a standardized font at the bottom of the pack. So far the only country to have implemented this redesign is Australia.

The theory is simple: branding is widely acknowledged to be a huge driver of consumer spending habits, and removing the branding from cigarettes should reduce the pulling power of cigarettes both to adolescents and existing smokers. I say should because there’s no real-world evidence either way. The Australian initiative is, therefore, a massive ‘naturalistic experiment’, to use psych jargon.

So how is it turning out?

There appears to be little attempt so far to gather any evidence, but an article published by Forest (a UK based tobacco-funded smokers’ rights organization) suggests that things aren’t working out quite as planned.

The author contacted the Association of Australian Convenience Stores (AACS), an organization at the front-line of this policy implementation, and they sent her a transcript of a radio interview with their man, Jeff Rogut. Here’s the killer quote:

“To this point in time, actually, tobacco sales have remained constant and the interesting thing of what's happened with plain packaging is where brands were very important, it's now become very much price-driven. So in some areas we're actually seeing an increase in sales because people are focused more on buying cheaper cigarettes than being worried about a brand per se. So, as I say, quite honestly, at this point in time there's been absolutely no reduction in sales and we don't see any in the immediate future.”

So, after six months of implementation, the plain packaging push hasn’t had the effect of reducing cigarette consumption, according to figures by the AACS, although it might be too early to pick up on the real effect.

An unintended consequence?

However, to me –looking out for the unintended consequences of regulation – there’s a big issue here, which should deeply concerning to tobacco control. In just six short months, the AACS has picked up on a trend of consumers buying cheaper cigarettes in the absence of brand motivations to pay for the higher ones. Now, it’s too early to see what the long-term effect of this will be but it is well known that, despite being inelastic in adults at least, the price of cigarettes is negatively associated with consumption.

Australian cigarette prices appear to be quite variable. This 2013 cigarette RRP list suggests a range of between $11.70 and $17.90 for 20 packs of cigarettes. If we substitute into this research on the elasticity of cigarette prices, we should be able to derive an estimate of the increase in cigarette consumption as consumers move from the more to the less expensive segment of the market.

Firstly, though, the elasticity of cigarette prices varies across populations groups, I will focus on one only: teenagers, since teens are (rightly) the focus of much of tobacco control’s efforts. Taking the average price elasticity of -1.43 for teenagers, the difference between the average quoted retail price ($14.45) and the lowest price ($11.70) is $2.75 – a difference of 19.03%. Accordingly, if the motivation to buy highly branded (and more expensive) product is removed, and adolescents exclusively choose to purchase the cheapest product, we could see an increase in consumption of up to 27%.

Looking at the bigger picture

Now, obviously I’m creating a worst-case scenario here. For instance, we don’t know whether adolescents are currently buying on the basis of brand identity (although knowing teenagers, I’d be surprised if they aren’t) or, indeed, whether removing branding from packages fully removes the branded identity for the product. However, this argument is one I haven’t heard before, and it seems sensible to raise it.

There is another aspect to this story. In the particular case of Australia, it looks as though the above is all academic: there are moves towards ensuring that all cigarette prices go upwards, so it may well be the case that eventually the lowest priced cigarettes are greater than the currently most expensive. But Australia is a unique case in this regard, having a history of some of the toughest tobacco controls in the world, and one of the lowest smoking rates – there are many reasons why this is the case, and certainly aggressive price escalation is one of them.

However, Australia is not the only country considering plain packaging. Ireland is set to follow suit soon, and Thailand is planning on placing warnings over 85% of the surface area of the package. In the absence of commensurate price increases in these and other countries, we may be witnessing a horrible unintended consequence in the making.  

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