Monday, August 15, 2005

Cigarette Advertising and Promotion Expenditures Rise to All-Time High; Anti-Smoking Groups Still Calling for More Money

The Federal Trade Commission (FTC) last week issued its report on cigarette advertising and promotional expenditures for the year 2003. The report revealed that cigarette marketing expenditures rose by 21.5% from 2002 to 2003, reaching a level of $15.2 billion, the highest total ever reported to the FTC. The largest single category of marketing expenditures was price promotions (paid to wholesalers or retailers to allow them to reduce the sale price of cigarettes to consumers), which accounted for 71.4% of expenditures (at $10.8 billion).

When considered together with spending for promotional allowances (which pay retailers to stock and display cigarette brands), coupons, and retail-value-added (e.g. buy two packs, get one free) promotions, it is clear that the overwhelming bulk of cigarette marketing expenditures was related to efforts to encourage retailers to carry and display cigarette brands and to keep the prices of cigarette brands down. These retail or price-related promotions totaled 92.9% of cigarette marketing expenditures for 2003.

Traditional advertising expenditures (i.e., newspaper, magazine, outdoor, and point-of-sale advertising) accounted for just 2.4% of overall marketing spending, although still amounting to $353 million, down from $418 million and 3.4% of all marketing expenditures in 2002.

In response, the Campaign for Tobacco-Free Kids called for passage of the proposed FDA tobacco legislation, which it has claimed will "curtail" cigarette marketing to children, and it continues its call for the DOJ to "strengthen" its case by increasing the proposed smoking cessation remedy from $10 billion to $130 billion.

The Rest of the Story

This report demonstrates the absurdity of the D.C. health groups' (Tobacco-Free Kids, ACS, ALA, and AHA) claims that the FDA legislation is going to curtail the marketing of cigarettes to children and therefore save lives by reducing tobacco use.

The primary lesson that anyone reading this report should receive is that marketing is a multi-dimensional strategy that encompasses a broad spectrum of activities aimed at a variety of outlets. Traditional advertising is just one part of this spectrum. When one aspect of the marketing toolbox is limited, the industry can simply shift its resources into other areas. And since limits on its overall spending cannot be imposed, the industry has almost unlimited potential to devise a marketing strategy that will be successful in promoting its products, including to youths.

There is an intervention that could effectively curtail the industry's ability to market to youths. That intervention is a comprehensive ban on cigarette advertising and promotion. But such a ban would clearly violate the First Amendment, at least as it was interpreted in Lorillard v. Reilly.

Thus, there is simply nothing that FDA could do that is both consistent with the First Amendment and broad enough to effectively curtail cigarette marketing to youths. The D.C. health groups' claim that this legislation will curtail cigarette marketing to kids and therefore reduce smoking and save lives is completely unfounded, and should be rejected outright by public health organizations and practitioners.

But the most unfortunate aspect of this story is not the absurdity of the claims that the major anti-smoking organizations are making. Rather, it is the fact that despite their moaning about the fact that cigarette marketing has reached an all-time high, they have failed to take any serious steps to encourage DOJ to address this marketing in its proposed remedies. Instead, these groups continue to clamor about the irrelevant loss of $120 billion in funds that would never see the light of day anyway.

Rather than putting their focus on the one area where effective DOJ remedies could actually address both the legal issues in the case and the protection of the public's health, the D.C. health groups have chosen instead to whine about the money.

The rest of the story is not just about how the cigarette companies have reached an all-time high in their marketing expenditures. It is about how the major anti-smoking groups are making completely unfounded claims on what the FDA legislation would do to curtail cigarette marketing to kids in their zeal to see something accomplished (see tomorrow's post for more on this mentality).

It is also about how the D.C. health groups are so blinded by the desire for monetary remedies that they themselves fail to see the most appropriate and logical remedy available by which they could address the very problem that they bemoan to no end, if they only could stop for long enough to set aside their sights on the money.

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