A look inside the tobacco companies to see how they blunt the effects of tax increases

Dorie Apollonio and I just published “Tobacco industry promotions and pricing after tax increases: An analysis of internal industry documents” in Nicotine and Tobacco Research. 

Public health advocates see price increases as a key strategy to reduce tobacco use.  As the title indicates, we studied the tobacco companies’ internal documents to see how they use price promotions and price changes to blunt the effects of tax increases.  Policymakers and advocates need to understand these industry strategies which range from wholesale price changes to buffer the effect of tax increases to shifting where people buy their cigarettes so that they can block these industry strategies to maximize the impact of hard-fought tax increases. 

Here is the abstract:

BACKGROUND:  Increasing tobacco taxes, and through them, prices, is an effective public health strategy to decrease tobacco use. The tobacco industry has developed multiple promotional strategies to undercut these effects; this study assessed promotions directed to wholesalers and retailers and manufacturer price changes that blunt the effects of tax and price increases.

METHODS: We reviewed tobacco industry documents and contemporaneous research literature dated 1987 to 2016 to identify the nature, extent, and effectiveness of tobacco industry promotions and price changes used after state-level tobacco tax increases.

RESULTS:  Tobacco companies have created promotions to reduce the effectiveness of tobacco tax increases by encouraging established users to purchase tobacco in lower-tax jurisdictions and sometimes lowering manufacturer pricing to "undershift" smaller tax increases, so that tobacco prices increased by less than the amount of the tax.

CONCLUSIONS:  Policymakers should address industry efforts to undercut an effective public health intervention through regulating minimum prices, limiting tobacco industry promotions, and by enacting tax increases that are large, immediate, and result in price increases.

IMPLICATIONS: Tobacco companies view excise tax increases on tobacco products as a critical business threat. In order to keep users from quitting or reducing tobacco use in response to tax increases, they have shifted manufacturer pricing and developed specific promotions that encourage customers to shop for lower-taxed products. Health authorities should address tobacco industry efforts to undercut the effects of taxes by regulating prices and promotions and passing large and immediate tax increases.

The full citation is: Apollonio D, Glantz S.  Tobacco industry promotions and pricing after tax increases: An analysis of internal industry documents.  Nicotine & Tobacco Research. 2019: ntz068, https://doi.org/10.1093/ntr/ntz068.  Epub ahead of print 06 May 2019.  It is available here.

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