[2FIRSTS] Experts Interpretation of the "Complementary and Substitution" from the Guiding Opinions on the Layout and License Management of E-Cigarette Retail Points

Complement and Substitution

 
Complementary and substitution relationships can be distinguished between commodities.

 
Complementary refers to the fact that two commodities jointly satisfy a type of desire, such as mobile phones and internet as they jointly allow users to play mobile games; The substitution relationship indicates that two commodities can be substituted for each other to satisfy the same desire, such as mineral water and purified water, as they can be substituted to quench thirst.

 
There is a simple way to determine whether the relationship between A and B is complementary or alternative: when the price of A changes, the demand for B either shifts in the opposite direction or in the same direction.

 
If the price of good A increases, the demand for good B decreases; or if the price of good A decreases, the demand for good B increases proportionally, then the two are complementary. For example, if the price of gasoline increases to one liter for 100 yuan, sales of fuel-powered vehicles will likely plummet; if a movie ticket costs one yuan, sales of popcorn in front of the theater will increase dramatically. 

If the price of good A rises, the demand for good B will rise; or if the price of good A falls, the demand for good B will fall; then the two can be said to be have a substitution relations. For example, if McDonald's unilaterally increases the price by several times, KFC will likely sell well; Another example is the low-cost taxi activity of Hua Xiaozhu, which reduces the likelihood that passengers will continue to use Didi.

 
According to the above reasoning and the contents of the Guiding Opinions on the Layout and License Management of E-Cigarette Retail Stores, "The reasons for not granting the E-cigarette retail license also includes: the type of business that has no direct or indirect complementary marketing relationship between the main business and the E-cigarette retail business," we can comprehend why all provincial enterprises in the layout planning draft require that "If the business site has already applied for a tobacco monopoly retail license that is still valid, it shall not engage in the retail business of electronic cigarettes"?

 
Consider, if the cost of e-cigarettes for one year is 1 RMB, will this cause cigarette sales to plummet? If smoking of e-cigarettes is set to 100 RMB, will it result in electronic smokers coming back to cigarettes. Not only do e-cigarettes and cigarettes not have the complementary relationship required by the Opinions, they have the opposing relationship! 

The Two do not Complement One Another. Don't Forget That Many E-Cigarette Brands Were Created to "Replace Cigarettes."

Obviously, the relationship between complementary and substitution of commodities is not static; it can change as purchasing power, consumption habits, and other factors change. For instance, if a store introduces a 1 RMB special. It would result in the vast majority of customers ordering only specials, rendering other dishes unsalable; however, the introduction of 1 RMB special in shop B can also significantly increase the sales of other dishes. It is anticipated that one day e-cigarettes will be placed alongside traditional cigarettes on cigarette counters.