The jury's out: Will plain packaging stop smoking?

A new study found that this alone would not be enough to reduce the consumption of tobacco products and it would have a significant impact on law enforcement and taxes.

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As part of his MBA at University of Stellenbosch Business School, Helvin Manuel investigated the potential impact of non-branded packaging on the purchasing behaviour and product experience of cigarette consumers, drawing on additional learning from Australia - the first in the world to implement such a strategy from December 2012.

Direct impact on profit margins

With the legal size of the South African market estimated to be more than 20bn cigarette sticks, valued in excess of R30bn, the possibility of this new legislation is a concern to the local tobacco industry as it could potentially have a direct impact on profit margins.

“Since the amendment to the Tobacco Product Control Act implemented in 1999 banned all advertising, packaging has become an important part of marketing with significant investments to differentiate between brands in different segments, to increase brand equity and perceived quality and to serve as an advertising tool,” Manuel explains.

Marketing and price

According to the Cancer Association of South Africa: “Plain packaging restricts the use of logos, colours, brand images and promotional information. Other countries that have implemented plain packaging are UK, Northern Ireland and France, which all passed laws to that effect as from May 2016. Tobacco consumption in Australia decreased by 13% during the three years after plain packaging was introduced.”

Yet Manual says his research showed there was indeed an increase in consumption in the Australia where there was a decline in price. “Since all brand equity had been removed from the cigarette packaging and without product differentiation, tobacco manufacturers can’t charge a premium for their various products. Some consumers indicated that they did not get the same value from their brands and felt that the prices of cigarettes should be standardised across the board. This could potentially increase the demand and usage of cigarettes, mirroring what happened in the Australian market.”

Manuel also found that the value-for-money consumer approved more of the plain packs. “The taste of the cigarettes and the price of the packs are more important than the image of the brand.”

Potential increase in illicit trade

Manuel says that although governments have good intentions with the implementation of plain tobacco packaging, there are certain unintended consequences that have to be taken into account when such legislation is drafted.

“Plain tobacco packaging will make counterfeiting of original products easier and pose a challenge for law enforcement. This illicit trade could also lead to governments losing money from possible taxes that could have been received from the legal tobacco industry. A study conducted by KPMG in 2013 in Australia found that the increase in illicit products since the implementation of plain tobacco packaging has resulted in a loss of R12bn in taxes.”

Positive impact on first-time smokers

Manuel does point out that non-branded packs are seen as less attractive and "un-cool", which could potentially deter younger people from taking up smoking in the first place.

“Smokers are emotional in their behaviour and brand choices. Many took up smoking due to peer pressure, the perceived social acceptance and the status the brand equity of premium cigarettes portrayed. My study found that the psychological impact of the non-branded packs led to some consumers experiencing a change in the taste and performance of the cigarettes, although the product itself had not changed. This will have a direct impact on new consumers considering taking up smoking.”

Research study

Manuel’s simulation study of 22 South African smokers, who each had to smoke their brand in plain white packs for a period of five days, found that the longer consumers interacted with the plain tobacco packaging, the more familiar they became with the packs and that seemed to lessen the initial negative perceptions. Some even indicated that they might use cigarette holders, which could potentially offer some form of branding opportunities for tobacco manufacturers.

The participants in the research study all started smoking between the ages of 12 and 21 years with well over 80% starting while at school. They had to complete a daily online journal, expressing their interaction with the plain packs over the five days by way of pre-set questionnaires prepared by Manuel and a live online forum on completion.