BAT’s cigarette sales gimmick backfiresVogue brand cigarettes have become a coveted item in Korea in recent weeks in the aftermath of the New Year tax increase, which saw the cost of a pack of smokes rise by 2,000 won (about $2). Smokers have since been competing to buy foreign cigarettes, which are 1,000 won cheaper than their Korean counterparts. Their popularity is on par with Honey Butter Chips, and they are sold out in most shops.
However, smokers can only benefit from these low prices until the end of the month. British American Tobacco (BAT) will raise the price to 4,000 won next month. One BAT source said that the 3,500 won packs were inventory from last year before the tax increase, and when the stock is sold, new products will be sold at 4,000 won per pack starting next month. By implementing temporary low prices, BAT completely sold its inventory at a fair price while promoting its brand name.
In a capitalist economy, companies have a right to set prices. But smokers are frustrated, and many feel duped by the limited-time offer. In fact, a 3,500 won price cannot be maintained in the current distribution structure, where a 3,318 won tax is imposed on each pack. Considering the margin of profit for retailers, 3,500 won would be a loss.
Nevertheless, BAT Korea CEO Guy Meldrum said last week that super-slim cigarettes are growing more popular here, and the company priced its Vogue series at an affordable level.
But that affected the government’s initiative to pressure smokers to quit by drastically raising the cost all at once. BAT’s move undermined the impact of the cigarette tax increase in Korea, and some smokers have even admitted that they would continue their habit if a pack was sold at 3,500 won - just 1,000 won less than the current price of Korean brand cigarettes.
Seo Hong-gwan, president of the Korean Association on Smoking and Health, is concerned that BAT’s low-price strategy marred the effect of the anti-smoking initiative. In the end, it negatively affects the health of the citizens. BAT must be satisfied that it benefitted so rapidly. But losing the trust of your consumers by obsessing over market share is not a tactic suited for a world-class company. Instead, its sales gimmick would only make smokers feel misled and tricked.
BAT was once the biggest foreign cigarette brand in Korea. But after raising their prices by 200 won in 2011, it lost its top standing to Philip Morris. I may not be only one reminded of the market situation in 2011, which must have been a nightmare for BAT. Still, Korean consumers are smarter than that.
The author is a business news writer
for the JoongAng Ilbo.
JoongAng Ilbo, Jan. 19, Page 29
by SOHN HAE-YONG