In order to plan effective tobacco control policies we must first understand how the tobacco industry thrives and this blog illustrates just how this can be done.
Using freely available material, we explored how the global tobacco market has changed in the past 20 years, how transnational tobacco companies (TTCs) are responding and what the implications are for global tobacco control.
The information was obtained from:
- investor relations’ materials
- press coverage
- company annual reports
- financial analyst and market research reports
- TTCs private documents made public as a result of US litigation in the late 1990s.
What did we find?
- Despite declining sales in developed markets, industry profits continue to rise with the value of global cigarette sales rising by 84 per cent in the past decade.
- TTCs use two methods of growth:
- A new market approach whereby TTCs enter new markets, and market heavily, selling large volumes cigarettes very cheaply to push up consumption with little concern about profit
- A value-maximising approach typical of more established markets where marketing is used to encourage consumers to pay a premium for their cigarettes thereby allowing TTCs to increase their profit margins on each pack of cigarettes sold and to compensate for declining sales via increased profitability per pack.
- Given the existing marketing restrictions in place in many markets, product and packaging innovation which is still largely unrestricted, is now key to the industry’s value-maximising approach. This involves products such as superslim cigarettes marketed towards women and capsule filters which allow the smoker to change their smoking experience with ‘bursts’ of menthol or other flavours. Packaging innovations involving limited edition packs, new opening mechanisms (glide packs) and structural design variations (such as rounded edge packs) are also used. In 2010 British American Tobacco claimed that over 10% of sales came from product innovation.
- Increased profits from the value-maximising approach help subsidise the TTCs entry into new (often low-income) markets to increase volumes.
- In addition to increasing industry profits, innovations may convey a misleading message of reduced risk to consumers. This is of particular concern because young people are the most likely to be attracted by innovative products.
- Due to gradually increasing global regulation and the fact that, following the industry’s already successful global expansion, opportunities for volume growth in new markets are now limited, the future of TTCs is now largely dependent on pushing up value rather than volume. Product and pack innovation will therefore, until regulated, continue to play a large role.
- Despite the industry’s emphasis being on premium brand sales, at the other end of the market, low price segments are also important. These appear to play a key role in preventing price sensitive smokers from quitting. This also provides a route into smoking given the price sensitivity of children.
What could be done?
- In emerging markets, the prevention of marketing and implementation of appropriate tobacco excise policies to prevent the sale of cheap cigarettes would decrease the marketing power of the industry and thereby the number of people who take up the habit.
- Prohibiting the introduction of new tobacco products or brand variants would close the industry’s main marketing tactic in countries where tobacco advertising is otherwise restricted.
- A price cap for industry profits whereby profits beyond a certain value are deferred to the government.
- Large intermittent tax increases which make it difficult for TTCs to put up prices on premium brands behind predictable tax increases.
- Getting corporate social responsibility recognised as a political activity rather than an altruistic practice.
- Getting the public health community to engage with retailers in the same way at the tobacco industry does so that they are more informed of both sides of the argument.
In summary, much can be gleaned about the activity of large company’s by analysing their internal documents and investor documents. This information can be used to understand how an industry operates in order to inform the most effective public health policies. Most of these materials are available for any industry and a similar examination can help people better understand other public health policy areas such as alcohol or food policy.
This research was published in the anniversary edition of Tobacco Control in early 2012 .
Gilmore, A. B. (2012) Understanding the vector in order to plan effective tobacco control policies: An analysis of contemporary tobacco industry materials. Tobacco Control, 21, 119-126.