Firm strategy and consumer behaviour under a complex tobacco tax system: implications for the effectiveness of taxation on tobacco control

Tobacco Industry Promotions and Pricing After Tax Increases: An Analysis of Internal Industry Documents

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. 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.

Analysis of tobacco industry pricing strategies in 23 European Union countries using commercial pricing data

Background

The tobacco industry (TI) can act to undermine the impact of tobacco tax increases by adopting various pricing strategies. Little is known about strategies used across the European Union (EU), except for the UK.

Aim

To examine pricing strategies adopted by the TI in the EU, and whether they differ by cigarette price segment, or between manufactured and roll-your-own (RYO) cigarettes.

Methods

This is a longitudinal analysis of commercial pricing data for manufactured and RYO cigarettes from 23 EU countries in 2006–2017. Price and revenue trends were explored. Linear regression estimated the average annual change in revenue, and linear fixed-effects panel regression models were used to explore the association between changes in median revenue (net of tax and adjusted for inflation) and tax increases in different price segments of manufactured cigarettes.

Results

Over the 11-year period price gaps were observed in all countries. The average annual adjusted median net revenue per pack increased in 19 of 23 countries for manufactured and RYO cigarettes. A tax increase was associated with a significant decrease of −€0.09 in adjusted median net revenue per pack (95% CI −0.16 to −0.03) in the cheap cigarette price segment, while no change was detected in the expensive cigarette price segment (−€0.05, 95% CI −0.11 to 0.01).

Conclusion

Across the EU, pricing strategies adopted by the TI maintained or increased price gaps and retained cheaper tobacco products in the market, diminishing the impact of tobacco tax increases. Further strengthening of tobacco taxation policy is needed to maximise public health impact.