Philip Morris International is the first tobacco giant suing the Australian government over strict new branding restrictions, which it believes will cost it billions in the region, the Wall Street Journal reports.
British American Tobacco and Imperial Tobacco Group are expected follow.
Why? Because their billion-dollar brands, like Marlboro and Parliament, will be crushed.
Australia’s regulations, set to take effect in December 2012, require cigarette manufacturers to use a standard font, uniform text position, and the same greenish-brown packaging (which research showed to be the least appealing to consumers).
Essentially, tobacco companies will be unable to distinguish themselves. And that has the tobacco giants worried. Cigarettes can separate themselves from competing products in three ways: by brand, by shape (long, short, etc.), and by general flavour (light, menthol, etc.). But within the confines of a given style or flavour, brand becomes the most valuable distinguishing factor among otherwise like products.
Earlier this year, shortly before legislation made its way to Australian Parliament, a Philip Morris spokesperson told AdWeek the measures “would essentially amount to a confiscation of our brand in Australia.”
And that could very well be disastrous for the company. A November 2010 report by economic consultants in the U.K., commissioned by Philip Morris, says that “package is the most important method of branding still available” after a widespread crackdown on traditional advertising.
Researchers at a New Zealand university who conducted focus groups with 66 young adults, both smokers and non-smokers, found that branded tobacco packaging by itself inspired their associations with given products.
The U.K. report, which specifically focuses on the impact plain cigarette packaging could have there, substantiates Philip Morris’ bottom-line worries. It suggests a branding ban like Australia’s would trigger an overall price reduction between 4.4% and 16.1%, because no-name discount brands could more easily compete. After all, they wouldn’t have a highly recognisable brand (like Marlboro, for instance) to overcome.
With a move toward hard-line bans like the one in Australia, one that will disallow in-store cigarette displays in the U.K., and the Worcester, Mass., ordinance that prohibits any tobacco advertisement visible from the street, tobacco manufacturers will eventually have to look outside branded packaging and find another way to set themselves apart.
NOW WATCH: Ideas videos
Business Insider Emails & Alerts
Site highlights each day to your inbox.