Tobacco industry pricing strategies in response to excise tax policies: a systematic review

Abstract

ObjectiveTo explore what is known about the tobacco industry’s (TI) price-based responses to tobacco excise tax policies and whether these vary by country income group using a systematic review.Data sourcesStudies assessing TI pricing tactics were identified via searches of five online databases using a combination of search keywords.Study selectionInclusion criteria were applied by two reviewers independently who screened all search results (titles and abstracts) for possible inclusion. They identified 37 publications that reported TI pricing tactics.Data extractionStudy details were tabulated, and information was extracted on the country income group, population characteristics, excise tax structure, and pricing strategies.Data synthesisOf the 37 publications identified, 22 were conducted in high-income countries, while 15 covered low-income and middle-income countries (LMICs). Major pricing strategies employed were: differentially shifting taxes between products (35 studies); launching new brands/products as pathways for downtrading (six studies), product promotions and different prices for the same products for different customers (six studies); price smoothing (two studies); and changing product attributes such as length/size of cigarettes or production processes (three studies).ConclusionsWhile there is limited evidence to fully ascertain industry responses to tax increases, this review suggests that the TI widely uses a multitude of sophisticated pricing strategies across different settings around the world with the intention of undermining tax policies, thereby increasing tobacco consumption and maximising their profits. There is a need for further research in this area especially in LMICs so that effective policy responses can be developed.

Follow the money: a closer look at US tobacco industry marketing expenditures

“…In addition, the analysis is for the USA, but similar tendencies might be expected in other countries. Price discounting has been observed in various countries86–90 and in the UK before the government banned discounting 20 23 91. The WHO Framework Convention on Tobacco Control includes ‘Enforcing Bans On Tobacco Advertising, Promotion And Sponsorship’.…”

Understanding the long-term policy influence strategies of the tobacco industry: two contemporary case studies

“…5 6 TTCs were initially able to maintain and even increase profits by exploiting their market power and overshifting taxes such that their price increases more than offset the decline in cigarette sales volumes. 6 However, more recently, continued tax increases and implementation of tobacco control measures appear to have precipitated a tipping point where declining sales are no longer offset by overshifting, and profitability is falling. 16 110 111 This fundamental, existential threat for TTCs has driven: aggressive responses to prevent rises in tobacco taxes around the world; involvement in tobacco smuggling as a means of tax avoidance (discussed in Case Study 2); undermining the impact of tax increases on consumption and prevalence 111 112 and heavy investment in 'product innovation' in HTPs and e-cigarettes.…”

“…1 2 This is particularly timely given that, responding to the success of tobacco control activities, transnational tobacco companies (TTCs) are redoubling their aggression and remain a crucial barrier to further progress (box 1). [3][4][5][6] Perhaps as a result, declines in smoking prevalence appear to be stalling and most countries have not had sufficient decreases to offset population growth, 7 resulting in all-time high of 1.1 billion smokers in 2019, over three-quarters of whom live in low-income and middle-income countries. 5 7 Great advances have been made in understanding the TTCs' short-term reactive corporate political activity to prevent, delay or divert tobacco control policies, 8 with the accumulation of thousands of case studies enabling a sophisticated understanding of these tactics.…”

Where to next for countries with high tobacco taxes? The potential for greater control of tobacco pricing through licensing regulation

“…Essentially, the major issue is that the industry retains the ability to make sure that smokers do not have to feel the impact of higher tobacco taxes. 25 If governments were to take more direct control of tobacco prices, they could both ensure that tax increases always trigger price increases that provide clear price signals to consumers, while potentially also addressing the problem of price-based market segmentation and price dispersion that are so fundamentally undermining tax policy worldwide. [26][27][28][29] In the accompanying piece, commentators Ribisi et al 30 propose one model for consideration-the imposition of minimum prices in conjunction with high taxes and bans on price-related promotion such as coupons and free gifts.…”

“…However, they would not eliminate or even reduce them substantially. Essentially, the major issue is that the industry retains the ability to make sure that smokers do not have to feel the impact of higher tobacco taxes 25. If governments were to take more direct control of tobacco prices, they could both ensure that tax increases always trigger price increases that provide clear price signals to consumers, while potentially also addressing the problem of price-based market segmentation and price dispersion that are so fundamentally undermining tax policy worldwide 26–29…”