Assessing the Sales Impact of Plain Packaging Regulation for Cigarettes: Evidence from Australia

We assess the introduction of cigarette plain packaging in Australia, finding a 7.5% sales decline and changes across quality segments. We assess the impact of legislation mandating the plain packaging of cigarettes in 2012 in Australia on both primary and secondary demand. We first examine the caus...

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Bibliographic Details
Published in:Marketing science (Providence, R.I.) R.I.), 2020-01, Vol.39 (1), p.234-252
Main Authors: Bonfrer, André, Chintagunta, Pradeep K., Roberts, John H., Corkindale, David
Format: Article
Language:English
Subjects:
Brands
Change agents
cigarette smoking
Cigarettes
Demand
difference in differences
Differentiation
error correction models
Excise taxes
Health authorities
Legislation
Package design
Packaging
plain packaging
Prices
Public policy
Sales
Taxation
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Summary:We assess the introduction of cigarette plain packaging in Australia, finding a 7.5% sales decline and changes across quality segments. We assess the impact of legislation mandating the plain packaging of cigarettes in 2012 in Australia on both primary and secondary demand. We first examine the causal impact of the legislation at the cigarette category level by comparing the changes in sales before and after legislation with the corresponding changes in sales in a comparable market, New Zealand, where the plain packaging mandate (PPM) was not imposed. Our results suggest a decline in sales due to the PPM of around 67 million units (sticks) per month, representing around 7.5% of the market. Our results on the mechanism using brand-level sales data from Australia suggest reduced differentiation after the PPM, with higher price sensitivity. Premium and mainstream brands’ price sensitivities are most affected after the PPM, but we also find channel-specific differences, with grocery (convenience) channels showing an increase (a decline) in post-PPM short-term price sensitivity. Because the government has some control over price through excise taxes, understanding changes in price sensitivities provides guidance to health authorities on the relative impacts of price- and non-price-related policy on cigarettes sales. We also explore other public policy implications of our results, such as the expected reduction in sales per month we might see in New Zealand due to their instituting a PPM.
ISSN:0732-2399
1526-548X
DOI:10.1287/mksc.2019.1164