The effect of industry vs government induced cigarette price increase on national cigarette consumption in Taiwan, 2011-2018

Abstract

Objective This study compares the effect of industry vs government induced cigarette price increases on cigarette consumption in Taiwan. Methods Using governmental tax and market survey data, we analyzed the changes in cigarette retail prices, sales volume, and net revenue of the top tobacco companies in Taiwan from 2011 to 2016, when no tax increases occurred. We also examined the same market reactions when the government raised tax in 2017-2018. Results Retail price of cigarette increased from 15 to 20 National Taiwan Dollars (NTD) across different brands by the industry from 2010-2016. Cigarette consumption per one adult (aged 15yrs+) decreased slightly by 5% from 1,781 sticks to 1,687 sticks per year which translated to less than 1% annual decline during this period. On the contrary, the cigarette consumption dropped significantly to 1,406 sticks in 2018, a significant 18.6% declined from 2016 after the government raised tobacco tax by 20 NTD in 2017. Conclusions The low and unchanged taxes environment enabled tobacco companies to use aggressive pricing and segmentation strategies to increase cigarette prices without making them less affordable, while simultaneously also maintaining customers’ loyalty and kept consumption level. On the contrary, the tax-induced price increase was universally applied across all cigarette brands and segments. The national cigarette consumption declining rapidly from 1.72 billion packs in 2016 to 1.41 billion packs in 2018, representing the first significant decline in tobacco consumption since 2010 in Taiwan.

Keywords

• tobacco tax
• pricing strategy
• cigarette consumption