Price related marketing strategies of tobacco products in New Zealand
New Zealand’s recent increase in tobacco excise tax1 for public health purposes has
been undermined by price-related marketing activities at point-of-sale. There was an
increase in sales of cheap cigarette brands as well as the promotion of cheap
variants of leading brands after the tax and GST rise in 2010. These price-related
promotions mean an increased affordability of tobacco products and this deters the
goal of tax increase of reducing tobacco consumption.
Tobacco companies recognise the importance of price-related promotion. David
Crow, managing director of BAT Australasia, threatened that BAT would flood the
Australian market with cheap cigarettes if the plain packaging bill would pass. He
said, “When you look at the four Ps (product, price, place and promotion), pricing’s
the big one and that’s the only one we have left. We will end up fighting on price.”
ITNZ has released special $10 packs of their Horizon brand that coincided with the
tobacco tax increase. The packs prominently featured the price as part of the pack
imagery.
BATNZ also released two new but cheaper variants of their Holiday brand after the
GST hike in October 2010. Holiday ‘Extra’ was observed at point-of-sale a week
before the Holiday ‘Escape’ was launched. Both products were identical in their pack
design and both cost 60 cents per stick. The only difference is their names (Figure 3).
These two variants demonstrate how the tobacco industry test markets with discount
prices and new fonts and names to not only recruit new customers but also retain
existing ones.
BAT Group’s Annual Report noted a profit increase in the New Zealand market. One
reason was due to the strong growth in share by the Pall Mall brand. The sale
volumes of Pall Mall have increased by 28.8 per cent in 2010 on the previous year.
Pall Mall Baseline was also released as a budget variant on the standard Pall Mall in
the NZ market.
Two value-added variants of the Horizon brand have appeared since 2009. The subbrands ‘21’ and ‘31’ were printed on the packets. The retail prices for the two
products were slightly lower than standard ‘20’ and ‘30’ packs (Figure 3).
The sales volume of budget brands has also increased markedly between 2009 and
2010. The sales volume of BATNZ’s Freedom brand has doubled from 50 million
sticks in 2009 to 100 million sticks in 2010.
1
In April 2010, the New Zealand Government increase tobacco tax by 24 per cent on loose leave
tobacco products and 10% on factory made cigarettes. There was a further increase in tobacco excise
tax by 10% on 1 January 2011 and again by 10% on 1 January 2012. The Government also increased
GST to 15% from 12.5% in October 2010.
Similar trends were observed for ITNZ’s brand JPS where its sale quantity has
rapidly increased from 46 million sticks in 2009 to 132 million sticks in 2010.
According Imperial Tobacco’s Annual Report, the market share of ITNZ grew from
18.3 per cent in 2009 to 18.5 per cent in 2010. The growth was ‘driven by JPS’, the
‘regional value-for money’ brand.
The Freedom and JPS brands comprised of 4.5 per cent and 6.9 per cent of the New
Zealand market respectively.
Figure 1: Price-related promotion – popular brand and their cheaper variants
Horizon (Imperial Tobacco)
Horizon 20 Mellow
Date of purchase: April 2010
Purchase price: $10.30
Horizon 21 King Size
Date of purchase: July 2010
Purchase price: $11.30
The ‘21’ pack creates the
perception that the customer is
getting more value for money.
Holiday (British American Tobacco)
Holiday Red Limited
Edition (20)
Date of purchase:
March 2010
Purchase price:
$10.30
Pall Mall
Holiday Extra Limited Edition
(20)
Date of purchase:
3 Nov 2010
Purchase price:
$10.70
Holiday Escape Limited
Edition (20)
Date of purchase:
8 Nov 2010
Purchase price: $10.70
Pall Mall Red (26)
Date of purchase: 2008.
Current price $15.70
Pall Mall Baseline Limited Edition (30)
Date of purchase: 1 October 2010
Purchased price: $15.00