Tobacco industry strategies undermine government tax policy: evidence from commercial data

Abstract

ObjectiveTaxation equitably reduces smoking, the leading cause of health inequalities. The tobacco industry (TI) can, however, undermine the public health gains realised from tobacco taxation through its pricing strategies. This study aims to examine contemporary TI pricing strategies in the UK and implications for tobacco tax policy.DesignReview of commercial literature and longitudinal analysis of tobacco sales and price data.SettingA high-income country with comprehensive tobacco control policies and high tobacco taxes (UK).Participants2009 to 2015 Nielsen Scantrak electronic point of sale systems data.Main outcome measuresTobacco segmentation; monthly prices, sales volumes of and net revenue from roll-your-own (RYO) and factory-made (FM) cigarettes by segment; use of price-marking and pack sizes.ResultsThe literature review and sales data concurred that both RYO and FM cigarettes were segmented by price. Despite regular tax increases, average real prices for the cheapest FM and RYO segments remained steady from 2013 while volumes grew. Low prices were maintained through reductions in the size of packs and price-marking. Each year, at the point the budget is implemented, the TI drops its revenue by up to 18 pence per pack, absorbing the tax increases (undershifting). Undershifting is most marked for the cheapest segments.ConclusionsThe TI currently uses a variety of strategies to keep tobacco cheap. The implementation of standardised packaging will prevent small pack sizes and price-marking but further changes in tax policy are needed to minimise the TI’s attempts to prevent sudden price increases.

Keeping smoking affordable in higher tax environments via smoking thinner roll-your-own cigarettes: Findings from the International Tobacco Control Four Country Survey 2006–15

“…The observed practice of reducing tobacco weights by about 2% per year will have offset, to some extent, any annual tax increases designed to make tobacco less affordable. In the UK for instance, annual tax increases on RYO have been about 2% above inflation since March 2009, with significantly bigger increases only taking place in March 2011 and 2012 (Hiscock et al, 2017). This implies the action of smokers has ensured that the real cost of smoking a RYO cigarette will not have changed significantly during this time.…”

“…Recent research has revealed that the tobacco industry is now segmenting RYO alongside FM cigarettes(Hiscock et al, 2017), which simultaneously allows them to maximise profits with more expensive brands and offer affordable tobacco to the most price conscience smokers. This also allows them to vary the extent to which they pass on higher tobacco duty.…”

“…Price conscious smokers faced with increasingly costly tobacco can down-trade (i.e. switch) to relatively cheap RYO cigarettes, and/or adjust how they smoke RYO, instead of quitting(Hiscock et al, 2017; Partos et al, 2017; Ross et al, 2011). Indeed such behaviour will likely increase smoking-related socio-economic disparities since disadvantaged smokers, and those living in particular geographic areas have greater levels of RYO use(Gallus et al, 2014; Licht et al, 2011; Young et al, 2012).…”

Does size matter? Rethinking the tobacco pack

“…Some jurisdictions also mandate minimum pack quantities for other tobacco products, such as cigars and cigarillos (eg, Canada, Singapore, and New York City). These policies are sometimes combined with minimum price regulations to ensure that larger pack sizes command a consistently higher retail price and are not offset, for example, by tobacco company price discounts 2. The goal of minimum pack quantity regulations is to reduce the availability of cheap tobacco to youth and other price-sensitive consumers.…”

Keeping tobacco cheap: how tobacco companies undermine government tax measures

“…As Hiscock and colleagues demonstrate in this issue,2 even when tobacco taxes are increased regularly, tobacco companies cleverly undermine them using a variety of strategies. These include introducing cheaper products, changes in pack sizes, price-marking and undershifting, where companies absorb at least temporarily the difference in price so that consumers experience little to no change when taxes increase (and thus are less likely to try to quit as a result of the tax increase).…”