Understanding International Business Led to Potential Solutions

Understanding International Business Led To Potential Solutions

Dustin K Nascimento

University of Redlands

Abstract

Tobacco products come with many issues for developing countries youth and how business strategies are employed. In this assignment, I used my knowledge that I achieved in Professor Elbiali’s class and use it to further my research to come up with a potential solution to this business and economic issue.  

Keywords:  Tobacco, Market Segmentation, Ethics, Price Elasticity, Market Costs

Understanding International Business Led To Potential Solutions

According to the Center for Tobacco Control Research and Education, an estimated 100,000 young people around the world take up smoking every day (2011). From extensive research and documentation worldwide, tobacco use has directly related to negative health effects, even death. Regardless of this information people still decide to consume tobacco. The Center for Tobacco Control Research and Education found that about six million people die prematurely each year from diseases caused by their tobacco use (2010). Numerous public policy initiatives have been directed at reducing cigarette consumption, one of the most widely used methods has been the taxation of tobacco products. Ultimately, with the increasing number of people smoking cigarettes worldwide, tobacco use will lead to premature death, disease, and constrict economic growth. Chaloupka and Tauras (2011) examined the effectiveness of higher cigarette prices in reducing both prevalence and the amount of consumption by those who continue to smoke. To do so, the government would have to put a tax on tobacco products. A government tax on tobacco products, will prevent tobacco consumption from getting any higher and still maintain positive economic growth.

Ethical Issue

To fight against anti-tobacco campaigns, tobacco companies have dramatically increased their marketing strategies. One tobacco company, Malboro, has spent billions of dollars on billboards across the world in order to promote their product. Using celebrities, the idea of individuality, the cool factor, etc, are to portray a positive association to tobacco products and how markets are segmented to fit different countries. While these marketing tactics are all legal, they are still seen as unethical. A spokesperson from Malboro stated that, “Our Marlboro campaign, like all of our marketing and advertising, is aimed exclusively at adult smokers and is conducted in compliance with local regulations and internal marketing policies” (Boseley 2014). With Malboro abiding by regulations, there billboards still pose an ethical threat to the market their ads are affecting the most.

Malboro is directing their marketing program towards a specific group and that group is young people. With anti-tobacco campaigns dramatically growing, tobacco companies know that they must shift their target market towards young people. The target market that used to be focused on adults is becoming an unsuccessful marketing strategy. While, Malboro would maximize their marketing efforts by targeting young people, it is unethical to promote tobacco products to young people.

Price Elasticity of Demand:

To determine if a government tax will successfully reduce consumption depends on the price elasticity of tobacco products. In other words, elasticity assesses the economic dilemma of who bears the burden of a tax. Price elasticity of demand measures the responsiveness of the quantity demand of a product to a change in its price. In 2011, Studies by the International Agency for Research on Cancer has shown that the overall price elasticity of youth smoking is -2.11. Having a high price elasticity of -2.11 for tobacco products, makes youth smokers’ extremely responsive to a price change. Therefore, the quantity demanded for cigarettes will decrease dramatically with a tax placed on tobacco products. Studies by Chaloupka and Tauras have shown that “increasing cigarette prices by 10% would reduce the prevalence of youth smoking by at least 7.4%, while reducing young smokers’ cigarette intake by nearly 14%” (2011). This data validates that tobacco is an elastic product to youth smokers’ because a small price change caused a huge change in quantity demanded. Due to youth smokers’ being extremely responsive to a price change, a tax increase on tobacco products will decrease consumption significantly.