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A number of recent events have drawn attention to the likelihood that pricing and promotional strategies at the point of sale will become even more important to tobacco companies as a way of marketing their products in the United States and may well be used as a strategy to undermine the effects of state tobacco control programmes.
In the wake of the master settlement agreement, tobacco companies announced a US$0.45 increase in November 1998 in the price of a pack of cigarettes, a rise of nearly 20% on the average price of a premium brand. Based on this rise, per capita tobacco consumption was predicted to fall, but due to promotional discounting practices used by the tobacco companies, it is unclear to what extent the price rise had an effect. Within a few days, special discounts were announced that cut the price of many leading brands by $0.45 per pack. In the early part of this year, Marlboro, Virginia Slims, and some other brands were still discounted in many communities by $0.35 per pack and some remained so as late as June 1999.
After a nationwide ban on outdoor billboard tobacco advertising took effect in April 1999, and with growing resistance from newspapers and magazines to carrying tobacco advertising, point-of-sale advertising and promotions have assumed a greater share of the spotlight. This spotlight has grown even brighter with the injunction sought by RJ Reynolds, Lorillard, and Brown and Williamson against Philip Morris to stop the company using its “Retail Leaders” marketing campaign. The injunction argues that the Philip Morris programme, which offers sizeable discounts to store owners who prominently display Marlboro and other Philip Morris brands, violates federal and state antitrust laws. Rolf Provan, director of trade and strategy for Brown and Williamson, testified in a preliminary hearing in Greensboro, North Carolina, that store placement has grown crucial now that the industry agreed to curtail advertising as part of its $206 billion settlement with the states.
Monitoring the changing in-store advertising and promotional environment over time is one of the issues being tracked by the Impacteen project, funded by the Robert Wood Johnson Foundation. The project, based at the University of Illinois at Chicago, will relate these types of promotions and pricing strategies to tobacco control efforts around the country, and eventually, to measures of teenage tobacco use. Preliminary analyses undertaken of in-store promotions (providing a gift with purchase of a pack of cigarettes) suggest that these types of promotions are indeed more likely in states with state-funded tobacco control programmes. Early analysis of the tobacco industry documents, along with these developments, provides further evidence that promotional discounts, coupons, and other price-related strategies are far from some sort of random process, but are rather part of a deliberate strategy to offset the impact of tax increases and strong tobacco control efforts.
All articles written by David Simpson unless otherwise attributed. Ideas and items for News Analysis should be sent to David Simpson at the address given on the inside front cover.