Short answer

Designers and strategists in regulated industries must anticipate how their product design and pricing decisions can be used to circumvent or mitigate the impact of public policy.

Field: Innovation & Markets
Source: Tobacco Control (2017)
Method: Mixed-methods: Literature review and longitudinal analysis of commercial sales data.
Sample: 2009-2015 Nielsen Scantrak electronic point of sale systems data
Evidence: Strong effect

The tobacco industry actively employs pricing and packaging strategies to counteract the intended public health benefits of government tax policies. This innovation & markets research insight is drawn from a 2017 study published in Tobacco Control. Using Mixed-methods: literature review and longitudinal analysis of commercial sales data. with 2009-2015 Nielsen Scantrak electronic point of sale systems data, researchers explored how this design variable affects real-world outcomes. The key design takeaway: Designers and strategists in regulated industries must anticipate how their product design and pricing decisions can be used to circumvent or mitigate the impact of public policy.

Study

Innovation & MarketsHigh ImpactStrong effect

Tobacco Industry Undermines Tax Policy Through Strategic Pricing and Packaging

The tobacco industry actively employs pricing and packaging strategies to counteract the intended public health benefits of government tax policies.

Tobacco Control · 2017

Key Findings

01Both roll-your-own (RYO) and factory-made (FM) cigarettes are segmented by price.
02Despite regular tax increases, average real prices for the cheapest FM and RYO segments remained steady from 2013 to 2015, with growing sales volumes.
03The industry maintained low prices by reducing pack sizes and using price-marking.
04The industry 'undershifted' tax increases, absorbing up to 18 pence per pack in lost revenue, particularly in the cheapest segments.

Application

Design takeaway

Designers and strategists in regulated industries must anticipate how their product design and pricing decisions can be used to circumvent or mitigate the impact of public policy.

How to apply

When designing products in regulated markets, consider how competitors might use product features (size, packaging) and pricing tiers to undermine policy objectives.

Project actions

01When analyzing a product's market position, consider how its physical attributes (size, materials) and pricing strategy might be influenced by or react to external regulations.
02Think about the 'unintended consequences' of design choices in the context of broader market forces and policies.

Method & Evidence

AimTo investigate contemporary tobacco industry pricing and packaging strategies in the UK and their implications for tobacco tax policy effectiveness.

MethodMixed-methods: Literature review and longitudinal analysis of commercial sales data.

ProcedureA review of commercial literature was conducted alongside a longitudinal analysis of electronic point-of-sale data (Nielsen Scantrak) from 2009 to 2015. This involved examining tobacco segmentation, monthly prices, sales volumes, net revenue for different cigarette types, and the use of price-marking and pack sizes.

Sample2009-2015 Nielsen Scantrak electronic point of sale systems data

ContextHigh-income country with comprehensive tobacco control policies and high tobacco taxes (UK).

Variables

IVGovernment tax policy, industry pricing strategies, packaging size, price marking.

DVTobacco sales volume, net revenue, average real prices.

CVTime period (2009-2015), geographical market (UK), type of tobacco product (RYO, FM cigarettes).

Strengths & Limitations

Strengths

+Utilizes real-world commercial sales data, providing strong external validity.
+Longitudinal analysis allows for tracking of industry responses over time.

Limitations

The data is specific to the UK tobacco market and may not be directly transferable to other product categories or countries without further investigation.

Reliability & validity

The use of comprehensive sales data from a reputable source (Nielsen) enhances reliability. The focus on a single market and product category might limit generalizability, affecting external validity.

Think critically

To what extent can product design be considered a form of 'regulatory arbitrage' or strategic maneuvering in response to policy?

Design Principles

"Anticipate and counter-strategize against regulatory circumvention through product and market design."

Understanding how industries adapt to regulatory changes is crucial for effective policy design. This research highlights that simply increasing taxes may not be sufficient if companies can strategically adjust product offerings and pricing to maintain affordability for consumers.

What This Means for Your Design

Companies can be clever about how they sell things, even when the government tries to make them more expensive. They might make their products smaller or offer cheaper versions to keep customers buying, even after a tax increase.

How to use in your project

1.Use this study to justify investigating how product design choices (e.g., packaging size, material) can be used to influence market behavior in response to external factors like taxes or regulations.

Add to My Project

Quick Cite

Paragraph starter

The tobacco industry's response to tax policy, as evidenced by strategic pricing and packaging adjustments, demonstrates how product design can be leveraged to mitigate regulatory impacts. This highlights the importance of considering the interplay between product attributes, market dynamics, and policy objectives in any design project.

Source

Tobacco Control

Tobacco industry strategies undermine government tax policy: evidence from commercial data

journal · 2017

View source

Questions About This Research

What does the research say about tobacco industry undermines tax policy through strategic pricing and packaging?: Designers and strategists in regulated industries must anticipate how their product design and pricing decisions can be used to circumvent or mitigate the impact of public policy. Evidence: Tobacco Control (2017).
Why does "Tobacco Industry Undermines Tax Policy Through Strategic Pricing and Packaging" matter for design?: Understanding how industries adapt to regulatory changes is crucial for effective policy design. This research highlights that simply increasing taxes may not be sufficient if companies can strategically adjust product offerings and pricing to maintain affordability for consumers.
How can designers apply this research?: Designers and strategists in regulated industries must anticipate how their product design and pricing decisions can be used to circumvent or mitigate the impact of public policy.
What were the main findings?: Both roll-your-own (RYO) and factory-made (FM) cigarettes are segmented by price.. Despite regular tax increases, average real prices for the cheapest FM and RYO segments remained steady from 2013 to 2015, with growing sales volumes.. The industry maintained low prices by reducing pack sizes and using price-marking.. The industry 'undershifted' tax increases, absorbing up to 18 pence per pack in lost revenue, particularly in the cheapest segments.
What research method was used?: Mixed-methods: Literature review and longitudinal analysis of commercial sales data. with 2009-2015 Nielsen Scantrak electronic point of sale systems data.
How strong is the evidence?: Evidence strength is rated Strong effect, based on a 2017 journal from Tobacco Control.
What should I do differently in my next project?: When designing products in regulated markets, consider how competitors might use product features (size, packaging) and pricing tiers to undermine policy objectives.
What are the limitations?: The study focuses on a specific high-income country (UK) and a defined time period (2009-2015). Industry strategies may evolve and differ in other markets.