Price Promotions, Retail, and Point-of-Sale Advertising

• Tobacco companies use price promotions such as discounts and multi-pack coupons—which are most often used by African Americans and other minority groups, women, and young people—to increase sales.
• Areas with large racial/ethnic minority populations tend to have more tobacco retailers located within them, which contributes to greater tobacco advertising exposure.
• Menthol products are given more shelf space in retail outlets within African American and other minority neighborhoods.

Retrieved from: the Centers for Disease Control and Prevention https://www.cdc.gov/tobacco/disparities/african-americans/index.htm

Overview of Tobacco Industry Price Discounting

Retrieved from: https://www.publichealthlawcenter.org/sites/default/files/resources/tclc-guide-policy-approaches-pricing-cppw-2013.pdf From the Tobacco Control Legal Consortium

The tobacco industry manipulates the prices of its products by applying price discounting strategies at the point of sale (generally any place at which a consumer accesses tobacco products). These strategies can include discount coupons, multi-pack offers, and undisclosed payments and rebates to wholesalers and retailers. Through these pricing strategies, the industry seeks to offset price increases caused by tobacco tax increases and keep their products affordable and attractive to all of its customers, but especially to younger smokers who are typically the most price-sensitive consumers. In 1998, the industry and forty-six states entered into the Master Settlement Agreement (“MSA”), which resulted in financial payments to each state for tobacco-related health costs as well as a prohibition of certain types of tobacco marketing initiatives.

As a result of the MSA, the industry substantially shifted its marking and promotional strategies to the point-of-sale environment because this area was left largely unregulated by the MSA’s prohibitions on advertising and marketing. Tobacco industry spending on price-related marketing at the point of sale has increased substantially over the past fifteen years. Although tobacco industry promotional spending at the point of sale has decreased since its peak in 2003, “per pack promotional spending remains more than doubled since the MSA, with cigarette marketing increasingly dominated by spending on price-reducing promotions.”

Tobacco companies spend more money on price discounts than on any other form of tobacco promotion. According to the Federal Trade Commission, in 2008, the industry spent approximately $7.17 billion on incentive payments to cigarette retailers and wholesalers to reduce the price of cigarettes to consumers (these payments are often referred to as buy-downs and off-invoice discounts). In addition, tobacco companies spent approximately $360 million on coupons,3 and approximately $732.8 million on retail value-added promotions (such as buyone-get-one free offers). In sum, the tobacco industry spent more than $8.25 billion in 2008 on strategies to reduce the price of its products at the point of sale, and this accounted for more than 80% of the industry’s overall marketing expenditures.

Not only does the industry spend a vast amount of money on price-discounting strategies, it carefully targets its price promotions in certain geographic areas and at select demographic groups. Tobacco industry documents show that the industry has used direct mail coupons, point of sale coupons, and “buy some get some” promotions to target their marketing geographically, by brand or by user profile. In particular, the industry has used coupons in an effort to counteract the decrease in smoking rates predicted to result from local, state and federal excise tax increases. Discount coupons and multi-pack offers have also been calibrated to target certain groups of tobacco users, particularly those that are most price-sensitive, which can contribute to health inequities. For example, discount and multi-pack coupons have been found to be “particularly appealing” to women, youth, and minorities.

The industry’s focus on price discounting at the point of sale is particularly problematic because evidence suggests that youth and young adult smokers are especially susceptible to advertising and price promotion in the retail environment. Research indicates that the use of promotional offers has generally been the highest and has generated the greatest impact when directed at the Policy Approaches to Restricting Tobacco Product Coupons and Retail Value-Added Promotions / 3 most price-sensitive demographic—the youngest smokers. Indeed, the U.S. Surgeon General has concluded: “The industry’s extensive use of price-reducing promotions has led to higher rates of tobacco use among young people than would have occurred in the absence of these promotions.”