SWM - Mark Moore

market. Also, there are negative stigmas that go along with smokeless tobacco that affectpurchasing decisions.Relative Price and PerformanceAn important factor when considering substitution is if the quality remains as rivalsbegin to compete on the basis of cost. Often times, there is a correlation between losses ofquality with lowered prices. If a tobacco company were to choose to substitute premiumtobacco paper with the previously used paper, the price difference would only be roughly onecent per cigarette of savings. With the large amount of government regulations, tobacco papercustomers may be willing to pay a little more for the premium paper quality. Firms in thetobacco paper industry have strict restrictions placed on their products (inadvertently, ofcourse). “Certain properties of cigarette paper, such as control of ignition propensity, basisweight, porosity, opacity, tensile strength, texture and burn rate must be controlled to tighttolerances”(SWM 10K).The tobacco industry could also choose to increase their production of smokelesstobacco, and decrease the amount of cigarettes. It is much cheaper to manufacture smokelesstobacco than it is to manufacture cigarettes. However, because the majority of tobacco userssmoke cigarettes, it would be impractical for a tobacco firm to do this.ConclusionIn industries that rely heavily on research and development, the likelihood ofsubstitution is low. It is more likely that they will switch to a company within the industry.Bargaining Power of CustomersWhen considering the bargaining power of buyers, one must ask, “how large of aninfluence do the customers have over prices?” The control over bargaining power dependshighly on the number of customers in the industry. When there are fewer buyers in the market36