Understanding the vector in order to plan effective tobacco control policies: an analysis of contemporary tobacco industry materials

Abstract

Background This paper builds on tobacco document research by analysing contemporary materials to explore how the global tobacco market has changed, how transnational tobacco companies (TTCs) are responding and identify the implications for tobacco control. Methods Analysis of a variety of materials including tobacco company annual reports, investor relations materials, financial analyst reports, market research reports and data. Findings Once China, where TTCs have little market share, is excluded, global cigarette volumes are already declining. Nevertheless, industry profits continue to increase. This pattern is explained by TTCs’ pricing power - their ability to increase prices faster than volumes fall; a consequence of market failure. Pricing power is now fundamental to the TTCs’ long-term future. Consequently, and in light of growing regulations, the TTCs’ business model is changing. Product innovation is now a key marketing technique used to drive consumers to buy more expensive (ie profitable) premium cigarettes. Contrary to established wisdom, high tobacco excise rates, particularly where increases in excise are gradual, can benefit TTCs by enabling price (profit) increases to be disguised. Large intermittent tax increases likely have a greater public health benefit. TTC investments in smokeless appear designed to eliminate competition between smokeless and cigarettes, thereby increasing TTCs’ pricing power while enabling them to harness the rhetoric of harm reduction. Conclusions Monitoring TTCs can inform effective policy development. The TTC’s value maximising approach suggests that a ban on product innovation and more informed tobacco excise policies are needed.

The Power of Product Innovation: Smokers’ Perceptions of Capsule Cigarettes

“…17 It is also consistent with research in the US, with young adult menthol smokers suggesting that capsule cigarettes would attract beginners, 10 and research in Mexico, with adolescents found to be more interested in trying cigarettes with capsules than without them. 9 With innovation fundamental to value growth for tobacco companies and younger people most receptive to such innovation, 18 the capsule segment has been a welcome success story for tobacco companies.…”

Understanding the Influence of Evidence in Public Health Policy: What Can We Learn from the ‘Tobacco Wars’?

“…This is perhaps most obvious with regards tobacco taxation and pricing, which are becoming increasingly important issues for tobacco companies in the UK (Gilmore 2012). For example, whilst virtually all tobacco interests tend prefer low tobacco taxes, and often lobby collectively on this issue , evidence suggests transnational tobacco companies may support tax increases if, for example, they believe this will help them achieve changes to tax structures which competitively favour their brands (Shirane et al 2012).…”

Estimating the ‘consumer surplus’ for branded versus standardised tobacco packaging

“…Although price increases are a powerful policy lever and reduce overall tobacco consumption, tobacco's addictive nature means even excise tax increases fail to stimulate quitting among many smokers 9 10. Furthermore, smokers can mitigate the impact of tax increases by smoking fewer cigarettes or trading down to less expensive brands, thus modest, regular price increases may have reduced impact over time 11.…”

“…Furthermore, smokers can mitigate the impact of tax increases by smoking fewer cigarettes or trading down to less expensive brands, thus modest, regular price increases may have reduced impact over time 11. Excise tax increases also enable tobacco companies to manipulate prices; for example, by increasing the price of premium brands beyond the tax increase to enhance profits and subsidise budget brands 9 12. Evidence that smokers adapt to predictable price increases, while the tobacco industry uses these to enhance profitability, suggests multifaceted tobacco control strategies, including standardised packaging, are required to reduce smoking prevalence.…”