The regulatory environment is changing based on a society that is more health conscious, advocating for the preservation of life. Increasing of taxes on products such as tobacco, alcohol and now sugar-sweetened beverages are a result of increased lobbying from non-profit organisations who are pushing governments to penalise consumers, in order to protect themselves from themselves, by making it relatively unaffordable to purchase these products.
By increasing taxes, it is assumed that the consumers will use less of the good based on a higher pricing point. The fewer units that are consumed, the less strain on your body and ultimately the longer you live.
Raised taxes also benefit the taxman because, from a human nature standpoint, it takes a lot of willpower to kick a habit, let alone reduce your utility threshold. We live in an increasingly stressful world and the products we are told to consume less and less of, sometimes provide the temporary relief we need to get by. A rather controversial but true state of affairs based on our daily trials and tribulations.
In as much as I am all for the preservation of life, I’d like to think about this situation from an executive’s standpoint. If I were an executive working at a sugar-sweetened beverages company, a good starting point would be to understand how much the taxes would increase the unit price of my produced commodities. A next step would be to speak to my economics department to inquire whether the increase in taxes can be fully passed on to the customer without impacting our demand targets.
Based on this information, I suppose the next step would be to review how a drop in demand would impact the firm’s output, profitability and continuity. An example that comes to mind is an announcement made by British American Tobacco (BAT) who mentioned that they’re considering closing down their SA cigarette plant based on impending bans of branded tobacco packaging. The company has already laid of 750 people over the last two years based on increasing pressure from the regulatory environment and growth of the illegal cigarettes market.
So coming back to my executive’s dilemma. After determining that an increase in taxes could have an effect on demand, I would turn to my marketing function to ensure whether we’re able to plug the demand gap through targeted and effective marketing.
So as an example, if our tone and messaging have indirectly communicated that consuming our beverages (replacing this with sugar for emphasis) is good for your wellbeing and spirit; this may need to change
based on the new regulations. Now I am not saying that we completely abandon the existing messaging but under my stewardship as an executive, I must also remember the organisation’s social operating license and citizenship responsibility. From this perspective, my company needs to come off as proactive, as opposed to reactive, when it comes to the impending regulation changes.
For instance, within the alcohol industry, advice on drinking responsibly and age restrictions are now commonplace from the firms that produce and distribute these beverages. So, as a sweetened beverages supplier, I’d review my branding strategy to develop a refined approach to position our brand and take on the market without having an affect on our vision and values, yet enhancing a responsible approach to serving our existing and potential clients. I’d also ensure that the reviewed strategy enables us to remain authentic as we respond to the changing regulatory narrative within the marketplace.
The reviewed strategy should also be translated into tactics that we can employ from a marketing and advertising standpoint to remain relevant, despite an altered consumer perspective on the merits / demerits of our marketed goods. The new tactics should also be built on us interfacing with our clients more, to find how best to serve them responsibly, sustaining a client-supplier relationship of mutual benefit and one that is able to last the longest of times.