Thursday, August 11, 2005

Campaign for Tobacco-Free Kids Argues that Cigarette Price Promotions and Opposition to Cigarette Taxes Prove Industry Wants Kids to Smoke

In a statement issued in response to the Federal Trade Commission's (FTC) recently released report on cigarette advertising and marketing expenditures for the year 2003, the Campaign for Tobacco-Free Kids has argued that the aggressive efforts of cigarette companies to oppose cigarette taxes and their massive expenditures for price promotions that allow sellers to offer cigarettes at lower prices prove that the companies want kids to smoke.

Here is the argument: "The new FTC report shows that 71.4 percent of cigarette marketing in 2003, or $10.81 billion, was spent on price discounts paid to cigarette retailers or wholesalers in order to reduce the price of cigarettes to consumers. An additional $1.3 billion was spent on coupons and free cigarette promotions (e.g., buy one, get one free). These price promotions have served to effectively undercut the many state tobacco excise tax increases that the companies know reduce smoking, especially among kids. ... The fact that the tobacco companies act so aggressively to undermine the public health benefits of cigarette taxes, in addition to their well-financed opposition campaigns against the taxes, shows that they cannot be taken seriously when they say they do not want kids to smoke."

The Rest of the Story

While I agree with the ultimate conclusion that cigarette companies do want kids to smoke (they would be crazy if they didn't - it would be essentially throwing in the towel to their long-term business prospects), I find it a very weak argument to suggest that price discounts and opposition to tax increases prove that the companies want kids to smoke.

What manufacturer of a product would not oppose tax increases on their product, even if the product were sold exclusively to adults?

And what manufacturer would not offer price promotions as an incentive to customers to try to increase sales of their products, even if the products were sold exclusively to adults?

Clearly, the simple fact that a manufacturer opposes tax increases on its products and aggressively offers price promotions for its products does not prove that it is trying to get kids to use its products.

By the Campaign for Tobacco-Free Kids' reasoning, the huge coupon promotion for Depend incontinence products proves that Depend wants kids to use incontinence products.

Note that I'm not arguing that tobacco companies use price promotions solely to increase sales of their products to adult customers. They may well desire to make the products more affordable so that youths will smoke them. But the point is - simply - the fact that companies are offering these promotions in no way proves that they want kids to smoke. The companies would be expected to compete vigorously with each other on price and to collectively oppose higher taxes, even if they truly desired only to sell their products to adults.

Price is in fact one of the primary ways by which tobacco companies compete for the adult market. While youths overall are more price sensitive than adults in terms of cigarette consumption, adults are far more price sensitive in terms of brand choice. Thus, while the entrance of a large number of generic, discount, and deep-discount brands into the market has had little effect on brand choice among kids (they still smoke Marlboro, Camel, and Newport almost exclusively), it has had a large effect on brand choice among adults (where generic and discount brands have started to make significant inroads into the market).

So even if all youth were to stop smoking immediately and no youth was ever to smoke again, cigarette companies would still oppose tobacco taxes and would still use price promotions to promote their brands.

The Campaign's statement closes by suggesting that the FTC report demonstrates the need for passage of the FDA legislation presently before Congress: "Today’s FTC report underscores the need for Congress to enact legislation granting the U.S. Food and Drug Administration (FDA) effective authority to regulate tobacco products, including the authority to restrict marketing that appeals to children. Among other things, this legislation would have given the FDA the authority to restrict tobacco marketing to the extent permitted by the First Amendment, including especially marketing that impacts kids. Until Congress grants the FDA this authority, the tobacco companies will face only minimal restrictions on their ability to engage in marketing that impacts our children."

What the Campaign does not reveal is exactly what marketing restrictions it believes the FDA will promulgate that are permitted by the First Amendment and that will substantially curtail the tobacco companies' ability to market their products to our children. The Supreme Court has already found that even rather minimal regulations, such as prohibiting outdoor advertising near schools and playgrounds, violates the First Amendment. What exactly does the Campiagn have in mind that would pass constitutional muster (and thus would likely have to be more narrow than the proposed Massachusetts restriction on outdoor advertising) yet be broad enough to limit the tobacco companies so severely that they will be no longer able to effectively market their products to kids.

I suspect we'll all be waiting for a long time for the answer to that question.

The rest of the story reveals that the Campaign for Tobacco-Free Kids has again made an absurd argument that flies in the face of basic economics and marketing principles. While in its own right, making such an argument may not carry any public health significance, the fact that this is the organization that ran the show in developing FDA tobacco legislation and is now running the show in promoting this legislation, does have significance.

Because if the Campaign cannot be counted upon to make reasonable, rational, and defensible arguments when it doesn't really matter, what reason do we have to count on them for solid arguments when it does matter?


Bill Godshall said...

The FTC report reveals that advertising expenditures by the five largest cigarette companies increased from $.29/pack in 1998 ($6.73 B / 22.93 B packs) to $.82/pack in 2003 ($15.15 B / 18.38 B packs).

If CTFK truly desired to reduce advertising expenditures by large cigarette companies, it would have urged the US DOJ to request (as remedies in its RICO lawsuit against those companies) effective cigarette marketing and advertising restrictions and large graphic warnings on all cigarette packs, cartons and ads.

These types of remedies are also consistent with the DC Court of Appeals ruling that limited DOJ's remedies to those that prevent future RICO violations, unlike the $130 billion smoking cessation program remedy that CTFK unsuccessfully demanded the DOJ to request.

But it appears that CTFK doesn't desire effective changes in cigarette advertising, marketing and warnings until and unless Congress enacts Philip Morris supported FDA legislation.

And yet, the unsubstantiated allegations and protest against the White House by CTFK, ACS, AHA, ALA and Congressional Democrats(over the DOJ case) has made it even less likely that the FDA legislation will be enacted by the Republican controlled Congress and/or signed by President Bush.

In deploying this two pronged strategy to make cigarette companies pay $130 billion via the DOJ lawsuit, while restricting cigarette advertising and securing larger warnings via the FDA bill, CTFK appears unlikely to attain either of its goals.

That outcome and the DC health group's preoccupation with the FDA legislation during the past year (while the DOJ trial was taking place) may have been a cleverly planned bait and switch tactic by Philip Morris in collaborating with CTFK, Waxman and Kennedy on the FDA bill.

Anonymous said...

Right on Bill -- I think it's pretty clear by now that TFK is the public lobbying face of Philip Morris in Washington. It would be fasncinating to get a look into the PM archives and see just how much they are paying TFK to do their dirty work.